:00:00. > :00:00.Stephen Porte killed the four men with overdoses of the drug GH B. --
:00:07. > :00:10.GHB. Now, on BBC News, it is time for hard talk.
:00:11. > :00:18.Welcome to the programme. How exactly does Donald Trump propose to
:00:19. > :00:24.make the American economy great again? By junking the economic
:00:25. > :00:29.orthodoxy is of the recent past, it seems, he wants to slash taxes,
:00:30. > :00:35.spend big on public projects, and Rene on trade deals that he claims
:00:36. > :00:41.rip America. -- renege. My guest today is one of the most respected
:00:42. > :00:46.analyst in America, formerly the CEO of pinko investments, what will
:00:47. > :00:49.Donald Trump's brand of interventionism do for the US and
:00:50. > :01:16.the world economies. -- Pimco Investments.
:01:17. > :01:27.Welcome to hard talk, Mohamed A. El-Erian. Thank you for having me.
:01:28. > :01:31.You are an economist, a financial expert, doesn't the last year of
:01:32. > :01:35.world politics, British politics, US politics, tell us that we should no
:01:36. > :01:42.longer listen to experts like you. What it speaks to is that we have a
:01:43. > :01:45.crisis of growth, when you run sophisticated democracies at low
:01:46. > :01:50.growth and the benefits of the growth goes to a very small segment
:01:51. > :01:53.of the population, things start happening, improbable is become
:01:54. > :01:58.reality, economical, institutionally, politically. They
:01:59. > :02:04.are no longer so improbable, maybe it is just me, using hindsight but
:02:05. > :02:08.it strikes me as odd that we are still consistently so surprised by
:02:09. > :02:12.these earthquake events, as you have said, there is a pattern to them,
:02:13. > :02:15.because of what we have seen, the growing disaffection of working and
:02:16. > :02:19.middle class people who do not see their incomes rising, their living
:02:20. > :02:26.standards rising, what we are seeing is not so surprising. It is not but
:02:27. > :02:31.it is surprising that it is happening on semi-different fronts.
:02:32. > :02:35.No longer saying this is nice, we are seeing that this is signals, it
:02:36. > :02:42.is the politics of anger that have dominated. We have negative interest
:02:43. > :02:48.rates. Lend your money to the government, you pay down for the
:02:49. > :02:54.privilege of money. Yet another improbable, very few textbooks speak
:02:55. > :03:00.to this. In the context of the trump victory, but the Brexit vote, some
:03:01. > :03:06.of the opinion polls, that is the context, but again, experts like you
:03:07. > :03:10.always seem to believe that these kinds of votes are going to be
:03:11. > :03:16.disastrous for markets and economies. Post Brexiteer post
:03:17. > :03:26.Trump's victory in the United States, far from swooning, markets
:03:27. > :03:29.have actually done rather well. Nothing has happened yet with
:03:30. > :03:33.Brexit, the Theresa May government has gone slow, it is going to be
:03:34. > :03:38.hard, soft, well, we know that it is going to be a long Brexit, markets
:03:39. > :03:44.do not price long phenomenon that early, because if you are wrong, you
:03:45. > :03:47.risk losing investors. Brexit still to be seen. The Trump reaction is
:03:48. > :03:58.quite different, it reflects the content and tone of the
:03:59. > :04:00.President-elect's remarks. All focused on progrowth policies, with
:04:01. > :04:06.one exception, what he has said recently on PPP, rest has been about
:04:07. > :04:10.infrastructure spending, deregulation, tax reform, markets
:04:11. > :04:16.love that. The town has been very conciliatory. Brexit still has to
:04:17. > :04:22.play out. We will get back to Brexit, let's start with Trump, why
:04:23. > :04:27.were you such a backer of Hillary Clinton, when, as you have just said
:04:28. > :04:32.to me, if you can pick Donald Trump's economic proposals, he is
:04:33. > :04:38.advocating a fiscal stimulus package and a progrowth policy which
:04:39. > :04:44.economists like you have been calling for for a long time.
