Davos AM24 - Town Hall How to Trust Economics - Original
Long-standing economic tenets are being challenged by ongoing shocks, geo-economic tensions and supply chain reconfigurations.
How can we adapt to changing economic realities, to ensure long-term and equitable growth?
Join this interactive town hall with leaders to explore promising approaches to adapt to new economic realities.
Creating Growth and Jobs for a New Era
Michael Sandel
Anne T. and Robert M. Bass Professor of Government, Harvard University
Martin Wolf
Associate Editor and Chief Economics Commentator, The Financial Times
Christine Lagarde
President, European Central Bank
https://www.weforum.org/events/world-economic-forum-annual-meeting-2024/sessions/town-hall-how-to-trust-economics/
How can we adapt to changing economic realities, to ensure long-term and equitable growth?
Join this interactive town hall with leaders to explore promising approaches to adapt to new economic realities.
Creating Growth and Jobs for a New Era
Michael Sandel
Anne T. and Robert M. Bass Professor of Government, Harvard University
Martin Wolf
Associate Editor and Chief Economics Commentator, The Financial Times
Christine Lagarde
President, European Central Bank
https://www.weforum.org/events/world-economic-forum-annual-meeting-2024/sessions/town-hall-how-to-trust-economics/
Transcript
00:00 [MUSIC]
00:03 >> Exciting new venture for me at the WEF.
00:07 I've been moderating sessions here since 1999, and
00:11 I don't think I've ever moderated one like this.
00:13 So I really no idea how it's gonna go.
00:16 >> [LAUGH]
00:19 >> I will start by introducing
00:24 the contributors to the discussion.
00:27 Then I will go through how we're going to proceed.
00:31 But the key point is it's going to be very much an exchange with the audience.
00:36 So we're gonna have a couple of questions at the beginning, and
00:41 there will be a ten minute exchange between the two panelists.
00:47 And then you can ask questions.
00:50 I don't mind in this case if you make a point, but
00:55 the point will have to be brief.
00:58 We've got questions coming from a virtual,
01:02 from an audience out in the world.
01:07 And we want the panelists to have an opportunity to address those questions.
01:12 And that means you can't make long speeches.
01:14 I'm also think that one of the fascinating things about this is though
01:22 the two participants, Christine Lagarde of course,
01:26 who is currently president of the European Central Bank.
01:28 Before that was managing director of the IMF.
01:32 And Michael Sandel, a very distinguished political philosopher, would you say?
01:37 Who's professor of government at Harvard University,
01:40 at which point everybody says boo.
01:42 >> [LAUGH]
01:47 >> The interesting thing about these two
01:50 people is they are immensely distinguished, incredibly thoughtful.
01:56 And which is what makes this much more interesting.
02:00 We wouldn't regard them as professional economists in the sense that
02:06 they haven't done graduate degrees in economics.
02:09 And I, the moderator, have.
02:12 Which is a very interesting situation for me to be in.
02:16 And the very fact that we're doing this shows that the question is not
02:22 how to trust economics, but why is economics so damned untrustworthy
02:28 that we have to have this discussion in which very distinguished people
02:33 thinking about economics and its role in the world can explain how to make this
02:38 untrustworthy subject, an untrustworthy system that they have been responsible for
02:43 creating, work better.
02:46 And when we get to the discussion, we'll focus on that,
02:51 and then we'll have an exchange with you.
02:55 Now before that, we are going to have some questions.
03:01 And to address those questions, you have to get onto Slido.
03:07 And what you have to do is scan this QR code with your smartphone.
03:13 I'm told you can do it from where you're sitting.
03:16 And you choose the right room at the top of the screen, and the room is Aula.
03:21 And you use the WEF hashtag Davos24.
03:29 I think I've got that more or less, if you need to.
03:36 And apparently, you have to reselect the room on the Slido app
03:42 if you've used Slido this week.
03:44 If you pass this really complex exam, you can answer one of the questions.
03:51 I'll give you, let's say, 30 seconds for this, and then we'll get to the question.
03:55 Is everybody, well, put up your hands when you're on Slido.
04:02 There are some really seriously clever people, obviously young people.
04:06 So a few still struggling?
04:10 >> Yep.
04:12 >> Okay, okay.
04:13 People are doing well.
04:16 So how much do you trust our existing economic system?
04:19 One should take into account, you might want to look at this.
04:22 These people are at the WEF.
04:24 And that might tell you a bit about their attitude to the current economic system.
04:29 And not least for the fact that they're probably doing rather well out of it.
04:32 So at the moment, we've got 48% think they rather trust it,
04:41 23% definitely trust.
04:45 And well, we're getting a little more don't trust.
04:50 But still, the don't trust, that's a pretty fair minority.
