Speaker 1: Hello, and welcome to another episode of the Odd Thoughts podcast.
Speaker 1: I'm Tracy Alloway and I'm Joe. Wisn't so, Joe? I
Speaker 1: think at this point one of the themes that has
Speaker 1: been emerging from is the idea that we are seeing
Speaker 1: a number of trends that we're already underway really accelerate. Yeah.
Speaker 1: And one of those trends is something that again we
Speaker 1: saw even before this year, and I would say we
Speaker 1: really saw it come into play after the Financial crisis.
Speaker 1: It's the idea that the economics profession, or the study
Speaker 1: of economics, the field of economics is missing something fundamental
Speaker 1: or perhaps could be applied in a different way to,
Speaker 1: I guess, achieve a better outcome for human well being.
Speaker 1: Is that a good way of putting it? Go further?
Speaker 1: I mean, yes, but go further? Um. Well, so, I
Speaker 1: think in the aftermath of the financial crisis, there was
Speaker 1: a lot of criticism trained on economists that not only
Speaker 1: had they missed this massive imbalance that ended up nearly
Speaker 1: taking down the financial system, but also that economics had
Speaker 1: somehow lost its way in its actual purpose. If you
Speaker 1: think about economics as the sort of studies of resource
Speaker 1: allocation and the decisions that go into making them. The
Speaker 1: ultimate goal should probably be making people better off than
Speaker 1: they would be otherwise. And I think there was a
Speaker 1: sense that economists and their sort of white tower in
Speaker 1: their academic bubble had forgotten that aspect of it, or
Speaker 1: at least had hadn't paid as much attention to it
Speaker 1: um as they should have. I think it's right. I mean,
Speaker 1: I think like if you look at now, especially with
Speaker 1: this crisis, first ten years ago, there's a lot more
Speaker 1: focus on like exactly what you say, what is the
Speaker 1: purpose of economics, and what problems are people really trying
Speaker 1: to solve? And I think that like before the Great
Speaker 1: Financial Crisis and the aftermath of the Great Financial Crisis,
Speaker 1: there was a lot of focus on the beautiful, the
Speaker 1: beauty of models and getting everything into bulibrium and optimal
Speaker 1: balance and all this stuff, and I don't know, but
Speaker 1: sort of forgetting it's like, no, the point is human
Speaker 1: well being and improving the sort of situation for humans.
Speaker 1: And I think, I don't know, I feel like probably
Speaker 1: always economists would recognize that that was the goal, but
Speaker 1: it got obscured. And I think like that you see
Speaker 1: the difference now and this sort of more clear focus
Speaker 1: on that when people say no, just just giving people money,
Speaker 1: And I think that like, that's part of this idea,
Speaker 1: Like it a lot of the solutions that get bandied
Speaker 1: about now in post COVID times or in the middle
Speaker 1: of COVID is like just give out more money. And
Speaker 1: I think part of the reason that some of these
Speaker 1: ideas have become more game, more currency is because of
Speaker 1: this increased clarity of what other problems we're trying to solve. Yeah. Absolutely,
Speaker 1: and I think your mention of the models there is
Speaker 1: absolutely correct. There was this idea that an economic or
Speaker 1: an economy imbalance was a goal in and of itself,
Speaker 1: but people kind of forgot the reason they were targeting that,
Speaker 1: which was eventually to um create better conditions for their citizens.
Speaker 1: So all right, so today we're going to be talking about,
Speaker 1: I guess, the more lofty ideals of the economic profession,
Speaker 1: but we're going to be doing it with someone who
Speaker 1: was actually writing and thinking about this again even before
Speaker 1: twenty way back in two thousand eleven. We're going to
Speaker 1: be talking to Paul Donovan. He's the chief economist at
Speaker 1: UBS Global Wealth Management, and he wrote a book that
Speaker 1: came out in November called Profit and Prejudice The luod
Speaker 1: out of the Fourth Industrial Revolution. And I should just
Speaker 1: mention that this book was written in a personal capacity
Speaker 1: by Paul, but with the full support of his employer UBS.
