1 00:00:11,880 --> 00:00:16,320 Speaker 1: Hello, and welcome to another episode of the Odd Lots podcast. 2 00:00:16,440 --> 00:00:20,880 Speaker 1: I'm Joe wasn't All and I'm Tracy Alloway. So, Tracy, 3 00:00:21,040 --> 00:00:25,520 Speaker 1: both of us are our careers in financial media. It's 4 00:00:25,640 --> 00:00:29,000 Speaker 1: roughly around the same time, alright, Like right, like you 5 00:00:29,040 --> 00:00:33,440 Speaker 1: started pretty much just before the financial crisis. Yeah, that's right. 6 00:00:33,479 --> 00:00:37,839 Speaker 1: In fact, I joined the Financial Times in September of 7 00:00:38,120 --> 00:00:41,080 Speaker 1: two thousand eight, so actually directly in the middle of 8 00:00:41,120 --> 00:00:44,400 Speaker 1: the financial crisis. Well that was, like, that's the same month, yeah, 9 00:00:44,520 --> 00:00:47,879 Speaker 1: that or maybe October two tho eight I started Business Insider, 10 00:00:48,360 --> 00:00:50,760 Speaker 1: and we really I always thought it was like the 11 00:00:50,800 --> 00:00:53,840 Speaker 1: best time in terms of career timing wise, because there 12 00:00:53,880 --> 00:00:57,840 Speaker 1: was just so much to cover in those days. Absolutely, 13 00:00:57,880 --> 00:01:00,880 Speaker 1: and the best part was because everything that was happening 14 00:01:01,080 --> 00:01:03,600 Speaker 1: was so unusual and so new. You were sort of 15 00:01:03,600 --> 00:01:06,000 Speaker 1: on an even footing with people who have been covering 16 00:01:06,000 --> 00:01:08,360 Speaker 1: it for years and years and years. Everyone was trying 17 00:01:08,400 --> 00:01:10,560 Speaker 1: to figure out what was going on at exactly the 18 00:01:10,600 --> 00:01:14,240 Speaker 1: same time. Yeah, I my thoughts exactly. And then I 19 00:01:14,280 --> 00:01:17,520 Speaker 1: think the subsequent years, the last decade or so has 20 00:01:17,560 --> 00:01:21,040 Speaker 1: also been incredibly interesting. I mean, obviously the news has 21 00:01:21,040 --> 00:01:24,160 Speaker 1: slowed down a bit, but I think one of the 22 00:01:24,640 --> 00:01:29,759 Speaker 1: I guess positive aspects of the post crisis era has 23 00:01:29,800 --> 00:01:35,880 Speaker 1: been this major rethinking about all kinds of conventional wisdom, 24 00:01:35,920 --> 00:01:40,120 Speaker 1: all of the standard dogma about economics and which direction 25 00:01:40,200 --> 00:01:43,360 Speaker 1: should policy go and what framework should best be used. 26 00:01:43,760 --> 00:01:48,400 Speaker 1: They're really coming under even still today, pretty intense, uh 27 00:01:48,560 --> 00:01:52,280 Speaker 1: scrutiny and just sort of rethinking of everything. I mean, 28 00:01:52,360 --> 00:01:55,400 Speaker 1: I'm not sure I would call it a positive development 29 00:01:55,480 --> 00:01:58,960 Speaker 1: because all these questions of economic orthodoxy are sort of 30 00:01:59,000 --> 00:02:02,880 Speaker 1: coming up because people think that economic orthodox ey hasn't 31 00:02:02,920 --> 00:02:06,400 Speaker 1: actually worked, and we still have sluggish economic growth, and 32 00:02:06,440 --> 00:02:09,480 Speaker 1: we still have lots of problems in the international financial systems, 33 00:02:09,480 --> 00:02:12,400 Speaker 1: so people are really trying to figure out what has 34 00:02:12,440 --> 00:02:16,280 Speaker 1: gone wrong. But from a financial media perspective, yes, yes, 35 00:02:16,320 --> 00:02:19,760 Speaker 1: it's been very interesting. Yeah, I think that's a good distinction. 36 00:02:19,880 --> 00:02:24,679 Speaker 1: It's not good that the post crisis economies, especially in 37 00:02:24,840 --> 00:02:28,919 Speaker 1: developed in the developed world, have been so mediocre, sluggish, 38 00:02:29,080 --> 00:02:33,600 Speaker 1: mediocre wage growth, etcetera. But from our seats, from our 39 00:02:33,680 --> 00:02:37,160 Speaker 1: vantage points, it's certainly been been a time of sort 40 00:02:37,160 --> 00:02:40,800 Speaker 1: of a great opening up of the possibilities and lots 41 00:02:40,840 --> 00:02:44,280 Speaker 1: of chances to explore different ideas. Yeah, and it's not 42 00:02:44,600 --> 00:02:47,200 Speaker 1: you know, it's an unusual time when you see headlines 43 00:02:47,320 --> 00:02:50,800 Speaker 1: like the failure of central banks, and we see those 44 00:02:51,120 --> 00:02:53,919 Speaker 1: all the time, Right, that's sort of almost a given 45 00:02:54,320 --> 00:02:57,639 Speaker 1: at this point in time, with everyone talking about fiscal stimulus, 46 00:02:57,680 --> 00:03:02,040 Speaker 1: exactly right. So today I'm very excited about our guest 47 00:03:02,120 --> 00:03:06,400 Speaker 1: because he's probably one of the best positioned people to 48 00:03:06,600 --> 00:03:13,280 Speaker 1: talk about the history of economic ideas, rethinking economic dogma, 49 00:03:13,360 --> 00:03:17,560 Speaker 1: anticipating where policy will go, and UH, during a period 50 00:03:17,600 --> 00:03:20,120 Speaker 1: of such a profound change. We're going to be speaking 51 00:03:20,160 --> 00:03:23,960 Speaker 1: to Robert Skidelski. He's a member of the House of Lords, 52 00:03:24,000 --> 00:03:28,480 Speaker 1: but he's mostly known for having been the most famous 53 00:03:28,520 --> 00:03:34,000 Speaker 1: and authoritative biographer of John Maynard Keynes. He's written extensively 54 00:03:34,200 --> 00:03:37,800 Speaker 1: about Canes and his work, and he is the author 55 00:03:38,080 --> 00:03:42,200 Speaker 1: of a fairly new book. It's called Money and Government, 56 00:03:42,600 --> 00:03:46,720 Speaker 1: a Challenge to Mainstream Economics, and it's about this. It's 57 00:03:46,720 --> 00:03:50,000 Speaker 1: about the history of the ideas that led us up 58 00:03:50,000 --> 00:03:54,120 Speaker 1: to the global financial crisis, and it's a discussion of 59 00:03:54,440 --> 00:03:57,560 Speaker 1: where things are going to go next. So sort of 60 00:03:57,600 --> 00:04:01,800 Speaker 1: the perfect guest for this moment. UH, Robert Skidelski, thank 61 00:04:01,840 --> 00:04:04,400 Speaker 1: you very much for joining us, and thank you for 62 00:04:04,480 --> 00:04:09,480 Speaker 1: asking so let's start with our intro. When you look 63 00:04:09,520 --> 00:04:11,640 Speaker 1: at the post crisis era and you see all these 64 00:04:11,640 --> 00:04:15,800 Speaker 1: different debates going on about the new frameworks and new 65 00:04:15,840 --> 00:04:19,920 Speaker 1: ideologies and new approaches, are you heartened by it? I mean, 66 00:04:20,040 --> 00:04:24,320 Speaker 1: I mentioned as a positive. It's not positive that we've 67 00:04:24,360 --> 00:04:27,360 Speaker 1: had such sluggish growth and that the old dogmas have failed. 68 00:04:27,839 --> 00:04:31,840 Speaker 1: But do you feel excited by the possibilities that this 69 00:04:31,960 --> 00:04:37,160 Speaker 1: is created in terms of new directions and economic thinking. Well, 70 00:04:36,800 --> 00:04:40,560 Speaker 1: we're in an interesting transition stage, n Tree. I mean, 71 00:04:40,560 --> 00:04:44,000 Speaker 1: I always recall that that that old adage the old 72 00:04:44,040 --> 00:04:46,800 Speaker 1: world is dying and the new world is powerless to 73 00:04:46,839 --> 00:04:51,080 Speaker 1: be born. I mean the old world of economic policy 74 00:04:51,160 --> 00:04:56,640 Speaker 1: I think suffered some pretty devastating blows both in two 75 00:04:56,640 --> 00:05:02,360 Speaker 1: thousand and eight, and really area of policy to lift 76 00:05:02,800 --> 00:05:07,000 Speaker 1: economy is back to anything like vigorous growth, since that 77 00:05:07,200 --> 00:05:12,840 Speaker 1: is most economy economies. There's a dissatisfaction with the orthodoxy. Um, 78 00:05:13,080 --> 00:05:18,039 Speaker 1: there's political discontent with the orthodoxy, and that is shown 79 00:05:19,040 --> 00:05:22,440 Speaker 1: right through the political systems of the world. But there's 80 00:05:22,520 --> 00:05:28,360 Speaker 1: no agreed consensus on where to go from here everything 81 00:05:28,600 --> 00:05:32,080 Speaker 1: all you know, lots of ideas are being put forward. 