♪ francine: if the donald trump policies get implemented and executed, what does that mean for the middle class in america? will he be better off? ray dalio: that's a complicated question. [laughter] you will see more protectionism.

you may see the reversal of the trend that began in the 1990's, which was with trade agreements and globalization which created a narrowing of the wealth gap, between rich countries and poor countries. if you look at it, the poor countries rose relative to the rich countries. by 15% of gdp, it used to be 25% and now it's 40%. this has brought countries up and there has been a narrowing of the wealth gap internationally while within countries there has been a separating of the wealth gap. a lot of that was fostered in the 90's when we had all the trade agreements and so on. we may be at the end of that. we may be at a point where globalization is ending. provincial is asian and nationalization may be taking hold.

i think there is a significant risk of that. francine: larry? larry summers: ray said it was a complicated question. i actually don't think it is so complicated. the lesson of history is overwhelming that classic populism is invariably counterproductive for those in whose name it is offered as a policy regime. it will ultimately not hurt ray , who will find ways to position himself in markets no matter what happens. people who will be the victims of populist policies are the lower income and middle-class people in whose name the policy is offered. our president has made four or five phone calls to four or five

companies largely suspending the rule of law and extorting them into relocating dozens or perhaps even a few hundred jobs in two plants in the united states. at the same time, the consequences of his rhetoric and announced policies has been a 15% decline in the value of the mexican peso relative to the dollar. that decline in the peso is a dagger at ohio. it is a major change in the relative attractiveness of locating production activity in mexico versus locating in the american heartland and the consequence of that is measured not in the dozens or hundreds

but in the thousands and 10 thousands or even hundreds of thousands of jobs. the same can be said about a variety of other aspects of populist policies whether it's tax cuts that are in the name of populism somehow ended up going in vast disproportion to those in the top 1% or top 10th of a percent of the population or whether when you take a classic broad, national objective like strengthening public investment, like responding to the fact that americans pay a $.75 gasoline tax because of extra potholes in the road and you respond to that not by fixing the road directly but by offering an 82% tax credit to private contractors who build pipelines that they were going to build anyway. it is the experience of juan

braun in argentina, the experience of populist leaders all around the world that while the argument is made in the political season in favor of the middle class, they are ultimately the ones who pay the highest price for the policies that are pursued. francine: agree or disagree? ray dalio: larry is prone to see things in that way. it is more complicated than larry makes it. if you create a pro-business environment, in other words an

environment in which it is hospitable to make money and make things ppyo creating an environment in which you are attracting capital in a lot of places. if you think how capital moves, just the slightest inclination of something going bad in a place, it will cause money to move between countries. you create an environment in which making money and making business is a good thing. the united states is in many ways unique. it has an unfavorable environment for making money if it has property protections. i know entities that consider

should i be better off in china or the united states. money moves in that way. there is such a thing as animal spirits. when you deregulate some things, it has pros and cons. deregulation has cons. it also has pros. you can take cash where there is a lot of cash around and there is a lot of cheap money and all of a sudden the sense that you can make things happen can actually invigorate the economy. if you take that element of the wealth gap, one of the elements of the imports has been traded. the percentage of the population, the spending is in the lower income groups because when you give more money to rich people they are not inclined to spend it as much. if you put more money into the hands of the people who have

less, spending is greater. i am saying that it's a complicated question. there are pros to this as well as cons to this. i don't think it's a simple. christine lagarde: i don't want to talk about the outcome of the policy. we have very little by way of detailed information as to what the plan will be. if there is such a thing as a plan. i want to respond to ray. you said that maybe this is the end of globalization. if policymakers are concerned about migrants and the flow of refugees, if they are concerned about massive inequality between the 3.6 billion people relative to the eight. that might be a very bad way to compare. there are 3.6 billion people around the world who are aspiring to better income, food on the table twice a day and sometimes once a day. to turn our back to globalization, to turn our back to helping development is the wrong approach.

that globalization should take a new turn. to actually say that globalization is bad because it destroys jobs, i think that's a very short cut to something that needs far more work in understanding of how much is attributable to technology breakthrough and we will see more of it. i conclude with a point about policy which concerned me a lot. he said that we don't have time for policies. that has to concern. if there is no time for policy because there is urgency or twitter all over the place, what are policymakers going to do?

he said that we don't have time for policies. that is a concern. if there is no time for policy because there is urgency or twitter all over the place, what are policymakers going to do? they are there to identify policies that will serve improving the world and people as well. i hope we will find time for policies and those policies will aspire to the better being of people. ♪

♪ pier carlo padoan: policymakers need time to seek consensus for those policies. they can do it.

they have to do it. they are facing additional constraints. on globalization, i don't think we are exiting globalization. we are entering a new stage of international global relations where national policies in important countries will shape how globalization eventually develops. even if there are policies that say i am closing down the market because i am turning protectionist, on the other hand i am deregulating, this basically means there are new ways to interpret how nation

states shape globalization. we have to be prepared on how to deal with that and since i am concerned about europe, i am concerned europe does not have a strategy about how to deal with the new face of globalization. it is reacting and inward looking, it's not facing big changes in globalization like the migration flows in a coherent way. francine: when you look at globalization, are the emerging markets automatically being hurt more than developed countries? henrique meirelles: if we go back to christine's point, globalization is allowing for massive numbers of people to get out of poverty, to get into the middle class. as a whole, it's definitely working. if you take the globe, the effect is extremely positive. what we are talking about here are a specific or people in the developed countries in which on one hand they are feeling left out and not being looked upon

