1 00:00:00,160 --> 00:00:02,320 Speaker 1: But knowledge to work and grow your business with c 2 00:00:02,520 --> 00:00:06,680 Speaker 1: i T from transportation to healthcare to manufacturing. C i 3 00:00:06,760 --> 00:00:10,520 Speaker 1: T offers commercial lending, leasing, and treasury management services for 4 00:00:10,600 --> 00:00:13,480 Speaker 1: small and middle market businesses. Learn more at c i 5 00:00:13,560 --> 00:00:25,000 Speaker 1: T dot com put Knowledge to Work. Hello and welcome 6 00:00:25,040 --> 00:00:29,160 Speaker 1: to another edition of the Odd Lots Podcast. I'm Joe Wisenthal, 7 00:00:29,280 --> 00:00:33,320 Speaker 1: Managing editor of Bloomberg Markets, and I'm Tracy Alloway, Executive 8 00:00:33,440 --> 00:00:37,360 Speaker 1: editor of Bloomberg Markets. Uh so, Tracy, do you know 9 00:00:37,400 --> 00:00:42,519 Speaker 1: what money is? It's, um that thing that we all 10 00:00:42,560 --> 00:00:46,440 Speaker 1: want more of. Right, that's actually a really uh that's 11 00:00:46,479 --> 00:00:48,839 Speaker 1: a really good definition. Actually, I think we can just 12 00:00:49,080 --> 00:00:52,600 Speaker 1: pretty much leave it at that. Oh we're done, Okay, good, Okay, 13 00:00:52,600 --> 00:00:57,160 Speaker 1: great podcast. Uh No, but but in all seriousness, um, 14 00:00:57,200 --> 00:00:59,720 Speaker 1: you know, money is one of these things that like 15 00:00:59,800 --> 00:01:02,080 Speaker 1: every one, as you say, just sort of take for granted. 16 00:01:02,120 --> 00:01:05,560 Speaker 1: We want more of it, We want to use it 17 00:01:05,600 --> 00:01:10,920 Speaker 1: to buy stuff obviously, but it's surprisingly difficult for people 18 00:01:11,120 --> 00:01:14,959 Speaker 1: to define or to describe what exactly it is. And 19 00:01:15,080 --> 00:01:19,360 Speaker 1: some people say it's a unit of measurements. Some people 20 00:01:19,440 --> 00:01:23,399 Speaker 1: say it's a medium of exchange. Uh. Some people say 21 00:01:23,400 --> 00:01:25,840 Speaker 1: it has to be backed by something. Some people say, 22 00:01:25,880 --> 00:01:32,479 Speaker 1: it's just this completely fictitious sociological abstract. There doesn't really 23 00:01:32,520 --> 00:01:35,360 Speaker 1: seem to be any clear answer of what this uh, 24 00:01:35,600 --> 00:01:37,600 Speaker 1: what money is, even though we sort of use it 25 00:01:37,640 --> 00:01:39,760 Speaker 1: and depend on it all the time. Well, I was 26 00:01:39,760 --> 00:01:41,520 Speaker 1: gonna say, it's kind of funny, isn't it, Because you 27 00:01:41,560 --> 00:01:44,160 Speaker 1: and I obviously when we're talking about markets, we are 28 00:01:44,280 --> 00:01:48,640 Speaker 1: talking about money and the ask nation of monetary values 29 00:01:48,720 --> 00:01:51,320 Speaker 1: to certain assets. And then in our day to day lives, 30 00:01:51,680 --> 00:01:54,880 Speaker 1: of course we are all pursuing money in one way 31 00:01:55,120 --> 00:01:58,640 Speaker 1: or another. Yet we don't actually have a firm definition 32 00:01:58,680 --> 00:02:00,560 Speaker 1: of it, right, And you'd think it would be a 33 00:02:00,560 --> 00:02:03,000 Speaker 1: pretty big deal that we talk about all the time, 34 00:02:03,040 --> 00:02:05,400 Speaker 1: but that don't know, I don't really know what it is. 35 00:02:05,440 --> 00:02:07,280 Speaker 1: But we just sort of, uh, we just sort of 36 00:02:07,560 --> 00:02:10,240 Speaker 1: skipped to the next part. I think usually, yeah, if 37 00:02:10,240 --> 00:02:13,440 Speaker 1: we had to define our variables for every story that 38 00:02:13,520 --> 00:02:16,639 Speaker 1: we write, we might be in trouble. Actually true, but 39 00:02:16,800 --> 00:02:19,800 Speaker 1: it turns out that what money is is actually a 40 00:02:19,880 --> 00:02:25,440 Speaker 1: really important concept, and that um errors in thinking about 41 00:02:25,440 --> 00:02:30,720 Speaker 1: what money is have huge implications for society and for policy. 42 00:02:30,840 --> 00:02:35,119 Speaker 1: That that people said, and with us today we are 43 00:02:35,120 --> 00:02:37,880 Speaker 1: going to be talking with Eric Lonergan he's a hedge 44 00:02:37,880 --> 00:02:41,919 Speaker 1: fund manager and he's also written a book about what 45 00:02:42,120 --> 00:02:46,120 Speaker 1: is money? And um, it's sort of attempts to answer, 46 00:02:46,639 --> 00:02:49,359 Speaker 1: at least get it an answer of what this, uh, 47 00:02:49,440 --> 00:02:53,320 Speaker 1: what it really is? Great? Great, So let's bring in 48 00:02:53,520 --> 00:02:56,760 Speaker 1: Eric and let's see if we can, um see a 49 00:02:56,960 --> 00:03:10,480 Speaker 1: what money is and why it's worth figuring out. Eric Lonergan, 50 00:03:10,560 --> 00:03:13,240 Speaker 1: thank you very much for joining us on the podcast. 51 00:03:13,360 --> 00:03:15,600 Speaker 1: It's a pleasure. Joe and Tracy. I thought you guys 52 00:03:15,639 --> 00:03:18,400 Speaker 1: were doing fine though without me. I'm very happy to 53 00:03:18,440 --> 00:03:23,480 Speaker 1: sign off right here. So I don't know why did 54 00:03:23,560 --> 00:03:26,040 Speaker 1: you write a book about what money is? Why is 55 00:03:26,080 --> 00:03:30,680 Speaker 1: this an important topic? Right? Well, I guess I've been 56 00:03:30,680 --> 00:03:32,400 Speaker 1: thinking about it for a long time. So there were 57 00:03:32,480 --> 00:03:35,360 Speaker 1: kind of two motivations. One was to do with book writing, 58 00:03:36,040 --> 00:03:39,560 Speaker 1: and then the other one was very specifically about issues 59 00:03:39,600 --> 00:03:43,880 Speaker 1: around money. So I've given a talk and actually and 60 00:03:44,240 --> 00:03:46,240 Speaker 1: a publisher came up to me afterwards and said, would 61 00:03:46,240 --> 00:03:48,240 Speaker 1: you like to write a book about that? And it 62 00:03:48,280 --> 00:03:51,480 Speaker 1: was on the sort of subject of finance and money, um, 63 00:03:51,520 --> 00:03:53,680 Speaker 1: and I really didn't just want to write something that 64 00:03:53,840 --> 00:03:56,480 Speaker 1: I didn't really believe in. So I've kind of been 65 00:03:56,520 --> 00:03:58,760 Speaker 1: thinking about these issues for the best part of twenty years, 66 00:03:58,800 --> 00:04:01,760 Speaker 1: and this was a chance to write right down the thoughts. 