Podcast: You Can't Manage What You Can't Measure with Gillian Tett

TRANSCRIPT: You Can't Manage What You Can't Measure with Gillian Tett

Gillian Tett:

I'm not saying you should toss out the market theories. I'm not saying you should stop looking at economics or the economy. Quite the contrary. They are one set of ideas as part of the whole, but not the only ones.

Ian Bremmer:

Hi, I'm Ian Bremmer and welcome to the GZERO World Podcast. It's an audio version of what you can find on public television where I analyze global topics, sit down with big guests and make use of little puppets. This week I sit down with Gillian Tett. She's chairman of the editorial board and editor-at-large for the United States at the Financial Times. Gillian was an early predictor of the 2008 financial crisis and a great person to talk to about the state of the global economy today. Let's get to it.

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Ian Bremmer:

I have Gillian Tett who is the head of the editorial board here at the United States, the Financial Times. Good to see you again.

Gillian Tett:

Great to be on your show.

Ian Bremmer:

We always say that we value what we measure. Are we measuring the right things? If you could wave a wand and have us pay attention to different numbers or numbers that we don't have right now, but we should have, what would they be?

Gillian Tett:

I think the fundamental problem today is economists do a great job of measuring things that have a monetary value. So they look at widgets, how many widgets are the factory produce and what do they sell it for? They look at how much you spend in terms of consumption. They look at prices. They look at all these elements measured with money. And one of the problems today is that a significant chunk of our tech economy, the innovation economy, is not based on monetary exchanges, but essentially barter. And by that I mean that consumers are getting a whole avalanche of free services, supposedly free services, from tech companies, which are incredibly important for their consumption patterns, for their productivity and how they live their lives, for their economic activity. They're not paying money for that. They're essentially paying by giving up data and there's a swap of data for services which is not actually being mediated by money at all. So that goes entirely uncounted in the statistics that the economists collect.

Ian Bremmer:

How should it be counted?

Gillian Tett:

Well, I think you need to recognize that there's a transaction going on which cannot be measured with numbers alone and start to realize that barter is actually a very powerful lens to look at the economy today. And there needs to be a lot of discussion about what we're missing as a result of ignoring barter trade.

Ian Bremmer:

Now-

Gillian Tett:

That impacts into how you measure how you look at issues like antitrust, monopoly power of tech companies, et cetera, et cetera.

Ian Bremmer:

Leaving the regulatory side for a moment, if you were to include all of that barter in the way you think about a country's economic robustness, its GDP, would that then make you feel differently about productivity? Would it make you say, wait a second, there's a lot more going on in this economy than we thought there was?

Gillian Tett:

I think that it would certainly make the productivity numbers look more convincing if you could find a way to measure that. I think it would also raise questions about this issue of what's happening to prices, consumer prices, because this barter in a sense is way of providing services on an expanding scale without actually, directly impacting consumer prices, and yet it may be one factor of actually helping to suppress consumer prices more broadly.

Ian Bremmer:

Now, the other side, which you just mentioned was the regulatory aspect. If you don't actually consider that this is a part of monopoly power because it's not considered a part of the value that the company is driving, what does that make you think about how they should be regulated?

Gillian Tett:

Well, the issue more at stake is more that for the last few decades, regulators in Washington have determined whether a monopoly exists or not on the basis of what it's doing to consumer prices. So if consumer prices are essentially being artificially pushed up, they seem there's a monopoly that's essentially screwing consumers.

Ian Bremmer:

But if consumer prices are zero.

Gillian Tett:

If consumer prizes aren't actually there available, then you start need to start rethinking your concept of monopolies. The good news is that that debate is now starting to be had, but frankly it's quite late in the day.

Ian Bremmer:

Who's having that debate right now?

Gillian Tett:

Well, inside the FTC, there is no discussion around that, and it's also starting to seep into the political landscape as well. So on the hill, you do finally have politicians saying, let's start looking at these big companies and see whether they are indeed screwing consumers. And in my mind, the issue at stake is this, that once you recognize that there is a massive barter trade going on, and that actually it's not the case that consumers are being entirely taken of advantage of by tech companies taking their data, they're getting something back.

