Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: I think inflation is a huge part of the story,
Speaker 2: a huge headwind to politicians, and it's not going to
Speaker 2: be a meaningful to wind anytime.
Speaker 1: See Welcome to voter Nomics, where politics and markets collide.
Speaker 1: This year, voters around the world have the ability to
Speaker 1: affect markets, countries, and economies like never before. So here
Speaker 1: at Bloomberg, we've created this series to help you make
Speaker 1: sense of it all. Back for another week. I'm alegro Stratton,
Speaker 1: I'm Adroom Woodridge.
Speaker 3: And I'm Stephanie Flanders. This week in Dubai. Why are
Speaker 3: you in Dubai, Steph, Well, you know this, this vast
Speaker 3: empire that I control of Bloomberg, or at least this
Speaker 3: large number of reporters in economy also include Dubai. Absolutely
Speaker 3: it does, and there's different bits of the empire converge
Speaker 3: in Dubai.
Speaker 1: Well, at the top of the show you heard from
Speaker 1: Karen Ward of JP Morgan Asset Management. We're going to
Speaker 1: speak to her a little bit later and she's going
Speaker 1: to help us unpick those difficult dynamics between economics and politics.
Speaker 1: Also on the show this week, we have Bloomberg reporter
Speaker 1: Craig Trudeau, who is our tesla expert here in London. Steph,
Speaker 1: how big is his team? See? Does he fly solo
Speaker 1: or has he got lots and lots of people?
Speaker 3: I suspect he's got more and more people. We have
Speaker 3: discovered that you can support a whole Elon Musk podcast,
Speaker 3: and I suspect over time we will just acquire a
Speaker 3: larger and larger team covering what he's doing.
Speaker 1: So he's going to be for those for Muska fiscionados.
Speaker 1: He's going to be joining us in a second to
Speaker 1: talk about Elon Musk's deal with China and also what
Speaker 1: the TikTok bill tells us about this phenomenon of tech decoupling.
Speaker 1: But first, Adrian, you have a B in your bonnet.
Speaker 4: Yes, I was very struck by William Haig's column in
Speaker 4: The Times this week. And I think William Hage is
Speaker 4: a very good columnist. I always enjoy his column in
Speaker 4: the Times, but this week I was a bit disappointed.
Speaker 4: He argued in this column that this is the era
Speaker 4: of elections, which is what we're all about here, and
Speaker 4: he said, so far it's been a great trime for democracy.
Speaker 4: More than four hundred million people have gone to the polls,
Speaker 4: and those people have been exercising their rights extremely well
Speaker 4: with good effects. And he points to the example of Turkey,
Speaker 4: poland various other examples. And as I read this, I
Speaker 4: thought that may be true, but they haven't really changed
Speaker 4: the direction of history. And the one big election that
Speaker 4: looms over everything else, which is the US election in November,
Speaker 4: that can hardly be categorized as a trime for democracy.
Speaker 4: We have two really old candidates, one of whom has
Speaker 4: led an insurrection as many of us would see it,
Speaker 4: one of whom is looking visibly very elderly, and a
Speaker 4: real possibility that election will go down to a very
Speaker 4: few votes in a very few places, which will spark
Speaker 4: civil disobedience. So looking at William's excusamples of a few
Speaker 4: good things about democracy, I didn't feel myself really thinking, yes,
Speaker 4: this is a great system in the great flushings of triumph.
Speaker 1: I felt it was a bit of a list of
Speaker 1: elections that have taken place, and I wasn't sure. I
Speaker 1: thought perhaps there was a little bit of cherry picking.
Speaker 1: And actually, for me, the more interesting things are how
Speaker 1: you have across the Western world or more developed, richer economies.
Speaker 1: This deep dissatisfaction with democracy, and you can see in
Speaker 1: the polling in developing economies, actually there's more of an
Speaker 1: enthusiasm and a sense of that democracy may yet deliver
Speaker 1: for them, and it may yet raise living standards itself.
Speaker 4: That Hague is writing that column at the beginning of
Speaker 4: this huge six week process soon say, of the Indian elections,
Speaker 4: and that is an election which really features one man.
Speaker 4: There isn't really a significant opposition to Mody, and Mody
Speaker 4: is an illiberal democrat. He's somebody who, whilst quite popular
Speaker 4: and going to win the election, is eroding basic many
Speaker 4: of the basic constraints on the power of central government.
Speaker 4: He's a sort of ceo figure. He's a strong man figure.
Speaker 4: He's not an example of liberalism. He's the worst sort
Speaker 4: of modern democracy. So again I thought, actually democracy only
Speaker 4: really works when it's qualified by liberalism. Democracy as a
Speaker 4: sort of triumph of populism isn't very good. So even
Speaker 4: in the emerging world, where you do have a general
Speaker 4: sense of optimism and growth, indias growing by six or
Speaker 4: seven percent a year, you don't have an ideal version
Speaker 4: of democracy being put in place in the world's biggest democracy.
Speaker 1: Because we're guarded the way through this huge year of elections.
Speaker 1: What do you think the picture is when we're fully through.
Speaker 4: I'd say that my example would be India, the world's
Speaker 4: biggest democracy, a strong man winning, and the United States,
Speaker 4: which I suspect will produce a lot of civil disorder.
