＂We Have Capitalism for the Poor and Socialism for the Rich＂ - Mark Blyth
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Summary
In this episode, Francis and Constantine talk to Mark Blythe, an economist and co-author of the book, Angronomics, about the history of capitalism in the late 19th century and early 20th century. They talk about the rise and fall of capitalism, why it was so bad, and why it's so good.
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 an economist and the co-author of a brilliant book that Francis
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and I have just read and really enjoyed, Angronomics. Mark Blythe, welcome to Trigonometry.
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It's wonderful to be with you. I'm so sorry you couldn't find someone interesting and
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Yeah, well, you do yourself a disservice, May, because as I said, having read your book, I think our audience who actually have been clamoring for us to get you on the show for some time are going to enjoy this conversation.
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But for anyone who hasn't been clamoring for us to get you on the show, which is not many people, just tell everybody a little bit about who you are, how are you, where you are.
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What has been the journey that leads you to be talking to comedians on YouTube?
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All right. Short version of that. When I was 13 years old, I saw an episode of I was sure it was Panorama. And back in about 1981, and they set up a game show between two economists. They did this shit back then. And one was like this old guy in a tweed jacket and looked like everybody's favorite old lefty professor.
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And there was another bloke who was wearing the kind of spiv suit of the era, who was about 30.
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And he was from the London Business School. The other guy was Manchester. One had this Keynesian
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model with a billion equations and a household sector and all that sort of stuff. And the other
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one was a monetarist model that had six equations in it. And the right answer was always tax cuts.
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Right? Now, I may have been 13, but I knew horseshit when I saw it. And I thought, oh,
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I want to study this because this seems like fun. So variously through Strathclyde and then to
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Columbia, my PhD is in political science, but I study economics as a thing in the world,
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not as a theory of the world, because I think it's there for both good and evil.
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And we often weaponize economic ideas to get what we want and use them as justifications.
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But in moments like this, this chaos moment of COVID, we look to models, we look to theories
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to tell us what to do in moments of deep uncertainty. And that's when they become
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really interesting and really powerful. So that's basically what I study. My shortest bio says,
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I study uncertainty and randomness and complex systems and wonder why people believe bullshit
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economic ideas despite buckets of evidence to the contrary. Well, that sounds like a perfect
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setup. So one of the things you talk about with your co-author in the book is the different
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versions of capitalism. So we've just finished what you, or maybe not finished, tell us,
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we've just lived through a period which you call capitalism 3.0. So just tell us, Mark,
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where were we before the pandemic hit? Just describe for anyone who hasn't read your book,
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who maybe is not an economist, what was the world that we've been living through? What did it look
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like? So the most common way that people talk about this is to call it the neoliberal world.
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I'm not sure if that's the best way to think about it. But essentially, here's how to think
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about it. When you came out of the Great Depression in World War II, there was one job for governments.
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Didn't matter if you were left, right, centre or anything. You had to do full employment because
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you'd been through half a generation of unemployment that resulted in fascism and the death of
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It wasn't clear that capitalism was going to survive.
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You had a Soviet Union that had abolished unemployment and stopped the Nazi tanks.
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It was an attractive opera to everybody else on the other side.
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And basically, capitalism had to reform itself.
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And the way it did this was to make full employment the policy target.
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And we had 20 years, almost 30 years of very good growth, very good growth for workers in
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The problem with that very labor-friendly order is that if you basically guarantee maximum
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employment for a very long period of time, the dumbest guy you know can leave their office
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When you have inflation, if you're a capitalist, it's a nightmare.
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Because if I'm investing and expecting to get a 5% rate of return, if inflation goes
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to 10%, they might as well take the money around the back of the house and burn it.
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So essentially, capital went on a capital strike, stopped investing.
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Political parties of the right said, enough, basta.
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Privatize, integrate, globalize all of the buzzwords of the past 30 years to create a
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Now, in many ways, this was actually a great thing.
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It increased massive per capita GDP growth around the world.
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But one of its more pernicious effects was median wages and lower-end wages in the developed
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If you had 700 million people in the global labor pool, your wages are going to go down.
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So along with technological changes that favored big companies, particularly digital companies,
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et cetera, we ended up in a classically unequal world.
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Now, inequality doesn't really matter to most people, so long as it's relative.
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That is to say, I'm going up and you're going up at the same time.
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But if you're going up and I'm going down, or when you have a big shock like 2008, when
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the whole buffer system blows up and the banks blow up, if you then turn around and do basically
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what was capitalism for the poor and socialism for the rich, you bail out those who have
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the assets and then stick the cost on everybody else in terms of austerity policies, which
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is exactly what happened, then you're going to have a lot of pissed off people.
