Stiglitz, Roubini and the Post-Pandemic Future of Capitalism

like to share with you. It wasn't in their basic analysis of what was happening, because they both saw a lot of the same worrying global trends, and they both thought that many of them were likely to be exacerbated by the COVID crisis. The difference laying whether they thought there was anything anyone, any government, any of us might be able to do to put us on a better course. I talked first to new Real Rabini, professor of economics at New York University, and then it was Nobel Prize

winning economist professor Joe Stigletts of Columbia University. It was all part of Bloomberg's Global invest Conference, which this year was held virtually over several days and multiple time zones. I'll let you hear for yourself, which of those two was more upbeat about our capacity to change our fate. Let's just say you won't be surprised to hear Rubini's nickname is Dr Do. In the third quarter of this year, there's going to be a recovery after a very severe

session in the first and the second court. So for a quarter or two he may look like a v sha recovery. But the way I different from consensus is that consensus believes that by next year the recovery is going to continue, that growth is going to be something like six percent in the United States, three times as much potential, while I see the recovery being strong on in the third quarter and phazically out by the fourth quarter and and becoming very unemic by the next year.

And the main reason is not just the fact we're gonna have a second or third wave, but if you think about it, after the global financial crisis, firms that were firing workers and they reire them in a way that was different from the past. Not formal jobs, not full time jobs with good wages and good salaries and benefits, but big workers, part time workers, hourly workers, freelancers, contractors, this time around, we have shared already something like between

twenty and thirty million jobs. And when the readings don't occur, that type of precarious job is going to become the norm. Most firms are highly leverage. They have to survive and thrive by cutting costs and saving more. How they're gonna do it by reducing labor costs and first firing people and then rehiring them in a more flexible way. The trouble is that what's my labor cost is somebody else's

labor income. And as the corporate sector deleverages by spending less, saving or and doing less capacs, then there'll be a more unemic recovery of labor income because there is more precarious jobs, will be a very large unemployment rate. And even the households have to be more cautious. They have to be more riscoverse. Uss households have less than four hundred dollars of liquid cash in the case of an emergency, that be more risk, aversion that implies less spending, more saving,

less capital spending less with retential investment. And that's why the RECOVID is going to become like a you the thing that people are pricing in expectation for acovery of growth and learning that are totally not consistent with the fact that a COVID of the economy is going to

be a you rather than a be. Just to push back a bit on on some of that you what you've described, one way of putting it would be that there is a system that came into this that had flaws, many of which have inspired have inspired populism, rising inequality, and you believe that the response to the crisis will

be exact acerbate those things. And that's that's certainly what many people are forecasting, that we're going to see a further further inequality and a further damaging of employment rights and labor income, which will ultimately in it kind of marks this way seeds that sows the seeds of its

own destruction. But there is a view that says, you know what, this has been a wake up call, this crisis, and even the people who doubted before that you need major reform to make this a more inclusive world are now going to realize they have to do something different. Do you give any credence to that, whether in the US or anywhere else, that actually you could have a reset coming out of this that helps to slow down or even reverse some of those trends that you're talking about.

Many firms right now are either bankrupt on the verge of bankruptcy. They have to do and take action to try to survive. And what are the actions that have have

been taken United States? We last in the United State in the last few months, many more jobs that we created in the last decade, depending on how you measure, they've had between twenty and thirty million people have lost their jobs, and the corporate sector first fires them, and then when they're gonna be rehiving them, they're gonna do what they've done after the global financial crisis and gig workers, contractors,

partime workers, hourly workers, freelancers. That's the reality. I don't see a radical change in the United States in terms of economic policy. Yes, if Trump were to be losing the election, that's and if and if by them were to becoming to power, maybe economic policy are gonna becoming slightly more progressive. But there are major forces, including also technology. The digital dis option is going to imply that over the next few years there will be many more jobs.

They are being destroyed, not just by globalization, trade, or migration, but by technological innovation that is capital intensive, skilled buyers, and labor saving, there's gonna be is wrapting millions of other jobs, for example, moral commation, more robotics. The fact that's going to be reopened North America not gonna be

full of workers, gonna be full of robots. So unless there is a very radical change in economic policies, the trend of globalization, of technology, of the weakness of labor, of unions, and so on, imply that labor is weak, capital is mobile, and the entire system has been essentially one where income has been going on from the workers to capitalists, from wages to profits, and from those who spend more to those who save more. And I'm not sure that these major trends are going to be reversed

anytime soon. Just moving on to the death piece of your of your analysis, I think there's there's been a view, perhaps unspoken, those who have a more optimistic view of the next five to ten years looking and investing the markets on the basis of it that we're either going to have more of the same coming out of this,

namely very low inflation, low interest rates. But with that the affordability of this much higher debt stock corporate and public debt around the world, or we might get inflation and that might cause them bumps down the road, but in the met it will at least make that debt easier to grow out from underneath. Your view is actually that that's that's just too optimistic that you can have the inflation without really resolving the debt issue. Is that right? Well,

mynew is that certain? In the short run, I agree that there are more deflationary rather than inflationary pressures. There is a massive slack in goods markets, in labor markets, in real estate, in energy, and commodities. So this year, next year there will be low flationary and deflationary pressures. But what I'm pointing out is there were two major forces that kept inflation on law for the last decade. One was globalization, and now we're in a process of diglobalization.

