Cleaning Up: Leadership in an Age of Climate Change

Bond Vigilantes, Game Theory, And Why The US Shouldn’t Go It Alone - Ep209: Mohamed El-Erian

Episode Notes

Have the bond markets become a new form of global governance? Are we witnessing the end of US economic exceptionalism? And how does game theory relate to cooperation on net-zero?

This week on Cleaning Up, Bryony Worthington sits down with renowned economist Mohamed El-Erian to unpack the complex intersections of global finance, politics, and climate change.

El-Erian offers insights into the current economic landscape, exploring how central banks, trade tensions, and technological innovations are reshaping our understanding of international economics.

From the rise of China's green technology sector and the scrapping of Canada’s carbon tax to bond vigilantism and the potential long-term consequences of US trade policy, this episode provides a nuanced look at the challenges and opportunities facing the global economy in an era of unprecedented uncertainty.

Find more:

The Sierra Leone Special: https://youtu.be/z-5QjSfy2SM
Mohamed’s website: https://www.mohamedel-erian.com/
How China Became a Green Finance Superpower: https://youtu.be/Fu6giWzTxAY

Leadership Circle:

Cleaning Up is supported by the Leadership Circle, and its founding members: Actis, Alcazar Energy, Davidson Kempner, EcoPragma Capital, EDP of Portugal, Eurelectric, the Gilardini Foundation, KKR, National Grid, Octopus Energy, Quadrature Climate Foundation, SDCL and Wärtsilä. For more information on the Leadership Circle, please visit https://www.cleaningup.live.

Episode Transcription

Bryony Worthington

I would never bet against the US, but at the same time, the US seems to be very intent on staying within quite an old paradigm of energy and growth. It may just slow everything down to the point where they become a very large Cuba and they're all driving around in cars everyone else has moved on from.

Mohamed El-Erian

So this is your world, much more than mine. But I can tell you today, if you said this to a European policy maker, they would say Baroness Worthington, the Chinese are flooding our markets with EVs, because it's not just that they're doing what they're doing in terms of the energy balance, but they're using this as a major source of growth, and as a way to de-industrialize what we are just starting to do.

Hello, I'm Bryony Wellington, and this is Cleaning Up. My guest this week is Mohamed El-Erian, a world renowned economist, former advisor to President Obama and currently president of Queens’ College Cambridge. I was recently invited back to my old college to be admitted as an Honorary Fellow, and I wanted to record a conversation with Mohamed about macroeconomic risks and the current extraordinary situation that's playing out in the USA, his previously adopted home for many years. It's widely believed that Trump's about face on global tariffs was triggered by a flight from the US bond market. And I wanted to ask Mohammed about bond vigilantism and whether there is now a form of shadow global governance protecting against extreme politics. We also discussed approaches to climate risk, Mark Carney's decision to scrap Canada's retail carbon tax, Chinese subsidies and whether we are in a post-truth society. I hope you enjoy the conversation as much as I did. Please welcome Mohamed El-Erian to Cleaning Up.

Mohamed, thank you so much for taking the time to join us here on Cleaning Up. I want to have a conversation with you because you're such an eminent commentator about world economics and global affairs, and risk and on so many important topics. But I wanted to kick things off by you introducing yourself in your own words, if that's okay.

Thank you for having me, and thank you for your kind words. I'm an economist by training. I did my undergraduate at Cambridge, and then did my doctorate at Oxford. I then worked as an international civil servant at the IMF for 15 years. I was turning 40, I'd never tried the private sector, so I decided to take a two year leave of absence and try the private sector. Next thing I know, it was 15 years. And then I stepped down to spend more time with my daughter, and I pursued a portfolio approach, sitting on various boards, writing, doing quite a bit of nonprofit stuff, and for the last five years, I've been the president of Queens’ College, Cambridge.

Amazing. And I can't help but start really by talking about the current state of the world in terms of its economic health, our growth prospects. How are you feeling right now? This is April 2025, you've written a lot about the risks of potentially going down an unsustainable path in the global economy, or taking a more sustainable path. How are you feeling today? ou

You know, I came across a quote by Justin Fox, who's an economist, that captures really well how I feel, which is: “uncertainty has never felt this uncertain.” And it's this notion of uncertainty cubed — or the power of five, six or seven — because virtually every week something that you thought was a parameter becomes a variable, and we are upending all sorts of things. And it's understandable, because economics was in charge for quite a while, and economics had three failures: It didn't pay enough attention to distributional effects, especially people who are being alienated and marginalized. Second, it didn't pay enough attention to the health of our planet. And thirdly, we lost the ability — after the global financial crisis — to grow. So the result of that is that economics now is in the back seat, and politics is driving what's going on, and it has completely upended what you can assume about the functioning of domestic economies and global economies.