Gillian Tett:

Once you shift away from the indignant angry argument of they're just taking our data, that's terrible to actually, there's a barter trade going on, then you ask, well, can we reset the terms of the barter trade in a way that looks fairer to everybody? Should it be much more transparent about what's being given and what's being received? Should there be more options in the market for who you want to barter with? It begins to put it on a more, in some ways emotionally neutral platform and perhaps more effective on as well.

Ian Bremmer:

So how do you compete with free?

Gillian Tett:

Well, if everyone's essentially dealing with free and free is barter right now, then actually it becomes about the terms of trade. How do you structure that trade?

Ian Bremmer:

So it's so interesting. When we talk on this show for example about climate, you have an entire conversation that the market mechanisms are not able to function the way they should because there's no price. And in here, I hear you saying the same thing with a completely different perspective. We're talking about the way that consumers are getting some of the most important services they presently receive. How far out of whack is the capitalist model because it doesn't have the ability to respond to fundamental changes in the marketplace?

Gillian Tett:

Well, here's another way of looking at this, which is this, and that I'm trained as a cultural anthropologists and anthropologists tend to look at everything holistically and spend as much time thinking about what people aren't talking about. It's what they are talking about. And there's a school of anthropology called economic anthropology, which always looks at the market as simply one facet of the systems of exchanges that bind a society together. So instead of talking about just the economy or the monetary transactions, you look at the world in terms of exchanges in the wider sense. And that includes credit, money and barter altogether.

Gillian Tett:

And if you take that view, then you accept that actually the market has a role to play, but it's not the only role to play in terms of creating exchanges that bind society together. The problem is that many economists are trained to assume that the market is pretty much the only mechanism or the only really important platform for those exchanges, and that monetary transactions are the only transactions that matter.

Gillian Tett:

So in some ways, I'm not saying you should toss out the market theories. I'm not saying you should stop looking at economics or the economy, quite the contrary, but it's a bit like saying to somebody in the Catholic Church in the medieval era, don't just assume that there's priestly class who seem so powerful and important because they happen to speak Latin and they know the Catholic Church better than everyone else and run it automatically run everything. They are one set of ideas as part of the whole, but not the only ones.

Ian Bremmer:

Okay-

Gillian Tett:

So I think it's time-

Ian Bremmer:

I didn't know you were going at some medieval Catholicism, but we're fine with that. Another thing, where we measure a piece, and I've wanted to ask you about this is the deficit. We talk a lot about the deficit in the United States. I've always wondered, and when you talk about corporations, you look at their balance sheet. You look at the assets as well as the liabilities. And yet when we talk about the United States and we talk about sovereigns, countries, you talk about their debt and that's it. Does that affect the way you think about the debate when we talk about a massive deficit spending in the United States?

Gillian Tett:

Well, there's two levels of that question, which is firstly, there's a question of whether you're looking at net debt or gross debt. And obviously the net debt is actually, you take the gross number and you basically screw it off against the immediate source of revenue and assets that the government holds. The second question though is whether you look at the wider range of assets the government holds, which are not being properly counted or measured, and there are a lot of those.

Gillian Tett:

Some people advocating for looking at, say, all of the property in real estate that the American government owns and saying, couldn't you manage that much more effectively and actually realize value that way. Doug Deta, a Swedish economist, has advanced those ideas a lot. The problem is that when you start going down that route and saying, well, actually there's a lot of value you can unlock through a government's assets that make the debt look less scary, you then start to say, well, actually there's also a lot of unrealized liabilities that are not measured on that deficit figure either to do with pensions, healthcare, Medicare, Medicaid, all of those liabilities for the future.

Gillian Tett:

So it's a slightly nebulous picture. So it is very important yes, to look at the unmeasured assets and the unmeasured liabilities, but it's also important to recognize that you can start arguing about that for a long time. At the end of the day, the markets tend to look much more at the net debt figure, rather than the gross debt figure, but not the widest one of all.