67 00:04:01,760 --> 00:04:03,920 Speaker 1: But the other thing that became very clear to me, 68 00:04:04,560 --> 00:04:06,800 Speaker 1: UM is I guess I experienced an awful lot of 69 00:04:06,840 --> 00:04:11,520 Speaker 1: frustration during the financial crisis, after the financial crisis and 70 00:04:11,560 --> 00:04:15,600 Speaker 1: then in the euro crisis, because particularly sitting in the UK, 71 00:04:16,360 --> 00:04:20,360 Speaker 1: it's very curious that the UK's biggest industry, both by 72 00:04:20,440 --> 00:04:26,120 Speaker 1: size and strategically is the financial sector, and yet there 73 00:04:26,320 --> 00:04:31,960 Speaker 1: is I would say, complete lack of understanding of what's 74 00:04:32,000 --> 00:04:33,960 Speaker 1: going on in the financial sector, and that was very, 75 00:04:34,080 --> 00:04:36,880 Speaker 1: very apparent, And so I thought, you know, maybe I 76 00:04:36,920 --> 00:04:41,480 Speaker 1: could bring those two components together to try and give 77 00:04:41,560 --> 00:04:43,880 Speaker 1: some perspective and what all of these things actually mean 78 00:04:43,960 --> 00:04:46,880 Speaker 1: and are about UM and at the same time bring it, 79 00:04:46,920 --> 00:04:48,400 Speaker 1: make it in a way that was more relevant to 80 00:04:48,400 --> 00:04:51,960 Speaker 1: people's lives and had more general implications for other areas 81 00:04:51,960 --> 00:04:55,640 Speaker 1: of people's lives. And does this misunderstanding of how the 82 00:04:55,680 --> 00:05:00,479 Speaker 1: financial sector works? Does it stem from a misunderstand in 83 00:05:00,560 --> 00:05:03,440 Speaker 1: your view of based concepts such as what is money? 84 00:05:03,760 --> 00:05:06,120 Speaker 1: I mean absolutely, so I think again, a lot of 85 00:05:06,160 --> 00:05:08,880 Speaker 1: people and I remember, you know, as you do if 86 00:05:08,880 --> 00:05:11,520 Speaker 1: you're if you're commuting into the city. In London, you'll 87 00:05:11,560 --> 00:05:14,839 Speaker 1: overhear people talking about issues of finance, and I did 88 00:05:14,880 --> 00:05:17,640 Speaker 1: hear people sort of saying, I assumed there was a 89 00:05:17,680 --> 00:05:21,080 Speaker 1: safe deposit box with my deposit in it. And so 90 00:05:21,279 --> 00:05:24,360 Speaker 1: I think people one of the fascinating things if you're 91 00:05:24,440 --> 00:05:28,599 Speaker 1: predisposed like I am, to think about these issues how 92 00:05:28,760 --> 00:05:31,680 Speaker 1: the sort of banking system works, is most of the 93 00:05:31,760 --> 00:05:35,440 Speaker 1: time you completely ignore it, and it's really very very 94 00:05:35,560 --> 00:05:38,000 Speaker 1: rare that it's working has become relevant to you, and 95 00:05:38,040 --> 00:05:40,960 Speaker 1: I think that's one of the reasons why that people 96 00:05:41,000 --> 00:05:42,919 Speaker 1: haven't given a lot of thought. So so there was 97 00:05:43,000 --> 00:05:46,000 Speaker 1: there was a point about I think individuals getting on 98 00:05:46,040 --> 00:05:48,880 Speaker 1: with their daily lives didn't really understand what was going 99 00:05:48,920 --> 00:05:51,479 Speaker 1: on behind them, what was keeping what was the lifeblood 100 00:05:51,480 --> 00:05:53,680 Speaker 1: of the economy, and we didn't really understand that or 101 00:05:53,720 --> 00:05:56,240 Speaker 1: think about it until it stopped. And then the other 102 00:05:56,279 --> 00:05:59,960 Speaker 1: thing I think is is that people really didn't under 103 00:06:00,040 --> 00:06:04,159 Speaker 1: to policymakers, really didn't understand some essential distinctions. So to 104 00:06:04,240 --> 00:06:06,479 Speaker 1: take a very concrete example that that I think is 105 00:06:06,520 --> 00:06:10,039 Speaker 1: important is I think if you understand money correctly, you 106 00:06:10,160 --> 00:06:15,719 Speaker 1: can't simultaneously engage in quantitative easing and austerity because it's 107 00:06:15,720 --> 00:06:19,160 Speaker 1: completely inconsistent. Um And yet of course you know we 108 00:06:19,200 --> 00:06:23,120 Speaker 1: saw that in in lots of countries. UM. So, so 109 00:06:23,160 --> 00:06:25,480 Speaker 1: I think you had like, sorry you, I think you 110 00:06:25,520 --> 00:06:27,960 Speaker 1: have this level of misunderstanding right at a very basic, 111 00:06:28,080 --> 00:06:30,919 Speaker 1: everyday life level of what does it mean to have 112 00:06:31,000 --> 00:06:34,040 Speaker 1: a deposit all the way through to what's been happening 113 00:06:34,040 --> 00:06:38,279 Speaker 1: with with macro policy. But how much was the confusion 114 00:06:38,480 --> 00:06:43,200 Speaker 1: about money and finance post the financial crisis, about the 115 00:06:43,279 --> 00:06:47,159 Speaker 1: evolution of financial markets and the financial industry, the idea 116 00:06:47,240 --> 00:06:51,159 Speaker 1: that everything became electronic. We had very very big numbers, 117 00:06:51,240 --> 00:06:56,200 Speaker 1: Everything was sort of abstract versus actual confusion about what 118 00:06:56,560 --> 00:07:00,320 Speaker 1: money is or was, say, two hundred or three hundred 119 00:07:00,400 --> 00:07:03,520 Speaker 1: years ago. Because it seems like those two have kind 120 00:07:03,520 --> 00:07:07,600 Speaker 1: of grown in tandem. Yeah, I think that's right, And 121 00:07:07,640 --> 00:07:10,280 Speaker 1: I think I think that what's really interesting about this 122 00:07:10,400 --> 00:07:16,760 Speaker 1: area is the misunderstandings go from all the way from 123 00:07:16,880 --> 00:07:20,400 Speaker 1: people who have have paid very little attention to the 124 00:07:20,440 --> 00:07:24,080 Speaker 1: financial sector all the way through to experts. So, for example, 125 00:07:24,120 --> 00:07:27,880 Speaker 1: I find it very interesting that economists, an awful lot 126 00:07:27,880 --> 00:07:32,120 Speaker 1: of economists think of money as a debt. I mean 127 00:07:32,200 --> 00:07:33,960 Speaker 1: down to the point of, you know, thinking of a 128 00:07:34,280 --> 00:07:37,960 Speaker 1: of a a dollar bill as a liability of the government, 129 00:07:38,000 --> 00:07:41,280 Speaker 1: which I think is actually just a very basic analytical error. Now, 130 00:07:41,320 --> 00:07:43,560 Speaker 1: what's interesting about that is is that you know, if 131 00:07:43,560 --> 00:07:47,160 Speaker 1: you said to a cab driver, ah, does the government 132 00:07:47,160 --> 00:07:49,920 Speaker 1: know you anything for your ten dollar bill, you just 133 00:07:49,960 --> 00:07:52,040 Speaker 1: get an odd look. I mean, they might think there's something, 134 00:07:52,080 --> 00:07:54,000 Speaker 1: they might be a bit have reservations about letting you 135 00:07:54,040 --> 00:07:58,040 Speaker 1: in the cab. And their instinct is absolutely correct. It's 136 00:07:58,040 --> 00:08:02,400 Speaker 1: not a liability. Um. That's that's actually crystal clear. And 137 00:08:02,480 --> 00:08:05,200 Speaker 1: yet economists have have have made it a liability because 138 00:08:05,200 --> 00:08:07,000 Speaker 1: in their models it's much more easy to deal with 139 00:08:07,040 --> 00:08:08,680 Speaker 1: it if it's a liability, because then it's just part 140 00:08:08,680 --> 00:08:10,320 Speaker 1: of the government stock of debt, and then I know 141 00:08:10,320 --> 00:08:11,600 Speaker 1: how to deal with it, and I can come up 142 00:08:11,640 --> 00:08:15,360 Speaker 1: with equations, and it's and and that very simple point. Now, 143 00:08:15,840 --> 00:08:19,520 Speaker 1: I think Paul Krugman's made that