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Ben Smith: In Davos, I did not know if you were looking at the chaos caused by a Trump administration, or if you just assumed the reversion to the average.
Ken Rogoff: People didn’t think it was real, right? I must assume that they thought he wouldn’t. I think what he did shocked his advisers. No one expected.
Do you have?
No. It’s shocking. I did not expect him to do something as extreme as what he did, and the game to what I did not expect was this part “let’s make an agreement”. This is the silly part.
If you asked the academics how bad it would be to put a flat rate at 10%, it is not a big problem. If you have used the money intelligently, you can reduce taxes in other areas. People would adapt. What was disconcerting about this is that he wanted to conclude offers and go to war, then things go beyond the prices.
I have just returned from the United Kingdom, and – I do not invent this – (Trump) says: “You must improve your rules of freedom of expression and you cannot have a commercial agreement without him.” The British say: “Freedom of expression was our gift for you.” It is therefore chaos and incompetence.
I never liked Trump, but I thought he was a pragmatist in economics. He did not understand everything in his first mandate, but he had a good instinct. When something does not work, it changes it, which is said by passing the biggest problem with progressives; When it doesn’t work, they don’t change. It is good on this subject.
But (Trump) really believes it. The comparison with Liz Truss is difficult not to do, where the British joked by saying a “cretin bonus” in British bonds. We certainly had a bonus of incompetence.
Does this accelerate your concerns concerning recession and inflation-or is it not too late for him to bring it back?
It is too late. Forget the recession; When you talk about the drop in the dollar, you cannot find this bell.
It is not in the book, (but) a central banker of the G7 came to my office in Harvard seven or eight years ago. He tells me how much he hates the United States to come, because of the domination of the dollar. He had just bought something for his wife. It was an intra-European transaction, but finished with a credit card that crosses the United States and that made him flee that Trump could literally see him if he wanted it. He is a person who really knew the system. It is not an occasional comment that he makes. He hated that and he explained that Europeans were trying to move away from it. The rest of the world seeks to have other options.
And then there are these concerns that I speak of in the book. There is an unbearable deficit, which is not an arithmetic affirmation, it is an economic affirmation. We are not ready to do anything you need. … No country, even in Argentina, needs to be lacking – or needs to have inflation, in our case. And then the independence of the federal reserve worries me a lot.
You have written a first key article on the independence of the Fed. Do you think Trump will try to fire Powell? And what happens if he does it? Is there a safe piece in the basement of the Fed in which they stuck it?
Both parties want to remove independence nourished to a large extent. What Trump says (in public), says each president in private. And you can do it in the blink of an eye. There is no constitutional protection at the Fed – none, zero. It could be eliminated if you had support from the congress, and the congress could make the secretary of the Treasury a governor of the Fed.
The way I describe the Fed is that it folds with the wind. So, under Biden, they produced all this research on inequalities and the environment. And they will look with the wind with Trump. It is therefore already in a certain sense not independent.
Do you think Trump’s pressure so that the Fed reduces the rates will work?
Like many things Trump does, he gets into the foot. So they should cut faster, and they won’t do it because of Trump.
You pointed out to Tyler Cowen the other day that “people have forgotten political economy”. What do you mean?
A large part of what young macroeconomics do, especially when they study monetary policy, is that they look at it as the implementation of a thermostat. There is no one behind. It is a machine that you define, without ulors of patterns or incentives. If you say it to an ordinary person, they will never believe you, but a lot of Wall Street has come to believe.
The inflation expected by professionals, and in particular the markets, increased shortly after Biden. But you look at our debt, you look at some of the challenges we may have to face by paying our soldiers, paying progressive ideas, you know, and again and again, and there is a lot of pressure on us. Why will we think that we will never have another (round) inflation? It’s their head in the sand.
We will have a pandemic, a cyber war, or a kind of problem that I cannot even imagine, and there will be a balance between taking risks with inflation and taking risks with growth, and this very important debt will be one of the reasons why we do not want to take a risk on growth.
What do you do with Trump’s assault against Harvard?
The situation in universities is disastrous … If you go to around 1910, the reading lists (Harvard de Harvard) are very good. After that, he reads like the progressive manual. 1984 is no longer taught, (The) receiver in the rye is no longer taught, because for any reason, they think it’s too conservative …
If you go to the meetings of the American Economic Association, the word “inflation” does not seem to be evident before this year (according to a recent article). The word “debt” still does not appear in the main words, but “genre”, “environment” and “inequality” are main words.
There is therefore this problem of lack of diversity of thought. I certainly think that Dei was a good idea too far.
We have problems and we have to repair them, but Trump coming with this incredibly rude art of art, saying that he wants to direct Harvard – Well, it’s actually counterproductive. It will have a scary effect.
