00:01:52.780I mean, obviously, very, very uncertain times, very significant times as well.
00:01:59.820What do you make of what's happening now, and particularly the economic impact of the lockdowns that we've seen around the West?
00:02:06.740Is this the beginning of a Great Depression?
00:02:09.320Jim Rickards, who you will know from the festival that you co-organize, Kilkenomics, we had him on the show a couple of weeks ago, and he said, we're already in a Great Depression.
00:02:20.720Well, I think Jim is right if you decide that a Great Depression is measured by GDP falls, unemployment, fiscal deficits, all that sort of stuff.
00:02:32.100It's very clear that we're in Great Depression territory in terms of what's going on right now.
00:02:36.700The question is whether or not the Great Depression materializes.
00:02:39.980The Great Depression was a 36-month affair.
00:02:47.540The interesting thing is it didn't start directly after the Wall Street crash.
00:02:50.720It took a couple of years to materialize, and it went on until the Americans broke with the gold standard and started printing money, which is probably the opposite of what Jim would recommend be the solution.
00:03:04.180So I would say that we are, if we don't fix the next couple of months, there is a chance that there will be these ideas, these things, these long tails, like talking economics, that in actual fact, the economy will continue to weaken.
00:03:22.800However, the problem at the moment is really a lack of money.
00:03:26.400It's a cash flow problem that most small businesses, big businesses are quite OK, but most small businesses are running out of money simply because the trust in the system has broken.
00:03:39.080So, for example, if you run a small business and you have credit lines with your creditors and they are 90 days in good times when everything's normal.
00:03:47.280So you send out your invoices, you actually use your invoices as invoice discounting.
00:03:52.080So, invoices in a non-panic situation are actually as good as cash.
00:03:58.240So, you go to the bank with your invoices and you say, look, these guys owe me 10 grand or 100 grand.
00:04:04.780The cash is, yeah, listen, the bank says we'll give you 70 grand.
00:04:07.520So, invoice discounting is a way in which small companies manage cash flow in normal times.
00:04:12.320And the reason I focus on small companies, lads, is that small companies are actually who employ the vast, vast majority of people.
00:04:18.960So this obsession with Google and Facebook and all these big companies, the big oil companies, which I'm sure we'll talk about, they were big, they're getting smaller.
00:04:28.700I suspect they'll be very small by the end of this afternoon.
00:04:33.060But the point is, so let's talk about who I would regard as the real heroes of the economy, the small businesses.
00:09:55.120I think we're moving in that direction.
00:09:57.140And let's see what happens in the next couple of weeks.
00:09:59.260Francis, before you jump in, let me just ask to follow up on this.
00:10:01.960And then you go ahead, because you have lots of things you want to tell us, David, about as well.
00:10:06.540But, David, if I'm one of the great things about you is you're very good at explaining economics to people who aren't economists, right?
00:10:12.260But if I'm an ordinary person and I'm listening to what you're saying, which I am an ordinary person listening to what you're saying, right?
00:11:41.940So in the wrong hands, at the wrong time,
00:11:43.880the central bank can destroy the country.
00:11:45.640in the right hands at the right time, Central Bank can save the country by doing exactly this,
00:11:51.400which is by creating money. One of the great myths of economics is that money has value.