Speaker 4: I think if it was a close election, it'll be
Speaker 4: a very unpleasant election. And it's a choice between two people,
Speaker 4: neither of whom, in my opinion, should be running because
Speaker 4: the party apparatuses couldn't get it together to choose in
Speaker 4: this vast country, two people who are a bit more
Speaker 4: appetizing than Trump and Biden.
Speaker 3: I did think it was a reminder, since you're dumping
Speaker 3: on William Haig lifting up his column only to tear
Speaker 3: it down again, I thought that it was a useful
Speaker 3: reminder that these a lot of elections have already taken
Speaker 3: place that involve a large chunk of the population or
Speaker 3: are now ongoing. So and if you think of Indonesia,
Speaker 3: Russia and India, by the time that's finished, that's nearly
Speaker 3: two billion people who will have cast their vote. Although
Speaker 3: we make a lot of the uncertainty created by all
Speaker 3: these elections, that two billions were were never in doubt.
Speaker 3: We've got all places where the incumbent won and it
Speaker 3: was no surprise. Whether it's Pakistan, Taiwan, Bangladesh. I'm not
Speaker 3: sure I would read the results as positively as William
Speaker 3: Haigu does. The Pakistani voters did deliver a rebuke to
Speaker 3: the military, but the military rigged the system so much
Speaker 3: that still nothing's changed, and the same person became Prime
Speaker 3: minister Bangladesh, the incumbent authoritarian one, even though there was
Speaker 3: something of a backlash, the strongman one in Indonesia. So
Speaker 3: I think it's so far it's the incumbents, and as
Speaker 3: you say, Adrian the not necessarily the most democratic of incumbents.
Speaker 1: And one last point for me, which was in his piece,
Speaker 1: he ended up talking a lot about the importance of
Speaker 1: local elections, which obviously we're going to see in the
Speaker 1: UK this week. To be clear, we're recording this before
Speaker 1: people have gone to the polls. But one of the
Speaker 1: aspects which our reporter Alva Ray points out in her
Speaker 1: piece from she went to both Teaside and West Midlands
Speaker 1: was that it's looking like turnout will be incredibly low.
Speaker 1: So we keep having these establishment figures saying the answer
Speaker 1: is drive power out to local elections, have more power
Speaker 1: nearer to people. When you actually look at those elections,
Speaker 1: people sort.
Speaker 3: Of shrug yeah, because they're so denuded of any power
Speaker 3: in the UK.
Speaker 1: Look at what Ben Haushin's done in Teaside. He's done
Speaker 1: quite a lot with what he with the powers that
Speaker 1: he does have. But it will be interesting to see
Speaker 1: the turnout when we've actually got some facts to dissect.
Speaker 1: So let's get to our on the ground reporters for
Speaker 1: the week. We're fortunate enough to have this week's guest
Speaker 1: with us here in London. Reporter Craig Trudell. You dedicate
Speaker 1: most of your waking hours to following the latest Tesla
Speaker 1: and Musk news, don't you, Craig.
Speaker 5: It's been a few crazy few weeks on the Musk.
Speaker 5: Be it fun.
Speaker 1: So Mauksk has obviously been to China. Just give us
Speaker 1: what it all means.
Speaker 5: Yeah, this was a surprise. It was a sort of
Speaker 5: over the weekend wake up and oh Musk is in
Speaker 5: Beijing in India. But then yeah, a week earlier he
Speaker 5: was due to be in India and he was supposed
Speaker 5: to meet Prime Minister Modi. It was a highly anticipated
Speaker 5: trip where everybody was expecting Tesla to announce a new
Speaker 5: plant in India, which would be quite a big deal.
Speaker 5: That got thrown out the window at the eleventh hour,
Speaker 5: and a week later, Lo and behold, Musk shows up
Speaker 5: in Beijing. And I think it really speaks to the
Speaker 5: idea that Musk still very much needs China. He very
Speaker 5: much rode their support to the position he's in today
Speaker 5: of having the world leading electric vehicle company, and in
Speaker 5: order to cling to that position he needs some help
Speaker 5: again from the CCP.
Speaker 1: He actually did achieve things with this trip. It did
Speaker 1: actually move the ball out of the pitch for him.
Speaker 2: Yeah.
Speaker 5: I think a couple of hard developments that did come
Speaker 5: out of this. One was a partnership with Baidu, which
Speaker 5: is China's Google, effectively a deal for mapping and navigation,
Speaker 5: and that's one element of if you want to put
Speaker 5: these systems on the market in China, you need to
Speaker 5: have such a partnership. And he also just got another
Speaker 5: sort of incremental regulatory step having to do with something
Speaker 5: very similar with data collection and storage in China.
Speaker 3: I maye Craig have got to the point where I'm
Speaker 3: just seeing decuttling and deglobalization everywhere I look. But I
Speaker 3: was very struck by that deal sort of cementing something
Speaker 3: that we see and you feel very much when you
Speaker 3: go to China is just a completely separate economy being
Speaker 3: developed in sort of key ways, particularly since COVID you
Speaker 3: can't use Western cards, people constantly having to borrow money
Speaker 3: for the taxis because all the things that used to
Speaker 3: work no longer work, and things like Tesla. If you're
Speaker 3: working for the Chinese government. Someone had told me who
Speaker 3: works with Chinese government, you can't drive a Tesla into
Speaker 3: a government car park and leave it there. There's constraints
Speaker 3: on what you can do. So the idea that you're
Speaker 3: actually locking in parallel technologies and potentially laying the ground
Speaker 3: for a complete technological decoupling struck me as it was
Speaker 3: coming through very strongly in this deal and being cemented. Yeah.
