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The macroeconomic environment: navigating the uncertainty
July 13, 2023
What are the macro headwinds for 2023?
In a world of heightened volatility in financial markets and concerns around economic activity – executives need a clear understanding of the macroeconomic environment in which they operate to help make long-term decisions.
In this episode, Dr Alexis Crow, Principal and head of the Geopolitical Investing Practice at PwC, is joined by Pierre Yared, MUTB Professor of International Business, Senior Vice Dean for Faculty Affairs, and Vice Dean for Executive Education at Columbia University Business School. Together, they pull the veil back on some of the most complicated issues that investors and executives are facing in the economic environment today, including inflation, the outlook for recession, future of trade, impact of AI and more.
About the podcast participants
Dr Alexis Crow is Principal, PwC Trust Solutions, Global Geopolitical Investing Practice Leader. A global economist who focuses on geopolitics and long-term investing, she works with the world’s leading companies and private investors to understand and navigate key macroeconomic dynamics impacting their business, strategy, and capital allocation decisions. In her remit, she covers Europe, Asia, the Middle East, Latin America and North America. Dr Crow is a public speaker and frequent contributor to leading global financial publications and media outlets, including the Financial Times, the New York Times, Bloomberg, BBC, BBC Arabic, France 24, CNN, and the Washington Post. Her research is focused on topics including financial stability, the future of trade and globalisation, global energy markets, and investing in real assets, technology, and the future of the consumer.
Prior to joining PwC, she taught at the London School of Economics; led a major policy research project at London UK-based think-tank Chatham House; and served as Managing Director at New York-based G2 Investment Group, where she was responsible for developing investment strategies for the firm and for providing counsel on geopolitical issues.
In addition to her role in PwC, Dr Crow is a Senior Fellow at Columbia Business School and with the Observer Research Foundation in India. She serves as a member of the World Economic Forum’s Global Futures Council on Geopolitics, and is a Young Global Leader in the World Economic Forum.
She holds an MA Hons First Class from the University of St Andrews, Scotland, and an MSc and a PhD from the London School of Economics, and is fluent in English, French, and Spanish.
Pierre Yared is the MUTB Professor of International Business, Senior Vice Dean for Faculty Affairs, and Vice Dean for Executive Education at Columbia Business School. His research, which has been published in leading academic journals, focuses on macroeconomic policy and political economy. He is a research associate of the National Bureau of Economic Research and an associate editor of the American Economic Review. Yared teaches Global Economic Environment, a Core MBA course in macroeconomics for which he received the Dean’s Award for Teaching Excellence. He is a member of the Council on Foreign Relations and the Economic Club of New York. Yared received his AB in Economics from Harvard University and his PhD in Economics from Massachusetts Institute of Technology.
Episode transcript
Find episode transcript below.
00:00:00:02 Welcome to PwC Pulse, a podcast to provide insights to help you solve today's business challenges. Hi, I'm Dr. Alexis Crow, Principal and Head of the Geopolitical Investing Practice at PwC, and I'm delighted to be your host for this episode of PwC Pulse.
00:00:19:04 Today, we're discussing some of the most pressing issues on the minds of business leaders and of investors, including the outlook for the U.S. economy, inflation and more. We'll be exploring these issues and their impact not just on the wider economy, but also for corporate strategies and for consumer behavior.
00:00:35:08 Joining me today is our guest, Pierre Yared. Professor Yared is the MUTB Professor of International Business, Senior Vice Dean for Faculty Affairs and Vice Dean for Executive Education at Columbia University's Business School. His research has been published extensively in leading academic journals and focuses on macroeconomic policy and political economy.
00:00:57:11 Professor Yared is a research associate of the prestigious National Bureau of Economic Research. He also serves as an Associate Editor of the American Economic Review. Pierre, welcome to the podcast.
PIERRE YARED:
00:01:10:05 Thank you for having me. I'm delighted to be here.
ALEXIS CROW:
00:01:12:08 So before we dive in, we've got some icebreaker questions for our audience to get to know you a little better. If you could live in any other city in the world other than the glorious New York, what would it be?
PIERRE YARED:
00:01:24:01 That one is really easy for me, Alexis. I would live in Paris. It is a place where I can spend endless hours eating cheese and pastries and looking at art and that's basically all I need.