04:57 So you're gonna have to persuade them that it's as untrustworthy as you might think
05:00 it is, at least one of you might.
05:02 Okay, have we got those well enough?
05:07 Can we move on to the next question?
05:08 Is there another question?
05:10 Yes?
05:12 So if you think there's a problem, and of course lots of you think it's perfect,
05:15 what do you think are the problems with it?
05:21 Okay, that's interesting.
05:23 Well, we're just starting.
05:25 Okay, are we getting to the end, sort of?
05:28 Okay, it's still sort of light, settling down a bit.
05:38 Okay, global inequalities, interesting, environmental disaster, 15%.
05:43 Domestic inequalities, 13%.
05:46 Slow growth, 12%.
05:48 Lack of jobs, 5%.
05:50 Now that's a very interesting set of answers.
05:55 And it seems to be stabilizing around there.
05:58 So basically they trust the system, but to the extent they don't,
06:03 they seem to worry about global inequality most.
06:06 That's actually, telling the honest truth, it's not what I'd expected.
06:10 So that's educational.
06:11 Now when the end of the discussion, we plan to put these questions up again, and
06:16 we will see if you'll change your minds.
06:19 We don't strictly have a debating motion, so
06:22 I won't say at the end of this who won.
06:24 But maybe the panelists could work it out for themselves.
06:31 So what we're now going to do is have a discussion on these questions before we
06:37 go to the floor for you to make questions and comments.
06:41 I'll tend to take them in groups of two or three, by the way, and
06:45 try to be as brief as you can.
06:47 So let me start with the following question.
06:53 What, in your opinion, is good and bad about economics and
07:05 the economic system it has created, inspired, or influenced?
07:10 And then after discussion of that,
07:14 we will have a discussion of what's to be done about it.
07:20 So let's start then with Christine.
07:25 What is good or bad about economics and the economic system that we have?
07:31 >> Well, thank you very much, Martin.
07:32 I was going to actually preface any comments I make with the fact that I'm not
07:37 an economist by training and background, but you've taken care of that.
07:41 So here goes my disclaimer, because I'm a jurist by background and
07:46 certainly a lawyer by passion, but I had to deal with many, many economists.
07:50 And for the last 20 years of my life, I had to deal with economics.
07:54 So it brings me to asking myself, what is economics really about?
08:00 And going back to basic definition,
08:03 we could argue that it's the allocation of scarce resources,
08:06 which has been well served, question,
08:11 over the last decades, by an efficiency aim,
08:16 which fitted a period of time of free markets, globalization,
08:22 a good advocate of which is sitting to my left, particularly in the 80s, 90s.
08:29 And that as a result of that, economics in and of itself could sort things out.
08:35 And that markets in particular would be perfectly able to achieve that
08:40 efficiency goal that we had.
08:43 And in a way, politics, for instance, was a distraction, or
08:47 politics, if it was actually acting, was promoting,
08:52 particularly in the advanced economies, in days when we had the North-South dialogue
08:57 and difficulties, but in advanced economies,
08:59 certainly politics was promoting these principles.
09:04 And I'd like to come to two points.
09:07 One thing that I have observed from my vintage point now at the ECB and
09:13 previously at the IMF, which is that efficiency aim that was there,
09:19 has been gradually replaced over the course of time, and
09:22 particularly in the last few years, by a security aspiration.
09:28 So security replacing efficiency.
09:31 And if I want to take you to three examples of that,
09:35 I would certainly take climate change first, and
09:39 the climate transition necessity, which is not driven by efficiency,
09:44 which cannot be sorted out and achieved by market rules and
09:50 principle only, but require other tools.
09:54 And I'll come to the tools in a minute, that's the second point I want to make.
09:58 Second area where security has prevailed over efficiency in terms of goal is energy.
10:05 And if anything has been learned from the horrible Russian aggression
10:11 against Ukraine, we've learned that energy is not just a matter of efficiency,
10:16 it's not just a matter of supply and demand and setting of prices.
10:21 Can be manipulated to the extreme, and it's certainly a quest for security.
10:26 The third area which I have and which is again in debate and
10:32 possibly under threat is supply chains, which we had taken for
10:36 granted were cost reduction and just on time were the key principles.
10:42 And we're now the just in case and security of supply and
10:46 safety of the supply chain becomes the aspiration.
10:53 So with that as a background and from my very small window in the economic world,
10:58 which is that of a central bank, and with in mind the first thing that I said
11:03 at the first town hall that I attended at the ECB, which was to the economist
11:08 in the room that I didn't know very well at the time, but informed by my IMF days,
11:14 and I have an IMF colleague in the back of the room who will attest to that.
11:18 I said, beware of models.
