#2 Jürgen Michels - Chief Economist Bayerische Landesbank

The Nalu Finance Podcast

In this episode of Nalu Finance, we sit down with Jürgen Michels, Chief Economist at BayernLB, to explore how economic data, policy, and taxation shape financial markets.

Jürgen dives into timely macro topics, including:

• How economists filter noise from real signals in global news

• The cultural and regional biases shaping economic policy

• The challenge of valuing data and tech-driven exchange economies

• Why corporate tax harmonisation is key for a unified Europe
  

He also unpacks how monetary policy often protects asset holders and why future taxation may shift from labour to data.

🎧 Listen Now On: Apple Podcasts | Spotify | Youtube | Podomatic

🎙️ Transcript: Intro: 00:00 Nalu FM Finance Podcast. Insight into the financial markets. But first, a word from our founding sponsor. Are you missing the sun? Always wanted to go to Hawaii? Go to HaleCapri.com.

Stefan Wagner: 00:17 Good morning. I'm here with Jürgen Michels, Chief Economist and Head of Research at Bayerische Landesbank. Good morning. Good morning. There were always a lot of questions I always wanted to ask an economist, so I apologize in advance for the things I'm going to hit you with. But I find as an economist, you have access to a lot of information, massive amounts of information.

And, you know, how do you deal with that? How do you deal with this fog of news to actually get out what is actually relevant for you? What is the meaning? What is just part of the news cycle that goes away? You know, always the latest news is the most important one. And if it's negative, you probably remember it more than the positive news. How do you adapt for that? Because I think that's a challenge to look through all this.

Jürgen Michels: 01:06 It's always difficult to find out what's the most important stuff. It starts with looking at the data, where you get lots of high-frequency data and some more short or long-lasting data. But there's also, particularly since the financial crisis, the big question, what happens with political news? And there are all those threats out in the world, looking at Brexit, looking at the trade conflict.

Is there any every news every twitter news that comes out relevant or not and there was just nothing the other day where one of my juniors was going to prepare a bit of a fun presentation for the beer festival presentations and we have always make a connection to what's going on and obviously we did it a year before and now again and the topics we were talking last year are more or less the same topics we are talking this year

Looking at Brexit, looking at trade conflict, these are still there and not much happened actually. And I think this is the way to see what is lasting, what you get out of this and as an economist I think the main issue, the main goal, what you should have is trying to put those different things that are very complex together and come out with a combination how those things fit together. Try to find a language that is understandable for people outside of this and try then to put this into the decision of central bankers and what implication has this at the end of the day for markets.

Stefan Wagner: 02:40 Now, you also worked for different companies in your career. This now is a very German company, if I may say so, but also previously big international, maybe more US or UK-centric companies. Have you ever noticed a difference in how a certain economist has a certain regional bias in the way how he interprets data and also how he thinks about it?

Jürgen Michels: 03:08 Being an economist trained in Germany, you have a different view on inflation than most other economists around the world. And that becomes always very obvious. And I think the other thing that comes through when you work in London or in a US company, they are much more with hands-on approaches. Also, when it comes to fiscal policy or monetary policy, you want to keep the show going on. From a German angle, you always look at Ordnungspolitik.

You want to have all the structure in it, and do you set some wrong incentives for the long term? I think that's the different approach where looking at it from a German angle, and also you see the German political debate, what is going on about issues that the rest of the world does not care about. but the Germans can debate it forever and ever and ever. And the rest simply goes on. And I think these are the main differences in that approach. And as a German view, you always put a bit more of, yes, you have to explain everything. And from the other side, you come to the topic and tell what it is all about.

Stefan Wagner: 04:19 And I mean, that's something lots of people claim. I don't know if that's true. People say like the Germans trying to more protect the saver, while they say more the Anglo-Saxon world, they're trying to protect more the people who borrowed money. Is that, do you agree with that?

Jürgen Michels: 04:35 When you think about financial markets, the Germans is a country of risk-averse bond investors. And that's different to other places where you have equity investors and so on and so forth. And from that starting point, they have a different view on central bank actions and everything that comes around this. And in that respect, yes, they regard things like cutting interest rates different than an investor in the UK or the US does.

Stefan Wagner: 05:05 Now, as an economist, you try to measure things that have a monetary value, like gross GDP of a country. But now a lot of the industry or tech economy is based on barter. I give up my data in return I get from Facebook or somebody else of these social media companies. I get a free service. How would you measure something like this? And next step, then we can talk about tax, what that effect has.