And the second one was major technological innovation that we're also increasing productivity reducing costs. And right now we're gonna have a digital wall being built between US and China, and we're gonna have two separate AIS, two separate internet to separate five g's two separate telecom system and so

on and so on. And for example, we may for strategic reason not want to use the Y Way five G, but the Y five gs thirty percent cheaper than the one of Nokia and Rickson and twenty and more productive. So you're gonna install a five G network, there's going to be not hy way, it's gonna be fifty more expensive than before. That's a negative supply shock. So both

technology and diglobalization imply negative supply shocks. Now, last time around, when we had negative supply shots and we had easy money, easy fiscal in the seventies with the two add sharks of seventy three and seventy nine, when they that with inflation, stagnation, recession and inflation. So either this that become unsustainable, or if we're gonna try to wipe them out within inflation,

then we're gonna have a trap of stagflation. Historically, people who have best against integration have tended to be wrong. Many people would say, looking at the trends we've had over the last few years, even if globalization slows down, it can't it's not going to reverse and it could still continue to cause bring enormous benefits that particularly perhaps developing countries and countries across Asia especially. So what is it about now that you think is different from the

other times we're declared the end of integration. I'm not predicting for the time being a hot war between US and China. I think that given the symmetry of power conventional and conventional between US and China, that's unlikely. But we're seeing every day an escalation of this cold work, and that's already leading to a process of the globalization, and it's not just the globalization on trade, but most

importantly on technology. And today those five G networks are running our phones, but tomorrow they're gonna be running our system of saying how Connor's vehicle, making sure the millions of them don't eat each other. And tomorrow pretty much every piece of consumer electronic in the Internet of Things is gonna have a five G chip, even your lowly

Chinese toaster or coffee machine or microwave. And therefore, if you're not going to use the five G of China, you're not gonna also want to use the toasters or microwaves of coffee machines of China, because they're potentially listening device if you believe that there is a factor from y Wesh five G to the Chinese government. So that's where the war on tech becomes also a war on trade, and it's going to only escalate over time. Unfortunately, I

think that's the trend we are facing. Of course, it's not black and white. I'm not saying there's not going to be any trade of any sort, but we're in a trend towards gradual but persistent deglobalization. Couldn't they be good news here? I mean, many people are investing into high tech companies that seem to do fantastically well. It seems odd to say we're going to have lots of technological to change, but it's not going to produce growth and it's not going to produce income for so someone

which might then be redistributed. Is there no good news here? Well, the differences in the previous Industrial revolution jobs went from agriculture into the industrial sector, and from the industrial sector

to the service sector. But what's happening right now is not only that the factory of the future is going to be a bunch of robberts and machine and just maybe one person manning these chines, but now the same process of AI, robotics automation is completely disrupting tons of jobs in the service sector, from retail to transportation, to education, to government services to pretty much anything under the sun. So those who say we're going to create other jobs

is not clear what they're going to be. Those jobs in the future are going to be created. For every job that is created by Amazon, there is an average ten jobs in retails are disappearing. So I think that's a difference compared to the past. And then for the time being, all these technology of disruption has not led at the macro level to data they're showing an increasing productivity. Eventually, of course, if there's gonna be a significant technological disruption,

there may be an increasing productivity. The economic pie is going to become larger. But since technological innovation is capital intensive, skill bias and labor saving those one financial real cave, they are gonna do well. Those that are in the top twent of distribution of skills, education, human capital gonna do well. But if you are a blue collar worker

with law skill or medium skill. But now even if you are a white collar worker with law skills or medium skills, your income and your job is going to be disrupted completely by technology. And therefore the issue is not where the economic pie is bigger, but what's going to be the distribution of the benefits and distribution of barns are going to go to capital and those were very, very high skilled and everybody else is going to be left behind, and therefore the tension and the political backlash

against it's gonna become severe. So the pie is gonna be bigger, the distribution of the benefit is going to become even more uneven. Mm hm okay, Well, a newer revealing, I guess. So the answer to is there any good news, it's very it's it's hard for you to see the good news. But we will be seeing if Professor Joe Stigletts has a different perspective later on. But in the meantime,

new Rabini, thank you very much for joining us. So that was Mauriel Rabini at the Bloomberg Global invest Conference. Joe stiglets was next, and you might remember I interviewed him about the future of capitalism last year for Stephanomics. I started by asking whether he shared Dr Doom's gloomy diagnosis. Well, I think the critical issue is what policy governments pursue. The second critical issue, of course, is the pandemic itself, and we don't know when that will be brought under control.

