Can We Spend Our Way Out of Populism？ - Mark Blyth
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Summary
Mark Blythe is a political economist at Brown University in America, and a returning guest to Trigonometry. In this episode, we discuss the impact of the pandemic, and the role politics has played in the response.
Transcript
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Hello, and welcome to Trigonometry. I'm Francis Foster.
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And this is a show for you if you want honest conversations with fascinating people.
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Our brilliant guest today is a political economist at Brown University in America,
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and a returning guest to Trigonometry, Mark Blythe. Welcome back.
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It's lovely to be back. It's also nice to be thought of as, what was that, fascinating?
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But last time, we had a brilliant conversation.
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And if you remember, we were talking about the fact
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How do you assess the year that we've had since?
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but I'd say my pandemic drinking reached Olympic levels
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um is that scottish levels mark well that was just getting up to scottish levels you know so
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let's keep it real all right the serious point on this you know one of the funniest things that
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happened is that we always read these events through our political biases right and this is
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particularly true even of vaccines right you'd think putting anti hardcore anti-vaxxers to one
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side you would think that would be something that would be kind of beyond politics whatever but it's
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not right so the lockdowns of course become a classic example of this at the start of the
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pandemic during the first wave there was a common meme that went around which i actually enjoyed and
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shared in which was the following hey it turns out that if you're a big country run by a big
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loud mouth male asshole you're not doing too well and if you're a small country run by a woman that
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shuts up and just gets shit done you're doing pretty well isn't that funny and that kind of
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worked for a while but then it got more complex and it turned out that some of those small
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countries were just as screwed as everybody else and then some of the big ones kind of got a little
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better at it uh i don't know if i did this after you we talked but um i did a couple of things
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online and a spanish filmmaker approached me and put together a movie which you can look at on
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youtube called the mustang and the volvo which basically describes the different behavior of the
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american economy vis-a-vis the european economies and when you get right to the end of this one
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another fascinating one came up which was now we've got the vaccines let's see what happens
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so of course particularly in united states but you see this across western europe as well
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there's the concern with getting the elderly the vulnerable minorities etc right but there's a
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problem in doing so these are the people that usually don't trust the state want to hide from
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the state and have every reason every now and again to actually quite rightly fear the state
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they haven't had too many pleasant interactions with them so there was all this attention
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particularly in the blue states in the u.s on like finding the most vulnerable in the minorities and
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equity and all that sort of stuff and it meant we were absolutely stuffing it meanwhile down in
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florida where they just didn't give a shit it was like let's open up a stadium and if you've got an
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arm we'll just whack something into you and they started to do really well so i think what this
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whole thing has shown is that it really upends and really exposes how anything can be read through
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your own political biases right there's no truth about the pandemic apart from the one that we put
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on it and that is a partisan game for better or worse and it's interesting that you say that
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that literally everything has been politicized because that's what we see here in the uk
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how has that affected politics do you think that was a significant fact on what happened
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with trump and biden etc i think it was in the you know one way to think about biden and i don't
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think this has changed is like everybody just needed two years of quiet right but it was just
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like you enough of the tweet the tweet storm at two in the morning wondering if the missiles are
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flying right so uncle joe was just like can we just have some calm time that would be nice right
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and the way that he's handled this is very much along those lines you'll notice that uh for all
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the attempt to politicize cancel culture on the wall etc right that you get with fox and the other
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media here and you see also in the united kingdom uh joe doesn't play that game because you can beat
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your activists into having those conversations because that's what your activists care about
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but basically if you don't respond then it's a non-problem so what's interesting about biden is
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he wants to talk about the things he wants to talk about and he refuses to talk about anything else
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which is a very interesting kind of anti-political play because you can't really lever that into the
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stuff that you want as opposition if he just won't talk about it so you can go on about the woke crew
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the squad all that sort of stuff he's just got nothing to say about that so it just doesn't
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really stick so he's got a very interesting way that that's played playing in a sense and we'll
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see how long that can handle but you know but beneath it you just go back to the handling of
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the pandemic you know you still have i think the latest poll was somewhere in the region of about
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40 percent republicans said that they're definitely not getting it and i mean a partisan divide on
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vaccines just seems crazy if you think about it but there it is and you still have uh over 50
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percent of republicans accepting the line that the election was stolen i mean put that in the
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British context for a minute imagine if the conservative party just said when Labour won
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no it was stolen and everybody went out and had a look at it and you appointed your commission and
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you had to look through all the votes and you went no actually it was totally fine they went nope
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stolen that's it it's just stolen right you're poisoning the well that's permanent political
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politicization and it's deeply undermining American democracy so on the one hand you've
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got Biden who's playing a good game of like I'm not going to play that politics but on the other
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hand, you have an opposition party, which effectively has said, fuck democracy. And that's
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not cool. It's not. On the other hand, I know a lot of people on the right who would make the,
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in my opinion, very legitimate counter argument, which is when Donald Trump got elected, we got
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Russiagate, which turns out to be a complete nonsense. No, completely. No, no, I totally buy
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that. But there's a difference between that and basically saying an election that was fine
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was stolen. That's actually qualitatively different. So I just think this is like,
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I think the United States is very much at an inflection point.
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Basically, what Biden is trying to do is chuck enough money at the problem that populism
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And we could bring that to Britain and Hartlepool, wherever you want to go.
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Let's talk about the economy, because that's really the thing that is fascinating to me
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So we've obviously, in the UK, we've paid everybody not to work for God knows how long
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But nonetheless, this is obviously costing everything that's happening.