Speaker 1: It's a really interesting read and it gets to some
Speaker 1: of the topics we just mentioned in the intro. So,
Speaker 1: without further ado, why don't we bring on Paul. Paul,
Speaker 1: it's great to have you, thanks for a hart for
Speaker 1: having me on. So I guess the clue is in
Speaker 1: the title here, right, But Profit and Prejudice there's an
Speaker 1: intimation there that prejudice has some sort of impact on profits.
Speaker 1: Why don't you go ahead and tell us your your
Speaker 1: thesis on on what that actually is. Well, I'd love
Speaker 1: to say credit for the thesis, but I mean this,
Speaker 1: this comes out of Gary Becker's work in the fifties
Speaker 1: and countless economists since then. Basically, prejudice is bad for
Speaker 1: profit at a at the corporate sense, and it's bad
Speaker 1: for economic well being in a in a macro economic sense. Essentially,
Speaker 1: the whole point about allocating your resources efficiently and getting
Speaker 1: everything working is you need the right person in the
Speaker 1: right job at the right time. That's it. Now, prejudice
Speaker 1: is irrational discrimination where you are rejecting a person not
Speaker 1: on rational grounds, not on reasonable grounds, but because you
Speaker 1: don't like their race, or their sexuality, or their gender,
Speaker 1: or their hair color or whatever it is, doesn't matter
Speaker 1: if it's irrational, you're rejecting somebody from the possibility that
Speaker 1: they could work for you, and that then gives you
Speaker 1: a situation where you're not employing the right person in
Speaker 1: the right job, and that is enormously destructive, particularly so
Speaker 1: as we are going through the upheaval and the changes
Speaker 1: of the Fourth Industrial Revolution, because it becomes even more
Speaker 1: important to get the right people in place in order
Speaker 1: to maximize profits and gains at the moment. Still explain
Speaker 1: that last part. What is the connection between the sort
Speaker 1: of economically corrosive aspect of prejudice and why it's particularly
Speaker 1: pronounced after in the week of the Fourth Industrial Revolution?
Speaker 1: And while we're talking about that, what is the Fourth
Speaker 1: Industrial Revolution? So the Fourth Industry Revolution is the latest
Speaker 1: period of economic upheaval. So this is about artificial intelligence, robotics, automation,
Speaker 1: the Internet of things, changes in communication, all of that. Now,
Speaker 1: the point about a revolution, not to state the blindingly obvious,
Speaker 1: is its revolutionary. So actually it's not the technology that matters.
Speaker 1: It's it's how we use the technology, and that has
Speaker 1: the power to change society, to change how we work,
Speaker 1: where we work, how we live, what we consume. All
Speaker 1: of these things change through application of technology. That's the
Speaker 1: critical thing, the application. So it becomes critically important in
Speaker 1: this period of upheaval and success that you apply the
Speaker 1: technology appropriately and how do you apply technology appropriately? Or
Speaker 1: that's coming down to good old people because they're the
Speaker 1: ones who are using the thing. And so that's why
Speaker 1: the getting the right person the right job is so
Speaker 1: so absolutely critical. But there's a fatal flaw in any
Speaker 1: period of structural upheaval is that the uncertainty, the shifting
Speaker 1: social positions that an industrial revolution creates also tend to
Speaker 1: encourage more prejudice. So the Fourth Industrial Revolution as the
Speaker 1: seeds of its own destruction within the changes that it's bringing.
Speaker 1: M Are there previous Well, obviously there are previous industrial revolutions,
Speaker 1: But are there any that engendered the type of prejudice
Speaker 1: or you know, parallel prejudices to what we might be
Speaker 1: seeing now that that we can kind of learn from. Yes,
Speaker 1: So I mean basically all three previous industrial revolutions went
Speaker 1: through periods of prejudice. So the First Industrial Revolution you
Speaker 1: saw the introduction of factory systems mechanization in the UK
Speaker 1: in the mid and late eighteenth century, and that led
Speaker 1: to the Luddites who were who were going around and
Speaker 1: smashing up the equipment because the equipment was destroying their jobs.
Speaker 1: But it wasn't just equipment that was being destroyed. You
Speaker 1: were attacking Catholics. You were attacking Methodists because they were different.