82 00:05:32,240 --> 00:05:36,120 Speaker 1: There's a lot of turmoil, then new developments and economics 83 00:05:36,160 --> 00:05:40,880 Speaker 1: which try to address some of the problems. The political theorists, 84 00:05:40,920 --> 00:05:46,000 Speaker 1: social scientists, anthropologists, they're all feeling they've got something to say, 85 00:05:47,120 --> 00:05:52,599 Speaker 1: but there's no no unified doctrine of economics to carry 86 00:05:52,680 --> 00:05:56,040 Speaker 1: us forward. So just to set the scene a little bit, 87 00:05:56,240 --> 00:05:59,440 Speaker 1: what is it do you that you think economists actually 88 00:05:59,480 --> 00:06:03,040 Speaker 1: got wrong about the two financial crisis, because I think 89 00:06:03,080 --> 00:06:06,240 Speaker 1: that will inform some of your thinking about where we 90 00:06:06,320 --> 00:06:09,640 Speaker 1: might go from here. Well, I think the thing they 91 00:06:09,680 --> 00:06:13,000 Speaker 1: got mainly wrong was their their view of financial markets 92 00:06:13,040 --> 00:06:18,400 Speaker 1: as efficient mechanisms for the allocation capital. I think the 93 00:06:18,760 --> 00:06:23,800 Speaker 1: orthodox view was that you know, with with a minimum 94 00:06:23,839 --> 00:06:30,440 Speaker 1: minimum regulation, financial markets would be efficient and therefore you 95 00:06:30,480 --> 00:06:33,920 Speaker 1: couldn't get crises like like the crisis that happened. There 96 00:06:34,000 --> 00:06:39,559 Speaker 1: was also the view that derivative markets and that whole 97 00:06:39,600 --> 00:06:45,039 Speaker 1: process would spread risk so individual institutions would be less 98 00:06:45,120 --> 00:06:49,720 Speaker 1: likely to fail. As I said that that really came 99 00:06:49,760 --> 00:06:54,400 Speaker 1: out of the Chicago's School Eugene Farmer, and the view 100 00:06:54,440 --> 00:06:57,120 Speaker 1: that financial markets are efficient. I mean that was a 101 00:06:57,200 --> 00:07:01,599 Speaker 1: subset of the view that all markets are efficient provided 102 00:07:02,320 --> 00:07:05,920 Speaker 1: governments kept out in other words, of markets, and that 103 00:07:06,080 --> 00:07:11,360 Speaker 1: markets were properly competitive, and you couldn't do better. And 104 00:07:11,400 --> 00:07:16,320 Speaker 1: then one further requirement. Provided that money was controlled, there 105 00:07:16,360 --> 00:07:19,120 Speaker 1: was very little that could go wrong. Of course, there 106 00:07:19,160 --> 00:07:23,920 Speaker 1: could be shocks which were unanticipated and couldn't be anticipated, 107 00:07:23,960 --> 00:07:27,800 Speaker 1: and that's always possible, but leaving the shocks aside, things 108 00:07:27,840 --> 00:07:31,240 Speaker 1: would run pretty smoothly and there would be some sort 109 00:07:31,280 --> 00:07:35,920 Speaker 1: of optimization going on right through the economic system. And 110 00:07:36,120 --> 00:07:40,440 Speaker 1: so I think that was the core mistake. Because markets 111 00:07:40,480 --> 00:07:45,000 Speaker 1: aren't efficient. Um, They're always going to have frictions and 112 00:07:45,280 --> 00:07:49,560 Speaker 1: severe mis dysfunctions, and it's the task of governments to 113 00:07:50,000 --> 00:07:54,520 Speaker 1: correct them. And if governments give up that function, then 114 00:07:55,440 --> 00:07:58,400 Speaker 1: things are quite likely to go wrong. The title of 115 00:07:58,440 --> 00:08:02,760 Speaker 1: your book, Money in Government, is really interesting, and you 116 00:08:02,840 --> 00:08:06,400 Speaker 1: actually very early on in your book you go into 117 00:08:06,480 --> 00:08:11,640 Speaker 1: detail about theories of money, what money is, where money 118 00:08:11,680 --> 00:08:15,520 Speaker 1: came from, Why is this important? Why is the sort 119 00:08:15,560 --> 00:08:17,600 Speaker 1: of I mean, both Tracy and I are interested in this. 120 00:08:17,720 --> 00:08:21,360 Speaker 1: We've had several episodes about questions of the nature of money, 121 00:08:21,400 --> 00:08:24,400 Speaker 1: but you obviously put a very front and center in 122 00:08:24,600 --> 00:08:28,280 Speaker 1: laying out your book this concept of what is money, 123 00:08:28,280 --> 00:08:31,040 Speaker 1: Why was that, Why why did you do that? And 124 00:08:31,120 --> 00:08:35,120 Speaker 1: why what what do economists in your view, get wrong there. Well, 125 00:08:35,280 --> 00:08:37,960 Speaker 1: you see, I think money has a double function and 126 00:08:38,000 --> 00:08:41,839 Speaker 1: always has and that's sort of accepted, but only one 127 00:08:41,880 --> 00:08:44,200 Speaker 1: of the functions has been stressed. I mean, on the 128 00:08:44,200 --> 00:08:46,720 Speaker 1: one hand, money is what you need to buy things. 129 00:08:47,920 --> 00:08:50,200 Speaker 1: If you don't have any money, you know, you can't 130 00:08:50,440 --> 00:08:53,120 Speaker 1: get the things you need. But it also has a 131 00:08:53,160 --> 00:08:57,720 Speaker 1: different function, which is what economists call a store of value, 132 00:08:58,320 --> 00:09:03,560 Speaker 1: that is as a hedge against uncertainty. And when the 133 00:09:03,640 --> 00:09:07,800 Speaker 1: money you earned is being stored, it's not being spent. 134 00:09:08,559 --> 00:09:13,599 Speaker 1: So when uncertainty increases, people spend less, and so businessmen 135 00:09:13,960 --> 00:09:18,400 Speaker 1: sell less, the market shrinks, you get depressions. So I 136 00:09:18,440 --> 00:09:21,600 Speaker 1: think what happens is that once you have a shock, 137 00:09:22,280 --> 00:09:26,040 Speaker 1: or even if people don't think that the future is 138 00:09:26,080 --> 00:09:28,800 Speaker 1: going to be too bright and start in st starting 139 00:09:29,120 --> 00:09:34,440 Speaker 1: in investing and spending in the expectation that tomorrow will 140 00:09:34,520 --> 00:09:38,400 Speaker 1: be better than today. Um, they think tomorrow might well 141 00:09:38,480 --> 00:09:41,760 Speaker 1: be worse than today, and so they start storing what 142 00:09:41,960 --> 00:09:45,680 Speaker 1: wealth they have. And money is is a prime way 143 00:09:45,679 --> 00:09:49,560 Speaker 1: of storing wealth, and so it's always had that function. 144 00:09:50,160 --> 00:09:54,640 Speaker 1: That's why you need to look to money always to 145 00:09:54,840 --> 00:10:01,320 Speaker 1: understand why things go wrong and why here is uncertainty 146 00:10:01,720 --> 00:10:06,840 Speaker 1: are so bad. Um for for economic life, money is 147 00:10:06,880 --> 00:10:10,560 Speaker 1: the key. If you didn't have uncertainty, money would only 148 00:10:10,600 --> 00:10:14,480 Speaker 1: have one function, which is to exchange goods with each other. 149 00:10:15,360 --> 00:10:18,960 Speaker 1: So what you describe there, obviously, and you know I 150 00:10:19,040 --> 00:10:23,760 Speaker 1: mentioned at the beginning that you're, among other things, very 151 00:10:23,760 --> 00:10:27,680 Speaker 1: well known for your biographical work of John Maynard Keynes. 