Jürgen Michels: 05:33 I think that's one of the pitfalls with all of those transition what is going on in the economy to this exchange economies. This is not measured. What we do very well and we got all the statistics is about when you produce a car, it's the amount of steel and everything that comes together. You can all measure and weight it, but when it comes to services, what we do in the financial sector, we don't have any statistics about it. You know the people that work there, and at the end of the day, a couple of years later, you get the tech statistics, and you can assume what kind of value added they created.

But if you do really things like exchange data for some other payments or services, it is not covered. And I think this is one of the difficulties when you think about technical progress. Do you see it in productivity data? For the time being, we don't. And I think there we have to change our whole way of measuring data and bringing those things together. And I think this is a big challenge for policymakers and for institutions.

Stefan Wagner: 06:36 But particularly, I think the challenge, I absolutely agree with that, is a particular challenge here is also that, let's say, cynically, one could say money was introduced in order to make taxation much easier. Now, how do you tax these kind of companies and where they realize the profit at the end or valuation, a sense of a stock market valuation, but that's, that's, that I think that causes

Jürgen Michels: 06:58 I think the taxman is always good to find ways to get its taxes at the end of the day and that might explain a bit also the kind of fears that policymakers have when it comes to cryptocurrencies or other things like this because you don't have the approach and to get hold of those guys because it's just working then in a closed shop. And I think they're going into this and try to prevent those things because they want to get their money at the end of the day. But we will get, I think, to a world where we do less have taxes on work and labor, but much more on things like data. And if your car at some stage might provide data for the navigation system, that might be taxed. And I think we are changing those things in the future. We're not there yet, but I think there will be a change in the whole way of getting your revenues as a state.

Stefan Wagner: 08:00 Speaking of tax, let's talk about Europe in this case. More and more rules in Europe are set by the European Union and they're trying to make it equal across. But the one thing that is still very different can be the corporate income tax or corporate tax. And particularly as certain countries can negotiate their own double-tax treaties with other countries. I think the most cynical one is probably Luxembourg having a double-tax treaty with Monaco. It's a business model? It's a business model, exactly. But I think that will still cause friction in the European Union, because then there could be a bottom to the race.

And then obviously, the companies, if you're a company, and you're responsible to your shareholders, obviously, you want to pay as little tax as possible and return as much possible to your shareholders. But Now, money doesn't take up much room, so it's easy to put it into a small country like Luxembourg or Malta, other things. But is that a good idea that there still is that flexibility, do you think? Or should there be at least a minimum level set in Europe? Because, you know, probably the UK now, if it does the Brexit, completes it, it probably will have to planning to drop corporate income tax in order to attract more companies.

Jürgen Michels: 09:20 I think the first way, if you would have this tax competition, it's a good thing. If you really had an open market in Europe, you can come up with different ways of what you provide the companies, what kind of infrastructure do they get, and what kind of taxes you pay. So that could be a whole package where you have different instruments to set those rules. So in an ideal world, that would be fine. But we don't have this. And if you look at all of those countries that do these low-tax things, it's most of the cases small countries. I guess if the UK or what we have seen in the US, if they come up with a race to the bottom, the others will react. And in that way, it never works out for those countries because they go down with their taxes, their revenues will go down, but they don't attract all those companies to get there because the others will react to this move of a bigger player.

So it's always a thing that the Luxembourg and the Irish guys can do. It hurts a bit the Germans and the French, but they kind of tolerate this. But coming back to Europe, If you want to get something like a fiscal transfer system or something else, you need to have then also a system that is very common and very agreed on the revenue side. So if you do this thing that we need a common fiscal policy in Europe, then you have to have a common tax policy. But all this, going to this kind of unified Europe, requires lots of other unified and European policy measures.

And I think that that's really the political question. So we can't get away all of the flexibility measures, tax revenues, expenditures, what you have country by country. You've taken away the currency. You have to have some room to react, but you have to look through this very, very carefully. And I think if there is, think of the next crisis of what's coming up, you need some European answers to this and not just an answer of Germany or France and Luxembourg. And if you want to get this, you have to get rid of all of those tax loopholes we have at the moment.

Stefan Wagner: 11:33 Thank you, Jürgen, for such an insightful conversation.