Moody's Talks - Inside Economics - Greenland and The London Consensus

Episode Date: January 23, 2026

After a quick review of this past week's economic data, Professor Andrés Velasco, Dean of the School of Public Policy at the London School of Economics, joins the Inside Economics podcast, along with Head of International Economists, Gaurav Ganguly. The group dissects the U.S. push to acquire Greenland and Europe's response to it. They discuss President Trump's reaction to international dissent and conclude that TACO is a market-driven phenomenon. The discussion delves into income inequality worldwide, and the team debates how much it influences election outcomes. Finally, they discuss the London Consensus and how it offers alternative public policy choices in an era of rising nationalism and increasing income inequality.Guests: Andres Velasco, Dean of the School of Public Policy and Gaurav Ganguly,Head of International EconomistsLearn more about Andres's book by clicking hereListen to Global Economy Unwrapped podcast on Apple Podcasts and SpotifyHosts: Mark Zandi – Chief Economist, Moody’s Analytics, Cris deRitis – Deputy Chief Economist, Moody’s Analytics, and Marisa DiNatale – Senior Director - Head of Global Forecasting, Moody’s AnalyticsFollow Mark Zandi on 'X' and BlueSky @MarkZandi, Cris deRitis on LinkedIn, and Marisa DiNatale on LinkedIn Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics, and I'm joined by my two trusty co-host, Chris DeReedies and Marissa D. Nataleigh. Hi, guys. Hi, Mark. Hello. Hi, Chris. Mark. How are things? Things going? Everything okay? Yeah. I'm getting ready for the storm of century here. I know. I know. Last I looked at, what are we up to? Two feet in Philly? Wow. That's what they're saying.

Wow. Really? night. Let's see how good the forecasts are. Yeah. When does that hit? Chris? Supposed to hit. Saturday evening, apparently. It starts and then throughout Sunday and into Monday. Into Monday. The latest reading. It keeps changing. I'm flying up on Wednesday. You think I'll be okay? I think you'll be fine by Wednesday. Yeah. By Wednesday. Yeah. I'm speaking at the World Affairs. Is it the World Affairs? Yeah. World Affairs Council of Philadelphia. So that'd be fun. I'm looking forward to that. Yeah. In Villan The University of Villanova. Very close to my home in suburban Philly.

That should be a lot of fun. And we've got a couple of guests that we're going to get to in just a few minutes. We've got our own Garab Ganguly. Garab is the head of international economics and has his own podcast that I plug last week. I understand that my plug caused a bump in their listenership. So we have an impact guy. We have an impact. We have also Andre Velasco.

Andre is the dean of the School of Public Policy, London School of Economics. He has a new book out on the so-called London Consensus and a wide-ranging conversation on that. And that'll follow our brief conversation here on the economic data of the week. I don't know, guys. What do you want to focus on? In that other conversation, we're going to focus on things like what's going on in Greenland and Venezuela, a lot of what's going on overseas, which obviously has been top of mind here over the the past week and talk about the implications of all that. But here, in this part of the conversation,

I thought we talked about the data that came out this week and if we'd learn anything about how the economy is doing. Chris, do you want to give us, give me your sense of what the data say and how things are going? Sure. I think all two series that came out this week that are particular relevance are the GDP numbers and the PCE. That's the personal consummings. consumption, expenditure, inflation, the Fed's preferred inflation measure. I don't know that we learned anything really different. GDP for the third quarter was revised up a little bit, so 4.4% on a year-over-year basis, so showing still continued strength, consumers still hanging in there, kind of pushing the economy forward

with their consumption. So overall, I'd say still, again, kind of looking in the back rearview mirror here because it's Q3, but still, indicating that the economy came into the fourth quarter with quite a bit of momentum still. And then on the inflation side, PC inflation also bumped up a little bit to 2.8% year over year. So moving in the wrong direction. So not improving, but at least not accelerating. That's been the spin on the inflation numbers at the moment.

I think the market kind of interpretation of that is kind of we're going to continue to be in this range here. And therefore, you didn't see much of a violent market reaction, even with inflation ticking up a bit. There were certainly other factors that drove the stock market this week. Yeah, I've noticed kind of a wide range of estimates now for fourth quarter GDP, because now we're getting data, the monthly data that helps determine what the Q4 GDP. And I guess we're going to get that this time next month.

we're going to get Q4. And it looks like it might be coming in on the high side, but I'm not sure what to make of it because of all the data issues. I mean, for example, there was no CPI data collected for the month of October. The Bureau of Labor Statistics basically assumed that there was no inflation during the month, which obviously is not the case, but that was an assumption they made. And that's, I think, juicing up estimates of real spending, consumer spending, which juices up our estimate of Q4 GDP.

And then there's all kinds of things still going on with trade because of the tariffs. That's really messing with the data, the numbers. So right now I'm seeing estimates. Our tracking estimate now is close to 4% annualized in Q4. I think that's pretty close to the Atlanta Fed now tracker. I've seen other estimates from respected economists that are closer to two, something like that. So they're all over the map.

I thought Atlanta Fed was actually over five. Oh, is it over five? I think it's like, wow. Maybe. Yeah. Yeah. Let me ask you this, though, Chris. Yeah.