error. Uh. And Paul Krugman, 144 00:08:19,600 --> 00:08:22,680 Speaker 1: he's a Nobel Prize winning economist. Now I need to 145 00:08:22,680 --> 00:08:24,080 Speaker 1: be a little bit careful saying it, because you're a 146 00:08:24,120 --> 00:08:26,520 Speaker 1: bit worried saying he's made a basic analytical error. But 147 00:08:26,520 --> 00:08:29,880 Speaker 1: but the logical conclusion of that leads Mervyn King to 148 00:08:29,920 --> 00:08:32,200 Speaker 1: go I'm doing Quwie, but I want you to typen 149 00:08:32,200 --> 00:08:36,040 Speaker 1: fiscal policy, and arguably that's a really big error. So 150 00:08:36,480 --> 00:08:38,320 Speaker 1: I think you're you're You're absolutely right. You've had an 151 00:08:38,360 --> 00:08:42,719 Speaker 1: awful lot of innovation and opacity complexity entered into the 152 00:08:42,760 --> 00:08:46,640 Speaker 1: financial system. You've also got some really simple areas of 153 00:08:46,679 --> 00:08:50,520 Speaker 1: misunderstanding which I think have deep psychological roots, probably and 154 00:08:50,559 --> 00:08:53,040 Speaker 1: go back to you know what, what you and Joe 155 00:08:53,080 --> 00:08:55,839 Speaker 1: were discussing right at the beginning, which is one one 156 00:08:55,840 --> 00:09:00,480 Speaker 1: of these psychological discomforts, is the fact that something that 157 00:09:00,600 --> 00:09:05,240 Speaker 1: is so important to us, which is money, has no 158 00:09:05,440 --> 00:09:08,760 Speaker 1: value in the sense that most goods have a value. Um. 159 00:09:08,800 --> 00:09:12,120 Speaker 1: It's its value is entirely I mean it's it's just 160 00:09:12,200 --> 00:09:15,440 Speaker 1: a digit on a screen, um, and its value is 161 00:09:15,600 --> 00:09:18,920 Speaker 1: entirely contingent on the fact that other people will accept 162 00:09:18,960 --> 00:09:22,880 Speaker 1: its use. So it's intrinsically social. So you also have 163 00:09:22,960 --> 00:09:26,480 Speaker 1: this very intriguing aspect with money that it goes to 164 00:09:27,520 --> 00:09:33,080 Speaker 1: sometimes to our very acquisitive, selfish motivations, and yet the 165 00:09:33,280 --> 00:09:36,920 Speaker 1: entire basis of it is a social basis. Yeah, there's 166 00:09:36,960 --> 00:09:40,560 Speaker 1: one of the So obviously you make a point out 167 00:09:40,600 --> 00:09:45,240 Speaker 1: that this error that professional economists make about thinking of debt, 168 00:09:45,480 --> 00:09:48,600 Speaker 1: thinking of money as a liability of the government leads 169 00:09:48,679 --> 00:09:54,520 Speaker 1: to profound policy errors. What are some of the misunderstandings 170 00:09:54,559 --> 00:09:58,400 Speaker 1: that people who aren't economists have about money? And how 171 00:09:58,440 --> 00:10:03,040 Speaker 1: does that, um manifest itself? How do these errors of 172 00:10:03,080 --> 00:10:05,640 Speaker 1: our thinking, those of us who aren't economists, how do 173 00:10:05,760 --> 00:10:09,120 Speaker 1: they How do these errors manifest themselves in our lives? Well, 174 00:10:09,160 --> 00:10:11,840 Speaker 1: that's a that's a really good question, Joe. I mean, actually, 175 00:10:11,880 --> 00:10:17,040 Speaker 1: I think most people's intuitions are it's a very interesting area. 176 00:10:17,080 --> 00:10:20,560 Speaker 1: I think people's intuitions may well be better than the 177 00:10:20,600 --> 00:10:23,800 Speaker 1: people who have studied it. So so I think people 178 00:10:24,240 --> 00:10:27,120 Speaker 1: get when people start thinking about it, they're much more 179 00:10:27,160 --> 00:10:32,439 Speaker 1: likely to get confused. Um. And this is what leads 180 00:10:32,520 --> 00:10:36,360 Speaker 1: people to to to either assume. I mean again, you 181 00:10:36,400 --> 00:10:39,319 Speaker 1: found there were people who assumed that the dollars were 182 00:10:39,320 --> 00:10:43,520 Speaker 1: still backed by gold. So people, once people start to 183 00:10:43,559 --> 00:10:46,360 Speaker 1: look at it, they try to seek a greater degree 184 00:10:46,440 --> 00:10:49,120 Speaker 1: of meaning or a stronger basis in a sense of 185 00:10:49,120 --> 00:10:52,440 Speaker 1: the money. So I think people's everyday understanding of it, 186 00:10:52,480 --> 00:10:56,960 Speaker 1: which is that it's something profoundly useful and profoundly important. Uh, 187 00:10:57,000 --> 00:11:00,000 Speaker 1: you know, it's not obvious to me that by by 188 00:11:00,720 --> 00:11:02,959 Speaker 1: studying economics, you get to have a deeper understanding. I 189 00:11:03,000 --> 00:11:08,920 Speaker 1: think where people's understanding is very weak is more broadly 190 00:11:08,920 --> 00:11:11,199 Speaker 1: when you look at the financial system. So what is 191 00:11:11,240 --> 00:11:13,000 Speaker 1: the role of the stock market, Why do we have 192 00:11:13,080 --> 00:11:18,280 Speaker 1: stock markets? What is involved in investing? Um? These kind 193 00:11:18,280 --> 00:11:20,840 Speaker 1: of what? What? What is happening within the banking system? 194 00:11:20,920 --> 00:11:24,040 Speaker 1: How are deposits being created there? I think economics is 195 00:11:24,080 --> 00:11:27,720 Speaker 1: extremely helpful. Um and and you know, people who aren't 196 00:11:27,840 --> 00:11:31,360 Speaker 1: economists are having studied these things, uh, you know, really 197 00:11:31,360 --> 00:11:34,360 Speaker 1: don't have a high degree of understanding. There's also, then, 198 00:11:34,400 --> 00:11:37,080 Speaker 1: of course, a very interesting other dimension to all of this, 199 00:11:37,200 --> 00:11:41,040 Speaker 1: which again economists tend to exclude. But but but normal 200 00:11:41,120 --> 00:11:42,880 Speaker 1: humans for want of a better term, talk about all 201 00:11:42,920 --> 00:11:45,360 Speaker 1: the time, which is the whole emotional side of these things. 202 00:11:45,559 --> 00:11:47,800 Speaker 1: And so one of the things I learned an awful 203 00:11:47,840 --> 00:11:50,960 Speaker 1: lot from from being involved in markets is that the 204 00:11:51,160 --> 00:11:57,840 Speaker 1: human is ever present. Markets are psychological phenomena. Uh, there 205 00:11:57,840 --> 00:12:01,400 Speaker 1: are groups, um there our emotions. You know, if you 206 00:12:01,440 --> 00:12:03,960 Speaker 1: sit me in front of my Bloomberg terminal and if 207 00:12:04,000 --> 00:12:07,080 Speaker 1: you had a little dial that could control the you know, 208 00:12:07,240 --> 00:12:10,360 Speaker 1: the the SMP ticker, you could start to affect my 209 00:12:10,400 --> 00:12:13,960 Speaker 1: heart rate you could probably start to affect where blood 210 00:12:14,000 --> 00:12:17,880 Speaker 1: is flowing within my brain. Um And there's absolutely no 211 00:12:17,960 --> 00:12:24,720 Speaker 1: doubt that these evolved, semi dysfunctional instincts become very very 212 00:12:24,760 --> 00:12:30,840 Speaker 1: important when you get things like recessions or financial