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If you then, in the British context, do the Scottish project as Project Fear, don't ever
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leave no matter how shit it is. If you then do that again with Brexit, whatever you do, don't
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doubt whatever the elites tell you, because they're the ones that have been making off like bandits
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for the past 30 years. You haven't, but honestly, this is the best of all possible worlds. Then
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eventually, people get a bit skeptical, and they get a little bit annoyed. And also, they notice
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the fragility in their lives. And if you add to this the fact that we've got an aging society,
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low productivity society, we've got huge amounts of technological change that demand that all the
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And then, essentially, all the costs are falling onto us.
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And what you see is a huge expansion of these tendencies.
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Because people like me, who can work from home, who
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are at the top of the tree, we're not made unemployed.
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they're the ones that are getting paid 10 quid an hour,
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who are risking their lives, whether it's in meat factories,
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Again, this huge dispersal in wages, this huge dispersal
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And that creates a very tense and very angry and fractured society.
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The whole place was kicking off, and it was kicking off
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for a good reason. It was becoming harder and harder for ordinary people just to hold their
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daily shit together and do what they need to do with their families. And they said it passed it,
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enough, we're not doing this anymore. And Mark, what you're describing seems to me like a crisis.
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Do you think that the West in particular had reached a crisis point just before COVID?
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I think it had, but we're really good at covering it up. We'll cover it up two ways. One is
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emotionally, that is to say, we always put it on ourselves, stick it on my back a little bit more,
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mustn't grumble, just keep going a little bit, it's fine, things will be OK.
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And I don't really worry that much about public debt for the simple reason that when there's
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a crisis, people dump shares, they don't want to hold equities, they want safe assets.
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The safe asset is the government bond, which is why now the British government, despite
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everything they're doing, have a negative real interest rate on a 10-year debt, which
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on top of credit card debt, on top of educational debt.
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Think about coming out of university just before COVID,
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Wages aren't rising even for university graduates.
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Why should anybody think this is a success story?
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and i mean it does sound fairly bleak when you explain it like that but surely people would
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argue look you know things have never been better look at the technical advances look at the way
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you know society has become ever more equal haven't things been improving or do you think
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we've actually been regressing it's a bit of both my favorite line on this comes from one of obama's
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economic advisors where he stood up in 2000 i think it's 2010 2011 the guy's name is jason
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Furman. And people were complaining during the recession then that followed the banking crisis
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about the cost of living. And he said, yeah, but the cost of things like technology goods are
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falling all the time. I mean, iPads are incredibly cheap. And somebody shouted out,
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you can't eat an iPad, asshole. If you're at the bottom end of the income distribution,
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which in British terms, the bottom 40%, right, you're not earning any more than 18 quid an hour.
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Now, think about all the costs that you have to put into a normal person's life. Yeah, it's great
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the technology has made us more connected. But if I've got three kids, and I've got to get them off
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cell phones that look like this, and I've got to pay for those plans to keep them connected,
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a lot of financial stress out there that goes with this stuff.
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And Mark, one of the points you make as well, just as we wrap up talking about prior to COVID,
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is I want to just briefly talk about the crash and the crisis of 2008. Because one of the things
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that I've often been talking about is we're massively indebted as a country. But one of the
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things you talk about in the book is actually this idea that we spent too much as people,
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as individuals, and that's why we're so indebted. It's complete rubbish. Actually,
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what happened is we bailed out the very people who got us into trouble using the money of ordinary
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people. So talk to us a little bit about that. Yeah, sure. I mean, you just nailed it right
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there, if you look at average OECD rich country debt from 2000 to 2008, it's going down, because
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economies are growing. And so long as your economy is growing faster than the rate of growth in your
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debt stock, the debt shrinks. So think of it like a fraction, numerator, denominator. Your denominator
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is debt, your numerator is your economy. If your economy is growing faster than your debt stock,
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it's going to shrink. So that's what was going on. Then there's an almighty banking crisis,
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and you basically buffer the recession, bail the banks, provide them with equity, do all
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the stuff you need to do, you get a 30% jump in GDP in terms of debt to GDP.
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And then George Osborne comes out and goes, oh, my god, Labour's been spending like drunken
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And if you think that's true, go check every other country's balance sheet, because exactly
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with a big financial sector, ends up bailing out, and it costs them about 30% or 40% of GDP.