because they feel they are losing. the economy as a whole is working better, there are cheaper goods to be consumed by everyone, particularly the lower level incomes. i think we are talking about some specific policies and they need to address that question of the developed economies. particularly those that are losing. this is a question of training and allowing those people to get higher-paying jobs or jobs which create more value. that is a net result of globalization. the question was how to make that group take advantage of them. if we look at the world as a whole, there are hundreds of

millions of people getting out of poverty, which would not be the case if the markets are closed. francine: how do you see globalization playing out? ray dalio: the essence of the difference between us is what we hope for versus what is most likely. when you talk about policymakers, i don't know first of all who the we is, that we will change is changing and away those policymakers have different agendas. i think as we look forward, we have to say will in five years we be more collective in our approaches? will we be more international and embracing, or will we the policymakers be more nationalistic? i think the trends are clear in terms of the pressures. the question is who will do we the? they will determine if we have protectionism or things we want,

which is globalization. that becomes the question. there is a question of can the middle be cohesive enough so that the extremes are not in control because populism takes two forms. it's extreme left or extreme right. that kind of hilarity, i think the change is can they come together in a certain way as moderates. can the middle be cohesive enough and strong enough and do those things? what is do those things? we look at what is causing this, the forces behind this are things we would like.

technology is causing this. globalization is causi ts. these are foest we don't want to do away with. if we say the root cause, what you going to do? are you going to lessen technology? are you going to lessen globalization which has these effects? you have to get the root cause. you have to deal with it and then the question is who is you and how will you deal with it? i'm just trying to be realistic. larry summers: we are having yesterday's debate in a way because globalization has changed profoundly. it used to be that countries imported and exported products, today they are one part of global supply chains and that changes the dynamics and makes interference with globalization more difficult.

what should global integration policy be like? i would like to live in a world where the global policy community has devoted 10% as much energy to preventing tax arbitrage through escape of capital to tax havens and regulatory arbitrage through taking advantage of low regulation jurisdictions as it have to protecting the intellectual property rights of multinational corporations. in such a world, it would be easier to persuade middle-class people that they should be interested in the project of level integration. we have not lived in such a world. that is a failure of the political process in every country. ♪

♪ francine: the hour literally flew by. i am looking for a quick comment and then think about this, think of a three point plan if populist policies don't work, to make the middle class feel better. christine lagarde: whatever outcome from the 10% spent on fighting corruption and tax evasion and having a platform of regulation concerning the financial world, all of that could be used to address the point made by ray, which is we're not going to fight technology, we are not going to disrupt completely the global supply chain. hopefully the private sector will be able to sustain that be done. as a result, what comes out of what larry has identified could be spent on addressing will

class anxiety which is out there, how my going to adjust to this new a technological world? what future is therefore my children? i don't have anything to hang onto. i think that is where policies can insert themselves and can do so with courageous leaders who will say it's going to take time and be difficult to do, implementation will not interest bloomberg and others. we need to go through it in order to get to a better place. pier carlo padoan: it's a three-point statement. the first statement is we have to take populism seriously. not all populists who vote for populist ideas are the bad guys. in most cases, they are our fellow citizens and they have real concerns. the future of their children, job opportunities, concerns about security, these are real

concerns. they have to take that seriously. the second point, there is no silver bullet or shortcut. the solutions are complicated and they take time to develop. however, third point, we as policymakers need to provide a vision which has been lacking. you need the vision to generate animal spirits that translate into the private sector. in europe, we lacked that vision. in other places there is a vision. that is the challenge that brexit is posing and that trump is posing. they have a vision. we don't have a vision in europe. sorry to be so pessimistic. henrique meirelles: we have a

very interesting point here and it should be very clear about the difference between the problems and some reactions which can be the result of globalization and the policies which are needed to address those quesons. versus the populist reaction to the problem. if we go back to the 30's and the problems in europe, we can see the difference. the real problems, the post first war treaties and the economic consequences for some parts of europe and the overreaction to them and how the leaders took advantage of that problem and that took a very negative populist measure and it did not go much beyond that. that's the difference in terms

of what the populist reaction is and how populist leaders take advantage of that and what the real problem is. ray dalio: i think it will be very important over the next 90 days. it we will start to learn more about whether we are invigorating the economy in certain ways prudently. i think donald trump is aggressive. is he aggressive and thoughtful, or is he aggressive and reckless? we are going to find that out with time. i think that will have a very important implication. the people he hired are quite often thoughtful people. i think we should step back and see how it all plays out. francine: larry? larry summers: i will answer your three-point plan question in an american context. our broad objective should be to

make america greater than ever before. that's very different from making it great again. there are three major steps. one, public investment on an adequate scale, starting from infrastructure at a time when ours is in a shambles but also embracing technology and embracing education. two, a global strategy focused on making global integration work for ordinary people starting with the issues of capital mobility and its control that i referred to. third, enabling the dreams of every young american, which goes to issues of education, goes to issues of supporting the transition from school to work for those who don't go to college, goes to the ability to purchase a home and much else.

francine: thank you so much for a great panel. [applause] ♪

♪ magdalena: [speaking spanish] >> a trip to chile's high desert is the perfect excuse to hang with someone like magdalena. she is a shaman who, for a reasonable fee, offers up a soul cleanse. your spirit is healed as your brain melts. magdalena: time is an illusion. you know that? [laughs]