panics. UM. So, 213 00:12:30,840 --> 00:12:33,440 Speaker 1: so I think those are Yeah. That the role of 214 00:12:33,520 --> 00:12:37,600 Speaker 1: the role of emotion and psychology is is something that 215 00:12:37,600 --> 00:12:40,160 Speaker 1: that that we will all talk about, but you won't 216 00:12:40,200 --> 00:12:42,560 Speaker 1: find in any very rarely will you find it in 217 00:12:42,559 --> 00:12:45,600 Speaker 1: an economics book. Let's take a quick break. Note from 218 00:12:45,640 --> 00:12:50,040 Speaker 1: a word from our sponsor, but knowledge to work and 219 00:12:50,080 --> 00:12:53,400 Speaker 1: grow your business with c i T from transportation to 220 00:12:53,480 --> 00:12:57,480 Speaker 1: healthcare to manufacturing. C i T offers commercial lending, leasing, 221 00:12:57,520 --> 00:13:01,600 Speaker 1: and treasury management services for small middle market businesses. Learn 222 00:13:01,640 --> 00:13:05,120 Speaker 1: more at c i T dot com put Knowledge to Work. 223 00:13:06,120 --> 00:13:09,320 Speaker 1: And we're back with Eric Lonergan. He's a hedge fund 224 00:13:09,400 --> 00:13:13,640 Speaker 1: manager and the author of a book about money. And 225 00:13:13,720 --> 00:13:18,280 Speaker 1: we're just talking about the sort of psychological elements of 226 00:13:18,480 --> 00:13:23,480 Speaker 1: markets and misunderstandings about markets, and I wanted to uh 227 00:13:23,800 --> 00:13:26,440 Speaker 1: talk about ask one question about this. You make a 228 00:13:26,559 --> 00:13:29,520 Speaker 1: really interesting point in your book that if you were 229 00:13:29,559 --> 00:13:33,720 Speaker 1: to ask people, including most financial market practitioners, what the 230 00:13:33,720 --> 00:13:38,200 Speaker 1: point of financial markets is they would actually get it wrong. 231 00:13:38,280 --> 00:13:42,200 Speaker 1: Most people don't understand the purpose of financial markets. What 232 00:13:42,240 --> 00:13:44,800 Speaker 1: do most people say financial markets are for and what 233 00:13:44,840 --> 00:13:47,480 Speaker 1: are they actually for. Well, if you take the stock 234 00:13:47,520 --> 00:13:50,640 Speaker 1: market as an example, that the standard answer is it's 235 00:13:50,679 --> 00:13:54,599 Speaker 1: about allocating capital. It's so diverting capital to its to 236 00:13:54,720 --> 00:13:58,840 Speaker 1: its best uses now, But if you actually think about 237 00:13:58,840 --> 00:14:00,920 Speaker 1: and reflect on it, that's not really why we have 238 00:14:00,920 --> 00:14:04,040 Speaker 1: stock markets. So historically, the origin of stock markets, and 239 00:14:04,080 --> 00:14:08,800 Speaker 1: it remains their function today, is actually about diversification. In fact, 240 00:14:08,840 --> 00:14:12,600 Speaker 1: stock markets are a very early form of securitization, which 241 00:14:12,679 --> 00:14:17,760 Speaker 1: is the converting something that's privately owned into tradeable securities. 242 00:14:17,960 --> 00:14:19,680 Speaker 1: So if you go back in history and see why 243 00:14:19,680 --> 00:14:22,920 Speaker 1: did we set up joint stock companies, was largely to 244 00:14:23,000 --> 00:14:27,040 Speaker 1: facilitate trade because people wanted to diversify risk. So the 245 00:14:27,080 --> 00:14:29,920 Speaker 1: idea was you had a rather risky venture if you 246 00:14:29,960 --> 00:14:33,560 Speaker 1: were sending ships overseas to engage in trade. No single 247 00:14:33,600 --> 00:14:35,840 Speaker 1: individual would want to commit all of their capital or 248 00:14:35,880 --> 00:14:39,200 Speaker 1: they wouldn't engage in taking on that risk, and so 249 00:14:39,320 --> 00:14:42,000 Speaker 1: joint stock companies were set up to diversify that risk. 250 00:14:42,560 --> 00:14:45,400 Speaker 1: So if you look at actually who does the capital allocation. 251 00:14:45,520 --> 00:14:48,560 Speaker 1: It's not really the stock market. Most of it is 252 00:14:48,600 --> 00:14:51,200 Speaker 1: done by by companies and stuff. So what companies decide 253 00:14:51,200 --> 00:14:54,880 Speaker 1: to do with retained earnings or if you are areas 254 00:14:54,920 --> 00:14:58,960 Speaker 1: like private equity, you get more direct allocation of capital. 255 00:14:59,160 --> 00:15:01,720 Speaker 1: But the stock markets primary function is in fact insurance. 256 00:15:01,760 --> 00:15:05,320 Speaker 1: It's actually to diversify risk. So most of what financial 257 00:15:05,360 --> 00:15:08,480 Speaker 1: markets are trying to do is precisely that. It's actually 258 00:15:08,560 --> 00:15:13,640 Speaker 1: insurance um and insurance um at the risk of of 259 00:15:13,640 --> 00:15:17,240 Speaker 1: of causing people to fall asleep. Insurance is you know, 260 00:15:17,280 --> 00:15:19,360 Speaker 1: it is again a difficult area to understand, but has 261 00:15:19,640 --> 00:15:23,240 Speaker 1: has been profoundly beneficial because it increases the propensity of 262 00:15:23,240 --> 00:15:25,040 Speaker 1: society is to take risk if we can, if we 263 00:15:25,080 --> 00:15:27,920 Speaker 1: can ensure and diversify. And so that's why in a 264 00:15:28,000 --> 00:15:30,920 Speaker 1: sense you can, uh, you know, societies we may be 265 00:15:30,960 --> 00:15:33,960 Speaker 1: willing to invest in much more risky things than we 266 00:15:33,960 --> 00:15:37,120 Speaker 1: would otherwise be willing to do as individuals. It feels 267 00:15:37,120 --> 00:15:39,960 Speaker 1: to me like those are key concepts to grasp again 268 00:15:40,000 --> 00:15:42,480 Speaker 1: in the aftermath of the financial crisis, when we have 269 00:15:42,640 --> 00:15:45,240 Speaker 1: a lot of investors who were risk averse, and we 270 00:15:45,280 --> 00:15:47,400 Speaker 1: had a bunch of central banks who were trying to 271 00:15:47,520 --> 00:15:53,040 Speaker 1: stimulate the economy through, to borrow your phrase, the allocation 272 00:15:53,440 --> 00:15:57,720 Speaker 1: of capital, walk us through how that concept, getting that 273 00:15:57,800 --> 00:16:02,080 Speaker 1: concept right actually has played out to post crisis. Well, 274 00:16:02,120 --> 00:16:04,240 Speaker 1: I think a post crisis I would say one of 275 00:16:04,240 --> 00:16:07,480 Speaker 1: the primary factors again which isn't really again talked about 276 00:16:07,480 --> 00:16:11,560 Speaker 1: an awful lot, is actually a psychological one. So what 277 00:16:11,600 --> 00:16:14,640 Speaker 1: I think is much more consistent with evidence rather than 278 00:16:14,680 --> 00:16:17,680 Speaker 1: a lot of this talk about things like secular stagnation 279 00:16:17,720 --> 00:16:20,040 Speaker 1: and why interest rates are where they at? What why 280 00:16:20,120 --> 00:16:22,640 Speaker 1: why interest rates are where they are? It is in 281 00:16:22,720 --> 00:16:27,080 Speaker 1: fact a more generalized risk aversion, and more even more 282 00:16:27,120 --> 00:16:29,680 Speaker 1: specific than that within the financial system, is is a 283 00:16:29,760 --> 00:16:35,680 Speaker 1: volatility aversion, volatility very specifically. So if you look at um, 284 00:16:35,760 --> 00:16:38,720 Speaker 1: you know, for example, that the difference in pricing between 285 00:16:38,800 --> 00:16:42,520 Speaker 1: more volatile assets like equities versus assets that are perceived 286 00:16:42,520 --> 00:16:44,800 Speaker 1: to have very low levels of volatility, like parts of 287 00:16:44,800 --> 00:16:48,200 Speaker 1: the fixed income market, there are very very elevated levels 288 00:16:48,360 --> 00:16:51,480 Speaker 1: of risk premium in the in the more volatile assets. 