:04:45. > :04:47.Correct, a whole group of us, a monetary response which goes beyond
:04:48. > :04:51.central banks and warning that if we continue to rely upon central banks,
:04:52. > :04:56.then we will have problems that are going to be difficult to overcome.
:04:57. > :05:01.Why then not be straightforward and say, there is a lot in the Trump
:05:02. > :05:07.policy package which I quite like? Like so many of the elite, in New
:05:08. > :05:11.York and Washington, you nailed your colours to the Clinton mast when a
:05:12. > :05:17.lot of what you believe was in Oman about Trump's policy proposal? There
:05:18. > :05:21.was a lot of that with Hillary Clinton and also with Bernie
:05:22. > :05:24.Sanders, a lot of overlap, and recognition that growth must be high
:05:25. > :05:27.and more inclusive, there were common elements, infrastructure was
:05:28. > :05:33.common, tax reform was common, with one exception, at what tax rate
:05:34. > :05:40.should you do this? Trump is much more ambitious at slashing taxes
:05:41. > :05:46.than Clinton, both personal and corporate. But the reform element
:05:47. > :05:52.was common, including taxing refunds on declared interest. What was
:05:53. > :05:57.off-putting in Donald Trump's campaign was the anti-trade talk,
:05:58. > :06:01.the anti-globalisation talk, and certainly, a concern I have and
:06:02. > :06:05.others have, that the antigrowth component of his programme would
:06:06. > :06:11.dominate the progrowth components of his anagram, so far, this has not
:06:12. > :06:18.occurred. He has pivoted to focusing on progrowth and deemphasising
:06:19. > :06:22.antigrowth. Except, you choose to call it antigrowth, if we stick with
:06:23. > :06:30.trade policy, in the last 24-hour was he has chosen to be very
:06:31. > :06:34.explicit. He will announce that the United States is tearing up its
:06:35. > :06:46.commitments to the transpacific trade deal, what impact will that
:06:47. > :06:51.have TT P was never finalised. Also he is not talking about crashing
:06:52. > :06:56.tariffs on China and Mexico, which is something he had said, he has
:06:57. > :07:02.said that he is going to dismantle NAFTA, but we have not heard that
:07:03. > :07:07.since he was elected. Are you suggesting that key elements of the
:07:08. > :07:11.platform will not happen? He has made a point of not talking about
:07:12. > :07:17.them, he's not talking about either of these his election. That is... As
:07:18. > :07:21.a politician you cannot promise the workers of America, many of whom,
:07:22. > :07:26.they may be right or wrong, but in their terms, they see that their
:07:27. > :07:30.jobs have been haemorrhaging to Mexico and China and developing
:07:31. > :07:33.economies, you cannot promise you will reverse the trend, bring
:07:34. > :07:38.American jobs home, by imposing punitive tariffs on goods made
:07:39. > :07:42.overseas, and then not deliver, because if you do that, the
:07:43. > :07:47.discontent and the anger you talk about will get even more profound.