ALEXIS CROW:
00:01:35:08 That sounds perfect. So we all have heroes who are some of the giants and heroes in economics and business to whom you look for inspiration?
PIERRE YARED:
00:01:45:02 That is a good question, and there are a lot of people to look at. I like to look at people who have influenced my own life. So in particular, my maternal grandfather, who was a businessman. He built a business in the 1940s, and that business survived for a very long time throughout some tumultuous years during the 15-year Lebanese Civil War.
00:02:07:04 And during that time, my grandfather exhibited a tremendous amount of poise and calmness and tenacity and diligence and resilience and I think that is something to strive for in the world of business.
ALEXIS CROW:
00:02:21:09 It's beautiful. Thank you. I've known you for 10 years and I've never even heard this, so I'm learning something new today. What's the best book recommendation you could give today for time starved but intellectually curious business executives?
PIERRE YARED:
00:02:33:27 So one that I keep returning to, it's a little old it's pre-pandemic, but one that I keep returning to and thinking about, The Current State of Affairs is a book by Alan Greenspan and Adrian Wooldridge on Capitalism in America. It's about the history of capitalism in the U.S. and in some ways it's about the history of capitalism in the world.
00:02:54:21 And it's a very useful lens to look at how it developed together with extensions of democracy and thinking about the future, I think it's a useful reference and I urge other people to look at that book.
ALEXIS CROW:
00:03:10:06 Look forward to diving into this. So turning to your background, you have just an extensive professional history in economics with a research focus on macroeconomic policy and political economy. This gives you an interesting vantage point on many of the top issues facing senior executives today. What motivated you to pursue a career in economics and business education?
PIERRE YARED:
00:03:31:01 So I'm a little embarrassed to say that it was not a very well thought out plan. It started as an attempt to postpone having to get a real job. So I got a Ph.D. That was the early 20s.
ALEXIS CROW:
00:03:42:29 I feel you.
PIERRE YARED:
00:03:43:02 And then after I finished the Ph.D., I decided to continue to postpone getting a job by staying in school and becoming an assistant professor and that lasted a while. And then after that, I got tenure, and then I decided that there was no need to continue to postpone things that I was happy where I was remaining in school.
00:04:03:20 And so that's where I am today. Now, why economics in particular? I think I've always been interested in it. I grew up in Lebanon during the civil war, and because of that, I think I'm naturally inclined to thinking about geopolitics and economics. The discipline of economics, I think is a fantastic discipline for applying logic and statistical analyses to all sorts of big questions.
00:04:26:03 So as a framework for understanding the world, I think it's a great one.
ALEXIS CROW:
00:04:30:07 Let's dive into the task at hand, a clear outlook on the U.S. and the global economy and an understanding of geopolitical forces, including the future of trade. So one question I am most frequently asked by executives across the globe is about recession and where we're headed. Certainly here in the United States, it's top of mind whether or not we enter into a recession in the U.S. and that is again, top of mind for executives across the globe.
00:04:54:09 What's the likelihood that we tip into recession within the next 12 months? What would be the trigger and how deep might that be?
PIERRE YARED:
00:05:02:04 So I think that the likelihood is high. So let's go through why the likelihood is high. There are two specific reasons why the likelihood is higher relative to other times where we might have thought that a recession is coming. One is that the level of overheating of the economy has been pretty drastic relative to other economic booms.
00:05:23:02 And what history shows is that if you have extensive overheating, then sort of like a rubber band, the economy has to snap back in the other direction, so that's one. And then the second piece of it is that typically in anticipation of a recession or once we start seeing bits and pieces of a recession, you see the Federal Reserve start to preemptively reduce interest rates to cushion the blow.
00:05:49:01 I think that in this particular time period, because the Fed is so focused on building up its credibility, which many would say it lost some of that credibility with the inflation that occurred because it's so focused on its credibility.
00:06:03:19 My guess is that it's going to be much more backward looking in its choice of interest rate versus forward looking and because it's going to be backward looking, it's going to be a little bit behind the curve in sort of cushioning the blow, which means that we're likely to fall into one and it might be a little bit more of a larger recession than the recessions we're used to.
00:06:24:17 And by that I mean pre-global financial crisis type of recessions that we're used to.
ALEXIS CROW:
00:06:29:03 Deeper or longer in duration, what do you mean by larger?
