1 00:00:06,840 --> 00:00:09,639 Speaker 1: Hello, Stephanomics. Here the podcast that brings you the global 2 00:00:09,680 --> 00:00:12,560 Speaker 1: economy this week from New York, but with eyes firmly 3 00:00:12,600 --> 00:00:15,840 Speaker 1: trained on Beijing, as the Chinese Communist Party sets the 4 00:00:15,840 --> 00:00:18,560 Speaker 1: country's course for the next five years and the rest 5 00:00:18,560 --> 00:00:20,640 Speaker 1: of the world tries to work out what on earth's 6 00:00:20,640 --> 00:00:24,120 Speaker 1: going on. We're heading for a new Cold War between 7 00:00:24,200 --> 00:00:27,240 Speaker 1: China and the US if we're not there already. That's 8 00:00:27,240 --> 00:00:29,880 Speaker 1: the line you hear more and more often. It's the 9 00:00:30,000 --> 00:00:33,760 Speaker 1: U S slaps controls on semiconductor exports to China and 10 00:00:33,880 --> 00:00:38,519 Speaker 1: China ramps up its rhetoric on Taiwan. So far, Europe 11 00:00:38,520 --> 00:00:41,320 Speaker 1: has tried to stay above the fray, but there's a 12 00:00:41,360 --> 00:00:45,360 Speaker 1: creeping worry that Europe's leaders might be misjudging President shi 13 00:00:45,479 --> 00:00:50,440 Speaker 1: Jing Bing, just as they misjudged Vladimir Putin. Europe's not 14 00:00:50,640 --> 00:00:55,080 Speaker 1: dependent on Chinese gas, it's true, but of its solar 15 00:00:55,120 --> 00:00:57,360 Speaker 1: panel imports come from there, and a lot of other 16 00:00:57,400 --> 00:01:00,000 Speaker 1: things that might turn out to be hard to source elsewhere. 17 00:01:01,080 --> 00:01:03,680 Speaker 1: We have a fascinating report on all of that from 18 00:01:03,720 --> 00:01:07,040 Speaker 1: Carol and Look in Frankfurt and James Mega in Beijing. 19 00:01:07,440 --> 00:01:11,440 Speaker 1: In a little while. We also have a chilling historians 20 00:01:11,520 --> 00:01:15,760 Speaker 1: take on the relationship between war and inflation and the 21 00:01:15,800 --> 00:01:19,760 Speaker 1: true lessons of the nineteen seventies from Professor Neil Ferguson. 22 00:01:20,840 --> 00:01:23,400 Speaker 1: We know one big difference from that other Cold War 23 00:01:23,440 --> 00:01:26,760 Speaker 1: with the Soviet Union, that China's economy is much more 24 00:01:26,840 --> 00:01:30,240 Speaker 1: integrated with the global economy than the Soviet Unions ever was. 25 00:01:30,840 --> 00:01:33,959 Speaker 1: Yet our real time understanding of what's happening at the 26 00:01:34,000 --> 00:01:37,480 Speaker 1: government level is, if anything, worse than it was in 27 00:01:37,600 --> 00:01:41,200 Speaker 1: Criminologist days, or at least seems to be going in 28 00:01:41,240 --> 00:01:45,480 Speaker 1: that direction. This has been especially evident during the twice 29 00:01:45,480 --> 00:01:48,840 Speaker 1: a decade Communist Party Congress. As we heard last week 30 00:01:48,840 --> 00:01:51,720 Speaker 1: from our reporter on the ground, Callum Murphy. It is 31 00:01:51,840 --> 00:01:55,880 Speaker 1: not an easy gig to cover, but Bloomberg's chief economist 32 00:01:55,920 --> 00:01:58,720 Speaker 1: Tom Morlick has a better handle on what's been happening 33 00:01:58,720 --> 00:02:02,520 Speaker 1: than most, having lived eleven years in Beijing and written 34 00:02:02,560 --> 00:02:06,800 Speaker 1: two books on the Chinese economy. So Tom, thanks for 35 00:02:06,840 --> 00:02:09,560 Speaker 1: being with us again. I guess you should start by 36 00:02:09,680 --> 00:02:12,959 Speaker 1: just reminding us briefly of the significance of this event. 37 00:02:14,320 --> 00:02:18,520 Speaker 1: So the Party Congress takes place once every five years, 38 00:02:18,840 --> 00:02:23,760 Speaker 1: and it brings together all of China's top leaders. Two thousand, 39 00:02:23,960 --> 00:02:27,880 Speaker 1: three hundred delegates, and they do a few important things. 40 00:02:28,440 --> 00:02:32,160 Speaker 1: They look back on the successes and failures, They look 41 00:02:32,200 --> 00:02:34,799 Speaker 1: ahead to the years to come and set the big 42 00:02:34,840 --> 00:02:40,800 Speaker 1: policy directions, and crucially, they make decisions about personnel. Who's 43 00:02:40,840 --> 00:02:43,760 Speaker 1: going to be the General Secretary of the Communist Party 44 00:02:44,080 --> 00:02:47,520 Speaker 1: and so also normally the President of China and the 45 00:02:47,560 --> 00:02:49,720 Speaker 1: head of the military, and who are going to be 46 00:02:49,760 --> 00:02:53,960 Speaker 1: the Standing Committee, the group of seven flanking the General 47 00:02:54,000 --> 00:02:57,359 Speaker 1: Secretary that make all the big decisions. Now we've been 48 00:02:57,400 --> 00:02:59,639 Speaker 1: told that the two big things to look for come 49 00:02:59,760 --> 00:03:02,280 Speaker 1: right at the beginning and at the end. We have 50 00:03:02,400 --> 00:03:05,560 Speaker 1: now had the first the President's speech to the Party 51 00:03:05,560 --> 00:03:09,600 Speaker 1: Faithful on Sunday. Did we learn anything from that? So 52 00:03:10,080 --> 00:03:12,320 Speaker 1: when I first moved to China back in two thousand 53 00:03:12,400 --> 00:03:17,359 Speaker 1: and seven, there was this public safety campaign underway, campaign 54 00:03:17,400 --> 00:03:20,400 Speaker 1: to sort of get rid of accidents and make Chinese 55 00:03:20,400 --> 00:03:24,160 Speaker 1: people safer. And the catchphrase of that campaign was and 56 00:03:24,360 --> 00:03:29,400 Speaker 1: choin d safety first, or perhaps security first. And in 57 00:03:29,480 --> 00:03:34,040 Speaker 1: shijiin Ping's report to the Party Congress, that word and 58 00:03:34,240 --> 00:03:39,240 Speaker 1: choin security took on a new significance. And I think 59 00:03:39,280 --> 00:03:42,200 Speaker 1: what that tells us is that priorities at the top 60 00:03:42,320 --> 00:03:46,880 Speaker 1: levels of China's government have changed. Twenty years ago, the 61 00:03:46,920 --> 00:03:50,680 Speaker 1: biggest word would have been far Jan development, and there 62 00:03:50,680 --> 00:03:55,240 Speaker 1: had been excitement about opening and policy experimentation and collaboration 63 00:03:55,280 --> 00:03:58,440 Speaker 1: with the rest of the world. This time around, the 64 00:03:58,520 --> 00:04:02,400 Speaker 1: most important word is and Chwan security, and what that 65 00:04:02,440 --> 00:04:04,840 Speaker 