Transcript: Mohamed El-Erian on “Face the Nation”, September 6, 2020


The following is a transcript of an interview with Mohamed El-Erian, Chief Economic Advisor of Allianz, broadcast Sunday, September 6, 2020 on “Face the Nation”.

JOHN DICKERSON: And now we’ll move on to Mohamed El-Erian, chief economic adviser at financial services firm Allianz. He joins us from his home in Laguna Beach, California. Hello.


JOHN DICKERSON: So let’s start with the unemployment rate. On Friday we learned in August that it had fallen to 8.4%. Mohamed, what is your sense of the current state of the economy?

EL-ERIAN: So if you just look at the numbers we got on Friday, you’d be optimistic. We have achieved a very marked reduction in the unemployment rate. We created 1.4 million new jobs. More people have entered the labor market. But if you take JOHN out, things get a little worse. Why? One is that the weight of the improvement decreases. And second, we’re trying to get out of a very deep hole. As you pointed out at the start of the show, we have almost 30 million people who rely on unemployment benefits. So it’s a half-full, half-empty image. And that’s a problem because of the deadlock on Capitol Hill. So unfortunately these numbers are just telling you that we still have a long way to go.

JOHN DICKERSON: I want to get to the dead end on Capitol Hill in a moment. But Federal Reserve Chairman Jerome Powell in an interview with NPR said, or suggested anyway, that future job gains were in industries and sectors of the economy that might be more difficult to revive. because with COVID still around, these industries are – they’re demanding that people participate and people just aren’t ready yet. How do you read this of what remains to be gained from the economy?

EL-ERIAN: He’s absolutely right. There’s this notion of counterparty risk or what you and I would call trust. In order for us to participate in economic activity, I must have confidence that you are in good health. You must have confidence that I am in good health. And until we have a clear way of doing it, people will back off. We are therefore not going to see a rapid recovery in all sectors. And this comes at a time of growing inequalities, not only of income and wealth, but also of opportunity. So, like I said earlier, there is a long way to go. The good news is that we have the policies to speed it up. The bad news is that the political system does not allow this.

JOHN DICKERSON: I want to stop – stay at that – this notion of counterparty risk for a moment. There has been this awkward debate about, citing without quote, opening up the economy or doing what is necessary to mitigate the pandemic. What I’m hearing you say is that as long as people assess the risks to their own health, they are not going to engage in the kind of economic activity that will bring America back to where it was economically before this coup. .

EL-ERIAN: It’s absolutely true. We have to understand that there is a difference between the ability to work, to reopen the economy and the willingness to work, the willingness to enter and engage in the economy. And until you improve your abilities and your willpower, we are not going to come back to where we were. So, no, these are not alternatives. We have to do both. We need to reopen in a healthy way.

JOHN DICKERSON: Let’s talk about Capitol Hill. If – if you could magically make policies, what would be the most useful policy that could help the economy in its current situation?

EL-ERIAN: I would like to embark on a four-pronged strategy. The first is relief, and we’ve heard a lot about it, it’s just about helping people who are in pain for no specific reason. Two live better with COVID, which is what we just discussed. Third, grasp the long-term pressures on growth. We are witnessing a much greater industrial concentration. We are witnessing a much greater de-globalization. And finally, reduce household economic insecurity. The people suffered. They drew on their savings. They won’t be as willing to – to spend in the future unless you give them more of a safety net. We can do that, JOHN. It is a question of political implementation.

JOHN DICKERSON: So there’s the political implementation, and then there’s the new deficit numbers we got this week. Record numbers, 3.3 trillion, said the Congressional Budget Office, in 2020, three times more than three times the 2019 deficit. How much debt and deficit should we keep in our thinking in terms of these measures? short term and their cost?

EL-ERIAN: We should keep it in our thinking with an important caveat. The reason we care about debt and deficits is because of something called sustainability. It’s like you at home. The amount you spend depends on what you earn, the amount of your debt depends on your future earning potential. What is essential is to ensure that the deficits promote long-term economic growth. If they do, and they can, if they do, we won’t have to worry about deficits. If not, we will have both a growth problem and a debt problem.

JOHN DICKERSON: And sometimes people talk about the relationship between debt and – and the cost of money or the interest rates. The Federal Reserve has signaled that it doesn’t look like rates are going up anytime soon. Help people understand where the Federal Reserve came from these days.

EL-ERIAN: So basically the Federal Reserve is pedaling the metal. They will do all they can to support the economic recovery, but they are only a catalyst. They cannot produce results. So what they’re trying to do is give time to other decision makers to step in and actually improve economic growth. So look for them to keep interest rates very low, almost zero. Look for them to buy more titles and look for them to always make sure they’re there to cover our back.

JOHN DICKERSON: Help us understand why the stock market is booming even though the economy is in the tough position it is in.

EL-ERIAN: Because of the Federal Reserve. You know, the basic question you ask yourself, if you are a professional investor, who else is buying this market? And if you think the Federal Reserve with a – with a – with a printing house in the basement and it’s not a commercial entity, it’s not price sensitive, if you think it’s going to continue to support you, you buy in front of them. But, JOHN, I keep pointing out that there is a limit to how much you can disconnect the financial markets from the underlying economy. And we’ve taken them off a lot this year.

JOHN DICKEROSN: Last question in our last 40 seconds, Mohamed. Think long term. In 2021, 2022 what kinds of long-term economic issues should we be thinking about when thinking about this presidential election, as we try to think about how to get out of that for the future?

EL-ERIAN: It’s a, JOHN, can we grow in an inclusive and sustainable way. Otherwise, we will have big social and financial problems. It’s about inclusive growth.

JOHN DICKEROSN: All right. Mohamed El-Erian, thank you very much for being with us and helping us sort this out. And we’ll be back right away with a lot more of FACE THE NATION. Stay with us.


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