Welcome to the show and we're honored to have you.

Thank you for having me on your show.

It's a real pleasure.

The IMF, in its latest quarterly report that you do lowered the expected growth rate for the global economy from about 3.5% to 3.3%.

What is it that lowered it?

What are you worried about?

Global growth in the second half of 2018 weakened across the globe.

And that weakness was a combination of factors.

It had to do with the trade tensions, but it also had some to do with the normalization of interest rates.

In the U.S. with the Fed raising interest rates.

And then there were one off issues in certain countries and all of that weakened growth and that kind of spilled over into 2019.

So that's what led us to downgrade the forecast for 2019 to 3.3%.

How bad is the problem of trade It is one of our biggest risks to the global outlook and we are very concerned about it.

This has implications not just for U.S. and China, but globally for the world economy because it affects business sentiment.

And we've seen investment slowing and we in fact projection for trade right now look quite weak.

And is that because of partly because of the Trump tariffs on China?

The tensions are an issue.

Absolutely.

The tariffs that were imposed in 2018 the escalation that we've seen right now the uncertainty about what's going to happen around the G20 meetings at the end of this month.

All of that is weighing on the outlook.

When President Trump imposed those tariffs he said China would be paying for it.

You've studied it now and seen what's happened.

Who ended up paying those tariffs.

So if you look at the prices of those goods on which tariffs were imposed coming in from China, the prices, excluding tariffs coming from China haven't changed much.

What that tells you is that almost all of the tariff revenue that's been collected is being borne by U.S. importers.

In other words, U.S. companies are paying the price for those U.S. companies that continue to buy from China are paying the price of those tariffs.

You know, we talk about the problems of trade and how lowering trade will be bad for the global economy.

But those of us I'll put myself in that category and I guess you in the category who have been a long time believers in free trade, part of the Davos Aspen consensus.

Well, we a little bit wrong about the effects of trade and did it hurt people, some people more than others?

The expectation was that trade, like we, like you just said, would be good for the global economy.

We were always aware that there would be distributional consequences, that there would be some who would be left behind, who would not gain from trade.

The assumption was that domestic policies would be used to mitigate the concerns associated with that.

And I think where we were wrong was in in our expectation of how well that would work.

And the bottom line is that it didn't work very well.

And so that's what we are living through right now.

And by that, you mean that had led to an increase in wealth inequality?

It's I mean, wealth inequality has come around for many reasons.

But you certainly see in certain communities, in certain parts of the world, who've lost where people have lost their jobs, their livelihoods.

The expectation was always that these people would move, that they would move to where the jobs exist.

And I think what has surprised many is that that hasn't happened.

You don't see much mobility.

And so there is now the the view that while maybe the policies have to be about improving the communities itself, where these people live.

Let me go personal for a moment.

You grew up in India in a very distinguished family.

Right.

And very well educated.

What did you learn from your mother and father that you're applying to your work today?

Oh, that's a great question.

For my father, it was all about hard work.

I think that those were the two words I heard from him all my life that hard work and not in the sense of it being painful, hard work, but joyous, hard work.

It is very important for my mother.

It was humility and realizing that there are some things you can do and some things you can't do.

So I think that those were the two aspects of my growing up that I remember.

Tell me your path from growing up in India to becoming a distinguished professor in the economics department at Harvard, and now to the IMF.

How did that path work?

Always happened with a lot of hiccups With absolutely no clear sense of where I was going.

So I cannot claim to say that I, I was, you know, I wanted to be an economist you, you grew up when you grew up in India, the assumption is that you will become a doctor, an engineer and not an economist.

So it's a bit it was, it was all kinds of stumbling in that I finally got you.

But I did enjoy most of the time what I did.

And it was with a lot of support from a lot of family from my wonderful husband and my son.

And so, yes, I think that's it was a mix of things that got me to where I am and tell me what your academic specialties were that got you to become a professor at Harvard.

I specialized in international finance and international trade.

Mm hmm.

So those were the two big areas.

And within those, I worked a lot on currencies, on for instance, most recently, I did work on the international role of the dollar and how it's dominated the trade in the financial system.

I do work on capital flows on sovereign debt.

Many of these many of these issues as an expert on debt.

Do you worry about the American debt?

The U.S. deficit and how it might grow and how that could affect the world economy?

In our assessment, the U.S. debt is on an unsustainable path to an important degree because there are all these liabilities related to pensions and health care that are coming out in the in the future.

And that math.

And that's going to add to the deficit in the future.

And that's going to add to the death in the future.

So that is from a more medium to long term perspective.

That is certainly an issue.

And we we recently put out our surveillance notes on the U.S. where we mentioned that reflect that.

What does that mean?

When you say you put out a surveillance note in exactly what did you say that one of the three things that the fund does is to monitor countries.

It's part of the mandate is to figure out to come up with a report on how countries are doing the health of their economies, the appropriateness of their policies And so we had one come out for the US recently.

What we did say was the U.S. economy was quite strong, growing at around 2.6%.

Obviously, plenty of jobs being created.

But at the same time, it's certainly the case that there are all these payments and these liabilities that are coming due in the future.

And so the fiscal situation, you need to pay attention to that, too.

Do you think that the accumulating debt in the United States could lead to a setback soon?

Soon?

I don't see that in in the very near term.

There is a very large global appetite for what we called safe assets.

And U.S. Treasuries are one of the safest in the world, which is why the U.S. government can borrow it incredibly low rates.

So in the near-term, no, but this is more of a medium to long term concern, this period of global growth.