Speaker 1: And if you've lost your job, and if you've lost
Speaker 1: your social status, you couldn't really understand why you've lost
Speaker 1: your job in social status, because it was the complex
Speaker 1: forces of the universe that had led to this situation
Speaker 1: as not as you were concerned. You were doing your
Speaker 1: job as well as you've always done it, and you
Speaker 1: know as efficient these have always done it, So why
Speaker 1: were you losing it? And so you you search around
Speaker 1: for this simple solution the scapegoat economics and it's well,
Speaker 1: there's a group and they seem to be doing quite well.
Speaker 1: It must be their fault. So it's all the fault
Speaker 1: of the Methodist. It's it's all the fault of the Catholics.
Speaker 1: They're the ones who've cost me my job. Um. And
Speaker 1: then in the Second Industrial Revolution we see exactly the
Speaker 1: same thing. And I talked in the book about my
Speaker 1: own family history. My family were dock workers in East
Speaker 1: London in the nineteen twenties and nineteen thirties, and of
Speaker 1: course the chaos and disruption of the Second Industrial Revolution
Speaker 1: cause them to lose their jobs of cause to be
Speaker 1: part of the mass unemployment, and some of my family
Speaker 1: appeared to turn to fascism because they were being told no, no, no,
Speaker 1: it's not your fault. Everything is the fault of the
Speaker 1: of the Jewish immigrants. And you know, they are the
Speaker 1: ones that have cost you your job. You're great, They're
Speaker 1: the ones that have taken your double away from you.
Speaker 1: This is the black shirt movement in the UK. Is
Speaker 1: that right? It is? Which you know a lot of
Speaker 1: people tend to see the black shirt movements as being
Speaker 1: you know, some some middle class movement. It wasn't. It
Speaker 1: was working class and it was deeply rooted in the
Speaker 1: East End of London because this was the area where
Speaker 1: people were losing their jobs and couldn't understand why it
Speaker 1: was happening. And it was very reassuring to be told no, no, no,
Speaker 1: you're better than they are, and they've somehow stolen your
Speaker 1: job from you. It's not just the the the desired
Speaker 1: to have a skategoat's also the desire to be told
Speaker 1: you're better. And and we've got a simple solution which
Speaker 1: if we follow, if we ban immigration or whatever it is,
Speaker 1: we will go back to this wonderful golden era where
Speaker 1: everyone is happy. It's all complete nonsense, of course, but
Speaker 1: you can see why. It's a compelling story in the
Speaker 1: chaos of change, and as recently as the nine seventies,
Speaker 1: the til end of the Third Industrial Revolution, which is
Speaker 1: all about computers and technology. I mean, if you go
Speaker 1: back and look at advertise newspapers from that time, Yeah,
Speaker 1: a lot of the blame them was on women. Women
Speaker 1: are daring to work and they're costing men jobs, and
Speaker 1: therefore we just need to stop women working and everything
Speaker 1: will be wonderful again. And I mean, it's just this remarkable, bizarre,
Speaker 1: but obviously very simple narrative. And it's that simplicity which
Speaker 1: is so appealing and so dangerous. So this gets too
Speaker 1: I think a question about you know you mentioned in
Speaker 1: the beginning of this idea of irrationality, and in the
Speaker 1: current age, prejudice, racism, other forms of discrimination extremely costly
Speaker 1: from an economic standpoint, extreme cost of this sort of
Speaker 1: irrational choices. Where does the rationality lie, however, I mean
Speaker 1: you talk about these sort of past periods like say
Speaker 1: the light out opposing increased mechanization and so forth. Were
Speaker 1: they being irrational given the information at hand, or does
Speaker 1: the irrationality precede them in some other sort of meta matter.
Speaker 1: I mean, they can't see the big picture. So I
Speaker 1: think it's definitely the letter that you you're you're getting
Speaker 1: fake news. And this was I mean a whole lot
Speaker 1: like movement, um. I mean, the UK had had plenty
Speaker 1: of uprisings and revolts in the past. Well made the
Speaker 1: situation in the late eighteenth century so unusual was that
Speaker 1: it was branded. There was a common brand, there was
Speaker 1: a common theme, and there was this pamphleteering, and you
Speaker 1: got to a stage where quite a large part of
Speaker 1: the population could read. And so they were reading I think, well, good,
Speaker 1: they're better informed. Well only if they're reading well in
Speaker 1: for documents preferably written by economists, of course, but they weren't.