11:22 And if I bring these two together of security over efficiency,
11:27 beware of models, what I draw from that is the fact that many of those shocks
11:33 that are bringing security over efficiency are exogenous shocks,
11:38 are certainly not linear development, but are crisis or
11:43 development or exogenous development that are not in models.
11:48 That have not been in models and that have led us and the ECB,
11:53 the European Central Bank was the first one to admit that it had got it wrong in a way,
12:00 was not captured in our model and therefore gave us projections and
12:05 forecast that were out of sync with what we should have actually explored.
12:11 And that leads me to my last point, which is that economists,
12:16 not the good ones like you, Martin, but
12:20 many economists are actually a tribal clique.
12:24 There have been studies of quotations, cross fertilization,
12:30 cross references, and economists, I think,
12:34 together with contic physicists are the most tribal scientists that you can think of.
12:42 They quote each other, yeah, men more than women, by the way, but
12:45 that's another story, but they don't, it's true.
12:50 But they don't go beyond that world because they feel comfortable in that world and
12:54 maybe models have something to do with it.
12:57 And what I think we should move towards and
12:59 I'm trying to convince my colleagues that we have to,
13:03 is bring in people that are not members of the tribe.
13:09 If we had had more consultation with epidemiologists,
13:14 if we had had, and we now have, thank goodness,
13:17 climate change scientists inside to help us with what's coming up.
13:23 If we were consulting a bit better with geologists, for instance,
13:27 to properly appreciate where some of the rare earth and resources are out there,
13:34 I think we would be in a better position to actually understand the developments,
13:38 project better, and be better economists.
13:42 So that's very, very interesting.
13:45 I should say that myself, never having been an academic economist and
13:51 having a terrible tendency to quote political scientists and political philosophers.
13:57 I long since ceased to be a respectable economist in any, in fact,
14:01 I think not even really an economist.
14:03 So I am very comfortable with what you said, but
14:07 I do agree that many of my friends will be pretty shocked.
14:11 So, Michael, what's good and bad about economics?
14:16 >> Well, let me begin with the question of trust,
14:19 which is really the centerpiece of this Davos year.
14:24 If we want really to restore trust in economics,
14:31 what we have to do is close our eyes and
14:37 try to forget the follies and the failures of models and
14:44 of mainstream economic advice over the past four decades.
14:51 If you want to trust economics, you have to try to forget
14:56 the self-assured promise that we were all given
15:03 by the proponents of the so-called Washington Consensus of the 80s and
15:07 90s and early 2000s.
15:10 That everyone would be better off if we brought about a frictionless
15:16 system of global capitalism with the outsourcing of jobs to low-wage countries
15:23 with low labor protections, if we deregulated finance and
15:30 insisted on the free flow even of short-term capital in and out of countries.
15:36 We were told, we were assured that this would increase
15:40 the stability of the financial system.
15:45 This was before the financial crash of 2008 brought that advice and
15:50 assurance tumbling down.
15:51 We would try to forget also the naive assurance we were all given
15:59 by the defenders of this model that
16:02 the frictionless finance driven version of global capitalism
16:09 would inexorably bring countries of the world toward liberal democracy.
16:16 That was a part of the model and its claims.
16:20 And one other thing we'd have to forget or forgive, Martin, and
16:26 that would be the assurance, the conviction
16:31 that there was no alternative, that the particular version
16:39 of finance driven globalization that was promoted, that was an article of faith
16:45 by mainstream economists giving advice during that picture.
16:52 Was simply adapting to what was essentially a force of nature.
16:58 Margaret Thatcher declared again and again, there is no alternative.
17:04 Bill Clinton said globalization is not something we can hold off or turn off.
17:11 It's like the economic equivalent of a force of nature like wind or water.
17:19 And then there was Tony Blair who said that globalization
17:23 was as unalterable as the seasons.
17:28 I hear people say we have to stop and debate globalization.
17:32 He declared, you might as well debate whether autumn should follow summer.
17:37 Now, it was smug at the time, but
17:47 in retrospect, it seems quaint.
17:50 Climate change has reconfigured the seasons.
17:56 Summer heat is coming sooner and lasting longer.
18:00 Some scientists tell us that absent changes in the way we live,
18:04 by the end of the century, summer may last half the year.
18:09 So the line between the necessary and the possible shifts beneath our feet.
18:16 And today we find ourselves having to debate and
18:20 decide whether autumn should follow summer.
18:25 Just as I think we need now to debate and
18:30 decide by what economic arrangements we want to live.
18:37 >> Okay.
18:39 >> [LAUGH]
18:41 >> I think that given my miserable
18:45 performance as a moderator here, and
18:49 the fact that it shouldn't just be an exchange between us.
18:52 I'm going to, you've had two very clear statements.
18:58 Both are critical, but differently so.
