Finances annual meeting. Will hear from Stanley Fisher and a panel of four banking chief executives to discuss the outlook on the Global Economy. This is this is about one hour and 45 minutes. We are going to get ready to get started. Our next exciting session. If you are talking in the aisles please take seats or take your conversation to the foyer we would appreciate it. If there are seats in the middle that people want to get to who are coming in we should have a full house for stan fisher. Please make the Seats Available to make sure anybody who wants a seat can get one. Certainly we would appreciate that. We are delighted our next panelists could join us. Stanley fisher is the vice chair of the Federal Reserve. His agreed to a conversation with tim adams. Before we are on stage we have a polling question. This is the critical question facing us other than the election, what is going to happen with the fed and the employment report this morning that was not too hot not too cold. Grab your mobile devices now and we have a simple question. Do you think the federal hike before the end of the year which would mean the december meeting presumably theyre not going to raise Interest Rates before the president ial election, they wont tell us that but i can imagine that. So yes or no. A fed hike before the end of the year. 62. 5 on 40 a no. I think that the wall street consensus that december is pretty likely given where wages are. You dont need to hear from you that, you can hear from stan fisher himself. Let me welcome to the stage again tim adams and stan fisher the vice chair of the Federal Reserve. [applause] thank you very much. It is a pleasure to have with me today a dear friend, someone someone i have admired and followed for my entire professional career who has done a little bit of everything and who has probably trade more economist and Industry Leaders than anybody else. It has been a real pleasure to have vice chairman of the Federal Reserve, stan fisher with us today. He probably has more about economics and i will ever know. Thank you for coming today. We. We appreciate it. Stan was a. Describe the numbers we saw, the wages and such as goldilocks. Was was a goldilocks . Its pretty close. We think of the range in which the market is producing enough jobs to keep unemployment from rising at a fixed Participation Rates. What it did today, the Participation Rate went up, the Unemployment Rate went up, those two things are fine it means employment was going at a rate that is fully consistent with keeping unemployment declining somewhat further. And wages starting to pick up . While the wage changes 2. 6 is closer to three then it is to two. I have a friend who is 70 and he says when he asked cold there i am i am to 60 than 50. County see the economy generally them . The problem in the economy is the difference between the remarkable success of policy in reducing unemployment and this is almost global actually in the very low rate of growth of gdp. Unemployment is somewhere very close to the natural rate. I think were close to full employment. Growth isnt close to what we used to think of as normal. It is two things, it is productivity, it is the rate of growth of productivity plus the low rate of investment. Theyre obviously connected. That part of the story is less pleasing and that is what is worrying people and that is what has consequences for the long run for the short run. For the long run i think we used to think that the standard of living of our children would be about double of that of ours. That is not the situation now. We are not growing that fast. We have actually had negative productivity growth for the last three quarters. Which is possible, its not that you forget how to produce thing is just that the mix moves from high productivity to low productivity. But the story is that one which was very important to change, it will change at some point because were not going to go with that negative productivity growth forever. Even for very long. Precisely what it will go back to is not clear. I think there a lot of estimates of about one and a half . It used to be over to and i learned many things from a person who many of you here have heard of, herbert stein, it used to be Richard Nixons chairman of the council of economic advisers. He used to say the difference between a growth rate of 1 2 is 100 . And that is absolutely true. If you look over 30 years you double at 2 and you dont double at one percent, you would be about half of the 35 years of where you would be if you are growing at two percent. These have very important consequences for the long run, these low numbers. And everybodys trying to find out whats going on. You gave a speech last night that i read last night and he talked about longterm Interest Rates, cyclical versus structural. We had we had discussion about productivity and the weakness of investment. Investment has not showed up in this recovery, at the u. S. Corporation sitting on 2,000,000,000,000 dollars worth of cash, board rooms are not interested in capital expansion, why do you think investment has been so weak . What must happen before we see an excel ration . Investment was higher before the oil price started falling. And to the decline of the price of oil which not coincidentally is essentially to a level below investment in production of sale is marginal and therefore the production of the capital goods needed to expand production disappears. So we lost a lot of investment through the decline in shale production in the price of oil. Over and above that you have a lot of them sitting on the lot a cash, even even from sitting on cash in the United States. There is an air of uncertainty about the situation that is not encouraging of investment. If you are saying animal spirits are not there the people are not excited about growth prospects. That has something to do with productivity and inventions