Speaker 1: They were reading propaganda. They were reading pamphlets which we
Speaker 1: were lying and you know, you get the Gordon riots
Speaker 1: in in the UK, which is the anti Catholic riots
Speaker 1: in the late seventeen hundreds coming out of complete nonsense
Speaker 1: being spread around, and then exactly the same thing with fascism,
Speaker 1: the National Socialism, the Britis Union and fascists, etcetera. In
Speaker 1: the nineties and of course in the United States, and
Speaker 1: very often what we find is that irrationality exploits new
Speaker 1: means of communication. So back in in the First Industrial Revolution,
Speaker 1: the irrationality wars through pamphleting and printing and the fact
Speaker 1: that you've got a literate artisan class and pamphlets were suddenly,
Speaker 1: you know, the Twitter of their day. In the nineteen thirties,
Speaker 1: there was a Catholic priest who was preaching over the
Speaker 1: radio in America who was more popular than the president was,
Speaker 1: and he was viewing at this this extreme racist, anti
Speaker 1: Semitic view of the world to an enormous audience. But
Speaker 1: because he was very good at adapting the new media,
Speaker 1: and of course we see this today the technology and
Speaker 1: the communications that we have now also of how fate
Speaker 1: news and the dissemination of prejudice. Technology is very very
Speaker 1: much a double edged sword in this this whole fight
Speaker 1: against prejudice. So the suggestion, as you mentioned previously, is
Speaker 1: that prejudice ultimately cost the economy and cost people in
Speaker 1: various ways. Could you maybe explain how we actually judge
Speaker 1: the opportunity cost of irrational decisions? I understand you know, maybe, um,
Speaker 1: maybe in the first Industrial Revolution, if the Luddites were
Speaker 1: smashing equipment, you could go around and taught up the
Speaker 1: cost of all these destroyed machine and maybe you could
Speaker 1: try to estimate a lost productivity for the economy. But
Speaker 1: as economies grow more complex, and as we enter this
Speaker 1: Fourth Industrial Revolution, how do you actually go about estimating
Speaker 1: that opportunity cost? So this is where things become very
Speaker 1: very difficult to put a precise figure on it. We can,
Speaker 1: we can construct the narrative which explains clearly where the
Speaker 1: costs come through. And essentially the costs come in two ways. Firstly,
Speaker 1: if you've got prejudice, you're not employing the right person,
Speaker 1: the right job at the right time. You're not maximizing productivity.
Speaker 1: But secondly, also your decision making is flawed because if
Speaker 1: you've got a monoculture sitting around a table and making decisions.
Speaker 1: If if all of your decision makers are white, middle
Speaker 1: aged bald Anglo Saxon men. Not that I've going against
Speaker 1: the middle aged bald Anglo Saxon men, being one myself,
Speaker 1: but if they're all the same, you're not going to
Speaker 1: get a well rounded view of the world. You're gonna
Speaker 1: miss things you've and miss opportunities, and worse, you're going
Speaker 1: to miss risks. So those are your two costs, wrong
Speaker 1: people in the job and bad decision making, particularly when
Speaker 1: you're turning the world upside down. So how can we
Speaker 1: quantify this? Well, the problem we run into is that
Speaker 1: people don't admit to being prejudiced. They lie about it.