Speaker 5: Absolutely, and this goes back a couple of years. Actually,
Speaker 5: we broke the news about this idea that China had
Speaker 5: moved to ban Tesla's from military facilities, having to do
Speaker 5: with the concerns that these driver assistants systems that Tesla's
Speaker 5: betting big on are reliant on cameras and so these
Speaker 5: cars are rolling around everywhere, taking in footage everywhere they go,
Speaker 5: and there's a real concern on the part of the
Speaker 5: government of wait a second, where is that footage going.
Speaker 5: Is it staying here or is it going back to
Speaker 5: the US? And at the moment, given the fact that
Speaker 5: Musk is trying to perfect or improve these systems by
Speaker 5: training them with supercomputers, there's real concern about that data
Speaker 5: going from China back to the US. And I think
Speaker 5: we're seeing this kind of left and right in the
Speaker 5: car industry, where when you go to China you can
Speaker 5: find incredibly cheap evs that you can't find in the West.
Speaker 5: You can find these driver assistance systems for much more
Speaker 5: affordable prices than you can find in the US if
Speaker 5: you want to have this similar capability in a tesla.
Speaker 5: It's absolutely the case that there's a sort of dual
Speaker 5: track here.
Speaker 4: But on the one hand, we've got this duel track
Speaker 4: economy developing. On the other hand, the world's richest America
Speaker 4: goes over his genre and solves an American problem and
Speaker 4: stop valuation goes up. Isn't that an extraordinary confusion?
Speaker 3: I think so.
Speaker 5: I think it's fascinating because this is someone who, oh,
Speaker 5: by the way, has just you know, more than just
Speaker 5: Tesla as part of his business empire, and has repeatedly
Speaker 5: made these accommodations or these statements that are very China friendly.
Speaker 5: I go back to some of the comments that he's
Speaker 5: made about Taiwan and weighing in on things there to
Speaker 5: where Taiwan has no interest in, for instance, using Starlink
Speaker 5: his satellites business that he's building with SpaceX. I do
Speaker 5: think it is also very interesting that this is coming
Speaker 5: on the heels of the TikTok ban or so called
Speaker 5: ban and in the US, and he has also taken
Speaker 5: a position on that. While we're talking about this idea
Speaker 5: that he's very China friendly, even as the owner of
Speaker 5: X formerly Twitter, he came out and said, you know what,
Speaker 5: I don't think that we should do this with the US.
Speaker 3: Which cool the sort of double standard that none of
Speaker 3: the big US social media firms, none of them can
Speaker 3: operate in China, but you now have the US legislation
Speaker 3: to potentially band TikTok if they don't transfer ownership to
Speaker 3: a non Chinese company. It did also it just it
Speaker 3: struck me that the definition of a strategic asset of
Speaker 3: you know, what is a national security threat just keeps
Speaker 3: broadening all the time. China has always potentially had a
Speaker 3: very expansive definition of that, as we've seen in the
Speaker 3: controls it already had, and the US are starting to
Speaker 3: go down that road. It makes you feel when Jake
Speaker 3: Sullivan talks about having small yards with a high fence
Speaker 3: and the sense that we're not really going to decouple
Speaker 3: or divide the global economy. We're just going to have
Speaker 3: certain things that we protect. The certain things we protect
Speaker 3: seem to be expanding all the time.
Speaker 5: Yeah, and I think that's absolutely right. And along those lines,
Speaker 5: I think one of the things that we've been reporting
Speaker 5: out of Washington recently, there have been concerns among folks,
Speaker 5: whether it's in Washington or in Brussels, about how cheap
Speaker 5: these Chinese electric vehicles are, and China has much more
Speaker 5: capacity than they have demand. That's something that Janet Yellen
Speaker 5: has made quite a lot of noise about recently, including
Speaker 5: on her trip to China. I think it's very much
Speaker 5: the case that in trying to put up barriers to
Speaker 5: keep Chinese evs out of the US, Gina Romando is
Speaker 5: talking about not just raising tariffs that, by the way,
Speaker 5: we're raised under the Trump presidency, but looking at whether
Speaker 5: or not there is a path to blocking these vehicles
Speaker 5: on national security grounds, which is very reminiscent of exactly
Speaker 5: what China was doing over the last couple of years
Speaker 5: of being cagey about where Tesla's can go on its soil.
Speaker 3: So you do think it could be an election issue
Speaker 3: in Washington.
Speaker 5: I absolutely seeing it being the case. I think Biden
Speaker 5: absolutely made EV's a big part of his Inflation Reduction Act,
Speaker 5: his signature of climate law, and the fact that Trump,
Speaker 5: on the other hand, very notably recently referred to the
Speaker 5: idea that for the auto industry, if he doesn't get elected,
Speaker 5: there will be a quote bloodbath. We've absolutely heard a
Speaker 5: lot of back and forth, including late last year with
Speaker 5: the UAW strike and Biden going on the picket line,
Speaker 5: the first US president to do so here in the UK.
