Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Hello and welcome to another episode of the Odd Lots podcast.
Speaker 2: I'm Tracy Allaway.
Speaker 3: And I'm Joe. Wasn't thal Joe.
Speaker 2: We're here in London, Dyll in London, Still in London.
Speaker 2: It's been interesting. I think I've mentioned so. I obviously
Speaker 2: I went to university here, got my first job here,
Speaker 2: first at Bloomberg. I left very quickly and joined the
Speaker 2: Ft and I was here for like ten years and
Speaker 2: met my husband here. So I've just been walking around
Speaker 2: the city this week, just feeling very nostalgic about everything.
Speaker 3: This is a very weird time to be in London.
Speaker 3: For one thing, I have to say, like the whole
Speaker 3: time zone thing really messes me up. But like I'm like,
Speaker 3: you know, v the concept of time zone still blows
Speaker 3: my mind a little bit.
Speaker 2: As an American, and I'm not surprised to hear you obvious.
Speaker 3: It's like I can't believe the market's still open. But also,
Speaker 3: you know, we're at a time where changing perceptions towards
Speaker 3: the US are a big story. And normally, if I'm
Speaker 3: being honest, if I could be a sort of rude
Speaker 3: American for a moment.
Speaker 2: Always to global.
Speaker 3: Perceptions of the US are not typically a very big
Speaker 3: deal to me. They're not something that I think about
Speaker 3: very often, except in so far as we're in a
Speaker 3: period where our president claims to want to be doing
Speaker 3: trade deals with the rest of the world, at which
Speaker 3: point these elected leaders around the world have domestic constituencies
Speaker 3: that they have to be accountable to, and as such,
Speaker 3: perhaps we're in a period where perceptions of the US
Speaker 3: actually substantively matter.
Speaker 2: Well, here's the other thing I was thinking about. I
Speaker 2: was walking past my old university, and I was thinking,
Speaker 2: both you and I did international relations, yeah, And I
Speaker 2: was thinking how amazingly irrelevant that degree has become. And
Speaker 2: I was thinking back to the reading list we had
Speaker 2: in the early two thousands about like implementing globalization and
Speaker 2: globalization colin the Way Forward and things like that. So
Speaker 2: much of that just feels completely off the table at
Speaker 2: this moment.
Speaker 3: We all these like these hopes for like various multilateral
Speaker 3: agreements and we're going to sign and now the plan
Speaker 3: is to sign you know, bilateral agreements with seventy different
Speaker 3: nations in ninety.
Speaker 2: Dews while insulting them on a daily basis.
Speaker 3: While insulting them.
Speaker 2: I mean, come on, okay, So I'm trying to unify
Speaker 2: all these different themes. My former employer, the future of globalization,
Speaker 2: the fact that we're here in London at a time
Speaker 2: when Europe US relationships really seem to be in the
Speaker 2: gutter in many ways. So we have the perfect guest.
Speaker 2: We do have, truly the perfect guest we're going to
Speaker 2: be speaking with. Martin Wolfe is, of course, the chief
Speaker 2: economics commentator over at the FT, sometimes described as the
Speaker 2: most important economics commentator in Britain, which, given that the
Speaker 2: UK exports a lot of commentators, is really saying something.
Speaker 2: Also the author of book on globalization, of course, although
Speaker 2: as I understand it, your feelings have evolved over the years.
Speaker 2: So Martin, welcome to the show. Thanks so much for
Speaker 2: coming on.
Speaker 4: It's a pleasure to be here in beautiful London, which
Speaker 4: feels very pleasingly away from the US.
Speaker 3: Yes, yes, we're setting the tone for the contry.
Speaker 2: Yeah, there we go. Is it amazing to be an
Speaker 2: economics commentator in the current environment or is it incredibly
Speaker 2: depressing in the sense that you know, we're seeing a
Speaker 2: lot of new and interesting ideas. I'm doing air quotes.
Speaker 2: Although I'm on a podcast new and interesting ideas coming
Speaker 2: out of certain administrations about how economics works and how
Speaker 2: it could theoretically work, and at the same time you're
Speaker 2: seeing the tearing down of a lot of established norms
Speaker 2: and principles from traditional economics. There's a lot to write about.
Speaker 4: Yes, this is a question that a lot of people
Speaker 4: ask me during the financial crisis when it was really
Speaker 4: at its worst and look very very frightening, which is
Speaker 4: in a very different way that closest to what in
Speaker 4: my professional crea to what we're experiencing now. My answer
Speaker 4: used to be, I divide myself into two people as
Speaker 4: an economist and commentator. It was the best spirit of
Speaker 4: my life as a father and a grandparent. Grandfather terrified
Speaker 4: the wits out of me, and I would say the
Speaker 4: same now, but probably even more so.
Speaker 3: By the way, this is kind of like me and Tracy,
Speaker 3: except Tracy is the side of.
Speaker 2: You I totally embody the anxiousness, and Joe is basically
Speaker 2: the exhilaration that things are happening.
Speaker 3: But I said this in a recent review, You're like, Oh,
Speaker 3: I just get so excited. I just love seeing the
Speaker 3: lung and I feel like I wanted to wish. I'm
Speaker 3: taking a moment to hedge that I actually do have
Speaker 3: a person side. I have not just someone who stares
Speaker 3: at a screen all day, and I do genuinely care
Speaker 3: about the actual sort of health of the world.
Speaker 2: You feel you have to announce that publicly. Slightly worrying, Joe,
Speaker 2: but good. It's good to know, you know.
Speaker 3: There's a part of me that thinks this is a
Speaker 3: bigger story in many respects than the Great Financial Crisis,
Speaker 3: because in retrospect, although the Great Financial Crisis or the
Speaker 3: global I forget what we call it, global fundinancial crisis
Speaker 3: was enormous and maybe once in a century it was
Speaker 3: a very big bank run. In bank runs happened from
Speaker 3: time to time. They're not that unusual, and there's a playbook,
Speaker 3: and you backed up the banks and you do some
Speaker 3: Kinsian fiscal policies. This feels like to me right now
Speaker 3: is something that could metastasize into a truly bigger story
Speaker 3: in terms of the lasting imprint it has on the world.
Speaker 4: I think that's very plausible now. During the Financial crisis,
Speaker 4: I didn't view it quite this way, partly because I
Speaker 4: know a lot of economic history and not least because
Speaker 4: my parents were from continental Europe and escape from the
Speaker 4: most obvious consequence of the Great financial crash, which was
Speaker 4: the Great Depression and Hitler. In history, we have mostly
Speaker 4: survived huge financial crises, but sometimes people don't deal with
Speaker 4: the bank rum. And the most famous case obviously in
Speaker 4: history was what happened in the thirties, and it led
Speaker 4: the Federal Reserve completely failed to deal with it in
Speaker 4: any sensible way, and it led to the Great Depression,
Speaker 4: which was the biggest economic downturn in sort of modern
Speaker 4: history of the last two centuries. And that led absolutely clearly,
Speaker 4: it's a theme of one of my books, or part
Speaker 4: of the theme with one of my books, to the
Speaker 4: election of Adolf Hitler, and that led to certain other
Speaker 4: events like World War two and the death of sixty
Speaker 4: million people and so forth. So during the financial crisis,
Speaker 4: I was really frightened now that they did do the
Speaker 4: sensible things, all the things I wrote at the time
Speaker 4: they should do. So I feel very happy about that.