Speaker 1: It's it's owns the Bradley effect after a political candidate
Speaker 1: in the United States who was African American, who always
Speaker 1: was pulling far higher in opinion polls than the votes
Speaker 1: he actually received when he ran for office. Um, And
Speaker 1: it's because people don't want to admit to other people
Speaker 1: that they are racist. But in the privacy of a
Speaker 1: voting booth they are happy to act on their their
Speaker 1: principles as it were. What you get is and under
Speaker 1: reporting of the level of prejudice. And of course you
Speaker 1: also have difficulties in that some forms of prejudice can
Speaker 1: be invisible. So, for example, sexuality is a very good
Speaker 1: case where people may not be out at work, they
Speaker 1: may hide who they are at work and said, well,
Speaker 1: that's fine, they're not subject to prejudice. But they are
Speaker 1: because if they're hearing homophobic jokes or slurs around them,
Speaker 1: or if they're having to think twice before they speak
Speaker 1: in any kind of social occasion, if they're constantly having
Speaker 1: to edit themselves, that was an enormous strain on them
Speaker 1: and it is clearly damaging for productivity. But trying to
Speaker 1: identify that, you can't go around with a clipboard and say, okay,
Speaker 1: which category do you fall into and how does that
Speaker 1: affect your productivity? So very very goodle to quantify. What
Speaker 1: we can do is we can look at some markers
Speaker 1: like race, which give us some hints. These are obviously
Speaker 1: race tends to be a more visible form of prejudice,
Speaker 1: as does gender. Not always, but they are generally more
Speaker 1: visible forms of prejudice, and we can look at the
Speaker 1: costs that have come through from that, or we can
Speaker 1: look at times when we've seen changing behavior and see
Speaker 1: what's what's come about as a result of that to
Speaker 1: get a sense of the economic cost of prejudice, So
Speaker 1: to give two quick egg armples. In the United States,
Speaker 1: you can compare racial diversity in different states by different professions.
Speaker 1: And there's been some work done on this by academics,
Speaker 1: and what they've shown is that there is a significant
Speaker 1: increase in productivity in more creative roles that are more diverse.
Speaker 1: So by creative I mean things like financial services, where
Speaker 1: you need people who are thinking around problems in complex ways.
Speaker 1: If you've got a diverse firm, if you're in a
Speaker 1: diverse state, the productivity of financial service employees in that
Speaker 1: area is significantly higher than in a state which is
Speaker 1: relatively monoculture. Another study that I looked at is in
Speaker 1: Saudi Arabia. So Saudi Arabia has recently lifted some of
Speaker 1: the restrictions on women being entrepreneurs, made it easier for
Speaker 1: women to set up their own businesses. They don't need
Speaker 1: on male guardian to to support them, and so on
Speaker 1: and so forth. And what you have seen there is
Speaker 1: an explosion in the number of women setting up businesses
Speaker 1: and contributing positively to the economy. I mean, it's sound
Speaker 1: irregular is leading the world in female business creation at
Speaker 1: the moment because these restrictions have been lifted. But what
Speaker 1: that's telling you is just how much economic activity was
Speaker 1: being lost when they had these restrictions in place in
Speaker 1: the previous years. Let me ask you a question about
Speaker 1: the sort of upshot of your work or the consequences,
Speaker 1: because it's all well and good to say things like um, prejudice,
Speaker 1: discrimination are costly that firms that don't make an effort
Speaker 1: to change their ways and suffering. But you know, to me,
Speaker 1: this sounds or this could sound a little bit like
Speaker 1: a sort of I don't I don't know exactly the
Speaker 1: term a little bit. Uh. You know, I remember this
Speaker 1: sort of like heavy optimism of the late nineties where
Speaker 1: we thought that like free markets and if we reduced
Speaker 1: barriers to trade and deregulate and everything, could help all
Speaker 1: this world peace and stuff because people would find that
Speaker 1: it was you know, the incentive was to trade instead
Speaker 1: of go to war. And then they didn't really pan
Speaker 1: out like people expected. Other policy upshots that followed them
Speaker 1: from your work in terms of the government or regulators
Speaker 1: stepping into correctness imbalance, or is it in your view
Speaker 1: that of firms were more aware of the profit potential
Speaker 1: of making better decisions or having better decision makers would
Speaker 1: get better out. So um, I think the issue here
Speaker 1: is that there is a split. I believe that large
Speaker 1: global businesses get this. They understand the issues around prejudice,
Speaker 1: they understand the damage that it does, and as a result,
Speaker 1: they are playing a more active role in fighting prejudice.
Speaker 1: For example, so fairly early on in my Welcome Prejudice,
Speaker 1: I was writing on the economics of marriage equality because
Speaker 1: UDS was filing amarcust briefs before the U. S. Supreme Court,
Speaker 1: saying yes, we want marriage equality because you know it
Speaker 1: will mean that we will be a better business. Plus
Speaker 1: you know obviously it's morally the right thing to do.