PIERRE YARED:
00:06:33:05 I think it might be a little bit deeper than say the old one recession.
ALEXIS CROW:
00:06:36:08 Okay, okay.
PIERRE YARED:
00:06:37:07 So that's what I would say.
ALEXIS CROW:
00:06:39:00 It's interesting, right, because as you're speaking about coming from this extraordinary ramp up in economic growth coming out of the pandemic, remember everyone, us included, we were talking about the alphabet soup, V-shaped recovery, N shaped recovery, inverted square recovery.
00:06:53:17 No one's talking about that anymore and it's fascinating that we were actually in a technical recession in the U.S. in the first two quarters of last year, but nobody made a song and dance about it.
PIERRE YARED:
00:07:03:03 There were data issues.
ALEXIS CROW:
00:07:07:06 So coming to the Fed policy here, I think as well, that's our base case, that the credibility is on the line. So you could have a potential over hiking and I think –.
PIERRE YARED:
00:07:15:04 Or they keep it where it is for longer than the market anticipates and I would say the market has been wrong about the Fed pretty much throughout this entire hiking cycle.
ALEXIS CROW:
00:07:25:01 Classically and I think part of that is actually overzealous desire for the Fed to actually cut, you know, like the markets pricing in a couple of cuts, but that's.
PIERRE YARED:
00:07:33:13 If you will, it will happen.
ALEXIS CROW:
00:07:35:01 Right, exactly.
PIERRE YARED:
00:07:36:00 Yes.
ALEXIS CROW:
00:07:37:00 All in the name of a reduced cost and capital.
PIERRE YARED:
00:07:38:04 And also a little bit of, you know, the last two recessions the Fed was so proactive in cushioning the blow that the memory of what the Fed has done in the past doesn't exist in some of the folks who are pricing the interest rate in the future. So I think that's part of what's going on. It's the lack of a historical perspective.
ALEXIS CROW:
00:07:56:03 Well, it's interesting too, because market participants today, many of them have had no experience of inflation before. So I think that's also contributing to some of the wall that we're seeing in equity markets.
PIERRE YARED:
00:08:05:08 That's right and if you recall back in 2019, many did not have any experience of interest rates increasing.
ALEXIS CROW:
00:08:14:03 Right because they experienced no inflation.
PIERRE YARED:
00:08:15:07 It's flat for decade.
ALEXIS CROW:
00:08:16:00 Yeah, I kind of like our overreliance on monetary policy to a child with floaties on in the pool and we never really graduated to remove the floaties yet. So that could be one benefit of entering into stickier inflationary era. So what about this debt crisis? Is this crisis averted or did we just kick the can down the road?
PIERRE YARED:
00:08:37:28 I think we kicked the can down the road in two different ways. In the short term, there's going to be some discussions about implementing the spending cuts that we're talking about and if you recall, after the last time that this happened in 2011, there was sequestration and a constant uncertainty about which spending is going to be cut and how and by when and is sequestration taking place.
00:09:01:00 So I think that there will continue to be some discussions about that in the near term. In the longer term, the debt ceiling continues to exist. It's been pushed down a few years, but it will come up again and it doesn't resolve the big issue because obviously the debt ceiling is more of a quirk of U.S. policy and longer term
00:09:22:07 there is an issue of how to deal with these debts, which have been growing for decades. It's not just a post pandemic issue. It's been growing for deep structural reasons, which is that spending is outpacing tax revenue.
ALEXIS CROW:
00:09:36:08 Sure, sure. On that, I just want to follow up, so there's been a lot of debate recently as to whether or not this whole dialog that's been happening in Washington on the debt ceiling will dethrone King Dollar and whether or not we're entering into a de-dollarization world. What are your thoughts on that?
PIERRE YARED:
00:09:54:04 It's a very big and important question. I would say that what has been written about the dollarization right now is overhyped. That's my take on that. To replace the dollar, you'd have to come up with an alternative in a globalized world, okay. And the only alternative that is viable is the Euro. That is the only alternative that is viable.
00:10:16:29 And in fact, after the Euro came into place, we did see much more happening in terms of debt issuance in Europe, for example, relative to the dollar, which suggested -
ALEXIS CROW:
00:10:29:04 Saudi is issuing Eurobond denominated debt, yeah.
