WEBVTT - Why Capitalism May Soon Be Dead with Bernard Connolly

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News. I have news. AI

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<v Speaker 1>isn't actually magic. It might have the potential to transform

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<v Speaker 1>our world, but like everything else out there, it is

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<v Speaker 1>only a function of the amount of energy it uses,

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<v Speaker 1>and it uses a lot, an awful lot. How much

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<v Speaker 1>for that? I've got a new column out on Bloomberg

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<v Speaker 1>dot Com I want you to go and look at.

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<v Speaker 1>I talk about the various estimates of how much energy

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<v Speaker 1>it uses, and the most most quoted estimates suggests it's

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<v Speaker 1>going to be using as much as a small western

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<v Speaker 1>country within the next couple of years. There are more

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<v Speaker 1>excitable for custom that so either way, we are talking

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<v Speaker 1>an awful lot of energy. Where is it going to

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<v Speaker 1>come from? I think if you've been listening to this

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<v Speaker 1>podcast for a while, you know where we think the

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<v Speaker 1>electricity to power everything from the transition to AI is

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<v Speaker 1>going to come from. It's going to come from nuculus.

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<v Speaker 1>If you're insted in AI, be interested in uranium, which

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<v Speaker 1>brings me to John. Hi, John, Hey Maan, It's nearly

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<v Speaker 1>icy season, right? You love ice? The season is the.

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<v Speaker 2>Season is clear, It's even better than budget season.

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<v Speaker 1>Yeah, y season is the best because ice season we

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<v Speaker 1>get to talk about how you can save twenty grand

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<v Speaker 1>a year into a wrapper and you can put pretty

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<v Speaker 1>much anything you like in that wrapper, even UK stocks,

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<v Speaker 1>even UK stocks you can put in that wrapper. And

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<v Speaker 1>then you can just leave it all sitting in there

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<v Speaker 1>and you never pay another penny of tax on that money.

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<v Speaker 1>It's absolutely brilliant. The only thing you have to do

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<v Speaker 1>is try and find the money to put in the wrapper,

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<v Speaker 1>and then try and figure out what to invest that

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<v Speaker 1>money in once it's in the wrapper. And that's why

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<v Speaker 1>we have you John for ideas. What do we do

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<v Speaker 1>with that money? Here we are, we're so lucky, We've

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<v Speaker 1>got twenty grand sitting in a wrapper. What are we

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<v Speaker 1>going to do?

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<v Speaker 2>I'm glad that you asked that question, man. In fact,

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<v Speaker 2>I was waiting about this very morning. First of all,

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<v Speaker 2>does cash, if you are interested in cash, cash is

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<v Speaker 2>suddenly getting your actually getting your real root on on

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<v Speaker 2>your cash, which is not something that we've had for

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<v Speaker 2>a very very long time.

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<v Speaker 1>Yeah, and you know what, we haven't had it for ages.

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<v Speaker 1>But and you can. You can buy a money market fund,

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<v Speaker 1>you know, you can get your four five percent. And

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<v Speaker 1>this is really interesting. I was talking to someone the

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<v Speaker 1>other day who was saying to me that the capital

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<v Speaker 1>preservation investment trust, the ones that you and I love

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<v Speaker 1>so much or have loved so much over the years,

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<v Speaker 1>capital gearing, personal assets, ri etc. They've all been suffering

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<v Speaker 1>a little. And one of the reasons there, I am told,

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<v Speaker 1>is because you know, if you want capital preservation now

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<v Speaker 1>in the old days, you know, oh, I don't really

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<v Speaker 1>want cash because it's not preserving my capital because it's

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<v Speaker 1>being eroded gradually by inflation. But now get a proper

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<v Speaker 1>return on cash or a money market fund for example.

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<v Speaker 1>So if you want to preserve your capital, if you

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<v Speaker 1>want to get rid of your risk but keep up

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<v Speaker 1>with inflation, then you know, you can just go cash.

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<v Speaker 1>You don't have to go for one of these big trusts.

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<v Speaker 1>I love these big trusts still. But nonetheless it's not

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<v Speaker 1>you don't have to do.

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<v Speaker 2>It, yeah exactly, And I mean I think it's that

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<v Speaker 2>a thing where actually your money is going to go

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<v Speaker 2>ahead of inflation, and so you then have to think, well, actually,

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<v Speaker 2>maybe two or three percent rail is a perfectly decent

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<v Speaker 2>return if that's you know, that's what you're looking for,

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<v Speaker 2>and if you're looking for something that you needed, I

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<v Speaker 2>mean I would still say cash is mostly just for

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<v Speaker 2>either diversification and that everyone should have a bit of

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<v Speaker 2>cash or for the short term something that you can't

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<v Speaker 2>afford to invest for more than five years. But if

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<v Speaker 2>you do like income but you also like investing, then wow,

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<v Speaker 2>have we got some ideas for you. The AIC just

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<v Speaker 2>released its latest Dividend Heroes list of investment trusts. So

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<v Speaker 2>these are investment trusts that have raised their dividends for

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<v Speaker 2>various you know, like every single year. And at the

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<v Speaker 2>top you've got ones that have actually lifted their dividends

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<v Speaker 2>every year for fifty seven years in a row. And

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<v Speaker 2>to make this list.

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<v Speaker 1>Is quite impressive, come on, quite impressive that a lot

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<v Speaker 1>of stuff has happened over the last fifty odd years

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<v Speaker 1>and to be able to continue to raise your dividends

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<v Speaker 1>for it higher period suggests some fairly good management in place.

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<v Speaker 2>If you look at the long term returns, and obviously

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<v Speaker 2>a big chunk of these returns do come from the

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<v Speaker 2>dividend and reinvested dividend. But if you are looking for

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<v Speaker 2>something that is consistently mice to kind of you know,

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<v Speaker 2>keep paying you an income over a prolonged period of time,

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<v Speaker 2>and I realize obviously that you know, investment trusts can

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<v Speaker 2>take dividend income out of their capital rather than just

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<v Speaker 2>the dividends that they're getting paid. But even then, if

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<v Speaker 2>something's mice to do it for fifty odd years without

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<v Speaker 2>any major hitches, then as you say, you have to

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<v Speaker 2>think that something's going right. So they kind of the

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<v Speaker 2>top of the last that fifty seven years is the

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<v Speaker 2>City of London Investment.

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<v Speaker 1>Trust, Great Trust.

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<v Speaker 2>Yeah, I think that one that comes very popular was

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<v Speaker 2>about paying about five percent, and this book treating on

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<v Speaker 2>a minor, very very small discount go on the list.

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<v Speaker 2>John more than Less, bank Kill's Investment Trust, Alliance Trust,

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<v Speaker 2>Caledonia Investments. That's why we quite like.

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<v Speaker 1>Yeah, we like both of them. I mean, Alliance has

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<v Speaker 1>had a difficult time five six years ago, pull yourself together,

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<v Speaker 1>put a new system for managing the money in place

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<v Speaker 1>and has done really well ever since. Caledonian of course,

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<v Speaker 1>had a lot of private stuff and so we you know,

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<v Speaker 1>if you're not interested in a big trust that has

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<v Speaker 1>various private investments, don't touch that one. If you are

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<v Speaker 1>worth a look what comes after that.

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<v Speaker 2>Come on another couple on the UK equity income, said

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<v Speaker 2>JP Morgan Claverhouse and also the muddy income trust Merchants Trust.

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<v Speaker 2>UK equity Income. Actually Scottish mort gets us on this

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<v Speaker 2>is it.

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<v Speaker 1>Well, they've done a great job too in raising their

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<v Speaker 1>different end, if not necessarily and not listening, but you know,

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<v Speaker 1>UK equity income is a great place to look and

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<v Speaker 1>we've talked about this before. You know, it's one of

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<v Speaker 1>the few markets where you can get a proper dividend

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<v Speaker 1>yield on your money. And Mark Dampierre at Huger's Landsdown,

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<v Speaker 1>we've talked about this before as well. He was used

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<v Speaker 1>to refer to these great big companies as Nature's annuity

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<v Speaker 1>and can buy these big trusts. You can get your

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<v Speaker 1>your four percent or so every year and you can

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<v Speaker 1>still have control over your capital and that's really worth something. Well,

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<v Speaker 1>you might not make the amazing capital returns that you've

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<v Speaker 1>made in the US market over the last decade or so,

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<v Speaker 1>but you've certainly had stability and an income. And Scottish mortgage,

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<v Speaker 1>of course, this is interesting. Scottish mortgage, which of course

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<v Speaker 1>has had an absolute horrid time since the end of

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<v Speaker 1>the growth bubble. They did announce relatively recently this huge buyback,

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<v Speaker 1>you know, a billion pounds worth of cash put to

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<v Speaker 1>one side to buy back the shares and try and

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<v Speaker 1>close that discount in the idea that they're being to suggest. Well,

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<v Speaker 1>in fact, the portfolio that they have at the moment,

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<v Speaker 1>they believe it's a great portfolio. They believe it's cheap,

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<v Speaker 1>so the best thing they can do for shaholder is

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<v Speaker 1>to use spare cash to buy shares in themselves. So

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<v Speaker 1>you know, that's quite a vote of confidence in the trust.

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<v Speaker 1>Hose surprised that its shapheres didn't move more on the news,

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<v Speaker 1>but it didn't. You know, it's still an interesting trust,

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<v Speaker 1>even though I am aware that lots of listener as

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<v Speaker 1>well have lost a big pile of money on it

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<v Speaker 1>over the last few years.

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<v Speaker 2>That is an interesting move on the buy back, And

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<v Speaker 2>as you say, I do think it's quite a significant

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<v Speaker 2>vote of confidence either. And people can be snooty about it,

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<v Speaker 2>and they can you point out that the nature I

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<v Speaker 2>buy back is in many ways not different to any

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<v Speaker 2>other form of capital return. But the point is that

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<v Speaker 2>you know they've got the conviction that this is a

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<v Speaker 2>good idea because they you know, you look kind of

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<v Speaker 2>stupid if you did this and then the share price

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<v Speaker 2>continued to fall, So I like to see that kind

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<v Speaker 2>of conviction, particularly in an area like investment trust, where

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<v Speaker 2>you know, arguably a lot of the issues with the

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<v Speaker 2>sector just now are a bit like the issues with

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<v Speaker 2>the UK at large, which is it's more sentiment driven

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<v Speaker 2>than any kind of actual underlying issue with anything. The

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<v Speaker 2>other couple of interests once black Rock smaller companies and

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<v Speaker 2>tenders and smaller companies, or a couple of these kind

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<v Speaker 2>of UK smaller companies on that list. They've both raised

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<v Speaker 2>a dividend for yeah, twenty years and at all dividend

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<v Speaker 2>levels around about three percent, and you still.

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<v Speaker 1>End up with that, You'll end up with it, Okay,

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<v Speaker 1>a yield of around three percent. It's not awful. It's

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<v Speaker 1>not awful at all. And you know, if if we're right,

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<v Speaker 1>which we may or may not be, about how cheap

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<v Speaker 1>UK small caps are and how when people come back

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<v Speaker 1>to this market, it'll move quite fast and those will

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<v Speaker 1>be interesting places to be anyway. So that's quite interesting list,

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<v Speaker 1>a couple of ideas for anyone looking at their eyes

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<v Speaker 1>of this year. But the key thing, the absolutely key thing,

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<v Speaker 1>is to remember that if you can afford to put

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<v Speaker 1>cash into your ICA, you really really should It's a

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<v Speaker 1>fantastic wrapper and a great way to say, right, John,

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<v Speaker 1>if you've got anything negative to say about isis John.

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<v Speaker 2>No, I don't not at all. Actually not In the

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<v Speaker 2>other quick thing, you can't lie or in tax allowances

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<v Speaker 2>to shield you from the tax on your interest income

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<v Speaker 2>anymore cause of raising and trade streets. So if you're

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<v Speaker 2>twenty percent and come tax period, you've got one thousand

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<v Speaker 2>pound personal savings and loans. But if you get anything

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<v Speaker 2>over twenty thousand pounds in a decent cash aer or

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<v Speaker 2>in a decent cash account, though, then that will bump

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<v Speaker 2>you over that limit. So that's why it's also what

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<v Speaker 2>thinking about your eyes are particularly this year. We're just

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<v Speaker 2>perhaps in the past that hasn't been on the cash seed.

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<v Speaker 1>Okay, look at that tax advice on top of everything.

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<v Speaker 1>Thanks John. Welcome to Meron Talks Money, the podcast in

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<v Speaker 1>which people who know the markets explain the markets. I'm

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<v Speaker 1>Maren zumset Web. Now this week we're going to do

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<v Speaker 1>things a little bit differently. I did an absolutely fantastic

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<v Speaker 1>interview with one of the most interesting men in economics

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<v Speaker 1>a few weeks ago, the economist and author Bernard Connolly.

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<v Speaker 1>You may know him from the Rotten Heart of Europe,

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<v Speaker 1>The Dirty War for Europe's Money, a book that was

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<v Speaker 1>not popular with the EU that I rather enjoyed, and

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<v Speaker 1>You Always Hurd the one you Love, Central Banks and

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<v Speaker 1>the Murder of Capitalism. Now, what we're going to do

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<v Speaker 1>here is that John and I are going to talk

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<v Speaker 1>all the way through the interview, not just at the end.

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<v Speaker 1>So bad luck for those of you who've just come

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<v Speaker 1>to listen to the new Voices. This time you get

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<v Speaker 1>to listen to me and John interrupting the entire way through.

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<v Speaker 1>Here we go and thank you so much for joining

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<v Speaker 1>us today. But we haven't spoken to you and I

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<v Speaker 1>properly since gosh, mid twenty twenty, I don't think so.

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<v Speaker 1>Since then you have published the book that we talked about.

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<v Speaker 1>Then it's a whopper. It's called You Always Hurt, the

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<v Speaker 1>Ones you Love, Central Banks and the Murder of Capitalism.

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<v Speaker 1>It's very well reviewed. Right there on the front is

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<v Speaker 1>a quote from Mervyn King Connolly does not Take Prisoners

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<v Speaker 1>a book to be read by.

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<v Speaker 3>Anyone interested in political economy today, which it most certainly is.

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<v Speaker 3>But what it's really about, and I suppose an alternative

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<v Speaker 3>title for it could have been the big mistake, right,

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<v Speaker 3>Because what we're talking about here is what has gone

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<v Speaker 3>wrong with capitalism based on a big mistake made by

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<v Speaker 3>the World Central Bank.