What do you think, because there is a lot of moving parts here, a lot of squirrelly data. Obviously, the tariffs and trade are pushing the numbers around. Because we saw a decline in GDP in the first quarter of 2025 and now the strong number since then. What do you think underlying GDP growth is? I mean, abstracting from the vagaries of the data. think it is? What's your sense of it? So through the fourth quarter? Yeah, through QSake. Yeah, yeah, yeah, yeah, through the, safe through the end of the year. Where are we now coming into 2026? It's better way to saying it. Yeah, I'd say it's probably my, my guess, it's around two and a

quarter, two point two, two point two point three percent. Yeah. The GDI, the gross domestic income measure came out for a Q3, again, looking in the rear view mirror still, but it shows a little bit more moderation than what the GDP number was suggesting. So somewhere in there. So still kind of right at what I would assume is, I guess, a little bit below potential growth given weakness in the labor market, but pretty close, I'd say. Right, right, because we're not creating any jobs and unemployment is notching higher. So if the economy's growth is two and a quarter, that's got to mean that the potential growth is a tad higher than that, maybe closer to two and a half, something like that. Right, right. Yeah. Maybe productivity

and I guess that would be, that's kind of weird in the sense that labor force growth has been underlying labor force growth is weaker because of the immigration policy. So I would argue that productivity growth has picked up here on a trend basis. That's right. That's right. Which I, which would be consistent with AI effects, you know, starting to kick in, I guess. But interesting. So, Marissa, what's your perspective on the underlying rate of GDP growth? Is it about any different thing Chris is? I would have said a little higher, maybe two and a half percent. Oh, two and a half.

Okay. Yeah. I think there is quite strong productivity growth that is making up for some of that weaker labor force growth. I don't know that it's all AI. That's potential growth, right? That's not. Potential, yeah, yeah, that's right.

What is the underlying rate of actual GDP growth? I think it's around that. I think it's right. around potential, yeah. So I would peg them both at around 2 and a half percent. Yeah. Yeah. So of all the data that came out, other than what Chris mentioned, is there any data that you would point to that you want to call out? Well, we got the University of Michigan Consumer Confidence Survey today. And that actually, it's still very, very low, right, from a historical perspective, but it rose. And it's now as high as it's been since August of last year.

So there was a pretty big bump in January. And there was also a downshift in expectations for inflation. So I'm not sure what exactly, you know, caused people to have a rosier view. I mean, it could be the end of the government shutdown. It could be, I think, very strong stock market gains that have continued, right, this month, the exception of Monday, I guess. But, yeah, I mean, confidence looks to be a little bit higher, and people's expectations on inflation look to be a little bit lower a year out and five years out. And we got spending data. I mean, Chris mentioned GDP and the PCE, right, but we got spending data and we got income data.

income looked a little weak, but spending was strong through October and November, coming into the holiday season. Again, this is all in the rearview mirror delays in the data, but people are still spending, which, you know, goes right into the measures of GDP and consumption. Right. And just so everyone knows, we're taping this midday, Friday, January 23rd. So this has got the University of Michigan survey data today. Yeah, and that goes to one of the data points I would call out, and that's the saving rate, a personal saving rate. Did you see that? It fell to 3.5 percent, to your point that incomes have been weaker than spending, and this goes to the wealth effect, right?

In fact, the saving rate, I think I have this right. If you go back, it kind of near term peak was April of 2025. Obviously, Liberation Day. It seems like everything changed on that day. But, you know, the saving rate was five and a half. and a half percent. It's now three and a half percent. That's a two percentage point drop in it, and, you know, just not quite a year. That's dramatic. That's pretty significant. And that goes, I think, to the wealth, that's what you would expect from a positive wealth effect.

So your wealth increases, that's the stock market. And because of that, you're more willing and able to spend out of income, meaning lower rates of saving. And this is exactly what you would see. but at 3.5% we're now quite low compared to recent historical standards, you know, abstracting from what happened during the teeth of the pandemic. And that suggests that saving rates are, you know, below what I would consider to be kind of the equilibrium saving rate, the kind of the trend saving rate. So that might argue, you know, we might not see the same kind of spending growth going forward, hard to continue to push. You can. The saving rate could go lower, but it's pretty low by historical standards.

The other data that I call out is housing, right, Chris? I mean, it feels, I'm not sure what to make of it. It feels like things actually have weakened a bit here. You talk about pending home sales? Pending home sales. That was pretty weak. That was, yeah, down 9% I think. A lot.

Yeah. And then I think the sort of the sentiment survey, wasn't that also on the soft side? I think it declined the Home Builder's sentiment survey. And this is despite mortgage rates came down a little bit until the kerfuffle over Greenland, but they had gotten close, fixed mortgage rates, it got down to about 6%. I thought that might support things, but it doesn't feel like that's the case. I mean, it feels like housing still. It was pretty brief, though, was that, right?

Yeah, it was pretty brief. A few days there. So was it only a few days that it was at six? Well, maybe a week. Yeah. Yeah. Okay. Yeah.

But with the treasury rate going back up, it's mortgage rates are back up as well to like six and a quarter. Right. Right. Okay. Okay. So bringing it all together, summing it all up, it feels like economy, at least from a GDP perspective is it's okay.

It's okay. At or near potential, you know, something like that, which is somewhere north of 2%. Maybe as high as 2 and a half. That's kind of the bottom line, right? That's right. Right, Marissa? Okay. That's right.

All right. Anything else before we switch gears here and talk to Garav and Andre? Anything else? Do you want to bring up? No? Well, good luck. We have a Federal Reserve meeting next week. Very unlikely to do anything. They do anything. The markets expect nothing, right? Right. That's right. 90%. They don't do anything, I think. 98%. All right. Well, you know, there was a pretty up and down week given what happened in Greenland.

And this is a great time to bring in our guests, Garab and Andres, to continue the conversation. Good to see you. Hello. Good to see you, too. Thanks for the invitation. Oh, it's a pleasure to have you. And Andre is the dean of the School of Public Policy at the London School of Economics. That's right. My wife went to LSC, and she reminds me it's the London School of Economics and Political Science.

Is that still the case? That's exactly right, yes. And, of course, you know, also school of sociology and anthropology and history and a number of other disciplines. but only social sciences, no hard or natural sciences. Well, it's an amazing center of higher education. And how long has it been around? How long has all of it been around? It's been around since 1895.