:07:48. > :07:57.May suspect late, my guess is the mere threat of these things is going
:07:58. > :07:59.to create changes. -- may I speculate. The President-elect will
:08:00. > :08:04.be able to go to his constituencies, with that mere threat changing
:08:05. > :08:07.something on the margins, and he will be able to say he has got
:08:08. > :08:11.something. Canada and Mexico have said they are winning to renegotiate
:08:12. > :08:16.some element of Nafta. US firm saying, bringing back production, to
:08:17. > :08:23.the US. We have not yet heard from China. If you put a gun to my head
:08:24. > :08:27.and asked what was going to happen, the mere threat of this is going to
:08:28. > :08:32.cause changes at the margins, at the margins, I stress, which will then
:08:33. > :08:37.be presented to the core constituencies as accomplished
:08:38. > :08:41.meant. That is an interesting idea, I can see, certainly, in terms of
:08:42. > :08:44.the balance of economic power, between the United States and North
:08:45. > :08:49.American partners, that that might work. Talking China, is in their
:08:50. > :08:52.increasingly a different relationship, a different balance at
:08:53. > :08:57.play, not too long from now, China is going to be the world's number
:08:58. > :09:00.one economy, changing the economy, becoming much more sophisticated, no
:09:01. > :09:06.longer just a make of blue jeans and children's toys, that ended a long
:09:07. > :09:10.time ago. China sees opportunities, if Trump imposes a protectionist
:09:11. > :09:18.worldview, China will make its own trade deals, and it may be able to
:09:19. > :09:21.leave America behind. With or without tariffs, China is looking
:09:22. > :09:28.for ways to bypass the system, the world is changing. The system has
:09:29. > :09:35.the US at its core. We have built a system where the US is the builder
:09:36. > :09:39.of global public goods. The currency, exchanging pieces of paper
:09:40. > :09:43.for goods and services, able give their savings to the US markets, to
:09:44. > :09:46.be managed there. What you are seeing is countries like China
:09:47. > :09:54.beginning to say, I'm not sure that system is stable. We will build
:09:55. > :09:58.small pipes around it to reduce dependence upon that. What tariffs
:09:59. > :10:04.would do is risk a trade war. That is a completely different game. You
:10:05. > :10:07.advise Allianz and sit on the developing Council of Barack Obama,
:10:08. > :10:10.so you have your ear to the ground, not just in the United States but
:10:11. > :10:16.around the world, how close to believe we are to an era of trade
:10:17. > :10:19.wars? I don't think we are as close as the rhetoric would suggest,
:10:20. > :10:25.because there is no clear constituency that pushes it on the
:10:26. > :10:28.production side, because people have diversify the supply chain, or the
:10:29. > :10:32.consumption side, because people consume imports as well as they can
:10:33. > :10:36.seem domestic who produced goods. You don't get a natural
:10:37. > :10:43.constituency. You get anger, a small segment of the population can
:10:44. > :10:46.express the anger in a way that we pay attention, Brexit, etc, yes, but
:10:47. > :10:49.when push comes to shove, the winners and losers are so diverse
:10:50. > :10:54.that I don't think you get a trade war. Another element of the Trump
:10:55. > :11:01.package, which seems interesting, you spend a lot of time on Wall
:11:02. > :11:07.Street and Washington, Trump is suggesting that he will row back on
:11:08. > :11:13.the so-called regular Tory framework for America's banks, he will allow
:11:14. > :11:21.more risk back into the system, after post-2008, so much effort was
:11:22. > :11:26.made to take it out. That will be stimulated, getting banks more
:11:27. > :11:29.proactive, do you believe him? Steps will be taken, let me give you an
:11:30. > :11:36.analogy, think of a motorway, a major crash, 2008, major. What's the
:11:37. > :11:40.first thing you are likely to do, lower the speed limit, but a
:11:41. > :11:46.policeman at every mile. That is the natural reaction. We imposed more
:11:47. > :11:55.regulation, which we should have, and more supervision. Did the team
:11:56. > :12:00.overshoot? Were the speed limits to low? Some thought they were too low,
:12:01. > :12:04.they believe they have fancy cars and they can drive much faster, I
:12:05. > :12:08.don't think that is the case but I understand why they may view this.