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That's where all the quote unquote debt came from. Now, if you're on debt, let's stay with that for
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a minute, right? Oh, there's terrible debts, the worst thing ever, blah, blah, blah. Who's buying
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all that shit? It's the rich. It's the 1%. It's the banks. Because at the end of the day,
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government debt is the bottom of the credit pyramid. It's what you then lever up to do
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all the other things you want to do, from lending for a mortgage to derivatives to anything else.
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There's never been a failed bond auction for sterling. There's never been a failed bond
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auction for US Treasuries. So the same people that are holding this stuff and making an interest rate
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off it, at least until very recently, are the ones who are going, oh, my God, this is terrible,
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right? That to me just, oh, hang on a minute, right? Let me see. You're the one that's holding
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the asset, and you're telling me you're terrified of it. Yeah, that's bullshit.
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just for people who may not be expert economists, what you're really saying is
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We have stagnating or even falling wages for ordinary people.
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When they fuck up, we bail them out using the money of the ordinary people
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And that's where you get more inequality and more unfairness
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And then to balance the books, what you do in Britain,
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and anybody who wants this, I can send them the sites to the work on this.
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they lost almost a third of their budget during the austerity years. What does Preston make?
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Not a lot. It's one of the most depressed areas in the country. How much austerity was there in
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London? Practically none. What's the only bit of the country that's growing? London. I mean,
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it wasn't just across incomes. It was across geographies, the way that this played out. And
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it was a lot of the anger behind Brexit. You remember the bedroom tax? I mean, let's just
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think about how insane that was, right? Basically, you live in a shit part of the country. You have
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no assets, but you have a bedroom. I'm going to use that as an excuse to basically cut whatever
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benefits you've got. Listen, we look back on that period. It's crazy.
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All right. So that's where we were. Now, take us through to COVID. COVID hits. What's now?
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So there's a film that I can send you guys, which I'm going to get out next week, which you can
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And the way I explain this, a filmmaker in Spain
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liked it so much that she made a film around it.
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I drive a Volvo because I'm a white bourgeois git.
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I have literally become everything I hate, right?
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and it's got loads of airbags if you crash in it you'll probably survive basically it's kind of
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the automotive equivalent to a european welfare state costs of fortune to run loads of safeties
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and redundancies if you crash in that thing you'll be fine here's the american economy and to a
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certain extent the british economy it's a five liter mustang gt everything's great so long as
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it's going pull pelt down a straight road it's in gear there's no bumps on the road and you're just
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going, whoa, because let's face it, that's a lot of fun.
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If you try and break that thing, if you tell the entire economy to slam on the brakes and
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go down for three months, boom, the whole thing just falls apart.
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If you think about this in terms of what economists call growth models, what's the underlying
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bit of what's called gross value added, you tickle, if you will, to get growth in the
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For the Germans, it's autos, selling BMWs to the rest of the world, right?
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For the Greeks, it's getting people to come into the country and sit on their beaches
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For Italy, it's tourism around all the Roman monuments.
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It does a little bit of everything, but it's tight.
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80 million American workers are hourly employees.
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None of them have any statutory sick payer benefits, right?
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the case that 40% of Americans would have a real trouble
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How are you going to get to the food bank at that point?
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They don't create the type of dynamic economies
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But I suppose a Mustang's better for picking up women,
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safety and security, a top-line Volvo is definitely it.
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oddly enough i own both well we know which one other francis prefers go ahead yes exactly
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there's no doubt about that but so what you're saying really is that america is teetering on
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the edge of a precipice at the moment because if people can't eat that's and as somebody who comes
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from a venezuelan background that's the moment when social unrest happens oh yes exactly and
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we're running a giant natural experiment now by basically opening up. And the reason we're
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opening up is because you can't shut this down. It's the Mustang, right? It's not a Volvo.
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So you open all this up, and then you remember things like, well, Texas, right? So Texas,
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only 18% of Texans had no health insurance. Everybody else has their insurance through
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their employer. 30% of that remainder are now unemployed, which means huge amounts of people
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who are no longer social distancing, who may be getting infected, have no health coverage.
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that the, go back to that numerator-denominator thing
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asymptomatic infection, is much wider than we think,
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then all these people going out and doing shit just now
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Because what it's doing is it's going to show us
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so the numerator shrinks, so lethality goes down,
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hey, it's not so deadly. We'll be fine. We can open the schools. We can get back to work. You
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can start up the Mustang, right? If, on the other hand, four to six weeks from now, we find in Texas,
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Georgia, and all these places that are now basically abandoning the whole thing and going
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for it, that the models that say hardly anybody's been infected, that this is hyper-infectious,
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that 10% of cases result in hospitalizations, wow, then you're in trouble, because then you're
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have to shut down the economy again. And you don't have any of those European-style airbags.