Speaker 5: I don't necessarily see it breaking through, but it is
Speaker 5: fascinating to me that as an American reading the papers
Speaker 5: here day to day, the sort of alarmism of whether
Speaker 5: this whole ev transition makes sense or as worthwhile or
Speaker 5: is bogus, it is relentless. I just find that there
Speaker 5: is quite a bit of negativity about whether these evs
Speaker 5: make any sense, despite the fact that they have been
Speaker 5: making really remarkable progress the last half decade.
Speaker 1: So a comparison in contrast of the UK and US
Speaker 1: election seems like a pretty good place to leave that
Speaker 1: chat in this latest edition of Photonomics.
Speaker 3: Thank you very much, Craig, Thank you, Greg.
Speaker 5: That was great, Thank you that was fun.
Speaker 1: Yeah, you'll be back you so much.
Speaker 2: So.
Speaker 1: Last week with the first edition of Photonomics, you guys
Speaker 1: talked to Neil Ferguson about his reflections on how economics
Speaker 1: and politics are colliding in America. It was a punchy chat.
Speaker 4: Adrian, absolutely I learned to iard a great deal. Some
Speaker 4: of it I agreed with, some of them I didn't
Speaker 4: agree with. But Neil is always informative and provocative.
Speaker 3: I also noticed that the comparison we were a little
Speaker 3: bit ahead of the game. We were thinking of the
Speaker 3: potential comparisons with sixty eight and politics. I became increasingly
Speaker 3: glad over the course of the last week discussion because
Speaker 3: I read an awful lot of people just deciding that
Speaker 3: we were potentially even with the Chicago conveyed in August,
Speaker 3: that we wereating a rerun of sixty eight.
Speaker 4: We're with the first people to throw Richard Nixon into
Speaker 4: the mix.
Speaker 3: I think so if that would say that, regardless of
Speaker 3: whether it's true, I'm convinced it's true.
Speaker 1: So if that was Neil Ferguson last week. This week,
Speaker 1: to help us chew over these issues, we've invited JP Morgan,
Speaker 1: Asset Management Chief Market Strategists for Europe Karen Ward to
Speaker 1: join us in this week's conversation. Karen was a former
Speaker 1: Bank of England economist and also a former advisor to
Speaker 1: the UK Chancellor dix Chequer Jeremy Hunt. We started by
Speaker 1: asking her if she's seeing the theme of this podcast photonomics,
Speaker 1: so economics and politics colliding cropping up in her day
Speaker 1: job all the time.
Speaker 2: Yes, absolutely, and there's always a question as to when
Speaker 2: it becomes the dominant force that's impacting markets. One thing
Speaker 2: I've always found amazing in twenty years of doing this
Speaker 2: is ignored until a single day and then it's the
Speaker 2: only thing that we talk about. We haven't quite turned
Speaker 2: back corner just yet, but I think certainly trying to
Speaker 2: think through what are the policy ramifications of different electoral
Speaker 2: outcomes is starting to come on to the radar for sure, and.
Speaker 1: What in that context, what are the sort of pieces
Speaker 1: of advice you're getting ready for people.
Speaker 2: I think in the US it's really through three lenses.
Speaker 2: The first is the obvious one, fiscal policy, what's the
Speaker 2: outlook for tax and spend? And I think our starting
Speaker 2: point in the US is what's concerning because the US
Speaker 2: has an incredibly strong economy, but it also has a
Speaker 2: six percent fiscal deficit, which is rather an odd point
Speaker 2: to be at when you have record low unemployment. You
Speaker 2: really shouldn't be running a six percent deficit at that time.
Speaker 2: So what are how does that evolve and what do
Speaker 2: the different parties mean for how that will evolve? Are
Speaker 2: any parties credibly talking about how they will reduce spending
Speaker 2: or how they will raise taxes? Doesn't really seem to
Speaker 2: be a big part of the dialogue. If anything, the
Speaker 2: discussion is more about whether there's any prospect for further
Speaker 2: tax cuts, So fiscal policy always the most critical edge.
Speaker 2: I think the other two aspects that are particularly key
Speaker 2: for me when looking at the US are how some
Speaker 2: of the policies might feed into inflation, because certainly for
Speaker 2: markets for bond yields. The question of whether those inflation
Speaker 2: problems are really behind us or not is still absolutely critical,
Speaker 2: and the two policy pieces that fit into that puzzle
Speaker 2: are migration and tariffs. The US has had this enormous
Speaker 2: flow of migration into the economy over the last couple
Speaker 2: of years, and that's really helped ease the pressures of
Speaker 2: demand on supply. It helped that economy cope with record
Speaker 2: low unemployment and still bring down wage growth and eased
Speaker 2: some of the inflationary pressures. So migration's actually acted economically
Speaker 2: like a real safety valve. Now, when you look at
Speaker 2: what voters are saying about what's concerning them, they are
Speaker 2: clearly less convinced about the economic benefits, and it's one
Speaker 2: of the key points of concern amongst the electorates. So
Speaker 2: how the different parties tackle migration is the other. What
Speaker 2: they might do, how quickly they might turn off any
Speaker 2: migration taps is really key. And then taris, who taris
Speaker 2: will be placed on, What are the scope for those tariffs?