Obviously, most of your career was spent in the US. I'm living in the US. The US has an outsized impact, doesn't it, on the global outlook still today? And this is largely a function of the US’s politics, right? That there’s this contagion. And I mean, how are you feeling? Because I think you've previously said the US, the fundamentals of the US economy were quite strong. So this is just now a very febrile time in US politics.

Yeah, as you know, even before these changes to US politics, the US economy was very, very influential. What happened in the US did not stay in the US, and for good reason, it's the largest economy in the world, the consumer carries a massive burden for global growth. It issues the reserve currency. Countries outsource their savings to the US, because the US has the deepest financial markets. The US has a dominant role in international organizations, and the list goes on and on and on. So the US has a massive influence, and that predates all the changes that are going on in terms of the US economy. I find it absolutely fascinating; at the beginning of the year, people were absolutely convinced that US economic exceptionalism, the outperformance of the US, would last a very long time. You had the meeting at Davos — I don't go to Davos, but it was very clear from there that the US was the place to be. And now most people have completely changed their forecasts, and they think there's a 40-50% probability that the US will fall into recession. So it's been a massive change in conventional wisdom and the dominant narrative about the US economy.

And there was a particular time around the turn of this year where the stock market was quite happy and Trump had come in on a deregulatory agenda, and it felt as if that would be very pro business. But then less than 100 days later, we're facing these very sudden announcements of very deep tariffs, which really does cut against the general economic theory that trade barriers are generally bad for growth and economic development. Did you see that coming?

I don't think very many people foresaw it coming to the degree it came. And certainly the market didn't. As you say, it started the year in a very buoyant mood. The last record high was the 20th or 22nd of February. That's not so long ago. The market got a couple of things wrong, and that's why we've seen not only a sell off, but we got very close to a market malfunction, which is a completely different thing in terms of the damage that creates. The first thing is the market got the sequencing wrong. The market believed that President Trump would come in and yes, he would do tariffs, yes, he would do DOGE, which is a complete end to the public sector, but at the same time, he would deregulate and he would cut taxes. And it turns out that the first set of things that are disruptive to the economy came first, and the second haven't come yet. So this is an issue of sequencing. The second issue, as you rightly point out, is they never imagined the methodology and the level of tariffs that were introduced, and that's why — on what President Trump called Liberation Day — you had such a massive sell off, and we got very close to the bond market malfunctioning. And the bond market is the most important market in the financial system. So you know, for those who look at this closely, not only was the change dramatic, but how close we got to market malfunction was scary.

And for our listeners who have perhaps — I mean, we've got a wide range, and many of them will be more economically literate than I am. But what was it about that? So the bond market clearly should have been a safe haven. People should have flown to the bond market, but in this case, people were trying to offload US bonds in particular. And so why was that not predicted? And what was it signaling?

So what was predicted is you would have a lot of activity, and prices would be volatile, and people can cope with volatile prices. It basically means that you and I can do what we want to do, we may not like the price, but we can do it. And we may not like the fact that the intermediary, the investment banks, will charge a very big bid-office spread, and they are making a ton of money.

Yeah, they've had their best quarters, right?

Absolutely. But ‘we can get done’ as they say in the marketplace. That's volatile markets; we can cope with that. Malfunctioning markets are very different. Malfunctioning markets are when you and I can simply not trade.

Because there's no buyer on the other side?

No buyer on the other side, there's too much uncertainty. And when that happens, you and I will go to something else to compensate for what we couldn't do, and it'll be really damaging. The most vivid example of that was, of course, the global financial crisis in 2008 when banks no longer trusted each other, so they wouldn't interact with each other, and that almost brought the whole global economy, not only to the great recession, which we experienced, but the depression. And it required a massive amount of intervention, the negative implication of which we're still living with today.