But assume that we got that under control, the big issue is how will government policy respond, And we are need to be frank, there's a lot of uncertainty about that. For instinct. One side says we need to provide the unemployed with assurance that we're going to continue the unemployment insurance as long as the pandemic continues. It's what we did in two thousand and eight in the global financial crisis. The other side is much more hesitant to do that.

And now, picking up a point that Neuriel emphasized, a big factor dampening the economy is uncertainty, precautionary behavior, and that lack of assurance and the part of government that it will be there is going to exacerbate the kind of uncertainty that's going to lead to limits, limits on consumption and investment. So how can governments confront that head on? I mean, you you're quite right that we've seen this precautionary savings. So how should a government try and get

over that problem? Because, of course, as you said, we don't know if there's going to be a second way. We don't know how long this procession is going to be. It's completely rational for businesses and households to hold back. So the first thing is we need to have an assurance that government programs will continue so long as the pandemic continues. You know, in the beginning, back in March, people thought this was going to be a three week lockdown,

four week lockdown. Certainly by the beginning of June or the end of July, things would be under control. No one thinks that. Today. We're worried about us second wave, a third wave, a perpetual wave. So we need the

assurance UH that the government isn't now providing. Some countries are thinking about more specific ways of what you might be calling collectivizing some of the risk, for instance, telling companies, if you borrow to make an investment and the pandemic continues, we will allow you to extend the payments, so you don't you know, sometimes you're going to want to make those investments, make them now, and we'll bear some of

the risk. UH. Some countries have provided for instincts time dated spending vouchers to encourage people to go spend now there's underemployment. From a social point of view, this is good, but we understand your fear about getting in debt and uh this is a way of encouraging spending today. There is a lot of support going to businesses now, but we don't know for sure that that is going to go into investment or even into jobs and a bloomberg.

We've looked at how many big companies in the US have been raising bonds very cheaply, raising a trillion dollars worth in so far this year, more than in the whole of last year, on the back of the FED easing policies. But they're also cutting jobs. So do you think there should be more string attached to some of this support. Yes, there was an interesting study that pointed out that particularly the p p P program seems to

have had no effect on retaining employment. It was an extraordinarily badly designed program and even worse the implementation, with the money going to those who were most connected to the banks and to those who at least needed UH. The money out. If you know, the government has never spent so much money, and we ought to have a say on how that money is used. It shouldn't be a blank check. Uh. You know, when I was at

the World Bank, we always put conditions. I thought sometimes they put too many conditions, but putting certain basic conditions that you retain your employees, that you treat your workers in a decent way, that you move toward green economy. Uh, that we helped, you know, with a vision what kind of an economy do we want emerging from the pandemic? To me, this is one of the my major criticism other programs. The idea behind them was we ought to

go back to where we were in January. There were a lot of problems with the American economy and the global economy. In January inequality, health status of Americans was going down when not very not very good. Uh. We hadn't begun the green transition. So there were so many things that we need knew we needed to do. This was an occasion with the government spending so much money to help move our economy along in the right direction.

So I guess going back to the longer term, you know, can central banks be part of that longer term answer? Should we? You know, is this the end of an era of independent central banks? That shouldn't be worried so much about inflation, they should be helping to tackle inequality raise wages. What was what's your view? Uh, First, I think there is a limit to what central banks can do, but they can do a lot, so they're really important. I'm very supportive of the broader view that they've seemed

to be taken on. I've always criticized them in the past for not taking into account the effects of their policies, for instance, and increasing inequality. They put a big row in increasing wealth inequality, and it seems that today they are taking that more into account, apparently because that's very much related to their main mandate. If you have increasing inequality, you're going to have deficient aggregate demand, so you cannot

ignore the impact on inequality. You know, the I m F has put inequality at the center of their agenda, and when they first did Domini extras ka and said, we're doing this because our manding is making sure that global growth is strong, and you can't do that without at least paying some more attention to win equality. Thinking about the whole world, um we've done. Our economists have looked at what response emerging market economies have been able

to do. Two COVID compared to the enormous amount of money flowing out of finance ministries around the developed world, and indeed all the central bank money printing, and it's obviously it's a fraction. Most of these emerging market comes have not been able to, if you like, fill the whole that's been left by COVID or might be left by COVID. Now, what are the risks coming out of that for the whole world? But what should we also be trying to What do you think is the best

so to that for helping them? Well, we are a globally integrated economy, and we should remember that it was the emerging markets that helped bring us out of the two thousand eight crisis. We will not have a robust global recovery unless all the world is recovered, and that includes the emerging markets. The emerging markets are clearly more vulnerable, both in terms of health, and they don't have the economic resources, as you pointed out, respond anywhere near to

the extent that the United States or even Europe have responded. Uh, there's gonna be a lot of countries that are going to be facing sovereign debt problems that won't be able to repay their debt, and there needs to be a way of restructuring those decks. So far, the private sector has given every indication that they don't understand that there's a pandemic going on, and they have no humanity. You know.