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So how are you going to feed people? You're going to put them on unemployment through June,
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take them off June, and then put them back in September? What are they going to do in the
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interim period? Because if you could open the economy, what happens if nobody comes?
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Because everyone's freaked out. Wow. And so what would that mean later on
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for the Trump election, do you think? Because he's banking on the fact that his major card
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is that, hey, the economy is great, America's working, let's go again.
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ED HARRISON If he gets it right, in a sense, it's a
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Either you open up and you're OK, or you're terminal anyway, right?
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So he's got nothing to lose in terms of terminal anyway.
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If he continues on this, it can only be bad for him, not his social distance and all the
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If he goes for it, and he turns out he's right, he wins, no doubt about it.
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Because at that point in time, people turn around and go, God, there you are again, those
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in elites. Oh, yes, science. Yeah, he didn't know shit because, look, we went out and did stuff,
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and it was fine. We totally see how this plays out, and with justification, right? If, on the
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other hand, it goes pear-shaped, right, then you've got a real problem. Let's say that there's
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a big surge in cases through the summer, and there's a second wave, and it really shuts
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everything down again. Do you even have an election? What do you do with precincts? There's
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huge battles over here about the right to do mail-in voting. California is in the crossfire
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for this one today. Other states will be trying this. There's a lot of contention around this
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election. So in terms of what happens, if we open up and things go well, then Trump wins.
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If we open up and things go badly, I don't even know if we have an election.
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That's really interesting. And Mark, you mentioned the elites. Let me ask you this.
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And look, obviously, you're not a medical expert, so I'm not asking you from the medical point of
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But do you think one of the reasons that, you know, we've taken what are largely unprecedented measures with this lockdown, and that's a word that gets bandied about a lot, unprecedented, right?
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Do you think we would have taken these measures quite so readily had it not been the fact that the people who are making them are all middle class, like the three of us, and are quite happy to sit and have, you know, we're working from home, etc.?
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et cetera. Some of those people that were making those decisions are the people who are unemployed
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now. Do you think we would have been quite as keen to go into lockdown? That's a really great
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question. I mean, part of me wants to say, no, we wouldn't. And I think that that's kind of true
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because the people who do make these decisions can work from home and have the economic resources
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and family networks and other things to make it happen, right? Even Dominic Cummings had to
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basically hand off his kids to his parents 200 miles away. But he could do that, and he probably
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drove there in a Volvo. So if you have those things, then yes, it's a lot easier. But here's
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the question on the other side. It's not as if people who don't have those resources are
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inveterate gamblers. If at the end of the day, one of the big correlates of lower income tends
00:21:07.720
to be poorer health, tends to be weight gain, tends to be underlying comorbidities, such
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as diabetes, et cetera, particularly amongst minority populations, then would you be willing
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to say, hey, these guys, we're not going to do that lockdown thing.
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But there's a pretty fair chance one in 10, on average, will end up in hospital.
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So again, the class skew in this and the income skew is incredible.
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People like us are highly unlikely to die from this.
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And what's even more crazy in this one is I downloaded the ONS data, the Office of National
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Open it up in Excel, and then just look along at the age profile.
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Do you know how many people under the age of 45 have died from this?
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And then, so what's the total death figure at the end of April?
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So making a simple decision about this is never simple.
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and the one thing that i'm really concerned about mark is the long-term implications of this for the
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british and the american economies i read a stat i think it was a couple of days ago that britain
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spent more in april on the spent more in april than it did in the whole of 2019 and you're
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thinking i'm thinking to myself this is simply not sustainable we can't carry on like this
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well yes and no because there's always the americans have a great phrase for this which
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is the most attractive horse in the glue factory so here's what happened on march 18th when the
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british government unexpectedly came out and said we're going to support 80 of wages which is exactly
00:23:13.580
what you should do because giving people checks and all this sort of shit is just plumber something
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doesn't work right now it's on the assumption that this will last maybe three months and then
00:23:22.680
can get back? That's an open question. That's where I think sustainability comes into it.
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But here's what happened. Sterling fell 5%. Pound went 5%. And the gilt market, the government bond
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market, prices went down, yields started to spike. And this is almost as if the financial markets
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were saying, you're going to spend how much? Are you kidding me? Within two hours, they stabilized.