answered when you get pessimistic about inventions than you look at what happened to the nobel prize two days in a row. One day people get the price for learning how the properties of matter are very close to zero in absolute zero temperature, the next day they get a price for being able to design machines that look at the molecular level. Somewhere, 25 years from now we will be aware of these nobel prizes again. What prizes again. What it will take to generate from them Industrial Production has still to be invented and we dont know at what rate that will happen. Theres an interesting result that is, out of the oecd looking at the diffusion of technology. It turns out the rate of growth of productivity of the leading firms and industry has not declined relative to the prerecession levels. It is the same. The diffusion is way down. So it is not spreading into the industry. What exactly is happening you dont know why it is not spreading. It cant be is the cost of investing is expensive. It is close to zero. In terms of financial cost, so something hasnt turned confidence on an confidence has to be turned on to get people to want to invest. So we are waiting to see that happen. It will happen at some point. The precisely when. So deepening in certain sectors, we have also done our own work that shows those sectors that are most i guess exposed to trade tend to be more productive as well. The nontradable sector, housing, healthcare, education are sectors which are huge part of the economy. We have seen very little or no productivity. I know trade is not in vogue anymore. But it really is about openness and these winds of change that forces companies to innovate and invest. Yes and that is also the difference between this Service Circuit sector and manufacturing sector. In productivity growth that has been higher in the manufacturing sector. Thats where youre looking for. It is in the sector that is declining in size, not in size of output but in size of employment. Thats where the productivity growth is being very high. Have there been policies are policy missteps are positive policies that have exacerbated the investment problem that we have . Certainly if you talk to businessmen that is what you hear, the problem with that is that there hasnt been a change in the level of complaints about excess regulation since before the crisis and what we have now. So i do not know to what extent that is true. I am impressed by how much you hear about it. And it is something that at some point some serious, someone who is serious about growth is going to have to go through the Regulatory Framework and figure out how to change it. I am to, im sure many of you have read the famous works by now, former i mean, late economists called olson. You tried to find out why it is that after world war ii the countries were defeated grew faster than the countries that won the war. His conclusion was that every healthy country with a democracy gets a lot of cobwebs on it in the course of time, political compromises are made in those compromises tend not to go away because you have to buy off these people and that people in the political process and what a good defeat does is it wipes all of that stuff away a new can start again. Will that may not be what we should be looking for. But it is certainly true that there is Something Like that hanging around in the western economies which has been here for a very long time, growing for a very. Without much civil strieff. And there could be something to that. But what it takes is not a war but a political change. There other forces at work. The nature and structure of the economy changing, Digital Services were demographics and population is growing older. One of the challenges among the emerging markets is their deindustrializing and growing older before they have a Human Capital that sets them up to compete with respect to services in a digitized economy. Some of the story in the absence of productivity because of the structural change in economy . I was still stuck in a 20 century mindset of production when in fact it really is about platforms, uber, and other kind of Service Providers . Well, it may be but the point about all of that is we should be, theres so much going on that relates to productivity in the Service Sector which comes out of the it revolution. Theres so Many Industries that cannot operate, the Airline Industry couldnt operate without the Computer Systems which enable them to run many more flights without many more people in the same thing in the medical system, all over the place it is there. But it never shows up in the data. Some of that has to do with the fact that some of the output isnt measured. I think marty has been heard to say that the output of google and the output of facebook doesnt show up in the gdp data. And there are a lot of people who argue that consumer surplus which is what it is the consumer gets out of the economy has in fact continue to grow at roughly the rate it had before, its just just that the non measured parts of gdp have been growing, i dont think that is been established but it is a possibility that you could see. I think there theres something to do with the structure of the economy, particularly the growing of services that could be responsible for this. As you know, there is miss measurement argument, a very nice article called does the United States have a productivity problem or a data a problem . The data being that we may miss measure productivity. Well, the answer of most economists have really looked at this is that it has a data problem but it cannot account for the the decline that we see in the measured data. Robert you have there is a review of the New York Times of the book you wrote, you said that there was this miraculous century, 1870 to 1970 know the great inventions out occur. Then we have our friend andy, and knows that we are really on the cusp of something