19:01 And I would say it's fair to say that the dominant thrust
19:08 of Christine Lagarde's comment is the agenda has changed, right?
19:16 And it's changed naturally because the world has changed.
19:22 And a big problem associated with this, but not the core,
19:30 I think not really at the core, is economists are arrogant and tribal.
19:36 I think that's fair.
19:39 And they really believe in models of things that cannot be modeled precisely.
19:45 And they believe they have a knowledge of the world which is actually impossible.
19:50 I agree with all of that, by the way.
19:54 >> [LAUGH]
19:55 >> And Michael goes in a rather different
19:58 direction.
19:59 He basically says, I hope this is fair.
20:04 This was all a terrible mistake.
20:05 The last 40 years was a terrible mistake.
20:09 It produced essentially nothing good, or at least you didn't mention anything.
20:14 Maybe because you didn't have much time.
20:16 You'll have a question later.
20:18 And we just have to throw this away and have a different way of doing things.
20:22 Is that unfair?
20:23 >> It's a little bit unfair.
20:24 >> Okay. >> I wouldn't say nothing good, but
20:26 I will say, and this is provocative enough, that this way of thinking and
20:33 designing the economy paved the way and bears responsibility for
20:40 the populist backlash against elites and inequality and
20:44 social division that we are now facing.
20:47 I would put it that way, Mark.
20:48 >> Since I've written a book of about 380 pages which argues the same thing,
20:53 I can't possibly disagree, can I?
20:55 So you've had a very good presence of the argument.
20:59 So now I'm gonna go to the floor.
21:02 I'd like to take about three or four comments, questions,
21:05 be, I hope to remember them all.
21:07 Say who you are.
21:09 There is going to be a microphone, I believe.
21:14 So let's see who wants to ask a question.
21:17 This lady, please.
21:19 Could you stand up, perhaps, just so that they can easily find you.
21:23 Yes, say who you are, if you would, and question, comment.
21:29 >> Thank you, I'm Danai Kirikopoulou.
21:31 I am an economist from my sins, currently working at the Bank of England and
21:35 also a member of the Young Global Leaders of the Forum.
21:38 So the topic question is how to trust economics, but
21:41 also we've talked about how to trust economists.
21:44 And you've touched a little bit on the issue of diversity in economics and
21:47 the tribalism.
21:49 And I wanted to ask more about solutions for that.
21:53 Because, yes, we've been talking about diversity in central banks,
21:57 in other economic institutions.
21:59 And there's been a lot of progress on gender diversity, geographic diversity.
22:03 But if everyone went to the same economic schools, that's not diversity, really.
22:07 So I just wanted to get your thoughts on that, both of you.
22:10 Thank you. >> So you're assessing,
22:12 particularly, that diversity of intellectual diversity is also important.
22:18 Which I strongly agree.
22:20 This gentleman, who I happen to know a little, say who you are.
22:23 >> Iswar Prasad from Cornell University and a died in the World Economist.
22:27 I feel compelled to defend my tribe, but I will instead say that perhaps you're
22:32 asking too much of my tribe.
22:34 If you think about what economic models deliver,
22:37 the good models really deliver powerful insights.
22:40 They don't really solve all of the world's problems.
22:43 And I take your point, Christine, that perhaps we take models a little too far
22:47 when we think that they represent reality.
22:49 Now, a good economist, to be honest,
22:50 does not think that the model represents reality.
22:53 It's an abstraction from reality.
22:54 And I think it's a useful way to make progress.
22:57 The difficulty is that once you deal with the messiness of the real world,
23:01 especially political systems, then things become a little more complicated.
23:05 The basic principles of economics sometimes get convoluted.
23:08 Now, I don't stand here and blame political scientists for Trump, and
23:12 perhaps you shouldn't blame economists for everything that goes wrong in economies.
23:18 But it's really worth thinking about whether we have
23:22 thought about economics in the wrong way, rather than providing these basic insights
23:28 as instead trying to encompass the failures in political systems and
23:34 social systems as well.
23:35 >> Okay, I'll take one more question.
23:39 You, sir, yes.
23:41 Could you stand up so they can see you?
23:42 I'll come to you later, I promise.
23:44 >> My name is Anirudh Jalan.
23:49 I run a company called Recycle where we create a marketplace for
23:52 plastic waste in India.
23:54 My question is, if Shumpeter were alive today, and if he would see AI-
23:59 >> If who?
23:59 >> Shumpeter.
24:00 >> Shumpeter, okay.
24:02 >> If he were to witness AI and climate change,
24:05 do we think that his theory would be a little different?
24:07 >> He would?
24:09 >> Theory would be a little different.
24:11 >> His theory would be?
24:13 >> Different.