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<v Speaker 1>So why don't we start with that. If we started,

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<v Speaker 1>say with the mid nineties, big place a good place

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<v Speaker 1>to start with a big mistake began.

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<v Speaker 4>I think it would for two reasons. First of all,

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<v Speaker 4>certainly if one's thinking about the US, which of course

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<v Speaker 4>is the most important economy, the mid nineties were a

0:11:22.800 --> 0:11:26.080
<v Speaker 4>period of what one can troll, what can call into

0:11:26.200 --> 0:11:30.240
<v Speaker 4>temporal equilibrium. That is to say that it appeared that

0:11:30.400 --> 0:11:35.200
<v Speaker 4>the plans of businesses investors on the one hand, and

0:11:35.280 --> 0:11:38.720
<v Speaker 4>savers consumers on the other were in some sort of

0:11:38.800 --> 0:11:44.280
<v Speaker 4>reasonable alignment. And in those conditions it's possible to have

0:11:44.840 --> 0:11:49.880
<v Speaker 4>equilibrium in the short term full employment and inflation at

0:11:49.920 --> 0:11:53.960
<v Speaker 4>a target at a target rate. And in the long

0:11:54.080 --> 0:11:58.000
<v Speaker 4>term that's to say that the balance of supply and

0:11:58.080 --> 0:12:02.600
<v Speaker 4>demand in the economy will remain balanced, not just today

0:12:02.720 --> 0:12:06.960
<v Speaker 4>but in the future. And ensuring that means getting the

0:12:07.040 --> 0:12:11.760
<v Speaker 4>interest rate right. The interest rates is the link between

0:12:11.840 --> 0:12:13.280
<v Speaker 4>the present and the future.

0:12:15.000 --> 0:12:17.760
<v Speaker 1>Okay, John, I want to interrupt here. I know I'm

0:12:17.800 --> 0:12:21.520
<v Speaker 1>interrupting quite early, but there's a really crucial idea that

0:12:21.800 --> 0:12:26.679
<v Speaker 1>runs through all of Bernard's work that is about intertemporal equilibrium.

0:12:26.720 --> 0:12:28.000
<v Speaker 1>And I'll just read you a little bit from the

0:12:28.000 --> 0:12:30.120
<v Speaker 1>introduction of the book. Central to the thesis of this

0:12:30.160 --> 0:12:33.720
<v Speaker 1>book is an emphasis on intertemporal relations, the economic relations

0:12:33.760 --> 0:12:36.520
<v Speaker 1>between the present, including the legacy of the past and

0:12:36.559 --> 0:12:40.240
<v Speaker 1>the capital stock and the future. That emphasis points to

0:12:40.280 --> 0:12:45.160
<v Speaker 1>an essential feature of capitalism. It is stored up something.

0:12:45.840 --> 0:12:48.080
<v Speaker 1>So everything is stored up something. And we talked about

0:12:48.120 --> 0:12:50.720
<v Speaker 1>this in the context of energy, right everything around you

0:12:51.000 --> 0:12:53.960
<v Speaker 1>is the result of stored up and then used energy.

0:12:54.160 --> 0:12:57.479
<v Speaker 1>And when he talks about everything to do with economics,

0:12:57.559 --> 0:13:02.800
<v Speaker 1>he's talking about the interest rate, seeing the instrument of

0:13:03.000 --> 0:13:07.160
<v Speaker 1>allocating resources between time, and if you get the interest

0:13:07.240 --> 0:13:10.959
<v Speaker 1>rate too low, you pull resource use forward, and if

0:13:10.960 --> 0:13:13.320
<v Speaker 1>you set it too high, you push it away. So

0:13:13.440 --> 0:13:16.840
<v Speaker 1>what you're looking for is a correct interest rate that

0:13:16.920 --> 0:13:21.200
<v Speaker 1>allows the allocation of capital to be correct and so

0:13:21.360 --> 0:13:24.200
<v Speaker 1>to be correctly allocated between what we invest in and

0:13:24.200 --> 0:13:26.680
<v Speaker 1>what we consume. Is that how you understand it as well?

0:13:27.760 --> 0:13:28.080
<v Speaker 4>Yeah?

0:13:28.120 --> 0:13:30.760
<v Speaker 2>Absolutely, I mean I think the most interesting thing about it,

0:13:30.800 --> 0:13:33.520
<v Speaker 2>and obviously Bernard goes on to talk about this is

0:13:33.559 --> 0:13:38.560
<v Speaker 2>the fact that this is technically the most important number

0:13:38.800 --> 0:13:42.360
<v Speaker 2>in markets, and it's also the one that is set

0:13:42.640 --> 0:13:47.400
<v Speaker 2>artificially by central banks. So you do have to wonder

0:13:47.480 --> 0:13:51.000
<v Speaker 2>if there would be a better way of setting this

0:13:51.240 --> 0:13:56.400
<v Speaker 2>number in such a way that to actually distributed resources

0:13:56.559 --> 0:14:01.040
<v Speaker 2>or allocated resources correctly over time. But yes, I think

0:14:01.280 --> 0:14:02.400
<v Speaker 2>he ends up getting to that.

0:14:03.800 --> 0:14:05.760
<v Speaker 1>Yeah. So the key thing here is that we do

0:14:05.840 --> 0:14:09.280
<v Speaker 1>have an organization that sets the most important number in

0:14:09.320 --> 0:14:11.920
<v Speaker 1>the world, the interest rate, and we rely on them

0:14:11.960 --> 0:14:16.000
<v Speaker 1>to get it right. And the key thing that Bernard

0:14:16.000 --> 0:14:18.520
<v Speaker 1>talks about is them getting it wrong and how they

0:14:18.559 --> 0:14:20.880
<v Speaker 1>got it wrong, and the miserable consequences of all that.

0:14:20.960 --> 0:14:22.600
<v Speaker 1>But that it might I just want to read one

0:14:22.800 --> 0:14:25.320
<v Speaker 1>more a little bit from the book. I'm basically doing

0:14:25.320 --> 0:14:27.280
<v Speaker 1>this to prove to you that I have read the book,

0:14:27.320 --> 0:14:31.080
<v Speaker 1>which is for six hundred. As long as everyone understands

0:14:31.120 --> 0:14:34.840
<v Speaker 1>that bit, it is a monster, but it's an excellent monster. Now,

0:14:35.040 --> 0:14:37.680
<v Speaker 1>there is an interesting bit, and I think a lot

0:14:37.680 --> 0:14:40.720
<v Speaker 1>of people have forgotten this, which is that pre nineteen

0:14:40.840 --> 0:14:44.280
<v Speaker 1>ninety six, there was no explicit inflation target in the US.

0:14:44.400 --> 0:14:47.040
<v Speaker 1>This whole two percent nonsense did not exist, and it

0:14:47.080 --> 0:14:49.360
<v Speaker 1>wasn't clear that it was going to be two percent.

0:14:49.440 --> 0:14:53.480
<v Speaker 1>So there was a point in nineteen ninety six, in

0:14:53.560 --> 0:14:57.160
<v Speaker 1>July one of the Central Bank meetings meetings of the FOMC,

0:14:57.560 --> 0:15:01.920
<v Speaker 1>he was pushed into trying to defy price sability what

0:15:01.960 --> 0:15:05.320
<v Speaker 1>that means. Because the FED was responsible for price stability,

0:15:05.360 --> 0:15:08.000
<v Speaker 1>they don't really defined it, and so Janet Yellen, who

0:15:08.040 --> 0:15:09.640
<v Speaker 1>was a FED governor at the time and is now

0:15:09.640 --> 0:15:13.640
<v Speaker 1>obviously in charge of everything, asked him to describe it

0:15:13.680 --> 0:15:15.880
<v Speaker 1>and define it. And at the time he said, we're

0:15:15.880 --> 0:15:18.520
<v Speaker 1>talking about Alan Greenspan here, the state in which expected

0:15:18.600 --> 0:15:22.200
<v Speaker 1>changes in the general price level do not effectively alter

0:15:22.400 --> 0:15:25.720
<v Speaker 1>business or household decisions, right, so you don't change the

0:15:25.760 --> 0:15:28.520
<v Speaker 1>way you behave based on where you expect inflation to go.

0:15:28.760 --> 0:15:31.440
<v Speaker 1>But she wasn't having even anything that big. She wanted

0:15:31.520 --> 0:15:34.080
<v Speaker 1>a real number, so she pushed and pushed from to

0:15:34.080 --> 0:15:35.360
<v Speaker 1>put a number on it. And do you know what

0:15:35.400 --> 0:15:38.480
<v Speaker 1>he initially said. He said, I would say the number

0:15:38.560 --> 0:15:41.560
<v Speaker 1>is zero if it is properly measured. So there was

0:15:41.640 --> 0:15:44.880
<v Speaker 1>a little chance in there where the inflation target was

0:15:44.920 --> 0:15:49.720
<v Speaker 1>going to be not two percent but zero. Anyway, everyone

0:15:49.720 --> 0:15:51.240
<v Speaker 1>else kind of pushed back and there was a big

0:15:51.240 --> 0:15:54.240
<v Speaker 1>discussion and At the end of the discussion, Greenspan said,

0:15:54.520 --> 0:15:58.600
<v Speaker 1>we have now all agreed on two percent, and from

0:15:58.640 --> 0:16:03.280
<v Speaker 1>that meeting in nineteen ninety six, it all begins.

0:16:03.520 --> 0:16:05.880
<v Speaker 2>Before then, the Bank in New Zealand had already gone

0:16:05.920 --> 0:16:07.960
<v Speaker 2>for two percent, and I actually seem to remember them

0:16:08.000 --> 0:16:09.640
<v Speaker 2>at one point in having a discussion of it whether

0:16:09.640 --> 0:16:14.520
<v Speaker 2>it should be as high as five percent. So it's interesting.

0:16:14.720 --> 0:16:17.120
<v Speaker 2>That's interesting the Greenspan pointed zero.

0:16:18.560 --> 0:16:22.960
<v Speaker 4>In the mid nineties, there was the beginning of a

0:16:23.120 --> 0:16:27.280
<v Speaker 4>very favorable change in the US economy, a change in

0:16:27.320 --> 0:16:33.800
<v Speaker 4>productivity growth as results of improved business practices, an improved

0:16:33.880 --> 0:16:39.720
<v Speaker 4>political environment in terms of acceptance of capitalism, and of

0:16:39.760 --> 0:16:44.960
<v Speaker 4>course technological advances. What on a green span. The Chairman

0:16:44.960 --> 0:16:46.800
<v Speaker 4>of the FED at the time was to call the

0:16:46.840 --> 0:16:51.680
<v Speaker 4>new economy. Now, what happens when there's a favorable change

0:16:51.800 --> 0:16:58.080
<v Speaker 4>in productivity expectations, initially on the part of firms, because consumers'

0:16:58.120 --> 0:17:02.840
<v Speaker 4>households don't see that. As soon as the relevant firms do,

0:17:04.040 --> 0:17:07.280
<v Speaker 4>the rate, the expected rates of return on investment for

0:17:07.400 --> 0:17:11.880
<v Speaker 4>those firms who have got the favorable opportunities goes up.

0:17:12.000 --> 0:17:14.479
<v Speaker 4>You can go up a long long way, as we

0:17:14.560 --> 0:17:18.760
<v Speaker 4>saw in many instances Now, for the economy as a whole,

0:17:19.520 --> 0:17:22.359
<v Speaker 4>a sharp rise in the rate of return in a

0:17:22.400 --> 0:17:27.680
<v Speaker 4>subset of firms means a more moderate rise in what

0:17:27.720 --> 0:17:33.119
<v Speaker 4>we could call the economy wide average expected rates of return. Now,

0:17:33.680 --> 0:17:37.800
<v Speaker 4>what should happen in those circumstances is that the ex

0:17:37.880 --> 0:17:41.520
<v Speaker 4>anty real rates of interest goes up to match that

0:17:41.600 --> 0:17:45.840
<v Speaker 4>increase in the economy wide expected rates of return. And

0:17:45.880 --> 0:17:49.280
<v Speaker 4>what does that increase in the rate of interest were

0:17:49.280 --> 0:17:52.879
<v Speaker 4>it to happen, what does it do well? It doesn't

0:17:52.920 --> 0:17:57.160
<v Speaker 4>affect the high rates of return companies at all. They

0:17:57.280 --> 0:17:59.760
<v Speaker 4>just carry on. Their rate of return is far higher

0:17:59.800 --> 0:18:04.000
<v Speaker 4>than the economy wide average. It does hold back investment

0:18:04.240 --> 0:18:08.320
<v Speaker 4>in other sectors with lower rates of return, lower future

0:18:08.359 --> 0:18:14.760
<v Speaker 4>productivity expectations, and it somewhat holds back consumption. Now, I

0:18:14.760 --> 0:18:18.800
<v Speaker 4>think it's important to recognize that by and large, it's

0:18:18.840 --> 0:18:21.320
<v Speaker 4>not truly in every single case, but by and large,

0:18:21.960 --> 0:18:28.560
<v Speaker 4>productivity improvement requires physical investment first, and physical investment while

0:18:28.600 --> 0:18:34.160
<v Speaker 4>it's being done adds to aggregate demand. When it's being done,

0:18:34.400 --> 0:18:38.679
<v Speaker 4>it's added to aggregate supply. So what one needs is

0:18:38.840 --> 0:18:41.600
<v Speaker 4>other elements of demand to be held back during the

0:18:41.640 --> 0:18:45.119
<v Speaker 4>period of strong investment growth in high rates of return companies,

0:18:45.720 --> 0:18:48.440
<v Speaker 4>and that's done by an increase in the interest rate.

0:18:49.080 --> 0:18:52.320
<v Speaker 4>When that investment has been done, other things being equal,

0:18:52.400 --> 0:18:56.439
<v Speaker 4>aggregate demand falls, aggregate supply has gone up, the interest

0:18:56.520 --> 0:19:00.920
<v Speaker 4>rate comes back down, and previously postponed if investment projects

0:19:00.920 --> 0:19:05.400
<v Speaker 4>in other senctions of the economy get done previously postponed

0:19:05.800 --> 0:19:12.280
<v Speaker 4>consumption comes into play, and the trusts and valleys of

0:19:12.520 --> 0:19:16.520
<v Speaker 4>the economy can be smoothed out. Now that didn't happen,

0:19:17.359 --> 0:19:22.159
<v Speaker 4>And why didn't it happens because central banks and the

0:19:22.160 --> 0:19:27.320
<v Speaker 4>economists who work in central banks were increasingly bewitched by

0:19:27.840 --> 0:19:35.400
<v Speaker 4>an academic macroeconomic model with a mathematical elaboration. Now, Greenspan

0:19:35.600 --> 0:19:38.600
<v Speaker 4>was very quick, quicker than most people, to see the

0:19:38.720 --> 0:19:41.600
<v Speaker 4>productivity growth in the United States is going to improve.