And so looking at this reaction by the bond market, has it become a kind global governance mechanism now that holds people in check. Because in the UK, when we had that moment with Liz Truss and her brief moment in power, it was the bond market there that signaled, ‘no, this is not sustainable for the UK.’ And they've done it again, now with an economy the size of the US, which is quite extraordinary. So even though it's not got any institutional structure, it's essentially acting like a check, isn’t it?

There's a very famous quote in the 90s that came out of a political advisor who said, ‘I want to be like a bond vigilante when I grow up. I want to be a bond vigilante, because you can get things changed politically.’ But for a very long time, the so-called bond vigilantes went to sleep, because central banks were dominant in the bond market. And central banks have the ability to print money, the ability to buy them non commercially, so they distort completely. Then we got inflation, which meant that central banks had to go to the sideline, and the bond vigilantes came back, and it certainly was a disciplining mechanism on the Liz Truss government. A lot of people believe it's the reason why President Trump announced a 90-day suspension of what he called the reciprocal tariffs. But having said that, if the central banks decide to go back into the marketplace, then the bondage vigilantes will simply step back.

And explain to me, as a lay person, this role of the central banks. So inflation is a problem, but why does that then cause central banks to pull back their role?

Because of the way they operate. So if there's a market malfunction, or if they want to reduce the level of interest rates, they print cash and they go in and they buy bonds. And to give you a notion of how much they did at one point, the balance sheet of the Federal Reserve had gone up from $2 trillion before the global financial crisis to $9 trillion after. That's a lot of money. So what did they do? They printed cash and went in and bought bonds, and they are non-commercial players, which means they don't care what price they buy at, they don't care if they make losses, because they're pursuing another objective. If you are on the other side and you see someone with a printing press and an incredible willingness to use it, and it's price insensitive, you're not a vigilante, because you're going to lose. So you just step away. So that worked fine when there's no inflation, when there is inflation, and inflation went up to 9% in the US, over 10% in the UK, what happens is central banks don't want to flood the system with cash.

Well, we've seen that happen before, right? And where it ends, it can run away from you.

And you know now, central central banks came very close to having to make this decision. The Bank of England did it perfectly, because when the bond market became dysfunctional during the Liz Truss period, Andrew Bailey the governor came in and said, ‘I will provide temporary support for two weeks, and then after two weeks, I will withdraw. And those of you who are offside, use those two weeks.’ A week passed, and then we were at Tuesday in the second week that ended on Friday, and it was clear that certain people hadn't gotten back on site. Why? Because they had learned that central banks, once they get in, they can't get out. And Andrew Bailey made this very famous statement — he was in Washington, DC, at the annual meetings on the steps of the IMF — when he said, ‘I said, Friday, and on Friday, our support stops.’ And he was able to stop the support on Friday, having normalized markets. That's the most perfect example of a central bank intervention. Unfortunately, the previous one all ended up being open ended and distorted the economy and the financial system.

And central banks then, did they themselves come together and meet and coordinate? And is there a mechanism, and is that a form of multilateralism that we're perhaps missing when we think about how decisions are being made.

So it's the best form of multilateralism, and it works really well. They gather every six to eight weeks in Basel, Switzerland, at the Bank for International Settlement — BIS. It's a very discreet affair. It's not like a G7 meeting or a G20 meeting. It's a very discreet affair. And if you ask them, ‘is it important?’’ They’ll tell you it's crucial because they get to know each other, and when they have to make that phone call to either coordinate an outcome, and sometimes you're not coordinating, you're just correlated. You just have to do the same thing. They're able to talk to each other. So if you tell the central bankers, they'll say, ‘We love that we have this system, and we like it even more, because very few people understand that we have the system.’

So when Jerome Powell is trying to navigate this situation that arises in the US, he's got a network of like-minded people he can call up and talk to, and then there's a sort of federation, a loose brotherhood maybe, of central banks.

Yeah, a partnership. Jerome Powell has another advantage, which is that Congress has approved certain swaps, so he actually has the ability not just to coordinate with somebody else, but also to assist a handful of other central banks by providing them dollar liquidity. So he has enormous power and enormous influence in the global system.

So going back to this question of the real economy, of all the real politics, of what happens when you open trade borders, when you have free markets by and large, I mean, there are still tariffs and barriers, but they're not the norm. And then there's a perception that people are being left behind in the US economy. How much is it just a perception, and how much is it generally the case that the US has lost this working class group of people and that they're a victim of free trade? Is it more rhetoric and perception? Or is it real?