00:11:57.220It has only value in its social context. People actually believe it, right? Which is why, for
00:12:02.920example, if I take five euros out of my pockets, which has no intrinsic value, there's no intrinsic
00:12:09.500value in the piece of paper, the value is only that I believe that it can buy me two cups of
00:12:14.100coffee, right? That is a mind game that we play with each other. And so the essential thing about
00:12:21.620money is that it has no real value other than the value that we ascribe to it. And that value comes
00:12:28.320from our knowledge that the central bank won't print too much of it in normal times. So there
00:12:33.040won't be too much of it around. So that is answer, first part of your question. Second part of your
00:12:39.860question is then do you have to mop this money up later on because it's still in the system and
00:12:44.820the system yes you do and that's a you do the thing called open market operations where the
00:12:48.800central bank just comes in and literally taps the banking system on the shoulders and listen mate
00:12:52.220give us that cash that's sitting idle in your accounts the bank says fair enough you're going
00:12:57.200to pay us you said yeah we pay a bit of interest thanks it's fine okay you have it that's how it
00:13:01.040works it's called open market operations it's a trade done at the end of every day you can do
00:13:05.160that very very easily and the third issue is then if you aren't worried about inflation if this can
00:13:12.200be done why don't we do it all the time okay why doesn't it all happen and that again is the
00:13:16.620credibility that we vest in the institutions it's a bit like saying to an army if you like killing
00:13:20.960people why don't you do it all the time you know because that's what they do right and we decide
00:13:26.880that our ministries of defense are sufficiently trustworthy that they don't send fellas out
00:13:32.600killing you all the time you do realize you're talking to a russian david
00:13:36.200well in the in russia you have an entirely different attitude but you see what i mean
00:13:45.800you know that that that uh there are many many extraordinary powers that can be
00:13:52.760unleashed by a democratic government uh not least its own military it's police force for
00:13:59.460example here in ireland what i love about irish cops is they don't irish cops are great i've been
00:14:03.860watching them for the last couple of days they don't police the country they negotiate with the
00:14:08.760country it's so nice you know like you've got fellas out drinking pretending they're all because
00:14:12.760our lockdown is that basically we can't go more than two kilometers from our house and we can
00:14:17.740only be with people in the house so you look at fellas on the pier down beside me who clearly do
00:14:21.940not live with each other and have been i've found each other in that beautiful way that alcoholics
00:14:27.340find each other on piers and open spaces. And the cops, rather than being heavy-handed with them,
00:14:32.900just negotiate. Come on, lads. Be reasonable, whatever. So what I'm saying is there is an
00:14:38.000awesome power that democratic countries can unleash upon their people. Central banking is
00:14:42.200one of those. And as long as that power is not abused, it's very credible. And then when you
00:14:47.940have to do it, you do it. And David, I was reading one of your articles in which you were talking
00:14:53.140about one of the silver linings of this crisis because obviously there's plenty of negatives but
00:14:57.580there will be positives that emerge in particular you believe that we are going to create a
00:15:01.840population that is more socially aware absolutely do you still believe that yeah i think that uh
00:15:08.660i think that the soft issues of economics are much more interesting than the hard ones so
00:15:13.280balance of payments inflation exchange rates the idea that's very simple stuff but what's really
00:15:18.060interesting is soft ideas so sociability trust credibility uh what they what they call the social
00:15:25.680fabric social capital and social capital is based on having a very strong sense of community so if
00:15:31.460you contrast for example the reaction of northern european countries uh i don't include the uk and
00:15:38.000that is uk is a slight outlier no i'm only joking but there has been we left mate we left apparently
00:15:45.420so. Brexit means Brexit. Brexit means Brexit. It's great that Brexit has not been spoken about as
00:15:52.980well, which is fantastic. Yeah, what a relief, mate. We're getting tired. No, I think, so what
00:15:57.780you see is that the crisis, you know, this expression where you hear all the time in the
00:16:04.240health service, which is that 100 people died today, but X amount of them had underlying issues,
00:16:10.500underline health problems, underline conditions, they call it, right?
00:16:18.040I think that the crisis, any crisis, reveals a hell of a lot about societies.
00:16:23.840Actually, one of the more interesting things about crisis is what it tells you about the state of the country
00:16:28.820and the difference between, let's say, the United States and Northwest Europe has been quite profound.
00:16:36.880And it's the following, is that the United States, in the same way as a patient who has underlying conditions, is more fragile in the face of the pandemic, a country that has underlying conditions, those conditions are exposed in the pandemic.
00:16:53.320So what you see in Northwest Europe is social solidarity, a belief in science, a belief in the government, an understanding that the police force and the medics working together are actually working in our favor.
00:17:06.140and they believe in what's called in economics the paradox of aggregation which is basically
00:17:12.220that what is good for the individual is not always good for the collective so basically if
00:17:16.800the collective say we should all stay in then we stay in even though it subjugates individual rights
00:17:21.600to the extent that we believe that we have them in the united states i think what you've seen is
00:17:26.860an exposure of these underlying um conditions so the death rate is much higher it's much higher
00:17:32.720amongst poor people. Why? Because the infrastructure isn't there. The public hospitals aren't there.