Speaker 2: How that is part of the geopolitical tensions that are
Speaker 2: another central feature. But then how the tariffs play into
Speaker 2: the inflation story.
Speaker 4: Also, is it possible to look at the United States
Speaker 4: presidential election through this very rational economic framework that you've
Speaker 4: just laid out. When you have such a bizarre and
Speaker 4: intemperate figure as Donald Trump as the sort of one
Speaker 4: of the two main players.
Speaker 2: I think you have to sit back. Certainly in my
Speaker 2: job as a sort of medium term investor, you really
Speaker 2: have to do that exercise. And actually, this isn't really
Speaker 2: just with regards to the US. It's with every part
Speaker 2: of the world and every potential politician. And you sit
Speaker 2: back and you think, Okay, this is what they're saying,
Speaker 2: but let's just think through the economic reality of them
Speaker 2: delivering what they're saying. And I think quite often when
Speaker 2: you do that rational exercise of thinking, that's what they're saying,
Speaker 2: but if they do that in practice, the domestic economic
Speaker 2: cost of doing so might be really quite grave, and
Speaker 2: so actually, when they are in office, they may choose
Speaker 2: to take a different route. I think it's really important
Speaker 2: whenever you're hearing particularly very strong political figures making big statements,
Speaker 2: to think that might sound good to the electorate now,
Speaker 2: but what are the realities of delivering that, and therefore,
Speaker 2: when in office, is it really going to happen?
Speaker 4: Sure? But for the last thirty years or so, we've
Speaker 4: had economics as the master science, and everybody's really deferred
Speaker 4: to economics. Now we're in a different world in which
Speaker 4: politics is much more important and politicians do sorts of
Speaker 4: things that economists would never have thought that they would.
Speaker 4: I mean the Trump tariffs being in the last Trump
Speaker 4: presidency classic example of that. Isn't it just the case
Speaker 4: that we don't live in a predictable, rational world anymore
Speaker 4: and politics is just much much more volatile and much
Speaker 4: more of an independent variable.
Speaker 2: I think we do have to our professional economics profession
Speaker 2: really has to think about what is the lens of
Speaker 2: different cohorts or different members of society, what is their economics,
Speaker 2: and how might that influence the politics. So what I
Speaker 2: mean by that is, for years you've heard the IMF,
Speaker 2: these big international groups acknowledging and understanding the fact that globalization,
Speaker 2: for example, has seemingly done tremendous economic good what the
Speaker 2: economists would all have predicted should have happened for everybody's benefit.
Speaker 2: But we know the benefits weren't spread equally amongst society,
Speaker 2: and we were left with a segment of the population
Speaker 2: that was termed the left behind. And I think for
Speaker 2: those individuals, they are still operating I'd argue on economics,
Speaker 2: but it's their own personal economics. They're not seeing their
Speaker 2: income levels rise, they're not seeing their wealth rise like
Speaker 2: certain other segments of the population. They're not feeling confident
Speaker 2: their children are going to have better living standards. And
Speaker 2: I think that's where our profession has to be a
Speaker 2: little bit careful about assuming the aggregate economists is right
Speaker 2: or that's the way things are going to flow.
Speaker 3: And that was that somewhat related to that. I was
Speaker 3: going to pick you up on one of the things
Speaker 3: you were noting about the US, and the classic economics
Speaker 3: approach to this is to welcome immigration as a source
Speaker 3: of labor force growth because what's often driving the growth
Speaker 3: in overall output. But it is also one of the
Speaker 3: things that when you look across quite a lot of
Speaker 3: elections this year, some of the common features are great
Speaker 3: concern around immigration and whether well founded or not, and
Speaker 3: great concern around housing. And if you look at somewhere
Speaker 3: like Australia or Canada, the two are combined. They've had
Speaker 3: massive immigration, and actually that has caused enormous pressure on
Speaker 3: housing market because they haven't built enough houses, and we've
Speaker 3: actually looked at how that can also mean that a
Speaker 3: country that looks like it's had decent growth from your
Speaker 3: perspective for ordinary people, actually the per capita growth, if
Speaker 3: you like, per head has not gone up. I think
Speaker 3: there's thirteen countries that we estimate across the developed world
Speaker 3: have had per capita recession. So if you're just looking
Speaker 3: at growth per head and not growth overall, which doesn't
Speaker 3: necessarily affect individual people, if it's accompanied by increased population,
Speaker 3: pretty that's a very politically salient aspect of the economic
Speaker 3: model that we've had in many of these countries.
Speaker 2: Absolutely, it's a very contentious topic, whether it's about how
Speaker 2: people are integrated socially, how they're integrated economically. The Pew
Speaker 2: Institute says that migration is the top concern that the
Speaker 2: US citizens want their new government to tackle.
Speaker 3: And we as economists are saying, oh, great, there's no
Speaker 3: recession in Canada, Australia, But actually the people have had
Speaker 3: recessions and they've noticed even before you start thinking about inflation,
Speaker 3: because their income has not gone up.