No, it's a reality. I think it’s a contributor to the marginalization and alienation of a segment of society, and that has also had massive health effects. It has had, of course, massive political effects. And you saw it in the UK: when people get marginalized and alienated, they get angry. When they get angry, they become single-item voters. If someone comes and offers them an alternative, especially if that alternative involves dismantling the existing system, they will tend to be attracted by that. It happened in the UK with Brexit. Okay, the phrase that had a huge impact was ‘regain control.’ This notion that we had lost control within the EU, we're going to regain control. In the United States, it’s this notion of Make America Great Again, so you know, you get failure. And you see this, not only in these cases, but in revolutions. You're so angry that you focus on what you want to dismantle, not what you want to build.

And in some cases as well, someone's giving you an easy sounding solution, like, ‘oh, just leave Europe and it'll be fine,’ or, ‘it's all the fault of immigration.’ And actually, that isn't necessarily grounded in truth. It's too simple an answer. It's not going to help with the problems that you're facing. And so at that point, what do you do?

Yeah, so I should ask you. This has come up in your political career a lot.

The post truth society that we live in?

Yeah, and you're seeing it, of course, in climate. You're seeing it in so many other areas.

Yeah, I think partly it's about education and information flow. And at the moment, we have a very fragmented, very polarized information environment where everyone seems to have their own version of reality. And I keep coming back to data, and how do we make data more accessible and more understandable by everyday people in a way that's grounding. So that we can stop having this flight to the extremes, and come back to a sort of conversation informed by fact.

How easy is it to go through?

Oh, it's impossible. It's impossible because the media landscape is so fragmented, and I think everyone's now withdrawn and said that we shouldn't try. But we should, we should always try. There should be more investment in bringing the public with you and educating the public. And I think when I'm looking at what's happening in the US, the thing that worries me the most is this moving away from education and moving away from science and research and all of the things that US has been absolutely standing up for the rest of the world in terms of its world leading scientific institution. But all of those are being undermined. And I think that if I were a bond trader, the long term signal that sends… Plus, of course, the shrinking of the workforce. Those trends seem to be really counterproductive to a growth agenda which would then lift people and give people jobs.

And so it's interesting. Because there's two views: I call one the genie out of the bottle and the other one the toothpaste out of the tube. One view is, ‘yes, all these things are happening, but it's like a genie out of a lamp.’ At some point, the genie goes back into the lamp, and we're going to get some sort of mean reversion. The other view is, ‘this is like toothpaste out of a tube, you're never going to get it back.’ And we are fundamentally changing the paradigm we're in. At the beginning of the market, at the beginning of the year, the market gave 80% of probability to the first one and 20 to the second one. Today, I suspect it's closer to 50-50.

That this could be permanent damage?

That this could be permanent damage, or this could be the Reagan-Thatcher moment, where there's a massive, disruptive rewiring of the domestic economy. And this one is on steroids, because there's also a rewiring of the global economy. And next thing you know, we emerge — the US emerges, in particular, with a more efficient economy, a slimmed down government, better debt dynamics, is able to take advantage of major innovations in AI, life sciences, robotics, and has passed on to other countries some of the burden of what I call the public goods such as national security. So Germany now will pay more for its defense. Japan will pay more for its defense. And it’s trading on a fairer trading system.

So there is this idea that it was unfair somehow, but was it unfair?

I mean, certainly it was unfair — for both good reasons and bad reasons. So Lesotho attracted the highest reciprocal tariff because the equation basically looks at trade relations. If you are a developing country, you will be importing quite a bit, and this is funded by aid and something else, but you are still in the development stage, so your trading system is primitive. Compared to the advanced economies, you will tend to have higher tariffs and higher non-tariff barriers. And as you climb up the per capita income, they disappear, or at least they're reduced. So there are tariffs and non-tariff barriers, but for good reason — it's part of the development process. But there's also bad reasons, and China is the perfect example of that, where the time has long come… In fact, you commit, when you join the WTO and when you have the success that China has had, to lower your non-tariff barriers, to allow access to your markets, not to trade in an unfair manner by manipulating your currency by subsidizing. So the US has a case. I think most people agree, the US has a case. It's the way in which it has pursued this case that has gotten certain people scratching their head.