24:15 >> His theory of growth here, he produced quite a lot of theories.
24:18 >> Okay, so is that new technological innovation would disrupt
24:23 existing jobs, existing systems?
24:27 >> And you want to ask whether he would change his, okay.
24:30 >> [LAUGH] >> Okay,
24:33 that's an interesting way to go.
24:35 I'll come to that in a moment.
24:38 Could you explain why, just to make sure I understand,
24:44 why Shumpeter might respond to what's going on now by saying my theory of
24:49 disruptive growth is wrong?
24:51 I would have thought it's vindicated, but sorry, I'm not a panelist.
24:55 >> I'm in the energy transition space, and
24:59 he says that any new technological innovation would disrupt existing jobs.
25:04 >> Yeah.
25:05 >> And with AI, but what do we think that in the energy transition,
25:09 in the climate change transition, would that really disrupt existing?
25:13 Would it augment it, and the same for AI?
25:16 >> Okay, disrupt or augment are the alternatives.
25:22 Okay, I'll come to that in a moment.
25:24 Okay, let me, if I may go to the panel, and
25:26 then I should probably look at my screen.
25:29 Christine, I think the question about how do we solve the problem of diversity and
25:36 particularly intellectual tribalism is very well addressed to you,
25:41 since you're running one of the world's most important central banks.
25:44 So what are you doing to solve it?
25:48 >> First of all, thank you for the question, because I think that one of
25:54 the ways to solve it is to bring it up for debate, to be vocal about it.
26:01 And to recognize that if we do not make progress,
26:05 we will continue to have this group thinking that doesn't work.
26:10 When you're surrounded as some of you have been, are, or
26:17 as I have been and still am to an extent, by the same exact
26:21 kind of character, I will not describe in details,
26:27 who have gone exactly to the same schools, who are roughly the same age.
26:32 How do we expect new thinking or real debate?
26:37 So to talk about it, to raise your voice and
26:44 the voice of young participants like the young leaders.
26:49 But also to have as much as possible this principle of diversity
26:54 endorsed at the highest level, because you have to lead from the top on that one.
26:59 You have quotas in place, or at least targets,
27:05 to review them on a regular basis.
27:07 I mean, there are lots of tools that can be used for hiring and selecting and
27:12 building the pipeline that are used by some, but not by many.
27:17 And I think that everyone is accountable.
27:20 I'm not going to tell you how many women I've hired.
27:24 It's hard, because then you very quickly get the pushback of
27:28 the white middle-aged man who says, I'm at a disadvantage, this ain't fair.
27:32 But as RBG would have said, to restore parity in the Supreme Court.
27:42 She was asked, how many Supreme Court justices should there be?
27:45 And she said, all of them should be women.
27:49 >> [LAUGH] >> And when asked, why do you say that?
27:54 She said, well, to restore parity, you have to look back at history, and
27:58 it has been those nine judges, always of the same gender and
28:03 of the same color for many, many years at least.
28:06 So it's not retaliation, it's rebalancing.
28:10 I'm not going as far as that, but we really have to make efforts.
28:14 And I thank you for your question, and I think that each and
28:17 every one of us, wherever located, we have to help with that.
28:21 Because it's good for the bottom line, it's good for yourself and
28:25 you're feeling good about it, and it's just economic sense and not nonsense.
28:31 >> Can I, thank you very much.
28:34 I was just thinking that if that's the goal that you have,
28:38 you've got quite a long way to go.
28:40 >> Absolutely, I know.
28:41 >> 100% female ECB will take a little while.
28:47 >> I was pushing the envelope on purpose.
28:50 >> I understand.
28:51 Now let me, as I asked I think quite an important question,
28:57 which is a sort of nasty question economists focus on.
29:01 So you've asked very important, and made very important, systemic questions.
29:06 But this is a way, since we can't debate these for hours,
29:10 within any economy we could imagine, it's a very complicated system, obviously.
29:17 We have to make policy decisions about how high should the interest rate be now?
29:24 What is an efficient tax system?
29:27 And of course there are other issues there.
29:29 Now economists would say that you can't really get at
29:35 the problems of complex systems without, because the reality is simply too complex.
29:40 Just methodologically, some degree of reliance on simplifying models.
29:46 You do have to understand the simplifications, but
29:49 there's really no way out of this.
29:50 With all the many questions you get asked about what policy should be.
29:55 And isn't that actually inescapable?
30:00 >> I don't think so.
30:03 And the reason I don't think so
30:08 is that if we look at the most creative economists working today,
30:16 they do not rely mainly, or
30:21 in some cases at all, on simplifying models.
30:25 What they do, there's a shift I think, toward more empirical work.
30:31 And work that bears a closer connection to
30:34 broad questions of social and political philosophy.
