Below is the transcript of an interview with Mohamed Al-Erian, Allianz’s chief economic adviser, broadcast on Sunday, September 6, 2020, on “Face the Nation”.
John Dickerson: And now we turn to Mohamed El-Erian, chief economic advisor for financial services company Allianz. He joins us from his home in Laguna Beach, California. good morning.
Allianz President, Economic Counselor, Mohamed El-Erian: Good morning.
John Dickerson: Let’s start with the unemployment rate. We learned on Friday in August that it had decreased to 8.4%. Muhammad, how do you feel about the economy now?
Al-Erian: If you just look at the numbers we got on Friday, you’d be optimistic. We have already gotten a sharp drop in the unemployment rate. We created 1.4 million new jobs. More people entered the workforce. But if you hold back on John, things get a little less good. why? The first is that the weight of improvement is declining. The second is that we’re trying to get out of a very deep hole. As I indicated at the start of the presentation, we have nearly 30 million people dependent on unemployment benefits. So it’s a half full, half empty image. This is a problem due to the deadlock on Capitol Hill. So, unfortunately, these numbers simply tell you that we still have a long way to go.
John Dickerson: I want to hit a dead end on Capitol Hill in a little while. But Federal Reserve Chairman Jerome Powell, in an interview with National Public Radio (NPR), said, or suggested anyway, that future job gains were in industries and sectors of the economy that may be difficult to revive because as COVID continues, these industries – They ask people to participate in it and people are not ready yet. How do you read that from what’s left there to be reaped in the economy?
Al-Arian: He is absolutely right. There is an idea of counterparty risk or what you and I call trust. In order to engage in economic activity, I must be confident that you are in good health. You have to trust that I am in good health. And until we get a clear way to do it, people will hold back. So we will not see a rapid recovery in all sectors. This comes at a time of increasing inequality, not just in income and wealth, but opportunities. So, as I said earlier, the road ahead is long. The good news is that we have policies to speed this up. The bad news is that the political system does not allow this.
John Dickerson: I want to keep this concept of counterparty risk for the moment. There has been this clumsy debate about opening the economy or doing what is necessary to alleviate the epidemic. What I hear you say is that as long as people are making risk assessments about their health, they will not be participating in the kind of economic activity that will return America to where it was economically before this hit.
Al-Arian: That is absolutely true. We have to understand that there is a difference between being able to work, reopening the economy, willingness to work, and willingness to engage in the economy. And until you improve both ability and desire, we will not go back to where we were. So, no, these are not alternatives. We have to do both. We must reopen in a healthy way.
John Dickerson: Let’s talk Capitol Hill. So – if you could set policy by magic, what would be the most beneficial policy that would help the economy in its current state?
Al-Erian: I will embark on a four-pronged strategy. One of them is comfort, and we’ve heard a lot about it, just helping people who are struggling for no reason of their own. Two is living better with COVID, what we just talked about. Third, identifying long-term pressures on growth. We are seeing more industrial focus. We are witnessing a further decline in globalization. Finally, reducing household economic insecurity. People have suffered. They dig into their savings. They won’t be ready to spend in the future unless you give them more safety net. We can do this, John. It is a matter of political implementation.
John Dickerson: So there’s political implementation, and then there are the new numbers that we’ve got this week on the deficit. The Congressional Budget Office said the record numbers, $ 3.3 trillion, are in 2020, three times the shortfall in 2019. How much should we preserve the debt and deficit in our thinking regarding these short-term measures and their cost?
Al-Arian: We must keep her in our thinking with important qualifications. The reason we care about debt and deficits is so-called sustainability. It’s just like you at home. How much you spend depends on how much you earn, and how much debt you get depends on your potential future earnings. The important thing is to ensure that the deficit promotes economic growth in the long term. If they did, and they were able, and if they did, we wouldn’t have to worry about the helplessness. If they didn’t, then we would have a growth problem and a debt problem.
John Dickerson: And sometimes people talk about the relationship between debt and the cost of money or interest rates. The Fed has indicated that it does not look like rates will rise anytime soon. Help people understand where the Fed is coming from these days.
Al-Erian: So basically, the Fed is the driver behind the metal. They will do everything they can to maintain the economic recovery, but they are only an enabler. They cannot achieve results. So what they’re trying to do is buy time for other policymakers to step in and actually improve economic growth. So look out for them to keep interest rates really low, almost at zero. Look for them to buy more securities and look for them to constantly assure us that they cover our backs.
John Dickerson: Help us understand why the stock market is booming even though the economy is in such a difficult position.
Al-Erian: Because of the Federal Reserve. You know, the primary question you would ask yourself, if you are a professional investor, is who else would buy this market? And if you think the Fed has a printing press in the basement and that it is not a commercial oriented entity then it is not sensitive to price, if you think that they will continue to support you then you buy in front of them. But, John, I continue to emphasize that there is a limit to how much the financial markets are separated from the underlying economy. And we’ve separated them a lot this year.
JOHN DICKEROSN: The last question in our last 40 seconds, Mohamed. Think long term. In 2021 and 2022 what kinds of long-term economic questions should we think about when we think about these presidential elections, as we try to think about how we can get out of this in the future?
Al-Arian: It’s one, John, can we grow in an inclusive and sustainable way. If we don’t, we will face major social and financial problems. It is about inclusive growth.
John Decirosen: Okay. Mohamed Al-Erian, Thank you very much for being with us, and for helping us solve all this. We will soon return with more faces of the nation. Stay with us.
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