Speaker 4: They went back to Walter Badghocks, who knew how to
Speaker 4: deal with these things, and that's in fine now. Right now,
Speaker 4: I would agree with you, certainly, this is a bigger event,
Speaker 4: because it's a fundamental undoing of the world economic order
Speaker 4: as created after the Second World War. It is I
Speaker 4: think also in the backdrop, a fundamental remaking of the
Speaker 4: American Republic. And right now, of course it involves a
Speaker 4: because it's both of these, and because of the extraordinary
Speaker 4: role the US has played in the world since the
Speaker 4: Second World War, since forty one. Really, with Paul Harbor,
Speaker 4: it really means a remaking of the entire world order.
Speaker 4: So we right now, I think the most important thing
Speaker 4: that I say when anybody asks me what's going to
Speaker 4: happen next, is I really don't know, because nobody can.
Speaker 2: Since you brought up the economic policy of the nineteen thirties,
Speaker 2: and since Joe is currently reading Adam Twos's Wages of Destruction,
Speaker 2: and everyone who has interacted with Joe over the past
Speaker 2: two weeks that you are reading about it.
Speaker 3: So what I do I tell everyone reading Adam Owes.
Speaker 2: You a commission at this point, because you are literally like, Hi,
Speaker 2: I'm Joseph Eisenthaal. Have you read the Good Book of
Speaker 2: Wages of Destruction? Like this is Joe right now? Talk
Speaker 2: to us a little bit more about any parallels you're
Speaker 2: seeing between the current economic environment, or I guess the
Speaker 2: grievances felt by American policy makers versus what we saw
Speaker 2: in the nineteen thirties.
Speaker 4: I think that what is striking to me is the differences.
Speaker 4: I do argue in the book I wrote, the Crisis
Speaker 4: of Democratic Capitalism, which you certainly should read.
Speaker 2: Well it's on the list, is.
Speaker 4: This idea that the global financial crisis was a very
Speaker 4: big shock. It had quite long lasting effects, notably so
Speaker 4: in the US, and I argue in that book that
Speaker 4: one of the reasons, probably the main reasons that the
Speaker 4: Republicans Party, when they start realizing what had happened, shifted
Speaker 4: from Mitt Romney to Donald Trump as the candidate, which
Speaker 4: was an enormous revolutionary change, is that shock had, as
Speaker 4: it percolated through, helped a very large number of relatively conservative,
Speaker 4: middle class Americans feel that this Reaganite stuff about free
Speaker 4: markets and so forth was, to put it bluntly, crap,
Speaker 4: because these people are led them down the path and
Speaker 4: they wanted somebody to embody their ideology. Their attitudes very
Speaker 4: reactioning ones, in my view, but not with that economic baggage,
Speaker 4: and Trump was the perfect person. So in that sense,
Speaker 4: I do think the global financial crisis, it's a theme
Speaker 4: of my book. It's not the only reason. The industrialization
Speaker 4: and other themes which Trump plays with are also important,
Speaker 4: and I have a long discussion that going back to
Speaker 4: the seventies. But that big shock I think played a
Speaker 4: very big part in shifting the Republican Party in the
Speaker 4: populist nationalist direction, and that's of course why we are
Speaker 4: where we are now. So in that sense, I think
Speaker 4: there is a link. But of course, and this is
Speaker 4: the contrast for the reasons we've discussed in the end,
Speaker 4: the policy makers involved basically under the Obama administration, many
Speaker 4: of whom might of course know, some of them are
Speaker 4: quite good friends. They did manage it in the way
Speaker 4: it wasn't managed in the thirties, So there was a
Speaker 4: fairly quick recovery. The financial sector was put back on
Speaker 4: its feet, though within the immense amount of federal support,
Speaker 4: and the economy is recovered. And what is striking about
Speaker 4: this revolutionary moment in economic policy we're seeing It is
Speaker 4: I think sort of unique, and I don't fully understand it.
Speaker 4: It depresses me because but I have to admit it,
Speaker 4: the American economy has done better than any other developed
Speaker 4: country since the pandemic. The pandemic was a shot, but
Speaker 4: it's motoring. Real incomes have been rising rapidly. The job's
Speaker 4: performance was exceptional. Now that's about as far as Germany
Speaker 4: in the thirty three Is you going to imagine when
Speaker 4: unemployed was twenty five percent and it was not much
Speaker 4: of a welfare state. So the economic explanation in the
Speaker 4: classic sense doesn't really work.
Speaker 3: I've been thinking about exactly this because I have been
Speaker 3: reading out of Jesus wag of Wages of Destruction, which
Speaker 3: is the.
Speaker 2: Martin sent him a copy of your book already he
Speaker 2: will do the same.
Speaker 3: Yeah, yeah, I'll plug it for two or three straight weeks.
Speaker 3: But the only time that I you know, I have
Speaker 3: very mixed feelings about all of this, because look, I'm
Speaker 3: in these wonderful Bloomberg offices and I'm staying in a
Speaker 3: nice hotel, and i have a job where I get
Speaker 3: to type for a living. But like, America is an
Speaker 3: incredibly rich country, and I was like, you know, the
Speaker 3: distribution of financial assets in the United States is, as
Speaker 3: everyone knows, extremely skewed to say, like the top one
Speaker 3: percent or whatever. But the actual distribution of real resources
Speaker 3: when you look at the size of American houses, when
Speaker 3: you look at the number of people of cars, when
Speaker 3: you look at the size of American refrigerators with ice
Speaker 3: machines that typically work. America is an extraordinarily wealthy country
Speaker 3: for a wide swath of the population. And so when
Speaker 3: I read history in that respect, it doesn't read at
Speaker 3: all to me like the actual real economic conditions that
Speaker 3: I would say associated with the nineteen thirties.
Speaker 4: I think that's absolutely right. Of course, it isn't, and
Speaker 4: that's created a puzzle. Nonetheless, it seemed pretty clear, and
Speaker 4: I referred to quite a bit of literature on that
Speaker 4: in my book, that it's not surprising. People are very, very,
Speaker 4: very concerned about their relative positions. People are very very
Speaker 4: concerned about their security, that's their sense of security in
Speaker 4: their positions. And those anxieties often related not just with
Speaker 4: their economic positions, but also more broadly with their cultural positions.
Speaker 4: And Americas are countries that's gone through some big revolutionary changes.
Speaker 4: The industrialization PUTAVL is real. That's a transformation of many
Speaker 4: many communities. The push for gender and racial equality is real,
Speaker 4: and it clearly runs up against anxieties and hostility that
Speaker 4: was also very very real the new economy. Well, you're
Speaker 4: absolutely right, clearly right. But it's still true when I
Speaker 4: go through America, and on many occasions I've Pardikhar and
Speaker 4: gone across the country to place it like Erie, northern California,
Speaker 4: way far north. There are lots of poor people in America,
Speaker 4: and most Americans that I know and see them because
Speaker 4: they fly over them, but I've actually driven across It's
Speaker 4: there are lots of poor people, and people are frightened
Speaker 4: of ending up there. In my view, they have a sense.
Speaker 4: You know, I'm one real hospital medical problem away from bankruptcy.
Speaker 4: So I think there is in an insecurity and anxiety
Speaker 4: which comes up with these cultural and economic things mixed
Speaker 4: up to which Trump addresses his appeal perfectly. He's the
Speaker 4: perfect populist for America. And one of the things I've learned,
Speaker 4: which is new because I've never lived through it with
Speaker 4: a political demogogue like this, how incredibly good a brilliant
Speaker 4: demogogue is at exploiting those resentments and offering himself up
Speaker 4: as the solution to all this. And that's the way
Speaker 4: I would now see this.