30:39 For example, I think there are many excellent economists doing creative work
30:45 in part by not relying on simplified doctrinaire models.
30:52 Daron Acemoglu, for example, is drawing our attention to
30:59 whether technology is truly an exogenous, autonomous force.
31:05 Or whether it can be directed as an open political question.
31:12 Paul Collier is raising the question whether place-based
31:17 economic development is an essential alternative to
31:22 a single-minded focus on maximizing aggregate GDP.
31:28 Anne Case and Angus Deaton have written about deaths of despair,
31:34 looking at actual data about the vulnerability
31:39 of those without university degrees to deaths by
31:45 suicide and drug addiction and alcohol abuse.
31:50 Raj Chetty has challenged complacent ideas that it's always possible to rise
31:57 upward mobility from rags to riches by doing detailed
32:01 empirical work on actual rates of mobility.
32:06 What distinguished these five economists, and
32:10 I think among the most fertile creative economic thinkers working today,
32:16 is precisely, Martin, that they do not rely primarily on simplified models.
32:22 They look at the world, they do detailed empirical studies
32:25 animated by a broader social and political set of questions.
32:31 That's where I think the hope for restoring trust in economics lies.
32:35 Can I bounce back as well and go to the question of diversity?
32:39 It's also a chance for diversity, because models have generally attracted
32:46 male economists, if only because math is critically important.
32:52 And it's notorious that young women, physically,
32:55 10, 20 years ago, were not very much in STEMs.
32:58 Well, empirical work, research, analysis, attention to details,
33:03 something that women are bloody good at.
33:06 I would have added Esther Duflo to the list of economists that you mentioned here.
33:10 So that's another tool that we can use.
33:12 >> Well, I've cited all of these people in my book, and
33:17 I'm not going to talk about, I'm not here to defend economics, thank heavens.
33:21 >> [LAUGH] >> There was a question.
33:24 >> Our differences seem to be vanishing by the moment, by the minute.
33:28 >> Well, anyway, I'm not going to go into that, because I've only got 11 minutes.
33:32 I knew this would be very, very problematic.
33:36 >> And Schumpeter will agree, will have- >> The question on,
33:40 does either of you wish to comment on, or feel that they would like to comment on
33:46 whether we should take for granted that the innovations we're seeing at the moment
33:54 are essentially disruptive in the Schumpeterian sense?
34:00 Or should we have, is he another moribund economist, or actually so
34:05 outside the current conventional wisdom of economists that we can take his views
34:10 seriously, what do you think?
34:12 Is Schumpeter somebody whom you would put, despite his very questionable views on
34:17 democracy, which you will remember, in capitalism, socialism, and democracy.
34:23 The first political science book I, for little philosophy, and I've read.
34:27 Anyway, is he okay?
34:29 >> [LAUGH] >> Is he in your little pantheon
34:31 of economists, are they okay?
34:33 >> Yes, yes, in the following respect.
34:36 I disagree with his particular conception of democracy.
34:41 It's too narrow.
34:42 It lacks adequate sense of participation and civic engagement.
34:47 But he, like the classical economists of the past,
34:52 from Adam Smith to Karl Marx to John Stuart Mill,
34:56 despite their ideological differences, Schumpeter was working in a tradition
35:01 that did not conceive economics as a value neutral science
35:06 of human behavior and social choice.
35:09 He conceived economics in the classical tradition as a branch,
35:14 as a subfield even, of moral and political philosophy.
35:19 So that's the kind of economics I think we need if we're to begin to trust
35:24 economics again.
35:25 >> Okay, I will move on to further questions.
35:28 I'm gonna take one from the floor, and then I'm going to go to Slido,
35:31 since we asked people to comment, to see if I can find some wonderful questions.
35:36 >> Thank you, hi, I'm Ludovic Suvant, and I'm the chief economist of Allianz and
35:39 the YGL.
35:40 You mentioned, trust and economics have a form of weird correlation.
35:47 You know, causality goes in different ways, but trust and trade openness,
35:51 trust and friction.
35:54 So my question is, it's for Michael, but also for Christine Lagarde.
35:58 Do you think that the new models that everybody is preaching these days,
36:01 dirigism, interventionism, legalism, all these Cold War toolbox,
36:05 do you think it will deliver better trust outcomes?
36:08 Or do you think it's gonna be, for a short time, we're gonna be like, okay,
36:11 it's gonna be better, and then it's gonna be really bad?
36:13 >> [LAUGH] >> Okay, very good question.
36:16 And please, go ahead.
36:18 >> Well, thank you very much.
36:21 >> Just say who you are.
36:23 >> Ezo Takenaka, a professor of economics.
36:25 >> Yeah, and other things.
36:27 >> And former policy maker.