PIERRE YARED:
00:10:32:06 Corporates, corporates in particular. So a lot of European corporates started issuing Euro denominated bonds versus dollar denominated bonds and issuing across the world. And that's indicative of the fact that, you know, the Euro was perceived as having a lot of features of the dollar, the type of stability.
00:10:48:13 It's a unit of account, medium of exchange, store value, all the things that you want in a global currency. Outside of the Euro, it's very hard to think about another currency having those three properties. Some of them can have some of those properties. So you could have a currency that's a bit like a vehicle currency, a medium of exchange, sort of like how Bitcoin functions.
00:11:05:25 But Bitcoin is not a unit of account, it's not a store of value. And so it's a bit of a hard thing to think about in terms of replacing the dollar without some sort of alternative. An alternative could surface, but it'll take a little bit of time and it would require a lot of trade and a lot of debt issuance happening in that currency.
ALEXIS CROW:
00:11:26:02 Well, it's fascinating, right, because in all of the projections of potential bank wobbles not being contained, which we’ll come to, there's still the worst case downside scenario case that therefore you'd see a strengthening in dollar because everyone would be crushing, crashing in to the USD as a safe haven.
00:11:42:18 So it's interesting, right, that still in all of this debate, the dollar is held up as a safe haven. And I think it's helpful to distinguish what you did between dollars role as the reserve currency versus dollars role in trade finance and as a foreign exchange transaction.
PIERRE YARED:
00:11:57:02 Yeah.
ALEXIS CROW:
00:11:58:00 What we've seen is on that reserve currency side, the dollar giving way to the Euro with other institutional investors and central banks willing to hold Euro as such as Japanese. And on the trade finance side, I think this is also implicated by the increasing use of sanctions. So coming to these bank wobbles, I want to ask, what is your base case? Has the situation been contained here in the United States and would this potentially contribute to a recessionary environment?
PIERRE YARED:
00:12:28:02 So I think ultimately, whether it will be contained depends on where inflation goes because it can spread and it will spread if credit conditions remain tight and the government has the ability to alleviate that tightness, right, with a lot of its backstop type of policies that are supported by the Fed.
ALEXIS CROW:
00:12:48:07 Right.
PIERRE YARED:
00:12:49:01 And to the extent that inflation comes down, that provides a little bit more wiggle room for the government to do that. If inflation stays high, then you have the Fed that remains extremely tight and to some extent it can provide a little bit of support through some of the credit policies that were introduced.
00:13:06:04 But I think if you're doing that, if you have a tight policy with the interest rate but a relaxed policy on the credit side, it's true that they are different, but ultimately they're going against each other and that creates confusion and you're not entirely sure in which direction ultimately what you're doing is going.
00:13:26:06 It's easy to have support for the credit markets when inflation is low and when the interest rates are going down and then you're expanding with both levers. And it's also easy to be tight if interest rates are going up and you're tightening credit policy at the same time, that's fine, when you're doing one thing with one hand, another thing with the other hand, then it's a little bit more confusing and you might do too much with one or two, little with the other.
00:13:53:27 And I think that that's part of where we are right now. The big risk is inflation stays high, interest rates stay high as a consequence, and the government has to be a little bit more circumspect in providing support to credit markets and then it can go beyond where it is right now.
ALEXIS CROW:
00:14:12:04 Well, let's get to some of those underlying causes of inflation. I recall right at the start of the pandemic, you were one of the last conversations I had in the office and we spoke and you said you were concerned about inflation. So there's been a lot of rich debate is whether or not this supply driven, demand driven, combination of both. What's your take?
PIERRE YARED:
00:14:31:01 So I appreciate you bringing up that original conversation because I sort of felt silly in March 2020 thinking that there was going to be inflation and then all sort…
ALEXIS CROW:
00:14:39:07 And my response was, the Fed can raise rates. We got room.
PIERRE YARED:
00:14:43:03 But in March 2020, we basically saw prices go down, right? So you look across the board price.
ALEXIS CROW:
00:14:48:04 This inflation.
PIERRE YARED:
00:14:49:01 You see this inflation. And like if you look at the PPI of that time, for example, you'll see prices going down across the board. So why would I think that there would be inflation at the time? Because if you think about a pandemic, it's an unusual type of recession, it has both a contraction in supply and a contraction in demand.