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It's costing people and governments and nations a huge amount of money.
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So the United States is, I mean, so here's the thing.
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Yes, everybody's got more debt than when they started,
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but interest rates are at a 700-year low, right?
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This is something you never, ever hear in the media.
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What matters is how much debt do you have coming up at a certain point
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and how long do you need how much more do you need to issue to effectively keep that stable
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and what's the interest rate you're going to get that so there's a little equation solvency equation
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you can use to figure this stuff out and if you run everybody's numbers through it despite the
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huge rise in debt it's actually cheaper to pay stuff off i mean the really the really duh question
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at this point is if you want to do you know infrastructure if you want to do investment
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all that sort of stuff why not just issue an absolute ton of 30-year bonds just now basically
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1%. Because with 1% inflation, that's a zero interest rate, which basically over 30 years
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eats itself. Like, why would you not do that? So, you know, there is no giant funding crisis at this
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point in time, and nor does it look likely that there is going to be one. So then the question
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is, how big is the rebound? Well, the rebound is kind of proportional to how much slack there is
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in the economy and how much pent-up demand you have in the economy. And I think what you're going
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to see two surprises, not really surprises here, that America is going to come back with very,
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very strong growth over the next two years, possibly sustaining it above 4%. And the United
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Kingdom is going to come back stronger than people think as well. Now, the Brexit stuff is going to
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weigh on that. If you actually look into the trade stats, you do begin to see this effect.
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But it's not really that bad, at least so far. And more importantly, when you consider that you
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could be stuck in the European Union, where once again, the North is about to screw the South and
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nobody can really agree on anything and the pandemic relief fund is actually too small to
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do any good even for Italy etc etc then the UK is actually in a better spot so as it goes over the
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next couple of years there will be a very very big rebound which is exactly what people around
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Biden are hoping on. But Mark surely you know we've got all these people here on furlough
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there's a number of you know of companies that have gone to the wall small businesses particularly
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in sectors like travel, retail. I mean, Debenhams is catering has gone bust. Surely that's going to
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have a really serious effect on our job market and on our economy as a whole. Yeah, but it depends
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on how much comes back. So, I mean, for example, I'm going to be going to the Cotswolds in August.
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Try getting a hotel in the Cotswolds in August, anywhere in the freaking Cotswolds, right?
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They're pretty booked solid, right? So certain sectors are definitely coming back strong.
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for me the really interesting one and this is the big one going forward is what happens with
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commercial real estate so if you've got i'll give you two examples right if you're in the tech
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industry tons of your really important workers work from home anyway techies in basements writing
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code troubleshooting all that sort of stuff so there's nothing new there but what it's basically
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told google is we don't need that giant campus in palo alto we just don't right apple doesn't need
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half the offices it's got etc etc so if you're in a tech firm or a firm that can really be
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platform think sort of like corporate human resources back office to finance boom they're
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not coming back on the other hand you've got businesses like finance think the city of london
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where everything's about face-to-face the ecosystem deal making co-presence as economists call it right
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they're going back to the office but a lot of commercial real estate is going to be over the
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next couple of years so if you're looking for you know fragility in the economy it's not the fact
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that a few catering firms are going to have gone bust they will be picked up again as things expand
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for me the big one is well what happens to all that real estate investment which is super expensive
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what happens to downtown right what happens to the prêt-à-manger economy if only half the people
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come back to the office right that's where you really begin to see structural change
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and it also brings into question mark what is going to be the future of cities
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has covid rendered the city irrelevant so it's funny i was just talking to john friedman who's
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an economist friend of mine here at brown and he had a great line on this which is basically cities
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have been the growth nodes and have pulled in people capital and resources from everywhere for
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the past 150 years doesn't matter where you look so are we actually saying that there'll be a slight
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rebalancing against that in certain sectors probably or we're saying that the city's days
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are numbered that's a big bet that's a big bet right so you know it would take a lot to unwind
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london now you know on the one hand given the fact that if you look at gva which is gross value added
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the underlying component of gdp growth the only bit of london that grows according to the on of
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the uk that grows according to the ons is actually london and effectively the rest of the country
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lives on transfers now it would be nice to rebalance that and they're you know thinking
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about leveling up all the rest of it is exactly the way to do that but you know what nobody's
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sure how to do that basically once a city loses its industrial rationale it's kind of hard for it
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to reboot its way back some places manage it there's pittsburgh in the united states which
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was the steel town which became basically biotech university healthcare right but not everybody can
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play that trick so take dundee where i'm from right we were we have the unique honor of being
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the first town in the world as far as i'm aware to de-industrialize because we were screwed by
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nylon right we used to be the packaging uh plant for the world all the jute fibers would come from
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india they'd boil them and turn them into packaging in dundee and then they would send them
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out to package everything nylon comes in you're done right so we effectively started losing that
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industry in the 1950s has dundee come back right it's got games video games it's got biotech a
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little bit it's got a few things but there's nothing there when you think about dundee and
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you go, that's what they do. So the future for those cities is actually much, much more uncertain
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than a place like London, essentially dissolving, right? That's not going to happen.