0:19:42.520 --> 0:19:45.800
<v Speaker 4>But the conclusion he drew from that was the wrong one,

0:19:45.960 --> 0:19:48.800
<v Speaker 4>just as Niger Lawson had drawn the wrong conclusion in

0:19:48.840 --> 0:19:54.080
<v Speaker 4>Britain in somewhat similar circumstances a decade before. He thought,

0:19:54.800 --> 0:19:59.600
<v Speaker 4>improved productivity growth lower rates of inflation at every rate

0:19:59.640 --> 0:20:02.040
<v Speaker 4>of interest, so I don't need to raise interest rates,

0:20:02.200 --> 0:20:07.000
<v Speaker 4>And he held off raising interest rates until there was

0:20:08.119 --> 0:20:11.679
<v Speaker 4>such an obvious, massive speculative boom by the end of

0:20:11.680 --> 0:20:15.439
<v Speaker 4>the nineteen nineties, he had no choice. Now, the speculative

0:20:15.480 --> 0:20:19.560
<v Speaker 4>boom itself was in part or in large part, the

0:20:19.640 --> 0:20:23.920
<v Speaker 4>result of keeping interest rates below an appropriate level given

0:20:23.960 --> 0:20:26.399
<v Speaker 4>the future, as well as the president. When the boom

0:20:26.440 --> 0:20:31.120
<v Speaker 4>collapsed in two thousand, the Fed realized it was going

0:20:31.160 --> 0:20:33.920
<v Speaker 4>to have to cut interest rates to prevent a recession.

0:20:34.680 --> 0:20:36.879
<v Speaker 4>It didn't realize how far it was going to have

0:20:36.960 --> 0:20:38.919
<v Speaker 4>to cut rates, so how long you would have to

0:20:39.000 --> 0:20:42.160
<v Speaker 4>keep rates low, And it didn't realize just how deep

0:20:42.240 --> 0:20:44.520
<v Speaker 4>the recession could have been in the absence of that

0:20:45.000 --> 0:20:47.560
<v Speaker 4>rescue operation from the Fed.

0:20:50.480 --> 0:20:53.440
<v Speaker 1>Okay, John, I'm just going to stop again here. This

0:20:53.520 --> 0:20:56.560
<v Speaker 1>is where the whole thing happened when what he called,

0:20:56.800 --> 0:20:59.879
<v Speaker 1>you know, the original sin was made when Alan Greenspent

0:21:00.440 --> 0:21:06.320
<v Speaker 1>recognized that productivity was going to rise sharply. This looks great,

0:21:07.240 --> 0:21:12.479
<v Speaker 1>but then he made the wrong decision. It's so simple,

0:21:12.520 --> 0:21:15.200
<v Speaker 1>all the way Bernard describes it. It's so simple. One

0:21:16.400 --> 0:21:20.560
<v Speaker 1>misinterpretation of how capitalism should really work, of how he

0:21:20.760 --> 0:21:24.640
<v Speaker 1>should have shifted interest rates, and all crises follow from there.

0:21:24.720 --> 0:21:28.960
<v Speaker 2>Right, Yeah, And I mean I'm glad to see Greenspan

0:21:29.119 --> 0:21:32.159
<v Speaker 2>getting name checked in this because I think people forget

0:21:32.320 --> 0:21:36.640
<v Speaker 2>now that he is ultimately certainly in marview, and it's

0:21:36.720 --> 0:21:39.480
<v Speaker 2>nice to see in Bernards as well, the architect of

0:21:39.800 --> 0:21:42.960
<v Speaker 2>essentially everything that has happened in the last twenty odd years,

0:21:44.080 --> 0:21:46.080
<v Speaker 2>you know. And it's basically does boil, don't you this

0:21:46.200 --> 0:21:50.320
<v Speaker 2>mistake with interest rates? So as I understand the way

0:21:50.359 --> 0:21:53.359
<v Speaker 2>that ber Nuds can only put it, he's saying that

0:21:53.520 --> 0:21:59.879
<v Speaker 2>productivity is shot up, and rather than worrying about the

0:22:00.000 --> 0:22:03.439
<v Speaker 2>effect has had one in inflation effectively, because it basically

0:22:03.440 --> 0:22:06.800
<v Speaker 2>meant inflation was going down along with all the other

0:22:06.840 --> 0:22:10.480
<v Speaker 2>geopolitical stuff that was happening. Greenspancher dencognites, this was a

0:22:10.520 --> 0:22:14.679
<v Speaker 2>good thing. Just put up with the not cut interest

0:22:14.760 --> 0:22:17.240
<v Speaker 2>rates or reduced interest rates, maybe even put them up,

0:22:17.680 --> 0:22:20.600
<v Speaker 2>and that would have encouraged all the investment to go

0:22:20.640 --> 0:22:23.880
<v Speaker 2>into the most productive bit of the economy at that point,

0:22:24.400 --> 0:22:27.520
<v Speaker 2>rather than being misallocated and a lot can of flop

0:22:27.720 --> 0:22:31.520
<v Speaker 2>around the edges. Is that basically what he's saying.

0:22:33.040 --> 0:22:35.800
<v Speaker 1>Absolutely, And you know, the extraordinary thing is that he

0:22:35.960 --> 0:22:38.960
<v Speaker 1>did recognize that productivity change. I mean that was you know,

0:22:39.000 --> 0:22:41.600
<v Speaker 1>there was a genius there because other people didn't. And

0:22:41.640 --> 0:22:44.120
<v Speaker 1>again I'm going back to the book, page one ninety nine.

0:22:44.160 --> 0:22:45.920
<v Speaker 1>For those of you who think I haven't read it all,

0:22:45.960 --> 0:22:49.000
<v Speaker 1>it will go page one ninety nine, really motoring through now,

0:22:49.200 --> 0:22:52.840
<v Speaker 1>where Bernard talks about various papers that have been written

0:22:52.880 --> 0:22:55.639
<v Speaker 1>on this and notes that the productivity trend in the

0:22:55.760 --> 0:22:59.000
<v Speaker 1>US accelerated quite markedly in the period from nineteen ninety

0:22:59.000 --> 0:23:00.800
<v Speaker 1>five to two thousand and one as compared to the

0:23:00.840 --> 0:23:04.439
<v Speaker 1>period from seventeen ninety three to nineteen ninety five, with

0:23:04.640 --> 0:23:08.520
<v Speaker 1>nineteen ninety five marked out as a very significant year

0:23:08.560 --> 0:23:12.880
<v Speaker 1>and inflection point for productivity in the US. And we're

0:23:12.920 --> 0:23:15.280
<v Speaker 1>talking about a paper here written by Mangled Larry Meyer,

0:23:15.440 --> 0:23:19.879
<v Speaker 1>who wrote the Greenspan's call on the productivity acceleration was

0:23:19.960 --> 0:23:23.160
<v Speaker 1>a truly great one. He got it right before the

0:23:23.200 --> 0:23:25.760
<v Speaker 1>rest of us did. But he got it right, and then,

0:23:25.760 --> 0:23:29.960
<v Speaker 1>oh boy, oh boy, did he get it wrong. So Greenspan,

0:23:30.080 --> 0:23:34.440
<v Speaker 1>having spotted a coming acceleration in productivity not yet apparent

0:23:34.560 --> 0:23:37.680
<v Speaker 1>in the data, took the view that he could keep

0:23:37.720 --> 0:23:41.040
<v Speaker 1>interest rates lower than otherwise. And here's interesting as well.

0:23:41.280 --> 0:23:45.560
<v Speaker 1>He did this in the face of anguished please from

0:23:45.560 --> 0:23:49.880
<v Speaker 1>several other FMAC members that rapidly falling unemployment was likely

0:23:50.160 --> 0:23:54.280
<v Speaker 1>to lead to accelerating inflation. So when people look back

0:23:54.320 --> 0:23:56.520
<v Speaker 1>at this, they see it as a great triumph of

0:23:56.600 --> 0:23:59.760
<v Speaker 1>his chairmanship, the great brilliance of Greenspan that he didn't

0:23:59.800 --> 0:24:02.600
<v Speaker 1>rate interest at the time. But of course the premise

0:24:02.680 --> 0:24:05.199
<v Speaker 1>for Bernard is that it was the worst mistake anyone

0:24:05.240 --> 0:24:08.280
<v Speaker 1>has ever made. Now well, in economic terms anyway, won't

0:24:08.280 --> 0:24:09.560
<v Speaker 1>be not the worst, there's got to be worse, but

0:24:09.600 --> 0:24:13.840
<v Speaker 1>pretty bad, pretty bad. And I want to go back

0:24:13.920 --> 0:24:18.280
<v Speaker 1>to where the UK did something very similar. So we're

0:24:18.280 --> 0:24:19.680
<v Speaker 1>going to go on here and we're going to talk

0:24:19.680 --> 0:24:22.280
<v Speaker 1>about the US. But if you go back in Bernard's book,

0:24:22.280 --> 0:24:25.120
<v Speaker 1>page one twenty eight, we get to a point where

0:24:25.160 --> 0:24:27.439
<v Speaker 1>we talk about how this happened in the UK. So

0:24:27.600 --> 0:24:30.199
<v Speaker 1>there were voices in the bank, notably Mervin Kings. We've

0:24:30.240 --> 0:24:31.919
<v Speaker 1>had We've talked to Mervin King a lot before you

0:24:32.000 --> 0:24:34.560
<v Speaker 1>and I, and we have a meeting's mind in various

0:24:34.560 --> 0:24:38.080
<v Speaker 1>things in favor of higher interest rates to restrain domestic

0:24:38.119 --> 0:24:42.240
<v Speaker 1>demand and prevent a dangerous bubble. The debate within the

0:24:42.280 --> 0:24:44.639
<v Speaker 1>bank was settled for a short time in the early

0:24:44.680 --> 0:24:48.639
<v Speaker 1>two thousands when the Governor Eddie George averred that unbalanced

0:24:48.680 --> 0:24:51.520
<v Speaker 1>growth is better than no growth. And here we get

0:24:51.520 --> 0:24:54.359
<v Speaker 1>her a nice little assigne, very Bernard style, a phrase

0:24:54.359 --> 0:24:57.120
<v Speaker 1>that may have inspired Theresa May and her baffling conviction

0:24:57.480 --> 0:25:00.199
<v Speaker 1>that a bad deal with the EU was better than now.

0:25:00.280 --> 0:25:03.359
<v Speaker 1>There in Britain, as in the US, the damage that

0:25:03.440 --> 0:25:06.320
<v Speaker 1>already been done by the early two thousands into temporal

0:25:06.440 --> 0:25:12.960
<v Speaker 1>dis equilibrium was firmly established. Miseries on miseries.

0:25:13.160 --> 0:25:14.760
<v Speaker 2>Well, the one other thing I wonder about with that

0:25:14.880 --> 0:25:17.080
<v Speaker 2>is I'd like to know, and I don't know bernadreits

0:25:17.119 --> 0:25:19.760
<v Speaker 2>about this, but how much of this was just an

0:25:19.800 --> 0:25:24.680
<v Speaker 2>element of political spinelessness as well, because Greenspan could really

0:25:24.720 --> 0:25:28.600
<v Speaker 2>badly burnt in nineteen ninety four when he basically crashed

0:25:28.640 --> 0:25:32.560
<v Speaker 2>the US bond market by raising interest rates faster than

0:25:32.640 --> 0:25:35.520
<v Speaker 2>markets would have liked. And I've always had the impression

0:25:35.560 --> 0:25:39.280
<v Speaker 2>that really after that he was kind of keeping one

0:25:39.320 --> 0:25:44.560
<v Speaker 2>eye on Wall Street as to how pleased or happy

0:25:44.640 --> 0:25:47.560
<v Speaker 2>they were with the way he was doing things, because

0:25:47.520 --> 0:25:49.440
<v Speaker 2>at the end of the day he also lower in

0:25:49.520 --> 0:25:51.520
<v Speaker 2>interest rates, or so keeping them lower than they should

0:25:51.520 --> 0:25:54.920
<v Speaker 2>be is the easy way out most of the time,

0:25:55.440 --> 0:26:00.000
<v Speaker 2>unless like inflation is going absolutely bonkers like it did here. Recently.

0:26:00.520 --> 0:26:03.920
<v Speaker 2>Nobody's going to complain that you aventry streets are loyal

0:26:04.000 --> 0:26:06.160
<v Speaker 2>than they should be, because that's when you get to

0:26:06.240 --> 0:26:10.200
<v Speaker 2>run out and spend lots of money. Basically, so it's

0:26:10.240 --> 0:26:12.080
<v Speaker 2>kind of a modal feeling, not until.

0:26:11.840 --> 0:26:15.480
<v Speaker 1>They see the consequences a decade later, a Moorral failing too. Yeah.

0:26:15.480 --> 0:26:17.119
<v Speaker 1>I do think Alan Greenspan's ever going to come on

0:26:17.119 --> 0:26:17.920
<v Speaker 1>this podcast, is.

0:26:17.880 --> 0:26:21.280
<v Speaker 2>He let's try and get hope be.