Some people have said Trump is usually the wrong answer to the right question.

Nice

Cleaning Up is brought to you by members of our new Leadership Circle: Actis, Alcazar Energy, Davidson Kempner, EcoPragma Capital, EDP Portugal, Eurelectic, the Gilardini Foundation, KKR, National Grid, Octopus Energy, Quadrature Climate Foundation, SDCL and Wärtsilä. For more information on the Leadership Circle, please visit cleaningup.live, that’s cleaningup.live.

For an unwell or premature newborn, a power cut can be the difference between life and death. For the past eight years, I've been working with the medical team at the Government Hospital in the city of Bo, in Sierra Leone, to support their neonatal special care unit with a solar and battery mini-grid. Now with reliable electricity, the unit is able to save literally hundreds more lives every year. In February, producer Oscar Boyd and I went out to visit the unit, see how the system is working and assess what could be done to maintain and expand it. The resulting documentary episode of Cleaning Up is very moving. Please watch it. You'll find a link in the show notes for this episode.

So thinking about China a little bit more, it's clear that in my world of climate change, China is moving very fast into a different paradigm. It doesn't have its own oil and gas reserves, doesn't like the dependency that creates on other countries, and so is therefore moving into this era of manufactured energy, where you make the solar panels in factories, you make the batteries, you make the electric vehicles and it's a huge boon then for your own domestic energy security. It's also then giving you products to export and export markets. And I compare that to the US narrative, which, you know, the US is endowed with an amazingly rich set of fossil fuel reserves, and it's seemingly wanting to extract as much of that as possible. But the two philosophies seem so different in the short termism of the US, and then this sort of long-term thought-through 50 year plan of economic growth that China's enacting. And whilst I'm sure there are distortions and all of that, from the perspective of risks, where you do have to think a little bit longer term, especially for some of those risks, which are externalities like climate change, I see China's actions as far more cautious, more long term, and ultimately more sustainable. Now we can talk about their dependency on coal, but even there, they're rapidly moving away from that, as much as their growth in the economy can allow them. So it's difficult. I mean, I would never bet against the US. But at the same time, the US seems to be very intent on staying within quite an old paradigm of energy and growth and now, with these tariffs and this sort of turning inwards, it may just slow everything down to the point where they become a very large Cuba. They're all driving around in cars everyone else has moved on from.

So this is your world, much more than mine, but I can tell you today, if you said this to a European policy maker, they would say ‘Baroness Worthington, the Chinese are flooding our markets with EVs. We are trying to also have our industry. We're not able to compete with highly subsidized Chinese cars.’ Because it's not just that they're doing what they're doing in terms of the energy balance, but they're using this as a major source of growth and as a way to de-industrialize what we are just starting to do on EVs. The one thing that's very surprising to me is that China hasn't done what Japan did in the 70s, when it was clear that the Japanese auto market at this point was seriously disrupting others. When Japan came out and said, ‘We declare voluntary export restraints, we understand. And their production wasn't subsidized as much as Chinese production is. So I think they will tell you this, you know, Baroness, you've got to distinguish between what China is doing for China and whether China is also thinking of the greater good — that Europe is also on its own journey.

But I would argue that the European transition, especially in transport, has been hindered by a very strong incumbent industry that had a history of evading environmental regulations. It had a direct hotline to the chancellor. It was a very cozy relationship, and they were not transitioning as fast as they could have done, given all the signals that there was a new way of doing this that was less damaging environmentally and socially. And so they've dragged their heels. And it's possibly also that we have very mature energy systems, oil and gas is part of our DNA. And China had none of that, and also realized it couldn't compete with those traditional vehicles. And so just developed a new paradigm. The signals have been there for a long time, and I feel like there was a slowness to react. And when an incumbency becomes so intertwined with government that it stops us from seeing the bigger picture, which is climate change, it’s a real risk. We can imagine a world which is largely driven off electricity and free of fossil dependency, which is better for security, less volatility. Why didn't Europe lead? Why was it that we couldn't move?

I think they've acknowledged their mistake, right? They have absolutely acknowledged their mistake, and they're trying to play catch up. I think they're taking it much more seriously, their responsibility to the planet. And they're getting some momentum, and they're worried that that momentum is going to be derailed.

