Prof. Mohamed El-Erian Interview on Wharton Students, Global Economy & More

and hi everybody and welcome to this special Q&A from here at the Wharton School at the University of Pennsylvania I'm Dan Loney the host of Wharton Business Daily on Sirius XM 132 Daily Show from 10:00 a.m. to noon Eastern Time 7:00 a.m. starting out on the west coast our guest today is part of this Q & A is the chief economic advisor for Allianz and is now a senior global fellow at the Joseph H Lauder Institute for management and International Studies as well as a professor of practice here at the Wharton School Mohamed el-erian great to see you thank you for coming in and doing this thank you for having me so I mentioned you're now doing work here at the University of Pennsylvania in the Wharton School and obviously you're interacting with a lot of students over the course of your time here what is it that you are hearing from them what are the types of questions that are on the minds of students these days so they really want to know what sort of cure are they gonna have what sort of world are they gonna graduate in and they are curious about how unpredictable our world has become so there's a lot of interest in what skill said do I need to navigate this world but like like most people are their age they're worried they're worried about environment they're worried about that they're worried about jobs and come and they're worried about inequality so there is an element of concern mixed with an element of excitement you know they're dying to get into the real world how do you view the state of the global economy right now fragile I think is is what at the word I would use for the last few years and in particular since the global financial crisis we have been on a painkiller and that painkiller has been incredible liquidity support by central banks and I've kept the economy going they've certainly helped asset prices with stocks at all-time highs but they haven't solved what's holding back genuine inclusive economic growth they haven't done anything and they cannot do anything to help with infrastructure to help with labor retooling labor retraining education reform all the key things that drive genuine growth they were supposed to build a bridge to a comprehensive policy response which requires the politicians and so far it's been a bridge to nowhere especially in Europe that is a real issue in Europe much more than it is in the u.s. well then should a lot of people out there watching us today be concerned that we are going to see a quote unquote crash in the near future the way III answer that question is if I had sat with you four years ago and said Dan with a high degree of confidence this is what's gonna happen in the next four years what would he have thought of me I would have said look we're gonna have 17 trillion dollars of bonds that's a lot of bonds trading at negative yields which mean people will be willing to lend their money and pay for the privilege of lending their money there wasn't a single textbook that says that's a possibility if I told it the us the champion of free trade would become the most protectionist country in the world if I told you the UK would vote for breaks it if I told you we'd get all these anti-establishment outcomes if I told your Hong Kong would be on the verge of something that could be very very significant although these were unthinkable and yet they become reality our tendency because we don't like thinking being taken out of our comfort zone is to say that isolated they're not the system is telling you is under tremendous stress that we can cannot continue on this painkiller we started to see the unintended consequences of being addictive to a painkiller that's not having much impact in terms of what really matters so then what do you think is a bigger concern moving ahead into 2020 right now if we see a No Deal brexit or if there is a hard landing by China's economy so No Deal brags that is an issue for the UK and for Europe but less so for the rest of us is the curiosity honestly okay because it is really the MD impact is focused on the UK and on Europe China's very different Shyne is the second largest economy in the world there are a lot of linkages that go through China both on the supply side and on the demand side so a Chinese hard landing would have global consequences well beyond what breaks it would have so we talked a lot about in the in the recent period about the trade war between the United States and China and now there's a lot of talk about a quote-unquote phase one deal being completed what's the likely impact of phase one on the US and on the global markets and obviously we need to know what's involved in that as well so think of phase one as a truce that's what it is it's a no war no peace okay okay so the good news is that it's no war so we're not gonna have an escalation of tariffs unless the whole thing falls apart but the bad news is also not a peace it's not a durable peace and that's because it leaves out key issues where there are genuine grievances intellectual property theft is an issue force transfers of technology is an issue forcing people through joint ventures which is less of now but that also was an issue so I think there's a fundamental element of if you're gonna have free trade it also has to be fair what this phase one does it it lowers the tension it lowers the volume but it doesn't fundamentally solve anything so then do you think that there is enough in the works right now obviously we have to get through phase one but then to start to tackle what could be phases 2 3 and on down the road so