0:26:21.240 --> 0:26:30.320
<v Speaker 1>Good, right onwards back to Bernard. Okay, so just be

0:26:30.400 --> 0:26:34.679
<v Speaker 1>clear where we've got to hear is that when this

0:26:34.800 --> 0:26:39.040
<v Speaker 1>great productivity boom or potential productivity boom became clear, the

0:26:39.160 --> 0:26:41.720
<v Speaker 1>correct thing for Alan Greenspun to have done, and he

0:26:41.840 --> 0:26:43.800
<v Speaker 1>noticed it, which is a good, good thing, right, we

0:26:43.960 --> 0:26:46.320
<v Speaker 1>praise him for that he noticed it happening. What he

0:26:46.400 --> 0:26:49.240
<v Speaker 1>should have done is allowed interest rates to rise or

0:26:49.240 --> 0:26:52.920
<v Speaker 1>put up interest rights, put up interest rates to encourage

0:26:52.960 --> 0:26:58.359
<v Speaker 1>investment only in these very productive sectors. Hold off investment elsewhere,

0:26:58.720 --> 0:27:01.320
<v Speaker 1>hold off consumption because people could get more money with

0:27:01.359 --> 0:27:03.720
<v Speaker 1>their money on deposit than elsewhere, So it holds off

0:27:03.760 --> 0:27:07.320
<v Speaker 1>consumption for a while. Then we get this investment in

0:27:07.359 --> 0:27:11.040
<v Speaker 1>the productive sectors that's complete. And then of course we

0:27:11.080 --> 0:27:13.680
<v Speaker 1>need the consumption to come in, and we need other

0:27:13.760 --> 0:27:17.119
<v Speaker 1>sectors to use these new productive ways of working in

0:27:17.160 --> 0:27:19.639
<v Speaker 1>their own businesses. That should all come in then and

0:27:19.760 --> 0:27:22.720
<v Speaker 1>everything would be absolutely fine. Interest rates would have done

0:27:22.720 --> 0:27:26.919
<v Speaker 1>their job in translating the present into the future and

0:27:27.200 --> 0:27:29.879
<v Speaker 1>we would have been in a wonderful place. Instead of

0:27:29.920 --> 0:27:36.080
<v Speaker 1>which Greenspan, despite noting this, made the wrong choice, kept

0:27:36.119 --> 0:27:39.760
<v Speaker 1>interest rate too low, and then we got that first

0:27:39.920 --> 0:27:43.440
<v Speaker 1>bubble that then led us into the next bit. We're

0:27:43.440 --> 0:27:46.560
<v Speaker 1>having had a bubble, and that bubble then collapsed. We

0:27:46.560 --> 0:27:49.480
<v Speaker 1>move in for a recessionary environment, where upon central bankers,

0:27:50.040 --> 0:27:53.000
<v Speaker 1>and I'm moving us a little further forward here, central

0:27:53.000 --> 0:27:56.919
<v Speaker 1>bankers panic push interest rates down again, further and further

0:27:57.480 --> 0:28:00.879
<v Speaker 1>and on we go from there. The so that first

0:28:00.960 --> 0:28:04.240
<v Speaker 1>mistake led us into the environment where interest rates became

0:28:04.359 --> 0:28:05.800
<v Speaker 1>almost permanently too low.

0:28:06.720 --> 0:28:10.160
<v Speaker 4>Yeah, So what does too low mean? When you push

0:28:10.320 --> 0:28:13.119
<v Speaker 4>interest rates down in the face of a recession, you

0:28:13.200 --> 0:28:16.920
<v Speaker 4>get an initial bump, but you're going to trend down

0:28:16.960 --> 0:28:21.760
<v Speaker 4>again afterwards, unless well unless, what unless you keep reducing

0:28:21.800 --> 0:28:24.520
<v Speaker 4>interest rates, which the Fed did all the way from

0:28:24.560 --> 0:28:28.320
<v Speaker 4>twenty and two thousand and four, or you create a

0:28:28.400 --> 0:28:32.600
<v Speaker 4>bubble another bubble. Now, it's perhaps worth distinguishing two kinds

0:28:32.640 --> 0:28:35.160
<v Speaker 4>of bubble. What I think in the book I call

0:28:35.240 --> 0:28:41.640
<v Speaker 4>the trader's bubble. That's to say, a boom in asset prices, equities,

0:28:42.160 --> 0:28:45.160
<v Speaker 4>and very important in the United States at that time,

0:28:45.320 --> 0:28:49.320
<v Speaker 4>in the housing market. And doing that creates a kind

0:28:49.320 --> 0:28:56.360
<v Speaker 4>of illusory wealth that gives people the impression that even

0:28:56.560 --> 0:28:59.520
<v Speaker 4>that their future incomes are going to go up sharply,

0:29:00.360 --> 0:29:04.200
<v Speaker 4>and even if their growth of spending is less than

0:29:04.200 --> 0:29:07.480
<v Speaker 4>their expected growth, they're expected very sharp growth of income

0:29:08.120 --> 0:29:11.320
<v Speaker 4>is still faster than the actual growth of income, the

0:29:11.360 --> 0:29:15.360
<v Speaker 4>actual growth of productive potential. A second bubble is in credit,

0:29:16.440 --> 0:29:19.680
<v Speaker 4>where rather than thinking, oh my goodness, I'm spent today,

0:29:19.840 --> 0:29:21.800
<v Speaker 4>I'm going to have to pay back tomorrow, so I

0:29:22.320 --> 0:29:25.000
<v Speaker 4>have less to spend tomorrow, people think, oh, it just

0:29:25.040 --> 0:29:28.000
<v Speaker 4>doesn't matter. I can borrow as much as as I like,

0:29:28.720 --> 0:29:31.000
<v Speaker 4>never going to have to pay it back. And those

0:29:31.120 --> 0:29:37.000
<v Speaker 4>two bubbles in asset prices and in credits were characteristic

0:29:37.680 --> 0:29:40.640
<v Speaker 4>of the US economy from round about two thousand and

0:29:40.800 --> 0:29:44.960
<v Speaker 4>three until the end of two thousand and six in

0:29:45.000 --> 0:29:48.400
<v Speaker 4>the housing market, two thousand and seven in the credit markets,

0:29:49.000 --> 0:29:53.080
<v Speaker 4>the end of the equity market Okay.

0:29:52.800 --> 0:29:57.479
<v Speaker 1>So very brief interruption here. Low interest rates were kept

0:29:57.640 --> 0:30:01.640
<v Speaker 1>too low for too long. We get this kink in

0:30:01.720 --> 0:30:04.040
<v Speaker 1>what should have been a time, a different kind of timeline,

0:30:04.040 --> 0:30:08.120
<v Speaker 1>where these very low interest rates dragged consumption forwards from

0:30:08.160 --> 0:30:10.840
<v Speaker 1>the future in a way that we really shouldn't have allowed.

0:30:11.480 --> 0:30:15.160
<v Speaker 1>So you get too much too early, and that's when

0:30:15.160 --> 0:30:18.440
<v Speaker 1>everything goes wrong, because that begins to turn into bubbles. Right.

0:30:19.120 --> 0:30:21.960
<v Speaker 2>Yeah, And as I understood that, the problem is that

0:30:22.120 --> 0:30:26.600
<v Speaker 2>basically the consumer consumed too much, and then they're coinstantly

0:30:26.720 --> 0:30:29.080
<v Speaker 2>trying to run in the standstill because they haven't to

0:30:29.160 --> 0:30:32.400
<v Speaker 2>catch up with themselves because they've overspent, basically, And the

0:30:32.440 --> 0:30:35.560
<v Speaker 2>only way to get around that is to keep pushing

0:30:35.560 --> 0:30:38.840
<v Speaker 2>the interest rates law and law still, and then you

0:30:38.880 --> 0:30:42.360
<v Speaker 2>get even more misallocation, and then that's what leads to

0:30:42.400 --> 0:30:43.000
<v Speaker 2>the bubbles.

0:30:43.360 --> 0:30:45.600
<v Speaker 1>Yeah, and you create a credit bubble at the same time,

0:30:45.640 --> 0:30:48.280
<v Speaker 1>people get forced into debt because they've pilled their spending

0:30:48.320 --> 0:30:52.400
<v Speaker 1>forwards and they have to borrow to catch up later. Yeah. Well,

0:30:52.560 --> 0:30:57.200
<v Speaker 1>very very difficult, but it did. All these bubbles represented

0:30:57.240 --> 0:31:00.520
<v Speaker 1>effectively the same thing, the pulling ford, pulling back should

0:31:00.600 --> 0:31:03.160
<v Speaker 1>I say, of what should have been future spending and

0:31:03.240 --> 0:31:06.960
<v Speaker 1>futuring future investment. So you're messing around with time. It's

0:31:07.000 --> 0:31:09.320
<v Speaker 1>there what you call an inter temper of dis equilibrium.

0:31:09.440 --> 0:31:12.960
<v Speaker 1>All bubbles represent that pulling forward of stuff that should

0:31:12.960 --> 0:31:15.480
<v Speaker 1>be happening ten to fifteen, twenty years out.

0:31:16.120 --> 0:31:19.400
<v Speaker 4>And that's a big problem for capitalism because what capitalism

0:31:19.480 --> 0:31:24.640
<v Speaker 4>is about the relationship between the present, notably the capital stock,

0:31:24.760 --> 0:31:31.120
<v Speaker 4>and the future, and the market that regulates those relationships

0:31:31.480 --> 0:31:36.280
<v Speaker 4>is the most obviously rigged market of all. Now, it

0:31:36.320 --> 0:31:39.480
<v Speaker 4>may be necessary to rig that market. Central banks may

0:31:39.560 --> 0:31:42.800
<v Speaker 4>be necessary. That's the debate one can have perhaps another time.

0:31:43.360 --> 0:31:47.239
<v Speaker 4>But given that central banks are there and they are

0:31:47.360 --> 0:31:50.000
<v Speaker 4>rigging their market, if they get it wrong, it is

0:31:50.040 --> 0:31:54.280
<v Speaker 4>a potential and in fact an actual disaster for capitalism. Now,

0:31:55.080 --> 0:31:57.920
<v Speaker 4>when one thinks about the crisis in two thousand and eight,

0:31:58.040 --> 0:32:04.120
<v Speaker 4>I think recognize that yes, was irresponsible, greedy, stupid behavior

0:32:04.160 --> 0:32:06.680
<v Speaker 4>on the part of quite a number of financial market

0:32:06.720 --> 0:32:10.200
<v Speaker 4>institutions and players. We can't deny that. But I think

0:32:10.200 --> 0:32:13.840
<v Speaker 4>it's also important to stress that those institutions and players

0:32:14.200 --> 0:32:19.160
<v Speaker 4>were responding to the incentives that the market for time,

0:32:19.240 --> 0:32:22.240
<v Speaker 4>the market for money rigged by the central bank, had

0:32:22.240 --> 0:32:27.200
<v Speaker 4>given them. The central bank needed that irresponsible behavior in

0:32:27.320 --> 0:32:31.240
<v Speaker 4>order to create the pretense that things were going back

0:32:31.240 --> 0:32:34.840
<v Speaker 4>to normal. Having slashed interest rates between two thousand and

0:32:34.880 --> 0:32:37.440
<v Speaker 4>one and two thousand and four, the Fed managed to

0:32:37.480 --> 0:32:40.080
<v Speaker 4>get short rates at any rate back up to something

0:32:40.240 --> 0:32:42.720
<v Speaker 4>like what they considered a normal level by two thousand

0:32:42.760 --> 0:32:45.160
<v Speaker 4>and six. They would not have been able to do

0:32:45.240 --> 0:32:50.120
<v Speaker 4>that without the bubbles, without the irresponsible behavior for which

0:32:50.160 --> 0:32:53.720
<v Speaker 4>they had given the incentives, and one could see a

0:32:53.760 --> 0:32:58.680
<v Speaker 4>repeat of that post crisis. The central banks were concerned

0:32:58.720 --> 0:33:02.880
<v Speaker 4>to try to return turned to normal, and by normal

0:33:03.360 --> 0:33:08.240
<v Speaker 4>they meant a situation in which short rates of interest

0:33:08.280 --> 0:33:10.200
<v Speaker 4>were sort of where they've been in the middle of

0:33:10.240 --> 0:33:14.400
<v Speaker 4>the two thousands and again, in order to do that,

0:33:14.560 --> 0:33:16.840
<v Speaker 4>they had to deliberately induce bubbles.

0:33:18.440 --> 0:33:20.520
<v Speaker 1>Okay, now, the next interesting bit is when we start

0:33:20.600 --> 0:33:24.120
<v Speaker 1>talking about COVID, because this really, or the responses to COVID,

0:33:24.160 --> 0:33:26.560
<v Speaker 1>should we say, the policies around the pandemic rather than

0:33:26.760 --> 0:33:30.440
<v Speaker 1>the pandemic itself, because this is when things really began

0:33:30.520 --> 0:33:34.120
<v Speaker 1>to shift in an extreme direction. As far as far

0:33:34.120 --> 0:33:36.480
<v Speaker 1>as Bernard's is it, so he's that whether whether you

0:33:36.520 --> 0:33:38.920
<v Speaker 1>approve of lockdowns or not of lockdowns, et cetera, it

0:33:38.960 --> 0:33:41.520
<v Speaker 1>became a period when we began to develop even more

0:33:41.560 --> 0:33:44.000
<v Speaker 1>of a fiscal bubble than we had had before, and

0:33:44.200 --> 0:33:46.320
<v Speaker 1>that is where he gets very concerned.

0:33:47.000 --> 0:33:51.680
<v Speaker 2>Well, the interesting things about this is that the the

0:33:51.760 --> 0:33:54.560
<v Speaker 2>in the way, the obvious response and what we got

0:33:54.680 --> 0:33:59.280
<v Speaker 2>after two thousand and eight was basically sovereigns as in

0:33:59.440 --> 0:34:02.680
<v Speaker 2>countries taken on all of the date that had accrued

0:34:02.720 --> 0:34:06.880
<v Speaker 2>in the private sector, and that then just kind of

0:34:06.960 --> 0:34:10.480
<v Speaker 2>like chalk the economy for quite some time, and it

0:34:10.600 --> 0:34:14.560
<v Speaker 2>was COVID that kind of led to, I guess what

0:34:14.600 --> 0:34:17.760
<v Speaker 2>we've got now, which is the kind of very prominent

0:34:17.920 --> 0:34:22.080
<v Speaker 2>fiscal bubble, which I guess I would have expected to

0:34:22.120 --> 0:34:26.200
<v Speaker 2>have happened actually potentially much earlier after two thousand and eight,

0:34:27.080 --> 0:34:30.200
<v Speaker 2>but centers now long that's kind of taken to come

0:34:30.239 --> 0:34:30.880
<v Speaker 2>with fruission.

0:34:32.160 --> 0:34:33.920
<v Speaker 1>A lot of things take longer than you think, and

0:34:34.040 --> 0:34:35.600
<v Speaker 1>then you have an awful lot of people who think

0:34:35.640 --> 0:34:37.680
<v Speaker 1>if something doesn't happen, but then the first year or

0:34:37.719 --> 0:34:39.640
<v Speaker 1>the first year and a half, it's never going to happen.

0:34:39.880 --> 0:34:44.680
<v Speaker 1>A lot of new things are very slow burn. Now.