They talked about social responsibility, they talk about all these fancy words about now we get it, we understand we have an important uh role to play in our society, and they're acting in just the opposite way. A dollar for them is worth thousands of people die in the emerging markets. So I think this is going to be a critical moment for global capitalism if the global financial markets continue in their hardheaded way of squeezing these emerging markets.

Rabini was talking about the battle that's going on the new Cold War. Well, American style of capitalism is going to take a beating if America's financial markets continue to behave in the way that they've been behaving. I guess that was partly a part of some of the things I was asking Neurial, because he seemed to see no potential that capitalism might save itself in the way that

perhaps they might have done. We might have said that there was a reset in the thirties in the US and the in the forties in response to some of the threats of populism and the threats to capitalism. One question has come in from Michael check him. Can market economies change reform to be more socially, environmentally, equitable, fairer, all the things that you're talking about, while with companies

still being profitable. I guess that's the question. And if if, if capitalism does reform itself and it's still built money, I think the answer is absolutely yes. There are ears responsible capitalism. I wrote a book called Progressive Capitalism. I really believe that we can have a profitable capitalism dextters all of our society. You epic change some of the rules of the game. Uh. And and you can't exploit the environment in the way that they did. You can't

exploit the workers in the way that you did. But uh, you can. Actually I think we'll have a stronger, more robust capitalism. The other question is the politics. Uh, can we change the politics in a way that there will be a change in the way the market economy works.

Quite frankly, I'm actually hopeful on that. You know, many of the countries in Europe have created a kind of social democracy where they've tried to temper capitalism, and in many of the social indicators they do much better than the United States, less in equality and some of the marriage quite dynamic economies, So we actually have some proof that one can have a more socially just environment very

mentally friendly capitalism. You mentioned populism, and I guess it comes down to this much bigger question about whether when we look back, will we say that this was a real turning point for the global economy where long existing trends kind of came to the fore and force change, or whether it will force whether we'll some of those

negative trends will actually accelerate. You know, after the global financial crisis, the legacy of that was to shake up global politics and have populism, but populism that often pointed in a not not in a constructive, in a worsening direction. You think there's more chance of a sort of positive form of populism coming out of this, that we will shake everything up and actually end up heading in a

better direction. Or is it still to play for I think it's still in play, and I won't call a populism, but I do think the November election in the United States, it's going to be a critical moment. The a rising you might call it that in the United States for racial justice really showed a dimension of the United States solidarity that had not been evidence before. I take that as a sign that ideals really do matter, and that the conception of what a country together means really doesn't matter.

So I'm very hopeful that in November there will be an outpouring and that will lead the United States to go in a different direction that will have, I think a very big effect on the direction in which the world goes. The One of the issues you were talking about before is the new code war between China and the United States. Uh. And it's clear that those tensions

are very strong. But it's also clear that we share the same planet and we are going to have to work together to deal with the problems of pandemics, the problems of of climate change. And so the question is, in the midst of a you know, reordering of the world, are we going to be able to get cooperation across governments that fundamentally may disagree very deeply with each other.

You know, you're you can imagine yourself in a lifeboat, the ship is sunk, and there may be some people in that lifebuoat that you really don't like, but that's not the reason why you should think the life quote. And maybe that's a metaphor to say, you know, we're in this together. There there are some others that we may not agree with, but we have some common problems basing the pandemic, climate change, global peace that we have

to work together on. Professor Stigler's it's a pleasure, as you say, ideas matter, and it is great to hear someone who I know has a very clear sense of what is wrong in the world give us such an upbeat sense of what could change and the potential that's there. So I appreciate that. Particularly you're looking at a lot of the same facts as Neil Rabini, but actually thinking that we can change course. So thank you again, thanks

for listening to seven o weeks. We'll be back next week with more on the ground insight I promise, on how COVID nineteen is turning the global economy upside down. Remember you can always find us on the Bloomberg Terminal, website, app or wherever you get your podcast and for more news and analysis from Bloomberg Economics throughout the week, follow

at Economics on Twitter. This episode was produced by Magnus Hendrickson, with special thanks to Neuria Rabini, Professor Joe Stiglett, Mark Miller, and the entire Bloomberg Live production team. Lucy Meekin is the acting executive producer of Stephanomics, and the head of Bloomberg Podcast is Francesca leading h m hm h