289 00:16:52,440 --> 00:16:54,600 Speaker 1: So you know, what, what does that really mean? Well, 290 00:16:54,880 --> 00:16:57,400 Speaker 1: you can think of it almost like a biological organism, 291 00:16:57,640 --> 00:17:00,840 Speaker 1: which is the entire system experience. It's a very very 292 00:17:00,920 --> 00:17:05,520 Speaker 1: profound shock where you know, most people never really thought 293 00:17:05,520 --> 00:17:09,040 Speaker 1: that their high street bank could fail. Um. They assumed 294 00:17:09,080 --> 00:17:11,840 Speaker 1: that there were you know, serious people in charge who 295 00:17:11,880 --> 00:17:13,560 Speaker 1: knew what they were doing, and we're in control of 296 00:17:13,600 --> 00:17:16,280 Speaker 1: the system. And they discovered that all of those kind 297 00:17:16,320 --> 00:17:20,959 Speaker 1: of truths were actually based on very shaky foundations. And 298 00:17:21,040 --> 00:17:23,960 Speaker 1: so it's as if the organism is recoiling from that, 299 00:17:24,080 --> 00:17:26,480 Speaker 1: and that is actually reflected at lots and lots of 300 00:17:26,520 --> 00:17:30,120 Speaker 1: different levels. So um, and that is one of the reasons, 301 00:17:30,119 --> 00:17:32,760 Speaker 1: in fact why interest rates are in fact so low, 302 00:17:33,560 --> 00:17:37,880 Speaker 1: is that you have this residual degree of of volatility 303 00:17:37,880 --> 00:17:41,760 Speaker 1: a version or risk aversion. So people talk about zero 304 00:17:41,800 --> 00:17:44,399 Speaker 1: interest rates. Again, what's very interesting in most economic models, 305 00:17:44,359 --> 00:17:47,360 Speaker 1: there's just one interest rate. In the real world, there 306 00:17:47,400 --> 00:17:49,200 Speaker 1: are loads of interest rates that go into your cost 307 00:17:49,200 --> 00:17:51,840 Speaker 1: of capital, and perhaps the most important is the cost 308 00:17:51,840 --> 00:17:54,480 Speaker 1: of equity capital. And the cost of equity capital in 309 00:17:54,480 --> 00:17:56,360 Speaker 1: a lot of parts of the world is higher than 310 00:17:56,400 --> 00:17:58,680 Speaker 1: it was ten years ago. In fact, even in the 311 00:17:58,760 --> 00:18:01,600 Speaker 1: United States the SMPO, as you know, is one of 312 00:18:01,640 --> 00:18:05,000 Speaker 1: the more highly rated markets on a higher p multiple, 313 00:18:05,240 --> 00:18:10,560 Speaker 1: it's still relative to pre crisis on not dissimilar cost 314 00:18:10,600 --> 00:18:12,919 Speaker 1: of equity to where it was pre crisis. So Although 315 00:18:13,359 --> 00:18:18,320 Speaker 1: interest rates on effectively cash substitutes have absolutely collapsed, interest 316 00:18:18,400 --> 00:18:21,240 Speaker 1: rates on lots of other assets that affect people's investment 317 00:18:21,280 --> 00:18:26,080 Speaker 1: decision making and reflect their psychological disposition are still very elevated. 318 00:18:27,080 --> 00:18:30,040 Speaker 1: So the idea that there are multiple interest rates that 319 00:18:30,160 --> 00:18:33,840 Speaker 1: affect the economy and so keeping benchmark interest rates ultralow 320 00:18:34,000 --> 00:18:37,000 Speaker 1: might not be as effective as central bankers might want 321 00:18:37,040 --> 00:18:40,920 Speaker 1: it to. You've written about that, and you're advocating a 322 00:18:40,960 --> 00:18:43,720 Speaker 1: different approach to deal with that problem, right, In fact, 323 00:18:43,720 --> 00:18:48,320 Speaker 1: you're advocating more money essentially. That's right. I'm I've got 324 00:18:48,359 --> 00:18:54,080 Speaker 1: the twelve year old solution, which what are the problems 325 00:18:54,080 --> 00:18:56,720 Speaker 1: with this solution is? It's it's it's it's simple to 326 00:18:56,760 --> 00:18:59,159 Speaker 1: the point of being embarrassing. So that the problem is 327 00:18:59,200 --> 00:19:01,119 Speaker 1: I think a lot of the anomics profession is very 328 00:19:01,160 --> 00:19:03,080 Speaker 1: resistant to it because if it works, people are going 329 00:19:03,119 --> 00:19:04,760 Speaker 1: to say, why on earth didn't you do this sooner? 330 00:19:04,800 --> 00:19:08,760 Speaker 1: It's so obvious. Um. But but my observations are very straightforward, 331 00:19:08,760 --> 00:19:10,280 Speaker 1: and if you want people to spend more, give them 332 00:19:10,280 --> 00:19:15,800 Speaker 1: more money, um. And it really is that simple. What's interest? 333 00:19:15,880 --> 00:19:18,040 Speaker 1: And so there's interesting why there's such a high degree 334 00:19:18,040 --> 00:19:20,720 Speaker 1: of resistance to this as an idea, and I again 335 00:19:20,760 --> 00:19:24,159 Speaker 1: I think that's largely an accident of history. So it's 336 00:19:24,240 --> 00:19:25,960 Speaker 1: very interesting. I don't know, you may have seen, you know, 337 00:19:25,960 --> 00:19:28,280 Speaker 1: you've just had Jackson Hole, who was reading one of 338 00:19:28,280 --> 00:19:30,400 Speaker 1: the papers at jackson Hole has just had a lot 339 00:19:30,440 --> 00:19:33,439 Speaker 1: of attention, was papered by Christopher Simms, who I have 340 00:19:33,520 --> 00:19:35,800 Speaker 1: to confess, I think is is very guilty of what 341 00:19:35,840 --> 00:19:38,120 Speaker 1: I said at the outset about making turning money into 342 00:19:38,119 --> 00:19:40,720 Speaker 1: a liability of government, because then it becomes easy to 343 00:19:40,720 --> 00:19:43,560 Speaker 1: do the maths or you can fit it into your models. Um. 344 00:19:44,000 --> 00:19:47,439 Speaker 1: But you know, again, one of the the kind of 345 00:19:47,720 --> 00:19:51,480 Speaker 1: if you read what Christopher Sims is is talking about, 346 00:19:51,560 --> 00:19:56,680 Speaker 1: you have these these kind of absolutely hyper rational individuals 347 00:19:56,840 --> 00:20:02,359 Speaker 1: who are expecting future fiscal policy behave in a certain way. Again, 348 00:20:02,400 --> 00:20:04,800 Speaker 1: I really don't think that's the way human psychology works. 