Vincent Reinhart (New York, 1957) worked for more than two decades in the US Federal Reserve. He switched to the private sector in 2011, but his language and his vision of the economy betray him as a central banker. Since 2015, he has been the chief economist of Standish, a subsidiary of the investment firm BNY Mellon. He recently visited Madrid to accompany his wife, Carmen Reinhart, at the Rey Juan Carlos Economy Award ceremony.
International organizations forecast a slowdown in the global economy in 2019. How pronounced will it be?
We are facing a substantial change in expectations. At the beginning of the year most of the world's economies grew healthily and in a synchronized manner, but in the second half of the year that synchrony has been broken. The US economy is currently expanding at a much faster pace than the European one, and monetary policy is still less synchronized. The Federal Reserve continues to have reasons to raise interest rates. We will have to see how the European Central Bank (ECB) will start doing it. There will be an economic slowdown, although in the US it will be light. We believe that it will grow at a rate of 3.1% this year, of 2.5% in 2019 and a little less in 2020.
What is your opinion of Trump's economic policy?
Trump has focused on problems that were not often given much importance. It is surprising how many entrepreneurs have now realized that China was not trading cleanly and that perhaps it was a mistake to admit it to the World Trade Organization (WTO) in the terms that it did. Trump concluded that the corporation tax was too high, that it was unfair to have the highest marginal rate of the OECD. It is better to identify the problems than to solve them, and that is a problem: recognizing a problem and not solving it can make it worse.
What consequences can have a worsening of the trade war between the US and China?
It can get worse before it gets better. What is clear is that commercial tensions discourage investments. The US Government is using the threat of tariffs to achieve a better result in the negotiations. We are playing at hen game [en el que los jugadores hacen algo mutuamente perjudicial, esperando que el oponente se retire primero], and sometimes those games go wrong. But not only American trade policy is creating uncertainty. What happens in Italy also discourages investment. It is testing the determination of the EU, and things could go very badly, just like in the UK.
The euro turns 20 in January. What dangers does the single currency face?
The euro survives because all its members benefit from its existence, although in a different way. The problem is that very different national attitudes persist before inflation or debt, and that creates tensions periodically. The big threat is the differences in economic growth. Italy and Greece have not yet regained the level of GDP per capita they had in 2008. The absence of common rules on the banking business and capital predicts that the playing field will remain very uneven, and that will be a permanent source of problems.
What changes do you see in European monetary policy?
Mario Draghi has to find a way to replicate Janet Yellen's last year in the Federal Reserve.
What exactly did he do?
Janet Yellen [presidenta de la Reserva Federal entre febrero de 2014 y febrero de 2018] It is a very interesting example of transition. In 2015 and 2016 he convinced his colleagues not to raise interest rates too quickly. He always found a reason: salary statistics, elections in Europe … He raised the two-quarter-point rates in December of each year. In 2017 he found a way to upload them every quarter, and he did this by alerting investors at the previous meeting. She was aware that there were elections in late 2016 and that her successor was more likely to be more of a hawk than her. And what he did? Limited that person's room for maneuver. Draghi has to start raising the rates in a similar way, gradually. We know that his successor will be more hawk than he, for he will almost certainly be a northern European. What you must do is raise the rates in a way and with a language that makes it difficult for your successor to do it faster.
Europe is experiencing a boom of populist and far-right movements. Is there an economic explanation of the phenomenon?
It all has to do with potential growth. The advanced economies have increasingly aging populations, with declining labor participation rates and productivity that is growing very slowly. Therefore, potential growth is slowing down. In market economies we sign an agreement with our citizens according to which we use resources in the most efficient way to obtain the greatest possible benefit, but when circumstances change, we have to move people from one job to another, taking advantage of the opening from markets to commerce or technological advances. When that happens, there are winners and losers, but the winners never compensate the losers. We are very bad at training those who have lost their jobs or helping them to relocate.
It is, then, a question of expectations …
Living in a market economy that grows 4% a year raises the expectation of a significant increase in income throughout life, and that leads you to sign that agreement, even if at some point you are among the least benefited . But with the slowdown in potential growth, the benefits that the market economy brings to the citizen and to his children are no longer visible. The rise of populism is basically an attempt to renegotiate that contract, because the benefits are not as evident as they were before. In all advanced economies we ask ourselves if our children are going to do better than us, and the answer right now is quite depressing. It is one of the reasons why the British voted in favor of Brexit without a clear alternative, so the French voted for a president with a party that did not exist two years before and that is why Italy is governed by extremes of the political spectrum. The lower potential growth explains the rise of populism, which creates a vicious circle, a kind of self-inflicted defeat. We have seen it in Latin America: populist governments put in place measures that end up hurting those who voted for them: uncontrolled public spending, confiscatory taxes and others that, in the end, do not encourage the growth of the economy.