36:29 >> Indeed. >> For economic policy.
36:31 Based upon my own experience, well, economics is very useful for policymaking.
36:38 Without economics and economic evidence,
36:41 economic policy is more meant to be much more poor.
36:45 In that sense, what's most important is, economic evidence is enough or not?
36:52 Well, if it is based upon the very simple model, as you mentioned,
36:55 it's not useful.
36:58 But currently, the economy models are not so simple,
37:01 are much more complicated and well organized.
37:05 And so, well, economic evidence is enough or not?
37:08 And another problem is, well,
37:11 policy makers well understand this kind of economic evidence.
37:16 We often use the term of evidence-based policymaking.
37:20 So my question is very simple.
37:23 What do you think of the evidence-based policymaking?
37:27 Is this well done or not?
37:28 >> Okay, and I'm going to ask a third question which comes from Slido.
37:34 And I'm gonna combine two, because they are essentially the same question.
37:39 I can't deal with all of them.
37:41 One said, President Millet, you all know who he is, I presume,
37:48 has just completed his WEF speech.
37:52 And he said that what we need is proper libertarianism.
37:56 And that's related to the second question.
38:01 Given where we are now, is it obvious that we need much more government or
38:07 more market or something else altogether?
38:09 So there are your three questions.
38:14 And I think they are actually quite related.
38:19 So let's start with Michael.
38:24 Obviously, you feel that the economics we pursued in the last 40 years has
38:28 been a catastrophe.
38:30 >> No, you didn't say that.
38:32 >> You're exaggerating.
38:35 >> Exaggerate and simplify.
38:36 I'm a journalist, for God's sake, that's what we do.
38:41 >> So the question really is, and really we have very little time.
38:47 How do we change this?
38:49 And is the answer, is a core part of the answer, and
38:52 I think it fits with these last questions, a much expanded role for
38:58 government or for some other entities within society
39:02 to fix the sorts of problems you've mentioned?
39:04 I hope that's not too crude a question.
39:06 >> No, I would say what we need and
39:08 what we're experiencing really is the return of the political.
39:13 Now politics is a dangerous activity, but it's also an indispensable activity.
39:20 And the scope for democratic politics was unduly constrained,
39:26 even delegitimated when we were taught and assured that the model of
39:31 a frictionless, finance-driven, global, hyper-global,
39:35 neoliberal model would deliver benefits for everyone.
39:41 The return of the political makes those questions contestable, at least.
39:48 Now, in practice, is that more government or more market?
39:54 I think what the return of the political to economic debate can do
40:00 is to emphasize the importance of the role of government,
40:04 particularly as we've seen recently reviving antitrust legislation to deal
40:09 with the economic concentration of power, especially in tech and finance.
40:15 That's government, the return of the political.
40:19 And also to open debates about public investment,
40:24 back to the question of whether the direction of technological innovation
40:29 is fixed as if by nature.
40:31 That's only if you assume it must be governed by the purposes of Silicon Valley.
40:36 But if democratic citizens want to have a say in directing the future,
40:41 let's say of AI, what will make for good AI that will actually enhance life,
40:47 rather than simply destroy jobs, we have to have a political debate and
40:53 an openness to public investment to back up the results of that debate.
40:57 So what I'm calling for really is an alternative to the fixed doctrinaire,
41:03 disempowering and even technocratic idea that economic models,
41:08 if only we get them right, can absolve democratic citizens of the responsibility
41:13 to exercise their civic agency in debating and
41:19 directing the course of technology, and for that matter, the economy.
41:24 >> Because of time, this is the last question and I will address it to Christine.
41:29 From Professor Takenaka, who played, of course,
41:36 a huge role in trying to deal with the crisis in Japan, you will all remember this.
41:42 A very distinguished record.
41:44 And he was talking, it seems to me very, very importantly,
41:47 that part of the answer, if we're looking at it from a professional point of view,
41:52 is that policy has to be properly evidence-based rather than purely theoretical.
41:57 Do you agree with that strongly and
41:59 how well do you feel when you look around the world, we're getting there?
42:03 >> I would indeed agree with this point that policies have to be evidence-based.
42:09 And this is what we have been arguing as a central bank,
42:13 arguing that we have to be data dependent,
42:14 that we have to be very attentive to developments.
42:17 And I think to the point that Eswin was making about,
42:21 don't accuse us of too much and don't expect too much of us.
42:25 I'm not saying that models should be discounted completely and
42:28 should be set aside and forgotten about.
42:31 And that we should move exclusively to empirical data and
42:34 judgment calls and discretion.
42:37 I think that, number one, we should work on those models to improve them.
42:41 Number two, we should appreciate and
42:43 understand that they will inevitably, given the way they're constructed,
42:46 they will have an element of wrong about them.