Speaker 4: You have a very peculiar situation in the United States
Speaker 4: at the moment, don't you whereby we should have an
Speaker 4: incumbent president sailing towards reelection because the economy is doing
Speaker 4: very well, and for the first time in sometimes people
Speaker 4: at the bottom of the income scale are beginning to
Speaker 4: share in some of the prosperity. But you have a
Speaker 4: lot of angst in the country, and there are many
Speaker 4: reasons for that, but one of them, surely is the
Speaker 4: angst about uncontrolled immigration or a fe of uncontrolled immigration,
Speaker 4: Isn't it?
Speaker 2: Absolutely that's what all the surveys point to of the
Speaker 2: electra What is the chief concern that they want tackled,
Speaker 2: and yes, whether it is alleviating labor market pressures. And
Speaker 2: again it comes back to my point about individual economics
Speaker 2: that versus aggregate economic it's an individual will say, well, okay,
Speaker 2: you may think that, isn't that wonderful that wage growth
Speaker 2: has eased because migration has eased some of the pressures
Speaker 2: in the labor market. Hang on a second, wage growth easing,
Speaker 2: that's not good for me at all. I want my
Speaker 2: wage growth to continue accelerating. So I think that's the
Speaker 2: real challenge is the individual economics presses agrigate.
Speaker 1: One of the things that's doing the rounds as we say,
Speaker 1: is that somebody has told Andrew Marre at The New
Speaker 1: Statesman that a Labor government wouldn't necessarily reverse Rwanda the
Speaker 1: Rwanda Plan immediately, and that's going to cause all sorts
Speaker 1: of trouble for kised Arma because he's either got to
Speaker 1: come out and say yes I will, which point that's
Speaker 1: quite tricky for him, because there is a swathe of
Speaker 1: the constituency's now trying to win in the Red Wall
Speaker 1: who want to see him having that tough line on
Speaker 1: immigration for the reasons you're discussing. And then there's also
Speaker 1: another constituency and it's being pointed out on Twitter a
Speaker 1: lot today, which is if Labour's about to do incredibly
Speaker 1: well in Scotland, that's a place where actually this harder
Speaker 1: line on migration doesn't go down so well, that's not
Speaker 1: what they're looking for. And because some has this coalition
Speaker 1: which is not dissimilar to the Boris Johnson coalition that
Speaker 1: he's trying to assemble, which is on the one hand,
Speaker 1: those Red Wall voters as was became conservative, some is
Speaker 1: now trying to win them back who want that toughness
Speaker 1: on immigration, and then on the other hand that's softer
Speaker 1: left politics that really don't and it sends a kind
Speaker 1: of a smell test for them is not good. So
Speaker 1: we'll read today we're seeing the politics of this in
Speaker 1: the UK being quite uncomfortable.
Speaker 2: And honestly, that also takes us right back to some
Speaker 2: of the divisions that we saw in the ultimate result
Speaker 2: within Brexit also in how for such Obviously, when you
Speaker 2: ask lots of different people why they voted for Brexit,
Speaker 2: there were different reasons amongst different cohorts, but certainly amongst
Speaker 2: a specific cohort, migration and the free flow of workers
Speaker 2: was the major reason for voting for the sentiments from
Speaker 2: the EU. So I think how the topic of migration
Speaker 2: enters UK politics as well as the politics of each
Speaker 2: party is something we've been contending with for years now.
Speaker 1: There's been tenny billion of personal tax cuts announced and
Speaker 1: it doesn't seem to have shifted the dial in the
Speaker 1: polling in the United Kingdom. What are your reflections on that.
Speaker 2: Yeah, it's a good question, and actually I think there's
Speaker 2: commonalities behind the question that we spoke about earlier with
Speaker 2: regards to why Biden it's polling better in the US,
Speaker 2: and I think it's the role of inflation within the
Speaker 2: general experience of households, because by some metrics, households things
Speaker 2: look great. We've got almost record low unemployment in the West,
Speaker 2: pretty very low unemployment by historical standards here also, and
Speaker 2: we've had these tax cuts. But I can't think of
Speaker 2: any of my friends or any of my circles, and
Speaker 2: certainly not in the wider society that feels they've been
Speaker 2: an awful lot better off over the last year, because
Speaker 2: watching your energy bill rise six dayfold was utterly terrifying,
Speaker 2: and not knowing if food prices were ever going to
Speaker 2: come down. So I think inflation has been terribly damaging
Speaker 2: to real incomes across the West, but very much so here,
Speaker 2: And I just think that has completely dwarfed any tinkering
Speaker 2: that we've had on the tax front. Now as we
Speaker 2: go through the course of the year, change because headline
Speaker 2: inflation is now coming down quite quickly, those pressures are
Speaker 2: easy while wage grade is still relatively elevated, so it
Speaker 2: might be and we're seeing consumer confidence, right, so you
Speaker 2: might see some of those more feel good effects, and
Speaker 2: then people start to think, well, actually, with that tax cart,
Speaker 2: I'm starting to feel a bit better about life, But
Speaker 2: I'm not really surprised that so far nobody is feeling
Speaker 2: particularly perky about their monthly cash flow.