00:15:04:07 And if you have both, you don't know which way it's going to go. Most recessions are demand driven. More recently, they have been demand driven, but this one was more of a supply driven recession. And eventually, though, that supply contraction actually kicked in big time and that's really how the inflation spike that we're experiencing originated.
00:15:22:04 It originated with supply pressures, which very smart people thought would be transitory and those supply pressures emanated from some of the supply chain issues that we're familiar with. It emanated from issues involving commodity price inflation as well as the fact that people couldn't work.
00:15:39:22 And so you had to have these factories operate with much smaller capacity because of social distancing, but not just because of social distancing, even after the adoption, the vaccine was more widespread. You saw a lot of people not returning to work for various reasons, taking care of children at home, lower levels of immigration and so on, so all of this led to shortages which pushed up inflation at the beginning.
00:16:00:03 So I view that as sort of a trigger, what's interesting is that it wasn't transitory as we thought, because a lot of these supply pressures that we're talking about, perhaps not necessarily on the labor side, maybe something we can turn to, a lot of these supply pressures have basically dissipated and so if they've dissipated, why is the inflation still here?
00:16:17:01 Then you have to say that it's because ultimately the supply driven inflation became a demand driven inflation at some point. So then we have to think about what are the sources of that demand driven inflation and what's underlying it. I would say that the demand side inflation comes from a few sources. One source is that there was a reallocation of consumption away from services towards goods.
ALEXIS CROW:
00:16:39:05 Goods, yeah.
PIERRE YARED:
00:16:40:04 You see that happening immediately during the pandemic. Somehow it has persisted. The shift in what people are…
ALEXIS CROW:
00:16:47:01 Yeah, so people are spending on services and still goods.
PIERRE YARED:
00:16:50:02 Yeah, but the share of overall consumption, you know what we macro economists call consumption going to goods is higher than pre-pandemic. So that permanent shift means that we just see a lot more demand for goods and the price response for goods from additional demand is much sharper than for services.
00:17:06:21 And so that can explain a bit of inflation. Why is that happening? Maybe because of the urbanization and factors like that that continue. Another reason for the demand is the pent up demand that didn't happen during the pandemic that many want to get out of their system, like going on vacation and so on.
00:17:25:08 And then the third piece of it has to do with the fiscal stimulus, which was very large, which provided support to businesses and to households. And that stimulus supported by the Fed is an additional reason for the inflation. So those are the demand side factors of the inflation, and they seem to persist today because if you look at the inflation numbers, it's not necessarily the headline inflation, you know, which is driven by energy and so on, its core inflation and in particular its core services.
00:17:53:01 And then if you delve even deeper than that, you're looking at shelter inflation, one third of the CPI, which just does not seem to come back down.
ALEXIS CROW:
00:18:02:00 Sure and I think that presents a whole other episode of a podcast in and of itself to speak about the number of different factors that contribute to the affordability crisis in housing, which is such a prominent issue in America. So you mentioned labor markets. I do want to come in because a lot of executives that will be listening in on our session today have been concerned about wages.
00:18:24:03 We might have been in a moment where during the pandemic, labor temporarily regained the upper hand over capital, but where do we stand now? You and I were chatting earlier, you know, we do see wages coming down by the Fed's tracker. So where are we in the U.S.? Will executives need to keep paying hand over fist to retain talent?
PIERRE YARED:
00:18:43:02 Right, great question. So let's talk about the labor market. The labor market has really been on a tear and it's been surprising every single month. It's unbelievable how many times the forecasts have been off about the number of jobs that would be created that month.
00:18:57:07 That being said, I do think that things are slowing down there. And in particular, we can point to specific data that suggests that we are re-normalizing and I can go through some of these. So in particular, we did see a lot of a big decrease during the pandemic in immigration, immigration supports the labor market and immigration is back on trend in terms of the number of immigrants who are in the labor force.
00:19:24:15 And by some measures, there may be a exceeding trend. So that piece of it was a reason for the labor shortages and it doesn't seem to still be an issue now, the other piece of it is many parents were out of the labor market. So you could look at the data on people with children and to what extent are they participating in the labor market.
00:19:44:20 You see them back in the labor market. And then overall, if you look at prime-age population, labor force participation is back on track. So those are back. The one missing piece is the number of retirees that we see, and that's significant.