Speaker 2: Speaking of resentments, I mean, it does seem if we
Speaker 2: zoom out on an international scale, so away from the
Speaker 2: domestic US economy. It does seem like the Trump administration's
Speaker 2: major grievance is this idea that the US hasn't been
Speaker 2: compensated enough for its role in the international financial system
Speaker 2: and the fact that the dollar is a reserve currency
Speaker 2: and all of that. And it's very difficult for me
Speaker 2: to wrap my head around that particular position. Like, I
Speaker 2: understand there are downsides and upsides to that special status,
Speaker 2: but the Trump administration seems really committed to the idea
Speaker 2: that this is a giant burden being carried by the
Speaker 2: United States. What are your thoughts on that particular argument,
Speaker 2: Like how true is that or like what are the
Speaker 2: actual downsides? And then secondly, what do you think of
Speaker 2: some of their policy proposals where they're trying to attend
Speaker 2: to this issue and I guess alleviate some of their complaints.
Speaker 4: Well, what's particularly puzzling about the position they've adopted is
Speaker 4: that while they do think it's a terrible burden, they
Speaker 4: want to cling on to it with all possible might.
Speaker 4: I mean, the people who made the most sophisticated analysis
Speaker 4: of this, and that's obviously not Donald Trump Stephen Mirran,
Speaker 4: he's a chairman of the Council of Economic Advisors, sort
Speaker 4: of make it clear we want to get rid of
Speaker 4: all the costs or come to that in a moment,
Speaker 4: but we definitely want to make the keep the dollar
Speaker 4: as the world's dominant currency. They really want to have
Speaker 4: their cake and eat it. Well, this is really quite
Speaker 4: complicated with the right answer is half an hour, which
Speaker 4: we don't have. So the summary of it, the argument
Speaker 4: about whether the dollar is a burden or a privilege
Speaker 4: has really been going on since the sixties, and it's
Speaker 4: when I started studying economics, so I'm very familiar with it,
Speaker 4: and it led to the first attempt to readjust the
Speaker 4: cost of this, which is the closest parallels to what
Speaker 4: we are seeing now, which is Nixon under Nixon, the
Speaker 4: Nixon Shock of seventy one when he basically tried to
Speaker 4: get the dollar devalued to sounds familiar, right, I Mean,
Speaker 4: that's what one of the things they're trying to do
Speaker 4: is to get everybody to appreciate their currencies against the dollar.
Speaker 4: And the reason they needed to get the dollar devalued
Speaker 4: is then is they had a fixture change rate system.
Speaker 4: Obviously not the situation. Now the dollar was tied to gold.
Speaker 4: The monetary policy of view as in no way represented
Speaker 4: what you should do if you're on the gold standard.
Speaker 4: One of my constant points is that lots of people
Speaker 4: say going off gold in seventy one was the worst
Speaker 4: thing that ever happened. But my argument is that US
Speaker 4: was never really on gold. We can discuss that if
Speaker 4: you want, rather remote from this, but the key point
Speaker 4: is he imposed imputs charges. Sounds familiar, and he told
Speaker 4: them those will remain until you revalue your currencies, and
Speaker 4: indeed they did get them revalued. John Connolly, the Treasury
Speaker 4: sectually famously said the dollar is our currency and your problem.
Speaker 4: And so he sorted this out as it were, and
Speaker 4: that ended up in the regime of generalized floating. So
Speaker 4: got its way, But after that no real effort was
Speaker 4: made to readjust it. What is true for reasons that
Speaker 4: are linked to the Asian financial crisis of the late nineties.
Speaker 4: After a lot, I won't go through the plaza to
Speaker 4: the louver simply because well it's part of the story.
Speaker 4: Of course, another period of similar problem arose. There to
Speaker 4: two other periods when this problem re arose. The excessive
Speaker 4: appreciation of the dollar from the American sense and the
Speaker 4: sense that was leading to uncompetitiveness and that affected important
Speaker 4: parts of the economy and something had to be done
Speaker 4: about it. And so that was Nixon was the first one.
Speaker 4: The second one was the Reagan era, and he introduced
Speaker 4: has some similarities with subsequent developments, more recent developments. He
Speaker 4: had Paul Volca running the FED, so hypertite monetary policy
Speaker 4: and a floating exchange rate and a big fiscal expansion,
Speaker 4: right tax cuts. The combination of very aggressive fiscal expansion
Speaker 4: tite monetary policy is a classic combination in economics to
Speaker 4: lead to an appreciation of the real exchange rate. And
Speaker 4: it did. The trade deficit exploded, Japanese cars wiped out
Speaker 4: American cars. There was hysteria about this. The Americans introduced
Speaker 4: voluntary export restraint on pose them. Bob Leittheiser, interestingly was
Speaker 4: a negotiator at that time and has echoes, doesn't it,
Speaker 4: and finally got so this created so much protectionist pressure
Speaker 4: in the United States that the Americans decided that they
Speaker 4: needed to get the dollar dey valued, and that was
Speaker 4: what the Plaza Cord was about. And then two three
Speaker 4: years later, I think two years later the Louver Agreement,
Speaker 4: they decided to stabilize it. So that was another example
Speaker 4: of this concern about people want the dollar too much.
Speaker 4: Want we want it to be the global currency, but
Speaker 4: we don't want too much demand for dollar. The third episode,
Speaker 4: the more recent one, is really very interesting. It's the
Speaker 4: theme of my previous book, The Chips and the Shops,
Speaker 4: which is about the financial crisis, is after the Asian
Speaker 4: financial crisis, two things which came together happened. First with
Speaker 4: the explosion of China onto the world markets and China's
Speaker 4: massive accumulation of reserves as a byproduct with termination to
Speaker 4: keep the remnant be fixed against the dollar, and that
Speaker 4: led to the explosion of the Chinese current account surplus.
Speaker 4: It reached a peak of ten percent of GDP in
Speaker 4: two thousand and eight. And the other thing that happened,
Speaker 4: which went parallels after the Asian financial crisis, every trading
Speaker 4: power in Asia decided we could never let that happen again.
Speaker 4: And what they thought had happened to them was running
Speaker 4: a current account deficit, a big trade deficit, and borrowing
Speaker 4: lots of dollars because they discovered well most of the
Speaker 4: dollars they borrowed was from Western banks and mostly American bankers.
Speaker 4: They ran and they didn't have a central bank. They
Speaker 4: got print dollars. So when it they had a run,
Speaker 4: their economies crashed. And so their conclusion us, we must
Speaker 4: accumulate dollars without limit more or less and run chrent
Speaker 4: account surpluses to accumulate these dollars. Those two things came
Speaker 4: together and that led to an enormous expansion of the
Speaker 4: US external deficit, and that in my view, directly led
Speaker 4: to the global financial crisis. So these are the three
Speaker 4: episodes all around this same problem of the dollar's role,
Speaker 4: and that's not wrong. Now, the question is how you
Speaker 4: manage it. It's not fundamentally a trade policy problem, pretty obviously,
Speaker 4: it's an exchange rate compativeness and macroeconomic policy problem. Interacted
Speaker 4: and reasonably sophisticated policy makers who handled the previous episodes.
Speaker 4: In the end, the presidents all of listened largely to
Speaker 4: relatively competent economists manage these episodes, including most notably the
Speaker 4: global financial crisis, which is the biggest of these episodes.