Speaker 3: It's funny because I wanted to take things onto inflation
Speaker 3: because I was conscious. I was smiling to myself when
Speaker 3: Adrian was suggesting that it was a new thing to
Speaker 3: have politics so volatile, and of course you, Karen, were
Speaker 3: advising the Chancellor, just the then Chancellor Philip Hammond in
Speaker 3: the wake of the Brexit result, and obviously facing quite
Speaker 3: a lot of political volatility at that point while you're
Speaker 3: sitting in the Treasury. But one thing that you weren't
Speaker 3: facing then was inflation. And it does feel to me
Speaker 3: that it's something that economists have underestimated and certainly politicians,
Speaker 3: I think initially underestimated how much it gets under people's skin.
Speaker 3: If you just look at the numbers, the Prime Minister
Speaker 3: is probably going to go to the polls after prices
Speaker 3: will have risen by twenty percent over the Parliament and
Speaker 3: if that's actually all that voters care about, and it's
Speaker 3: certainly been a big factor in the sort of lowest
Speaker 3: house rise in real household dispposable income per head, then
Speaker 3: he's sunk. In theory, it's not his fault at all.
Speaker 3: It was all handed over to the Independent Bank of
Speaker 3: England and we thought that was a great decision, But
Speaker 3: now actually politicians around the world are potentially carrying the
Speaker 3: can for the decisions of entirely independent technocrats.
Speaker 2: I certainly think the whole community central banks economists had
Speaker 2: a little bit too much confidence that by merely making
Speaker 2: central banks independent rulers over the inflation process, that we
Speaker 2: had necessarily killed inflation. And I think what we've really
Speaker 2: learned over the last few years is two things. One,
Speaker 2: we get cost shocks, and they originate from parts of
Speaker 2: the world that you do not foresee where events are
Speaker 2: going to happen. So are clearly Russia invading Ukraine and
Speaker 2: the energy turmoil that created we had this almighty posh
Speaker 2: shock at the economy. But then I think the other
Speaker 2: degree of complacency is how the labor market would then
Speaker 2: behave And the fact and the reason I think a
Speaker 2: lot of the central banking community were perhaps slow to
Speaker 2: realize the scale of the problem was it was assumed
Speaker 2: that workers wouldn't ask for more money, they would merely
Speaker 2: accept the damage to their living standards accepted as a
Speaker 2: one off piece of bad luck, and carry on and
Speaker 2: quite understandably, workers didn't behave in that way because carry on.
Speaker 3: Being quite high is a problem.
Speaker 2: They didn't go down, no, exactly, and workers wanted to
Speaker 2: reinstate their real purchasing power. And we had very low unemployment,
Speaker 2: which again was an aspect of supply. It surprise perhaps
Speaker 2: in how things played out over the last couple of years,
Speaker 2: and so with that security of work, workers did go
Speaker 2: and ask for more money, and therefore that's when we
Speaker 2: got their second round. Effects is economists like to call it,
Speaker 2: where you know, workers ask for a bit more pay,
Speaker 2: that inflation shop broadens out through the economy, And honestly,
Speaker 2: it's still there, it's still persistent, and we aren't entirely
Speaker 2: clear whether it's behind us just yet. So yes, I
Speaker 2: think inflation is a huge part of the story, a
Speaker 2: huge headwind to politicians, and it's not going to be
Speaker 2: a meaningful tailwind anytime.
Speaker 4: See, Adrian, I just wanted to defend myself slightly by
Speaker 4: saying that when I was talking about sort of the
Speaker 4: golden age when economists were in charge, I meant two
Speaker 4: thousand and eight or up until the referendum, not certainly,
Speaker 4: But I need to go back to the theme of
Speaker 4: politics being slightly more important than it was before two
Speaker 4: thousand and eight or twenty sixteen. It seems that the
Speaker 4: biggest things that are going on now seem to be
Speaker 4: not economics but political events. The invasion of Ukraine, which
Speaker 4: had no possible sort of economic justification, the possibility of
Speaker 4: an invasion of Taiwan, which restructuring our whole semiconductor and
Speaker 4: so again that's something that has no possible economic justification.
Speaker 4: And just the figure of Trump. If Trump comes in
Speaker 4: and he could do a number of things, not least
Speaker 4: some Rapussure wants, some deal with Putin or some crazy
Speaker 4: actor in the Middle East, which could just completely reconfigure
Speaker 4: all of our calculations. Don't We live in a world
Speaker 4: in which the prognostic power of economists is diminishing.
Speaker 1: But it's they may be political events, but they become economical.
Speaker 4: No, I mean, where do they come from? They don't
Speaker 4: They're not driven by economic calculations.
Speaker 2: I'm going to defend I'm going to defend us here. Actually,
Speaker 2: so I'm going to say the economic still really matters.
Speaker 2: So Russia, with all the benefit of hindsight, we look
Speaker 2: back now and saw that Russia was getting itself into
Speaker 2: a situation of economic independence such that it could make
Speaker 2: a political decision to sever its relationship with the West
Speaker 2: in a way that would not decimate its economy. And
Speaker 2: it had Russia's GDP and Russian activity because it's still
Speaker 2: reducing oil, it's just sending it to other parts of
Speaker 2: the world, and it's still producing commodities and sending them
Speaker 2: to other parts of the world. So I still believe
Speaker 2: that decision made in Russia was founded a political decision
Speaker 2: founded in the knowledge that economically it would not be devastating,
Speaker 2: and then the ones that you highlight could happen. I
Speaker 2: still think it's the economics that mean the worst case
Speaker 2: scenario won't happen. So I think China is.