0:34:44.719 --> 0:34:48.279
<v Speaker 1>A lot of the fiscal difficulties here they stem from

0:34:48.280 --> 0:34:51.600
<v Speaker 1>the beginning of the response to COVID, right. I mean,

0:34:52.400 --> 0:34:55.399
<v Speaker 1>there was the beginnings of a sense that there might

0:34:55.440 --> 0:34:59.719
<v Speaker 1>be a fiscal responsibility underway pre COVID, and then we

0:35:00.040 --> 0:35:02.680
<v Speaker 1>moved into this environment where governments had no choice. Was

0:35:02.680 --> 0:35:05.359
<v Speaker 1>certainly felt that they had no choice to go on

0:35:05.360 --> 0:35:07.520
<v Speaker 1>one of the greatest fiscal splurges ever and one of

0:35:07.560 --> 0:35:11.080
<v Speaker 1>the greatest monetary splurges ever, and we're now suffering from

0:35:11.120 --> 0:35:13.680
<v Speaker 1>the after effects of that. But of course the interesting

0:35:13.719 --> 0:35:17.520
<v Speaker 1>thing being that the deficits aren't coming back to levels

0:35:17.520 --> 0:35:20.439
<v Speaker 1>that you might have expected, So the COVID defics, it'd

0:35:20.520 --> 0:35:22.440
<v Speaker 1>be persisting rather than disappearing.

0:35:22.760 --> 0:35:27.920
<v Speaker 4>Yes, it is. I agree with you that well, given

0:35:28.200 --> 0:35:31.920
<v Speaker 4>the fact of lockdowns, at least the initial lockdowns, it

0:35:31.960 --> 0:35:36.000
<v Speaker 4>would have been socially explosive for the government not to

0:35:36.080 --> 0:35:38.719
<v Speaker 4>support the incomes of those people who've been told sorry,

0:35:38.760 --> 0:35:41.600
<v Speaker 4>you're not allowed to go to work anymore. Whether the

0:35:41.640 --> 0:35:45.680
<v Speaker 4>lockdowns themselves sensible is a big question. I think a

0:35:45.680 --> 0:35:48.520
<v Speaker 4>lot of the evidence since then suggests that they weren't.

0:35:48.560 --> 0:35:51.880
<v Speaker 4>But let's leave that aside. The problem has been the

0:35:51.880 --> 0:35:57.279
<v Speaker 4>problem has been had since then. The extension and the

0:35:57.360 --> 0:36:03.520
<v Speaker 4>repeated nature of lockdowns culcated a sort of feeling that well,

0:36:03.600 --> 0:36:07.000
<v Speaker 4>governments will always bail everyone out whatever goes wrong, not

0:36:07.120 --> 0:36:09.600
<v Speaker 4>just the financial system as they did in two thousand

0:36:09.600 --> 0:36:13.239
<v Speaker 4>and eight, but the ordinary man in the street, if

0:36:13.280 --> 0:36:15.799
<v Speaker 4>you like, the ordinary woman in the street, in a

0:36:15.840 --> 0:36:20.120
<v Speaker 4>whole range of circumstances, and of course I'm sitting here

0:36:20.120 --> 0:36:23.120
<v Speaker 4>in London and Britain is perhaps the prime example of

0:36:23.160 --> 0:36:25.520
<v Speaker 4>a country where people seem to have given up work,

0:36:26.160 --> 0:36:28.360
<v Speaker 4>or a great many people seem to have given up work,

0:36:28.960 --> 0:36:32.920
<v Speaker 4>and absent some man of from heaven. Perhaps I come

0:36:32.960 --> 0:36:35.919
<v Speaker 4>back to that again in a moment. Absent some man

0:36:35.920 --> 0:36:40.120
<v Speaker 4>of from heaven, productivity growth is just going to get

0:36:40.200 --> 0:36:46.160
<v Speaker 4>lower and lower. Regulation, high taxation, the transformation of the

0:36:46.280 --> 0:36:53.160
<v Speaker 4>education system into indoctrination, camps in political correctness, a seeming

0:36:53.280 --> 0:36:55.960
<v Speaker 4>unwillingness to work on the part of a large part

0:36:56.000 --> 0:37:01.720
<v Speaker 4>of the population. None of those are conducive to productivity growth,

0:37:01.840 --> 0:37:04.080
<v Speaker 4>or indeed even to the maintenance of the level of

0:37:04.120 --> 0:37:10.560
<v Speaker 4>productive potential. And in those circumstances, budget deficits and simply

0:37:10.640 --> 0:37:15.239
<v Speaker 4>not going to come down. And that the bubbles we

0:37:15.280 --> 0:37:18.360
<v Speaker 4>saw in the second half of the nineties, the bubbles

0:37:18.400 --> 0:37:23.360
<v Speaker 4>we saw in the two thousands, and again during COVID

0:37:23.640 --> 0:37:27.600
<v Speaker 4>induced by monetary policy and now being supplemented by a

0:37:27.600 --> 0:37:32.120
<v Speaker 4>public finance bubble. It is not possible for people to

0:37:32.239 --> 0:37:35.719
<v Speaker 4>spend in the future what they think their incomes will

0:37:35.760 --> 0:37:41.320
<v Speaker 4>be unless that public finance bubble continues and debt ratios

0:37:41.400 --> 0:37:45.600
<v Speaker 4>grow and grow and grow until there is inevitably a

0:37:45.600 --> 0:37:48.920
<v Speaker 4>physical crisis. And the risk is that the physical crisis

0:37:48.960 --> 0:37:52.880
<v Speaker 4>will be met by a renewed resort to bond buying

0:37:52.960 --> 0:37:56.480
<v Speaker 4>by central banks, and of course the outcome of that,

0:37:56.600 --> 0:38:01.279
<v Speaker 4>in the circumstances positive, will be in flame and conceivably

0:38:01.320 --> 0:38:05.080
<v Speaker 4>even hyperinflation. So it's not a pleasant picture.

0:38:06.160 --> 0:38:09.600
<v Speaker 1>Do you expect to see inflation fallback down again, do

0:38:09.640 --> 0:38:11.840
<v Speaker 1>you expect to see rates follow them down? Or do

0:38:11.880 --> 0:38:15.120
<v Speaker 1>you expect an outbreak of common sense among the central

0:38:15.120 --> 0:38:15.920
<v Speaker 1>bankers of the world.

0:38:16.400 --> 0:38:18.920
<v Speaker 4>Common sense won't be enough. And I tried to explain

0:38:19.000 --> 0:38:23.560
<v Speaker 4>why part of the inflation that we've seen since twenty

0:38:23.640 --> 0:38:27.399
<v Speaker 4>twenty one was indeed not just transient and it would

0:38:27.400 --> 0:38:30.200
<v Speaker 4>just go away, but actually transitory in the sort of

0:38:30.400 --> 0:38:33.319
<v Speaker 4>technical statistical sense of the term that the price that

0:38:33.360 --> 0:38:37.000
<v Speaker 4>goes up would come back down again. And the reason

0:38:38.120 --> 0:38:41.200
<v Speaker 4>part of the inflation was to do with the disruption

0:38:41.320 --> 0:38:45.759
<v Speaker 4>of production, the disruption of supply chains, very sharp increases

0:38:46.080 --> 0:38:48.040
<v Speaker 4>in the prices of a whole range of raw and

0:38:48.160 --> 0:38:52.359
<v Speaker 4>the dustrial materials, and it was reasonable to expect from

0:38:52.480 --> 0:38:55.400
<v Speaker 4>let's say, from the starting point of the autumn of

0:38:55.440 --> 0:38:58.839
<v Speaker 4>twenty twenty, that some of those prices would come back

0:38:58.880 --> 0:39:03.160
<v Speaker 4>down again. And indeed a little bit of that has happened,

0:39:03.680 --> 0:39:06.000
<v Speaker 4>only a little bit, but it's happened with goods. Prices

0:39:06.000 --> 0:39:08.800
<v Speaker 4>in the US, for instance, have been falling from about

0:39:08.840 --> 0:39:14.759
<v Speaker 4>the middle of last year. However, that's what the transitory

0:39:15.560 --> 0:39:18.560
<v Speaker 4>nature of inflation is. What would have happened if the FEDS,

0:39:18.760 --> 0:39:22.320
<v Speaker 4>if these central banks hand indulged in the massive spurge

0:39:22.960 --> 0:39:27.840
<v Speaker 4>of bond buying in which they did indulge during the pandemic.

0:39:28.600 --> 0:39:33.920
<v Speaker 4>They created super tight labor markets, very low rates of unemployment,

0:39:35.400 --> 0:39:40.600
<v Speaker 4>massive numbers of vacancies are worse than efficiency of the

0:39:40.719 --> 0:39:45.600
<v Speaker 4>labor market in terms of matching vacancies, and the unemployed

0:39:47.400 --> 0:39:53.759
<v Speaker 4>inevitably created inflation, which is not transitory. Now what we've

0:39:53.760 --> 0:39:56.759
<v Speaker 4>started to see again, let me focus on the US

0:39:56.800 --> 0:39:59.840
<v Speaker 4>because that tends to lead and to direct everything else is.

0:40:00.000 --> 0:40:06.000
<v Speaker 4>But the indications are that unless the economy weakens and

0:40:06.120 --> 0:40:09.560
<v Speaker 4>weakens quite soon and quite significantly. The non transit chair

0:40:09.600 --> 0:40:12.120
<v Speaker 4>elements of inflation are not going to go down any further,

0:40:12.200 --> 0:40:15.520
<v Speaker 4>and they could even start going up again, and that

0:40:15.840 --> 0:40:18.239
<v Speaker 4>is a big problem the same. I think it's true

0:40:18.520 --> 0:40:21.680
<v Speaker 4>of Britain for instance. Now it's a big problem for

0:40:21.719 --> 0:40:25.680
<v Speaker 4>the central banks because they're looking at an inflation rate

0:40:25.920 --> 0:40:30.360
<v Speaker 4>which may not go down any further. It's still significantly

0:40:30.400 --> 0:40:34.080
<v Speaker 4>above target, much more so here in Britain than this

0:40:34.239 --> 0:40:38.040
<v Speaker 4>is in the United States. Of course, some tentative indications

0:40:38.600 --> 0:40:41.879
<v Speaker 4>of a little bit of weakening in the economy. Now

0:40:42.800 --> 0:40:46.120
<v Speaker 4>what do they do. Do they say, Oh, we think

0:40:46.160 --> 0:40:49.120
<v Speaker 4>inflation rate is going to continue to come down and

0:40:49.160 --> 0:40:52.400
<v Speaker 4>the economy, like we could a bit, let's cut rates.

0:40:53.160 --> 0:40:58.439
<v Speaker 4>If they do that quickly, and if they do that substantially,

0:40:58.520 --> 0:41:00.480
<v Speaker 4>then I think we're going to be off to the

0:41:00.560 --> 0:41:03.960
<v Speaker 4>races again in terms of inflation. If they don't do

0:41:04.080 --> 0:41:10.319
<v Speaker 4>it will be continued and aggravated weakening of real economies.

0:41:11.120 --> 0:41:14.120
<v Speaker 4>I think the idea that with the notions of immaculate

0:41:14.160 --> 0:41:18.880
<v Speaker 4>disinflation and self landing are simply wrong. Unfortunately, that's not

0:41:18.920 --> 0:41:19.920
<v Speaker 4>what's going to happen.

0:41:20.600 --> 0:41:22.480
<v Speaker 1>Okay, Now, this bit, John, I find this bit really

0:41:22.480 --> 0:41:25.000
<v Speaker 1>interesting because there is this whole question of to what

0:41:25.120 --> 0:41:27.560
<v Speaker 1>extent do central banks have self knowledge or have they

0:41:27.600 --> 0:41:32.000
<v Speaker 1>developed self knowledge? Are they beginning to understand what they're doing?

0:41:32.239 --> 0:41:35.360
<v Speaker 1>How long term are they beginning to think in terms

0:41:35.360 --> 0:41:37.279
<v Speaker 1>of their models and their ideas. And we know that

0:41:37.760 --> 0:41:40.200
<v Speaker 1>a Bank of England, for example, are beginning to question

0:41:40.320 --> 0:41:42.879
<v Speaker 1>their models, and we know that their forecasts have been

0:41:43.000 --> 0:41:45.640
<v Speaker 1>absolutely awful. Interesting. I was reading something the other day

0:41:46.040 --> 0:41:49.439
<v Speaker 1>looking at independent forecasts of interest rates and central bank

0:41:49.480 --> 0:41:53.080
<v Speaker 1>forecasts of interest rates, and interestingly, the independent ones, while

0:41:53.080 --> 0:41:56.879
<v Speaker 1>also awful, marginally better than the central bank ones, which

0:41:56.880 --> 0:41:58.880
<v Speaker 1>begs the question is why anyone ever listens to central

0:41:58.880 --> 0:42:01.719
<v Speaker 1>banks at all? Because models are even worse than the

0:42:01.760 --> 0:42:06.480
<v Speaker 1>private sector models. So I have this conversation with Bernard

0:42:06.480 --> 0:42:08.880
<v Speaker 1>about whether we're beginning to see some change there in

0:42:08.880 --> 0:42:11.200
<v Speaker 1>and I feel a little change and a little culpability.

0:42:11.280 --> 0:42:13.759
<v Speaker 1>But but Bernard, really he just doesn't. He's not giving

0:42:13.800 --> 0:42:14.759
<v Speaker 1>any quarter here, is he.

0:42:16.719 --> 0:42:24.040
<v Speaker 2>No, he's definitely not having the optimistic view. I suppose

0:42:24.120 --> 0:42:26.560
<v Speaker 2>they'd probably be more endured camp from the point of

0:42:26.680 --> 0:42:29.840
<v Speaker 2>view that I think it's clear that there are questions

0:42:29.880 --> 0:42:34.440
<v Speaker 2>being asked. I think that there are a lot of

0:42:34.560 --> 0:42:40.480
<v Speaker 2>central bankers who are aware that their power is actually

0:42:42.440 --> 0:42:45.600
<v Speaker 2>probably reaching far beyond what it should in a democratic

0:42:45.680 --> 0:42:48.040
<v Speaker 2>society as well, although to be fair, a lot of

0:42:48.040 --> 0:42:50.840
<v Speaker 2>those ones used to be in the MPC, and I

0:42:50.880 --> 0:42:52.520
<v Speaker 2>don't hear that kind of talk from the ones who

0:42:52.560 --> 0:42:57.400
<v Speaker 2>are currently in the NPC. But I think part of

0:42:57.400 --> 0:42:59.120
<v Speaker 2>the problem with central banks in general is that you

0:42:59.200 --> 0:43:04.279
<v Speaker 2>have to question whether the institution and its current form

0:43:04.360 --> 0:43:06.360
<v Speaker 2>should exist at all. I mean it goes back to

0:43:06.360 --> 0:43:09.960
<v Speaker 2>that point we were making earlier about if the industry

0:43:10.200 --> 0:43:15.000
<v Speaker 2>is the most important number in markets, then why is

0:43:15.040 --> 0:43:18.400
<v Speaker 2>it being set by a small group of people in

0:43:18.480 --> 0:43:21.760
<v Speaker 2>a room somewhere. I mean, it is effectively central planning

0:43:22.320 --> 0:43:24.600
<v Speaker 2>of you know what we're arguing is the most important

0:43:24.680 --> 0:43:28.000
<v Speaker 2>number in finance. So why is the kind of like

0:43:28.040 --> 0:43:33.840
<v Speaker 2>the lynchpin of the capitalist economy basically a classic example

0:43:33.880 --> 0:43:37.840
<v Speaker 2>of central planning. That's kind of a philosophical issue. Should

0:43:37.840 --> 0:43:38.680
<v Speaker 2>they even exist?