:12:09. > :12:12.Now, we may go through an era where we are going to relax the speed
:12:13. > :12:16.limit, and the critical issue is what exactly do you relax? Whether
:12:17. > :12:20.it is the regulation of the financial system, infrastructure
:12:21. > :12:27.spending, tax reform, the details will not matter. -- the details will
:12:28. > :12:31.matter. One final thought, and I characterise this at the beginning,
:12:32. > :12:37.challenging received recent wisdoms by Trump's team, you would like to
:12:38. > :12:40.spend amazing amounts of money on public projects, roads,
:12:41. > :12:43.infrastructures, even perhaps the wall, on the border with Mexico,
:12:44. > :12:50.that will cause a lot of money. Trillions of dollars. To many people
:12:51. > :12:53.that would be classic Keynesian economics, pump priming, using big
:12:54. > :12:57.government to get the economy moving. Barack Obama did not do
:12:58. > :13:02.that, Hillary Clinton was not talking about it on the same scale,
:13:03. > :13:07.for you, as an economist, do you see that as an effective deliverer of a
:13:08. > :13:10.new rate of growth? For years I have been arguing that we fell in love
:13:11. > :13:14.with the wrong growth model, we fell in love with finance as an engine of
:13:15. > :13:17.growth and forgot to invest in infrastructure spending, that is one
:13:18. > :13:25.of the elements, is there a deficit? Absolutely. Is there money to fund
:13:26. > :13:28.it? Absolutely. Designing it will be critical. One failing of
:13:29. > :13:33.left-leaning governments in the United States, those who believe in
:13:34. > :13:37.government, and I am thinking of the Clinton era, Barack Obama, these
:13:38. > :13:42.guys believe in government and you are telling me that they never
:13:43. > :13:45.actually were ambitious enough in using government to drive economic
:13:46. > :13:52.development. They did not have Congress, I witnessed jobs bills
:13:53. > :13:59.being presented. Infrastructure being presented, nothing past. This
:14:00. > :14:04.has been a do nothing Congress. I'd won't do it, I shouldn't do it. I
:14:05. > :14:08.will give you a simple metric. The most basic element of economic
:14:09. > :14:18.elements is passing an annual budget, that is true at any level,
:14:19. > :14:26.government, companies, household. We have had rolled over the budget,
:14:27. > :14:30.even on the basic element of governments, Congress did not agree,
:14:31. > :14:34.and understandably so, if you are a Democrat, or a Republican, you don't
:14:35. > :14:37.want to be reviewed as collaborating because the threat to you when the
:14:38. > :14:42.election comes from the extreme of your party. What is different this
:14:43. > :14:47.time around is the Republicans control the White House, said, and
:14:48. > :14:54.the House of Representatives. Different political confederation.
:14:55. > :14:58.Quite a few nuances there. Going back to you over answering theme,
:14:59. > :15:02.what we see around the world is the fruits of the politics of anger, the
:15:03. > :15:06.people who in a sense were at the absolute epicentre of the debate
:15:07. > :15:13.with United States settled the selection. White working-class
:15:14. > :15:17.voters of the rust belt states, Wisconsin, Michigan and others, who
:15:18. > :15:23.believe that Trump was going to change their lives in a way that
:15:24. > :15:27.Hillary Clinton was not. We have discussed different elements of the
:15:28. > :15:31.Trump Ozil package, do you believe those working class Americans, so
:15:32. > :15:35.discontented and angry, will receive benefits from what we have
:15:36. > :15:44.discussed? If the economy grows, the answer is, yes. Two elements. One
:15:45. > :15:49.is, absolutely there was a core element of support, but Trump
:15:50. > :15:53.attracted 1 million fewer votes than Mitt Romney, four years ago.