Oh, 1895. And it was launched by the Fabian Socialists. And initially, back in 1895, was a place for training the working classes. That's why it was deliberately placed in the middle of London, in contrast to Cambridge or Oxford, which happened to be in lovely little towns on the countryside. Well, I want to get to your history because it's a pretty amazing kind of road to becoming the dean at LSC that you've lived. And, of course, the other key reason that you've joined us here is you have a new book out, or it's a recent book called The Lunning Consenthus. And we want to dig deep into that, you know, here in the time that we have.

have. Before we get there, though, I do want to talk about recent events because there's a lot of drama that I think you are well positioned to comment on and have, I'm sure you have a view on, so we'll do that in just a second. But let me introduce the other participant in this part of the conversation, and that's Garab Ganguly. Garav is head of international economics. Hey, Garav. Hi, Mark. Good to be here. Yeah, it's good to have you. You're a little low in the screen, Garav, you might want to, if you can. I didn't realize this was a video, a video show as well. Oh, of course, yeah, yeah, we're on YouTube.

Oh, look at that. That looks great. Fantastic. Yeah, perfect. Last time I came on, this was just an audio show, so you guys have evolved a lot since. Uh-huh. Was that right? It's been a while since we've had you on.

My apologies. But you've got your own podcast now. Yeah, that's right. Thank you for mentioning it. It's called The Global Economy Unwrapped. And we talk about lots of things to do with Europe, Asia, and everywhere else in the world. Generally not the Americas. But, hey, you've got to talk about the Americas, given what's going on.

Well, I have not been invited on your podcast recently. Oh, that's very remiss of me. And I take that a little pointed reminder. Yeah, very good. Well, we're glad to have you on. So, Andre, tell us about yourself and your career path. How did you get to become dean at LSC? Well, I've been here for eight years.

I'm, you know, if I go back to the beginning, I am a citizen of Chile. I was born and raised in Chile. I was educated mostly in the U.S., largely to what some people in Chile sarcastically called a Pinochet scholarship, namely my family was kicked out of Chile by General Pinochet, so I had a chance to go to school both a couple years of high school and then college and graduate school. in the East Coast of the U.S. And, you know, my brain is half of that of an academic. I've taught at different places.

I taught at NYU, at Columbia, at the Kennedy School at Harvard for a bunch of years. And probably half of my other brain is that of a policymaker. I've been involved in policy in different guises. And especially I was the Minister of Finance of Chile for four years during the first administration of Michel Bachelet, between 2006 and 2010. So a lot of my work sort of straddles academic research and policymaking. You know, as an academic, I'm very policy-focused,

and as a policymaker, I try to apply the things that I had learned, you know, when writing papers and writing books and that sort of thing. And as I say, I've been here at the LSC for eight years, building a new school of public policy. You know, the LSC has been for a long time very involved in policy, of course. We're located smack in the middle of London, just a few blocks away from Parliament and from the city of London. But we never had a proper school of public policy like, say, the Kennedy School or the Harris School at Chicago or Blavatnik at Oxford. And that was launched eight years ago, and I was a lucky guy who got to be the inaugural dean, as they like to say in England.

And I think you guys were PhD at Columbia, didn't you? I did. I did. I was an undergraduate at Yale and did a PhD at Columbia. And who were the kind of the professors there at Columbia when you were their student there? The guy who dragged me from Yale to Columbia was a great Latin American economic historian, Carlos Diaz Alejandro, who died tragically very, very young in his 40s. And then at Columbia, I studied with Mori Offsfeld, who was later the chief economist at the IMF.

I studied with the great Argentine economist Guillermo Calvo. You know, for nerdy macroeconomist, the guy who invented Calvo sticky prices, very influential in academic research. And, you know, Colombia at the time was a really happening place. I took international economics from Bob Mandel, who won the Nobel Prize. I took macro from Ned Phelps, who won the Nobel Prize. I had the great Ron Finley and Jack Dix Baguati teaching international trade. So, you know, a very distinguished set of teachers. Very distinguished.

That's a cool group of folks. Yeah, absolutely. Yeah. And you also ran for higher office, too, I read. I did indeed, yes. I did. Well, you know, once you the finance minister. you think, hmm, I could do other jobs in government.

So, I am, you know, Chile has a pretty well-developed system of presidential primaries. You know, the sort of the center left and the center-right typically have primaries. So I ran in the primaries in 2013. It was a five-person field. I came in second, but, you know, second was dignified, but not good enough to win the nomination. Well, are you happy or sad that it went in that direction? Well, if you ask my wife and kids, they will tell you they're very happy. You know, for the family, the life of an academic is much better than the life of a politician.

You know, politicians, you know, work all the time. They're on the phone all the time. You know, you live under a great deal of pressure. As an academic, you're a busy person and you face pressure as well. different kind of pressure is much more self-imposed or more in control of your life. But in some sense, what I've done, you know, to some people it sounds as though being an academic and writing papers is dramatically different from being in government. In my mind, it is not so different.

As I was saying earlier, you know, for instance, I was the Minister of Finance of Chile during the world financial crisis beginning in 2007. And it turns out that my advisor early on, this man that I just mentioned, and Carlos Diaz-Alexandro was the great historian of economic crisis in Latin America. So when things went, you know, pear-shaped in 2007, I could say, hey, we've seen this movie before. We know what happens. We've seen it in Latin America.