00:17:38.040The president is regarding the entire thing as, he's seen the entire thing through his own
00:17:43.640personal lens. How do I, Donald Trump, play out in this? He has the governors bidding for PPE
00:17:48.940equipment against each other. Inequality is exposing the fact that poor people are dying
00:17:55.560in much greater numbers. You know, I could go on. But my sense is that the social solidarity that
00:18:01.900has been evidenced is very, very significant, and it changes the world. So I'll give you an example.
00:18:10.240In 1945, in the United Kingdom, Britain wins the Second World War, okay, with the Allies, of course.
00:18:20.000I'm sorry. I'm sorry, I have to laugh at that a little bit.
00:18:25.340No, so do I. I mean, the idea that the Brits won the Second War is, for me, a complete palaver.
00:18:31.000Constantine's people won the Second World War.
00:20:02.300You'd think after the Spanish flu, for example, in the United States, the 1920s is without a doubt the most technologically and financially sophisticated decade in most of the 20th century.
00:27:56.080it goes back a long way, all this sort of stuff.
00:27:57.980I've never really got Europe, and there's always this sense
00:28:00.100that Europe is one iteration of crisis away from collapse, okay?
00:28:04.880And here's the latest example of that.
00:28:07.620My own, and of course Brexit spices that particular dish
00:28:10.320in sort of a mental way, but my own particular feel
00:28:14.160is that Italy is a big, it's a big problem
00:28:17.500Because Italy, if you go back even to 1987 when you had a large lira devaluation, then 1991 you had a lira devaluation, 1993 you had a lira devaluation, you have these periodic crises in Italy and it hasn't been able to recover properly.
00:28:37.340So every time there's a crisis in Italy, the legacy is slightly higher on employment, et cetera, slightly bigger budget deficit.
00:28:45.260And poor Italians have been running a budget.
00:28:47.560What people don't realize is that Italy has been running a primary budget surplus.
00:28:51.360So on a day-to-day basis, it has been running a budget surplus for the last 15, 16 years, which is extraordinary.
00:28:59.560The problem is they have a legacy of this massive overlap debt that they took out in the 70s, which frankly should be written off, I think.
00:29:05.360Anyway, it may well be at the end of this.
00:29:08.420And you've got, in Italy, you've got the, how would you describe it?
00:29:13.920The Duden League are not a fascist party, but quasi-fascist party waiting in the wings, okay?
00:29:21.480But my sense is that the European Union under the European Central Bank has behaved pretty well.
00:29:46.000But as a friend of mine said, with the exception of the Dutch,
00:29:49.620there were three proper Nazi countries, Finland, Austria, and Germany.
00:29:54.000And they can't get over that, but I'm only joking, right?
00:29:55.960And then on the other side, you basically have the Catholics, right?
00:29:58.860You've got us, the Spaniards, the Portuguese, the Italians, right?
00:30:02.960The Catholics and the Irish and the Greeks, of course, who for a variety of history and geography are an exceptional case in the context of the European Union.
00:32:51.620right? Nobody cares about what goes on in your own country.
00:32:55.620No, but my point isn't that the external forces care. My point is that Theresa May had lots of
00:33:01.200people sniping. She wasn't able to get rid of people in her own party who were undermining
00:33:06.200her efforts. With Boris Johnson, he made it very clear, you're either with me or you're out. And
00:33:10.880people had to sign up to his pledges. And now the Conservative Party, at least, seems like they were
00:33:16.160speaking with one voice under his leadership. Yeah, but it doesn't make any difference.
00:33:19.960trade negotiations are about size, right? The little fella gets destroyed because there's
00:33:28.440nothing to bring to the table. So, you know, let's cut to the chase. Half of the UK's trade,
00:33:36.600both imports and exports, is with the European Union. Not one-third, not one-tenth, not 20%,
00:33:41.720percent half okay flip it the other way 12 of the EU's trade is with the UK it's a it's it's a done
00:33:51.380deal Britain will take whatever it gets and if it behaves well it'll do well to get a little bit
00:33:57.920better and if it doesn't it'll go to WTO rules which are kind of a disaster for for which is
00:34:05.640why, you know, there has never been a situation where a government goes into a trade negotiation
00:34:13.160willingly in order to put up barriers. That's what's happening. It's bonkers. But that's
00:34:21.460Brexit. It's boring stuff, you know. It's going to be something much more interesting.