Ian Bremmer:

Now, the ultimate belief in such a system and something you write about a lot is the strength of the dollar. You've been someone who's been pretty consistently bullish in the belief that the role of the dollar as the global reserve currency is not something that's under particular threat right now. Given your concerns about the growing lack of social cohesion in the US, at what point does that start to change, if at all, in your view?

Gillian Tett:

There's a push and a pull factor with the dollar right now. On the one hand, there is no alternative to the dollar on the global stage, and it's quite hard to see when that's going to emerge, at least if you look at it in terms of other nation states or regions. Because although there was tremendous excitement about the Euro when that was first launched, the Eurozone remains beset by problems in the fractured political economy. And the Chinese right now show absolutely no ability or readiness to really liberalize their capital account and current account in a way that would make their dollar throw the Chinese currency a proper rival reserve currency. So almost by default, or almost by virtue of an ugly contest, not a beauty contest, the dollar is currently in a prime position.

Gillian Tett:

The other side of the equation though is the American economy has been growing a lot stronger, and thus far, at least no matter what you think about the travails or the political world in Washington, the Federal Reserve, the central bank still commands a considerable amount of respect and they have performed creditably in recent years. So unless that changes, I think there's going to be quite a lot support in the dollar for the moment. But the real question is, that in this world of ugly contests, not beauty contests, is it possible that actually the real threat will come from some form of alternative like a digital currency or cryptocurrency or something outside central banks? And that, it may be a more interesting question, looking at the medium-term.

Ian Bremmer:

Now, we have seen the Chinese start to dump a small amount of US treasuries over the past few months, coming at the same time that the US-China trade deal appears less likely to get done. Is that in any way an early warning that some of the credibility that you talk about with the Fed, even in the absence of alternatives could be eroding or is it noise and the Chinese can't do anything no matter what?

Gillian Tett:

I don't think the Chinese will be dumping those treasuries right now as a sign of loss of belief in the Fed. It's probably a small political signal, and it's probably also tied to the management of reserves as well. But it certainly indicates that there is a tremendous imbalance right now, which is that the Chinese have not just been exporting a lot to the US, but they've also been essentially gobbling up treasuries left, right, and center, and they're not the only ones. So that's definitely a risk.

Gillian Tett:

Now, what's very interesting though is if you look at the data on who owns treasuries, you've seen quite a significant shift in the last four or five years, where you've had this great growth in foreign holdings of treasuries, the Chinese and Japanese a decade ago, but since then, you've had a tremendous growth in domestic holdings of treasuries. And it seems that at the moment, partly because of a lack of alternatives, things to buy, partly because of a general safety concern, partly because of regulatory pressure on banks, the domestic demand for treasuries is certainly strong enough to keep yields very low.

Ian Bremmer:

So two and a half plus years of a Trump administration saying, we're going to squeeze, we're going to hit other countries, lot of people saying, we don't like that, massive social dislocation sensibility in the US, all these divides, but the reality economically is that not only is the strength of the dollar what it was, but the robustness of the American balance sheet from your perspective, no market impact.

Gillian Tett:

Yeah, I mean, you have to realize that one of the things about America that makes it a bit of an outlier on the world stage, is its very low dependency on trade and exports as part of its overall GDP. I mean, it's much lower than almost any other major economy. So to a certain extent, America can weather a trade war better than many of its rivals. Doesn't mean it won't be very painful, but the American economy has continued to grow, but that's also because it has been a bit of a sugar high, cheap money.

Ian Bremmer:

But does that imply that the use of tariffs, specifically tariffs, as a weapon to get other countries to do what the Americans want is actually one of the most effective asymmetric economic weapons the Americans have?

Gillian Tett:

It's certainly one of the more effective weapons than they've they have than the other weapons that have been tried in recent years. They going through a WTO. The irony of course, is that it hurts American companies quite often, but that's not necessarily the same as the overarching economy in terms of relative pain compared to other countries. For it's worth, I'm in a camp that thinks that tariffs is a rather clumsy crude tool. I'm very much in the free trade camp, but you know-

Ian Bremmer:

You do work for The Financial Times.