there's two issues that concern me about that that's my hope yeah but but I think that's two issues one is taking a really long time to get phase one out truly yes right so that tells you that that that it's very hard to negotiate when you're missing two things trust and verification and I think that those elements are problematic the second which is even a bigger issue it's no longer than about economics it's about economics and national security right right and the minute you bring in the second element of national security you complicate the negotiations a lot and you know my own gut feeling is we're gonna get a truce but the more likely follow-up is when you tension rather than a do-over peace I hope I'm wrong but that's you know you want to hope for the peace but you won't want to plan on an escalation of tension again so it's part of our Q&A here today we have a variety of questions that we received in from the Wharton social media accounts and I want to dig into a couple of those right now if we can Anthony Morano if the EU decision post crisis would have been to remove grease from the euro currency how would you have structured and plan the Greek exit so these counterfactuals are really difficult it would first of all would have been messy there's no doubt that the first couple of years at least would have seen a massive recession would have seen lots of defaults and would have seen probably social political tensions so it would have been hard and I understand why every time where there was the new Greek government that had a referendum behind it and an election ok to exit if they didn't get what they wanted I didn't get what they wanted didn't do it or whether it's European the other eurozone members who didn't say to Greece I'm sorry but you don't belong in the club I understand why there was that hesitation no one wanted to go down in history for being responsible for two years of any economic institution financial social political mess having said that some of the fundamental issues haven't been addressed and it's good news that Greece now is at least growing again but it has lost 30% of its GDP so one would have been a very sharp V and this one has been more like EU and the hope that it they're going to continue on the use side from John Allen is there a cyclic allottee to how partisan global politics have become and can a moderate win it's hard if you look at any distribution whether it's political social or institutional the middle the center has been hollowed out and that is partly the result of too many years of economic growth that has been too low and insufficiently inclusive so not enough in terms of people's aspiration and that there's this strong perception and reality that the benefits of that growth have gone to the well-off what happens when you get that you get political anger what happens when you get political anger people are willing to dismantle things even if you don't have a substitute brexit as an example people were happy to vote for dismantling a long term economic relationship without know what they want in its place so it is very difficult to put the genie back into the bottle so I think we're gonna go through a period whether it is the political center whether it is the middle class whether it is mid-sized institution where that Center it's gonna be very hard to populate from Owen luttrell where do you see automation taking the economy and how will this affect jobs so I think automation and and more importantly this incredible combination of artificial intelligence machine learning and mobility is gonna take us to places that we cannot completely imagine and society as a whole will be better off but there will be big gamers and big losers so first of all what's what's great about that is whether it's I always say to people look at Amazon Google and uber as an example what they allow you to do and what's exciting about these three innovations to an economists is that you improve both the supply and the demand side at the same time so over is an example you bring in more vehicles that already exist and simply are underused onto the marketplace so increases supplied very low cost and increase demand because people really like to be in control of outcomes so you're gonna have all these changes that that will alter not just what we do but how we do it and that's really powerful having said that we learned two things one is you enable bad actors as well as good actors and we need to figure out a way to do that and secondly certain people will be marginalized for no no there can't be blamed for that and we've got to think very seriously about our safety nets our safety nets today are inadequate question from the Volvo ultra what are your views on telecom sectors impact on a country's economy so I think go to Kenya to see how telecom can totally revolutionize finance for example so so what is telecom basically telecom is an ability to leapfrog micro micro financing banking with your phone suddenly you can leapfrog many stages of development through that so it can have a huge element but again like any technology you enable good and bad and you have to be careful of minimizing the bad but it is part of the leapfrogging that that many developing countries can do right now and that's really exciting playing off the banking part of this for a second then what do you see is the the role in the future of cryptocurrency so I think they're going to always exist as part of the ecosystem but I do not believe they're going to develop into a big fully accepted currency and by fully accept the currency it's something that serves three purposes