1: speaks to is a China that sees itself in a 66 00:04:04,880 --> 00:04:10,080 Speaker 1: more hostile world, fighting with the United States, fighting against pandemics, 67 00:04:10,360 --> 00:04:14,080 Speaker 1: trying to secure what it has rather than open up 68 00:04:14,320 --> 00:04:17,279 Speaker 1: and explore your opportunities. As you mentioned at the start, 69 00:04:17,320 --> 00:04:19,720 Speaker 1: we've been encouraged to think about this as a as 70 00:04:19,760 --> 00:04:24,120 Speaker 1: a matter of personnel as well as policy. And at 71 00:04:24,120 --> 00:04:27,400 Speaker 1: some point, probably at the weekend, we are going to 72 00:04:27,480 --> 00:04:30,720 Speaker 1: see who this this new standing committee are the new 73 00:04:30,760 --> 00:04:33,760 Speaker 1: senior people in China, and it seems a pretty fair 74 00:04:33,800 --> 00:04:36,080 Speaker 1: bet that President Shi jing Ping and people close to 75 00:04:36,160 --> 00:04:39,440 Speaker 1: him are going to still be in charge after this congress. 76 00:04:39,720 --> 00:04:43,840 Speaker 1: Now there's been a lot of concern about Si Jingping 77 00:04:44,040 --> 00:04:47,000 Speaker 1: getting a closer and closer hold on on power and 78 00:04:47,360 --> 00:04:49,640 Speaker 1: staying in for so long, But maybe it's because I've 79 00:04:49,640 --> 00:04:54,039 Speaker 1: been a bit focused on the incredible dynamics underway in 80 00:04:54,080 --> 00:04:56,560 Speaker 1: the UK. It sort of feels like to me stability 81 00:04:56,760 --> 00:05:00,280 Speaker 1: in China might be no bad things short term when 82 00:05:00,320 --> 00:05:02,159 Speaker 1: you think about the rest of the world being in 83 00:05:02,240 --> 00:05:09,800 Speaker 1: such flux and seeming rather scary. Soudan Shao Ping is 84 00:05:09,880 --> 00:05:14,279 Speaker 1: remembered as China's great economic reformer Stephanie, but he was 85 00:05:14,360 --> 00:05:19,000 Speaker 1: also a reformer of China's governance system, and in particular 86 00:05:19,320 --> 00:05:24,200 Speaker 1: he introduced the two term limit for top leaders. Jangs 87 00:05:24,200 --> 00:05:27,119 Speaker 1: are men who followed Dong observed the two term limit. 88 00:05:27,600 --> 00:05:31,560 Speaker 1: Hujin Tao, who followed Jang observed the two term limit. 89 00:05:32,320 --> 00:05:37,400 Speaker 1: Shijim Ping very likely is set to breach the two 90 00:05:37,480 --> 00:05:41,040 Speaker 1: term limit and stay as General Secretary for three terms, 91 00:05:41,400 --> 00:05:46,599 Speaker 1: and who knows, perhaps even beyond that. Now. Short term, 92 00:05:46,640 --> 00:05:49,760 Speaker 1: as you mentioned, China's got a bunch of challenges with 93 00:05:49,880 --> 00:05:54,280 Speaker 1: COVID zero, with property, with fracturing ties with the United States, 94 00:05:54,960 --> 00:05:59,000 Speaker 1: maybe a bit of stability isn't a bad thing. Thinking 95 00:05:59,080 --> 00:06:02,680 Speaker 1: longer term, the well, there was a reason why Dong 96 00:06:02,760 --> 00:06:06,440 Speaker 1: Shaoping didn't want leaders to stay in power for too long. 97 00:06:06,920 --> 00:06:11,279 Speaker 1: He vividly remembered the trauma which China went through in 98 00:06:11,360 --> 00:06:14,919 Speaker 1: the late years under Mao Zadong. He didn't want to 99 00:06:14,960 --> 00:06:18,240 Speaker 1: repeat of that. So it was is China immediately going 100 00:06:18,320 --> 00:06:21,719 Speaker 1: to slide into the kind of chaos and dysfunction that 101 00:06:21,839 --> 00:06:26,880 Speaker 1: we saw in Mao's Cultural Revolution. Absolutely not. Could we 102 00:06:27,160 --> 00:06:32,040 Speaker 1: over time see a deterioration in governance standards just because 103 00:06:32,080 --> 00:06:34,279 Speaker 1: the same people have been at the top for too long. 104 00:06:34,760 --> 00:06:36,280 Speaker 1: I think that's something we're going to have to keep 105 00:06:36,279 --> 00:06:40,000 Speaker 1: an eye out for. And I know this is something 106 00:06:40,040 --> 00:06:41,920 Speaker 1: that you've you've focused on. I mean, even though there's 107 00:06:41,960 --> 00:06:45,240 Speaker 1: no changing of the guard at the top lower down, 108 00:06:46,440 --> 00:06:49,480 Speaker 1: has there been a shift of skill set or focus 109 00:06:49,640 --> 00:06:52,080 Speaker 1: on the sort of more junior officials or people in 110 00:06:52,200 --> 00:06:55,680 Speaker 1: key economic jobs that we should worry about. So I 111 00:06:55,680 --> 00:06:59,000 Speaker 1: think it's a really interesting question, Stephanie. If we think 112 00:06:59,040 --> 00:07:03,160 Speaker 1: about history of China's reform, there are these kind of 113 00:07:03,320 --> 00:07:07,880 Speaker 1: characters who played a kind of really important role in 114 00:07:08,400 --> 00:07:11,960 Speaker 1: the opening up of the economy and the modernization of 115 00:07:11,960 --> 00:07:16,480 Speaker 1: the economic policy apparatus. Joe Cha Chwan, the former head 116 00:07:16,680 --> 00:07:19,720 Speaker 1: of the People's Bank of China, springs to mind. He 117 00:07:19,800 --> 00:07:22,880 Speaker 1: played a crucial role in reform of the exchange rate, 118 00:07:23,240 --> 00:07:27,000 Speaker 1: reform of the interest rate, reform of the banking system, 119 00:07:27,000 --> 00:07:30,160 Speaker 1: opening up of the capital account. And he could do 120 00:07:30,200 --> 00:07:33,360 Speaker 1: that because he was enormously smart, Because he had a 121 00:07:33,400 --> 00:07:39,239 Speaker 1: sort of a reform orientation and because he had political muscle. Well, 122 00:07:39,520 --> 00:07:42,160 Speaker 1: Josh Chwan is long gone now and we have some 123 00:07:42,240 --> 00:07:46,200 Speaker 1: of his disciples in charge e Gang the new head 124 00:07:46,440 --> 00:07:50,160 Speaker 1: of the Central Bank, for example. The big question is 125 00:07:50,440 --> 00:07:52,960 Speaker 1: who follows them, Who are going to be the new 126 00:07:53,120 --> 00:07:55,840 Speaker 1: visionary reformers and are they going to have the political 127 00:07:55,920 --> 00:08:00,320 Speaker 1: muscle to get things done. I don't see who's coming 128 00:08:00,360 --> 00:08:04,000 Speaker 1: through in that next generation. And if we have some gray, 129 00:08:04,040 --> 00:08:09,040 Speaker 1: faceless bureaucrats, some Communist Party apparachics moving into some of 130 00:08:09,080 --> 00:08:12,040 