0:43:39.280 --> 0:43:44.880
<v Speaker 1>Yeah? Yeah, And you know what, John, you've gone off topics. Yes,

0:43:46.160 --> 0:43:48.400
<v Speaker 1>but then it's totally interesting. So I'm gonna leave that.

0:43:48.400 --> 0:43:49.840
<v Speaker 1>I'm going to let you get away with that one.

0:43:50.920 --> 0:43:59.240
<v Speaker 1>Like right back to Bernard, do not have a sense Bernard.

0:43:59.280 --> 0:44:03.160
<v Speaker 1>But I am getting that the central bankers are beginning

0:44:03.160 --> 0:44:06.040
<v Speaker 1>to understand what they have done, and that they are

0:44:06.120 --> 0:44:10.120
<v Speaker 1>looking at very very very long term interest rate trends

0:44:10.200 --> 0:44:12.680
<v Speaker 1>and thinking for themselves, we need to find a way

0:44:13.040 --> 0:44:16.040
<v Speaker 1>to keep rates up there with five thousand dear trends

0:44:16.040 --> 0:44:18.120
<v Speaker 1>and maybe trying to hang in there around four and

0:44:18.280 --> 0:44:20.920
<v Speaker 1>five percent, as opposed to wanting to go straight back

0:44:20.960 --> 0:44:22.800
<v Speaker 1>down again. We know, for example, that the Bank of

0:44:22.840 --> 0:44:25.200
<v Speaker 1>England is questioning their model. Obviously they're questioning with the

0:44:25.239 --> 0:44:28.240
<v Speaker 1>wrong people, and they look at their models to already

0:44:28.239 --> 0:44:33.440
<v Speaker 1>agree with that model. But there's definitely a sense of questioning,

0:44:33.560 --> 0:44:36.360
<v Speaker 1>how did we let this happen? What have we done wrong?

0:44:36.520 --> 0:44:39.080
<v Speaker 1>Because you know, while they might present themselves as being

0:44:39.880 --> 0:44:43.839
<v Speaker 1>victims of global circumstances, I think inside central banks there

0:44:43.960 --> 0:44:48.000
<v Speaker 1>is definitely an awareness that they hold a degree of culpability.

0:44:49.520 --> 0:44:52.920
<v Speaker 4>I think you're being a little bit optimistic. The point

0:44:52.960 --> 0:44:58.279
<v Speaker 4>about the canonical model is that it says you the

0:44:58.320 --> 0:45:03.200
<v Speaker 4>sharks are both in a explicable YEP and unpredictable. You

0:45:03.239 --> 0:45:07.520
<v Speaker 4>can't predict the next anity, you can't explain them expost.

0:45:07.960 --> 0:45:11.320
<v Speaker 4>Now that's been a tenetive central bank thinking for twenty

0:45:11.400 --> 0:45:15.120
<v Speaker 4>five years. How long can they continue to do that

0:45:15.280 --> 0:45:18.640
<v Speaker 4>in the face of what has been a mess. They

0:45:18.680 --> 0:45:21.319
<v Speaker 4>will hope that they get a self landing. They will

0:45:21.360 --> 0:45:25.080
<v Speaker 4>hope that things go back to normal again. There hasn't

0:45:25.080 --> 0:45:29.560
<v Speaker 4>been the sort of questioning, either of macroeconomic orthodoxy or

0:45:29.560 --> 0:45:32.719
<v Speaker 4>of central bank practice that there was in the nineteen thirties.

0:45:33.360 --> 0:45:36.200
<v Speaker 4>After things have very obviously gone wrong, there's a whole

0:45:36.239 --> 0:45:39.600
<v Speaker 4>new paradigm. Not necessarily a better paradigm, but there's a

0:45:39.600 --> 0:45:44.400
<v Speaker 4>whole new paradigm. There's a ferment of intellectual activity in economics,

0:45:44.400 --> 0:45:48.640
<v Speaker 4>which maybe it's passed me by, but I'm not that

0:45:48.880 --> 0:45:54.279
<v Speaker 4>radical examination of the foundations of the economic theory that

0:45:54.480 --> 0:45:56.200
<v Speaker 4>drives central banks is happening.

0:45:56.640 --> 0:45:59.000
<v Speaker 1>All right, Maybe not, but there must be an awareness.

0:45:59.040 --> 0:46:01.840
<v Speaker 1>And one of the things that you say a lot

0:46:01.840 --> 0:46:03.520
<v Speaker 1>in the book is you make the point over and

0:46:03.600 --> 0:46:06.520
<v Speaker 1>over again that if we can't deliver for the young,

0:46:07.040 --> 0:46:10.239
<v Speaker 1>we will lose capitalism and democracy along the way. The

0:46:10.280 --> 0:46:12.759
<v Speaker 1>young and much of the world are disenchanted by capitalism's

0:46:12.760 --> 0:46:15.799
<v Speaker 1>the parent failure to liver for them. They're beguiled by

0:46:15.800 --> 0:46:19.399
<v Speaker 1>socialism promises and cruelly voish by its fake morality and

0:46:19.760 --> 0:46:22.240
<v Speaker 1>elsewhere in the book you say that if we can't

0:46:22.360 --> 0:46:26.080
<v Speaker 1>respect the public's wishes to make capitalism something that brings

0:46:26.120 --> 0:46:28.799
<v Speaker 1>benefit to everybody rather than something that is equated with

0:46:28.880 --> 0:46:33.080
<v Speaker 1>bringing markets and making the rich richer, democracy nor capitalism

0:46:33.280 --> 0:46:36.959
<v Speaker 1>we can survive. These are very big things. And central banks,

0:46:37.000 --> 0:46:39.719
<v Speaker 1>as much as governments, are surely aware that the way

0:46:39.760 --> 0:46:42.799
<v Speaker 1>that we're running economies at the moment is not good

0:46:42.840 --> 0:46:45.240
<v Speaker 1>for the many. It's in the main good for the few.

0:46:45.560 --> 0:46:48.560
<v Speaker 1>We've corrupted capitalism to the point where we're on the

0:46:48.960 --> 0:46:52.799
<v Speaker 1>edge of bringing it down. So with that awareness, one

0:46:53.320 --> 0:46:56.800
<v Speaker 1>likes to think that between them, elected governments and central

0:46:56.840 --> 0:47:02.120
<v Speaker 1>banks may perhaps do something very pessimistic that anything will

0:47:02.160 --> 0:47:04.520
<v Speaker 1>be done, and if it isn't, we end up in

0:47:04.560 --> 0:47:08.800
<v Speaker 1>a world that is either either communist or hyperinflationary.

0:47:10.880 --> 0:47:15.680
<v Speaker 4>Well, governments like to think that they will do things.

0:47:16.600 --> 0:47:21.279
<v Speaker 4>It's quite hard to think of anything terribly positive that

0:47:21.320 --> 0:47:24.680
<v Speaker 4>Western governments have done over the past few years. It's

0:47:24.760 --> 0:47:27.439
<v Speaker 4>quite hard to think of anything that, for instance, the

0:47:27.480 --> 0:47:31.160
<v Speaker 4>present British government has done at all. The idea that

0:47:32.239 --> 0:47:38.840
<v Speaker 4>one needs to capitalism is around, but unfortunately, the predominated

0:47:38.920 --> 0:47:43.800
<v Speaker 4>idea for rebooting capitalism is essentially corporatist. It's the ideas

0:47:43.840 --> 0:47:47.840
<v Speaker 4>of what one might call Davos man. Davos's man appears

0:47:47.880 --> 0:47:51.920
<v Speaker 4>to have an enormous degree of control would be the

0:47:51.920 --> 0:47:57.480
<v Speaker 4>wrong word, but influence over elected governments. Populations are increasingly

0:47:57.560 --> 0:48:02.600
<v Speaker 4>disenchanted with their elected governments, and we're seeing everywhere a

0:48:02.719 --> 0:48:07.840
<v Speaker 4>swing towards what one used to call populist ideas, but

0:48:07.880 --> 0:48:12.000
<v Speaker 4>I think are rather more worrying than populist ideas in

0:48:12.040 --> 0:48:17.480
<v Speaker 4>the present. I just don't see a willingness even and

0:48:17.520 --> 0:48:20.759
<v Speaker 4>certainly not an ability on the behalf of governments to

0:48:21.680 --> 0:48:23.480
<v Speaker 4>even attempt to put things right.

0:48:24.520 --> 0:48:27.319
<v Speaker 1>Okay, So, Bernard, what I'm going to do is I'm

0:48:27.400 --> 0:48:30.680
<v Speaker 1>going to put you in charge of the world right

0:48:30.719 --> 0:48:35.000
<v Speaker 1>now for ten years. Okay, I mean that's quite a gift, right.

0:48:36.000 --> 0:48:36.520
<v Speaker 4>Or a curse?

0:48:36.600 --> 0:48:40.399
<v Speaker 1>What ten years is long enough?

0:48:40.880 --> 0:48:41.120
<v Speaker 4>Years?

0:48:41.239 --> 0:48:44.000
<v Speaker 1>Long enough? You have full control for ten years. This

0:48:44.040 --> 0:48:46.000
<v Speaker 1>is very democratic. But you know, let's go with it.

0:48:46.080 --> 0:48:48.120
<v Speaker 1>Let's go with it. What do you do to make

0:48:48.160 --> 0:48:50.160
<v Speaker 1>this right? What do you do to get it out

0:48:50.239 --> 0:48:53.160
<v Speaker 1>of this environment where we have this huge amount for

0:48:53.280 --> 0:48:56.160
<v Speaker 1>you call a Losory wealth, where we've pulled the wealth

0:48:56.280 --> 0:48:59.920
<v Speaker 1>of the future forward into the present, where we've got

0:48:59.800 --> 0:49:03.040
<v Speaker 1>in first. Rates simply don't reflect the way economies should

0:49:03.040 --> 0:49:06.720
<v Speaker 1>be run. Where we have massive debt and deficit problems

0:49:06.800 --> 0:49:10.759
<v Speaker 1>in every Western government, and we have stagnating productivity and

0:49:11.040 --> 0:49:15.840
<v Speaker 1>angry populations. What would you do to make this okay?

0:49:15.840 --> 0:49:17.279
<v Speaker 1>And I know that you could go back and say, well,

0:49:17.280 --> 0:49:19.520
<v Speaker 1>I wouldn't have started where they did in the nineteen nineties,

0:49:19.560 --> 0:49:20.400
<v Speaker 1>and that would be fair.

0:49:20.440 --> 0:49:22.400
<v Speaker 4>But here we are, here we are what do we

0:49:22.440 --> 0:49:25.600
<v Speaker 4>do from here? Well? I think there are two essential

0:49:25.800 --> 0:49:30.440
<v Speaker 4>elements of what should be done. One is, at first

0:49:30.760 --> 0:49:34.440
<v Speaker 4>the recognition which I perhaps you to see Marin Premps,

0:49:34.920 --> 0:49:38.800
<v Speaker 4>but I don't yet of what has gone wrong intellectually,

0:49:38.960 --> 0:49:43.960
<v Speaker 4>if you like, with the macroecoing model. And second, it

0:49:44.120 --> 0:49:50.800
<v Speaker 4>requires a radical program of de rigging of markets, taking

0:49:50.840 --> 0:49:54.200
<v Speaker 4>control away or influencing away from danbos Man and giving

0:49:54.239 --> 0:49:59.239
<v Speaker 4>you back to markets. Now, I'm not generally regarded as

0:49:59.480 --> 0:50:02.560
<v Speaker 4>being into the eastern left wing, and I'm not, but

0:50:02.719 --> 0:50:06.719
<v Speaker 4>I think that the rather left wing Nobel laureate Joe

0:50:06.760 --> 0:50:09.960
<v Speaker 4>Stiglitz had a lot of sensible things to say about

0:50:10.040 --> 0:50:15.680
<v Speaker 4>the how one can rig d rig markets. My way

0:50:15.719 --> 0:50:18.400
<v Speaker 4>of doing it would perhaps be rather a bit different

0:50:18.440 --> 0:50:22.680
<v Speaker 4>from his. There needs to be deregulation, or perhaps more precisely,

0:50:22.800 --> 0:50:26.160
<v Speaker 4>there needs to be a change in regulation to avoid

0:50:26.239 --> 0:50:30.560
<v Speaker 4>regulatory capture by the nomenclatura as I think one could

0:50:30.760 --> 0:50:34.320
<v Speaker 4>one can call it. There needs to be a shift

0:50:34.360 --> 0:50:42.279
<v Speaker 4>in the taxation system away from disincentivizing thrift, enterprise initiative,

0:50:43.560 --> 0:50:45.520
<v Speaker 4>sensible commercial risk taking.

0:50:45.719 --> 0:50:47.719
<v Speaker 1>If you were doing a budget right now and you

0:50:47.719 --> 0:50:51.440
<v Speaker 1>could make one big tax change to existing taxes, I

0:50:51.480 --> 0:50:53.279
<v Speaker 1>know you have a I know you have a thought

0:50:53.360 --> 0:50:55.480
<v Speaker 1>on a new tax, but on existing taxes. But what

0:50:55.520 --> 0:50:57.560
<v Speaker 1>would it be one thing you could.

0:50:57.320 --> 0:51:03.840
<v Speaker 4>Do onistic taxes. Given the state of the public finances

0:51:03.880 --> 0:51:07.600
<v Speaker 4>and given the difficulty of cutting public expenditure, although that

0:51:07.680 --> 0:51:12.040
<v Speaker 4>certainly needs to be done, one can't just cut a

0:51:12.160 --> 0:51:15.319
<v Speaker 4>tax without an offset somewhere else. And you mentioned a

0:51:15.360 --> 0:51:17.600
<v Speaker 4>possible upset, but let's leave them aside from the moment.