one is the medium of transaction that everybody accepts with with full trust second it it fulfills a precaution demand you can save its the store of value and third which it will do it becomes a speculative element of that the reason why is because central banks won't allow this to happen the issuance of currency involves huge benefits and that's not something that they're going to give up easily plus crypto in particular can enable a lot of bad actors on that but but at the same time I'm not of the of the view that this is a concert it's not I think what's really exciting about crypto currently currencies is the underlying technology I think blockchains technology that's gonna spread both in the private and public sector another question from online from Paulo Dutra it seems like backlash to globalization is intensifying out there what responsibilities do governments and businesses have in helping the general public understand the benefits of free and cooperative trade yeah and Paulo is absolutely right that there we have pressed pause on the globalization process and we are this close to pressing the button for the globalization and if we press the button for the globalization there's gonna be a massive adjustment process because the system is wide for globalization so the system can handle a pause it cannot handle going back in Reverse easily so there would be a lot of breakage Li's it's important to understand again people fell in love with the benefits of globalization and then realize that it was an equation benefits costs and risks so we all focus on the benefits and the costs and risks weren't managed and the costs and risks created a lot of anger in the system and that's the backlash as I said earlier I don't think it stops anytime soon so governments have to spend a lot of time explaining that when you look at the equation as a whole a it's positive the benefits are greater than a cosmic risk and B they will take seriously the management's of the of the cost and risk second lisa's culprits was the second part of of Paulo's question and I'm glad he included have also responsibilities and I think they they're starting to realize that having a social responsibility being responsible towards the environment being responsible towards a big range of stakeholders is not just a good thing to do it's an absolute necessity you cannot be a good house in a bad neighborhood you have to worry about the neighborhood and for too long companies have assumed if I just get my business right the neighborhood will be fine another realizing you know what we need to take some responsibility for the neighbor so do you think that that that mindset exists in general across the scope of the globe right now with with not only corporations but with the public in general so I think that among corporation it exists more than it did before it doesn't exist in general not yet but you I think we've gotten to a critical mass but is it moving in the right right yeah and you see it with with ESG you see it with certain initiatives where businesses are started embracing their responsibility so yes it's moving it started from a very low base but I think we've gotten to a critical mass where it's gonna build more traction on the government side no and you have to understand on the government side it's hard because if you if you respond to the anger you can get elected right and and and therefore because of political cycle being so short term we're going to go through this first I'm gonna respond to the anger okay until we get to a second stage where okay that's fine but you can't replace something with nothing that's what the UK is discovering you cannot replace something with nothing so you have to have a point of view as to what it is that you want to iterate to and I think that's gonna come - last question for you obviously you do a lot of work with economists business leaders the media but here at the Wharton you're going to be an instructor here at the Lauder Institute why the decision to spend your time in the classroom because I really enjoy and learn from being surrounded by smart people and what I find at Lourdes and Wharton is you get students that are very motivated they come from incredibly diverse backgrounds in terms of culture and nationality interest purpose is important for them and they have absolutely no hesitation to speak out and let and let you know what their view is so you get pretty quick feedback and I've engaged in conversation and we're literally the class starts talking among itself and I step back and I learn a ton and then in the follow-up I learn that so you know the the the hypothesis is going into this was he's a group of very smart inspired and enabled students that I can learn from the reality is I've learned a lot more than I thought I was gonna learn I mean it's been great and it's been a lot of fun as well you can see it on your face with the smile bit oh I love it I look I tell you I I love every single class it's been a lot of fun pleasure having you here today thanks for having thank you Mohamed el-erian and a pleasure to have all of you joining us here for our Q&A session here on at the Wharton School

Channel: Wharton School

Views: 8,588

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Keywords: Wharton, The Wharton School, business school, business, university of pennsylvania, penn, wharton business school, mba, wharton mba, mohamed el-erian, allianz, lauder institute, sirius, global, economy, brexit, ai, automation, machine learning, artificial intelligence

Id: 1DT2X6DKPxQ

Length: 18min 22sec (1102 seconds)

Published: Fri Nov 22 2019