Speaker 1: But the point was we were taking a clear stance
Speaker 1: on this. And so I think global firms understand this
Speaker 1: because they're dealing with multicultural employees, because they are looking
Speaker 1: to profit maximize, because they're always looking at ways to
Speaker 1: make the employees more productive. Where I think the real
Speaker 1: danger is is that with smaller firms this is not
Speaker 1: necessarily always so obvious. That you may be in a
Speaker 1: relatively homogenized community, or you think the relatively comodernized community,
Speaker 1: and you may miss out on the upside. You may
Speaker 1: not realize that this upside exists. And if there isn't
Speaker 1: an imperative to sort of push you in this direction,
Speaker 1: then you may continue to make bad business decisions which
Speaker 1: have managing to the economy, which are managing to your
Speaker 1: business damaging to society at large. So the US actually
Speaker 1: has a very good example of this from from baseball, which,
Speaker 1: as I understand it is a sort of inferior form
Speaker 1: of cricket that's quite popular in the United States, and
Speaker 1: I knew that was coming. What what happened is in
Speaker 1: the Nies, baseball was segregated. Teams were segregated on racial lines,
Speaker 1: which is just insane. And then it desegregated and a
Speaker 1: relatively small number of teams became integrated racially, and over
Speaker 1: the next decade those teams outperformed in every possible way.
Speaker 1: They played better, they won more games, they have more spectators,
Speaker 1: and consequently they made more money. But it still took
Speaker 1: over a decade after you could voluntarily desegregate for the
Speaker 1: racist teams to start to become actually integrated teams. They
Speaker 1: continued with racist recruitment policies for years even it was
Speaker 1: blinding the obvious that it was doing damage to their business.
Speaker 1: So I think that there is there's a there's a
Speaker 1: mix here that you've got the profit motive and the
Speaker 1: profit incentive and so on, and that's clearly going to
Speaker 1: be very useful, but then there is also a need,
Speaker 1: I think, for government to take action. And after all,
Speaker 1: when we're talking about government taking action, what we're talking
Speaker 1: about here is treating everybody the same, saying no one
Speaker 1: group in society is less than another group. That's all
Speaker 1: we're talking about. It's not a huge ask, frankly overall,
Speaker 1: and if you've act, you're guiding principle, and I think
Speaker 1: that there is a need for government to nudge in
Speaker 1: that direction. So there's a broader economic implication here as well,
Speaker 1: which is that if you think about the past ten
Speaker 1: years or so, the global economy has really been marked
Speaker 1: by this sluggish productivity, which has in turn fed into
Speaker 1: low inflation and relatively low GDP growth. The implication is,
Speaker 1: I understand it, is that if you do away with prejudice,
Speaker 1: then you might end up boosting productivity and generating economic
Speaker 1: growth in one of the few ways that are sort
Speaker 1: of left to us, Is that right? I think so.
Speaker 1: I mean, there's there's actually two possibilities here. One is
Speaker 1: that as we become more efficient, we create more growth.
Speaker 1: The alternative is that as we become more efficient, we
Speaker 1: stop using environmental credit environmental resources in an unsustainable way.
Speaker 1: Um And I think we'll probably end up with a
Speaker 1: mix of the two. That we will end up becoming
Speaker 1: more environmentally efficient, which doesn't necessarily mean more growth, but
Speaker 1: it means we maintain our existing standard of living without
Speaker 1: doing so much environmental damage, or alternatively, we we create
Speaker 1: a amount more growth in terms of living standards. Now,
Speaker 1: I think it's certainly the case that that g d P,
Speaker 1: which is widely regarded in the economics profession as are
Speaker 1: rather outdated statistic, may not capture everything that we're talking
Speaker 1: about here in terms of the efficiency and the changes.
Speaker 1: And this is something that we've known about for some time,
Speaker 1: that your GDP is not well suited to the century.