We had seen it, you know, when the Soviet Union collapsed in the Baltics and the Scandinavian countries. Of course, you had the Great Depression to learn from, et cetera. So the fact that I've been studying crisis for a long time certainly helped me get my head around what needed to be done. Well, talking about crises, why don't we talk a little bit about current events? It feels like we got a crisis every other. Yeah, and the one that has come to the fore and faded now pretty quick, well, hopefully

faded pretty quickly, is over Greenland. And just an open-ended question, what do you make of that, what's happened over Greenland? Well, you know, it's obviously sad and distressing. You know, as somebody who lived in the U.S. for many years, I looked at the country which welcomed me as a kid, and I find it hard to recognize it. And I, you know, when I moved to the years and I was 16, and the amazing thing was exactly sort of the quality of the debate

and the quality of democratic politics in the U.S. Not sure you can say that with a straight face now. But moving on to Greenland, I think we learned two things. Or, you know, these are two things that we sort of knew already, but they were confirmed. The first one that, as Mark Carney put it very eloquently in Davos, the old rules-based system is, if not over, at least severely weakened. And reasonable governments and reasonable countries, Canada certainly included, have to be. begin thinking, you know, what's plan B? How it is that the European Union, the UK, other European countries, which are not in the European Union, Canada, Australia, New Zealand, Japan,

Korea, the democracies in South America, countries like Brazil or my own country, Chile, how do they collaborate in a world where it seems that might make right and where the President of the United States governs by tweet and governs by, you know, by tantrum. The second thing I think we learn is that, you know, the taco concoction happens to be right. You know, Robert Oph Armstrong and the F.T came up with this acronym. I'm sure everybody who's listening knows about it. You know, TACO, Trump always chickens out. And he seems to have chickened out, especially when.

markets reacted. So what causes Trump to chicken out? Well, apparently the stock market has a pretty strong role in that. And then, you know, just to kind of, you know, close it off, I would say it is not irrelevant what countries do in reaction to threats from Washington. And the fact that the European for the first time said, hey, we will retaliate. And the fact that the prime minister of Canada went to Davos and without naming Trump went after Trump, that's not Kamikaze. I think that makes sense. You know, once upon a time in my life, I was student of game theory. And game theory would suggest that when you're dealing with somebody who's always trying to

defect, well, you want to defect too, defect from cooperation, right? Because otherwise, the other guy will eat you for lunch. And I think finally, the EU, finally the UK, Canada, other countries are learning that lesson. Yeah, totally. This is the crux of the conversation I was having with Garab earlier today. And kind of from my perspective, and I think it's very consistent with what you said is we've learned three things about the way the president operates, President Trump operates. One is he's going to say, he's going to do what he says he's going to do. Like, you know, we should be pay attention when he said Greenland, you know, three months ago. That means he's coming for, something's going to happen with Greenland. Venezuela is the same deal. The second thing is, if you push back, then he will step back. And push back, you know, and pushback, you said it manifests in the form of weaker equity prices, higher bond yields, that that was enough to get him to reconsider, at least his approach, up to this point. And the third thing I think we've learned, and I think just echoing what you said,

is that if you don't push back, he's going to come again. He's going to push harder. He's not going away. He's not going away. Exactly. Yeah, okay. That's exactly right. And, you know, we should have known that all along.

Maybe we forgot. But it makes perfect sense. Let me bring Garab into the conversation, though. Grav made the point to me, and this is where the argument occurred, or that might be too strong a word. The heated discussion occurred was around levels. that the point that the Europeans, and maybe Groff, let me just hand it over to you. You make your point.

I don't want to paraphrase what you want to say here about the Europeans and leverage. I think my worry here is about us just talking about Europe, as though it's one entity. We had Macron talk about using the anti-coercion instrument, and that may well have spook markets. do not deny that at all. But I think it's still some way for Europe to go before it actually becomes cohesive enough to stand up to this sort of pressure. This may be the first time it has realized

that it can do so and it needs to do so. But I think there's still a long way to go before it actually does do so. And until then, I'm skeptical about European leverage. I think also we were talking about the possibility of Europeans selling financial instruments. And again, it comes down to this use of the word, Europe, when we have a whole bunch of individual pension funds in different countries, all acting

to private mandates, actually getting that kind of European action is really quite hard to see. So that's why I think it's really good if Europe does stand up. I think everything you've said, Andre, makes perfect sense. We were hoping, I guess I was personally hoping to see an even stronger European response to Greenland. The fact that I saw some was good, was very heartening. But I think it's got some way to go before we see what Europe really needs to do. I think that's absolutely right. And Europe has a tremendous talent for dragging its feet. But as Gravia just said, you know, the Europeans seem to be waking up to this reality.

And if you think at what levers they have, I think they're not powerless. There's one weakness, of course. weakness is that Europe still owes its security to the U.S. Army and the U.S. Navy and the U.S. Air Force. I have a colleague from Spain, who teaches at the L.S. who wrote a piece about this recently, and he said, you cannot really win a fight against the army that protects you. That is a huge source of weakness, right? And that can only be addressed in the medium term by doing what Europe needs to do, namely spending more money on defense and on security. Some countries understand that.

Poland certainly knows that Germany is beginning to get, that Britain understands that other countries like Italy or Spain don't. But if you think about economics, you know, the European economy is large. In fact, the EU plus Britain plus Norway plus Switzerland is roughly the size of the United States. and given that Trump seems to care about the stock market and also about what happens to the value of the companies owned by his friends in the tech sector, well, you know, Europe is by far the largest customer outside the U.S. for tech products and tech services, and it wouldn't take a lot of regulation or a lot of taxation from Europe to make a real dent

on the valuation of some of those companies. and so that's another area where Europe can make a difference. I don't think, and you guys, I think, will agree that we're going to wake up one morning and find the German treasury, you know, dumping a lot of U.S. treasuries. You know, that has obvious consequences that nobody really wants to face, right? Namely, it may be a very large and liquid market, but ultimately you don't want to shoot yourself on the head

by deflating the value of what you own. and of course the same holds for the Chinese. But short of that, Europe has other levers. They've been way too timid when it comes to using them. And ideally, they're waking up to a new reality. If I could jump in here, I think, can I'll go back to this concept of Europe? And while I think you're right, Europe's simply been too timid and it can do things to hurt the US. But it's also, I think, the participant member states are not united enough in all of this.