Speaker 1: the top jobs at the Central Bank and the Ministry 131 00:08:12,080 --> 00:08:14,840 Speaker 1: of Finance, well I think there's going to be consequences 132 00:08:14,880 --> 00:08:18,280 Speaker 1: of that for China's outlook. It's funny you should say 133 00:08:18,280 --> 00:08:20,400 Speaker 1: that I have a vivid memory. My first experience of 134 00:08:20,480 --> 00:08:23,560 Speaker 1: Beijing was in the middle of a rather different crisis 135 00:08:23,600 --> 00:08:26,640 Speaker 1: than the Asia financial crisis, when I was a bad 136 00:08:26,720 --> 00:08:30,320 Speaker 1: carrier for Larry Summers and at the end of a 137 00:08:30,400 --> 00:08:32,920 Speaker 1: tour of Asia and all these countries that were going 138 00:08:33,000 --> 00:08:36,880 Speaker 1: through various stages of financial meltdown. He had an audience 139 00:08:36,920 --> 00:08:39,880 Speaker 1: that we were all witnessed to with Unji, who later 140 00:08:39,920 --> 00:08:42,960 Speaker 1: became that the premiere but had been the economic supremo 141 00:08:43,040 --> 00:08:47,160 Speaker 1: in the in the nineties, and his description and explanation 142 00:08:47,400 --> 00:08:49,920 Speaker 1: of what had been happening across the region in terms 143 00:08:49,960 --> 00:08:53,199 Speaker 1: of the economic and the financial dynamics was more eloquent 144 00:08:53,400 --> 00:08:57,600 Speaker 1: and incisive than anything I'd heard from any commentator sitting 145 00:08:57,640 --> 00:09:00,480 Speaker 1: in sitting in the US or in the Okay. So 146 00:09:00,520 --> 00:09:02,960 Speaker 1: that was definitely brought home to me that that quality 147 00:09:03,000 --> 00:09:05,120 Speaker 1: at the center at that time. And he was obviously 148 00:09:05,160 --> 00:09:10,200 Speaker 1: another important figure, the giant of Chinese reform, the man 149 00:09:10,320 --> 00:09:13,720 Speaker 1: who took China into the World Trade Organization, the man 150 00:09:13,760 --> 00:09:16,959 Speaker 1: who grasped the large and let go the small on 151 00:09:17,040 --> 00:09:21,000 Speaker 1: the state sector of the economy, building national champions out 152 00:09:21,000 --> 00:09:24,640 Speaker 1: of the biggest state firms, and allowing dynamic private sector 153 00:09:24,679 --> 00:09:28,080 Speaker 1: firms to play a larger role in the economy. He's 154 00:09:28,120 --> 00:09:32,320 Speaker 1: now in his nineties. Where's the next generation? We've got 155 00:09:32,400 --> 00:09:36,800 Speaker 1: used to thinking that smart technocrats were in charge at 156 00:09:36,800 --> 00:09:40,280 Speaker 1: the center of the Chinese strategy, and that they would 157 00:09:40,760 --> 00:09:44,080 Speaker 1: continually managed to pull it off despite the ups and 158 00:09:44,120 --> 00:09:46,960 Speaker 1: downs and the economy. They would defy the skeptics and 159 00:09:47,040 --> 00:09:50,880 Speaker 1: not have the kind of massive bust, the massive bursting 160 00:09:50,920 --> 00:09:53,120 Speaker 1: of the bubble that so many people are predicted, and 161 00:09:53,120 --> 00:09:56,960 Speaker 1: indeed your own recent book talks about how they've managed 162 00:09:57,000 --> 00:10:01,000 Speaker 1: to avoid a real bursting of the bubble. From what 163 00:10:01,080 --> 00:10:04,200 Speaker 1: you're saying, it sounds like maybe longer term, you might 164 00:10:04,240 --> 00:10:07,920 Speaker 1: be less confident of their ability to to dodge all 165 00:10:07,920 --> 00:10:12,160 Speaker 1: the bullets that come their way. So I'm not sure 166 00:10:12,200 --> 00:10:17,000 Speaker 1: we're seeing a deterioration in governance standards right now. People 167 00:10:17,120 --> 00:10:20,199 Speaker 1: look at COVID zero and they say this is a 168 00:10:20,240 --> 00:10:24,960 Speaker 1: policy failure, this is a dysfunction of China's authoritarian system. 169 00:10:25,000 --> 00:10:27,000 Speaker 1: But I think you can equally make the case that 170 00:10:27,080 --> 00:10:29,880 Speaker 1: COVID zero is doing a really good job of saving 171 00:10:30,000 --> 00:10:33,320 Speaker 1: Chinese lives, a much better job perhaps than we've done 172 00:10:33,640 --> 00:10:37,199 Speaker 1: over here in the United States or in Europe. People 173 00:10:37,240 --> 00:10:39,920 Speaker 1: look at the property slump and saying this is the 174 00:10:39,960 --> 00:10:45,480 Speaker 1: consequence of mismanagement, and that's right. China's policymakers did allow 175 00:10:45,600 --> 00:10:51,000 Speaker 1: the property bubble to swell to nearly unmanageable proportions, but 176 00:10:51,120 --> 00:10:55,120 Speaker 1: to their credit, they moved ahead of a crisis and 177 00:10:55,200 --> 00:10:58,280 Speaker 1: put policies in place to try and deflate the bubble 178 00:10:58,559 --> 00:11:01,880 Speaker 1: in a controlled way. Um So I think as Hi Jinping, 179 00:11:02,280 --> 00:11:05,880 Speaker 1: perhaps for a third term, as we wonder about who 180 00:11:05,920 --> 00:11:09,960 Speaker 1: the next generation of top economic technocrats are going to be. 181 00:11:10,840 --> 00:11:13,400 Speaker 1: We're right to be concerned about the possibility of a 182 00:11:13,440 --> 00:11:16,720 Speaker 1: decline in government standards and all that would mean for 183 00:11:16,840 --> 00:11:22,160 Speaker 1: China's capacity to handle some really pretty formidable challenges. But 184 00:11:22,240 --> 00:11:24,840 Speaker 1: I'm not sure we're actually able to say that that 185 00:11:24,920 --> 00:11:28,360 Speaker 1: decline is already underway. And going back to to where 186 00:11:28,400 --> 00:11:31,360 Speaker 1: I began, I mean, even experts like you are doing 187 00:11:31,360 --> 00:11:33,240 Speaker 1: a bit of guess work when it comes to who's 188 00:11:33,280 --> 00:11:35,560 Speaker 1: in charge or who might be in charge down the road, 189 00:11:35,640 --> 00:11:39,440 Speaker 1: what the what the strategy might be in future. Just 190 00:11:39,520 --> 00:11:43,000 Speaker 1: that sheer lack of information and the flow of information 191 00:11:43,960 --> 00:11:47,199 Speaker 1: between China and the rest of the world. I mean, 192 00:11:47,440 --> 00:11:50,120 Speaker 1: long term, does that trouble you as it troubles me? 193 00:11:51,400 --> 00:11:53,800 Speaker 1: It is troubling Stephanie. I mean, I think there's there's 194 00:11:53,800 --> 00:11:56,960 Speaker 1: a kind of a natural barrier