349 00:20:04,840 --> 00:20:09,800 Speaker 1: And I think what what people are not necessarily motivated 350 00:20:09,800 --> 00:20:12,760 Speaker 1: by expectations. I think a lot of our beliefs are 351 00:20:12,800 --> 00:20:16,639 Speaker 1: based on what we actually observe. So so the idea 352 00:20:16,720 --> 00:20:19,399 Speaker 1: that that you can get people to spend more money 353 00:20:19,440 --> 00:20:21,639 Speaker 1: by telling them they will be in higher inflation in 354 00:20:21,680 --> 00:20:24,440 Speaker 1: the future, I just don't really think is how human 355 00:20:24,440 --> 00:20:28,719 Speaker 1: beings operate. People are absolutely likely to spend more money 356 00:20:28,800 --> 00:20:32,160 Speaker 1: if they see their income increasing and if they expect 357 00:20:32,160 --> 00:20:34,720 Speaker 1: that either to continue to increase or they then see 358 00:20:34,720 --> 00:20:38,200 Speaker 1: that as their sales increasing if they're running a business. Um. 359 00:20:38,280 --> 00:20:40,040 Speaker 1: So I think people actually need to see it and 360 00:20:40,119 --> 00:20:43,920 Speaker 1: experience it, and that is much more likely to change 361 00:20:44,440 --> 00:20:46,919 Speaker 1: what people believe and how they behave and what they think. Right. 362 00:20:47,000 --> 00:20:51,160 Speaker 1: One of the arguments against, say, more aggressive fiscal policy 363 00:20:51,200 --> 00:20:54,280 Speaker 1: you hear is that, well, sure people will get more money, 364 00:20:54,280 --> 00:20:56,920 Speaker 1: but then somehow they'll know that in the future their 365 00:20:57,000 --> 00:20:59,640 Speaker 1: tax rate will be hired they have to make up 366 00:20:59,680 --> 00:21:02,480 Speaker 1: for their at spending, and therefore it won't do anything. 367 00:21:02,880 --> 00:21:05,480 Speaker 1: But you say, that's not really how humans think. That's 368 00:21:05,520 --> 00:21:08,520 Speaker 1: just like how humans might think on an economic model. Yeah, 369 00:21:08,560 --> 00:21:11,479 Speaker 1: and it's also not obviously rational, right. So so the 370 00:21:11,560 --> 00:21:15,560 Speaker 1: model in which that's true is a model where everybody 371 00:21:15,640 --> 00:21:19,679 Speaker 1: is always employed, um and there's no fluctuations in our 372 00:21:19,720 --> 00:21:23,080 Speaker 1: in our productivity or there's no changes in our circumstances 373 00:21:23,119 --> 00:21:25,840 Speaker 1: that are that significant. So I think it's absolutely rational 374 00:21:25,880 --> 00:21:29,479 Speaker 1: if you get an effective policy. So it's it's very 375 00:21:29,520 --> 00:21:31,919 Speaker 1: instinct question. If I said to you, right, you're going 376 00:21:31,960 --> 00:21:33,760 Speaker 1: to get if you're in Europe at the moment, which 377 00:21:33,800 --> 00:21:35,680 Speaker 1: is in a quasi depression, if there was going to 378 00:21:35,760 --> 00:21:40,560 Speaker 1: be corporate tax cuts and household tax cuts, income tax 379 00:21:40,560 --> 00:21:43,320 Speaker 1: cuts across the whole of the Eurozone, what would you 380 00:21:43,359 --> 00:21:45,639 Speaker 1: as an individual think about what the implications are for 381 00:21:45,680 --> 00:21:49,480 Speaker 1: your long term tax burden. Well, if you think that's successful, 382 00:21:49,680 --> 00:21:52,399 Speaker 1: it is conceivable that you would probably have quite a 383 00:21:52,440 --> 00:21:54,640 Speaker 1: neutral view. You might even have the n iron view 384 00:21:54,640 --> 00:21:57,240 Speaker 1: of your prospective tax burden because the world that you 385 00:21:57,240 --> 00:21:59,800 Speaker 1: would then be operating in will be a very different one. 386 00:22:00,080 --> 00:22:03,400 Speaker 1: Um and so there is cyclicality in an in in economics, 387 00:22:03,480 --> 00:22:06,479 Speaker 1: so you just you don't have these stable paths that 388 00:22:06,520 --> 00:22:08,879 Speaker 1: we model. So a lot of these into a lot 389 00:22:08,880 --> 00:22:11,000 Speaker 1: of these ideas and economics are premised on an assumption 390 00:22:11,040 --> 00:22:13,440 Speaker 1: that you just have stable paths, in which case you're 391 00:22:13,480 --> 00:22:15,600 Speaker 1: just bringing something forward to the future. But what you 392 00:22:15,680 --> 00:22:18,840 Speaker 1: actually do now may impact what the future looks like. 393 00:22:19,160 --> 00:22:20,680 Speaker 1: So there may actually be grands to be a lot 394 00:22:20,680 --> 00:22:22,880 Speaker 1: more optimistic about the future, in which case these things 395 00:22:22,880 --> 00:22:26,040 Speaker 1: are self reinforcing. We could talk about this topic forever, 396 00:22:26,119 --> 00:22:28,879 Speaker 1: but there's such there's such a broad topic. There was 397 00:22:28,920 --> 00:22:32,359 Speaker 1: another thing in your book that really struck me, and 398 00:22:32,440 --> 00:22:35,359 Speaker 1: it has to do with these sort of intersection of 399 00:22:35,440 --> 00:22:39,399 Speaker 1: money and culture, which struck me is very relevant today. 400 00:22:39,480 --> 00:22:43,440 Speaker 1: And you pointed out that money allows a society or 401 00:22:43,480 --> 00:22:47,240 Speaker 1: a country to essentially import the culture of another country. 402 00:22:47,320 --> 00:22:49,879 Speaker 1: So if you have a country that is has a 403 00:22:49,960 --> 00:22:55,920 Speaker 1: reputation for lots of corruption and poor fiscal management, then 404 00:22:56,040 --> 00:22:59,959 Speaker 1: one way to solve that is to go on the currency, 405 00:23:00,040 --> 00:23:02,679 Speaker 1: say the dollar, or go on the currency of a 406 00:23:02,720 --> 00:23:06,600 Speaker 1: country where uh, there's less corruption and where money is 407 00:23:06,680 --> 00:23:10,240 Speaker 1: more stable. Argentina is an example. It also sort of 408 00:23:10,280 --> 00:23:12,600 Speaker 1: made me think about the Eurozone with sort of um 409 00:23:13,160 --> 00:23:18,200 Speaker 1: Italy having to listen to Germany who is dictating its 410 00:23:18,240 --> 00:23:22,280 Speaker 1: fiscal rules. Perhaps some elites in Italy like that because 411 00:23:22,320 --> 00:23:25,720 Speaker 1: they don't have confidence in their peers in Italy to uh, 412 00:23:25,840 --> 00:23:28,879 Speaker 1: you know, remain to avoid corruption and so forth. But 413 00:23:28,880 --> 00:23:31,159 Speaker 1: this struck me as a very powerful concept, especially as 414 00:23:31,160 --> 00:23:35,320 Speaker 1: you see the rise anti globalization movements around the world. 415 00:23:35,359 --> 00:23:39,200 Speaker 1: This fact that money allows for cultures to flow from 416 00:23:39,200 --> 00:23:42,879 Speaker 1: one to the other more freely. Absolutely so. So one 417 00:23:42,960 --> 00:23:44,560 Speaker 1: of the themes I try to explain in the book 418 00:23:44,600 --> 00:23:48,520 Speaker 1: is this kind of two sides of of money, which 419 00:23:48,600 --> 00:23:53,439 Speaker 1: is the inherentce into dependence and the related sort of 420 00:23:53,480 --> 00:23:58,960 Speaker 1: tension in fact between markets and in many ways between nationalism. Um. 421 00:23:59,119 --> 00:24:02,720 Speaker 1: So it is very if you look at people's financial activity. 