ALEXIS CROW:
00:19:58:00 Record number in 2020.
PIERRE YARED:
00:19:59:09 Yeah, and that hasn't adjusted, which is basically why total level of employment in the economy is below what you would have forecasted based on previous trends. So I think that's the piece that's still there as an underlying cause of some continuing shortages. That being said, if you look at earnings cause and other type of data, you don't see the words labor shortages showing up as much.
00:20:20:04 You also don't see as many quits as we did before, which is indicative that things are dying down. And as you mentioned, wages continue to increase. But what's useful to note is that the difference between job switchers and job stayers, which expanded dramatically during the post-pandemic period, has narrowed, suggesting that businesses are not as much at risk of losing employees to other companies that are trying to poach them.
00:20:47:08 So that suggests that things are normalizing and even though we continue to be surprised month on month and total number of jobs, there is a downward trend in the number of jobs. So it looks like it is stabilizing.
ALEXIS CROW:
00:21:00:00 All right. Let's turn to the future of trade. Let's do a level set. Where are we Pierre? Are we in an age of de-globalization or slow-balization? Have we hit peak trade? And what are the implications, for example, about decoupling between the United States and China?
PIERRE YARED:
00:21:17:02 So the numbers suggest a flattening out of globalization going back to 2008. That's if you look at goods trade relative to GDP, as well as all sorts of different measures of capital flows. You do see growth in trade of services though, across countries as a proportion of GDP. So that continues to remain a thriving area I would say, whether this goes to full de-globalization or not, it doesn't seem like it's going to.
00:21:41:12 That's just not feasible but what looks more realistic is some sort of regionalization together with building some redundant capacity. A regionalization why? Because of some of the risks involved with geopolitical stress around the globe.
ALEXIS CROW:
00:21:55:02 Interesting, so greater fragmentation on the geopolitical stage has led to greater regionalization of even supply chain activity that we're seeing.
PIERRE YARED:
00:22:04:04 I would say that in trade as well as in capital flows. So you already see it right now of reorientation of FDI across countries.
ALEXIS CROW:
00:22:11:07 Does that mean that we're in this sort of on shoring, fringe shoring world?
PIERRE YARED:
00:22:16:04 I think so, probably yeah. And there's some interesting implications in terms of what this means, right. So as an economist, I look at this and would say there's no question that this increases the cost of doing business, which means lower productivity growth.
00:22:31:07 But that's not the only implication, you know, there's other implications.
ALEXIS CROW:
00:22:34:06 Declining competition potentially.
PIERRE YARED:
00:22:35:09 You know, declining competition is another reason you get lower productivity growth. It empowers national champions, let's say, and…
ALEXIS CROW:
00:22:44:01 So-called potentially.
PIERRE YARED:
00:22:45:07 The other thing is that it does result in, I'd say, lower technology transfer to some of the emerging markets that have benefited from it in the past, because if you have declining trade, if you have increasing sanctions or trade barriers and so on, you're going to end up with more frictions for technology transfer, so emerging markets will lose out.
ALEXIS CROW:
00:23:04:04 Implications there too for talent, the late Japanese Prime Minister Shinzo Abe spoke about knowledge exchanges as being part of Japan's quality infrastructure investment in some of these emerging market developing countries. So if you're not exporting that human capital know how as well, it's hard for some of those EMDs to get a leg up.
PIERRE YARED:
00:23:23:04 That's right. Now on the other hand, you do see some winners, which are the losers of globalization, will see their wages go up. And we already saw a lot of that happening during the Trump administration and it continues to happen.
00:23:38:05 The fastest wage growth is happening at the very bottom of the income ladder and there's some other interesting things to consider. For example, you would imagine that in a world with fewer global capital flows that interest rates in debtor countries would rise as a consequence.
00:23:52:08 So if you think why have interest rates been so low, in part because of all of this capital that has flowed into the US from a lot of emerging markets and commodity exporters in a world where less of that comes in, interest rates are permanently higher and that's another potential consequence to consider.
ALEXIS CROW:
00:24:09:09 So I want to turn to artificial intelligence. Prior to the pandemic, I would give dinner speeches on both sides of the Atlantic, and executives would be hand-wringing that robots were coming for their children's jobs and that we would face what is referred to in economic literature as technological unemployment. Where are we on this? Are robots really coming for our jobs?