there, especially on the 195 00:11:57,080 --> 00:12:01,000 Speaker 1: U S side, simply from the fact that almost everything 196 00:12:01,080 --> 00:12:04,760 Speaker 1: happening in China takes place in Chinese, and there's not 197 00:12:04,800 --> 00:12:07,520 Speaker 1: many people in the US who have the mastery of 198 00:12:07,559 --> 00:12:10,360 Speaker 1: the language to engage with it, either in the writing 199 00:12:10,440 --> 00:12:12,880 Speaker 1: or in the speaking. But I think what we've seen 200 00:12:13,200 --> 00:12:16,080 Speaker 1: in the last few years, first under Donald Trump and 201 00:12:16,080 --> 00:12:20,599 Speaker 1: now continuing under Joe Biden, is a fracturing of ties 202 00:12:20,640 --> 00:12:26,760 Speaker 1: on diplomacy, on business, on finance, even amongst academics. And 203 00:12:26,880 --> 00:12:29,840 Speaker 1: what that means is the sort of the rich interchange 204 00:12:29,880 --> 00:12:35,120 Speaker 1: of ideas and information just isn't there anymore. And if 205 00:12:35,120 --> 00:12:38,560 Speaker 1: you couple that with the kind of the natural secrecy 206 00:12:38,640 --> 00:12:43,040 Speaker 1: of China's single party state and their suspicion of sharing information, 207 00:12:43,440 --> 00:12:45,400 Speaker 1: well I think you've got a bit of an information 208 00:12:45,559 --> 00:12:48,240 Speaker 1: vacuum there. And that's the sort of environment where it's 209 00:12:48,280 --> 00:12:52,680 Speaker 1: really easy for relations to deteriorate further and for mistakes 210 00:12:52,679 --> 00:12:54,600 Speaker 1: to be made. And as has been discussed on this 211 00:12:54,640 --> 00:12:57,439 Speaker 1: program before, and even at the academic level, you now 212 00:12:57,520 --> 00:12:59,360 Speaker 1: have you know one would you and I both talked 213 00:12:59,400 --> 00:13:04,240 Speaker 1: to eminent sinologists, people who are very expert on on 214 00:13:04,440 --> 00:13:07,640 Speaker 1: every nuance of what happens in China or were and 215 00:13:07,720 --> 00:13:09,560 Speaker 1: they have to admit that they have not been for 216 00:13:09,559 --> 00:13:11,520 Speaker 1: several years because of COVID. So of course that has 217 00:13:11,559 --> 00:13:15,160 Speaker 1: also presented quite a big barrier. Tom Warnick, thank you 218 00:13:15,200 --> 00:13:24,160 Speaker 1: so much. As I mentioned at the start, the EU 219 00:13:24,280 --> 00:13:27,160 Speaker 1: has not yet had the kind of fracturing in its 220 00:13:27,160 --> 00:13:30,679 Speaker 1: relations with China that we've been talking about with reference 221 00:13:30,679 --> 00:13:33,480 Speaker 1: to the US, but many would say it's just a 222 00:13:33,520 --> 00:13:36,720 Speaker 1: matter of time and that the continents leaders are not 223 00:13:36,800 --> 00:13:41,360 Speaker 1: doing nearly enough to prepare our China. Economy editor in Beijing, 224 00:13:41,440 --> 00:13:45,839 Speaker 1: James Mega and Eurozone economy reporter carrodin look in Frankfurt 225 00:13:46,200 --> 00:13:49,280 Speaker 1: have been taking a closer look at Europe's approach to China, 226 00:13:49,880 --> 00:13:54,400 Speaker 1: and here's their report, voiced by Carolyn the Globe Alyson 227 00:13:54,800 --> 00:14:01,400 Speaker 1: En folks had fatiding on decap links default and though 228 00:14:03,040 --> 00:14:07,040 Speaker 1: Germany's Chancellor you just heard is making plans for his 229 00:14:07,120 --> 00:14:09,960 Speaker 1: first trip to China as German leader in early November, 230 00:14:10,000 --> 00:14:16,960 Speaker 1: according to reports by Bloomberg News, it comes at a 231 00:14:17,040 --> 00:14:19,840 Speaker 1: sort of awkward time, with his country on the verge 232 00:14:19,840 --> 00:14:23,440 Speaker 1: of a recession that, in the worst case, risks replicating 233 00:14:23,480 --> 00:14:27,040 Speaker 1: the scale of the Great Financial Crisis, in large part 234 00:14:27,080 --> 00:14:33,040 Speaker 1: things to Germany's outsized reliance on Russian gas. In the recording, 235 00:14:33,320 --> 00:14:35,480 Speaker 1: which is from a conference he spoke out last week 236 00:14:35,520 --> 00:14:39,720 Speaker 1: in Berlin, Shouts defends globalization despite the havoc that was 237 00:14:39,800 --> 00:14:44,200 Speaker 1: caused by his country's economic interlinkages with Russia, arguing that 238 00:14:44,320 --> 00:14:48,360 Speaker 1: so called decoupling is the wrong answer. Germany shouldn't break 239 00:14:48,360 --> 00:14:51,840 Speaker 1: off ties with other countries, he says, and in particular China, 240 00:14:52,040 --> 00:14:55,000 Speaker 1: Germany's top trade partner, is a country it should keep 241 00:14:55,000 --> 00:15:04,000 Speaker 1: doing business with. From dinding London shift ein Germany and 242 00:15:04,000 --> 00:15:07,480 Speaker 1: the wider continents, difficulties of dealing with the energy crisis 243 00:15:07,520 --> 00:15:10,760 Speaker 1: sparked by Russia's war have drawn its relationship with China 244 00:15:10,840 --> 00:15:15,160 Speaker 1: into sharp focus. While former US President Donald Trump started 245 00:15:15,200 --> 00:15:17,960 Speaker 1: a trade war with China in an attempt to rebalance it, 246 00:15:18,440 --> 00:15:22,000 Speaker 1: European nations have seen much more sanguine even as their 247 00:15:22,040 --> 00:15:25,400 Speaker 1: own trade deficit with China has soared, growing by over 248 00:15:25,440 --> 00:15:29,560 Speaker 1: a third last year to two hundred forty nine billion euros. Well, 249 00:15:29,600 --> 00:15:32,280 Speaker 1: I mean over the last years, of course, trade relations 250 00:15:32,320 --> 00:15:36,280 Speaker 1: were very, very deep and very extensive, but at the 251 00:15:36,320 --> 00:15:39,120 Speaker 1: same time it was a bit lopsided if you just 252 00:15:39,160 --> 00:15:42,480 Speaker 1: look at the That's York Vodka, president of the EU 253 00:15:42,640 --> 00:15:46,320 Speaker 1: Chamber of Commerce in China and also the Chinese representative 254 00:15:46,400 --> 00:15:49,800 Speaker 1: of German chemical maker B A. S F. He makes 255 00:15:49,840 --> 00:15:52,680 Speaker 1: the point that the actual market for Europeans and China 256 00:15:52,760 --> 00:15:56,640 Speaker 1: is very small. Overall, the EU exports only a little 257 00:15:56,680 --> 00:15:59,160 Speaker 1: more to China each year than it does to Switzerland, 258 00:15:59,440 --> 00:16:02,280 