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Mark, and from the economic point of view, if you come back to the macro side of things,
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there's a couple of things I want to ask you about. First of all, what did you make of the
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difference? Now, I understand the Volvo and the Mustang metaphor, which we talked about last time,
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the difference between America and the UK. That's obviously very clear. What did you make of the
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decision in the UK, for example, to have a furlough, to have self-employment grants, to give companies
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grants, and to support people through this period. Do you think that was the right decision, or is
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the American model a better one? Well, here's the weird thing about it. Eventually, the American
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model became more like the British model, right? So they ended up extending unemployment benefits,
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even in places like Florida, where they really didn't want to do it. You had to be hardcore
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Alabama, Mississippi, deep south, not to take the free money that was on the table, right?
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And, you know, is there such a thing as free money? Well, at the moment, there is, because
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essentially, you can borrow a negative real rate, which means somebody out there in the world is
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so keen to hold a bond as a safe asset, they're willing to lose money on the transaction if they
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hold it to duration. So in other words, I borrowed $10 from you, and a year from now, I give you
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nine back. I mean, it's a no-brainer to do that. So on a 10-year bill, right, if you've got like
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a negative real rate and you run it over 10 years you get nine bucks back that would be it exactly
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but you're willing to do that because you're betting essentially that that nine bucks not
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only will be there the economy that the bond is tied to will be bigger so in a sense you'll get
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more for your nine bucks right so it's the safety play and if the whole world's in safety play mode
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it's dead easy to do that so you know which one's better the puzzle in the united states just now is
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the is everybody just lying as we used to call it in scotland on the brew uh because they're
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finally getting decent unemployment benefits and nobody's going back to work well you know if you
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actually look into the data on this it's kind of weird it's like some sectors rather than others
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or whatever but here's the thing we've had chronic wage stagnation for the bottom 40 to 60 percent in
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the u.s for the past 30 years this is a feature it's not a bug right the design is we need to
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get wages for the bottom 60 percent of people up that's why they're so angry that's why they're so
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pissed off. So the fact that there's a shortage in certain sectors and employers are having to pay
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more, that's the plan, right? That's not an error. That's exactly what they're aiming for.
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Well, that was going to be my other question to you, because one, and look, I think economically,
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I'm probably in the center, maybe even I lean right on economics, I would argue.
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But when I look at something like inequality, to me, that's a huge issue. And one of the things
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that has happened during the course of the pandemic
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is I don't know whether it's a transfer of wealth
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or is it just the accumulation of wealth and income
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right at the top by the people who already had everything
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in terms of income and wealth and equality going forward?
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i mean there's no doubt about it there was a big piece in the financial times which uh you can you
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can probably get through the paywall if you try hard enough but essentially looking at how much
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billionaires have made the billionaire class the 0.1 percent and it's astonishing i mean you'd
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expect it would be you know the united states etc and they're up there but it's the swedish
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billionaire class which have made tons right it's the russians it's other people there so it's a
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global phenomenon it's not just the us and the uk by any means and here we call this the k-shaped
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recovery, right? So if you think of the letter K, if you're on the top end, that's great. That
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means you have assets. We've pumped tons of cash into the economy. When you do programs like QE
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and you're buying bonds, you're swapping out bonds for cash, you're putting it in the hands of people
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who already have assets. What do they do? They go buy assets. You should see the housing market
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over here just now. Holy hell. I mean, you can literally put a shitbox with lipstick on the door
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and you can sell it for a million bucks in some places. I mean, it's ridiculous. Why is that?
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because everybody's dying for houses well there's certainly pent up demand we didn't really do any
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housing starts in 2020 because of covid but a lot of it is just like the people who have assets now
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have cash and want to buy even more assets because that's what goes up in value so a lot of this also
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feeds into the like the inflation fear that we've got just now is like look at the price of housing
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that's going up that's not an inflation that's a bunch of people who already have everything buying
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even more stuff pushing the prices up right it's a very different thing but it's definitely made
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it worse this is again to go back to what biden's trying to do and you can think about a sort of a
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weaker version of this at least vocally is the leveling up the country discourse in the uk
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is that it's going to be really hard to take that top end where all the wealth is concentrated
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and redistribute it down so what we need to do is push the bottom up so you you basically make
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the curve flatter right that's how you're going to do it and that's basically you know the the
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thinking on raising wages running the economy hot etc they realize they've got to do something
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about inequality and the way they're going to do is raise the bottom rather than try and tax the
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top because the tax won't let you the top won't let you do it and but mark isn't also the problem
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that you raise wages at the bottom what covid has allowed a lot of companies to do is usher in
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automation via the back door very very easily yeah and and some of those jobs should be automated
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right i mean that's the thing are we really better off as a society or even individuals if you have
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people working for a couple of quid an hour doing something that could be automated wouldn't it be
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better for that person not to do that you wipe out all those jobs and effectively what you then have
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is a higher wage floor so then it's up to those people to get the skills to get in to get on that
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wage floor and then the whole of the country's working at a higher level so you know a good
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example is there are no hand there are no hand car washes in scandinavia none everything's
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automatic because basically they just automated that whole sector. Why is that? Because basically
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they don't want to have a low wage economy. It's like, why? I mean, this is the thing. If you go
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to Denmark, go to Copenhagen and go into a McDonald's, buy everybody breakfast and then
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shit your pants about how much it just cost you. It's a fortune, right? And that's a policy choice
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because basically you want your wage flow to be high and you want to have a certain type of
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society. And what we've been doing in America and the UK is running a very different one,
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the low tax low wage one and that's great for corporate profits but it sucks for the people
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who have got the low wages and there's a question of you know have we hit the buffers on that model
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have we taken that as far as we possibly can and yeah that's pretty much where we are but isn't
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that also if you try and change that that's what america's built on that's their ethos those are
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their values are you going to be able to do that is that realistic well it's a bit like you know
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it goes back to the question of, can you afford this? And if you look back in time, you go, well,
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you used to pay more taxes. Why can't you do it now? Right? It's not as if it's unprecedented.