Gillian Tett:

Yeah. Well, I happen to think that globalization is a good thing, but there we go.

Ian Bremmer:

No, but imposition of tariffs aren't necessarily because you want tariffs to go up. They're also potentially because you want to beat the other country down. And I guess I'm just asking that if you believe that the Americans are much less vulnerable to tariff hikes in a trade war, and if you want to get other countries to a better place, better place from your perspective, is that effective-

Gillian Tett:

Well, the issue right now is that the president is using tariffs in a pretty unpredictable way. That is, from his point of view, very effective because it's keeping all his enemies imbalanced and uncertain. The problem is, of course, it's keeping business imbalanced and uncertain as well, and that's where you could begin to feel some of the backlash and pressure from corporate America. But thus far, that backlash and pressure hasn't been strong enough to seriously change course.

Ian Bremmer:

I want to move to someplace completely different now. Something you've been looking at recently, which is the issue that political parties in democratic countries are increasingly ineffective and maybe even going away. What do you mean by that?

Gillian Tett:

Well, if you look at what's happened in the UK recently with the European elections, what you've seen is the collapse of the traditional conservative lay party quite dramatically. That doesn't just reflect the Brexit issue, although it's been fueled by it and fanned by it reflects the pattern you see right across Europe right now, which is that traditional parties are suffering.

Gillian Tett:

And you can say, well, that's just a case of anti-establishment feelings. You can say that's a case of the right rising or the left rising. Or you can stop and say, well, actually almost every other area of our life has been disrupted by technology in the last couple of decades. Maybe politics has essentially been disrupted too. But the problem is that political parties today are like the political equivalent of albums in the market. They are preset packages decided by people in the 20th century, and millennials care about issues, they care about ideas, they care about celebrity brands. It's all pick and mix politics. They don't want to be-

Ian Bremmer:

The Brexit party, for example.

Gillian Tett:

Brexit party. You got a-

Ian Bremmer:

Single issue-

Gillian Tett:

Exactly.

Ian Bremmer:

Party around one, can we call him a political celebrity?

Gillian Tett:

Well, you have Brexits. You have Greens.

Ian Bremmer:

Yes.

Gillian Tett:

You have celebrity politicians. You have comedians in Italy.

Ian Bremmer:

The Five Star movement.

Gillian Tett:

Yes. The only politician who's actually carved out new politician, carved out a centrist technocratic platform's.

Ian Bremmer:

Is Emmanuel Macron.

Gillian Tett:

Is Macron who basically created his own party, his own pick and mix party.

Ian Bremmer:

Exactly. And he hasn't done very well with it.

Gillian Tett:

Well, but that's how he won election, on a pick and mix party.

Ian Bremmer:

Yes.

Gillian Tett:

Donald Trump essentially is, has pick and mix politics. Is he a Republican or Democrat? Who the hell knows?

Ian Bremmer:

So what does this say to you about the Democrats in 2020 and what's likely to work?

Gillian Tett:

Well, if they want to appeal to voters and get momentum, they need to have basically a pick and mix celebrity. A pick and mix idea.

Ian Bremmer:

AOC is too young.

Gillian Tett:

She's too young, but she actually is the only person who challenges Donald Trump in terms of social media usage and actually understands as well.

Ian Bremmer:

Gillian Tett. Thank you very much.

Gillian Tett:

Thank you.

Ian Bremmer:

That's our show this week. We'll be right back here in next week. Same place, same time. Unless you're watching on social media, in which cases, wherever you happen to be. Don't miss it. In the meantime, check us out at GZEROmedia.com.

Announcer:

The GZERO World is brought to you by our founding sponsor. First Republic. First Republic, a private bank and wealth management company. Imagine a bank without teller lines where your banker knows your name, and its most prized currency is extraordinary client service. Hear directly from First Republic's clients by visiting firstrepublic.com.