42:50 Therefore, we should not assume that they will give us the answer.
42:53 But they will be good in helping us reach the judgment that should be either
42:58 contradicted or corroborated by data, by empirical data, by observation,
43:04 by judgment, and that it's a way to probably mitigate
43:12 the sort of blind faith that we had for too many years, I think,
43:16 in what models could deliver.
43:18 But I'm not throwing them away.
43:21 I'm saying, yes, they can be improved.
43:23 Yes, they have to be supplemented.
43:25 There are lots of things that you can use, sensitivity analysis,
43:28 scenario analysis, and all the rest of it to improve on them.
43:31 I just want to respond to what Michael was-
43:34 >> Very, very briefly, because otherwise, I will be short.
43:37 >> I was just concerned about his point, which is the return of politics.
43:41 Because what will be the return of politics if we do not have the return of
43:46 citizens?
43:47 >> Yeah.
43:47 >> People don't go to the ballot box because they're uninterested and
43:52 disenfranchised.
43:53 What is the return of politics?
43:55 I'm concerned about that.
43:56 >> Do we still have time for asking the two questions again?
44:01 Is that permitted?
44:03 Okay, and then I will conclude.
44:05 I'm sorry that this is the getting to the end, I think.
44:09 Yes, correct.
44:10 So could you put the two questions, and
44:12 I would just be interested to see whether your views have radically changed.
44:17 So how much do you trust our existing economic system after you've heard this
44:22 erudite discussion?
44:23 >> Don't say how depressed we are.
44:29 >> No, no, that's not a question that was permitted.
44:33 Okay.
44:34 >> [LAUGH]
44:37 >> You actually don't trust the majority.
44:42 >> Yeah.
44:44 >> Michael, you've hit the point.
44:46 >> No, not quite, not quite.
44:47 Look, 42, 47.
44:51 No.
44:52 >> This is- >> 48.
44:55 >> Well, I would say that Michael's made a dent in this audience.
45:00 >> [LAUGH] >> Given that it's in the WEF.
45:04 And yeah, so that, congratulations.
45:09 It's because I wasn't allowed to debate you.
45:13 And let's move to the next one.
45:18 Can we do the other question?
45:19 I'm sorry, I've answered one question from, what is the biggest problem?
45:26 Yeah, still global inequalities,
45:29 environmental disasters I think have gone up, or maybe not.
45:34 Domestic, yeah, that's- >> But we had a missing option here.
45:39 And the missing option was, is the current economic system,
45:43 does it help or hurt the prospects of democracy and of democratic citizens?
45:49 >> That's perfectly true.
45:50 >> Next year, can we include that?
45:52 >> Please God, I'm not going to be doing this next year.
45:56 >> [LAUGH] >> I think this has been a very,
46:01 very rich discussion.
46:02 I wouldn't even dream of going into this.
46:05 I'll make two points, and I know I shouldn't.
46:09 One of them is, I think a lot of what Michael says about the past is true.
46:15 But, and it's a very big but, for me, the big argument for globalization,
46:21 I read a whole book about it, was on what it would do for development.
46:27 And I don't think anybody can deny it had some sensational development results.
46:32 And among them, incomparably the biggest decline in extreme poverty in
46:37 world history.
46:38 And to me, as a globalist, sorry,
46:42 I think we should care about other people, global inequality.
46:45 That's quite important, and I don't want to throw it away in the protectionist
46:50 flood we're now getting.
46:52 The other point I would make, which gets to the real methodological heart of it,
46:56 is of course models must be data based.
47:00 The difficulty is data, believe it or not, come from the past.
47:05 The amount of data we have on the future is quite small, and
47:09 it comes in the form of expectations, and they're always wrong.
47:12 And that means we do need data, we need to understand these data, but
47:17 they have profound and fundamental limits in telling you about what's going to happen.
47:23 And I think that has come out very clearly in the debate on the inflation that we've
47:27 just had, because it was out of sample, it was out of sample.
47:32 And the point I make this is, all these points about citizenship and
47:37 all the rest of it are deep and important.
47:39 I'm deeply invested in this democracy idea.
47:42 But we do want to manage our society to some way, and economics is a big part of it.
47:49 And the tragic problem, which is inescapable,
47:54 is that it's a problem that we fundamentally cannot solve,
47:58 because the economy and the decision making in the economy is about the future.
48:04 And we don't know much about the future.
48:07 And if economists are clear about that, that might be very, very helpful.
48:12 So it is a subject, in this respect, doomed to fail.
48:16 And with that, let me conclude.
48:21 >> [APPLAUSE] >> And thank the panelists for
48:26 a wonderful discussion.
48:28 And I've been very bad on time.
48:29 >> No, you did.
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