Speaker 1: and about off of what they sent to the US 259 00:16:02,320 --> 00:16:05,000 Speaker 1: just to container movement China to Europe in the first 260 00:16:05,040 --> 00:16:09,400 Speaker 1: half was three point five million fort containers, whereas Europe 261 00:16:09,440 --> 00:16:15,560 Speaker 1: was selling into China containers. So that's the ratio of 262 00:16:15,640 --> 00:16:18,640 Speaker 1: three point five to one. But for Germany and the 263 00:16:18,640 --> 00:16:20,960 Speaker 1: rest of Europe, the question of what to do with 264 00:16:21,040 --> 00:16:24,640 Speaker 1: China relations doesn't exactly feel like a priority compared with 265 00:16:24,720 --> 00:16:28,360 Speaker 1: other priorities like the war in Ukraine and keeping European 266 00:16:28,480 --> 00:16:33,000 Speaker 1: homes heated throughout the winter. Here's Jacob Gunter, an analyst 267 00:16:33,000 --> 00:16:36,800 Speaker 1: at China Focused Marks think tank in Berlin. There's definitely 268 00:16:36,840 --> 00:16:40,600 Speaker 1: a rethink happening um in terms of the used relationship 269 00:16:40,640 --> 00:16:44,120 Speaker 1: with China, but it's it's happening at a much slower 270 00:16:44,240 --> 00:16:47,720 Speaker 1: rate than I think a lot of people might have anticipated. 271 00:16:47,800 --> 00:16:49,280 Speaker 1: And I think most of that is driven by the 272 00:16:49,320 --> 00:16:52,240 Speaker 1: fact that you know, you have a today problem, you 273 00:16:52,280 --> 00:16:55,720 Speaker 1: know on your border, whereas China is a you know, 274 00:16:55,880 --> 00:16:58,840 Speaker 1: next week problem or next month or next year problem 275 00:16:59,000 --> 00:17:02,160 Speaker 1: clear on the other side of But others such as 276 00:17:02,160 --> 00:17:05,240 Speaker 1: that you used. Top diplomat Joseph Barrel do not think 277 00:17:05,280 --> 00:17:07,639 Speaker 1: Europe can afford to keep this on the back burner. 278 00:17:08,400 --> 00:17:10,840 Speaker 1: He recently called for Europe to wake up to the 279 00:17:10,880 --> 00:17:13,720 Speaker 1: reality that the world it once knew, where it could 280 00:17:13,760 --> 00:17:16,399 Speaker 1: rely on the US for security and on Russia and 281 00:17:16,480 --> 00:17:19,560 Speaker 1: China for prosperity, is no longer there. I think that 282 00:17:19,680 --> 00:17:22,320 Speaker 1: due to be in were faking a situation in which 283 00:17:24,080 --> 00:17:27,120 Speaker 1: you suffered the gun sequences of a process that has 284 00:17:27,200 --> 00:17:30,520 Speaker 1: been last thing for years, in which we have the 285 00:17:30,640 --> 00:17:36,560 Speaker 1: couple the sources of our prosperity from the sources of 286 00:17:36,680 --> 00:17:41,320 Speaker 1: our security. Increasingly, Europe's trade with China is not just 287 00:17:41,440 --> 00:17:46,480 Speaker 1: lopsided but unstable. Last year, the country blocked Lithuanian exports 288 00:17:46,480 --> 00:17:49,760 Speaker 1: because of a dispute over Taiwan and the Torpedoed and 289 00:17:49,880 --> 00:17:54,280 Speaker 1: Investment Treaty by sanctioning European officials after Europe sanctioned Chinese 290 00:17:54,280 --> 00:18:02,359 Speaker 1: officials over allegations of human rights abuses in Sinjian. The 291 00:18:02,480 --> 00:18:05,520 Speaker 1: question lurking in the background is whether Europe has missed 292 00:18:05,560 --> 00:18:08,600 Speaker 1: judged China and siege in Ping the same way it 293 00:18:08,600 --> 00:18:13,040 Speaker 1: has missed judge Putin. What could happen with Taiwan? What 294 00:18:13,119 --> 00:18:15,520 Speaker 1: would a war in the straight mean for business with 295 00:18:15,600 --> 00:18:19,520 Speaker 1: investments on both sides, or investments in Japan, Korea or 296 00:18:19,560 --> 00:18:22,280 Speaker 1: elsewhere in the region, who would inevitably be dragged into 297 00:18:22,320 --> 00:18:25,720 Speaker 1: a conflict. How painful would it be to cut off 298 00:18:25,760 --> 00:18:29,080 Speaker 1: the supply chains from China or East Asia as quickly 299 00:18:29,119 --> 00:18:32,880 Speaker 1: as European firms pulled out of Russia. Is it even possible? 300 00:18:35,960 --> 00:18:39,120 Speaker 1: The evidence so far is that European companies aren't being 301 00:18:39,200 --> 00:18:43,280 Speaker 1: deterred too much by these questions. Definitely, the market is 302 00:18:43,320 --> 00:18:46,639 Speaker 1: so vacan and the technologies are wanted. They have to 303 00:18:46,680 --> 00:18:51,200 Speaker 1: be here. In chemicals, China stands for of global markets, 304 00:18:51,200 --> 00:18:52,800 Speaker 1: so if you're not at the table, you're going to 305 00:18:52,840 --> 00:18:57,480 Speaker 1: be on the menu. That was vodka from the EU 306 00:18:57,560 --> 00:19:02,240 Speaker 1: Chamber of Commerce. Again, foreign investment has continued to rise 307 00:19:02,240 --> 00:19:06,240 Speaker 1: in two thousand twenty two. Those has grown increasingly concentrated 308 00:19:06,280 --> 00:19:10,119 Speaker 1: among big, mostly German players. According to data by research 309 00:19:10,200 --> 00:19:14,560 Speaker 1: from Rhodium Group, for any foreign business active in China, 310 00:19:15,080 --> 00:19:17,800 Speaker 1: two and a half years of COVID zero policies have 311 00:19:17,920 --> 00:19:21,480 Speaker 1: taken their toll on their bottom line. Profits at foreign 312 00:19:21,480 --> 00:19:24,159 Speaker 1: industrial firms in China were down twelve percent in the 313 00:19:24,200 --> 00:19:27,080 Speaker 1: first nine months of the year, and foreign firms from 314 00:19:27,080 --> 00:19:29,960 Speaker 1: the US and other places that are in China are 315 00:19:30,000 --> 00:19:34,280 Speaker 1: talking more and more about cutting or slowing investments but 316 00:19:34,359 --> 00:19:38,040 Speaker 1: according to Agatha Kratz, a director at Rhodium Group, very 317 00:19:38,080 --> 00:19:40,879 Speaker 1: little of that reluctance to invest is related to the 318 00:19:40,920 --> 00:19:43,640 Speaker 1: experience in Russia. But at the end of the day, 319 00:19:43,640 --> 00:19:47,000 Speaker 1: we see very few companies that publicly come out and 320 00:19:47,040 --> 00:19:52,240 Speaker 1: say I am uncomfortable investing in China and comfortable engaging 321 00:19:52,240 --> 00:19:55,919 Speaker 1: with China given the nature of the regime um boast 322 00:19:55,960 --> 