152 00:10:28,480 --> 00:10:30,320 Speaker 1: It shouldn't be a new idea. I mean, what you 153 00:10:30,400 --> 00:10:33,480 Speaker 1: just said there is something that you know, many people 154 00:10:33,800 --> 00:10:37,360 Speaker 1: or that Canes wrote about nearly a hundred years ago. 155 00:10:38,000 --> 00:10:41,560 Speaker 1: But what is it about his writing and what is 156 00:10:41,559 --> 00:10:45,199 Speaker 1: it about that conception of money that even as recently 157 00:10:45,440 --> 00:10:49,559 Speaker 1: as well right now, somehow economists are still missing because 158 00:10:49,800 --> 00:10:54,080 Speaker 1: it sounds pretty intuitive store of value, everyone saves, spending 159 00:10:54,120 --> 00:10:58,760 Speaker 1: goes down. How is this something that economists still aren't 160 00:10:58,880 --> 00:11:04,320 Speaker 1: truly internalizing in their understanding of the world. Well, I 161 00:11:04,360 --> 00:11:07,439 Speaker 1: think you know, you have to dig into the bedrock 162 00:11:07,520 --> 00:11:12,160 Speaker 1: of economic theory. I mean, if you look at a textbook, 163 00:11:12,200 --> 00:11:15,120 Speaker 1: and this is the way I think economics has been 164 00:11:15,160 --> 00:11:18,520 Speaker 1: taught and conceived from very early days. You have a 165 00:11:18,600 --> 00:11:20,800 Speaker 1: theory of what you might call a real economy, in 166 00:11:20,880 --> 00:11:24,240 Speaker 1: which goods have produced and exchange for other goods and 167 00:11:24,320 --> 00:11:28,400 Speaker 1: money isn't there. Money gets introduced as a sort of 168 00:11:28,480 --> 00:11:32,880 Speaker 1: disturbing influence quite late at chapter six or chapter seven, 169 00:11:33,240 --> 00:11:36,960 Speaker 1: and then and and so the all the old courses 170 00:11:37,000 --> 00:11:40,640 Speaker 1: in economics were theories of value and theories of money, 171 00:11:40,920 --> 00:11:43,520 Speaker 1: and the two things are kept separate. And one of 172 00:11:43,600 --> 00:11:46,600 Speaker 1: the things cass did, which was crucially important, he says, 173 00:11:46,640 --> 00:11:48,679 Speaker 1: you've got to bring in money on the ground floor, 174 00:11:48,720 --> 00:11:51,560 Speaker 1: because money has an influence of its own. It's not 175 00:11:51,720 --> 00:11:55,800 Speaker 1: just something that has an influence when other things go wrong. 176 00:11:56,120 --> 00:12:00,480 Speaker 1: Money is always a factor. It's always a possibility. People 177 00:12:00,520 --> 00:12:04,880 Speaker 1: always have a possibility of retreating to money. And the 178 00:12:04,920 --> 00:12:09,920 Speaker 1: world is uncertain. I think Caine's thought of uncertainty is 179 00:12:10,040 --> 00:12:14,880 Speaker 1: much more prevalent than orthodox economists did, and especially economists 180 00:12:14,920 --> 00:12:18,280 Speaker 1: in more recent times, they've always thought of the future 181 00:12:18,280 --> 00:12:21,600 Speaker 1: as being in some sense calculable. You know. You you 182 00:12:21,400 --> 00:12:26,360 Speaker 1: you find that people in economists and even financial journalists, 183 00:12:26,360 --> 00:12:30,400 Speaker 1: they rarely talk about uncertainty. They talk about risk and 184 00:12:30,520 --> 00:12:36,040 Speaker 1: you know, this thing risks this or this policy risks something, 185 00:12:36,480 --> 00:12:39,440 Speaker 1: as though you could calculate it. But in many cases 186 00:12:39,480 --> 00:12:42,360 Speaker 1: you can't calculate what the risk is. You haven't got 187 00:12:42,360 --> 00:12:45,080 Speaker 1: a number for it, and I think one of the 188 00:12:45,120 --> 00:12:49,840 Speaker 1: things Cain said was, well, we pretend we have probabilities 189 00:12:49,920 --> 00:12:54,240 Speaker 1: of of things happening um and and our institutions are 190 00:12:54,240 --> 00:12:57,439 Speaker 1: based on that pretense. But when the belief in those 191 00:12:57,480 --> 00:13:01,840 Speaker 1: probabilities break down, then you know that the whole of 192 00:13:01,920 --> 00:13:07,600 Speaker 1: the whole of people's thinking, then simply they panic because 193 00:13:07,640 --> 00:13:12,600 Speaker 1: they no longer have an anchor. Economics is responsible for 194 00:13:12,920 --> 00:13:19,480 Speaker 1: misleading people about the cultulability of future events. I think 195 00:13:19,480 --> 00:13:23,400 Speaker 1: it's it's a huge it's an absolutely huge weakness in 196 00:13:23,440 --> 00:13:27,480 Speaker 1: the way economics is done because in some situations there 197 00:13:27,559 --> 00:13:32,120 Speaker 1: is no uncertainty, there's all very little uncertainty, but in others, 198 00:13:32,200 --> 00:13:37,120 Speaker 1: in the in terms of the macroeconomic economy, the uncertainty 199 00:13:37,160 --> 00:13:39,840 Speaker 1: is a huge I mean, just look at what people 200 00:13:39,840 --> 00:13:43,040 Speaker 1: are trying. They're they're looking into the entrails of the 201 00:13:43,120 --> 00:13:46,000 Speaker 1: future and trying to work out where China is going 202 00:13:46,040 --> 00:13:49,600 Speaker 1: to go up, the political repercussions of Russia and the Ukrainia, 203 00:13:49,960 --> 00:13:56,400 Speaker 1: will the disturbances in Hong Kong affect people's views of 204 00:13:56,559 --> 00:14:00,320 Speaker 1: growth in East Asia and the stability of China. And 205 00:14:00,360 --> 00:14:02,439 Speaker 1: then in Europe, what's going to be the effect of 206 00:14:02,520 --> 00:14:07,520 Speaker 1: Brexit and will populists gain ground? What about Trump the 207 00:14:07,720 --> 00:14:11,240 Speaker 1: sort of you know, errant or wandering cause in all this, 208 00:14:12,360 --> 00:14:15,320 Speaker 1: and then they still have models in which you have 209 00:14:15,480 --> 00:14:21,200 Speaker 1: rational expectations, in which people know what the probability of 210 00:14:21,240 --> 00:14:24,560 Speaker 1: all these possibilities is. And that seems to be just 211 00:14:24,680 --> 00:14:28,680 Speaker 1: the wrong mindset. And of course it minimizes the role 212 00:14:28,720 --> 00:14:33,520 Speaker 1: of government, because if you agents and markets have enough 213 00:14:34,440 --> 00:14:38,600 Speaker 1: information to act rationally and on the whole win their 214 00:14:38,680 --> 00:14:42,400 Speaker 1: bets on the future, then government doesn't really need to 215 00:14:42,440 --> 00:14:44,840 Speaker 1: play a very big part. It should get out of 216 00:14:44,880 --> 00:14:47,040 Speaker 1: the way as much as possible. It should make sure 217 00:14:47,080 --> 00:14:51,160 Speaker 1: that there's no fraud, no corruption, that markets remain competitive. 218 00:14:51,440 --> 00:14:54,680 Speaker 1: It should do a bit of welfare, have a safety net. 219 00:14:54,920 --> 00:14:58,720 Speaker 1: But beyond that, there's no obvious case made out for 220 00:14:58,800 --> 00:15:03,400 Speaker 1: government to intervene in these benign processes. So, in the 221 00:15:03,400 --> 00:15:07,240 Speaker 1: theory of the real economy, sort of classical economics, goods 222 00:15:07,240 --> 00:15:10,640 Speaker 1: are exchanged for goods, everyone acts rationally, and the market 223 00:15:10,720 --> 00:15:14,520 Speaker 1: comes to an equilibrium without the need for government interference. 224 00:15:15,400 --> 00:15:19,200 Speaker 1: But the Kanes argument or your argument, is that money 225 00:15:19,320 --> 00:15:22,640 Speaker 1: changes that equation because it can act as a store 226 00:15:22,640 --> 00:15:27,120 Speaker 1: of value and basically allow people to store up their 227 00:15:27,200 --> 00:15:31,760 Speaker 1: spending because of uncertainty. So I'm curious if you were 228 00:15:31,880 --> 00:15:36,240 Speaker 1: to factor in the fact that money was impacting the 229 00:15:36,360 --> 00:15:43,240 Speaker 1: economy itself, how different would developed market economies actually look 230 00:15:44,000 --> 00:15:48,800 Speaker 1: and what role would the government have in such an economy. Yeah, 231 00:15:48,880 --> 00:15:52,960 Speaker 1: that's just that the one thing you mentioned attains in 232 00:15:53,040 --> 00:15:56,480 Speaker 1: his view of equilibrium. You can think of what's happened. 