00:34:26.020I mean, you've brought up Brexit, and you mentioned that we haven't talked about it
00:34:29.780for a long time. No, no. Just what I brought up was that
00:34:31.560this idea that I see peddled in the British press
00:34:35.420that Europe is one crisis away from catastrophe
00:34:39.300is something I've seen since I was a kid here.
00:34:42.720Since the 1980s, 1990s, I've seen it with Mrs. Thatcher,
00:34:46.500I see it with John Major, I see it even through Tony Blair's period,
00:34:50.020I see it with Gordon Brown being against the Euro, all that sort of stuff.
00:34:53.080And then, of course, I see it with Cameron, I see it with Theresa May,
00:34:56.320and now I see it with Boris Johnson. This is a thing.
00:34:58.780this is a this is a disease this is a virus that is deep in the conservative party nobody else has
00:35:05.980it we're all the rest of us have the vaccine euroscepticism right okay for some reason there's
00:35:13.660a small population in the uk that doesn't have the vaccine and continues to show signs of as i said
00:35:19.720the underlying conditions so you don't think that with germany because you wrote a very very good
00:35:25.980article um for the various times where you explained that you know germany is in real
00:35:31.180financial difficulties their economy is not doing well at all and the long-term prognosis
00:35:37.780is pretty bleak you don't think that will weaken them when it comes to having a trade negotiation
00:35:42.940well i think no no because it's kind of relative right so you've got two sides of the trade thing
00:35:50.200you've got the trade side and the services side right uh in in terms of trade the germans are
00:35:56.400very very strong still they make a lot of stuff they make a lot of heavy stuff uh they are heavily
00:36:02.480diversified around the world in fact they make a lot of stuff that britain used to make like when
00:36:08.340i was a kid the amount of cars on the road here in ireland made in britain was phenomenal that's
00:36:13.200every second car you know you'd pick up things and i remember even my dad saying when he was a kid
00:36:17.980basically everything was made in Britain. And all those things that were made in Britain
00:36:21.900were increasingly made in Germany, and now a lot of them are made in China. So the German big fear
00:36:26.460is that China will come after the German car industry in the way Germany went after the
00:36:34.120Italian car industry, which was something that happened throughout the 1990s and into
00:36:39.100the first decade of the noughties. With respect to Germany's overall position,
00:36:46.780The basic problem with Germany, from where I'm seen as an economist, is that it doesn't
00:36:52.140like to spend the money it earns, okay?
00:36:54.700The basic problem with Britain is it likes to spend other people's money, right?
00:36:59.720Because so Britain runs a current account deficit, Germany a surplus.
00:37:03.440If you want to look at the two countries, what could really help the Germans is if they
00:37:08.060expanded their budget deficit and began to spend money.
00:37:10.940And in actual fact, if you've traveled in Germany recently, I did about a year ago,
00:37:14.640I was quite shocked actually, you know, my memory of Germany had been of extraordinarily brilliant autobahns, for example.
00:37:21.260I drove from Dublin to Croatia, don't ask, because we have a dog and our children demanded that I take the second dog to Croatia.
00:37:30.140So I drove with the dog and anyway, in the German autobahns, I was quite shocked by, you know, they're not in great nick, you know, there's a lot of, there's a hell of a lot of traffic on the roads, etc.
00:37:42.440So it's very clear that Germany could expand their budget deficit quite dramatically if they wanted to, but they really don't want to.
00:37:51.580So I think the dilemma in Germany is twofold. One is how they deal with China.
00:38:00.380And the second one is whether or not they expand their budget deficit, which would actually limit dramatically some of the conflicts at the heart of the EU.