And countries are also deeply aware that this is, if you proceed down this road, it is one of mutually assured destruction. Europe is big enough to really hurt the US. But it is also very clear that these economic actions will hurt the EU. And therefore, to undertake these actions requires a lot of cohesion, a lot of unanimity. And I think this is where I have my doubts. And are we really there yet in terms of European unanimity. Because if we are not, then it's fine to talk about these levels. it's fine to talk about ways in which the EU can hurt the US, but will we actually get there?

If you think about the ACI, that can be triggered, but then there's a procedure, isn't there? And that procedure requires an investigation to see if a country is being coercive in its actions. That then requires a qualified majority. Actions have to be debated that go into national implementation, so on and so forth. So you can see the cohesiveness argument is really quite important. That is true, but not all European countries. created equal. And in the past, it is true that many things that require unanimity and didn't seem likely that they would get unanimity, once France and Germany and a couple of the others were in agreement,

they do find a way of pushing the little guys. You know, think of all the attempts by Orban in Hungary to boycott this, that, and the other, and he has taken stances and he has made faces and he has said, I will not go along. And in the end, he does, among other things, because Orban needs European money. and because Orban is a tiny little fish in a much larger pond. So, yes, Europe will find every way to drag its feet and to take time and to confuse people and to write reports and to, you know, and to avoid acting in time. But in the end, it does. If you go back to, say, you know, the management of the European fiscal and financial crisis, you know, after the world crisis, you know, Angela Merkel took forever to agree that, in fact, you need a write-down. in Greece, but they finally did it.

They should have done it three or four years earlier, but they finally did it. I think in this case, they might come three or four years late to the action, but I suspect they eventually will, not because Europe is so wise politically, simply because the alternatives are just too nasty to consider. You know, I think the garage, we talked about what could Europe do is really the markets. I mean, that's the real leverage. And it doesn't take a whole lot to move markets. I mean, the Dutch pension fund says, I'm selling $100 million in bonds.

That means nothing in a $35 trillion market. But that sends a very strong signal and strong enough that bond yields rise 20, 25 basis points. That's a deal. That's a big deal. And in the world of the way I think the administration is thinking about things. So actually, I think there's a lot of leverage there. And you keep saying, just for the listener, because they're not as up to speed as you are the anti-coercion measure. You know, that is a law that was passed that allows the European Union to respond to economic attacks

with without a, with a, it's not a super majority. It's what's the term? It's the qualified majority. That feels like that's pretty significant. You know, the kind of the steps that can be taken there are not inconsequential. And if you kind of just even go down that path a little way, I think. I think markets would respond to that. And again, I think that's the leverage.

It's the markets. Would you agree with that, Andre, with that perspective? Yeah, absolutely. Yeah. Okay. You know, one thing we know about financial markets is that they move before everything else does. Yes, you know, markets anticipate future developments, right? So if the markets come to believe the European Union will act three months from now,

well, the markets will react today and they will react sharply, as we've seen a happen. And, you know, Trump may not care about democracy, but he does seem to care about the stock market and bond yields. Okay, we're going to get to London consensus, but one more step along the way. Venezuela, how do you think about Venezuela in the context of Greenland? It's just another example of the things that we talked about. Is there another dimension to that event in your mind? I think that there's a second dimension. One is, of course, the ability of the U.S. to act unilaterally.

But in the case of Venezuela, what's most striking is not the intervention. What's most striking is what happened or didn't happen after the intervention. I think, and you said that at the outset, we cannot be surprised that Trump took military action in Venezuela, given that he had been sort of telegraphing that for a long time, Where I think the world was surprised and remained surprised is that the United States would now act in agreement and in coordination, what is, according to the U.S. government itself, a completely illegitimate, corrupt and inept regime. I know I heard my friend Ricardo Hausman speak at Davos on Venezuela, and the way he described it was as follows. he said, this is the ultimate case of whiplash. You know, Venezuelans take to the streets because they see the evil dictator is out,

and the next day they're told that the evil dictator second in command is now the White House best friend. And that is not only appalling when it comes to democracy and human rights and human dignity, but it is in fact shooting yourself on the foot even from the point of view of American interests. because even if you define American interests very narrowly as getting the Venezuelan oil industry up and running again, that is not going to happen without tens of billions of dollars of investment. And as Trump was stalled when he met with the main executives of the oil majors, no private company is going to write a check to make a huge, investment in a country that is being run by the thugs who today run Venezuela with no legal

guarantees, no rights of any kind, including property rights, no predictability when it comes to policy, et cetera. So Jason Bordoff, the energy expert from Colombia, was on the same panel at Davos, and he said, yes, Venezuela is producing a little bit less than a million barrels a day with, you know, the sort of lifting or the tweaking of U.S. sanctions and maybe a bit more production by Pedevesa and by Repsol and by Chevron, which happened still to be there, you go from, say, 800,000 to 1.2, 1.3 million barrels a day. That is a third of what Venezuela used to produce at its peak. And to go back to three or four million barrels a day, Bordoff said, you need tens of billions

of dollars of investment. And that simply is not going to materialize. That simply is not going to happen. And therefore, even if, you know, even if Trump's interests are very narrowly defined as oil, oil, oil, that oil is not going to be produced. The profits are not going to be made. So the whole thing seems very self-defeating.

Let alone, you know, absolutely, absolutely appalling from the point of view of the rights of Venezuelans and the future of Venezuelan democracy. Well, I guess that's what oil markets are saying. I mean, the price of oil is no higher, no lower today than it was before. Exactly. Of course, a lot of other stuff is going on, Iran, and everything else.

Sure, sure. But it doesn't move the dial to any significant degree. You know, one other concern I have about Venezuela is, does it, what kind of signal does that send to China or to Russia? I mean, does that make it more likely that China would step in in Taiwan and Russia become more adventurous in the Baltics? I mean, it is quite possible that we're going back to the 19th century spheres of influence world in which this is in my backyard and I do as I please in my backyard. If that is a reading that Putin and she extract from this extraction, that's terrible news. parenthetically, as a Latin American, I can tell you that, you know, being America's backyard is not something in anybody's too keen on. And it's also a bit of an empty boast, right?