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So, you know, we're talking about the Biden increase in corporate tax. If you follow it
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through on a graph, right? Gabriel Zuckman put this on Twitter. Here's the rate of corporate
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tax. It goes up to basically 50 odd percent. And then it dives down to where it is now at 21. And
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he basically wants to take it to 28. And this is called an unprecedented rise. It's like, no,
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know that's not unprecedented right you've got lots of room and the simple fact is that particularly
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large corporates this is not true of small businesses and this is an issue right but if
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you're talking about large corporates they've never made more money i mean apple's cash pile
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is bigger than the gnp of around 40 countries and they hide it in tax havens and pay no tax on it
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and it's like no enough we're just not going to do this shit anymore you guys need to pay more to
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your workers. That's the deal. Well, and more, more tax to the economy for that would be nice
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as well. Mark, why do this is an issue that to me seems very odd that we're even having this
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conversation because it seems to me like the only way that the current system of tax loopholes would
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exist is if we had corrupt politics where the people with the money are paying off the politicians
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to keep it that way. And we're all 7 billion of us sitting around just letting it happen.
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now given the fact that you guys are domiciled in the uk and i don't want to get done for libel
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i'm not going to say what's in my head right now what i am going to say instead is that yeah
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absolutely you know a great example of this is that sort of like um how can i put that
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the former prime minister formerly known as david cameron before he became mr greenshill
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um when he in 2010 he did the so-called edinburgh declaration which is you know as part of our
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fiscal belt tightening we're about to do we're going to raise more taxes in the era of tax
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dodging for companies over blah blah blah and what did they do they cut taxes and loosened the tax
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codes right i mean if you look at the maps of global finance in terms of financial flows london
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is this enormous hub for money that comes from all over the world and they get shipped out to a
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series of tax havens. And then those tax havens actually serve as the headquarters for companies,
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but they have no local tax rates, so they have to pay there. And yeah, like London is at the
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absolute epicenter of this stuff. So the level of hypocrisy on taxation is just absolutely
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astonishing. But again, to go back to your earlier point, I mean, this shows you the power of the
00:22:08.180
billionaire class, right? I mean, why was Lex Greensill, right, this basically billionaire
00:22:13.720
billionaire bullshitter able to get access to the phones of every member of the government
00:22:19.920
the mart right i mean you know in any other country you might be calling that corruption
00:22:24.860
hey kk are you a fan of cultural appropriation of course i can't go down to the local supermarket
00:22:33.940
unless i'm dressed like a mexican bandit or as i like to think about it your cousin in that case
00:22:41.900
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If I am some junior member of the prime minister's staff and I'm like, hey, prime minister, we're going to solve the corporate tax loopholes.
00:23:45.320
Well, what tends to happen from there is Treasury comes in and says, well, it'd be nice to have more money, but I don't think it's going to work.
00:23:52.280
And then somebody from legals will come in and say, well, in order to do that, you're going to have to violate the Dominion status of Jersey.
00:23:57.820
And you're going to have to change our relationship with all these other crown dependencies.
00:24:01.080
and you don't want to get into that because then what will happen is the city of london
00:24:05.280
which has its own representative in parliament not many people know this will then start give
00:24:11.420
it yeah no the city of london has its own representative in parliament who is not elected
00:24:15.920
look it up it's amazing right and they will basically lobby the crap out of us and at the
00:24:21.700
end of day 11 of gdp and 8 of all jobs is connected to the financial center and given the fact that
00:24:28.160
basically the london housing market is the world's largest money laundering operation
00:24:31.760
um do we really want to screw this up let's think it through how about a commission we'll have a
00:24:39.100
royal commission to study it and then five years from now when they report i'll be gone you'll be
00:24:44.540
gone that's what happens i mean it's it's so depressing because as well it's not in their
00:24:51.120
interest like you said and everybody's playing the game the eu's playing the game everybody's
00:24:56.340
are absolutely and this is why you can never you know i mean you're beginning to see this now
00:24:59.880
because what happens is i mean the americans are still the elephant in the room right and if the
00:25:03.360
elephant shits in the room everybody notices so under the trump administration they pulled out of
00:25:08.560
the oecd corporate tax harmonization stuff on the grounds quite legit that this is all aimed at
00:25:14.020
our digital at the digital firms and it's right they pay no taxes and that's an issue and all the
00:25:18.160
rest of it but the way this is structured they'll be the only ones paying tax and they're american
00:25:22.480
