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.