great. Who who has the story right . Well was at mit who said in the early 1990s that computer revolution is everywhere except in the gdp data. Two years later it showed up in the gdp data, magnificently for about ten years. So i go with mcafee because im also from mat. We have to stick together. But i mean where what bob gordon really said is all the great employment creating Technology Improvements were invented, hes hes talking about simple things like flush toilets, electricity, transportation, cars, planes. Some of those things were late in life. I grew up with even less of those things and you did. So in what was northern we didnt have that either but you can surmount it. These changes that have been profound that Robert Gordon has talked about and andy it has had an impact on the labor force. Certainly clinical discourse which we will not get into. But the hollowing out of certain jobs, certain sectors in the economy more exposed to being competed away because of technology, how do you think about the changes in the workforce as you make Monetary Policy . As we make Monetary Policy the truth is we look mainly at the mantra data. We look at the details of who is unemployed to see if theres something were doing a monetary Monetary Policy that is affecting the distribution of unemployment which usually we dont think we have a precise tool to give this group or that group. I think about it as that we have a workforce that comes equipped with a certain education, if youre 50 years old you have a trouble operating your computer and it is kind of beer taking when your grandchildren show up with no knowledge of computers and fix a problem that you have on your machine. They just have a different system in their heads are ready. We dont have that, at least at least you may have it, i dont. We have a workforce which the people are very upset are the older people in modern technology is different and they didnt learn and then we think it is affecting them more than it is affecting younger people. Is that something we can deal with . There are retraining programs, a colleague of mine went somewhere in philadelphia and went to see a retraining program and was very impressed. A lot of these people came out with some other skills which enabled them to work, more modern skills. So. So it can be done. That much is clear. How we are going to get investments in that area other than through markets whether the government will get into this is a matter that will see if it happens. Theres a new book out called the 100 new life, based based on their numbers, my children, their early teens will live to be 105, theres a 60 , they will work until their mideighties. If you think about the pace of technological change, the idea of having a single careers in obsolete. Youll probably three or four careers. The way we think about education, pension, savings, it has to change radically. Savings, it has to change radically. Well it has to. And sometimes politically difficult, just an example, in israel they raise the retirement age. For men they raised it immediately and for women it would be implemented started three years after. But there is going to be a separate vote on it. Been that between between the time the past the lawn that had the vote the women mobilized and this is a law which is important from the viewpoint of budget, so i call the finance minister after the vote set how did it go . He said it was one vote for raising the retirement age of women and it was mine. And that was it. People dont like that very much. But its going to happen. Its going to have to happen. The Current System does not work. I want to touch back on the part of the political discourse is there a portion of the population that feels that this miraculous set of, weve seen Remarkable Growth and we have seen a reduction in equality between countries even though weve seen some of the country globally since 1,991,000,000,000 people have been did out of poverty. The global middle class has risen. In some ways less 20 years have been remarkable. But there are people who file that have not been a part of that. What are your views . The trend that you are describing can be explained very simply through a set of facts which is that while inequality is typically increased in most countries, Global Inequality has declined. If you if you lined up all of the people in the world, because you have moved 1,000,000,000 or something chinese and several hundred indians from the bottom to the middle, the distribution of income in the world is more equal than it used to be. But, each country has a problem in the politics runs in each country not so much as people dont take great satisfaction to some of the country People Living better. So the problem is out there and we have to deal with it at the national level. That has to do with her educational system has to do with education for those people who have left school and those things have to be taken seriously and you need to look at other countries and what the scandinavians do, they seem to do this pretty well. Whether our society will be willing to do that is something we need to explore and not announce will thats the scandinavians, we can to that, we need to see if we can do that. And and then try to do it. You into scandinavia, or go back to regulation and loop in one of the questions about if regulation is a potential inhibitor to growth should we do a better job of measuring its impact. Clearly thats respect to Financial Regulation have we done enough. Seven years after, do we have enough regulation with respect to the financial sector, enough to avoid financial instability. Should we think about measuring impact across all sectors. There is a desire to have cross benefit analysis on every regulatory measure and nothing could happen unless the analysis turns out positive. The trouble is the analyses are imprecise. If you started on that what you w