‘They,’ in this case, being Europe?

Absolutely, yeah, they're worried. I mean it's a concern around the world — you can generalize it — that now that China is unable to sell into the US market, that because China hasn't reformed its own growth model, it still depends on exports, there will be a massive diversion of these goods to other markets that simply cannot absorb them/

Yeah, well, it'll be an interesting experiment. Because I do think the Chinese market is growing for its own EVs, for certain. But the UK, now it's outside of Europe, has not imposed tariffs on Chinese EVs. And BYD is opening up showrooms, and UK consumers will get to experience Chinese EVs. And it will be really interesting to see whether the UK decides that's good for the UK and whether it’s then a driver of efficiency within the economy. Because transport, like energy, is an input to the economy, isn't it? So if we do manage to get to a more efficient, cheaper system, will that be net beneficial?

So if China and the US do not de-escalate their trade tensions. And if, by the end of the year, we still have these very high levels of tariffs on both ends. What do you think the probability of the UK imposing tariffs on Chinese products is?

Well, it depends on how much pressure they're put under, doesn't it?

What do you think the probability is?

Well, let's say it's 5050, It would be nice if it wasn't.

But that’s quite high.

Yeah, yeah. It would be nice if it wasn't. But I think that then that's where politics comes in. If people are genuinely buying Chinese EVs and feeling good about them because they're affordable, they are great cars, they're well made, they are not attached with a personality that now has fallen out of favor… for all those reasons, and they get a good consumer experience, and that comes back in the polling, then politicians may well decide, actually, this is probably good for us.

You know, I always think that we have a climate crisis. There's no doubt in mind, we have a climate crisis, and it's a shared problem that requires a shared responsibility. I study economics, as you know, and game theory is really important, because game theory forces you to specify what are the conditions under which the game — and I know this is much more serious than a game, so I'm sorry if we're using that phrase — solves well. And if you put solving the climate crisis as your objective, it can only be solved through a cooperative game. It cannot be solved through a non-cooperative game. And unfortunately, it is being played in a non-cooperative fashion right now. And that is of real concern, when I have two young children. You know, not as young as you, but 28 and 22 — young for me — and I do apologize on a regular basis that our generation is leaving them with a climate crisis, too much debt, too much inequality and too low growth. And the only good news is they have tools that we could never imagine. That's going to be the big question. Can we come together using these incredible innovations to solve a problem that requires a cooperative solution?

And I think some of those solutions are the things we talked about, that there's an interconnected financial world, you've got bond markets, you've got an ability to see into the future, right? There is a predictive model.

So the bond market is too short term.

Even the bond markets are two short term?

The people holding them are too short term. So there's a market failure. So we mentioned externalities. They're not internalized. So you need nudges along the way.

I'm sure you're right. You know much more about bond markets than I do. In terms of monetary policy and the use of long-term bonds, the Chinese model, which started in response to the air quality disasters that they experienced in Beijing in 2013-2014… They nudged all of their monetary policy towards investment in clean, and by definition against the traditional fossil based energy. And that's what's been playing out over the last 10 years, is that lining up of tools, ranging from the interest level that they charged on lending, through to creation of green bond mechanisms. And so that is what we're seeing play out now as China took that very proactive stance. But what are the tools you think that we could be using?

So these are outright subsidies. So you can either do it on the monetary side — you don't want to do it on the monetary side because it distorts your financial system. You really want to do it on the fiscal side. Everybody should know how much it costs, and you don't distort the system. But you know, a sort of nudge is needed. I also think that companies are getting smarter. They realize sustainability is key, so climate is starting to enter into the old-fashioned credit calculations. I also think that there's a significant role for impact bonds to play, for climate bonds to play. I wouldn't go too far with all these hidden subsidies, because you end up with a spaghetti ball. You're not quite sure what it is you subsidize. And if you want to go down the Chinese subsidy way, which there's an argument for, because of market failure. If you want to go down that road, it should be explicit, and it should not risk distorting the financial system, because the financial system plays a really important role in allocating resources.

Yes, but it hasn't been, as you say, great at these bigger mega trends. So the inequality. You’d say social policy has got to deal with that, or fiscal policy, or something downstream?

So economists have long thought that when you cannot internalize externalities, you intervene.