00:24:30:04 All of this sensationalism around Generative AI, or are we going to be in an age of gradual skill bias, technical change?
PIERRE YARED:
00:24:38:03 Well, I don't think anything will be gradual, but I certainly don't think they're going to take over all the jobs. They will certainly take over some jobs.
ALEXIS CROW:
00:24:45:01 Such as?
PIERRE YARED:
00:24:45:02 And they'll produce other jobs. Well, a lot of jobs that are more service oriented jobs that involve going through documents, producing documents, some of those jobs.
ALEXIS CROW:
00:24:54:05 Clerical?
PIERRE YARED:
00:24:55:02 Yeah, some of that clerical work is probably going to go away. But it doesn't mean that nobody will be doing that because there's going to be somebody who's going to be applying reason and judgment to determine whether the machines produce something that makes sense and that person needs to have a specific skill set that might be different from the person who was doing the previous job, right.
00:25:14:29 And so I think that it would be disruptive. The reasons why these changes are disruptive is because it destroys some jobs, creates new ones but the speed at which this happens doesn't allow the people who've lost their jobs to retrain and get the appropriate skills to take on the new jobs.
00:25:30:06 And if you don't have enough of a supply of people with those skills to take on the new jobs, you can end up with a lot of inequality with the very few who have the ability to look at what the AI produced. Use their judgment and so on and so if I had to say, there is one thing to think about is what are the appropriate policy responses in that situation?
00:25:49:02 What can corporates do not just to worry about themselves, how to not be disrupted, but what can you do internally in terms of L&D for your own workforce?
ALEXIS CROW:
00:25:57:04 Right.
PIERRE YARED:
00:25:58:00 Because this is about having the types of what I would call as an economist, some of the softer skills or the common sense skills that might become more important.
ALEXIS CROW:
00:26:06:22 Absolutely. So just rounding off and ending on a high note on opportunities, I mean, I think a cold, hard look at human capital investment is going to be absolutely critical for executives going forward. I think a premium will be placed on the companies who do this well, who do this creatively.
00:26:23:04 Looking out to 2024 even and beyond, what are some of the most significant opportunities you see for business leaders and investors?
PIERRE YARED:
00:26:31:03 So as I mentioned training, I think it's a big deal and I have to say it, of course, because I'm an educator. But second, I think there is something huge happening because we are living in the midst of aging societies. In the next 5 to 10 years, our country is going to look very different and we have to be prepared for that and we have to be prepared for it from two perspectives.
00:26:52:26 From the perspective of employment, we have to either find a way to deal with having a shortage of labor or find a way to continue to employ people who are getting older.
ALEXIS CROW:
00:27:05:01 Right.
PIERRE YARED:
00:27:05:07 So that's one thing to be focused on, I would say. And then there is the second piece of it in terms of the makeup of what people consume. And so if you are selling to an increasingly older population, you are selling different types of products, naturally you're selling medical services, but you're also selling probably more or different types of financial services, maybe more assisted living facilities.
00:27:31:04 And also travel and leisure will probably change as a consequence.
ALEXIS CROW:
00:27:35:07 So Professor Yared, thank you so much for joining us today on PwC's Pulse Podcast. It's been incredibly invaluable to have your insights on pulling the veil back on some of the most complicated issues that investors and executives are facing in the economic environment today, including inflation, the outlook for recession, future of trade, impact of AI and productivity.
PIERRE YARED:
00:27:57:06 It was great to be here. Thank you.
ALEXIS CROW:
00:27:59:02 And to our listeners, thank you for joining us on this episode of PwC Pulse. We'd love to hear your thoughts about today's conversation. You can leave a review on your favorite podcast platform. Thank you for joining us on the PwC Pulse Podcast.
00:28:14:04 Subscribe to PwC Pulse wherever you listen to your podcast or visit pwc.com/pulsepodcast to hear our next episode.
ANNOUNCER:
00:28:24:15 This podcast is brought to you by PwC, all rights reserved. PwC refers to the U.S. member firm or one of its subsidiaries or affiliates and may sometimes refer to the PwC Network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This podcast is for general information purposes only and should not be used as a substitute for consultation with professional advisors.
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