Because, yes, you can send in the Marines and abduct two guys. And believe me, you know, Maludo is no friend of mine. He was a terrible and bloodthirsty and corrupt dictator. So I am not sending any tears for him. but how much leverage will the U.S. really have on Venezuela remains to be seen, how much leverage the U.S. may have on Brazil, say, very, very little. You know, the U.S. is not even a major trading partner for Brazil. And in fact, in a country like Brazil, the actual effect has been the opposite of what Trump wanted,

namely Lula, who was looking like lame duck, now looks pretty strong for re-election. So you could end up with the same effect you had in Canada, in Australia, a center-left, or in the case of Brazil, a real left-wing president who seemed likely to lose may now win simply because people say, if Trump is going after him, he can't be so bad after all. Well, let's turn to the book, the London Consensus. And when was it published, Andre? When did you publish the book?

Not that long ago. October of last year. So we're still going around presenting the book. We've done it in the U.S. and the U.K. in Europe, in India, and in Brazil, and a number of other places. And here on Inside Economics, too. We've got you. Indeed.

Indeed. Happy to talk about it. So look, you know, let me give you the sort of 30 second pitch. Yeah. 2025 marked 35 years since the publication of that other book that contained that Washington consensus. The Washington consensus is, you know, some people love it, some people hate it, but without a question, it was influential.

It mattered a lot. in the way policy was crafted. Not only in developing countries, but the Washington Consensus also contained some ideas that people like Ronald Reagan and Margaret Thatcher put into practice. And, of course, after the collapse of the Berlin Wall, that set of ideas was very influential in Eastern Europe and the former Soviet Union, bits of Asia, bits of Africa, etc.

So, realizing that 35 years is a very long time, my co-conspirator, Tim Bezley, professor also at the last the School of Economics, and I and a third co-editor, Irani Wuchelli, we said, look, let us gather a group of leading economists and ask them in your subfield, if you do international trade or if you do productivity, or if you do labor markets, what has changed in economics and in the real world in the last 35 years? What do we know today that we didn't know back then. And what is it about the Washington Consensus that was right and useful and should be kept? And what is it that was wrong and useless and should be replaced? And Tim Bezley and I

wrote an introduction in which we try to sort of summarize those lessons. There's no one punchline. And like the Washington Consensus, we resisted the temptation of saying, these are the ten things that every country should do. We don't believe in the sort of one-size-fits-all approach. But there are things that today seem pretty important, pretty evident, and which back then were either ignored, neglected, or simply not part of the discussion. What would be the top of the list, though, Andre? What would you point to? I would say that perhaps the biggest lesson that we have learned, and this might be surprising, because it's not a single policy, but it has more to do with the way we think about policy formulation and what the problem is that we're trying to solve.

I think we have learned that people care about things other or in addition to jobs and incomes and consumptions. You know, there's a big debate in the world. Why is it that even though many countries have kept on growing, citizens seem to be so disgruntled and so unhappy, even in consolidated rich Western democracies like the U.S. or Western Europe? And one answer is that even when the economy grows, there are things about the way the economy operates that don't make people very happy. That sounds very vague. So let me give you an example. We have learned, for instance, that people are very reluctant to move where the better jobs are because they care about jobs, but they also care about the place they live, the roots in their community, and being near the family and friends.

And when people do move away, and when the younger and the more enterprising members of a community move away, what's left behind are regions that do very poorly. We've learned this, say, in the Rust Belt of the United States. We've learned this in the north of England. We've learned it in bits of France and Spain. And therefore, one lesson that comes from this is that we need to think a lot more about the link between economic activity and, And the places where things happen, it is not enough to say to people in Gary, Indiana, hey, move to Miami, move to California. A, because the people who do may be leaving behind valuable links and valuable community,

which matter for their well-being, but also because the places that are left behind tend to do very poorly when the young and the enterprising leave. So that gives a whole different spin to the way we think about policy. That's one example. But I think it's an important example because it points to the economic, of it, but also potentially to the politics of it. We need to think much more systematically about how it is that we prevent, you know, communities and policies and societies from slipping into the kind of dismay, then that leads to Trump or leads to populism in Brazil or, you know,

to the rights of the AFD in Germany, so on and so forth. Well, you know, one of the things about the Washington consensus is that you've got measures that we've been tracking from the beginning of time. We know what GDP, or we think we know what GDP is. We can count jobs. You know, what we know what incomes are. We know what the stock prices are. We know, you know, how much stock wealth is being generated. Those things we can measure. With regard to the London consensus and those things that people, as you say, want, the problem, at least from one of the problems from my perspective. How do we just don't measure them or we we have a hard time measuring? Well, first of all, a clarification. I am certainly not arguing and I don't think any of the

colleagues who co-wrote the book would argue that things like macro stability and growth are unimportant. On the contrary, you know, I grew up in the developing world. I'm the first one to argue that growth is very, very important. I am so I'm not on the no growth camp or the de-growth camp, that's simply not in the cards. But we need to ask ourselves a very important question. Why is it in countries in which the economy seems to do rather well that people are so pissed off? Right. And we need to answer that question not simply because we're sort of wishy-washy, well-meaning people.

We need to answer it for a very urgent reason, because when people are pissed off, they tend to elect very bad leaders. And the very bad leaders tend to do very bad things, including very bad things to the economy, as we have been discussing in the first half of this conversation. So this is not a wishy-washy, let's hold hands and own together sort of argument. This is a hard-headed argument about trying to understand and trying to measure. You're absolutely right.

We need more data. Let me put it somewhat differently. There has been a conventional wisdom in the world out there that says, oh, you know, we're getting all these bad politicians and all these populace and all these authoritarian regimes because democracy hasn't performed. And that is true in some places. But it's not true across the board. You know, Turkey was a very fast-growing country and then we got Erdogan.