233 00:15:57,200 --> 00:16:01,520 Speaker 1: What happens when when people stopped to be more uncertain 234 00:16:01,560 --> 00:16:05,840 Speaker 1: about things, is that they increase their precautionary saving. That's 235 00:16:06,080 --> 00:16:08,600 Speaker 1: why you don't get a bounce back to a position 236 00:16:08,640 --> 00:16:12,160 Speaker 1: of optimal equilibrium. What happens is that you do get 237 00:16:12,160 --> 00:16:15,440 Speaker 1: an equilibrium, but it's an inferory equilibrium. And I think 238 00:16:15,480 --> 00:16:19,920 Speaker 1: Kane's introduced to two economics, the notion of multiple equilibriate 239 00:16:20,440 --> 00:16:24,000 Speaker 1: and you can easily get stuck in an inferior equilibrium. 240 00:16:24,200 --> 00:16:28,640 Speaker 1: And I think roughly speaking, we have been um over 241 00:16:28,760 --> 00:16:32,080 Speaker 1: much of the world since two thousand and eight, and 242 00:16:32,120 --> 00:16:35,960 Speaker 1: there's no obvious way back to an optimal equilibrium. And 243 00:16:36,000 --> 00:16:39,280 Speaker 1: that's why I think he would argue governments have two functions. 244 00:16:39,600 --> 00:16:42,600 Speaker 1: One is to prevent the collapses in the in the 245 00:16:42,680 --> 00:16:48,120 Speaker 1: first instance UM, and the second is to use macroeconomic 246 00:16:48,200 --> 00:16:55,000 Speaker 1: policy um very vigorously to offset the increase in precautionary saving. 247 00:16:55,840 --> 00:16:58,920 Speaker 1: I in other words, the government governments have to desave 248 00:16:59,280 --> 00:17:03,360 Speaker 1: and under the situations, and and of course monetary policy 249 00:17:03,440 --> 00:17:06,600 Speaker 1: also comes into the picture. What I would say is 250 00:17:06,640 --> 00:17:10,639 Speaker 1: that Kyne's thought that fiscal policy was more powerful both 251 00:17:10,760 --> 00:17:15,040 Speaker 1: in prevention and in cure the monetary policy. Going to 252 00:17:15,160 --> 00:17:18,439 Speaker 1: this sort of pre crisis period, a lot of the 253 00:17:18,600 --> 00:17:22,840 Speaker 1: sort of dominant economic ideology, a lot of them it 254 00:17:22,880 --> 00:17:25,320 Speaker 1: would have been. I think the term that people uses 255 00:17:25,800 --> 00:17:29,280 Speaker 1: New Caynsian and New Caynesian School of economics or New 256 00:17:29,359 --> 00:17:34,040 Speaker 1: Caynsian models, and my impression of it is that I 257 00:17:34,080 --> 00:17:37,400 Speaker 1: think it's a it's an attempt to extract some insights 258 00:17:37,440 --> 00:17:41,560 Speaker 1: from Canes, such as perhaps the need for fiscal stimulus 259 00:17:41,560 --> 00:17:45,920 Speaker 1: from time to time, but to ultimately shoehorned back into 260 00:17:46,000 --> 00:17:50,119 Speaker 1: the classical school of economic thinking, in which everything is 261 00:17:50,280 --> 00:17:55,000 Speaker 1: calculable and everything sort of restores itself to equilibrium in 262 00:17:55,040 --> 00:17:58,639 Speaker 1: the ideal state. What do this sort of New Caynesian 263 00:17:58,720 --> 00:18:04,760 Speaker 1: school anomists misunderstand about the economist from whom they draw 264 00:18:04,800 --> 00:18:08,159 Speaker 1: their name. Well, you see, it's a good question that 265 00:18:08,359 --> 00:18:12,480 Speaker 1: I think they bought the rational expectations model, but they 266 00:18:12,520 --> 00:18:16,600 Speaker 1: added frictions of one kind or another. And with frictions 267 00:18:16,640 --> 00:18:20,520 Speaker 1: you get some policy space because things don't sort of 268 00:18:20,640 --> 00:18:25,320 Speaker 1: just optimally very quickly. If they don't adjust quickly, then 269 00:18:25,359 --> 00:18:28,840 Speaker 1: they may adjust to a different equilibrium, so to speak. 270 00:18:29,320 --> 00:18:35,200 Speaker 1: In the end, sure the economies will resume their equilibrium 271 00:18:35,359 --> 00:18:39,199 Speaker 1: of growth path, but a lot of damage can be 272 00:18:39,280 --> 00:18:42,480 Speaker 1: done in the interval, and it's not clear that you'll 273 00:18:42,520 --> 00:18:46,440 Speaker 1: really resume at the place you want to, and and 274 00:18:46,520 --> 00:18:51,879 Speaker 1: so that creates a policy space. So I think Mucinsians would, 275 00:18:52,400 --> 00:18:56,320 Speaker 1: let's say, in working out their fiscal rules and monetary rules, 276 00:18:56,400 --> 00:19:00,080 Speaker 1: they would they would always allow for some central bank 277 00:19:00,160 --> 00:19:05,679 Speaker 1: and and physical intervention, especially central bank intervention to steady 278 00:19:05,840 --> 00:19:09,480 Speaker 1: the cycle, and and and so you know, I think 279 00:19:09,520 --> 00:19:13,479 Speaker 1: that's what happened. That's what orthodox central banking policy was about. 280 00:19:14,160 --> 00:19:19,240 Speaker 1: It allowed space for smoothing, cyclical smoothing. Would you, I 281 00:19:19,280 --> 00:19:24,199 Speaker 1: feel very purist rational expectations person, you don't need But 282 00:19:24,320 --> 00:19:28,240 Speaker 1: that was because of sluggishness of response. I don't think 283 00:19:28,280 --> 00:19:31,280 Speaker 1: they should have called themselves Kansian. I mean, I don't 284 00:19:31,320 --> 00:19:34,240 Speaker 1: think that had anything to do with these actually, but 285 00:19:35,080 --> 00:19:39,199 Speaker 1: they want to distinguish themselves from the hard line Chicago school, 286 00:19:39,840 --> 00:19:42,840 Speaker 1: so they created a bit of extra policy space, but 287 00:19:42,960 --> 00:19:46,560 Speaker 1: it proved much too weak, both to stop prevent the 288 00:19:46,640 --> 00:20:06,400 Speaker 1: crash of two thousand and eight or to bring about recovery. 289 00:20:08,119 --> 00:20:11,000 Speaker 1: So Joe and I alluded to this in our intro. 290 00:20:11,359 --> 00:20:16,040 Speaker 1: But nowadays, you know, it's fairly normal to see on 291 00:20:16,080 --> 00:20:20,280 Speaker 1: a daily basis headlines such as, you know, the failure 292 00:20:20,320 --> 00:20:25,000 Speaker 1: of central banks or um central banks face quantitative failure. 293 00:20:25,240 --> 00:20:27,639 Speaker 1: The shock and awe era for central banks is over, 294 00:20:28,040 --> 00:20:31,040 Speaker 1: and it does feel like there is more focus on 295 00:20:31,240 --> 00:20:36,680 Speaker 1: fiscal stimulus, not least in Europe. Does it feel like 296 00:20:36,800 --> 00:20:40,080 Speaker 1: we're moving in the right direction to you in the 297 00:20:40,119 --> 00:20:42,560 Speaker 1: sense that we are moving to a more active role 298 00:20:42,600 --> 00:20:45,679 Speaker 1: for governments or do you feel that we're doing this 299 00:20:45,920 --> 00:20:51,160 Speaker 1: without a cohesive economic theory actually behind that move? Yeah, well, 300 00:20:51,160 --> 00:20:53,600 Speaker 1: I feel the second of it. We're doing it blindly. 301 00:20:53,960 --> 00:20:57,320 Speaker 1: It was always it was always a delusion to believe 302 00:20:57,400 --> 00:21:00,359 Speaker 1: that central banks could take the place of God months 303 00:21:00,720 --> 00:21:03,640 Speaker 1: in the management of the matter economy, and there many 304 00:21:03,680 --> 00:21:07,360 Speaker 1: reasons why they couldn't, but one of the obvious ones, 305 00:21:07,400 --> 00:21:11,440 Speaker 1: as they lacked the legitimacy to do so, macro policy 306 00:21:11,480 --> 00:21:16,440 Speaker 1: is a responsibility of government. It can't be outsourced because 307 00:21:16,520 --> 00:21:22,040 Speaker 1: monetary interventions by central bankers have political and social consequences. 