422 00:24:02,800 --> 00:24:05,600 Speaker 1: So I tend to think of money as being most 423 00:24:05,680 --> 00:24:09,520 Speaker 1: like an institution. So David Hume, the Scottish philosopher, spoke 424 00:24:09,520 --> 00:24:13,600 Speaker 1: about that these kind of three natural, naturally forming institutions 425 00:24:13,680 --> 00:24:16,879 Speaker 1: of of law, language, and money, And in fact, I 426 00:24:16,920 --> 00:24:21,160 Speaker 1: think the economics of money are most analogous to those 427 00:24:21,200 --> 00:24:25,080 Speaker 1: of language, which is very curious and and language actually 428 00:24:25,119 --> 00:24:28,800 Speaker 1: has this phenomenon as well, where of course you have 429 00:24:28,960 --> 00:24:32,840 Speaker 1: common common language being used and increasingly so with globalization. 430 00:24:33,119 --> 00:24:35,080 Speaker 1: But you're absolutely right. So if you think of money 431 00:24:35,119 --> 00:24:39,959 Speaker 1: as an institution, um, many countries can in fact import 432 00:24:40,600 --> 00:24:44,480 Speaker 1: the the institution from somewhere else. So again it completely 433 00:24:44,520 --> 00:24:46,879 Speaker 1: undermines nationalism. I mean, if you think of countries that 434 00:24:46,960 --> 00:24:51,160 Speaker 1: can be very proud as nations, but if their own 435 00:24:51,160 --> 00:24:54,920 Speaker 1: institutions are creating financial instability, they'll adopt another currency. And 436 00:24:55,160 --> 00:24:57,640 Speaker 1: the case of point of of dollarization with the use 437 00:24:57,680 --> 00:25:01,240 Speaker 1: of dollars across Latin America but to in many other countries. 438 00:25:01,760 --> 00:25:04,199 Speaker 1: And there's no doubt this was part of what was 439 00:25:04,240 --> 00:25:07,960 Speaker 1: happening with the creation of Europe and the Eurozone. So 440 00:25:08,440 --> 00:25:10,720 Speaker 1: if you look at many countries, one of the major 441 00:25:10,800 --> 00:25:18,240 Speaker 1: motivations for joining Europe was effectively to import institutional credibility 442 00:25:18,480 --> 00:25:20,480 Speaker 1: from outside their own country. So they were able to 443 00:25:20,560 --> 00:25:23,600 Speaker 1: use this as a kind of incentive to improve the 444 00:25:23,600 --> 00:25:26,600 Speaker 1: institutional structure domestically. And I think that's one of the 445 00:25:26,680 --> 00:25:29,479 Speaker 1: one of the great sadnesses post the euro crisis. I mean, 446 00:25:29,680 --> 00:25:33,240 Speaker 1: I firstly, I personally found the euro crisis profoundly frustrating 447 00:25:33,280 --> 00:25:37,560 Speaker 1: because again I think a very simple monetary solution. If 448 00:25:37,560 --> 00:25:40,960 Speaker 1: the ECB had introduced quantitative easing in two thousand and nine, 449 00:25:41,000 --> 00:25:42,920 Speaker 1: when all of the central banks were doing so, there 450 00:25:42,920 --> 00:25:45,040 Speaker 1: probably wouldn't have been a euro crisis. I think all 451 00:25:45,080 --> 00:25:48,240 Speaker 1: of the evidence now points that direction, but certainly that 452 00:25:48,400 --> 00:25:53,240 Speaker 1: in that importing institutional credibility has been deeply undermined. So 453 00:25:53,280 --> 00:25:55,399 Speaker 1: if you go to countries like Italy, I remember in 454 00:25:55,440 --> 00:25:59,840 Speaker 1: Italy twenty years ago, it was absolutely perceived to be 455 00:25:59,840 --> 00:26:06,800 Speaker 1: the case that European institutions improved domestic Italian institutions. Whereas 456 00:26:06,800 --> 00:26:08,960 Speaker 1: I think what happened after the after the euro crisis 457 00:26:09,000 --> 00:26:12,280 Speaker 1: was there was a profound sense that actually there was, 458 00:26:12,520 --> 00:26:15,880 Speaker 1: there was deep mismanagement in Europe that was actually causing 459 00:26:15,920 --> 00:26:20,320 Speaker 1: on necessary problems in the Italian economy at very high cost. 460 00:26:21,080 --> 00:26:24,320 Speaker 1: And obviously you've also then had the kind of democratic 461 00:26:24,359 --> 00:26:27,399 Speaker 1: deficit that's been associated with that as well. But but 462 00:26:27,440 --> 00:26:29,920 Speaker 1: there's no doubt that globalization and trade, I mean, this 463 00:26:29,960 --> 00:26:33,080 Speaker 1: is very interesting phenomena in in anthropology. As you see, 464 00:26:33,160 --> 00:26:35,399 Speaker 1: if you look at the evolution of trade through time, 465 00:26:36,280 --> 00:26:38,520 Speaker 1: trade is premised on the fact that people are different. 466 00:26:38,560 --> 00:26:40,399 Speaker 1: There'd be no point in trading if we were all 467 00:26:40,440 --> 00:26:44,359 Speaker 1: the same. So in many ways that's anathema to to 468 00:26:44,840 --> 00:26:49,560 Speaker 1: nationalism or two to group behavior, to tribalism. And in fact, 469 00:26:49,600 --> 00:26:52,320 Speaker 1: you can see markets and ultimately money as a form 470 00:26:52,400 --> 00:26:56,719 Speaker 1: of conflict resolution, which so this is I think this 471 00:26:56,800 --> 00:27:00,399 Speaker 1: is the benign dimension to globalize a and there are 472 00:27:00,400 --> 00:27:04,239 Speaker 1: obviously lots of costs associated with that as well, but 473 00:27:04,280 --> 00:27:07,359 Speaker 1: east one sees that as a common theme through the 474 00:27:07,400 --> 00:27:10,480 Speaker 1: evolution of money and trade through time. So if someone 475 00:27:10,520 --> 00:27:12,879 Speaker 1: comes up to us and asks us what money is, 476 00:27:13,040 --> 00:27:15,959 Speaker 1: what should we tell them? What's the sort of snappy answer. 477 00:27:16,560 --> 00:27:18,959 Speaker 1: I'm glad you asked that, because I feel like we 478 00:27:19,000 --> 00:27:22,960 Speaker 1: can't we can't get to the end the answer without 479 00:27:22,960 --> 00:27:25,760 Speaker 1: the million dollar questions. Well, obviously we use the term 480 00:27:25,800 --> 00:27:28,680 Speaker 1: money as a general reference to wealth, and when people 481 00:27:28,720 --> 00:27:30,439 Speaker 1: say so and so has a lot of money, they 482 00:27:30,480 --> 00:27:32,679 Speaker 1: just mean they're very wealthy. But if we want to 483 00:27:32,680 --> 00:27:35,520 Speaker 1: make money distinct from other assets, which is really wealth 484 00:27:35,600 --> 00:27:38,560 Speaker 1: is really about assets, be they stocks or properties or 485 00:27:38,600 --> 00:27:42,399 Speaker 1: owning things. I think what is the defining characteristic is 486 00:27:42,440 --> 00:27:45,239 Speaker 1: that you use it to pay for things. So so 487 00:27:45,320 --> 00:27:47,520 Speaker 1: other things have if you think of that, you know 488 00:27:47,600 --> 00:27:50,040 Speaker 1: your unit of account, or you think of the fact 489 00:27:50,040 --> 00:27:52,920 Speaker 1: that it's got a stable nominal value, or certain times 490 00:27:52,920 --> 00:27:55,960 Speaker 1: you know, if you think of notes and coins where 491 00:27:56,000 --> 00:27:58,720 Speaker 1: you know