0:51:18.080 --> 0:51:23.520
<v Speaker 4>I would cut high rates of income tax, not just

0:51:23.560 --> 0:51:28.799
<v Speaker 4>a single tax rate that that can solve those problems, right,

0:51:29.680 --> 0:51:32.600
<v Speaker 4>But I would stress that, you know, I mean, there

0:51:32.640 --> 0:51:35.720
<v Speaker 4>was a lot of what was right in the Trust

0:51:36.280 --> 0:51:41.399
<v Speaker 4>Quarteng experiment. There were things that were disastrously wrong with it.

0:51:42.239 --> 0:51:45.000
<v Speaker 4>I think what was disastrously wrong apart from the very

0:51:45.000 --> 0:51:49.719
<v Speaker 4>hand fisted presentation of the ideas was a failure to

0:51:49.800 --> 0:51:53.120
<v Speaker 4>recognize that budget deficits have gotten somehow got to be

0:51:53.160 --> 0:51:53.719
<v Speaker 4>brought down.

0:51:55.680 --> 0:51:57.440
<v Speaker 1>Okay, I just want to interrupt at this point with

0:51:57.680 --> 0:52:00.480
<v Speaker 1>Bernett talking about the importance of cutting the operates of

0:52:00.480 --> 0:52:04.360
<v Speaker 1>income tax. And it's interesting to look at the burden

0:52:04.800 --> 0:52:07.239
<v Speaker 1>that top rate taxpayers are paying at the moment, the

0:52:07.280 --> 0:52:09.280
<v Speaker 1>top one percent of the top ten percent, because obviously

0:52:09.360 --> 0:52:12.080
<v Speaker 1>the top rate is significantly lower than it has been

0:52:12.360 --> 0:52:15.600
<v Speaker 1>at important points in the past, but it's still the

0:52:15.640 --> 0:52:19.120
<v Speaker 1>burden they're carrying is enormous. So the top ten percent

0:52:19.120 --> 0:52:22.040
<v Speaker 1>of taxpayers back in nineteen seventy eight, seventy nine, these

0:52:22.040 --> 0:52:24.960
<v Speaker 1>are ifs numbers, by the way, nineteen seventy eight seventy nine,

0:52:24.960 --> 0:52:27.840
<v Speaker 1>the top ten percent, we're paying thirty five percent of

0:52:27.880 --> 0:52:30.719
<v Speaker 1>all income tax. Sounds quite high, right in twenty three

0:52:30.800 --> 0:52:34.840
<v Speaker 1>twenty four, it's sixty percent. Right, the top one percent

0:52:34.880 --> 0:52:38.239
<v Speaker 1>we're paying eleven percent. Back in nineteen seventy eight seventy nine.

0:52:39.000 --> 0:52:43.320
<v Speaker 1>Today twenty three, twenty four they are paying twenty nine percent.

0:52:43.719 --> 0:52:46.120
<v Speaker 1>So what you've got there is a big shift in

0:52:46.160 --> 0:52:48.040
<v Speaker 1>the burden of income tax to the people at the

0:52:48.120 --> 0:52:49.720
<v Speaker 1>very top of the tree. You may think that's okay,

0:52:49.880 --> 0:52:52.680
<v Speaker 1>that's fine. It's just different. And some of it, of course,

0:52:52.760 --> 0:52:54.920
<v Speaker 1>is about income inequality, because that may have changed in

0:52:54.920 --> 0:52:57.480
<v Speaker 1>the interviewing period, But a lot of it, an awful

0:52:57.480 --> 0:53:01.400
<v Speaker 1>lot of it, is policy choices. So that's that's worth saying,

0:53:01.520 --> 0:53:05.239
<v Speaker 1>given that this is one of Bernard's suggestions. Okay, so

0:53:05.360 --> 0:53:07.279
<v Speaker 1>those things now that all sounds and people are going

0:53:07.320 --> 0:53:08.719
<v Speaker 1>to listen to this and they're going to say, well,

0:53:08.760 --> 0:53:11.279
<v Speaker 1>that's just that's just right wing stuff. This is just

0:53:11.360 --> 0:53:13.560
<v Speaker 1>about making live easier for the rich, which of course

0:53:13.680 --> 0:53:16.160
<v Speaker 1>is the opposite of what you intend. But the other

0:53:16.239 --> 0:53:20.279
<v Speaker 1>thing that you suggest is a new tax that is

0:53:20.480 --> 0:53:25.640
<v Speaker 1>designed to bring the general population back on side by

0:53:25.880 --> 0:53:31.120
<v Speaker 1>showing that despite introducing say, deregulation and lower income tax

0:53:31.200 --> 0:53:34.560
<v Speaker 1>rightly or corporate tax rates, etc. Which might feel like

0:53:34.640 --> 0:53:38.239
<v Speaker 1>it's working against them, there's another element to what you

0:53:38.360 --> 0:53:42.120
<v Speaker 1>suggest that should make it clear that that that's not

0:53:42.200 --> 0:53:45.960
<v Speaker 1>the case. What is that tax on the tax?

0:53:47.280 --> 0:53:52.239
<v Speaker 4>The suggestion is that one has to tax what I've

0:53:52.280 --> 0:53:56.520
<v Speaker 4>called illusory wealth, and by illusory wealth, I mean wealth

0:53:56.640 --> 0:54:02.480
<v Speaker 4>whose possession reduces sustainable few uture consumption possibilities for everyone else.

0:54:03.400 --> 0:54:08.560
<v Speaker 4>And that's exactly what bubbles do. They create apparent wealth

0:54:08.600 --> 0:54:11.640
<v Speaker 4>for those who hold the stocks, or the houses, or

0:54:11.680 --> 0:54:17.640
<v Speaker 4>the most egregiously of all, perhaps crypto assets, and they

0:54:17.760 --> 0:54:21.840
<v Speaker 4>don't increase future productive potentials. So any attempt by the

0:54:21.880 --> 0:54:26.120
<v Speaker 4>holders of wealth to spend their wealth means there's less

0:54:26.120 --> 0:54:28.400
<v Speaker 4>to go around for everyone else. And that's what I

0:54:28.480 --> 0:54:33.080
<v Speaker 4>mean by illusory and politically, I'm not talking about morals here.

0:54:33.120 --> 0:54:36.799
<v Speaker 4>Politically unacceptable wealth and there needs to be a way

0:54:37.400 --> 0:54:42.640
<v Speaker 4>of taxing that. And the way I propose is a

0:54:42.760 --> 0:54:46.640
<v Speaker 4>tax on unrealized bubble gains. And let me stress that

0:54:46.760 --> 0:54:49.719
<v Speaker 4>is not a wealth tax. It's certainly not a tax

0:54:49.760 --> 0:54:55.120
<v Speaker 4>on real wealth. It's a tax on illusory bubble gains. Now,

0:54:55.920 --> 0:55:00.880
<v Speaker 4>how would that operate? All taxation requires accounting effort, This

0:55:00.960 --> 0:55:04.000
<v Speaker 4>suggestion would also require a little bit, not a great deal,

0:55:04.280 --> 0:55:09.880
<v Speaker 4>of economic effort. That's to say, there would be The

0:55:10.040 --> 0:55:15.280
<v Speaker 4>tax would be on the difference between what those assets

0:55:15.360 --> 0:55:20.920
<v Speaker 4>would have been worth had their valuation, as approximated roughly

0:55:21.000 --> 0:55:25.239
<v Speaker 4>by price ownings ratios for equities or price rent ratios

0:55:25.280 --> 0:55:28.839
<v Speaker 4>for houses, for instance, what the value would have been

0:55:28.880 --> 0:55:32.120
<v Speaker 4>in the absence of a bubble, and taxing the difference

0:55:32.160 --> 0:55:36.160
<v Speaker 4>between that and the present value over a holding period.

0:55:36.320 --> 0:55:39.400
<v Speaker 4>If you bought something last year, you wouldn't be taxed

0:55:39.440 --> 0:55:42.240
<v Speaker 4>on again. Since nineteen ninety five you don't be taxed

0:55:42.280 --> 0:55:45.239
<v Speaker 4>on again. If there was any a bubble gain over

0:55:45.239 --> 0:55:50.760
<v Speaker 4>the past year, now, that would not be a tax

0:55:50.840 --> 0:55:56.800
<v Speaker 4>on real wealth. It could be combined with reductions in taxes.

0:55:56.960 --> 0:56:01.239
<v Speaker 4>Are this incentives to the creation of real wealth? And

0:56:00.480 --> 0:56:06.040
<v Speaker 4>it would have to go. It could only really work

0:56:06.760 --> 0:56:10.960
<v Speaker 4>if there was first of all, a recognition of the

0:56:12.040 --> 0:56:16.160
<v Speaker 4>faults of the present model, and secondly an improvement in

0:56:16.200 --> 0:56:19.759
<v Speaker 4>productivity growth. You need all the other things together, all

0:56:19.760 --> 0:56:22.960
<v Speaker 4>the other things we talked about, the deregulation, the education,

0:56:23.280 --> 0:56:26.080
<v Speaker 4>the de ringing of markets, and so on. And I

0:56:26.200 --> 0:56:30.080
<v Speaker 4>have to say regretfully that it's quite hard to imagine

0:56:30.120 --> 0:56:34.279
<v Speaker 4>the set of political circumstances that would allow all these

0:56:34.320 --> 0:56:38.680
<v Speaker 4>things to come together. The taxation of unrealized bubble gains,

0:56:39.160 --> 0:56:42.040
<v Speaker 4>the de rigging of market, the switch and taxation, the

0:56:42.080 --> 0:56:45.320
<v Speaker 4>improvement in education systems, and so on. I can't claim

0:56:45.320 --> 0:56:50.280
<v Speaker 4>to be optimistic, but one has to try. And the

0:56:50.320 --> 0:56:53.319
<v Speaker 4>suggestion I put forward, I think, were it possible for

0:56:53.360 --> 0:56:56.120
<v Speaker 4>it to happen, and that's the question for politicians to

0:56:56.480 --> 0:57:00.640
<v Speaker 4>decide as much as they're even more than economists would

0:57:00.840 --> 0:57:07.600
<v Speaker 4>in combination with a most sensible macroeconomic management policy model,

0:57:08.360 --> 0:57:12.279
<v Speaker 4>would help get the tons of things. Now, I'm pessimistic

0:57:12.280 --> 0:57:12.759
<v Speaker 4>about that.

0:57:16.000 --> 0:57:17.960
<v Speaker 1>Okay, John, you're not a fan of wealth taxes, what

0:57:18.000 --> 0:57:21.000
<v Speaker 1>about this one? It's not as Bannard describes it. It's

0:57:21.040 --> 0:57:24.000
<v Speaker 1>not a tax on actual wealth. It's a tax on

0:57:24.200 --> 0:57:27.120
<v Speaker 1>illusory wealth. Wealth you shouldn't have anyway wealth. It is

0:57:28.240 --> 0:57:28.920
<v Speaker 1>ill Goshian.

0:57:31.160 --> 0:57:34.200
<v Speaker 2>I mean, like, I approve in theory, but I don't

0:57:34.320 --> 0:57:37.160
<v Speaker 2>see how you even begin to do this in a

0:57:37.240 --> 0:57:41.680
<v Speaker 2>practical basis. You know you're saying that. I mean, there's

0:57:41.680 --> 0:57:44.160
<v Speaker 2>a massive argument about whether you can even tell if

0:57:44.200 --> 0:57:46.360
<v Speaker 2>something in a bubble or not. So how you I mean,

0:57:46.520 --> 0:57:48.760
<v Speaker 2>and people always talk about the legal battles that would

0:57:48.840 --> 0:57:51.400
<v Speaker 2>ensure we aligned value tax for example, I mean, this

0:57:51.520 --> 0:57:54.240
<v Speaker 2>is like that on steroids is how do you say,

0:57:54.320 --> 0:57:57.680
<v Speaker 2>which chunk of this paper profit is not a real

0:57:57.720 --> 0:58:00.680
<v Speaker 2>paper profit? So I'm afraid I just think it's a

0:58:00.680 --> 0:58:01.720
<v Speaker 2>complete annoying starter.

0:58:04.760 --> 0:58:07.280
<v Speaker 1>Yeah, I'm afraid. All right. It's a great idea, but

0:58:07.440 --> 0:58:10.680
<v Speaker 1>one that that simply won't work. I can't see how

0:58:10.720 --> 0:58:14.240
<v Speaker 1>it could work anyway, although one must try, As Bernard says,

0:58:14.280 --> 0:58:14.959
<v Speaker 1>one must try.

0:58:16.080 --> 0:58:18.440
<v Speaker 2>I can think it easier things to have a goat.

0:58:19.760 --> 0:58:23.800
<v Speaker 4>Is there another way? I mentioned manner from Heaven a little.

0:58:23.520 --> 0:58:27.880
<v Speaker 1>Earlier, the optimistic of the podcast.

0:58:30.440 --> 0:58:33.080
<v Speaker 4>Could it be, It's a question I put to myself,

0:58:33.880 --> 0:58:38.800
<v Speaker 4>Could it be that AI will provide that manner from heaven?

0:58:40.200 --> 0:58:44.880
<v Speaker 4>It boosts rates of productivity, growth and potential, but in

0:58:44.920 --> 0:58:49.760
<v Speaker 4>such a way that it could, so to speak, validate

0:58:49.960 --> 0:58:58.000
<v Speaker 4>ex post the levels of asset valuations which are currently illusory. Well, yes,

0:58:58.080 --> 0:59:01.560
<v Speaker 4>that is that is a logical possible ability, and one

0:59:01.720 --> 0:59:06.080
<v Speaker 4>very much hopes that it will happen. But stress again that,

0:59:06.320 --> 0:59:12.760
<v Speaker 4>however important and useful and potentially by itself game changing,

0:59:13.320 --> 0:59:16.320
<v Speaker 4>AI is is fighting against the tide.

0:59:17.680 --> 0:59:18.920
<v Speaker 1>If we were going to go back to what we

0:59:18.920 --> 0:59:21.439
<v Speaker 1>were talking about earlier and we're saying, look here there's

0:59:21.880 --> 0:59:25.640
<v Speaker 1>a fabulous new technology in AI. This is something really

0:59:25.680 --> 0:59:30.160
<v Speaker 1>interesting with the potential to massively change productivity, then under

0:59:30.800 --> 0:59:33.640
<v Speaker 1>the terms of the discussion we're having earlier about interest

0:59:33.720 --> 0:59:38.040
<v Speaker 1>rates and innovation, interest rates should be rising right now.