Speaker 1: It was designed to maximize wartime production in the nineties,
Speaker 1: it's not really suited where we are now. UM So
Speaker 1: we may not necessarily see this in the GDP data,
Speaker 1: but we would end up with people having a higher
Speaker 1: standard of living in the future. If we minimize prejudice,
Speaker 1: we're never going to get rid of it. I mean,
Speaker 1: everybody is prejudiced, but we can try and minimize it
Speaker 1: as much as possible and make people aware of it
Speaker 1: as much as possible, and by doing that we we
Speaker 1: do create a more efficient society which maintains or improves
Speaker 1: our living standards whilst doing less overall damage to the
Speaker 1: to the planet. I'm curious what you think about I'm
Speaker 1: not actually sure over there, like how the Bank of
Speaker 1: England has thought about this question. But obviously here the
Speaker 1: Federal Reserve in the last several years has taken a
Speaker 1: keener interest I would say on the unemployment gap between
Speaker 1: different races and this idea that sort of late in
Speaker 1: the expansions we started to see the benefits of an
Speaker 1: economic recovery spread out too previously marginalized groups. And you know,
Speaker 1: prior to COVID we saw started to see a real
Speaker 1: acceleration in the lack unemployment rate in the US. Do
Speaker 1: you see uh implications uh and benefit It's from policy makers,
Speaker 1: including central bankers, taking a more expansive view of the
Speaker 1: benefits of full employment and how to define employment and
Speaker 1: so forth. Um by thinking more concretely about these gaps
Speaker 1: when setting policy or when say, thinking about went to
Speaker 1: titan went to tighten interest rates. Well, at the risk
Speaker 1: of sounding like a traditional economist, yes and no um
Speaker 1: so yes, clearly unemployment matters. We know that if you've
Speaker 1: if you've got a better household income UM, your particularly
Speaker 1: children in that household, will have better opportunities education wise,
Speaker 1: and things like that extraordinarily important. But to focus just
Speaker 1: on income is actually misguided because what we tend to
Speaker 1: find is that prejudice, and particularly more extreme forms of prejudice,
Speaker 1: it's not really about income and relative income, it's about
Speaker 1: social status. Now, for income and social status are tied together,
Speaker 1: um varies from countries to country, perhaps more closely tied
Speaker 1: in the United States than in the United Kingdom, but
Speaker 1: they are tied together. But there is a difference here.
Speaker 1: And what we tend to find is that if you're
Speaker 1: seeing big shifts in terms of relative income, then you'll
Speaker 1: get a bias towards what a European would call social
Speaker 1: democratic policies, so center left policies, redistribution policies. But if
Speaker 1: you've also got a loss of social status, the income
Speaker 1: doesn't offset the loss of social status UM, and people
Speaker 1: then turned more extreme forms of politics, and that's where
Speaker 1: you get either extreme left or extreme or right or
Speaker 1: populism for want of a better word. So I think
Speaker 1: that center rights can do quite a lot in this
Speaker 1: regard in terms of trying to mitigate the damage, and
Speaker 1: certainly for the longer term, where things like equality of opportunity, um,
Speaker 1: getting the right education, that can be a very very
Speaker 1: big thing. But central bank policy is not necessarily that
Speaker 1: well equipped to deal with social status over time UM.
Speaker 1: And so that I think is going to be one
Speaker 1: of the challenges that that he's going to be thrown
Speaker 1: up over the next few years. You know that if
Speaker 1: you're a lawyer's clerk, for example, who's worked hard at
Speaker 1: school and studied to get to that position, and your
Speaker 1: social status is just going down because your employment prospects
Speaker 1: are going down because your jobs being auginated away. UM.
Speaker 1: There's a limit to what the Federal Reserve can do.
Speaker 1: What Paul are absolutely fascinating topic. And I mentioned in
Speaker 1: the intro that this was actually something you were paying
Speaker 1: attention to many many years ago, back in two thousand eleven,
Speaker 1: and you've followed through on it to write the new book,
Speaker 1: So thank you very much for joining Joe and myself
Speaker 1: to talk about it. Thanks Paul, that was great. So Joe,
Speaker 1: I know there's UM, I know, there's sometimes a tendency
Speaker 1: to to think about prejudice or I guess diversity initiatives
Speaker 1: as the sort of corporate fluff. But I think Paul
Speaker 1: does lay out a very compelling, um, you know, rational
Speaker 1: argument for why companies and economies should be looking at
Speaker 1: this and in particular this idea that most of our
Speaker 1: future growth is probably going to become come through productivity improvements.