firms so forget it we're done right so they walked out so then they came back and said all right
00:25:27.420
no taxing the digital on their own everybody let's hit 28 and the french went holy shit are you
00:25:34.340
serious that could be awesome so there's convergence between the eu and the u.s and if
00:25:40.060
you get the two of them to agree right then basically you've got it your problem there is
00:25:44.340
the latvians right the problem there is uh who else oh the dutch right so all the people that
00:25:50.720
benefit is from being kind of financial entreposed they're not going to like this one at all and
00:25:55.840
because you need unanimity in the EU to do anything right it's going to be tough to get that through
00:26:00.280
which is why they're doing it through a different organization called the OECD which makes it easier
00:26:04.240
but they are trying genuinely to get there they understand that this is a problem and also what's
00:26:09.160
interesting if you talk to corporates in the US about this it's kind of funny some of them don't
00:26:13.080
mind because basically they're like yeah you're right I mean basically we wake up as a firm we
00:26:17.200
make a billion dollars a minute right i mean it's absurd so why are we you know not taxed we should
00:26:22.520
actually be a bit more taxed another one you get is yeah i'm in favor of taxation because a lot of
00:26:26.980
firms are just basically profitable because they don't pay any tax so if we actually all pay the
00:26:31.820
same tax you get to figure out who's basically a bullshitter and who's not so the great reveal
00:26:36.820
would be like oh look at that we thought you were a firm and it turns out you're just a tax dodge
00:26:40.500
so if you're actually an efficient firm you could see this as gaining a competitive advantage i
00:26:45.220
actually make sure you're just a tax dodger i'm going to take your market share so there's a way
00:26:49.400
in which actually having a higher but equitable tax base might benefit firms overall so that's
00:26:56.140
why there hasn't been the foaming at the mouth you would expect over this topic and and mark isn't
00:27:02.000
another incentive the fact that a lot of well every country at the moment is verging on being
00:27:08.360
broke because of covid they need a fight to find a way to generate more income therefore you tax
00:27:14.380
these huge multinational digital corporations yeah i'd put it slightly different um so long
00:27:20.580
as you're not in the eu and you haven't given up your printing press technically you can't go broke
00:27:24.200
and the only real constraint is are you having a large inflation of which i mean double digit and
00:27:30.000
it's sustained which is a problem or alternatively the what you have to pay an interest on your bonds
00:27:35.360
goes far higher than your growth rate so as far as we can see it what you can do is basically look
00:27:40.300
at what's called the yield curve right basically 10 years out what what's the interest rate likely
00:27:44.500
to be on these bonds and basically for pretty much all the oecd you've got a negative real rate
00:27:50.100
out to 10 years like the germans are trading at like negative six eight or something like this
00:27:54.480
so essentially what that means is you don't have a financing constraint it's not you can't go
00:28:00.080
bankrupt now do they want the extra taxes yes they do and they want the extra taxes because
00:28:04.980
they want to A, stop populism, by B, raising wages, by C, making people a bit happier about
00:28:12.540
their general condition in labor markets so that they can restore faith in the basic institutions
00:28:17.160
around them, and D, so that these elites don't eventually end up getting hung, drawn, and
00:28:22.000
quartered. So that's basically the game plan everywhere. Mark, can you explain something
00:28:28.580
for our viewers who may not be economists? I studied economics at university a little bit,
00:28:33.100
I understand the explanation, but I'm not sure whether I believe it.
00:28:37.980
We do have in the West, in many countries, levels of debt that are huge, particularly for peacetime, right?
00:28:49.780
The cycle used to be you spend money on wars, then you recover in peacetime, you build up some reserves, and then you spend them all on another war, right?
00:28:58.760
Whereas what we have is essentially COVID is like a war,
00:29:02.120
but we were already deeply in debt before it happened.
00:29:21.400
And the key thing is because anybody who says to you,
00:29:28.320
because an economy with its own printing press is nothing like a household, right? There is no
00:29:32.460
such thing as kissing dollars. If there were kissing dollars, I'd short the shit out of them,
00:29:37.380
right? They wouldn't last very long, right? There's no such thing as a Mark Blythe 10-year bond
00:29:42.340
because I'm Scottish. I might be dead within 10 years, right? So all of the things that states
00:29:47.380
can do, bring people into the household, they're called immigrants, you can tax them over the
00:29:51.640
generations, right? All that sort of stuff, households can't do, right? It is just simply
00:29:56.160
not the same thing so when they say that right well you can't spend more than you earn it's like
00:30:00.340
well actually you can because there are people out there in the world called investors who are
00:30:04.600
willing to basically loan you money because they want the security of knowing that it's safe for
00:30:09.140
up to 30 years and because of that what you're effectively doing with a bond is taking your tax
00:30:14.000
revenue none of this is mmt you don't need to go near that this is straightforward right but you
00:30:18.080
can you're essentially taking the tax revenue you will have in the future and borrowing it from
00:30:22.600
someone and then with the tax revenue in the present you're paying out now what is then
00:30:26.580
important how much taxes you generate and the interest rate on the debt as far as we can see
00:30:32.080
just simply because of demographic pressures the fact that interest rates honestly have been falling
00:30:36.640
with the exception of the 70s and 80s for 700 years by most estimates straight down we're going
00:30:43.260
to be in a very low interest rate environment for a while it's also with zero wage pressures
00:30:48.240
unlikely that we will see a sustained inflation. So you just don't have that problem because a
00:30:53.280
state is not a household. And so long as you have a global investor class that wants to hold these
00:30:58.080
bonds as safe assets, the game just continues. But if I'm an ordinary person, which I am,
00:31:03.580
and I'm hearing you explain that, I'm going, well, why don't we borrow endlessly all the time
00:31:09.180
to continually invest in stuff and buy everybody a Porsche? It sounds great.