Speaker 4: The basic point here is yes management of a global
Speaker 4: system in which the money in the system, which is
Speaker 4: the dollar is produced by one country does lead to
Speaker 4: very significant instabilities, which is why intelligent people have thought
Speaker 4: about this, have quite logically said, we'd have a better
Speaker 4: economy if we had a world currency, but we don't
Speaker 4: know how to produce a world currency. The Europeans created
Speaker 4: the Europe for this reason. Within Europe. I won't go
Speaker 4: into the question of whether it worked, but the point
Speaker 4: is there is a problem here. Now. The problem is
Speaker 4: how you manage it without blowing up the system. A
Speaker 4: trade war with everybody at the same time won't solve
Speaker 4: the problem because underneath it, it's a currency and macroeconomic policy problem.
Speaker 4: And I think this mainly nowadays relates to the role
Speaker 4: of China in the system. They're not wrong about that.
Speaker 4: I've written quite a lot about this, but unfortunately, the
Speaker 4: way the US is going about it, I don't see
Speaker 4: how they're going to get to a resolution. But in
Speaker 4: the end, the US has to decide do we really
Speaker 4: like having the dollars the global currency pulse.
Speaker 2: They do.
Speaker 4: It gives an enormous power, It makes borrowing much cheaper.
Speaker 4: It allows the biggest economy in the world to run
Speaker 4: ridiculously large fiscal deficits six percent of GDP at full
Speaker 4: employment with an explosive debt because everybody is invested in
Speaker 4: holding dollars, and that gives the American policy makers spectacular
Speaker 4: room for maneuver. They can have guns and butter and
Speaker 4: they've done it many times, and periodically they get very
Speaker 4: upset about it, but it's a choice they made after
Speaker 4: the war. They could stop it, but they would lose
Speaker 4: an awful lot in the process of the idea that
Speaker 4: it's an unambiguous loss to the US. As has just
Speaker 4: been pointed out, the US is despite this terrible burden
Speaker 4: that they are whining about, an immensely rich and powerful
Speaker 4: country which can spend more than its income indefinitely and
Speaker 4: it's not going to go bankrupt. So from our point
Speaker 4: of view, particularly speaking is a British person who knows
Speaker 4: what happened when we lost this all those Sterling crisis
Speaker 4: when I was growing up in the fifties and sixties.
Speaker 4: Obviously we're all about losing that very very undesirable because
Speaker 4: people ran from sterling and we couldn't run fiscal deficits
Speaker 4: of six percent of GDP. We would blow up let's
Speaker 4: trust ride, So we would say, stop complaining, guys, you're rich,
Speaker 4: you're fat, and your currency is basically safe unless you
Speaker 4: screw up monstrously, So why are you screwing up monstrously?
Speaker 4: That's where we are now.
Speaker 2: Joe, Can I just say that was such a treat
Speaker 2: Martin Wolf on the three defining moments of the development
Speaker 2: of the global dollar reserve system, absolutely amazing, fantastic.
Speaker 3: I just have one question. Could you give us, like
Speaker 3: the thirty second version of why we weren't on the
Speaker 3: gold standard prior to nineteen seventy one, because I think
Speaker 3: listeners be curious about that.
Speaker 4: Well, okay, well that's a very one kitchen. I'll just start.
Speaker 4: The gold standard required a very strong relationship. I'll go back, really,
Speaker 4: let's go back how the gold standard operated was defined
Speaker 4: by all people, not an economist, but David Hume, the
Speaker 4: great Scottish philosopher, one of the great geniuses in the
Speaker 4: middle of the eighteenth century, when he explained very simply,
Speaker 4: imagine gold is your currency. In that stage, gold pretty
Speaker 4: well was the currency, though there was and so if
Speaker 4: you ran a balance of payments deficit, you finance your
Speaker 4: deficit with exports of gold. And what that did is
Speaker 4: as the goal was disappearing from you you were being
Speaker 4: demonetized and the money in the economy was shrinking, and
Speaker 4: so what you had to do is lower your prices go.
Speaker 4: He was a moneitorist, as all economists were, and I
Speaker 4: still am in some ways. And so prices are just downward.
Speaker 4: That makes you more competitive, and that will adjust the
Speaker 4: balance of payments and will move into surplus. That's how
Speaker 4: it's supposed to work. So if you're on the gold
Speaker 4: standard properly, and you have a currency linked to gold
Speaker 4: with a fixed price, which Sterling had the four nineteen
Speaker 4: thirty one, well we'll go into the history of Sterling
Speaker 4: and gold, and the US was supposed to have until
Speaker 4: seventy one. Then if there's a gold drain, you're exporting
Speaker 4: gold to satisfy creditors who accumulating claims upon you. Your
Speaker 4: monetary based shrinks. So your monetary policy should tighten automatically,
Speaker 4: and that will introduce deflationary pressure in your economy, and
Speaker 4: your price level will fall, and that will equibrilate equilibrate it.
Speaker 4: So in the late sixties and early seventies, let's take
Speaker 4: this episode, the US ran a huge current account deficit
Speaker 4: and the main reason was they decided to finance the
Speaker 4: Vietnam War by increasing the fiscal deficit, so they created
Speaker 4: access demand in the US. That created inflationary pressure in
Speaker 4: the US that went on for quite a long time
Speaker 4: and a huge current account deficit. But they didn't want
Speaker 4: to allow the FED to start tightening monetary policy and
Speaker 4: deflating the American economy to reduce the prize level. They
Speaker 4: were very happy running these huge current account deficits, and
Speaker 4: that made, of course, the rest of the world was
Speaker 4: accumulating dollar claims at a very rapid base, particularly the Germans,
Speaker 4: the Japanese and so forth. And after a while while
Speaker 4: they started on France and they started saying, we don't
Speaker 4: want all these dollars, we want our real stuff, and
Speaker 4: they started converting their dollars for gold, and that's when
Speaker 4: the drain on Fort Nosk happened. And then the US
Speaker 4: had a very simple choice. It was pretty obvious. We
Speaker 4: were discussing it when I was a student in the
Speaker 4: late sixties. They could ignore this and the goal would disappear,
Speaker 4: and then they would have to go off gold. They
Speaker 4: could reprice gold, which they didn't want to do because
Speaker 4: it was a recognition of failure, or they could go
Speaker 4: off the gold standard, and the one thing they didn't
Speaker 4: want to do was deflate the economy. That meant they
Speaker 4: were ignoring the rules of the gold standard. The rules
Speaker 4: of the gold standard were, if you were losing gold,
Speaker 4: you had to deflate your economy to make it competitive
Speaker 4: again by lowering your dollar prices in a fixed rate regime.
Speaker 4: And at these crucial moments, this crucial moment, they chose
Speaker 4: not to do that. So the regime collapsed and in
Speaker 4: the Great Depression, by the way, even more important, they
Speaker 4: failed to do the reverse. At that stage, they had
Speaker 4: a huge current account surplus. America was very very competitive,
Speaker 4: and the US was of course price level was collapsing,
Speaker 4: so it was becoming even more competitive, and that was
Speaker 4: exporting the depression to the whole world through the gold
Speaker 4: standard system. And so what the US should have been
Speaker 4: doing instead of allowing the money supply to collapse. Friedman
Speaker 4: of course wrote classically about this his book with Anna Schwartz.
Speaker 4: They should have been expanding the money supply like crazy.
Speaker 4: So this was the inverse that was the first Great crisis.
Speaker 4: What I discussed earlier was the second crisis of the
Speaker 4: gold standard in the twentieth century. So in the Great Depression.
Speaker 4: The US failed to follow gold standard rules, which was
Speaker 4: precisely when they had a huge garret account surplus and
Speaker 4: they had this immensely strong position in the gold inflow,
Speaker 4: they were not pursuing massively expansionary monetary policy. On the contrary,
Speaker 4: they were pursuing massively contractiony monetary policy, making it all
Speaker 4: worse and the price level was collapsing in the US.