:15:54. > :15:59.Secretary Clinton attracted 5 million fewer votes than Barack
:16:00. > :16:03.Obama did, four years ago. There was also an antiestablishment movement,
:16:04. > :16:07.which stopped people from supporting the establishment candidate. It is
:16:08. > :16:13.the same thing as happened in Britain, with Brexit. Not just that
:16:14. > :16:17.people want to change, but people who normally support the
:16:18. > :16:21.establishment did not turn up. We saw this very clearly in the
:16:22. > :16:26.numbers. There is fatigue among those who support the establishment,
:16:27. > :16:31.and two elements that produce these outcomes that surprises a lot of
:16:32. > :16:36.people. The people who are angry, perhaps we have to be mindful of the
:16:37. > :16:41.old saying, be careful what you wish for, if we turn perspective just
:16:42. > :16:45.briefly to Brexit, people voted because they were angry and
:16:46. > :16:50.disaffected from the status quo, you have looked at the arguments here in
:16:51. > :16:52.Britain about the kind of Brexit we will have, what kind of future
:16:53. > :17:00.relationship we will have with the EU, certainly in terms of access to
:17:01. > :17:03.the single market, if we have the most limited access, the so-called
:17:04. > :17:07.hard Brexit, how do you see that affecting the British economy? If
:17:08. > :17:12.you have a hard Brexit, the British economy goes into recession, that
:17:13. > :17:15.simple... No question? That is not the message coming from senior
:17:16. > :17:20.ministers in government who say, hard Brexit is a deal that will
:17:21. > :17:25.allow us to openly trade with the whole world, the WTO default rules,
:17:26. > :17:29.we will be fine. It takes time to replace something with something
:17:30. > :17:32.else, if you have hard Brexit tomorrow, you will be replacing
:17:33. > :17:36.something with nothing! You can go back to the default option, because
:17:37. > :17:45.that is so far away from how the UK trades today. Let me be provocative,
:17:46. > :17:49.hard Brexit, no, you will get soft bricks, at the end of the day,
:17:50. > :17:54.Europe will realise it is in its interests as well as the UK's
:17:55. > :17:59.interests to have a soft bricks it, because Europe also needs the UK,
:18:00. > :18:03.and one final element, you will end up resolving a fundamental
:18:04. > :18:07.inconsistency, from Day 1, Britain viewed the EU as nothing more than a
:18:08. > :18:13.super free trade zone. -- soft Brexit. It was a guest is
:18:14. > :18:19.destination. France and Germany see it as an ever closer union, -- it
:18:20. > :18:23.was seen as a destination. These were two very different figures
:18:24. > :18:30.which could never be reconciled. Europe has the opportunity now to go
:18:31. > :18:33.ahead and I look at this and I would not have voted for Brexit, I think
:18:34. > :18:40.it is a mistake but I understand why the outcome occurred. But now
:18:41. > :18:43.rational people realise you can get something good out of it in the
:18:44. > :18:49.medium term but in the short term, the journey will be really bumpy.
:18:50. > :18:53.Quite an optimist view of what is going to happen not just in Britain
:18:54. > :18:57.but the rest of Europe, you imply that the other 27 members have a
:18:58. > :19:00.common vision, economic and political, which they don't, they
:19:01. > :19:05.are internally divided among themselves. It is somewhere between
:19:06. > :19:09.a view and a hope and hope is that rational people will the rational
:19:10. > :19:12.things and we have time now to understand what the message of
:19:13. > :19:18.Brexit and why it occurred and the last thing you want to do is make
:19:19. > :19:23.things worse. Isn't the biggest sort of lesson to be learned from your
:19:24. > :19:27.analysis of what has happened in the United States, in the UK, across
:19:28. > :19:33.Europe, perhaps we could talk about other countries as well, the biggest
:19:34. > :19:40.lesson is that over the last generation, democracy has not
:19:41. > :19:44.delivered responsible sustainable successful economic policy that
:19:45. > :19:49.delivers growth but in a way that is, as I say, sustainable.
:19:50. > :19:53.Absolutely right, going one step further, we fell in love with the
:19:54. > :19:59.wrong growth model. If we had this interview 11 or 12 years ago, the
:20:00. > :20:03.paragon, the ruling paradigms was that finance is sophisticated and
:20:04. > :20:06.enables all sorts of activities, it should not be regulated, and there
:20:07. > :20:11.were those that were saying that finance is the next level of
:20:12. > :20:17.capitalism, agriculture, services, and if you are really lucky, you get
:20:18. > :20:21.to finance. We call it finance, but actually it was financial services.