But then you see politics comes up again. We've seen in Canada that Mark Carney, who I'm sure is a great friend of yours, first thing he does as prime minister is remove a carbon tax from the consumer, because it's become so politically toxic, this idea that you can use fiscal levers on the consumer. I mean, it's been left on industry. But how long will it survive? And I feel like the more obtuse the intervention — sometimes — the more resilient it is for politics. So if it's something like a slightly varied interest rate on lending that the public won't even know, it survives. It's just a survival tactic. The more visible it is, the more it's described as ‘we're going to punish you for doing x with taxes,’ politically, you just become very vulnerable.

But even then, if people decide they want to come after it, look at what's happened to the subsidies for EVs in the US. I asked you, you know, what does it take? And you said, education. You know, we're living through a moment in time.

Yeah, we are. Well, California, which is my home place, and I think you lived there for 15 years…

Yes, exactly.

They're holding firm. They’re trying to make these interventions through public policy. And of course, the US is not a monolith. There's all these states trying out different experiments, and so we'll see whether we can ride through these turbulent times. I wanted to thank you, but I also wanted to — I know that your role here as President is coming to an end, and I just wanted to ask you, what have you taken from your time here at Queens’ College?

Best job I've ever had, by far. My girls call it my happy place. I was an undergraduate here, like you, so coming back. The main thing I take away is that if you bring down the barriers that get in the way of brilliant students and brilliant professors being able to get exposed to the opportunity that Cambridge is — it’s absolutely a transformational opportunity — they do amazing things. Absolutely amazing things.

And by barriers, do you mean opening it up to a wider demographic of people? Leveling the playing field? How do you do that?

The way we've done this is by establishing presence in low-income areas, by being there at schools, by encouraging students to aspire, by telling teachers, ‘don't be afraid of this.’ We've had teachers observe interviews so it's no longer this mysterious thing they're not sure about, and just lower the mystique. And this is not about lowering standards. It's not. It's about enabling those that are really brilliant to have an opportunity and a transformational education, and we've seen that over and over. And then there is the need for student financial support when they're here. And when you take down these barriers one by one, I'll give you a simple example, If I may. We noticed that brilliant people at undergraduate that came from low income families did not go and do post graduate work, I generalize. So we interviewed them, and what we discovered is that what was holding them back is not just the cost of doing a masters or a doctorate, it was the pressure that they faced from their family. Often they were the first one to go to university, the pressure they faced to monetize their degrees. So we spoke to some donors, and we established a scholarship that accounts for accomodation fees, catering and everything. And then it has an additional amount, an explicit additional amount that says ‘other.’ And it has gained traction, and 1/3 of the students who get that scholarship send that money home. So it's very granular work, figuring out where the imperfection is and trying to address it.

There are so many questions I still want to ask you about how we can learn from these approaches, to internalizing externalities, and risk management, and the work you did at PIMCO, and your colleagues at Allianz. But I'm afraid we're out of time because we've got to go now.

And interview you

And interview me. It's been an absolute pleasure. I wonder if we could do this again sometime when more water's gone under the bridge and we see which path we're on. Thank you.

Thank you so much, thank you.

So that was Mohamed El-Erian, international economist, author and president of Queens’ College, Cambridge. Sadly, we had a hard stop, so I wasn't able to get through all the questions I had regarding politics, economics and climate change. The Trump administration has withdrawn the US from the central bank's network for greening the financial system, but the initiative lives on with 140-plus members, including Europe and Chinese central banks, and it's considering a wide range of topics, including monetary policy, risk management, disclosure, green bonds and capacity building. Clearly, climate change is a financial issue, unless, of course, you don't believe it's real or important. But such a belief really isolates the US from the rest of the major economies. And in an interconnected world facing a period of heightened risk, it seems prudent to collaborate. As Mohamed says, game theory requires it. No country is an island, and the global threat of climate change affects us all. Time will tell how long the US can really go it alone. We'll put links in the show notes for relevant episodes, including the fascinating episode with China's green finance policy architect Dr Ma Jun. And my thanks go to you for listening, to Oscar Boyd, our producer, Jamie Oliver, our editor, and the rest of the team who make the Cleaning Up podcast possible. And of course, to our Leadership Circle supporters for helping us grow our increasingly international community. Please join us at the same time next week for another episode of Cleaning Up.