you payment and settlement and clearing are all 492 00:27:58,760 --> 00:28:01,480 Speaker 1: done in immediately and there's no credit risk. Other things 493 00:28:01,480 --> 00:28:04,840 Speaker 1: can have those properties. But but the defining characters that 494 00:28:04,880 --> 00:28:06,399 Speaker 1: the money is that you pay for things with it. 495 00:28:06,880 --> 00:28:10,960 Speaker 1: I love that It's so simple. It just goes back 496 00:28:11,000 --> 00:28:13,359 Speaker 1: to you know what you were saying. Even a twelve 497 00:28:13,440 --> 00:28:16,399 Speaker 1: year old gets it. Money is what you use to 498 00:28:16,440 --> 00:28:18,879 Speaker 1: pay for stuff with and to get make people rich 499 00:28:18,960 --> 00:28:22,040 Speaker 1: or give them more money. That's right. Wow, that was 500 00:28:22,080 --> 00:28:26,560 Speaker 1: really simple. Well, Eric Wondergan has been great to talk 501 00:28:26,600 --> 00:28:29,760 Speaker 1: to you. I encourage everyone to uh check out your book. 502 00:28:29,920 --> 00:28:32,000 Speaker 1: It's uh, I see you can download it on the 503 00:28:32,080 --> 00:28:36,240 Speaker 1: kindle for It's a great read and an important topic 504 00:28:36,359 --> 00:28:38,760 Speaker 1: and one I feel like we could talk about forever 505 00:28:38,920 --> 00:28:54,360 Speaker 1: even though it is so simple. Thanks very much. Uh well, Tracy, 506 00:28:54,480 --> 00:28:59,040 Speaker 1: I love that. I love that topic and I feel like, um, 507 00:28:58,600 --> 00:29:00,720 Speaker 1: I don't know, I can't get enough of that topic. 508 00:29:01,760 --> 00:29:03,680 Speaker 1: I think it was definitely a good one to do again, 509 00:29:03,720 --> 00:29:06,280 Speaker 1: given that we talk about money day in and day out, 510 00:29:06,320 --> 00:29:10,040 Speaker 1: and we never really talk about what money is. Um. 511 00:29:10,120 --> 00:29:12,760 Speaker 1: One thing I would say, though, is like the definition 512 00:29:12,840 --> 00:29:15,880 Speaker 1: it's what you use to pay for things. It almost 513 00:29:15,920 --> 00:29:19,000 Speaker 1: strikes me as slightly unsatisfying. And I know that I'm 514 00:29:19,040 --> 00:29:23,120 Speaker 1: overthinking it, but it's just because we have so much 515 00:29:23,520 --> 00:29:27,280 Speaker 1: emotion tied up to the concept. Is Eric pointed out 516 00:29:27,320 --> 00:29:30,400 Speaker 1: that reducing it to something so simple, you know, just 517 00:29:30,480 --> 00:29:34,920 Speaker 1: a few words, that almost feels dissatisfying, doesn't it. It 518 00:29:35,000 --> 00:29:38,800 Speaker 1: does feel satisfying. There's a great quote and I can't 519 00:29:38,840 --> 00:29:41,800 Speaker 1: find it right now. I think it's from the economist 520 00:29:41,840 --> 00:29:45,640 Speaker 1: John gall Braith, and he said something like the mechanism 521 00:29:45,720 --> 00:29:48,400 Speaker 1: by which money is created is so simple it hurts 522 00:29:48,440 --> 00:29:52,160 Speaker 1: the brain. And I think, um, that's exactly what the 523 00:29:52,360 --> 00:29:54,560 Speaker 1: right like. If you it's so simple it hurts the 524 00:29:54,560 --> 00:29:56,640 Speaker 1: brain because it can't be that easy. That money is 525 00:29:56,680 --> 00:29:58,960 Speaker 1: just what you pay, and that we could make people 526 00:29:59,120 --> 00:30:02,600 Speaker 1: wealthier by by giving people more of it. But perhaps 527 00:30:02,680 --> 00:30:05,240 Speaker 1: we can the other. The other thing that I find 528 00:30:05,280 --> 00:30:09,000 Speaker 1: really fascinating is sort of this idea of money being 529 00:30:09,120 --> 00:30:12,400 Speaker 1: a mode of conflict resolution and money being a sort 530 00:30:12,440 --> 00:30:15,840 Speaker 1: of antidote to nationalism. And it's sort of, I think, 531 00:30:15,880 --> 00:30:19,080 Speaker 1: gets at why populist movements want to kill the bankers 532 00:30:19,200 --> 00:30:22,320 Speaker 1: or at least tax the bankers more, because I think 533 00:30:22,400 --> 00:30:26,160 Speaker 1: it's a sort of like intuitively recognizing that money allows 534 00:30:26,240 --> 00:30:31,040 Speaker 1: us to import other cultures and import other institutions in 535 00:30:31,080 --> 00:30:36,080 Speaker 1: a way that sort of runs perhaps counter to people's instincts. Yeah, 536 00:30:36,240 --> 00:30:38,640 Speaker 1: I think that's a really important concept that doesn't get 537 00:30:38,800 --> 00:30:45,720 Speaker 1: enough attention, the entwining of finance and money with globalization. 538 00:30:45,920 --> 00:30:47,920 Speaker 1: It's one that we sort of always happen the back 539 00:30:47,960 --> 00:30:51,800 Speaker 1: of our brains, but not necessarily in that way. Right, 540 00:30:51,840 --> 00:30:55,120 Speaker 1: we know that we trade with other countries and get 541 00:30:55,760 --> 00:30:58,720 Speaker 1: the goods and services and labor from other countries, but 542 00:30:58,760 --> 00:31:03,560 Speaker 1: the idea of actually importing cultures and institutions sort of 543 00:31:03,760 --> 00:31:06,200 Speaker 1: brings it home on a deeper level. Money is the 544 00:31:06,280 --> 00:31:10,280 Speaker 1: great colonialist, I guess is one way of putting it well. 545 00:31:10,320 --> 00:31:13,239 Speaker 1: Put I found the quote, the gall Braith quote is 546 00:31:13,360 --> 00:31:16,440 Speaker 1: the process by which banks create money is so simple 547 00:31:16,480 --> 00:31:19,800 Speaker 1: that the mind is repelled, which I think sort of 548 00:31:19,840 --> 00:31:21,960 Speaker 1: like gets at this whole thing, all these concepts that 549 00:31:22,040 --> 00:31:25,120 Speaker 1: we sort of try so hard to explain. It could 550 00:31:25,120 --> 00:31:28,000 Speaker 1: be so simple as to be painful. All right, shall 551 00:31:28,080 --> 00:31:31,160 Speaker 1: we repel ourselves from this podcast? On that note, let's 552 00:31:31,160 --> 00:31:34,520 Speaker 1: do that. This has been another edition of the Odd 553 00:31:34,560 --> 00:31:37,520 Speaker 1: Lots podcast. I'm Joe Wisn'tal. You can follow me on 554 00:31:37,520 --> 00:31:40,400 Speaker 1: Twitter at the Stalwart, and I'm Tracy Alloway. I'm on 555 00:31:40,440 --> 00:31:43,719 Speaker 1: Twitter at Tracy Halloway. And you can find Eric on 556 00:31:43,800 --> 00:31:47,520 Speaker 1: Twitter at Eric Lawners. And you should check out his 557 00:31:47,600 --> 00:31:51,400 Speaker 1: book and his blog Philosophy of Money dot net. Thank 558 00:31:51,400 --> 00:31:57,320 Speaker 1: you for listening. Put knowledge to work and grow your 559 00:31:57,360 --> 00:32:01,880 Speaker 1: business with c i T. From transportation, healthcare to manufacturing. 560 00:32:02,120 --> 00:32:05,520 Speaker 1: C i T offers commercial lending, leasing, and treasury management 561 00:32:05,520 --> 00:32:08,880 Speaker 1: services for small and middle market businesses. Learn more at 562 00:32:08,920 --> 00:32:11,360 Speaker 1: c I T dot com. Put Knowledge to Work