:20:22. > :20:25.The political system and everything else fell in love with this notion
:20:26. > :20:31.that finance was an engine of growth. We overdid it and we have
:20:32. > :20:38.not yet got out of this mode, all we have done is replaced private
:20:39. > :20:42.finance with Central banking. The failings of democratic systems to
:20:43. > :20:46.produce leaders who take long-term sensible economic decisions, I don't
:20:47. > :20:50.want to put words in your mouth but looking at China today and how it
:20:51. > :21:00.takes its position, is that rather more successful, do you think? China
:21:01. > :21:04.has the luxury of doing something Western democracies find very hard,
:21:05. > :21:09.because they have more frequent elections. China says, we know where
:21:10. > :21:13.we want to be in ten years' time, I don't know every step of the way but
:21:14. > :21:17.I know the first three steps and we will do these things and adjust. I
:21:18. > :21:22.don't have too convince anybody that I'm not going the whole way. The
:21:23. > :21:26.minute you say I want to be there in ten years' time, they will ask what
:21:27. > :21:29.is happening in one, two, three, four, if you say I don't know the
:21:30. > :21:34.year five but I will learn, they will say, how can we support you?
:21:35. > :21:38.There are short-term is intellectually everything that we
:21:39. > :21:42.do. We have an election process which pushes for short-term success
:21:43. > :21:46.and markets want quarterly results, so we have a problem. A more
:21:47. > :21:49.personal thought, we have talked about the United States and the
:21:50. > :21:53.looming age of Trump, you are a Muslim American, you have talked
:21:54. > :21:57.movingly before about the amount of opportunity you feel America has
:21:58. > :22:01.given to you, in January you will have a president in place whose
:22:02. > :22:07.message, particularly when it comes to Muslims and Islam, is in many
:22:08. > :22:11.ways much more negative, have you reconsidered your place in America?
:22:12. > :22:18.Firstly, I regret what has been said and the extent to which this has
:22:19. > :22:22.fuelled a sentiment among a certain segment of the population, it is a
:22:23. > :22:28.minority, not a majority of US population that feels that I and
:22:29. > :22:32.other Muslims are fretting them. My point is that there is people in the
:22:33. > :22:39.White House, come January, who appear to have an idea of Islam and
:22:40. > :22:44.what Muslims are, which may well give you pause, I would have
:22:45. > :22:47.thought. I hope they will look at me and the vast majority of Muslims in
:22:48. > :22:53.the United States and realise that is an incorrect error to rise Asian.
:22:54. > :22:59.I thinkTrump's America will evolve and a lot of things said on the
:23:00. > :23:05.campaign will evolve. -- is an incorrect categorisation. It is
:23:06. > :23:10.going to be a different America but it is not one where I am thinking I
:23:11. > :23:13.should leave. Recently you have said you believe your generation has
:23:14. > :23:15.failed the next generation, you have squandered so much of the
:23:16. > :23:22.opportunity, what do you mean by that? We as a generation have
:23:23. > :23:25.borrowed from the future enormously. Not just the cumulation of debt, we
:23:26. > :23:32.have brought forward economic growth to today. Financial returns on our
:23:33. > :23:35.pension funds today. We have borrowed and borrowed and borrowed,
:23:36. > :23:39.I often look at my daughter and wonder what world we are leaving
:23:40. > :23:43.her. That is why getting growth going and making it inclusive is so
:23:44. > :23:50.urgent. Not as much for my generation as it is for future
:23:51. > :23:54.generations. Yes, as a generation we have mishandled the allocation of
:23:55. > :24:01.the benefits that this world economy gives us. We can still change this,
:24:02. > :24:04.we are coming to a T-junction, we have decisions to be made to make
:24:05. > :24:09.sure we can transition to a better world. We have to end with that
:24:10. > :24:33.thought. Thank you very much for being on Hard Talk.
:24:34. > :24:39.Good evening, it is cold out there, frosty for some, not for others,
:24:40. > :24:41.variety north to south across the UK, across northern areas, a whole
:24:42. > :24:42.lot of