0:59:38.520 --> 0:59:41.440
<v Speaker 4>Yeah, Would it be a rerun of the experience the

0:59:41.480 --> 0:59:47.120
<v Speaker 4>mid nineteen nineties, And that's a very applesite question. Well,

0:59:48.120 --> 0:59:51.480
<v Speaker 4>I think if AI were the only things that were happening,

0:59:51.960 --> 0:59:56.040
<v Speaker 4>and there was an expected improvement in a significant expected

0:59:56.120 --> 1:00:00.240
<v Speaker 4>improvement in overall productivity growth in the economy, then real

1:00:00.280 --> 1:00:03.120
<v Speaker 4>interest rate should be going up. They should be going

1:00:03.200 --> 1:00:06.360
<v Speaker 4>up to match and expected increase in the bridge of

1:00:06.360 --> 1:00:09.920
<v Speaker 4>return on investment. But it's not the only thing that's happening.

1:00:10.000 --> 1:00:12.800
<v Speaker 4>And a big difference from ninety nine five is that

1:00:12.840 --> 1:00:17.360
<v Speaker 4>we are not starting from a position of intertemporal equilibrium.

1:00:18.240 --> 1:00:21.360
<v Speaker 4>And yes, one wishes, what could go back to a

1:00:21.400 --> 1:00:24.400
<v Speaker 4>situation like nineteen ninety five and have AI, and that

1:00:24.440 --> 1:00:27.800
<v Speaker 4>would be and that we could have the productivity improvement

1:00:27.880 --> 1:00:30.840
<v Speaker 4>without the mistakes that Greenspan may without the bottles and someone.

1:00:31.400 --> 1:00:33.760
<v Speaker 4>But we're not starting from nineteen ninety five. We are

1:00:33.840 --> 1:00:36.960
<v Speaker 4>starting from here, as he reminded me a little while ago,

1:00:37.440 --> 1:00:41.400
<v Speaker 4>and that does complicate things quite extensively. It becomes a

1:00:41.640 --> 1:00:46.720
<v Speaker 4>very difficult question, indeed, to sort out what should be

1:00:46.840 --> 1:00:51.040
<v Speaker 4>happening to real interest rates in these circumstances. There are

1:00:51.120 --> 1:00:54.320
<v Speaker 4>questions of fact or future fact. How much difference is

1:00:54.360 --> 1:00:59.520
<v Speaker 4>AI actually going to make? Will it be more than enough,

1:01:00.520 --> 1:01:04.680
<v Speaker 4>just enough not to counteract all the forces that are

1:01:05.240 --> 1:01:08.680
<v Speaker 4>tending towards low rates of productivity growth. First of all,

1:01:08.680 --> 1:01:12.320
<v Speaker 4>we don't know. We also have to take account of

1:01:12.360 --> 1:01:16.680
<v Speaker 4>the fact that, unlike the innovations of the mid nineteen

1:01:16.760 --> 1:01:19.320
<v Speaker 4>ninety the innovations came a little bit earlier, but the

1:01:19.360 --> 1:01:24.440
<v Speaker 4>implementation of those innovations in the mid nineteen nineties. Those

1:01:24.480 --> 1:01:30.000
<v Speaker 4>innovations largely involve the creation of new products. You know,

1:01:30.000 --> 1:01:33.480
<v Speaker 4>known that how smartphones and everything that goes along with them.

1:01:33.720 --> 1:01:37.760
<v Speaker 4>AI today. My understanding of it may not be as

1:01:37.800 --> 1:01:40.400
<v Speaker 4>correct as it should be, but my understanding of it

1:01:40.480 --> 1:01:45.880
<v Speaker 4>is that AI involves new processes for doing the same

1:01:46.000 --> 1:01:52.200
<v Speaker 4>things with fewer people. That's a big difference. The optimism

1:01:52.520 --> 1:01:55.280
<v Speaker 4>of the second half of the nineties was I certainly

1:01:55.320 --> 1:01:58.040
<v Speaker 4>would have been widespread, not right at the beginning, but

1:01:58.080 --> 1:02:01.000
<v Speaker 4>as people realize what was going on, and partly because

1:02:01.000 --> 1:02:05.320
<v Speaker 4>they're misled by speculator booms. Admittedly, there was a feeling

1:02:05.320 --> 1:02:09.520
<v Speaker 4>that things were getting better and potentially getting better for everyone.

1:02:10.680 --> 1:02:12.960
<v Speaker 4>That is not the case with AI. There are a

1:02:12.960 --> 1:02:16.360
<v Speaker 4>lot of people who, despite the fact that the overall

1:02:16.440 --> 1:02:20.280
<v Speaker 4>economy might improve, are going to worry about their jobs.

1:02:20.040 --> 1:02:23.240
<v Speaker 1>Can, I ask you, But it under these circumstances and

1:02:23.400 --> 1:02:26.400
<v Speaker 1>AI is interesting and exciting. There are lots of interesting

1:02:26.480 --> 1:02:29.360
<v Speaker 1>certain things around. But we also have valuations at bizarre levels.

1:02:29.400 --> 1:02:31.480
<v Speaker 1>We have all the problems that we've talked about. What

1:02:31.960 --> 1:02:36.400
<v Speaker 1>is the ordinary investor to do? Is there any way that,

1:02:36.680 --> 1:02:39.400
<v Speaker 1>under the circumstances that you see over the next couple

1:02:39.400 --> 1:02:42.520
<v Speaker 1>of decades, we can preserve our wealth. Obviously you don't

1:02:42.520 --> 1:02:44.400
<v Speaker 1>want everyone to preserve their wealth. I get that. But

1:02:44.720 --> 1:02:46.760
<v Speaker 1>ordinary listeners what can they do?

1:02:46.880 --> 1:02:50.520
<v Speaker 4>Well? If one thinks that the ultimate outcome is going

1:02:50.560 --> 1:02:53.560
<v Speaker 4>to be some sort of socialist economy, then the thing

1:02:53.600 --> 1:02:55.240
<v Speaker 4>to do is to be on the right side of

1:02:55.320 --> 1:02:58.360
<v Speaker 4>the people who've been running it. We can see that

1:02:58.560 --> 1:03:02.480
<v Speaker 4>happening already. If one thinks the outcome is going to

1:03:02.520 --> 1:03:07.480
<v Speaker 4>be hyperinflation, then the traditional hedges I think have some

1:03:07.640 --> 1:03:13.000
<v Speaker 4>value gold in particular. Does crypto do that? You probably know.

1:03:13.080 --> 1:03:15.240
<v Speaker 4>I don't often agree with the ECB, but I do

1:03:15.320 --> 1:03:18.120
<v Speaker 4>agree with an ECB research paper that came out last

1:03:18.160 --> 1:03:21.800
<v Speaker 4>week that said fair value for bitcoin, for example, is zero.

1:03:22.760 --> 1:03:28.560
<v Speaker 4>The bitcoin craze risks bankrupting a lot of people while

1:03:28.600 --> 1:03:31.480
<v Speaker 4>making other people very rich if they get out in time,

1:03:31.960 --> 1:03:37.320
<v Speaker 4>So I wouldn't recommend that. I think one does come

1:03:37.440 --> 1:03:42.560
<v Speaker 4>back to gold as an inflation hedge. There is I

1:03:42.560 --> 1:03:47.560
<v Speaker 4>think there's still some way to go in AI related stocks.

1:03:47.600 --> 1:03:49.800
<v Speaker 4>They've gone up an awfully long way and they look

1:03:50.600 --> 1:03:54.800
<v Speaker 4>very highly value. But the same was true of the

1:03:54.840 --> 1:03:58.200
<v Speaker 4>new technology stocks, or not all of them, some of

1:03:58.240 --> 1:04:01.040
<v Speaker 4>them to go bus of course, but some of the

1:04:01.120 --> 1:04:05.400
<v Speaker 4>new technology stocks of the nineties. So you know, invest

1:04:05.440 --> 1:04:08.040
<v Speaker 4>in productivity growth if you think that's going to be there.

1:04:08.960 --> 1:04:11.200
<v Speaker 4>Invest in gold if you think that there's no way

1:04:11.240 --> 1:04:14.320
<v Speaker 4>out other than inflation. Get on the right side of

1:04:14.320 --> 1:04:16.120
<v Speaker 4>the people who are going to be on power if

1:04:16.120 --> 1:04:18.440
<v Speaker 4>you think we end up with an even more corporate system,

1:04:18.600 --> 1:04:19.800
<v Speaker 4>socialized system.

1:04:20.440 --> 1:04:22.880
<v Speaker 1>Now, the question I normally ask at the end of

1:04:22.920 --> 1:04:26.320
<v Speaker 1>this podcast is would you choose gold or bitcoin over

1:04:26.320 --> 1:04:28.840
<v Speaker 1>a ten year period? But I answered that one, so

1:04:28.960 --> 1:04:33.360
<v Speaker 1>I don't need to ask that one. But thank you

1:04:33.440 --> 1:04:36.120
<v Speaker 1>so much. That was fascinating. Thanks for joining us today

1:04:36.240 --> 1:04:41.800
<v Speaker 1>and Mary listeners. Listeners read the book. So Bernard is

1:04:41.840 --> 1:04:45.040
<v Speaker 1>not a fan of bitcoin, John, I don't ask him

1:04:45.040 --> 1:04:47.000
<v Speaker 1>about bitcoin and gold here because I think by the

1:04:47.080 --> 1:04:49.680
<v Speaker 1>end we can kind of get given that he says

1:04:49.680 --> 1:04:52.080
<v Speaker 1>the bitcoin craze. We're bankrupting a lot of people while

1:04:52.080 --> 1:04:54.840
<v Speaker 1>making other people very rich if they get out in time.

1:04:56.200 --> 1:04:58.240
<v Speaker 1>So I think he comes back to gold as an

1:04:58.240 --> 1:05:01.160
<v Speaker 1>inflation hedge, and John it kind of looks like a

1:05:01.200 --> 1:05:02.920
<v Speaker 1>few other people are beginning to think of it like

1:05:02.960 --> 1:05:06.320
<v Speaker 1>this as well. We've seen gold begin to break out,

1:05:06.360 --> 1:05:09.400
<v Speaker 1>We've seen it hit new highs. We know that a

1:05:09.400 --> 1:05:11.840
<v Speaker 1>lot of the central banks have been buying significant amounts

1:05:11.840 --> 1:05:13.800
<v Speaker 1>of gold, which of course takes that gold out of

1:05:13.840 --> 1:05:16.440
<v Speaker 1>the market because they're not traders, they're just long term buyers.

1:05:16.920 --> 1:05:20.880
<v Speaker 1>We have seen outflows out of gold ETFs, which means

1:05:20.880 --> 1:05:24.320
<v Speaker 1>that retail buyers haven't been quite so enthusiastic as central

1:05:24.320 --> 1:05:27.840
<v Speaker 1>bank buyers and physical buyers in the emerging markets, for example.

1:05:28.280 --> 1:05:31.520
<v Speaker 1>But nonetheless, even with the outflows from ETF the gold

1:05:31.520 --> 1:05:33.720
<v Speaker 1>price is on the up, which is kind of interesting

1:05:33.760 --> 1:05:34.640
<v Speaker 1>in itself, isn't it.

1:05:35.320 --> 1:05:38.120
<v Speaker 2>Yeah, And I mean if you think that to me,

1:05:38.200 --> 1:05:41.400
<v Speaker 2>that implies that the markets either think the monetary policy

1:05:41.440 --> 1:05:44.000
<v Speaker 2>is going to remain loose or the inflation is going

1:05:44.040 --> 1:05:46.800
<v Speaker 2>to mean high held dine central banks expect, which is

1:05:46.840 --> 1:05:51.160
<v Speaker 2>basically the same thing. So in a way that they're

1:05:51.200 --> 1:05:56.200
<v Speaker 2>sort of backing Balan's argument. And that's I guess as

1:05:56.200 --> 1:05:59.200
<v Speaker 2>the argument comes, don't either ye s inflation or a

1:05:59.280 --> 1:06:04.480
<v Speaker 2>productivity medical And that's there isn't really any other option

1:06:04.800 --> 1:06:07.720
<v Speaker 2>except that. So holding some gold as a hedge seems

1:06:07.720 --> 1:06:08.400
<v Speaker 2>like a good idea.

1:06:09.080 --> 1:06:10.880
<v Speaker 1>Okay, So I think we can just sum the whole

1:06:10.880 --> 1:06:13.760
<v Speaker 1>thing up with a wholesome gold pray for a productivity miracle.

1:06:13.840 --> 1:06:16.800
<v Speaker 1>Roll on, AI, let's get that energy going. Somebody builds

1:06:16.800 --> 1:06:18.440
<v Speaker 1>some small modular reactors.

1:06:18.720 --> 1:06:19.360
<v Speaker 2>Oh, fusion.

1:06:20.120 --> 1:06:25.680
<v Speaker 1>That about the size of it, yep, fusion. Yeah, Thanks John,

1:06:28.720 --> 1:06:31.280
<v Speaker 1>Thanks for listening to this week's Maren Talks Money. We'll

1:06:31.280 --> 1:06:33.640
<v Speaker 1>be back after the Easter weekend. In the meantime. If

1:06:33.640 --> 1:06:36.280
<v Speaker 1>you like us show, rate, review, and subscribe wherever you

1:06:36.280 --> 1:06:38.000
<v Speaker 1>listen to your podcasts, or if you want to get

1:06:38.040 --> 1:06:41.280
<v Speaker 1>in touch, please do email us at Meren Money at

1:06:41.280 --> 1:06:44.200
<v Speaker 1>Bloomberg dot net. We've seen your emails and we're working

1:06:44.200 --> 1:06:46.040
<v Speaker 1>through the guest suggestions. We hope we'll get some of

1:06:46.040 --> 1:06:49.400
<v Speaker 1>those fabulous sounding people on. This episode was hosted by

1:06:49.440 --> 1:06:51.960
<v Speaker 1>me maren' umset web. It was produced by some Sosiety.

1:06:52.160 --> 1:06:55.720
<v Speaker 1>Additional editing by Rishie Bujakol and special thanks to Bernard

1:06:55.760 --> 1:06:58.840
<v Speaker 1>Connolly and as ever John Steppeck. Thank you John,