Speaker 4: Just going to say, do you think China could make
Speaker 4: the same calculation that Russia's made, because it is certainly
Speaker 4: desevering itself from a lot of the world economy.
Speaker 1: It says, no, why not, Karen.
Speaker 2: Whether it chooses to get itself into Russia's position over
Speaker 2: the next twenty years, I don't know. But today the
Speaker 2: US is still the biggest importer of Chinese goods, and
Speaker 2: China has a serious domestic demand problem right now, they
Speaker 2: are resorting back to export demand to fuel their growth. Therefore,
Speaker 2: they need anyone else in the world to be buying
Speaker 2: their goods until they can get their domestic engine going.
Speaker 2: And while that is still the case, they need to
Speaker 2: stay friends with their biggest consumers, which are in the West.
Speaker 2: So right now here in today, with the economics as
Speaker 2: they are, I think it's a small probability risk.
Speaker 1: So the not so dismal science from you, Karen, can
Speaker 1: you just do some forecasting perhaps, which is people are
Speaker 1: saying we'll have inflation at two percent possibly then over
Speaker 1: the summer some people are predicting it could go to
Speaker 1: one percent. Do you think it starts to come up
Speaker 1: in the autumn and what are the consequences of that
Speaker 1: if it does.
Speaker 2: Yes, I think it will dip. Oil is edging back
Speaker 2: up that gas prices, which are a bigger chunk in
Speaker 2: the CPI basket. They because of gas prices come down
Speaker 2: in April. That should take us just a little bit
Speaker 2: sub two. In the summer we should touch a load
Speaker 2: two number. However, that probably won't last terribly long. And
Speaker 2: I do think by the end of the year and
Speaker 2: the bank can also in thereforecast we are back on
Speaker 2: an up trend as long as it's modest and it's
Speaker 2: real wages that matter. So I think part of the
Speaker 2: reason it's not going to two and through two and
Speaker 2: back to the low inflation that we knew before is
Speaker 2: because wage growth is still running somewhere between four and
Speaker 2: six percent. Of data quality issues at the moment, but
Speaker 2: it's still in that kind of vicinity. I think we
Speaker 2: will still be in positive real wage territory through the
Speaker 2: remainder of the year. I think the consumer is going
Speaker 2: to be in pretty decent positive real wage territory, not
Speaker 2: compensating for the last two years, but at least that
Speaker 2: pressure feeling better throughout the course of the year.
Speaker 3: We cited recently some research, some academic research that finds
Speaker 3: part of the problem with inflation is even where wages
Speaker 3: have kept pace, people adamantly to believe that they have
Speaker 3: not kept pace, and there's a sort of as Karen's
Speaker 3: been saying, there's a kind of abiding hit. In fact,
Speaker 3: if we see wages going faster than inflation, that will
Speaker 3: potentially be an issue for the Bank of England, might
Speaker 3: slow the pace of rate cuts and yet still not
Speaker 3: actually deliver much benefit in terms of how people feel
Speaker 3: I can certainly say as a form of BBC Economics editor,
Speaker 3: who used to go to supermarkets on day where you
Speaker 3: know the price of something had plunged, and you're desperate
Speaker 3: to find one person who's willing to admit that anything's
Speaker 3: got cheaper, because everybody always feels that life's getting more
Speaker 3: expensive regardless of what the numbers say, And I would
Speaker 3: very quickly give up trying to find someone who would
Speaker 3: back up what the data appear to be saying. But
Speaker 3: I think that's particularly true when it comes to real wages.
Speaker 3: People don't necessarily feel better off.
Speaker 2: It's sort of it's the inflation of fun and the
Speaker 2: inflation of not fun, the inflation of everything that's not fun,
Speaker 2: energy and food and all of the stuff that we
Speaker 2: have to buy and not because we want to buy
Speaker 2: because it's fun. That is what's risen so much. It's
Speaker 2: eating into our income, so that eases our it still
Speaker 2: doesn't feel fun, because it's.
Speaker 3: A very good point, the amount that we're willing to
Speaker 3: spend on tailor swift tickets or god knows what it is.
Speaker 3: We know all non complains as much about soaring concert
Speaker 3: tickets because they're a bit more fun that is a
Speaker 3: very good way of looking at.
Speaker 1: So we'll end on. Taylor Swift, thank you very much
Speaker 1: for joining us.
Speaker 2: Karen Ward, thank you for having me.
Speaker 1: So thanks for listening to this week's Vota Nomics from Bloomberg.
Speaker 1: This episode was hosted by me Alecra Stratton, Adrian Wildridge,
Speaker 1: and Stephanie Flanders in Dubai. It was produced by Samasadi
Speaker 1: with help from Sarah Livesey, Chris Martlou and Julia Mann's.
Speaker 1: Editorial direction from Victoria Wakeley. Sound designed by Blake Maples.
Speaker 1: Brendan Francis Newmanham is our executive producer, Sage Bauman, Head
Speaker 1: of Podcasts, and special thanks to our guest Karen Ward.
Speaker 1: Please subscribe, rate, and review wherever you listen to your podcasts.