Larry, we got the CPI numbers in that we'd waited for this week.
And boy, they came in hot and expected that's been doing this repeatedly.
Now, what do you read in these numbers? Not so much hotter than I expected.
Inflation's got a lot of momentum. The best single measure is to look out
for inflation is a kind of super core measure, which is wages where you can
look at the median components of inflation.
They've just been running strong for a long time and not decelerating.
So I think Team Transitory is engaged in a lot of wishful thinking.
And I must say that I'm struck by the hypocrisy of some friends of mine like
Paul Krugman, who are very quick now to focus on housing and the fact that the
private indices lead the public indices when the private indices are looking
soft, but were entirely unwilling to credit that argument or to pay attention
to the private indices. Some months ago, when the private
indices were obviously pointing to an acceleration of inflation.
So I think we've got to be very, very careful
here if we want to be credible about containing inflation.
How much momentum is built in inflation and how can you tell?
What are you looking at right now? They're telling you what happens in the
fourth quarter and as we go into next year.
I'm looking at core measures, I'm looking at super core measures that take
housing out, take these cars out. In addition to taking food and energy
out, I'm looking at the so-called median inflation component.
Whatever product it is, that's right in the middle.
I'm looking at the so-called trimmed mean that looks at the middle half of
the distribution of product prices. And very crucially for me, I'm looking
at wages, which is a kind of super core measure
because labor goes into everything. And all of those are saying that
inflation's not really coming down very fast if it's coming down at all and that
it's way above the 2 percent target or any acceptable level.
Besides the CPI numbers, Larry, a very big story throughout the week has been
and continues to be Great Britain, where you had the Bank of England come in with
their emergency buying of long term gilts.
That is due to expire on Friday, the end of this week.
Same time we now have less trust coming out and making some changes.
Give us your take on what's going on in the British economy and more
importantly, the management of the British economy.
Look, I think this is probably going to be a textbook case of crisis creation,
followed by crisis mismanagement. I'd be surprised if we were in the
seventh inning of this particular set of challenges.
I have said before that people now, I think, understand very clearly that when
you do a military intervention, you should never give a sunset date when
you're going to leave because it just emboldens the opposition.
And I think something similar is true of last resort finance, where the kind of
deadline the Bank of England gave, I think is asking for trouble down.
Down the road. So I think we're going to see more
tremors, more aftershocks, more problems.
At the same time, I think we need to recognize that as serious as the British
policy errors were, this might well not have happened if global economic
conditions were more normal. And the kind of excesses we've had in
the system mean we're in very complicated territory.
Well, exactly, Larry. I guess I'm asking two things that we
have global slowdown. IMF this week came out and said we're
looking at a global slowdown. At the same time, we have central banks
in the development countries really all raising rates at the same time.
What is the likelihood we're going to see similar won't be the same, but
similar sorts of problems elsewhere. Paul Sweeney when it comes to very
highly leveraged places and places that are more difficult to see some of the
private credit, some of the nonbank banks.
I doubt we've seen the last mine go off. Some of them may be in the private
sector. I think more of them may be
international. You know, something that disappointed me
at the IMF World Bank meetings this week was the number of countries who were
reporting that they're having substantial difficulty in getting market
access. And I must say, I'm sort of disappointed
by the official sector people. People from the ministries of finance
and the central banks who are talking about how we're going to work with the
private sector to catalyse trillions of dollars of finance for green transitions
that all these countries but don't seem to be doing anything about the fact that
many of these countries can't even issue a bond
today. So I think there's a whole set of very
important challenges with respect to developing countries and emerging
markets. And I'd have to say that I don't feel
those challenges were really met this week.
There are some fires burning and the fire department is still mostly in the
station. So as we speak to you, you are in
Washington for those IMF World Bank meetings and the IMF.
As a practical matter, you were very outspoken in Project Syndicate piece,
also actually speaking with David Malpass, the head of the World Bank,
about the role of the World Bank right now on things like sustainability.
What is going on there? Is the World Bank playing the role it
should be playing and what should it be doing?
No, I think it is playing its usual roles in its usual
way. And I think generally the economic
crisis of the moment demands major changes in approach.
Just as the security crisis in Ukraine demanded major changes in approach, and
we're not really quite seeing it yet. The World Bank needs to be much more
aggressive in the use of its balance sheet, and it also needs to get much
more capital. And instead of having a fight about
which of those two things is more important, we need to do both of them,
because the one mistake we're certain not to make is over investing in the
green transition. And so we need to make sure we're doing
everything we can to support that transition.
So if there is a lack there, Larry, often that light comes from a lack of
leadership. Do we not have the leadership we need
either from the United States Treasury, the White House or for that matter, at
the World Bank? I mean, would you ever consider taking
over that role? I think that we do need leadership that
points towards larger changes in business as usual than we're seeing in
the financial area. And I think there's some mistakes being
made right now at a very, very difficult moment in Africa, at a very, very
difficult moment in Latin America, at a very, very difficult moment in parts of
Asia. Larry, one piece of news which was
actually really hit the markets but has not gotten too much attention, is what
the United States did expect to semiconductors and China, the chips
market really went down substantially. It took a lot of the tech with it at a
time of so much difficulty globally. One of the possible effects of those
sorts of trade actions, you know, the kind of large scale cut
off on cooperation in semiconductors that the Biden administration announced,
I don't think it's possible to pass an overall judgment on that without
understanding the security risks that they saw, which depend on classified
information, which those of us on the outside don't have.
But this was a highly consequential increase in economic aggressiveness.
This is different than a trade fight over a specific product or a specific
trade practice. This was a pretty across the board
effort in something that's very, very difficult to challenge China's ability
to grow and to develop technology. And so I think it's going to have some
far reaching implications. Larry, finally, we did have the
announcement of three of your fellow economists receiving jointly Nobel Prize
for economics this week. Tell us about what you took away from
that award. Look, I think it was the analytical
recognition of something that practical people had known for a long time, which
is that banks in finance are different, that they're subject to confidence
crises that are kind of apart from the fundamentals of what's going on.
And that you've got to be very mindful in public policy to maintain confidence
in financial leader mediation in a way that's a bit different than you have to
with respect to manufacturing companies or airlines or something else.
That was very fundamental research, theoretical research in the
case of Diamond and Deb Vig using mathematics, careful historical study.
In the case of Bernanke's that I think served him very well during his time at
the Fed.