00:20:00,400 Speaker 1: in terms of just it being a one month rule 323 00:20:00,640 --> 00:20:06,040 Speaker 1: and second it being human rights abusing the country. So 324 00:20:06,920 --> 00:20:10,720 Speaker 1: we're not seeing the way that companies when the war 325 00:20:10,800 --> 00:20:14,320 Speaker 1: with Russia, well between Russia and Ukraine broke out, the 326 00:20:14,320 --> 00:20:17,080 Speaker 1: way that companies said I'm pulling out, I can't be 327 00:20:17,160 --> 00:20:21,480 Speaker 1: sustaining activity dairy Fressia is going to attack Ukraine. And 328 00:20:21,760 --> 00:20:25,600 Speaker 1: we're not seeing companies speak as clearly and openly about 329 00:20:25,600 --> 00:20:29,560 Speaker 1: the fact that they could just very well also be 330 00:20:29,640 --> 00:20:32,800 Speaker 1: uncomfortable with the regime that has a lot of similarities 331 00:20:32,800 --> 00:20:37,680 Speaker 1: of course in terms of its political management. Still, Cratz 332 00:20:37,680 --> 00:20:41,480 Speaker 1: says that Europe's main vulnerability base of each China isn't 333 00:20:41,520 --> 00:20:45,760 Speaker 1: the capital they've invested there. European companies, which are mainly 334 00:20:45,800 --> 00:20:49,200 Speaker 1: German firms, have invested less in China over the last 335 00:20:49,200 --> 00:20:51,119 Speaker 1: twenty years than they do in the US and a 336 00:20:51,200 --> 00:20:55,520 Speaker 1: single year. I think that if tomorrow Germany had to 337 00:20:55,840 --> 00:20:57,960 Speaker 1: just cut all of its ties to China in terms 338 00:20:58,000 --> 00:21:02,720 Speaker 1: of outbound investment, in terms of the four companies basis 339 00:21:03,040 --> 00:21:05,680 Speaker 1: and the three car makers that are in China for 340 00:21:05,880 --> 00:21:08,639 Speaker 1: China at the moment um, I think this would be 341 00:21:08,680 --> 00:21:13,960 Speaker 1: a very manageable blue to the German economy would be 342 00:21:13,960 --> 00:21:16,480 Speaker 1: a blue. It would because it would be problematic. There's 343 00:21:16,480 --> 00:21:19,879 Speaker 1: a lot of profit profits that wouldn't come Back's potentially 344 00:21:19,960 --> 00:21:23,639 Speaker 1: much more dangerous as Europe's reliance on imports from China 345 00:21:23,760 --> 00:21:27,680 Speaker 1: for specific products such as rare earths and industrial metals. 346 00:21:28,680 --> 00:21:31,600 Speaker 1: Put it another way, when it comes to securing its 347 00:21:31,680 --> 00:21:35,199 Speaker 1: energy supply in a post carbon world, Europe appears to 348 00:21:35,240 --> 00:21:40,040 Speaker 1: have swapped one dependency for another. Of europe solar panel 349 00:21:40,080 --> 00:21:43,520 Speaker 1: imports come from China. The biggest area of concern is 350 00:21:43,560 --> 00:21:46,520 Speaker 1: if something similar to the Russia conflict in Russia you 351 00:21:46,560 --> 00:21:49,840 Speaker 1: go in conflicte. Where to happen is our dependency on 352 00:21:49,960 --> 00:21:54,320 Speaker 1: China and trade and on certain critical goods, critical industries, 353 00:21:54,920 --> 00:21:58,960 Speaker 1: certainly in green technologies, because at the moment if we 354 00:21:59,040 --> 00:22:04,160 Speaker 1: want to have a self sufficient green transition we called 355 00:22:04,720 --> 00:22:10,520 Speaker 1: which is caught in Frankfurt. I'm Caroline Luck for Bloomberg News. 356 00:22:21,440 --> 00:22:23,520 Speaker 1: Now to round off this episode, we have what is 357 00:22:23,560 --> 00:22:26,639 Speaker 1: known in the trade as bonus material. It's part of 358 00:22:26,640 --> 00:22:31,080 Speaker 1: a striking contribution that historian Neil Ferguson made to a 359 00:22:31,119 --> 00:22:33,720 Speaker 1: seminar on central banking, which happened a few days ago 360 00:22:33,760 --> 00:22:37,919 Speaker 1: in Washington. Unusually for Stephanomics, I wasn't involved in the 361 00:22:37,920 --> 00:22:41,680 Speaker 1: event at all, International Banking Seminar hosted by the Group 362 00:22:41,680 --> 00:22:45,159 Speaker 1: of thirty. I was just listening in the audience, but 363 00:22:45,280 --> 00:22:49,120 Speaker 1: I thought the main message of Professor Ferguson's talk deserved 364 00:22:49,119 --> 00:22:51,680 Speaker 1: a wider hearing that I should warn you right now 365 00:22:51,920 --> 00:22:55,960 Speaker 1: it is a little chilling. Well, Tom, and you you 366 00:22:56,040 --> 00:23:02,000 Speaker 1: promised something completely different. May I remind you that Monty Python, 367 00:23:02,080 --> 00:23:06,280 Speaker 1: which made those words famous, aired between nineteen sixty nine, 368 00:23:08,000 --> 00:23:13,040 Speaker 1: four significant dates. I must say I wish Paul Vulca 369 00:23:13,119 --> 00:23:15,720 Speaker 1: were here. I suspect I'm not the only person in 370 00:23:15,720 --> 00:23:19,639 Speaker 1: this room who misses him now more than ever. I 371 00:23:19,680 --> 00:23:22,320 Speaker 1: really hope he would have approved of what I'm going 372 00:23:22,359 --> 00:23:27,040 Speaker 1: to say. During the inter war era, in other words, 373 00:23:27,080 --> 00:23:30,720 Speaker 1: the period between Cold War One and Cold War two, 374 00:23:31,840 --> 00:23:35,359 Speaker 1: many economists and policymakers lost sight of the role of 375 00:23:35,480 --> 00:23:39,840 Speaker 1: war in the global economy because the wars of the 376 00:23:40,040 --> 00:23:45,400 Speaker 1: inter war era were quite small Bosnia, Afghanistan, Iraq, more 377 00:23:45,600 --> 00:23:50,600 Speaker 1: closely resembling colonial policing operations. We forgot that war is 378 00:23:50,760 --> 00:23:56,840 Speaker 1: history's most consistent driver of inflation, debt defaults, even famines. 