00:31:14.640
Well, you don't have to buy everybody a Porsche, but you could get them up to the level where
00:31:18.220
let's say there's a recent study by rand so if anybody wants to do this go on go on a line and
00:31:24.060
look for rand corporation r-a-n-d and i'll look for a paper called trends in income 1979 to 2020
00:31:30.460
and what it shows is that if you haven't changed any of the regulations in the united states economy
00:31:35.580
or any of the tax rates in the united states economy since 1979 your average worker would
00:31:40.940
have been fifteen thousand dollars a year better off yeah so add that up over 40 years they could
00:31:47.500
buy their own porsche right so there's a way in which we set the means right when you change
00:31:53.220
taxes when you change regulations you're benefiting one group over another and to go back to your
00:31:58.340
inequality point what's happened is the corruption of politics has essentially meant that it's all
00:32:02.580
gone to a tiny sliver of humanity and the rest of us have been living on crumbs so debt is part of
00:32:08.580
the equation but so are wages so are taxes and if you have a decent tax system and a high growth
00:32:14.020
rate so your growth rate's here interest rate and your bond is here it literally doesn't matter
00:32:18.840
because this will shrink over time take the example of wartime united states comes out of
00:32:22.860
the second world war 164 debt to gdp huge amount of ludicrous way for way more than we've got now
00:32:28.680
and that's when it had the fastest and uninterrupted period of growth uh in its history
00:32:33.900
and after 30 years of that growth its debt to gdp was down to 40 percent
00:32:39.760
so again the story that we tell each other is a particular version of the story which when you
00:32:46.260
figure out how this actually works it's all financing can you finance it or not an example
00:32:51.360
you live in london let's say 10 years ago somebody said i'm going to buy a house in crouch end you're
00:32:56.300
like well you're brave all right so it's half a house in crouch end how much is it 350 000 how
00:33:02.380
much is your wages 50 000 shit seven times income i'm going to buy it you're over levered you've got
00:33:08.240
way too much debt. 10 years later, how much is that house worth? About 10 million at the moment.
00:33:13.360
Right, exactly. So therefore, because the economy grew so much, the amount of debt shrunk in real
00:33:19.820
terms. That's the analogy you need to think about. It's really interesting that you say that. And
00:33:26.280
also as well, Mark, the point that the elites want to do this in an effort to stop populism.
00:33:32.240
but i'm looking at what's happening to the eu you know the the situation in france their abysmal
00:33:38.720
handling of the vaccine isn't the cat already out of the bag when it comes to populism no it
00:33:44.520
certainly is and if you think about it this way the two largest parties in italy are basically
00:33:49.440
the fratelli d'italia who are the ones who are like no no we really are a fascist party we're
00:33:53.880
not hiding it right then then there's the liga which is kind of like well some people say we're
00:33:59.000
fascists but honestly we're kind of not maybe we are and then you've got the rump of berlusconi
00:34:04.260
which is a vision you didn't need in your head which is forza italia and if you put all of them
00:34:08.180
together you can have a government right and that's that's the one where investors go oh shit
00:34:13.980
right and then the italian debt market's a problem all right so where is let's think about go back to
00:34:18.220
debt where is debt a problem italy why is italy a problem the whole thing is so long as your growth
00:34:23.100
rate's higher than the interest you pay in your bonds you're fine italy hasn't grown in over 20
00:34:27.740
years and it's piled on a ton of debt since the pandemic and because it's in the eu it doesn't
00:34:33.980
have its own printing press so it can't do certain things like basically stimulate the crap out of
00:34:39.480
the economy and hope for the best so it then relies on the ecb buying its bonds to keep the
00:34:44.600
yields down keep these interest rate payments down but once the eu recovers whatever that is
00:34:50.240
then they no longer buy those bonds and at that point investors holding italian debt go no way
00:34:55.040
you guys going to grow enough to generate the taxes to pay these bonds so the interest rate's
00:34:59.340
going to go up and you could have another crisis at that point in time that's when the populace go
00:35:03.420
told you and boom they're in right so there is real risk there that is baked into the cake
00:35:08.780
so much of it has to do with the fact that when you join the euro you give up your own printing
00:35:13.320
press and a lot of you get some advantages from that but whenever there's any kind of turbulence
00:35:17.840
bad idea and you say it's a bad idea how close do you think the entire eu project is to failing
00:35:28.240
to be frank uh because you know and i've used this analogy many times and i think it still works
00:35:35.740
it's the hotel california once you check in you can't check out right if the italians were to go
00:35:41.280
stuff this we're out enough of the euro we're going to bring back our own currency how would
00:35:44.960
you do it you probably have a parallel currency right and you would use that we'll call it the
00:35:49.400
new lira and you would just put it in the atms and you would have euros but you'd also have these
00:35:54.380
and you could say these things you can't use them in shops but you can use them to pay your taxes
00:35:58.060
all right that's great that's 40 percent of my income right there i can just take care of that
00:36:02.360
with this new currency so when you're doing that you're basically allowing it to spread people start
00:36:06.940
to go well if i could pay my taxes with it i might as well buy groceries with it right and suddenly
00:36:10.720
the euros like one of these parallel things it's like a latin american economy and at that point
00:36:15.800
in time you got to wonder if this thing's going to work or not and there's a good chance that
00:36:20.400
anybody who's holding that's like do i really want to hold new lira or would i rather have a bank
00:36:25.000
account in germany with real euros so any italian with money that doesn't have rocks in their head
00:36:29.500
basically opens up a bank account in berlin stuffs it full of euros that huge amount of capital
00:36:34.920
flying out of the country would cause its own economic crisis and in general the cost of getting
00:36:40.560
out of the euro probably 50 percent of national savings now you may be a fascist and you may be
00:36:45.800
a populist but you really want to destroy half a national savings to prove a point
00:36:49.340
mark one thing that goes somewhat against the narrative that we were discussing earlier which
00:36:55.740
is working people ordinary people the bottom 60 percent if you like really struggling uh not
00:37:01.960
happy with the situation 20 are really struggling the bottom 60 are just pissed off right right so
00:37:07.660
the bottom 60 are pissed off. What they want is higher wages, their purchasing power over God
00:37:13.880
knows how long has been plummeting, savings, people really struggle to put any money aside,
