We've been speaking with top economists to better
understand what macroeconomic trends are
doing to companies' bottom lines.
Today I'm speaking with Professor Sachs, director of
the Center for Sustainable Development at Columbia
University. What's the biggest risk to companies'
bottom lines right now?
The biggest risk is the geopolitical turmoil.
We have a war raging in Europe.
We have tensions between the United States and China.
And these, unfortunately, both could get worse.
We should negotiate a peace in Ukraine.
We should reduce the tensions between the United
States and China.
Europe and Russia suddenly stopped trading.
There is a lot of uncertainty in world markets
because the U.S.
and Europe imposed sanctions and then secondary
sanctions. So companies are trying to figure out, Who
can I trade with, who should I not trade with?
This has disrupted the world energy markets, which
continue to have a big impact on what the global
economy is going to look like.
Apparently productivity has declined in the U.S.
and it hasn't picked up since the pandemic.
Why do you think that is?
What should companies be doing to change their
approaches?
When you're producing a ton of steel or a bushel of
wheat, you can talk about productivity pretty
specifically when you're producing a range of
services, a lot of which are now digital, or you're
providing education in different ways or
information is flowing in different ways.
Our government is so far behind in measurement issues
that I personally don't pay too much attention to the
official data on productivity.
We say that there's very little productivity in the
health care sector, for example.
I think that's absolutely wrong because we're
measuring the costs of health care.
We're not measuring the outputs with a lot of
advances of technology.
So to my mind, we should be improving what we're
measuring and then we could decide what the real puzzles
are after we get the measurements a little bit
better.
It sort of leads into a conversation about AI.
So how is AI transforming companies' bottom lines and
how should workers and employers think about how AI
can better help their businesses?
It's going to change jobs.
A lot of people are going to find that the jobs that
they've been remunerated for in the past are not
going to be the jobs in the future.
The returns to owning AI, to owning the intellectual
property will soar.
And that's why we have new trillion dollar companies.
But for a lot of Americans, it actually means lower real
earnings, not higher real earnings, because it means a
shift of the income distribution.
And we need to understand all of this better so that
we can actually make public policies that say AI is a
great thing, but this part of society is going to need
help, this part of society is going to be so incredibly
rich that they actually should pay some more taxes.
Wall Street is certainly reacting to this AI and they
are investing big in it.
What should companies be doing to make sure that
their employees are not being left to the side?
In general, by the way, major technological
changes, and they don't happen all that often.
The steam engine was one, electrification was
another, the winners win more than the losers lose.
So net-net, big gain.
But to say that everybody benefits has never been true
in economic history or economic change, so there
will be actually significant parts of society
that will fall behind.
And even in the last 40 years, 50 years, the nature
of technological change has favored those with more
advanced educations, higher degrees, technical
educations and so on.
This has been a clear trend for the last 50 years, and
that means a lot of people have been left behind in the
United States. We not only have a huge rise of pretax
inequality, but we have a big rise of what I would
call post tax and transfer inequality as well.
In other words, we're just a much more divided society.
Heads of AI who are billionaires are
libertarians. They say, Oh, leave everything alone.
Leave it to us. Well, that's easy if you're a
billionaire, but it's not so easy if you've lost your
job. So in this sense, I think that we really need to
have a fair assessment of this great potential
technology to make sure that it works for society
broadly.
All right. I want to move on a little bit to the
recession or the stalled recession.
Why do you think the U.S.
has been in this stalled recession?
Is A.I.
the thing that's saving us? Are we going to be okay?
So we're in an inflation phase that is really the end
of a cycle that started with Covid and a massive,
massive expansion of the money supply.
And now the Fed is tightening.
It has to.
I've always thought that those who say, Well, it'll
be very short lived and then go away didn't
understand that the inflationary pressures were
rather deep.
The Fed increased the money supply by trillions of
dollars of what we call high powered money, that is
the Fed backed currency, the reserves and the
currency trillions in a very short period of time.
It was completely unprecedented. Now we have
the inflation. It's not soaring, but it's painful.
The Fed has raised interest rates.
I don't think they're coming down so fast as some
people thought that, Oh, we'll get back to near zero
interest rates. Very unlikely.
But then on top of this has come war, sanctions,
geopolitical tensions.