379 00:23:57,840 --> 00:24:01,120 Speaker 1: And that's because large scale war is similty, neously destructive 380 00:24:01,200 --> 00:24:06,040 Speaker 1: of productive capacity, disruptive of trade, and destabilizing of fiscal 381 00:24:06,080 --> 00:24:10,240 Speaker 1: and monetary policies. If you plot global battle deaths from 382 00:24:10,280 --> 00:24:16,840 Speaker 1: interstate conflict against inflation, you'll see the behind the so 383 00:24:16,880 --> 00:24:21,120 Speaker 1: called Great moderation. There was a period of declining global 384 00:24:21,200 --> 00:24:24,919 Speaker 1: conflict that lasted from the mid seventies actually until the 385 00:24:24,960 --> 00:24:28,679 Speaker 1: outbreak of the War in Ukraine. The coming of peace, 386 00:24:29,359 --> 00:24:34,919 Speaker 1: like monetary policy acted with a lag. The events of 387 00:24:34,960 --> 00:24:38,200 Speaker 1: this year have reminded us what's at stake in cases 388 00:24:38,240 --> 00:24:41,960 Speaker 1: of great power conflict. The War in Ukraine qualifies as 389 00:24:42,000 --> 00:24:45,439 Speaker 1: such a conflict because Russia is still clearly a great 390 00:24:45,600 --> 00:24:48,880 Speaker 1: enough power that it would by now likely have achieved 391 00:24:48,880 --> 00:24:52,320 Speaker 1: its annexations aims had it not been for large scale 392 00:24:52,359 --> 00:24:56,360 Speaker 1: financial and military not to mention technological assistance to Ukraine 393 00:24:56,720 --> 00:24:59,879 Speaker 1: from the United States, the European Union, the United Kingdom 394 00:24:59,920 --> 00:25:04,000 Speaker 1: and other associated states. This is a big war, measured 395 00:25:04,040 --> 00:25:09,480 Speaker 1: by both casualties and costs. Now, economists like to treat, 396 00:25:09,600 --> 00:25:12,520 Speaker 1: or tend to treat wars as exogenous shocks because they 397 00:25:12,640 --> 00:25:15,919 Speaker 1: kind of hard to model. But from the historian standpoint, 398 00:25:16,200 --> 00:25:19,840 Speaker 1: war isn't exogenous. It's the indogenous prime mover of the 399 00:25:19,880 --> 00:25:23,760 Speaker 1: historical process, the father of all things, as Harrod Clytus 400 00:25:23,840 --> 00:25:29,360 Speaker 1: famously said. So two general points are really important to notice. First, 401 00:25:29,720 --> 00:25:32,879 Speaker 1: wars have played a very noticeable role in the history 402 00:25:32,880 --> 00:25:36,720 Speaker 1: of inflation expectations. Thanks to the excellent historical work of 403 00:25:36,760 --> 00:25:39,040 Speaker 1: the Bank of England, we can trace the history of 404 00:25:39,200 --> 00:25:42,520 Speaker 1: UK inflation expectations all the way back to the late 405 00:25:42,600 --> 00:25:48,480 Speaker 1: seventeenth century. The peaks in short run expectation nearly all 406 00:25:48,520 --> 00:25:52,120 Speaker 1: aligned with wars, and generally years when the war wasn't 407 00:25:52,200 --> 00:25:56,920 Speaker 1: going well seen O Nine War Spanish Succession seventeen fifty seven. 408 00:25:56,960 --> 00:26:01,159 Speaker 1: The Seven Years War eight d Napoleonic Wars nineteen seventeen, 409 00:26:01,480 --> 00:26:05,280 Speaker 1: nineteen forty nineteen seventy five is the exception. But you 410 00:26:05,320 --> 00:26:08,159 Speaker 1: could link that to the consequences of the nineteen seventy 411 00:26:08,240 --> 00:26:11,919 Speaker 1: three Arab Israeli War. The second point is that wars 412 00:26:12,200 --> 00:26:16,199 Speaker 1: have often been responsible for discontinuities in the history of 413 00:26:16,280 --> 00:26:20,440 Speaker 1: interest rates. As Paul Schpeltsing has argued work that the 414 00:26:20,480 --> 00:26:23,800 Speaker 1: Bank of England first published, there has been a long 415 00:26:24,040 --> 00:26:28,600 Speaker 1: term downward trend in nominal and real long term rates 416 00:26:29,080 --> 00:26:32,919 Speaker 1: dating back to the period after the Black Death, which was, 417 00:26:32,960 --> 00:26:36,879 Speaker 1: of course almost certainly the biggest pandemic in history. The 418 00:26:37,080 --> 00:26:41,640 Speaker 1: major breaks in that long downward trend were nearly all 419 00:26:41,680 --> 00:26:46,320 Speaker 1: associated with wars, particularly big wars that destroyed capital stock 420 00:26:46,640 --> 00:26:51,640 Speaker 1: and generated monetary financing of debt. Now, an unusual feature 421 00:26:52,000 --> 00:26:54,879 Speaker 1: of the recent past is that in twenty twenty, a 422 00:26:55,000 --> 00:26:59,359 Speaker 1: pandemic had the fiscal and monetary consequences of a world war. 423 00:27:00,040 --> 00:27:04,400 Speaker 1: This was unprecedented. No previous pandemic, including the much more 424 00:27:04,480 --> 00:27:11,280 Speaker 1: devastating nineteen Spanish influenza, had comparable responses from finance ministries 425 00:27:11,320 --> 00:27:15,800 Speaker 1: and central banks. Because most not all, but most countries 426 00:27:15,880 --> 00:27:20,240 Speaker 1: followed the United States in offsetting the supply shock caused 427 00:27:20,240 --> 00:27:25,240 Speaker 1: by lockdowns and spontaneous behavioral changes, with both large scale 428 00:27:25,320 --> 00:27:30,760 Speaker 1: deficit finance transfers and significant monetary expansion like those who 429 00:27:30,840 --> 00:27:34,679 Speaker 1: thought the pandemic would last forever, Those who argued that 430 00:27:34,760 --> 00:27:37,680 Speaker 1: inflation would be transitory, like at the end of World 431 00:27:37,720 --> 00:27:40,760 Speaker 1: War two, turned out to be wrong. It's not just 432 00:27:40,840 --> 00:27:44,600 Speaker 1: about nineteen seventy three. It's also about Vietnam and other 433 00:27:44,640 --> 00:27:49,080 Speaker 1: conflicts of the nineteen seventies. In twenty two, a war 434 00:27:49,280 --> 00:27:52,879 Speaker 1: played an analogous rule to the war of nineteen seventy 435 00:27:53,000 --> 00:27:57,679 Speaker 1: three in pouring kerosene on an inflationary far that was 436 00:27:57,720 --> 00:28:01,639 Speaker 1: already burning. Both food and energy prices were driven up 437 00:28:01,680 --> 00:28:04,120 Speaker 1: by the outbreak of the war and the sanctions imposed 438 00:28:04,119 --> 00:28:08,399 Speaker 1: on Russia by the US and others. It goes without 439 00:28:08,480 --> 00:28:11,680 Speaker 1: saying I think that the return of great power conflict 440 00:28:11,720 --> 00:28:14,600 Speaker 1: has made the life of policy makers difficult, just as 441 00:28:14,640 --> 00:28:18,119 Speaker 1: it did in nineteen seventy three. I recently heard it 442 00:28:18,240 --> 00:28:21,639 Speaker 1: said at are gathering rather like this one that the 443 00:28:21,720 --> 00:28:26,040 Speaker 1: twenties are unlikely to be as inflationary as the nineteen seventies, 444 00:28:26,320 --> 00:28:28,840 Speaker 1: on the ground that labor is less organized and so 445 00:28:28,960 --> 00:28:32,040 Speaker 1: the risk of a wage price spirals lower. But I 446 00:28:32,080 --> 00:28:36,160 Speaker 1: want to draw your attention