The economies that we've been in for more than a decade, it seems helpful.

How vulnerable is it?

I mean, could something happen that could really cause the next recession globally?

We describe the situation right now as being what we call a delicate moment.

And while we predict that there will be a recovery towards the end of this year into 20, 20, we describe that as precarious.

And I believe that is still very true.

One of the big factors is trade.

So a lot is going to depend upon what happens on the trade front with trade tensions, what happens at the end of this month around the G-20 between the U.S. and China?

That is going to be, in my opinion, one critical factor for the global economy.

So you say it's precarious.

What could happen?

I mean, could there be a real global slowdown in the next two or three years?

Absolutely.

Yes.

In the next two or three years horizon, if these if the trade tensions don't de-escalate.

If Brexit ends up with being no deal, all of which can change financial market sentiment dramatically.

And we're living in a world with very high levels of debt, both in the private sector and in the public sector.

So there is a sudden escalation in costs that can then trigger a financial tightening in the world economy, which will be costly for the world economy.

So any of these features as you know, can create can have a dampening effect on growth in the future.

Has there been a significant increase in wealth inequality over the past 20 or 30 years?

And if so, how dangerous is that to a free market in capitalist economies?

There has been an increase in wealth inequality.

And clearly we need to respond to that particular to that fact.

The question is, why has that happened?

It varies across countries.

Explanation varies across countries.

For instance, if you look at in the U.S., in the matter especially of income inequality or wage inequality, it makes a huge difference which form you work for.

So if you do the exact same job for a top 1% full, you get paid a whole lot more than than elsewhere.

So that's one factor.

So the question is, why is that the case?

Why aren't we seeing more convergence across firms?

Then there is the issue of corporate market power that we have.

That is a reason that one needs to look into about is there has been too much concentration in certain forms.

That's exercising market power.

That's another issue.

There is some evidence that that there has been an increase in market power.

So there's certainly we need to be more vigilant about competition policy.

We need to be more village vigilant about free entry into industries.

All of those factors have to are important to maintain the market system that exist right now.

Am I hearing you say that perhaps Facebook, Amazon, Google and a lot of the big tech companies have gotten so big that they have concentrated market power and that globally we need to find ways to increase competition?

We certainly need to find ways to increase competition.

We put out a report in April that said that there was a significant increase in market power.

Now, some of that is basically a return that you earn because you put in a lot of investment upfront.

But there is also part of it that feels like more of an excess return, which seems like less competition.

And so while at this point it is still in quantitatively, not as such a big issue, we expected that it could be going forward.

So it is important for us to be very vigilant on this front.

What policies to address wealth inequality and income inequality should and could countries implement that would be useful as opposed to have unintended consequences?

So there are a combination of things, and this is there's no one prescription fits all.

But for some countries, it could be a more redistributive tax system.

For certain others, it has to be better skilling programs.

You need more ways of encouraging mobility to jobs in regions where went to places where jobs exist.

So there are multiple factors that have to be done.

You have to be this making sure that there's sufficient competition and not build up of high market power.

There needs to be a need to make sure that everybody pays their fair share of taxes.

So all of these factors will matter Do you think that automation and more broadly, artificial intelligence and machine learning will end up decreasing the number of jobs in the future?

We've had technological improvements over the decades, and every time there's been a big new technology, people have been concerned about whether there would be enough jobs.

And what we've always seen is that the world economy has grown.

There's been more jobs.

And right now we're living where many parts of the world are close to full employment.

I mean, the unemployment rate in the US is one of the lowest it's been in a long time.

So it's not that's not necessarily that's not where the world has to end up.

But at the same time, what that requires also is preparing to make sure that people are ready for that for that world when there are there is much more automation.

Your colleague at Harvard, Larry Summers, when confronted with that notion that every time we've had a technological advance, we end up with more jobs, not fewer.

He says he's now in the camp of this time.

It's different.

Do you feel that this time it may be different, the threat of artificial intelligence and automation on the overall number of jobs?

I think it's impossible to say at this point.

I think what we can say right now is that there is nothing in the data that we see that suggests that big shift is significant enough to say, well, this is now a huge problem.

Mean there are suggestions of it that overall, with all the technological improvements that are happening that maybe is already showing up in jobs, that's not the case now going forward, whether that might happen.

It's possible.

But I'm not I don't necessarily feel sure that this time is that different.

What keeps you up at night following what's happening in the world on a minute to minute basis?

All of the on all of these fronts that I just mentioned, figuring out what's happening with policy, I think policy uncertainty is probably the number one factor that's weighing on growth in the world economy.

And by policy uncertainty, do you mean things like erratic trade and tariff announcements coming out of the White House?

You know, business, jobs, investment, all of that relies on functioning in a certain predictable environment.

Usually when it's Rules-Based.

And the uncertainty that we're seeing recently with the unpredictability about what's going to happen with trade with the unpredictability on Brexit, I mean, these are factors that will keep pretty much everybody up awake at night.

And do you think it's the role of the IMF to focus on things like financial inclusion and inequality?

Or is it mainly to focus on growth and economic stability?

We've come to realize that the two are very closely related.

So issues of inequality are macro critical.

They have an implication for growth today.

Issues of the climate that were previously thought of as being way out there and not something within the horizon of the fund is clearly not the case anymore.

We're seeing far more natural disasters.

We have financial institutions that could be very susceptible to these kinds of risks.

So we think of those things are being very closely related Thank you so much for being with us.

Thank you.

Thank you.

Thank you so much.