Speaker 4: So again they failed to follow the rules of the
Speaker 4: gold standard. The US showed itself and like the UK
Speaker 4: in the long period it ran the gold standard a
Speaker 4: country incapable of allowing the foreign position basically the balance
Speaker 4: of payments to force its monetary policy in directions either
Speaker 4: expantory or contractionary. So my view is that the gold
Speaker 4: standard under the US from the twenties onwards, that was
Speaker 4: basically when it shifted from a sterling base to a
Speaker 4: dollar based gold standard. The US never followed the rules
Speaker 4: of the gold standards. In two colossal episodes, it ignored them.
Speaker 4: So of course the gold stander collapsed, and all these
Speaker 4: whining about this again is ridiculous because the US has
Speaker 4: never had any intention and that's what we're seeing now
Speaker 4: of allow any international rules of greed rules from actually
Speaker 4: forcing it to do something it didn't really want to do.
Speaker 2: We could happily just keep asking you questions about, you know,
Speaker 2: financial history, but since we are in London and there
Speaker 2: is a lot going on, I feel like I have
Speaker 2: to ask at least one UK specific question. So I
Speaker 2: met with some friends of mine from universe. I've been
Speaker 2: meeting with them like over the past few days. All
Speaker 2: of them are professionals, seem to be doing pretty well
Speaker 2: in their career, but the discussion always ended up centering
Speaker 2: on salaries and real wages. I knew the UK had
Speaker 2: a productivity problem and a real wage problem, but I
Speaker 2: was surprised to hear the extent of it, at least
Speaker 2: according to some of my friends. What's going on there?
Speaker 2: Why has this happened?
Speaker 4: I think that I like what we've been discussing so far.
Speaker 4: This is one of the great puzzles. Actually, I call
Speaker 4: about this very very recently on based on recent work,
Speaker 4: and it's not unique to the UK, though I will
Speaker 4: describe one aspect which is an outlier up to two
Speaker 4: thousand and eight, so from about nineteen ninety two thousand
Speaker 4: and eight, so after the Thatcher Revolution two two thousand
Speaker 4: and eight, British productivity growth was really pretty strong. So
Speaker 4: between nineteen ninety and two thousand and eight, output ahead
Speaker 4: in the British economy rose by I think it was
Speaker 4: about thirty eight percent, which is pretty good over a
Speaker 4: period of seventeen years. It was around two percent a year,
Speaker 4: and that was much better than our European peers and
Speaker 4: quite a notable improvement of what had happened in the
Speaker 4: seventies and eighty so we felt pretty happy we were
Speaker 4: catching up again. Since then, since two thousand and eight,
Speaker 4: OURPA behead has gone up over the entire period by
Speaker 4: a little over five percent. Just think of that contrast.
Speaker 4: It's dramatic. Now. ALP behead in other European countries has
Speaker 4: not been much better over that period, but they were
Speaker 4: already doing relatively poorly before two thousand and eight. The
Speaker 4: slowdown in the UK has been greater than anywhere else.
Speaker 4: Up to two thousand and eight, we were doing about
Speaker 4: as well as the US, and since then we've been
Speaker 4: in a different class. So it should be saying if
Speaker 4: you look at the whole period since two thousand and eight,
Speaker 4: the US has actually been doing worse than in the
Speaker 4: previous period the US looks so great because everybody else
Speaker 4: has been doing so badly. So the question is why
Speaker 4: has this collapse in the UK happened? And I honestly
Speaker 4: think we can think of lots of possible explanations, but
Speaker 4: we don't fully understand it. You can't identify it in
Speaker 4: just one sector. Though there are some sectors which are
Speaker 4: particularly important. It seems to have happened in most sectors.
Speaker 4: Our investment rate is very low, but it's always been
Speaker 4: relatively low, so it's difficult to say the change there
Speaker 4: is decisive. There are some aspects of the public sector
Speaker 4: which clearly are important. The weakening and decline of the
Speaker 4: oil and gas sector is important. The fact that the
Speaker 4: financial sector has never been as dynamic as it was
Speaker 4: before two thousand and seven and eight is important. But
Speaker 4: the extent of the decline and what is essentially the
Speaker 4: loss of dynamism in British capitalism, if you just look
Speaker 4: at the foot seat, look at the stock market, in
Speaker 4: most of the companies there are old and dying. We
Speaker 4: don't fully understand. It is no doubt that the complete
Speaker 4: absence of a dynamic, technological, high tech sector is important.
Speaker 4: When you start looking at the detail, though, and that
Speaker 4: was very interesting in this column, and the work I
Speaker 4: did in this column is it's pretty clear that an
Speaker 4: even bigger difference is in the use of technology in
Speaker 4: the rest of the economy compared with the US. So
Speaker 4: I think that we can see what's happened. There's been
Speaker 4: a general loss of dynamism in the private sector, but
Speaker 4: it's very difficult to ascribe into specific policy changes because
Speaker 4: there really haven't been dramatic once we very much the
Speaker 4: tax regulatory system is much like it was before. What
Speaker 4: looks like is that there's sort of just dying. And
Speaker 4: this is sort of a European wide problem in too so.
Speaker 4: And of course if productivity growth disappears, re waged growth stops,
Speaker 4: because in the end, the real wages are incredibly highly correlated,
Speaker 4: not perfectly with the rate of growth productivity in the economy.
Speaker 4: The same is true for the US if you look
Speaker 4: at long periods, distribution matters a little. But Paul Gruman
Speaker 4: actually said this, well, a long time ago, productivity is
Speaker 4: and everything, but it's almost everything. So the basic answer
Speaker 4: to this question is we know, as it were, what
Speaker 4: the proximate cause is, but we don't know why it's happened. Fully,
Speaker 4: I have lots of theories, but we don't really know
Speaker 4: why this has happened. And it's a general European problem
Speaker 4: to some degree. Also in East Asia Japan is noticeable,
Speaker 4: though actually in the recent past pandemic post pandemic period,
Speaker 4: Japan has done relatively well.
Speaker 2: Since you mentioned Europe, one of the things people are
Speaker 2: getting excited about now is the idea that maybe the
Speaker 2: teriff w US isolationist policy is going to be this
Speaker 2: big catalyst for Europe. And we've seen European mainland stocks
Speaker 2: certainly go up recently. People are getting excited about finally
Speaker 2: we're going to have, you know, maybe the prospect of
Speaker 2: some real fiscal integration, or if not real physical integration,
Speaker 2: at least a lot more fiscal spending on things like
Speaker 2: defense and stuff like that. Is that a realistic possibility
Speaker 2: in your view?
Speaker 4: Well, and just to support this, even though it's partly
Speaker 4: an economic shock which the Trump administration has given Europe
Speaker 4: to big sharks, it's created a sort of security panic.
Speaker 4: Is NATO over and that was particularly focused on the
Speaker 4: issue of support for Ukraine and an economic shock, which
Speaker 4: was the proposal now withdrawn for another eighty odd days
Speaker 4: of penal tariffs twenty four percent. I can't remember what
Speaker 4: exactly the figure for the EU was, somewhere in that range.
Speaker 4: Do you have the two together. This is a crisis.
Speaker 4: So if not now when, If you believe, as John Maney,
Speaker 4: one of the great founding fathers of the EU said,
Speaker 4: that Europe is born in crisis, this is a big crisis.
Speaker 4: The world order is being transformed, and the crucial ally,
Speaker 4: the country on which we're heavily dependent, has got absent,
Speaker 4: as it were, possibly even hostile. So that's the plus side. Yes,
Speaker 4: they really ought to respond. The obstacles to change are
Speaker 4: also very very big. Europe is fragmented. It doesn't have
Speaker 4: a genuine people. The brexitters were right when they always
Speaker 4: said Europe doesn't have a demos, it doesn't have a people.