00:38:09.740uh interestingly i think the long-term implication of covid on china is that never ever ever again
00:38:18.260will any of us at this i mean including the uk in this germany france the united states ever be
00:38:25.540dependent on china for essential equipment i mean the idea of the western companies governments
00:38:31.820queuing up and bidding with each other to buy little bits of face masks and things like that
00:38:36.840in China. That will never happen again. And so I think the long-term implication of all this is
00:38:41.400that the supply chain management that so dominated global economics for the last 20 years, of which
00:38:47.320largely China was at one end and the rest was worth the other, okay, I think that's over. I think
00:38:51.760we're going to see a huge amount of onshore and back into the European Union, back into the United
00:38:55.180States, maybe even back into the United Kingdom of British companies, particularly some of the
00:39:00.120big British pharmaceutical companies. And I think the reaction to this will be that the
00:39:06.360alfresco globalization of the last, what, 20, let's say since the fall of the Berlin Wall,
00:39:13.320will be replaced by more managed trade. And I don't think China will recover either its reputation,
00:39:18.280its brand, or its assumption that everybody will do business with China no matter what. I'm not
00:39:25.220too sure that's going to happen. Well, that's been one of the big issues that we've been talking
00:39:29.660about to a lot of people particularly and i have noticed there seems to be a correlation between
00:39:33.580being kind of on the right of politics and being a china hawk or a china critic i'm on i'm on the
00:39:39.900center left of politics yes but but you're also problematic david you're still problematic because
00:39:45.940you're not on the far left and you probably don't have your pronouns on your twitter account and
00:39:50.440stuff like that oh man that's yeah anyway enough yeah let's not get you in trouble with your own
00:39:55.780side. But on the China thing, David, it's, I mean, one of the things that is becoming very clear is
00:40:02.780that while none of the externalities of doing business with China were visible to us, while
00:40:09.580we pretended that, you know, there's no cost to doing business with China, everything was fine.
00:40:16.000Now, suddenly, people are starting to realize, and, you know, in terms of the economic impact,
00:40:19.860in terms of the national security impact. Also, you know, we used to talk about China's human
00:40:24.280rights record no one talks about china's human rights record they're talking about concentration
00:40:27.880camps now those are very different ways of framing the question yes yes yes i i think that look
00:40:35.160what we know is that pandemics have lingering long-term influences we spoke about for example
00:40:44.680the trauma of the uh pandemic flu pandemic but even if you go further back you go to back to
00:40:51.480the outbreak of the plague in Marseille in 1720
00:40:56.220had profound impacts on the French society.
00:42:16.800that pandemic so for example Irish people were blamed for being for typhus in the United States
00:42:22.420there was an outbreak of typhus in 1848 in New York or sorry cholera cholera and the Irish were
00:42:28.180blamed and it was very much second nature in in American circles to blame the Irish as being
00:42:33.340carriers of cholera but they just happened to be poor and poor people got this more than anyone
00:42:38.560else. So I do think that there will be a material impact on China's brand from this. And I'm not
00:42:48.060sure that it will play out, how it will play out geopolitically. But what I am sure of is that it
00:42:55.880will play out in corporate boardrooms. The idea is, do we want to be so exposed to that country?
00:43:02.640that's it do we want our supply chain to end in china where it might end in vietnam where it might
00:43:09.360end in thailand where it might end in some other asian country our and do we want to be it's it's
00:43:18.140it's like the supply line of an army do we want to be overstretched and i think that these are
00:43:22.880these are big big issues and we have an addiction to and i use that word in its truest sense to
00:43:28.900essentially cheap goods from time from china whatever it may be and it funds our lifestyle
00:43:34.940and we see that as a universe that we're working with yeah yeah absolutely and we all and we until
00:43:42.240now we we never questioned it do you think we're going to enter a world where people are going to
00:43:46.680be like do you know what i don't mind paying an extra tenner for uh an electronic good as long
00:43:53.080as it's not made in china and if it is i'm not touching it well i'm not sure it'll be that
00:43:57.720extreme. But I think that the corporate world will change their perceptions of, as I said,
00:44:06.640exposure to China. I'm not sure there will be a consumer boycott of Chinese goods. But the idea
00:44:14.860that China is a neutral player in the world, I think, has been badly affected by this.
00:44:22.000Yeah, that's a mild understatement, I think.