308 00:21:22,480 --> 00:21:26,600 Speaker 1: People have talked about those, the fact that quantitative easing 309 00:21:26,640 --> 00:21:28,840 Speaker 1: and buying of assets, I mean the people who have 310 00:21:28,920 --> 00:21:31,840 Speaker 1: been selling the assets that people have had the assets, 311 00:21:31,960 --> 00:21:35,280 Speaker 1: and so in a way, you know, it's increased inequality. 312 00:21:35,800 --> 00:21:38,960 Speaker 1: And now that's a political consequence of a policy for 313 00:21:39,040 --> 00:21:42,160 Speaker 1: which someone ought to be held accountable. But the central 314 00:21:42,160 --> 00:21:45,760 Speaker 1: banks aren't held accountable because they're they're said to be neutral, 315 00:21:45,840 --> 00:21:49,000 Speaker 1: politically neutral, but that was always a mistake. They may 316 00:21:49,040 --> 00:21:53,720 Speaker 1: be individually central bankers may individually be politically politically neutral, 317 00:21:54,119 --> 00:21:57,840 Speaker 1: but their policies do have political consequences, and so that's 318 00:21:57,920 --> 00:22:02,520 Speaker 1: one reason why central bank role has to be diminished 319 00:22:02,520 --> 00:22:05,640 Speaker 1: in the macro economy. What they should do, and what 320 00:22:05,720 --> 00:22:09,600 Speaker 1: they are set up to do, is to regulate the 321 00:22:10,320 --> 00:22:13,960 Speaker 1: financial system, regulate the affairs of their member member banks, 322 00:22:14,640 --> 00:22:18,240 Speaker 1: and that is a key role which they rather neglected 323 00:22:18,560 --> 00:22:23,000 Speaker 1: before the crash because they thought that the financialism didn't 324 00:22:23,000 --> 00:22:27,480 Speaker 1: need much regulation. So I think you have to rethink 325 00:22:27,560 --> 00:22:30,680 Speaker 1: the role of central banks. But what we haven't done 326 00:22:31,000 --> 00:22:35,520 Speaker 1: is to really properly we think the role of fiscal policy. 327 00:22:35,520 --> 00:22:39,959 Speaker 1: We're drifting back into into into fiscal policy in words 328 00:22:40,000 --> 00:22:44,639 Speaker 1: like stimulus and things and words like that are being used. 329 00:22:44,920 --> 00:22:48,520 Speaker 1: But when when to stimulate by, what means to stimulate? 330 00:22:48,840 --> 00:22:53,760 Speaker 1: What rules fiscal policy should be subject to, Because we 331 00:22:53,840 --> 00:22:58,399 Speaker 1: need rules, because rules are something that that improves certainty, 332 00:22:58,520 --> 00:23:03,240 Speaker 1: that reduces uncertainty. So we need all those things. But 333 00:23:03,359 --> 00:23:07,960 Speaker 1: we've forgotten, we've forgotten what physical policy is, and so 334 00:23:08,119 --> 00:23:12,199 Speaker 1: that's where we have to think pretty hard. Yeah, I 335 00:23:12,320 --> 00:23:14,840 Speaker 1: wanted to connect this to what you were saying. You 336 00:23:14,920 --> 00:23:18,080 Speaker 1: sort of anticipated my question when you said rules designed 337 00:23:18,119 --> 00:23:23,080 Speaker 1: to prevent or reduce uncertainty. And again, and maybe it 338 00:23:23,119 --> 00:23:25,520 Speaker 1: goes back to this sort of new Candian way of thinking. 339 00:23:26,280 --> 00:23:30,800 Speaker 1: We talk about fiscal stimulus as though, okay, we can 340 00:23:31,359 --> 00:23:35,200 Speaker 1: pretend to identify some output gap and if we spend 341 00:23:35,200 --> 00:23:37,600 Speaker 1: this amount of money and then it multiplies the net 342 00:23:37,800 --> 00:23:40,480 Speaker 1: or turn us to full potential, as if that's a 343 00:23:40,600 --> 00:23:45,080 Speaker 1: noble number, and then we get the economy back on course. 344 00:23:45,760 --> 00:23:48,600 Speaker 1: It sounds like what you're saying, and it sounds like 345 00:23:48,680 --> 00:23:51,119 Speaker 1: in terms of this sort of Canzian idea of the 346 00:23:51,240 --> 00:23:56,560 Speaker 1: sort of incalculable uncertainties. That it's not about replacing a 347 00:23:56,600 --> 00:23:59,840 Speaker 1: certain quantity of money per se or getting us to 348 00:24:00,119 --> 00:24:03,720 Speaker 1: some full idea of employment, but that the presence of 349 00:24:03,840 --> 00:24:07,240 Speaker 1: government as an actor in the economy that can come 350 00:24:07,240 --> 00:24:10,720 Speaker 1: in with force, they can reduce uncertainty. It's not about 351 00:24:10,720 --> 00:24:14,680 Speaker 1: the amount of dollars. It's that there is this institution 352 00:24:15,280 --> 00:24:18,199 Speaker 1: that doesn't have to be swayed by the whims of 353 00:24:18,520 --> 00:24:21,679 Speaker 1: animal spirits, the ball and bear cycle, and can just 354 00:24:22,119 --> 00:24:27,160 Speaker 1: present be a be a stabilizing force. Yeah, I think 355 00:24:27,520 --> 00:24:30,520 Speaker 1: I agree with that. The difficulty is that they may 356 00:24:30,520 --> 00:24:34,800 Speaker 1: not be swayed by the business type animal spirits, but 357 00:24:34,880 --> 00:24:38,639 Speaker 1: they're certainly swayed by politics. And that was really what 358 00:24:38,840 --> 00:24:42,359 Speaker 1: brought the old old Kanes in constitution if you like, 359 00:24:42,520 --> 00:24:46,000 Speaker 1: crashing down the fact is that, you know, and lead 360 00:24:46,040 --> 00:24:51,040 Speaker 1: to Milton Friedman's critique that politicians, they vote, vote hungry, 361 00:24:51,160 --> 00:24:55,320 Speaker 1: and they'll make promises for spending irrespective of the real 362 00:24:55,440 --> 00:24:58,480 Speaker 1: needs of the cycle at a particular time. And you've 363 00:24:58,480 --> 00:25:01,640 Speaker 1: seen that going on today. I fiscal policies coming back, 364 00:25:01,640 --> 00:25:03,760 Speaker 1: but not in the way I would approve. I mean, 365 00:25:03,800 --> 00:25:06,320 Speaker 1: look at look at what's happening in the British general election. 366 00:25:07,640 --> 00:25:12,280 Speaker 1: Both parties making huge spending promises, not not by any 367 00:25:12,320 --> 00:25:15,560 Speaker 1: means of the Conservatives saying we were wrong about austerity, 368 00:25:15,600 --> 00:25:18,280 Speaker 1: we should have done it differently, but just to win votes. 369 00:25:18,800 --> 00:25:21,679 Speaker 1: So they compete in the in the number of billions 370 00:25:22,200 --> 00:25:25,960 Speaker 1: they're promising to spend. Now that is going to discredit 371 00:25:26,000 --> 00:25:29,960 Speaker 1: fiscal policy again. So what what my idea is is 372 00:25:30,000 --> 00:25:33,440 Speaker 1: that fiscal policy should be made as automatic as possible. 