Speaker 4: It has people's it's not surprising. Look, you know, the
Speaker 4: Roman Empire disappeared fifteen hundred years ago and Europe has
Speaker 4: effectively been dis divided ever since, except under the Catholic Church,
Speaker 4: and we know where that ended up in the sixteenth century.
Speaker 4: So the answer is that I don't know whether this
Speaker 4: crisis is big enough to force the source of changes economically,
Speaker 4: which Mario Dragi wrote about in his report or politically
Speaker 4: to deal with the security questions. I tend to be
Speaker 4: skeptical simply because I know how big these challenges will be,
Speaker 4: in how much resistance there has been to every other
Speaker 4: necessary change. I think the crisis may have to get bigger.
Speaker 4: But I don't rule out the possibility that the crisis
Speaker 4: will get bigger, because if you ask me what will
Speaker 4: the American policy look like a year from now, I
Speaker 4: have absolutely no idea, but it could be much more
Speaker 4: hostile than it is now. It's quite thickly possible, in
Speaker 4: which case maybe the Europeans really will be forced. At
Speaker 4: the moment it looks like individual nation state response, not collective,
Speaker 4: and they're the One really big change I think is
Speaker 4: that the Germans are panicking, and Germany, in the center
Speaker 4: of Europe, is always prone to feeling insecure. That's part
Speaker 4: of its history. And I think it's pretty clear that
Speaker 4: the new government coming in will be much more aggressive
Speaker 4: on economic policy. It's forgotten the debt break nonsense. It
Speaker 4: clearly will mount a pretty big defense build up. It
Speaker 4: will become a much stronger motor of demand and all
Speaker 4: on its ow. Though it can't carry the whole of Europe.
Speaker 4: That will make a big difference. But I think in
Speaker 4: the end, at least in the next few years, we
Speaker 4: should trust more and what individual nations, above all Germany do.
Speaker 4: It's much more difficult for France, which is also very
Speaker 4: divided politically. Remember there's a very big what i' referred
Speaker 4: to as fifth column, a Putinist fifth column in Europe,
Speaker 4: and France is usually fiscally constrained, unlike Germany. So I'm
Speaker 4: modestly optimistic about the near term, but a really big
Speaker 4: leap into Union. I don't see the idea of.
Speaker 3: Ninety days and the US is going to sign all
Speaker 3: of these by letter or trade deals with partners all
Speaker 3: around the world strikes me absurd on its face. I mean, these,
Speaker 3: you know, trade deals take years and years to negotiate,
Speaker 3: and especially the limited constraints whatever I strike to me
Speaker 3: as I'm certain, nonetheless I mentioned in the beginning. You know, normally,
Speaker 3: I'm sorry, I would not typically care, how you know,
Speaker 3: the approval ratings of the United States and Sweden or
Speaker 3: Denmark do not typically particularly interest me. But in an
Speaker 3: environment of attempting to do deals, it strikes me as
Speaker 3: very relevant that the leaders of these countries have to
Speaker 3: be accountable to the individuals who elected them. Talk to
Speaker 3: us about the mood either among the elites who are
Speaker 3: going to be involved in these theoretical negotiations which I
Speaker 3: don't even know if they're existing, and the impulse to
Speaker 3: try to rectify and to try to come with two
Speaker 3: friendly relations with the new administration in the United States
Speaker 3: right now, how bad is it and how much of
Speaker 3: a hindrance is that to achieving something that resembles a
Speaker 3: happy out come.
Speaker 4: So I think this has to be broken down also
Speaker 4: to several elements. Countries will want to reach a deal
Speaker 4: with you. The US is very important. It's a very important
Speaker 4: partner in terms of both security and trade, and the
Speaker 4: administration is correct that these are linked in people's perceptions,
Speaker 4: and this is particularly true for the Asians broadly defined,
Speaker 4: particularly East Asians and Europeans. So they will want to
Speaker 4: reach a deal if they can. The second issue, which
Speaker 4: is really important is they will need to feel that
Speaker 4: this is a deal and this is about trust. Particularly
Speaker 4: it's got politically painful aspects to it. I'll come to
Speaker 4: the substance of the deal in the next is they
Speaker 4: will need to feel that the US is going to
Speaker 4: stick with it, and there's no doubt whether in a
Speaker 4: way I think for policymakers who are reasonably professional, whether
Speaker 4: you like the country or not is not that important.
Speaker 4: Though obviously the people really ate the Yanks. It's going
Speaker 4: to become more difficult. But the crucial question they have
Speaker 4: is can we trust that we're not going to go
Speaker 4: through this every week?
Speaker 3: Are we?
Speaker 4: And at the moment they're not sure if they won't
Speaker 4: have to do it every week. And there's no doubt
Speaker 4: in this regard that the treatment of Canada has been
Speaker 4: quite a shock. Yeah, you know, that really came out
Speaker 4: of the blue sky. I was always pretty pessimistic about
Speaker 4: what the Trump adminissian would do, but this has been
Speaker 4: really quite out of left field.
Speaker 2: And the.
Speaker 4: Well, Greenland, yes, but Greenland is less important than Canada's
Speaker 4: a real long term ally friend. You Trump himself signed
Speaker 4: the United States, Mexico and Canada agreement and then sort
Speaker 4: of blew it up, So that makes do we trust them?
Speaker 4: The third is obviously you can't do a detailed trade deal,
Speaker 4: and they seem to have an ambition to somehow link
Speaker 4: the currency with it. I have absolutely no idea what's
Speaker 4: going on in these discussions. No nobody, i think, seems
Speaker 4: to do and that seems to know in detail. But
Speaker 4: there is something that somebody suggested to me and I've
Speaker 4: been thinking about that the Americans might be saying, which
Speaker 4: might fit into their general theme. Assume that all this
Speaker 4: smoke and mirrors is basically a cover for the complete
Speaker 4: decoupling of the world from China. China, that's all they're
Speaker 4: trying to do.
Speaker 3: And this is as you're willing to be part of their.
Speaker 4: Deal and having frightened people and shaken them enough with
Speaker 4: these absolutely ridiculous bilateral tariffs nonsense, which everybody can see
Speaker 4: is an unworkable way of running world trade. Discuss that too,
Speaker 4: but that's a different matter. So basically what the US,
Speaker 4: let's suppose the US comes up is that we will
Speaker 4: go back to the status quo anti if you follow
Speaker 4: our tariffs on China, right, that's the deal, and we
Speaker 4: promise again this come back to the trust if we're
Speaker 4: going to comple completely burn our boats with China. And
Speaker 4: it's particularly applies to some of the Europeans and Japan
Speaker 4: in all the countries in the region, we really have
Speaker 4: to trust America. So it's a very big ask. But
Speaker 4: that's a deal that maybe quite a few countries would
Speaker 4: be willing to sign, but I certainly wouldn't guarantee it because,
Speaker 4: as I said, it's a tremendous cost. They all know
Speaker 4: China is an immense and rising power for many countries.
Speaker 4: It's their most important trading partner. For most countries they
Speaker 4: trade with the US. Though important. Isn't that europe can
Speaker 4: survive without it? Let's be clear. I mean, we are
Speaker 4: real adjustment, but it's not. You know, the most important
Speaker 4: trading partners are themselves, if I remember, they trade more
Speaker 4: with the UK than the US, so they can survive.