00:44:24.880so you know and it's interesting and that's the funny thing about uh when we talk about europe
00:44:31.680etc that there's actually much more that bonds us together and separates us in in these perceptions
00:44:38.020that the european way for want of a better word which is shared by people in dublin manchester
00:44:43.640london sunderland newcastle marseille you know cologne there is a european sensibility about
00:44:50.420the way we run our societies our countries etc and as long as we fight amongst each other we don't
00:44:59.440see that we've extraordinary similarities I mean I think it was Freud described the end of the
00:45:06.140Austrian Hungarian empire where the Czechs and the Slovaks and all these characters he described it
00:45:12.100as the narcissism of small differences nationalism and I actually do believe that in the European
00:45:18.060British, European context, that what we're being narcissistic about very small differences
00:45:22.960and one of the maybe enduring impacts of this will be to wake us up to the fact or alert
00:45:31.960us to the fact that, you know, we're doing all this trade with China and maybe it's not
00:45:39.180necessarily the sort of regime that we should be opening our arms to all the time.
00:45:44.340And I think you'll see that change in the corporate world first.
00:45:48.060That's really interesting. And in terms of the China thing, do you think that in terms of the other changes that result from the COVID situation, you talk about nationalism.
00:45:59.440Obviously, there's been, you know, nationalism has been swept through Europe in recent years and been very successful.
00:46:07.360Do you think that this will create more of that in the sense that people start to question other aspects of globalization?
00:46:15.700We talk about China and, you know, outsourcing all manufacturing to China.
00:46:20.880But there's also, you know, immigration that people have been very concerned about, particularly in this country for a long time.
00:46:25.780And look, even as an immigrant, I understand that we've had a very large wave of immigration.
00:46:30.400Right. So are people going to start to question, you know, the levels of immigration into our Western societies?
00:46:37.740Are we going to start to talk about, well, do we need free trade?
00:46:41.120Maybe we should just make everything ourselves, like all that kind of stuff.
00:46:44.340Do you think there will be a market shift on those issues as well?
00:46:47.840I suppose, guys, maybe the best way to look at all these big questions is whether or not there has been a fundamental change in attitudes or whether or not the pandemic simply accelerates trends that we already see.
00:47:03.280Yeah. And those trends that we already see, as you said, are nationalism, protectionism, a sense of putting up the barriers.
00:47:15.140But we certainly see those in the United Kingdom. And you don't see them to such a huge extent in the rest of Europe.
00:47:23.160In fact, the most recent parliamentary elections have kind of seen a trancing of those forces.
00:47:29.480But still, it's in the ether. You know, it's in the ether.
00:47:32.980What I would like as a liberal and somebody who comes from a country that has had a sort of conversion to liberalism in later life, in our middle age, is that I know what nationalism is all about.
00:47:49.660Irish people understand that nationalism can lead you up a ridiculous and very nasty and violent cul-de-sac.
00:48:10.580But I do fear that the liberal Western order has been badly damaged by this virus and badly damaged by the economic downturn now and the long-term legacy of that, unfortunately.
00:48:23.700And are you hopeful for the future, David, or do you think we're going to get into quite a tricky period post-COVID?
00:48:29.940If we come back to where we started, Francis, if the policy response is radical now, and what you notice always in crisis is that what was radical becomes mainstream, what was mainstream becomes redundant.
00:48:46.680okay so if we try and save our small business sector with the radical moves that I suggest
00:48:54.860that we need I see the long-term implications being quite positive because I think we'll
00:48:59.340actually come out of this quite quickly if on the other hand we let this go on for a while and we
00:49:03.800follow COVID with austerity then I think all bets are off and I wouldn't be as optimistic
00:49:10.520but I'm a great believer in that after having tried all other alternatives we will do the
00:49:16.520right thing eventually well what a good uh good note to end the interview on david the last
00:49:21.780question uh we'll ask you is the one we ask all our guests which is what is the one thing that
00:49:26.740people aren't talking about that we really should be talking about as a society uh i i think that
00:49:32.080the the the major change in all this in covet will be the change in people's perceptions of
00:49:37.940what commuting is about what working is about um how our whole relationship with consuming