373 00:25:34,119 --> 00:25:37,280 Speaker 1: And you have a very valuable concept in the idea 374 00:25:37,320 --> 00:25:42,080 Speaker 1: of the automatic stabilizers. I think automatic stabilizers can be 375 00:25:42,119 --> 00:25:47,040 Speaker 1: made more powerful. I mean automatic fiscal stabilizers more powerful, 376 00:25:47,280 --> 00:25:51,920 Speaker 1: so you wouldn't really be driven back to calculating output 377 00:25:52,040 --> 00:25:55,879 Speaker 1: gaps and multipliers, all of which are pretty uncertain. But 378 00:25:55,960 --> 00:25:59,840 Speaker 1: you would do say something like, well, look, we have 379 00:26:00,040 --> 00:26:04,480 Speaker 1: a public sector job guarantee, and we have and and 380 00:26:04,480 --> 00:26:07,480 Speaker 1: and this acts as a buffer stock for labor in 381 00:26:07,520 --> 00:26:10,840 Speaker 1: the economy, and it increases that not that you know 382 00:26:10,960 --> 00:26:14,080 Speaker 1: that the stock swells when the economy turns down, and 383 00:26:14,160 --> 00:26:18,320 Speaker 1: it automatically diminishes when the economy recovers. I mean, we 384 00:26:18,480 --> 00:26:22,359 Speaker 1: have automatic stabilizers at the moment, they're quite weak, and 385 00:26:22,400 --> 00:26:24,760 Speaker 1: I'd like to strengthen them. I don't think I can 386 00:26:24,800 --> 00:26:27,360 Speaker 1: explain all this in one minute, but I think that's 387 00:26:27,359 --> 00:26:29,720 Speaker 1: the way we ought to be going. The other way 388 00:26:29,760 --> 00:26:31,680 Speaker 1: I think we ought to be going is I think 389 00:26:31,720 --> 00:26:36,080 Speaker 1: we ought to revive the idea of public investment. State 390 00:26:36,160 --> 00:26:42,280 Speaker 1: investment was a huge stabilizing force in the sixties and seventies, 391 00:26:42,280 --> 00:26:46,119 Speaker 1: but is shrunk as a percentage of total investment because 392 00:26:46,160 --> 00:26:50,840 Speaker 1: people now have the idea that all state investment is 393 00:26:50,920 --> 00:26:54,480 Speaker 1: bound to turn sides, you know, does not not going 394 00:26:54,520 --> 00:26:56,960 Speaker 1: to pay for itself. Well, I think you need to 395 00:26:57,000 --> 00:27:01,400 Speaker 1: actually work out what what things are investment, what will 396 00:27:01,480 --> 00:27:06,639 Speaker 1: pay for themselves, what will benefit the economy, and what 397 00:27:06,840 --> 00:27:09,840 Speaker 1: you ought to cover just from revenue. Those are things 398 00:27:09,880 --> 00:27:13,200 Speaker 1: that are still in the melting pub. So you mentioned 399 00:27:13,320 --> 00:27:16,320 Speaker 1: the general election in the UK, and I think when 400 00:27:16,320 --> 00:27:19,520 Speaker 1: we talk about fiscal stimulus, part of the obstacle that 401 00:27:19,600 --> 00:27:24,560 Speaker 1: governments will face is most of the population, certainly in 402 00:27:24,600 --> 00:27:29,800 Speaker 1: the US, is distrustful of the way the government actually 403 00:27:30,040 --> 00:27:33,960 Speaker 1: spends public money, even though, as you point out, there's 404 00:27:33,960 --> 00:27:37,679 Speaker 1: a history of public investment actually being a stabilizing force 405 00:27:38,000 --> 00:27:42,840 Speaker 1: and overall social good in you know, the fifties and sixties. 406 00:27:43,200 --> 00:27:46,600 Speaker 1: Why do you think we got to a place where 407 00:27:46,680 --> 00:27:50,000 Speaker 1: lots and lots of people just think that there is 408 00:27:50,080 --> 00:27:53,400 Speaker 1: no role for the government when it comes to this 409 00:27:53,480 --> 00:27:57,520 Speaker 1: type of economic stabilization or this type of investment. Why 410 00:27:57,520 --> 00:28:00,520 Speaker 1: are people so distrustful of the government when as as 411 00:28:00,560 --> 00:28:04,200 Speaker 1: you very clearly lay out, there is potentially an economic 412 00:28:04,280 --> 00:28:07,439 Speaker 1: role for them. Well, you know, I think Robert Schiller 413 00:28:08,640 --> 00:28:12,040 Speaker 1: should put his finger on it. I mean, people believe narrative, 414 00:28:13,240 --> 00:28:17,560 Speaker 1: and if a narrative gains hold, it shapes the way 415 00:28:17,600 --> 00:28:22,119 Speaker 1: they think about reality. The narrative that really got hold 416 00:28:22,680 --> 00:28:26,480 Speaker 1: in the seventies and eighties was really the Freedman narrative 417 00:28:27,280 --> 00:28:30,760 Speaker 1: that governments are just spent thris and that if you 418 00:28:30,880 --> 00:28:33,919 Speaker 1: leave if you leave macro policy to them, they'll just 419 00:28:34,119 --> 00:28:39,720 Speaker 1: inflate the economy in order to ease their construct their 420 00:28:39,720 --> 00:28:44,240 Speaker 1: spendings constraints. And I think that kind of narrative got 421 00:28:44,280 --> 00:28:47,800 Speaker 1: hold that, you know, and it was combined with another narrative, 422 00:28:47,880 --> 00:28:51,920 Speaker 1: which is that politicians are like just their utility maximizes, 423 00:28:52,040 --> 00:28:56,400 Speaker 1: but what the utility they maximizes is their own private utilities. 424 00:28:56,680 --> 00:29:00,400 Speaker 1: And that was in line with the general motivational structure 425 00:29:00,920 --> 00:29:04,280 Speaker 1: of neoclassical economists. So they're always going to be corrupt. 426 00:29:04,640 --> 00:29:07,040 Speaker 1: They're always going to think about their own interests and 427 00:29:07,160 --> 00:29:12,160 Speaker 1: not the public. Those two things coming together, uh, sort 428 00:29:12,200 --> 00:29:15,400 Speaker 1: of have created a view of government which I think 429 00:29:15,520 --> 00:29:18,360 Speaker 1: colors public debate. And yet in the United States there's 430 00:29:18,360 --> 00:29:21,560 Speaker 1: always been actually a huge role of government. I mean, 431 00:29:21,640 --> 00:29:27,080 Speaker 1: people don't understand that most of modern contemporary digital technology 432 00:29:27,880 --> 00:29:29,720 Speaker 1: is a really all based that comes out of the 433 00:29:30,280 --> 00:29:34,720 Speaker 1: US government military spending. And you know, government's had a 434 00:29:34,840 --> 00:29:39,440 Speaker 1: huge role all the way through. Yet that's that's become 435 00:29:39,560 --> 00:29:43,360 Speaker 1: silent and ignore and instead you have these stupid things 436 00:29:43,440 --> 00:29:46,440 Speaker 1: about governments of build roads that never lead anywhere, and 437 00:29:46,520 --> 00:29:49,680 Speaker 1: you know, all that kind of stuff. I'm going to 438 00:29:49,760 --> 00:29:52,720 Speaker 1: ask a question. It might be very controversial, and you 439 00:29:52,760 --> 00:29:57,080 Speaker 1: should tell me if the if it's if it's an appropriator, 440 00:29:57,160 --> 00:30:00,640 Speaker 1: you don't want to answer it. But nonetheless, you know, 441 00:30:01,000 --> 00:30:05,680 Speaker 1: you're talking about rethinking fiscal policy and UM, that it 442 00:30:05,760 --> 00:30:07,880 Speaker 1: can't just be one of these things where when times 443 00:30:07,880 --> 00:30:11,320 Speaker 1: are bad, suddenly politicians uh proposal laundry list, and that 444 00:30:11,360 --> 00:30:15,080 Speaker 1: we need more permanent role. And you mentioned a public 445 00:30:15,160 --> 00:30:18,880 Speaker 1: jobs guarantee is one way of a source of permanent 446 00:30:18,960 --> 00:30:28,080 Speaker 1: public stability, very strong UM countercyclical stabilizing measure, and one 447 00:30:28,360 --> 00:30:32,320 Speaker 1: group of economists who talk about it, the public jobs 448 00:30:32,320 --> 00:30:35,280 Speaker 1: guarantee these days of the U M M tars, the 449 00:30:35,280 --> 00:30:37,760 Speaker 1: modern monetary theorists, and I've noticed in your book that 450 00:30:37,800 --> 00:30:41,120 Speaker 1: you actually mentioned them fairly early on in your in 451 00:30:41,160 --> 00:30:45,000 Speaker 1: your argument they got a prominent place. Would if Canes 452 00:30:45,040 --> 00:30:47,800 Speaker 1: were here, would he find a sort of a would 453 00:30:47,840 --> 00:30:50,840 Speaker 1: they be kindred spirits to him of the various factions 454 00:30:50,880 --> 00:30:52,959 Speaker 1: out there right now in your view? Or is that 455 00:30:53,000 --> 00:30:56,640 Speaker 1: going too far? Well? You see, I think that was 456 00:30:56,680 --> 00:30:59,960 Speaker 1: a Cane's reaction to an early version of modern monetary there, 457 00:31:00,200 --> 00:31:05,080 Speaker 1: which was his reaction to Aber Learner's paper of ninety two, 458 00:31:05,120 --> 00:31:08,240 Speaker 1: I think, in which which was called functional theory of 459 00:31:08,280 --> 00:31:12,720 Speaker 1: functional Finance, in which a Learner was basically using this 460 00:31:12,920 --> 00:31:16,200 Speaker 1: argument that you don't use the tax system in order 461 00:31:16,200 --> 00:31:19,280 Speaker 1: to get revenue, but to drain the economy of money, 462 00:31:19,360 --> 00:31:22,120 Speaker 1: and you need to do that when you're in a 463 00:31:22,160 --> 00:31:27,320 Speaker 1: situation of inflation or incipient inflation. In other ways, what 464 00:31:27,480 --> 00:31:30,600 Speaker 1: Leerner was saying is that government spend money because they've 465 00:31:30,640 --> 00:31:34,680 Speaker 1: got banks that printed for them, and and it's a 466 00:31:34,720 --> 00:31:37,880 Speaker 1: myth that they have to apply to the people for 467 00:31:39,240 --> 00:31:43,240 Speaker 1: in order to spend rather, they're spending creates the taxes 468 00:31:43,320 --> 00:31:46,120 Speaker 1: which they may have to then raise in order to 469 00:31:46,160 --> 00:31:53,080 Speaker 1: stop inflation and pains. His reaction to that was to say, well, technically, yeah, 470 00:31:53,240 --> 00:31:57,800 Speaker 1: that argument is correct, but it's simply not practical politics 471 00:31:57,880 --> 00:32:00,920 Speaker 1: to recommend it. I and I and I go along 472 00:32:00,920 --> 00:32:04,200 Speaker 1: with that. And what I'd say, in addition to what 473 00:32:04,400 --> 00:32:09,000 Speaker 1: Kane said, is that although it's a myth that governments 474 00:32:09,040 --> 00:32:13,320 Speaker 1: have to apply to the people for taxes or get 475 00:32:13,360 --> 00:32:18,640 Speaker 1: them issue debt, it's a necessary myth of our limited government, 476 00:32:19,400 --> 00:32:23,080 Speaker 1: because otherwise, what's to stop the state just spending what 477 00:32:23,120 --> 00:32:28,760 Speaker 1: it wants for whatever purposes it chooses to. In other ways, 478 00:32:28,760 --> 00:32:32,600 Speaker 1: it's part of the part of the constitution of limited 479 00:32:32,680 --> 00:32:37,160 Speaker 1: government that this myth should be there. And so um, 480 00:32:37,720 --> 00:32:40,480 Speaker 1: I would say, some myths are very useful if you 481 00:32:40,520 --> 00:32:45,560 Speaker 1: want to avoid despotism, and one shouldn't really attack this 482 00:32:45,720 --> 00:32:49,320 Speaker 1: myth just on technical grounds that in fact that's not 483 00:32:49,400 --> 00:32:54,400 Speaker 1: what governments actually have to do. One should be aware 484 00:32:55,000 --> 00:32:58,760 Speaker 1: of the political functions of this particular view of the 485 00:32:58,800 --> 00:33:05,160 Speaker 1: relationship between government and its taxpayers and creditors. Yes, so 486 00:33:05,640 --> 00:33:08,800 Speaker 1: that's the way I would I would deal with modern 487 00:33:08,840 --> 00:33:13,360 Speaker 1: monetary theory. But where it's been extremely useful is to 488 00:33:13,440 --> 00:33:18,320 Speaker 1: point out another myth, which is that the government's government 489 00:33:18,400 --> 00:33:24,200 Speaker 1: space a fiscal constraint whenever they unbalanced the budget. Now 490 00:33:24,240 --> 00:33:26,960 Speaker 1: that I think has been the orthodoxy, and it's been 491 00:33:26,960 --> 00:33:29,880 Speaker 1: one of the big arguments for balancing, that government should 492 00:33:29,920 --> 00:33:33,800 Speaker 1: balance their books. And I think modern monetary theory has 493 00:33:33,840 --> 00:33:36,520 Speaker 1: been foremost in pointing out that this is not the case. 494 00:33:37,240 --> 00:33:39,960 Speaker 1: In that sense, It's been very useful. So I don't 495 00:33:40,000 --> 00:33:42,640 Speaker 1: think I think it is controversial. I doubt if modern 496 00:33:42,680 --> 00:33:46,560 Speaker 1: monetary theory will become a dominant theory of fiscal finance 497 00:33:47,200 --> 00:33:49,800 Speaker 1: in the next few years. In fact, you can do 498 00:33:49,880 --> 00:33:54,080 Speaker 1: what you need to do on the fiscal front without 499 00:33:54,440 --> 00:33:57,920 Speaker 1: having to use modern monetary theory. This was going to 500 00:33:57,960 --> 00:34:00,960 Speaker 1: be my next question actually, So if you were to 501 00:34:01,000 --> 00:34:04,920 Speaker 1: write an essay right now on what economic orthodoxy would 502 00:34:04,920 --> 00:34:09,840 Speaker 1: actually look like in ten years time, what's your best guess. 503 00:34:10,000 --> 00:34:13,480 Speaker 1: Is it a continuation of the existing system or going 504 00:34:13,640 --> 00:34:16,279 Speaker 1: back to more of a pure Canes model. What do 505 00:34:16,280 --> 00:34:19,520 Speaker 1: you think it will look like? The economic consensus, Well, 506 00:34:19,560 --> 00:34:23,600 Speaker 1: I don't think there's any linear path to better economics. 507 00:34:23,640 --> 00:34:27,040 Speaker 1: In fact, I'm not sure that economics as it now 508 00:34:27,120 --> 00:34:30,040 Speaker 1: exists will be with us in fifty years time at all. 509 00:34:30,160 --> 00:34:32,800 Speaker 1: I mean, there'll be economists, but there will be attached 510 00:34:32,920 --> 00:34:37,040 Speaker 1: different subjects. That's probably my view of how how it 511 00:34:37,080 --> 00:34:40,760 Speaker 1: will go. But otherwise it all depends on what happens 512 00:34:40,800 --> 00:34:43,960 Speaker 1: in events. As one of our former prime ministers used 513 00:34:44,000 --> 00:34:47,960 Speaker 1: to say, events there boy will decide how thought goes. 514 00:34:48,000 --> 00:34:49,960 Speaker 1: And that's sort of entirely true, but I think there's 515 00:34:50,000 --> 00:34:53,080 Speaker 1: a large element of truth in it. If we have 516 00:34:53,520 --> 00:34:59,000 Speaker 1: new shocks um to the world economy, that will stimulate thought. 517 00:34:59,560 --> 00:35:03,160 Speaker 1: I think otherwise the economics may not be in the 518 00:35:03,200 --> 00:35:06,680 Speaker 1: center of the rethinking of how you deal with economies. 519 00:35:06,840 --> 00:35:10,799 Speaker 1: You see that that's that's maybe a bit paradoxical, but 520 00:35:11,280 --> 00:35:18,080 Speaker 1: we're much much more aware of the fragility of liberal 521 00:35:18,480 --> 00:35:22,879 Speaker 1: democratic societies. It's not not clear to me that economics 522 00:35:22,960 --> 00:35:26,520 Speaker 1: gives any particular answer to that. And all economics should 523 00:35:26,560 --> 00:35:30,680 Speaker 1: be able to say is we must not allow crashes 524 00:35:30,760 --> 00:35:33,839 Speaker 1: like two thousand and eight to happen. We should not 525 00:35:34,080 --> 00:35:40,040 Speaker 1: allow so much inequality to exist, We should not be 526 00:35:40,200 --> 00:35:47,720 Speaker 1: prepared for such long periods of subnormal capacity utilization. And 527 00:35:47,760 --> 00:35:53,600 Speaker 1: what are the policies that can prevent those calamitism? And misfortunes, 528 00:35:54,520 --> 00:35:58,440 Speaker 1: and so economics has to rethink the role of government, 529 00:35:59,000 --> 00:36:01,840 Speaker 1: and it's not clear that economics is the best place 530 00:36:01,920 --> 00:36:05,400 Speaker 1: to do that, which is why I'm not sure that 531 00:36:05,400 --> 00:36:08,360 Speaker 1: the economics really deserves to be the queen of the 532 00:36:08,440 --> 00:36:11,799 Speaker 1: social sciences as full family from Paul, and I know 533 00:36:11,880 --> 00:36:15,080 Speaker 1: that's not answering your question properly, but I don't think 534 00:36:15,080 --> 00:36:18,960 Speaker 1: it's got a simple answer. No, that's great. I think 535 00:36:19,000 --> 00:36:21,440 Speaker 1: it's a perfect answer, Robert, thank you for joining us. 536 00:36:21,440 --> 00:36:25,080 Speaker 1: That was that was fantastic. Really enjoyed that. Well, I enjoyed. 