00:37:18.780
et cetera, et cetera, et cetera. But the one country that bucks the trend on that, you might
00:37:23.740
say, is the UK, because we voted. Now, basically, all the polling shows that ordinary people in
00:37:29.680
this country completely support the right-leaning party. How do you explain that? It is a fascinating
00:37:36.000
one but i don't actually think it's a disproof or a contradiction i mean if you had the tory party
00:37:41.040
circa 1987 they wouldn't be talking about leveling up right they wouldn't have done furloughs they
00:37:47.500
wouldn't be talking about big investment projects greening the economy none of that would be on it
00:37:51.620
just be like tax cuts for us and screw everybody else right so it's a very different conservative
00:37:55.980
party and what they've done is they've moved to the left economically and stayed on the right
00:38:00.240
culturally and that is the winning combination and the reason labor got slaughtered is because
00:38:05.900
if you are perceived to be a party essentially of elite intellectuals cities universities and
00:38:12.120
minorities you're never going to get the white working class to support you and that's basically
00:38:17.460
what's happened and so long as the tories have moved to the left whereby their interests are
00:38:21.540
being recognized economically and then they want to stay right culturally that is a winning
00:38:25.640
combination there's no way for labor out of that box i think matt goodwin has got this absolutely
00:38:29.740
right. Well, we've had him on the show a few times, as you probably know. But I'm curious,
00:38:35.180
then, what about, is that different in America in the sense that the sort of progressive coalition
00:38:40.300
play? We just need basically for the country to get darker and, you know, more LGBT and more this
00:38:46.980
and more that. And we'll get to a point where that is the winning formula. Is that going to happen?
00:38:53.100
So that's still the debate very much in the Democratic Party. And what you see with Biden
00:38:57.240
and the whole attempt to raise wages at the bottom is that's not enough right elections are
00:39:03.080
increasingly won by tiny tiny fractions so when you see a result like you see in hartlepool you
00:39:08.380
sit up and go wow that is that's a big thing that's structural it's a lot of information in
00:39:12.120
that and if i was the biden team i'd be looking at this and saying okay what exactly is the
00:39:16.660
conservative party the conservative party with one or two exceptions is about as right-wing as
00:39:21.360
mainstream democrats at this point in time they're way closer to democrats than they are to republicans
00:39:26.540
so at that point in time you know if that's the play why wouldn't we do that play now biden's not
00:39:32.160
going to piss off his activists he's not going to alienate his base he's not going to do this
00:39:35.460
but he's not going to talk about trans every day right he's not going to talk about police
00:39:40.120
violence every day he's just going to keep silent on those issues and concentrate on what he does
00:39:45.900
which seems to be stuff that people find popular so yeah there's definitely a sort of a struggle
00:39:51.520
in the democratic party over basically how to use the word woke the party wants to be and you've got
00:39:58.000
people like jim carville saying this is a problem not because it's ethically a problem or morally a
00:40:02.840
problem just politically you can't mobilize enough people if you go down that road and part of a part
00:40:09.260
one way to look at what's happened to labor is by going significantly down that road they've kind of
00:40:13.480
tested that theory and shown that it's probably true and all these parties seem to be struggling
00:40:20.020
with the effects of globalization what can you do with these communities that have had the heart and
00:40:25.880
soul ripped out of them is there are there any really any solutions to this problem mark
00:40:29.760
well that's it to go back to the thing i was saying earlier about cities right once they
00:40:34.300
start on a decline some of them can bootstrap their way back and reinvent themselves but not
00:40:38.300
everywhere can right you've got to have a reason to want to put capital into a place you can move
00:40:43.840
government jobs around you can take the dvlc out of cardiff and stick it somewhere else if you
00:40:48.340
really want to right but there's getting private sector capital in these places depends upon making
00:40:54.520
them actually much better places to live so if you think about a city like manchester i would
00:40:58.980
bet on manchester i'd also bet on liverpool huge investment in the 1990s and improving if you will
00:41:04.080
the basic infrastructure of those cities you get better transportation and communication links
00:41:08.440
there what have you got really good cheap housing you don't have in the southeast right and the
00:41:12.680
ability to basically grow those economies out and then you've got skilled labor forces you've got
00:41:17.100
good universities that's a place where you could bet on right what about your buries what about
00:41:22.740
norwich right what about places like that that basically you know are on the skids the classic
00:41:27.580
one are sort of the coastal community south of london on the east coast right it's not clear
00:41:32.440
what you do with that i mean once skeg nest loses its appeal it's not coming back but it's not true
00:41:37.980
everywhere so the question is where do you put your money and where do you maximize your bets
00:41:42.000
to try and balance things out about but you're right you see one of the things about globalization
00:41:45.900
we don't talk about is what it does is it creates the dominance of cities so there's a paper i'm
00:41:50.920
working on just now and i found these statistics and i was absolutely fascinated by it you know
00:41:54.800
what percentage of gdp london creates for the whole country 22 i was gonna say 20 yeah right
00:42:03.160
now here's one paris what do you think it is for paris vis-a-vis france five no 30 what yeah right
00:42:12.260
here's one uh the netherlands amsterdam 30 wow right so and then here's the best one dublin
00:42:21.540
50 yeah double that makes sense to me right but what's actually happening is that you get
00:42:29.860
globally connected cities that become the real wealth generators so when we think about holland
00:42:34.180
what you're effectively talking about is amsterdam right when you think about britain you do really
00:42:38.720
think about london right that's it and if you think about germany it's actually very different
00:42:43.140
because berlin the hopstad is bust bankrupt right for the from the unification period three lander
00:42:49.360
in the south make most of the money but it's not city based right and there's much more kind of
00:42:53.900
like you know general redistribution because of the federal system um so you know globalization
00:42:58.300
affects countries in different ways but one of the predominant ways it does is basically by making
00:43:02.320
these global growth cities like the main story and you know when you've got that that's a dynamic
00:43:14.960
we've talked about the fact that different people in society,
00:43:22.040
and suffered differently as a result of the pandemic.