These are all what we would call supply shocks.
It's a pretty antiseptic term for some pretty awful
things happening.
But what it means is that it's made it even more
difficult to have a clear path forward.
I think a recession is quite possible because when
things are so bumpy to get out of this without a
recession would be a lot of luck as well as a lot of
good steering. My advice to this administration, if they
want to get reelected, stop the war stuff, start the
peace stuff, because that's the way the economy is going
to go better.
Do you have any advice for employees trying to figure
out how to make the most with their money now that
their value is less or employers they have less
credit at their disposal?
What should they be doing to make sure their bottom
line is still, you know, everything's still good.
When there's so much uncertainty. The only
general advice is to be prudent, to be careful, not
expect that somehow all of this is going to easily sort
itself out, not expect that everything is necessarily
going to just be an extrapolation of progress,
not to look at the month to month saying everything's
fine right now, but to understand that we've got
really choppy waters for, I'd say, you know, a year or
more ahead.
A lot of this depends on.
Whether these global challenges get worse, which
is really possible.
So you're talking about global implications.
Let's talk a little bit about your bread and butter,
climate change. So how is climate change and climate
disasters impacting economic models going
forward?
Two big things.
One is we've got a lot of climate related shocks and
disasters now everywhere, every year.
And this is without question getting worse.
More heatwaves, more floods, more droughts, more
mega forest fires, more high intensity hurricanes
and typhoons.
It's dramatic.
And because of my job, working with governments
around the world, I see this close up all over the
world. And you can't go to a place without hearing
about its most recent massive flooding, 1 in 100
years, biggest drought in 500 years, massive heat
waves. But we need an energy system quickly that
isn't making all of this worse.
And this means we need wind, solar, nuclear, zero
carbon energy sources.
We need electric vehicles.
We need to retool how we use energy instead of
natural gas. We need to strip off the carbon from
the hydrogen and use blue hydrogen.
The tax credits are fine in the IRA, but it would really
help if the government came up with a plan that said
this is how by 2050 we're going to get to zero,
because then the businesses would say, I get it.
We need to do it that way.
Here's how I have to change my production line, or
here's the technology that I need to introduce in my
sector. The companies that have been truly innovative
have scored the biggest.
So Elon Musk did think ahead of the curve about
electric vehicles and became the richest person in
the world by thinking ahead.
The politicians can be a little bit slow, but if
you're looking ahead, you can really see where the
markets are going to be in 5, 10, 20 years.
You've talked about these billion dollar disasters
that are happening all over the world, and we're seeing
an influx of people moving to the U.S.
or trying to the U.S.
also has a need for workers.
How can the U.S.
better integrate these immigrants and will that
help grow the economy?
How should we move forward in a world where more people
are going to be moving because of climate change?
Even if we turned off all the emissions immediately,
we would still have decades, maybe even
centuries of climate change.
But it would be very gradual compared to what
we're experiencing right now.
So we can't stop what's in the works already.
But we need to do this because there is no way, no
way to adapt to what is now in store if we don't change
our ways. Because if temperatures rise two,
three, four degrees, we're going to have upheavals that
are much larger than our governments can handle.
So I don't want that kind of world where tens or
hundreds of millions of people are forcibly
displaced. I'd like to keep migration policy as a
separate issue that the U.S .
should remain an open country and an open society,
but not one that is overwhelmed.
And if we paid a little bit more attention in our own
hemisphere, for example, to the Central American
economies, if we just paid a little bit of attention to
getting more investment into Central America, to
helping with water management, to improve
productivity of agriculture, we would not be
facing the challenges we face right now.
Do you think that the U.S.
will remain the world's leading economy?
I think the U.S.
will remain a very rich economy.
We will be prosperous if we are nice to each other.
If we are absolutely divided, we will be rich and
very unhappy and very unstable.
But we will not be the only major economy in the world.
In absolute size, China's going to most likely
overtake the U.S.
very soon. By one measure, what we call purchasing
power adjusted GDP, China is already larger than the
U.S., but Americans should understand China's living
standards are roughly one third of Americans living
standards, but the population is four times
larger. We're 4.1% of the world population.
And we have to accept that with those numbers, we can
be big, we can be secure, but we can't necessarily be
the largest when there are countries with much, much
larger populations than ours.