537 00:36:25,200 --> 00:36:49,960 Speaker 1: I enjoyed talking to Thank you so much by Tracy. 538 00:36:50,040 --> 00:36:54,320 Speaker 1: I really liked his answer to your last question. Actually, 539 00:36:54,400 --> 00:36:56,920 Speaker 1: I thought that was kind of the perfect place, which 540 00:36:57,000 --> 00:37:01,720 Speaker 1: is that economists have some insight, but that maybe thinking 541 00:37:01,760 --> 00:37:05,080 Speaker 1: about oh, economics is going to give us the answers 542 00:37:05,160 --> 00:37:07,520 Speaker 1: to sort of what ails is now at a time 543 00:37:07,520 --> 00:37:11,759 Speaker 1: when so much is obviously on the political side. I 544 00:37:11,760 --> 00:37:15,080 Speaker 1: thought it was very insightful. Yeah, it kind of reminded 545 00:37:15,120 --> 00:37:18,200 Speaker 1: me of a couple earlier All Thoughts episodes that we've done, 546 00:37:18,080 --> 00:37:21,040 Speaker 1: where we always pointed out how I don't want to 547 00:37:21,120 --> 00:37:24,319 Speaker 1: use the word primitive, but I guess how simple. Some 548 00:37:24,400 --> 00:37:27,560 Speaker 1: of the models that economics is actually built on are 549 00:37:27,920 --> 00:37:32,120 Speaker 1: like this notion of the equilibrium between two sets of 550 00:37:32,160 --> 00:37:35,040 Speaker 1: goods and the market will always move to that point, 551 00:37:35,360 --> 00:37:38,640 Speaker 1: and it doesn't actually take into account a the existence 552 00:37:38,680 --> 00:37:42,000 Speaker 1: of money or be the sort of behavioral economics aspect 553 00:37:42,040 --> 00:37:45,839 Speaker 1: of stuff where people don't always behave rationally. It's sort 554 00:37:45,880 --> 00:37:50,040 Speaker 1: of it's it's weird and sometimes frightening to think that 555 00:37:50,120 --> 00:37:52,320 Speaker 1: a lot of the way the world works is still 556 00:37:52,600 --> 00:37:57,000 Speaker 1: built on these outdated models. Yeah, and from what I understand, 557 00:37:57,120 --> 00:38:00,279 Speaker 1: and he talks about this in his book, and I've 558 00:38:00,280 --> 00:38:02,320 Speaker 1: heard a lot of people say it, it's like many 559 00:38:02,360 --> 00:38:05,839 Speaker 1: economists not only don't know how banks work, but don't 560 00:38:05,880 --> 00:38:09,520 Speaker 1: feel that that's particularly important. Again because banks are seeing 561 00:38:09,520 --> 00:38:12,040 Speaker 1: as just sort of this extension of money, and of 562 00:38:12,160 --> 00:38:16,880 Speaker 1: money is just this technology to sort of intermediate person 563 00:38:16,960 --> 00:38:20,200 Speaker 1: a in person B or bank is just to intermediate 564 00:38:20,239 --> 00:38:23,319 Speaker 1: to people. Are two entities. You don't really need to 565 00:38:23,360 --> 00:38:27,600 Speaker 1: know how they work, even though the financial crisis obviously 566 00:38:27,719 --> 00:38:30,680 Speaker 1: showed that you can't really understand the modern world without 567 00:38:30,800 --> 00:38:34,279 Speaker 1: understanding what banks do. The other thing I really liked 568 00:38:34,320 --> 00:38:37,160 Speaker 1: about that discussion, and by the way, I knew an 569 00:38:37,280 --> 00:38:40,600 Speaker 1: MMT question was coming up. It was only a matter 570 00:38:40,640 --> 00:38:43,960 Speaker 1: of time. But but one of the criticisms of m 571 00:38:44,080 --> 00:38:48,120 Speaker 1: m T is that even if you say that the government, 572 00:38:48,719 --> 00:38:52,360 Speaker 1: you know, isn't limited by a sort of household budget, 573 00:38:52,440 --> 00:38:55,120 Speaker 1: it's only limited by inflation when it comes to spending, 574 00:38:55,560 --> 00:38:59,840 Speaker 1: that doesn't overcome the problem of political will or a 575 00:39:00,000 --> 00:39:05,200 Speaker 1: achieving a political consensus. And Lord Skidelski is quite clear 576 00:39:05,440 --> 00:39:08,240 Speaker 1: on one way that maybe you could get to that point, 577 00:39:08,280 --> 00:39:12,160 Speaker 1: which is his idea of automatic stabilizers. So if you say, 578 00:39:12,239 --> 00:39:15,800 Speaker 1: when X happens, why is going to come into effect, 579 00:39:16,040 --> 00:39:19,520 Speaker 1: you sort of bypass the twoing and throwing of Congress 580 00:39:19,640 --> 00:39:22,960 Speaker 1: or parliament or whatever when it comes to actually figuring 581 00:39:23,000 --> 00:39:26,040 Speaker 1: out what to do. Yeah, I mean the question is, 582 00:39:26,080 --> 00:39:27,839 Speaker 1: and I think it sort of sums it up is 583 00:39:28,480 --> 00:39:32,280 Speaker 1: political leaders in developed markets tried to solve that problem 584 00:39:32,320 --> 00:39:35,400 Speaker 1: with the creation of independent central banks and the hope 585 00:39:35,440 --> 00:39:39,280 Speaker 1: that economic stabilization could be taken out of the hands 586 00:39:39,440 --> 00:39:42,960 Speaker 1: of politicians. But of course, as he points out, central 587 00:39:43,000 --> 00:39:45,840 Speaker 1: banks have their own ay, they have a credibility problem 588 00:39:45,840 --> 00:39:48,640 Speaker 1: because they're not really accountable to the public in the 589 00:39:48,680 --> 00:39:51,360 Speaker 1: same way, so they're not really they're only in a 590 00:39:51,440 --> 00:39:55,000 Speaker 1: very sort of indirect sentence, and leaning so much on 591 00:39:55,200 --> 00:40:00,600 Speaker 1: monetary policy has distributional consequences that aren't ideal. So, you know, 592 00:40:00,680 --> 00:40:05,200 Speaker 1: no one really knows what the sort of post post 593 00:40:05,320 --> 00:40:08,600 Speaker 1: crisis future looks like, but it sounds like, if we 594 00:40:08,640 --> 00:40:11,240 Speaker 1: can sort of summarize it, it's how do you build 595 00:40:11,239 --> 00:40:13,760 Speaker 1: a system that's robust? How do you build a system 596 00:40:13,840 --> 00:40:19,440 Speaker 1: that's uh powerful economic stabilizers while maintaining some sort of 597 00:40:19,800 --> 00:40:27,239 Speaker 1: democratic accountability to it? Big questions, big episode of odd blots. Yeah, no, no, 598 00:40:27,320 --> 00:40:31,279 Speaker 1: easy answers. All right, this has been another episode of 599 00:40:31,320 --> 00:40:34,360 Speaker 1: the ad Thoughts Podcast. I'm Tracy Allaway. You can follow 600 00:40:34,400 --> 00:40:38,000 Speaker 1: me on Twitter at Tracy Alloway and I'm Joe Why 601 00:40:38,080 --> 00:40:40,839 Speaker 1: Isn't Thal? You could follow me on Twitter at the 602 00:40:40,880 --> 00:40:44,480 Speaker 1: Stalwart And you should definitely follow our guests on Twitter. 603 00:40:44,680 --> 00:40:49,279 Speaker 1: Lord Robert Skidelski, he is at our Skidelski. Also be 604 00:40:49,360 --> 00:40:51,279 Speaker 1: sure to check out his new book, It's Really Good. 605 00:40:51,680 --> 00:40:54,880 Speaker 1: Be sure to follow our producer on Twitter, Laura Carlson. 606 00:40:54,960 --> 00:40:58,120 Speaker 1: She's at Laura M. Carlson, as well as this week's 607 00:40:58,160 --> 00:41:03,160 Speaker 1: substitute producer to for Foreheads at Foreheads T and be 608 00:41:03,200 --> 00:41:06,000 Speaker 1: sure to follow the Bloomberg Head of podcast Francesca Levi 609 00:41:06,200 --> 00:41:10,520 Speaker 1: at Francesca Today, and all of Bloomberg's podcasts can be 610 00:41:10,600 --> 00:41:14,880 Speaker 1: found under the handle at podcasts. Thanks for listening.