00:43:27.280
One of the things that people talk about a lot is China.
00:43:49.340
who like to play a game of hide, seek and take the money, right?
00:43:57.420
So, and they signed this big investment agreement with China,
00:44:04.480
there are genuine security concerns around Huawei 5g even if you don't have substitute tech all
00:44:09.980
this sort of stuff so we're already seeing the beginnings of what tech people call the splinternet
00:44:14.460
as it splinters into different national versions of the internet there's a really interesting
00:44:18.800
investment firm in New York actually that's betting on this and they basically are looking
00:44:24.780
for you know who's going to be who's going to be the deliveroo for Indonesia because it's not going
00:44:30.000
to be Deliveroo why would you need an American firm to do this right so you're going to see more
00:44:35.040
and more of this kind of like local national or regional hubs in terms of that in terms of the
00:44:40.160
overall geopolitics of it there is an increasing school of thought that thinks that Xi has overplayed
00:44:44.660
his hand the if he really does something like try and grab all the semiconductor manufacturers for
00:44:50.460
the world by invading Taiwan then the costs of doing so would be very very high for everyone
00:44:56.120
but particularly for china because it would effectively turn everybody else against them
00:45:00.940
so the belt and road stuff has been at best a mixed bag a lot of it tends to tends to basically
00:45:05.720
in debt the people who are borrowing and then you end up owning the asset which is good for china
00:45:10.460
but not for the other side and then of course the whole sort of you know the human rights data
00:45:14.500
surveillance surveillance society type stuff which you know when you describe it neutrally
00:45:19.320
just doesn't sound like an appealing place to be if that's going to be the future maybe you know
00:45:24.180
maybe liberalism isn't dead after all maybe it is worth fighting for so i think at this point in
00:45:29.660
time you know conflict is baked into the cake but what that how that conflict manifests itself is
00:45:34.500
going to be an interesting one the last one on this and then i gotta go run and pick up my kid
00:45:38.720
so i'm gonna have to go but anyway um is how climate intersects in all of this so so if the
00:45:45.220
republicans come back in at some point which they probably will then america drops off the climate
00:45:49.320
change bandwagon again the problem with this is the rest of the world will eventually turn against
00:45:53.680
carbon assets oil gas etc etc the bank of england came out today and basically said we've got a new
00:45:59.660
ratings regime next time there's a crisis if you want your bonds bought you'll get a premium on
00:46:04.100
them if you're not carbon heavy and if you are carbon heavy you'll have to pay a tax and we
00:46:08.380
might ultimately not buy your shit whoa there's a big threat so you can see all of this moving in
00:46:13.620
one direction all of that bespeaks cooperation with china because if they play this game they've
00:46:18.980
declared net zero by 2060. And the communists don't usually do plans or at least claim them
00:46:23.420
unless they're serious about them. So they're going to do this. The EU is going to do it. If
00:46:27.660
the Democrats control the US, they're going to do it. If the Republicans come back in, the rest of
00:46:31.420
the world is going to move that way anyway. And all those carbon assets in 20 years time are going
00:46:35.500
to be worth a lot less. So you've got conflict on one side, but you really need to cooperate with
00:46:40.860
them on another. So it's going to be interesting how they square that circle. It's going to be
00:46:46.040
very very interesting would you say that china's reputation as a result of this mark has been
00:46:50.640
irreparably damaged i don't know irreparably right because ultimately there are people for whom
00:46:57.060
reputation doesn't really matter and there are countries for whom belt and road is like the only
00:47:03.120
source of investment they're going to get and they're simply not going to say anything and there
00:47:07.040
are plenty of dictatorships in the world who are like your score what a great model let's go that
00:47:11.380
way right think places like burma right sorry my anmar right but anyway um so yeah unfortunately
00:47:18.820
you know that doesn't mean permanent delegitimization nor does it mean that they'll go
00:47:23.340
oh we went too far maybe we should come back this way a little bit they have their own game plan and
00:47:28.360
as far as they're concerned it's working for them mark listen we got to let you run otherwise we
00:47:33.920
could chat to you for hours as always we'll love to have you back another time thank you so much
00:47:38.880
for coming on remind everybody before you go where they can find you online you can find me at mk
00:47:44.440
blythe on twitter that's the easiest one i have a website but i haven't updated it since 1972
00:47:49.880
fantastic thanks for coming on mark and thank you all for watching we will see you very soon
00:47:55.400
with another episode like this one or a live stream and they always go out 7 p.m uk time