Speaker 4: But if the US is really after getting everybody else
Speaker 4: to break with China and or agreeing that they're going
Speaker 4: to go on the holding the dog they are getting to,
Speaker 4: they're not going to crease their reserves. Europeans don't have
Speaker 4: much anyway. But I could imagine a very simple deal
Speaker 4: like this might work with quite a few countries, but
Speaker 4: it won't work with everybody, and it will shatter the world.
Speaker 3: But it leads.
Speaker 4: It sort of makes if you think that really what
Speaker 4: the US is about is breaking China, which I don't
Speaker 4: think they can achieve by the way, I don't think.
Speaker 4: I think China will survive perfectly well, but the it's
Speaker 4: another matter. But then I can see something might come
Speaker 4: out of it. But if they're really trying to negotia
Speaker 4: to a real trade deal with every single country and
Speaker 4: it's all going to be different, that's completely impossible.
Speaker 3: Tracy. There's a good article yesterday on the Bloomberg Trump
Speaker 3: putting pressure on the Hungarians say, because there's a hunger
Speaker 3: is a huge destination for like real capital influence from China.
Speaker 3: Like Nick Denton, we'll talk about it. There's uid factor,
Speaker 3: is there, so like the pressure there and you know
Speaker 3: Orbit is like a Trump guy, et cetera. So these
Speaker 3: are really interesting tensions.
Speaker 4: Well, Auburn has a very bad economy. He runs his
Speaker 4: system as a crony capitalist system. It surprise and Brides
Speaker 4: doesn't work very well. He's desperate and the Chinese know
Speaker 4: he's desperate, and the Chinese are very clever. So he's
Speaker 4: playing both sides. My feelings, it couldn't happen to a
Speaker 4: nicer man to be squeezed by the too, the totalitarian
Speaker 4: system and the authoritarian system. At the same time, Victor
Speaker 4: Oben deserves it.
Speaker 2: So I'm just going to ask one more question, the
Speaker 2: most important one. You know, we started this discussion talking
Speaker 2: about the development of our current bout of political populism
Speaker 2: in the States on behalf of my dad, who believes
Speaker 2: that the Bank for International Settlements is secretly ruling the world.
Speaker 2: Can you please tell him what actually happens at Builderberg.
Speaker 2: You've been there right.
Speaker 4: Well, there are two very different themes.
Speaker 2: Yes, I realized, but it sounds.
Speaker 4: As though your dad, I am shocked to know, is
Speaker 4: one of these American conspiracy theorists. Yes, to put it wildly,
Speaker 4: Bildeberg and the BIS are two completely separate institutions to
Speaker 4: do completely separate things. And all I can say, having
Speaker 4: followed the BIS pretty closely for a very long time,
Speaker 4: they might wish to be bavel, but they surely are not.
Speaker 4: And one of the best examples of this I will
Speaker 4: give you of their failure. I like evidence, right, strange thing.
Speaker 4: Up to two thousand and seven, the chief economists of
Speaker 4: the BIS was a very dear friend of mine whom
Speaker 4: I much admired, Bill White, a Canadian, and he was
Speaker 4: arguing against all the central banks, particularly Green Spans fed
Speaker 4: that monitor and then Ben Bernanke's fed the monetary policy
Speaker 4: was far too loose, that as a result, the financial
Speaker 4: sector was going completely crazy, and that if they didn't
Speaker 4: do something about this, they were going to end up
Speaker 4: with a whacking great financial crisis. And the BIS did
Speaker 4: a wonderful job of warning people and nobody listened, which
Speaker 4: would suggest to me it's probably the clearest evidence that
Speaker 4: they don't run the world. And also quite possibly if
Speaker 4: they had run the world, and I wrote a bit
Speaker 4: about that in the time, I think it was a
Speaker 4: bit more complicated even than that, linked to the balance
Speaker 4: of payments and so forth. If they had, we were
Speaker 4: might be in great much greater shape, better shape now
Speaker 4: and Trump would now be president. And so if only
Speaker 4: the BIS run the world is my answer. Builderberg was
Speaker 4: just a very meeting of business people, politicians and so forth,
Speaker 4: created by the Dutch of all people, heartily the world's
Speaker 4: greatest enemy of freedom and so forth, I might say,
Speaker 4: even the inventors of modern capitalism at a national level,
Speaker 4: and because they thought after the Second World War we
Speaker 4: needed it informal meetings among elites. Yes, there are elites,
Speaker 4: to keep the Transatlantique relationship it working. That was what
Speaker 4: it was for and it was set up by the
Speaker 4: Dutch royal family to make this work. And I was many,
Speaker 4: many of meetings in Builderberg. I'm very proud of that.
Speaker 4: They were fascinating discussions in which people said things that
Speaker 4: would never, I think have been said in public, and
Speaker 4: from which I learned hugely. The greatest example to me,
Speaker 4: which is unbelievable, was the relationships between the Americans and
Speaker 4: the Europeans, particularly the French, in the lead up to
Speaker 4: the Iraq War, when it became perfectly obvious that the
Speaker 4: US was crazy. Another example alas again, if Bilderberg meeting
Speaker 4: had been as powerful as everybody thinks it would, Trump
Speaker 4: would never have happened, because that's exactly precisely what Berg
Speaker 4: was trying to prevent.
Speaker 2: I will communicate this to my dad. I'm not sure.
Speaker 4: All I can say is Builderberg and the BIS have
Speaker 4: been astoundingly unsuccessful what they wanted to achieve.
Speaker 3: I just have one last question. It kind of goes
Speaker 3: back to Tracy when we were talking about the dollar,
Speaker 3: and you know, and you talked about the mechanics of
Speaker 3: the old gold system in which you deflate your economy
Speaker 3: and your experts become more competitive One of the things
Speaker 3: that is a recurring theme on this podcast is that
Speaker 3: when it comes you talked about the industrialization, when it
Speaker 3: comes to industrial capacity or even construction capacity, sometimes talk
Speaker 3: about nuclear the US is out of practice that setting
Speaker 3: aside exchange rates, et cetera, That that institutional muscle to
Speaker 3: build a new nuclear plant or to build a very
Speaker 3: you know, productive new Carl ev line, a T shirt factory,
Speaker 3: given a T shirt factory, we're out of practice. And
Speaker 3: it makes me wonder like our exchangery is really even
Speaker 3: an important lever in the modern economy when we think
Speaker 3: about it, and you know, there's so much about network
Speaker 3: effects at San Francisco, there's only one San Francisco, and
Speaker 3: there's only one Shenzend et cetera. Just putting on your
Speaker 3: purely economics commentary, hat do you see exchange rates as
Speaker 3: being particularly important in the modern economy to think about
Speaker 3: the distribution of production?
Speaker 4: The short answer is no, they're not completely unimportant. I mean,
Speaker 4: if you want to have the capacity to build infrastructure, yeah,
Speaker 4: it's a good idea to build infrastructure. And anyone who
Speaker 4: wanders around the US a lot realizes you haven't been
Speaker 4: If you've been wandering around China and wondering around the
Speaker 4: US as I have in the last No, it's because
Speaker 4: you decided to waste your money on tax cuts instead
Speaker 4: of build things. When did you last build a nuclear
Speaker 4: power station?
Speaker 3: You know, there was the vote, the voter, but yeah,
Speaker 3: other than the one in Georgia, Yes, so it's a
Speaker 3: long time.
Speaker 4: When did you last build major roads? What happened to
Speaker 4: your fist high speed trains, your subways?
Speaker 3: I mean, that's not a doult.