India has been a very fast country and then we get Modi, who's been very busy weakening the liberal aspect of democracy in India. Israel is certainly not an underperformer. and then you get Netanyahu weakening the foundations of democracy in Israel. My country, Chile, was probably the best performing country in Latin America, and over the last 10, 15 years, or even less, in the last seven years, you've had massive protests, then a very far left guy being elected, and more recently a very far right guy being elected.

So something is going on here that suggests that even in economies that perform well, and of course the U.S. is the country in the rich world that grows the most, nonetheless there's a great deal of customer dissatisfaction. And the fact that we don't know how to measure that should not simply lead us to think that, okay, well, if we can't measure it, let's ignore it. We can't ignore it. Right, right. Well, in the context of the U.S., you know, one way I think about explaining this

kind of seeming disconnect between the top line, let's say, GDP numbers or the record stock market and corporate earnings, in the way the typical American feels is the skewing of the income wealth and spending distribution, which has been long running. And talk about measurement issues, we've got all kinds of measurement problems. I mean, just to measure what percent of income or wealth or spending goes to a certain income part of the income distribution is not easy. And it's a matter of enormous debate.

So we've done some work here. So, for example, what we found is that the – folks in the top 20% of the income distribution. And that's, this is in the U.S. And you have to make over $175,000 a year to be in that group. I know that doesn't sound like a lot if you're sitting in London maybe, but that's a big deal when you're sitting in New York for that matter. Or in New York for that matter, right?

The top 20% accounts for 60% of all the outlays of all the spending. So, and that's up from closer to 50% back 30 years ago. and it's pretty steady increase, you know, over time. There's a cyclical component to it, and during the teeth of the pandemic, when there's a lot of government benefits to low-income households that changed, but generally that's in the case. So that feel, but measuring that is hard, and it's not, it's subject to a lot of different assumptions,

and it's very difficult to measure, and people object to it and criticize it, and it's hard to gain any traction. Let me push back on that a little bit. Okay. And before I do, let me clarify one thing. I certainly believe that income distribution is very important, and that when income distribution becomes more unequal, we should worry.

And in fact, in the London Consensus book, we have a really good paper from a guy called Francisco Ferreira from Brazil, professor at the LSC, who's probably the leading authority in the world on how we measure this. And he has lots of fascinating facts. But having said that, On the issue of the connection between inequality and populism, I don't buy the idea that inequality is the main cause behind populism.

And the reason is very simple. Across the world and across time, that explanation does not perform very well. Across the world, first, you will remember Barack Obama said, everybody loves Lula and Brazil because Brazil is the country in the world that has done the most to fight income inequality. A year later, Lula was out and Bolsonaro was in. Okay. In the U.S., yes, inequality has risen over the last 25, 30 years. But in Western Europe, it has not.

And nonetheless, you are the far right in power or close to power in hugely egalitarian countries like Sweden or like Germany. Right? Or let me give you another example. In the UK, where I live, it is true that income inequality rose, but it rose at the time of Margaret Thatcher. So you have to tell and explain to me why, if the genecoefficient deteriorated 25, 30 years ago in the UK, why we're seeing the political consequences with the Reform Party and Nigel Farage today. Let me give you one more example. You know, when Chile erupted in protests back in 2019, everybody from the New York Times down said, oh, it's a, you know, their protest against income inequality. Nobody bothered to check that, in fact,

the genie coefficient had been falling very quickly in Chile over the previous 25 years. So the idea that income inequality was going up and therefore people were taking to the streets is simply empirically wrong. There may be other reasons where people pissed off, and I'm happy to discuss them, but income inequality alone was not. So, you know, in terms of looking at the link across the world and across time, that's not a very persuasive story. Now, that is not to say that maybe in the U.S. it made a difference, and maybe in the U.S.

had made a difference at some point. But even there, there are lots of complications. you know, the people who got really upset and voted for Trump were not necessarily very poor. They're very poor voted for Biden and the very poor voted for Harris. It's the American middle class that, you know, voted for Trump. And so is the American middle class worse off than the American middle class was 25 years ago? Well, it all depends how you measure, right? So bottom line, I think, you know, income inequality is a huge issue.

We should worry about it. But I would not simply jump to the conclusion. that if we do something about income inequality, then the Trumps and the Bolsonaro's of the world will go away. That simply ain't going to happen. Okay, we've got to come back to that, but I'm going to push back on your pushback. In the context of the U.S.,

because the other element of the skewing of the income and wealth, and what's most important is spending distribution. It's not, you're right about income and wealth. It's really spending, because that at the end of the day goes to the standard of living of individuals, is if you look at those folks in the bottom, 80% of the distribution that I talked about, their real spending after inflation has gone nowhere in the last 10 years.

I mean, literally nowhere. And that partly goes to constrained incomes, but it also goes to that skewing that's occurred. So, you know, in the case of the U.S., of course, it's a very complex topic. I don't mean to minimize the other. There's a gazillion reasons why I think there's what's going on with the media and people's perceptions of the world and so forth. and so on. You can see that in the sentiment surveys, but that's the pushback on the pushback.

But here's the point, I am aware that the U.S. is a bit of a special case because the worsening of the income distribution is very striking. But even there, one can think of counterarguments. One of them is that while people were very busy voting for Trump in many of the same states who are very busy electing Democratic governors, for instance. So, you know, the idea that income inequality deteriorated and then you go and you vote for Republicans or far-right people immediately, you know, the story is a lot more complicated. There's also an issue of timing. It is not as evident in the U.S. as it is in the U.K., but a lot of the trends you're discussing

the sort of the increase in the genie and the hollowing out of the middle class in the U.S. We've been talking about this for 25 years, right? So why now and why in the first? form of Trump. And parenthetically, this is one last issue, which I think is crucial. If we brought the proverbial Martian down from the sky and we said, suppose that in the U.S. things are becoming much more unequal and much more unfair, who is more likely to win the next presidential election, Bernie Sanders or Donald Trump, ex-ante, we all would have said Bernie Sanders, right? So if If things are very unequal, we want the hard left or in the UK.