Speaker 1: And one of the ways we can improve productivity is
Speaker 1: by being more efficient with our human labor capital in
Speaker 1: addition to our you know, machine based capital. And by
Speaker 1: the way, I'm very I'm aware that calling people human
Speaker 1: abert capital is a terrible thing, So forgive me for
Speaker 1: doing that people people. UM No, I mean I think
Speaker 1: that's right, and I think, yeah, I've been thinking about
Speaker 1: economics for too long. I think, you know, Paul's arguments
Speaker 1: and his historical analogies. UM, they're super interesting and compelling
Speaker 1: and sort of like thinking about like the sort of
Speaker 1: irrationality of people who only have access to part of
Speaker 1: the picture is um A sort of very useful frame.
Speaker 1: But I think, like, you know, I'm still like hung
Speaker 1: up on the solutions or like what the upshot is
Speaker 1: because it doesn't seem like enough to just acknowledge that
Speaker 1: or for like more companies to quote get it. I
Speaker 1: think that like, you know, there's there's still a good
Speaker 1: argument for like yes, but in the meantime, you know,
Speaker 1: give people money, you know, sort of going back to
Speaker 1: the original question or or or more explicitly, you know,
Speaker 1: sorted my question about like the foot of reserve. It's
Speaker 1: like they're all kinds of issues. Like I guess we
Speaker 1: can't um solve prejudice. It's never going to go away.
Speaker 1: There's more things to life than employment and income. But
Speaker 1: also employment income are really good. M yes, um, but
Speaker 1: you know what I'm saying. Yeah, But also I mean
Speaker 1: I think we can agree that probably, you know, fifteen
Speaker 1: or twenty years ago, we wouldn't have been having a
Speaker 1: conversation about economics and prejudice and what a central bank
Speaker 1: can do to diminish social injustice. Like that just wouldn't
Speaker 1: have happened. So the fact that we're having this conversation
Speaker 1: conversation already suggests that we've come a long way, or
Speaker 1: at least we're entering up perhaps the start of a
Speaker 1: new economic paradigm. Again, what we've been discussing all year,
Speaker 1: this notion that the events of have really accelerated some
Speaker 1: shifts that we've already seen in traditional economics. No, I
Speaker 1: I completely agree, and I think like the fact that's
Speaker 1: so on many like traditional quarters of the economic world
Speaker 1: are talking about this. I think it's huge. And again,
Speaker 1: like going back to the FED, like this is like
Speaker 1: a major thing under the pile FED and also under
Speaker 1: yelling like talking about economic inequality, sharing the benefits of prosperity,
Speaker 1: and they're being good long term things to come from.
Speaker 1: When prosperity is shared, I think is like one of
Speaker 1: the most promising things. And so the fact that it's
Speaker 1: coming from mainstream courts I think is encouraging. Yeah, the
Speaker 1: idea that economics should ultimately improve people's well being? Who knew? Okay,
Speaker 1: kind of outlandish? All right, let's leave it there. All right,
Speaker 1: This has been another episode of the All Thoughts Podcast.
Speaker 1: I'm Tracy Alloway. You can follow me on Twitter at
Speaker 1: Tracy Alloway, and I'm Joe Wisnal. You could follow me
Speaker 1: on Twitter at the Stalwart, and you should check out
Speaker 1: our guests book Paul Donovan. He is the author of
Speaker 1: Profit and Prejudice, The Blood Ends of the Fourth Industrial Revolution.
Speaker 1: And here's something special. Listeners to odd Lots can get
Speaker 1: a discount on the book if they go to the
Speaker 1: Ruttledge website for the book and use the code o L.
Speaker 1: That discount applies to either the hardback or the e
Speaker 1: book version, so check it out and get a discount.
Speaker 1: Also be sure to UH in the meantime, follow our
Speaker 1: producer Laura Carlson. She's at Laura M. Carlson. Follow the
Speaker 1: Bloomberg head of podcast Francesco Levi at Francesca Today, and
Speaker 1: check out all of our podcasts under the handle at podcasts.
Speaker 1: Thanks for listening.