Speaker 4: That's because the Chinese invests forty percent of GDP, you
Speaker 4: invest about twenty difference, Yes, and they invested in infrastructure
Speaker 4: to make them a modern economy, so they have stupendous
Speaker 4: capacity to build infrastruture. Do you want to invest forty
Speaker 4: percent of GDP?
Speaker 3: You can.
Speaker 4: All you have to do is cut consumption by twenty
Speaker 4: percent of GDP. Good luck with that jumps So obviously
Speaker 4: not the industrialization. Every developed world country is de industrializing
Speaker 4: because why consumers aren't spending much as much as before
Speaker 4: on manufacturers because it's a very rich country and every
Speaker 4: American has every machine you can imagine, So it's just
Speaker 4: replacement stuff. The replacement demand for iPhones is there.
Speaker 2: But it's small.
Speaker 4: So in the end, of course you're not. Now it
Speaker 4: is true, you could be making more of your consumption
Speaker 4: at home. That would possibly raise the share of manufacturing
Speaker 4: USGDP by three percentage points at most of you eliminated
Speaker 4: the deficit, maybe four maximum five. That's all going to
Speaker 4: fundamental transform industrial capacity because unlike China, which is still
Speaker 4: a very poor country where people are still buying their
Speaker 4: first car, their first everything, the US doesn't have the deviton.
Speaker 4: And of course Chinese wages are genuinely cheaper, much cheaper
Speaker 4: because it's much poorer. Do you want to be that poor?
Speaker 4: So no, of course these are real forces. Of course,
Speaker 4: the trade service of China is I think a bit
Speaker 4: of a disruptive factor, and I've argued for twenty years
Speaker 4: something should be done about it. But the idea that's
Speaker 4: the principal problem of the US and of de industrialization
Speaker 4: in the US, it's just.
Speaker 3: Nonsense, Tracy. I just got a new fridge with a
Speaker 3: working ice maker. I'm not signing up for a big
Speaker 3: consumption decrease. I'm just putting it out there.
Speaker 2: Aren't you going to have to buy another fridge with
Speaker 2: a working ice sensor? In like a month or ye.
Speaker 3: Sure does never work.
Speaker 4: Well, that works if you can scrap you buy a
Speaker 4: fridge every year and scrap it and make sure it's
Speaker 4: an America made fridge contribute sumpject. But obviously, if you
Speaker 4: smash domestic consumption in the US, that's not going to
Speaker 4: do much for domestic manufacturing. It will shift, however, to
Speaker 4: the sort of products that go into investment. It is
Speaker 4: perhaps important to remember the composition of demand is very
Speaker 4: important in determining the sorts of stuff you make. But
Speaker 4: as somebody you've said when you talked about T shirt,
Speaker 4: does the US really want to go back to being
Speaker 4: the T shirt hob of the world? And I mean,
Speaker 4: it's just ridiculous, isn't it.
Speaker 2: This is the thing that I really don't get about
Speaker 2: the push for the weaker dollar. It's like we're gonna
Speaker 2: trade off slower growth for a few T shirt factories
Speaker 2: potentially and a very slight, like I guess accounting effect
Speaker 2: from the exchange rate. It doesn't seem like the best
Speaker 2: deal to me, But here we are. Martin Wolf, thank
Speaker 2: you so much for coming on all thoughts. Yeah, I
Speaker 2: really enjoyed that.
Speaker 3: Really that was great.
Speaker 5: Thank you, Joe.
Speaker 2: That was so much fun.
Speaker 3: That made the whole trip to London basically. I mean,
Speaker 3: I imagine if we had cajoled him, we could have
Speaker 3: gotten him eventually to come out of zoom. But I
Speaker 3: feel like that made the whole trip to worth it.
Speaker 2: It was definitely better in person. And I have to say,
Speaker 2: when I used to work at the Ft, Martin was there.
Speaker 2: I never spoke to him. I wasn't like important enough
Speaker 2: to interact with one of our best columnists, but I
Speaker 2: remember I used to see him like in the FT
Speaker 2: cafeteria with like twelve different newspapers spread out in front
Speaker 2: of him, and I was always like, oh, there's Martin
Speaker 2: Wolf thinking deep thoughts about the woe, and.
Speaker 3: There was you know, I'll say two things, one macro
Speaker 3: thought and one micro thought, which is Martin yet another
Speaker 3: example of someone who is interesting because he knows specific details,
Speaker 3: which I'm always trying to hammer home, like people who
Speaker 3: know actual dates and figure et cetera. They're always smarter
Speaker 3: and better thinkers than the people who don't commit those
Speaker 3: things to memory. And then the micro thing is I'm
Speaker 3: really just like interested in this idea that there used
Speaker 3: to be a world economy in which things adjust right that. Okay,
Speaker 3: you export your gold, you have deflation, your competitive your
Speaker 3: domestic industry is more competitive, you get sales globally, and
Speaker 3: then you know, you reflate your economy, et cetera. I
Speaker 3: just do not right now believe the world works like
Speaker 3: that in such a way that suddenly the US would
Speaker 3: become a competitive manufacturer of goods simply by dint of
Speaker 3: having a weaker dollars.
Speaker 2: Yeah, and certainly not as quickly as certain US policy
Speaker 2: makers seem to think it could happen. Right Well, the
Speaker 2: other thing I would just say is it's good to
Speaker 2: talk to Martin for many many reasons, Yes, but also
Speaker 2: I think he's sort of representative of the fairly like
Speaker 2: baseline view among European policy about everything that's going on
Speaker 2: right now. And his point about making trade deals yeah
Speaker 2: with the US at the moment, I mean, I think
Speaker 2: that's like the realistic position that a lot of people
Speaker 2: are taking.
Speaker 3: It's interesting because one of the things that I've been
Speaker 3: wondering about, so like that chart that Donald Trump showed
Speaker 3: on April second, was complete nonsense. The board, Yeah, the
Speaker 3: board that change the world, the Liberation Day board. So
Speaker 3: it's like, what is the ask because it's obviously not
Speaker 3: lower tariffs or lower non tariff trade bearers, because that's
Speaker 3: all fabricated it is, and people are converging on the idea.
Speaker 3: The only realistic ask is asking other countries to truly
Speaker 3: break their relationship with China. And it's interesting that Martin
Speaker 3: thinks that there could be a number of them who
Speaker 3: actually would be willing to sign up for that, that
Speaker 3: the price of free trade with the US is much
Speaker 3: more restrictive trade with China.
Speaker 2: I'm glad you also brought up Hungary because I feel
Speaker 2: like that's going to be a really interesting test case
Speaker 2: to because you know, if anyone is going to walk
Speaker 2: away from China because the US is telling them to effectively,
Speaker 2: it seems like it might be Hunger, could.
Speaker 3: Be except that they're such a destination for Chinese capital investments.
Speaker 3: There was so much in that conversation. There are other
Speaker 3: things that I probably wanted to mention and pull out,
Speaker 3: but all the listeners heard them. So those are the
Speaker 3: things that said.
Speaker 2: Up, let's go to Nando's instead. Okay, shall we leave
Speaker 2: it there?
Speaker 3: Let's leave it there.
Speaker 2: This has been another episode of the Odd Thoughts podcast.
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway and.
Speaker 3: I'm Joe Wisenthal. You can follow me at the Stalwart.
Speaker 3: You can follow an automated feed of Martin's columns at
Speaker 3: the Ft at Martin Wolf Underscore, follow our producers Carmen
Speaker 3: Rodriguez at Carman Erman dash El Bennett at Dashbot and
Speaker 3: kel Brooks and Kilbrooks. And thank you to our London
Speaker 3: producer Moses Onam, who made this episode happen. More Odd
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