We would have said, oh, of course, you know, Corbyn is the next PM. And Corbyn got destroyed in the elections. So we also need to explain, even if we take for granted your hypothesis that income inequality is to blame, then we still have to explain why income inequality led to a rise in the far right, and not on the far left, which is what naturally should have happened, right? Although I would argue that there has been a rise of the far left. They're just not quite as good as using social media. Yeah, but, you know, Ceresa was empowered in Greece,

and you had Polemos briefly in the cabinet in Spain. But in the major industrial democracy is a striking factor of right, right? Or in India, or in Brazil, or in Turkey. I'm going to lose you, though, but I got two big questions that we got to get to. Okay, so if it's not income and wealth and spending inequality, Maybe that's an element in various country to country in timing matters and that kind of thing. What is going on? Can you, you know, what do you think is at the root of this move toward more authoritarian, you know,

types of government and control? First, the disclaimer, the London Consensus is not about this. I'm actually working on another book about this. So I don't want to put words in the mouth of my co-authors who may or may not disagree with, may agree with what I'm saying. I think it's needless to say it's a complicated cocktail

economics is part of it but I think politics and culture is also part of it this is how I would phrase it but then again this is not in the Washington Consensus book sorry on the London Consensus book we human beings

are very groupish and identity driven if you leave the economics literature for a minute and go talk to anthropologists or social psychologists or brain scientists, they will tell you that we're wired in a way that makes us very identity driven. Because, you know, a few tens of thousands of years ago when we were all, you know, we were hunting for woolly mammoths out there in the plains, if you and I, Mark, were hunting together, we really

had to become good buddies because otherwise, you know, the beast would stop all over us. But once we had, Once, you know, we had actually managed to catch the beast and we were busy cutting it up, well, the guys who lived in the other valley who wanted to come eat our woolly mammoths, we didn't like them, right? And so the history of politics and the history of humanity is one of tribalism, is one of identity politics. And I think what we had, say, between the mid-19th century, and the end of the 20th century

was an interlude in which liberal democracy developed, in which a more sort of class-based politics developed, in which certain rituals and certain institutions developed that helped us curtail our groupish and tribal instincts. But maybe over the last 15, 20 years, other things happened that caused us to go back to square one. and, you know, our tribal and groupish instincts are being reasserted.

One of them clearly is the rise of the Internet and social media. Another one, I think, is the increase in migration. I am not against migration. I am a migrant myself. I was an exile growing up, so I am all in favor of people being able to change countries and live someplace else. But as a former politician, I would be naive if I didn't acknowledge that that migration is politically very charged and that it leads.

some people to get very upset, right? So a slowing of growth, I will grant you that maybe inequality has something to do with it, but throw in the cocktail very rapid technological change, very rapid cultural change, a rise in migration, the rise of social media, the weakening of certain political institutions, put it in the blender, you know, press on, and it seems that you get the Maudis and the trums and the bolvenarrows of the world. And I think we need to take this bigger perspective because all too often we economists say, oh, it's all economic. So, you know, if you grow at 4% instead of growing at 2%, if the gene coefficient drops from 0.4 to 0.35, oh, you know, that's enough. That's the right medicine. Then we will go back to happy,

peaceful, consensual politics. I'm just not sure. I think it's more complicated than that. Yeah, fair enough. Okay, last big question, because I know we kept you long enough, is, okay, what do we do about this? I mean, if that's the cocktail, that feels like a pretty noxious brew in a hard to disentangle and hard to address. I mean, what do we do here? What's the I mean, I think the first thing, I don't have the magic brew if I did, you know, we'd all be drinking it. So there are many more questions and answers here. But I think, you know, the road, the road to salvation begins with wisdom. And I think we need to begin acknowledging these things.

And I don't mean that in an academic way. I mean that in a very practical way. You know, I travel the world a lot and talk to politicians of the center of the center left, whether it be social democrats in Europe or social democrats in Latin America or the Congress Party in South Africa or, I mean, sorry, the ANC in South Africa or the Congress party in India. And, you know, these center or center left liberal parties are without an agenda today. and they, I think, way to focus on narrow economics and not thinking enough about these kinds of issues. So that's one thing. Something else has to do with political reform.

I think we have learned a fair bit. I'm not a political scientist, but I talk to colleagues in political science a lot. We have learned about which kinds of political institutions work and don't work. We also need to think hard about how it is that we govern technology. I'm a techno-enthusiast. I'm not into the idea of quashing AI or, you know, taking everybody's iPhone away. But I think, you know, we would be naive if we didn't acknowledge that the rise of technology

probably has been bad for democracy. And we need to think about how it is that we acknowledge and do something about it. You know, this is a conversation that is just in its infancy. But many, many practicing leaders in democracies are simply barking. up the wrong tree. So we need to reorient and restructure that conversation. Well, you know, we could have you on for three days. There's a lot to discuss. But let me just end by saying, thank you. And also, I can see why you almost, you should have been prime minister. I'm just saying, you know, you have a way with words and a way of expressing things

and making them real. And my only advice to you, if I were giving you political advice, we're running again is you just need to smile a little bit more. You just need to smile a little. Thank you for your kind. Thank you for the kind words. Let me just say that talking about Donald Trump, I find it difficult to smile. You know, and I was looking at Mark Carney the other day in his amazing speech. And the one thing that I did think is he looked a little too dower, but then again, the topic was not an easy one. Thank you very, very much. Thanks for having me. Wonderful. conversation. Thank you so much, Andre. Best of luck and I hope to talk to you soon. Take care now. Thanks very much. Okay. Well, we, I think we'll call it a podcast, dear listener. I hope

you enjoyed the conversation and we will catch you next week. Take care now.