to ten important differences between 447 00:28:36,160 --> 00:28:41,880 Speaker 1: our contemporary situation and the situation in the nineteen seventies one, 448 00:28:42,480 --> 00:28:47,200 Speaker 1: Monetary growth rates were significantly higher between Q two twenty 449 00:28:47,240 --> 00:28:50,240 Speaker 1: and Q two one than at any point in the 450 00:28:50,280 --> 00:28:54,600 Speaker 1: nineteen seventies, and they remained in double digits even after 451 00:28:54,720 --> 00:28:57,760 Speaker 1: velocity had recovered. That was the policy mistake, in my view. 452 00:28:58,360 --> 00:29:02,680 Speaker 1: To productivity. Growth is lower today, much lower actually in 453 00:29:02,720 --> 00:29:04,880 Speaker 1: all O E C D countries than it was in 454 00:29:04,880 --> 00:29:09,800 Speaker 1: the seventies. Three. Demographic trends are worse today, with significantly 455 00:29:09,880 --> 00:29:14,240 Speaker 1: higher dependency ratios for the Fiscal positions are much worse today, 456 00:29:14,320 --> 00:29:17,760 Speaker 1: with much larger stocks of debt and projected deficits, not 457 00:29:17,880 --> 00:29:22,760 Speaker 1: least in the United States. Five. Financial markets are more 458 00:29:22,840 --> 00:29:28,360 Speaker 1: complex today and therefore more fragile. Lots of schadenfreuder are 459 00:29:28,400 --> 00:29:31,320 Speaker 1: directed at the UK in the last few days. But 460 00:29:31,520 --> 00:29:35,080 Speaker 1: let's be careful and not assume that this really is 461 00:29:35,080 --> 00:29:38,200 Speaker 1: all a consequence of Britain's Monty Python politics. I don't 462 00:29:38,240 --> 00:29:43,240 Speaker 1: think it is. Six. Then we had pollution, now we 463 00:29:43,320 --> 00:29:47,760 Speaker 1: have climate change. Seven are political stability looks a lot 464 00:29:47,840 --> 00:29:51,680 Speaker 1: worse than it seemed even at the time of Watergate. Example, 465 00:29:51,760 --> 00:29:54,280 Speaker 1: in a recent poll, Americans were asked, do you think 466 00:29:54,360 --> 00:29:58,720 Speaker 1: the nation's democracy is in danger of collapse? Sixtent of 467 00:29:58,760 --> 00:30:02,840 Speaker 1: Republicans and the same percentage of Democrats said that they 468 00:30:02,920 --> 00:30:07,440 Speaker 1: did think so. Eight. The current war in Ukraine is 469 00:30:07,520 --> 00:30:10,920 Speaker 1: lasting much longer than the war of nineteen seventy three, 470 00:30:11,120 --> 00:30:17,680 Speaker 1: approaching eight months compared with nineteen days so far. Number nine, 471 00:30:18,120 --> 00:30:21,520 Speaker 1: there's no sign of detant remember deton in the nineteen 472 00:30:21,600 --> 00:30:24,960 Speaker 1: seventies in Cold War two, Quite the opposite in fact, 473 00:30:25,560 --> 00:30:28,000 Speaker 1: So there's a non trivial risk that we could soon 474 00:30:28,080 --> 00:30:31,560 Speaker 1: witness a confrontation between the United States and the People's 475 00:30:31,600 --> 00:30:37,160 Speaker 1: Republic of China over Taiwan. Ten. And Finally, although media 476 00:30:37,200 --> 00:30:41,760 Speaker 1: attention currently focuses on the women's protests sweeping Iranian cities, 477 00:30:41,880 --> 00:30:45,520 Speaker 1: it's worth recalling that these coincide with the failure of 478 00:30:45,520 --> 00:30:49,160 Speaker 1: the attempt to revive the around Nuclear Deal, meaning that 479 00:30:49,200 --> 00:30:51,920 Speaker 1: the Iranian regime will likely speed up its effort to 480 00:30:51,960 --> 00:30:55,480 Speaker 1: acquire a nuclear weapon, increasing the probability of a war 481 00:30:55,600 --> 00:30:58,880 Speaker 1: in that region, because no Israeli government, whoever as Prime minister, 482 00:30:59,160 --> 00:31:03,200 Speaker 1: is going to count a nuclear armed Iran. So in conclusion, 483 00:31:03,520 --> 00:31:08,040 Speaker 1: we may get lucky. We may just rerun the nineteen 484 00:31:08,160 --> 00:31:11,240 Speaker 1: seventies they're judging by recent events in the UK. We 485 00:31:11,320 --> 00:31:13,600 Speaker 1: may do it at a rather higher speed, from the 486 00:31:13,640 --> 00:31:16,200 Speaker 1: Barber Budget to the Winter of Discontent in a matter 487 00:31:16,240 --> 00:31:20,920 Speaker 1: of weeks rather than years. But and this I mean 488 00:31:21,040 --> 00:31:23,240 Speaker 1: very seriously, there is a scenario in which we get 489 00:31:23,280 --> 00:31:26,880 Speaker 1: something closer to the nineteen forties, in which regional great 490 00:31:26,920 --> 00:31:30,800 Speaker 1: park conflicts coalesced into something like World War three, albeit 491 00:31:30,840 --> 00:31:35,640 Speaker 1: with smaller armies, many unarmed weapons systems, unmanned weapons systems, 492 00:31:35,680 --> 00:31:39,680 Speaker 1: and far more powerful and accurate bombs. And we'll look back. 493 00:31:39,760 --> 00:31:43,600 Speaker 1: I suspect on the phrase contitative tightening as an eccentric 494 00:31:43,720 --> 00:31:46,720 Speaker 1: idea that almost no one was able to execute the 495 00:31:46,760 --> 00:31:51,479 Speaker 1: monetary policy equivalent of Monty Python's Ministry of Silly Walks. 496 00:31:51,600 --> 00:32:07,720 Speaker 1: Thank you very much. M M. That's it for Stephonomics. 497 00:32:07,920 --> 00:32:10,720 Speaker 1: Next week a US focus as we look ahead to 498 00:32:10,760 --> 00:32:13,840 Speaker 1: the mid term elections and consider the state of the 499 00:32:13,960 --> 00:32:17,560 Speaker 1: US economy in the meantime. Do please rate the show 500 00:32:17,640 --> 00:32:19,560 Speaker 1: if you like it, and check out the Bloomberg News 501 00:32:19,560 --> 00:32:22,960 Speaker 1: website for more economic news and views on the global economy. 502 00:32:23,160 --> 00:32:26,440 Speaker 1: You should also follow at Economics on Twitter if you 503 00:32:26,480 --> 00:32:30,200 Speaker 1: haven't already. This episode was produced by Summer Sadi Young 504 00:32:30,280 --> 00:32:34,440 Speaker 1: Young and Magnus Henryson. As I mentioned, before Caroline Look 505 00:32:34,560 --> 00:32:38,040 Speaker 1: and James Mega worked on that report about Europe and China, 506 00:32:38,360 --> 00:32:41,680 Speaker 1: and special thanks also to the Group of thirty, Tom 507 00:32:41,680 --> 00:32:46,320 Speaker 1: Marlick and Professor Neil Ferguson. Mike Sasso is the executive 508 00:32:46,320 --> 00:32:47,480 Speaker 1: producer of Stephanomics