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Why? Because everybody else was doing exactly the same thing. So it's all relative. And at the end
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of the day, do you want to buy stocks just now, or do you want to buy bonds? Because at the end
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of the day, the government in the United Kingdom, regardless of who's running it, will be there in
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five years. Will Virgin Atlantic be there in five years? Will it be there in five months?
00:24:05.240
What happens to Google if basically, at the end of this, we decide that it's too powerful and we
00:24:09.400
break it up? Or what happens to Amazon if we decide that basically their warehouses are public
00:24:14.440
health hazards and we shut down their business model? At that point in time, those equities lose
00:24:19.320
value. And if we're still in a panic, the fear index is simple. People want debt. They want
00:24:25.640
to hold those bonds because they are promises to pay fixed income over a period. So long as you
00:24:32.360
basically think the dollar has value, sterling has value, and on a relative basis, it does,
00:24:36.600
because what else are you going to buy? Are you going to buy euros? What happens if the Italians
00:24:41.080
blow up the whole project? You can't buy any Chinese external assets. They won't let you.
00:24:46.600
So at the end of the day, this is sustainable because everybody else is in an unsustainable
00:24:53.040
Let me ask you this, because we talk to economists a lot.
00:25:01.080
But every time we have this conversation, I've always got this thing in the back of
00:25:04.780
my head as I'm looking at it as an ordinary person.
00:25:06.760
I'm going, how can we forever spend more than we earn and then suddenly borrow more
00:25:13.100
to bail out the banks. And then 10 years later, we're now bailing out ourselves. We're paying
00:25:18.480
people not to work. If I'm an ordinary person, I'm thinking that doesn't make any sense, does it?
00:25:24.260
Right. Well, I mean, this is what I wrote about the book before last, the austerity book.
00:25:28.920
You're not a household. Basically, you don't get to print the asset you spend.
00:25:34.460
And the way that governments work is they tend to spend things and then retrospectively raise
00:25:41.540
If they don't pay for them, they're on a deficit.
00:25:43.660
To cover the deficit, they issue debt, which is why you get debt.
00:25:46.940
If you have too much debt and people can swap out of it because they don't think it's going
00:25:51.520
to be paid back or there's going to be what they call a haircut in its value, then yeah,
00:25:56.720
But in the current moment, everybody's screwed.
00:25:59.840
So if you switched out a Brit, what are you going to do?
00:26:06.400
is too thinly traded, not just a Danish debt, it's too thinly traded. There aren't enough bonds.
00:26:11.440
So on the one hand, you're right, you can't pile debt upon debt. But what actually cures debt at
00:26:17.120
the end of the day is growth. Now, my worry comes in on this side. So I don't really worry about
00:26:22.480
five years from now where the United States will be. This will be a horrible period,
00:26:26.640
don't get me wrong. But I don't think the US is going to disappear even if Trump is in charge.
00:26:33.880
So Italy is a country that has the third biggest bond market
00:26:36.880
in the world, and it's got about the 11th or 17th biggest
00:26:51.420
which means that they can't bail their own banks,
00:26:54.340
which means that they are dependent on the goodwill
00:26:56.360
of the ECB buying Italian debt to keep the yields down.
00:27:00.880
The German constitutional court last week said, you guys in the ECB shouldn't do that
00:27:06.380
So they've made up a new thing this week, which is the Franco-German Pact that basically
00:27:11.440
says they're going to issue new debt through the European Commission, and we're going to
00:27:19.360
That's all kind of like smoking mirrors and rearranging the deck shares on the Titanic.
00:27:24.420
At the end of the day, Italy is a huge problem because, unlike Britain or the United States,
00:27:30.880
right? Therefore, it doesn't actually control its ability to bail its own banks or bail its
00:27:36.060
own economy. If you have that sovereign capacity, you can fuck it up. Don't get me wrong, right?
00:27:41.460
You can go full Venezuela. But remember, to go Venezuela, you need to be reliant for 96%
00:27:47.340
of your income on one thing called oil. And then when the price goes down, you're totally
00:27:51.800
stuffed. That's not the British economy. So it's not quite as black and white as that,
00:27:58.920
particularly in this current moment. I worry about if you have an economy that doesn't grow
00:28:02.980
fast enough and you have a lot of debt, you will end up in trouble. If you have an economy with a
00:28:07.360
lot of debt, if you can grow fast enough, eventually it shrinks. So I guess the next
00:28:13.840
question leading on to this is what is going to be the implications for the EU? Because there's
00:28:17.780
already a lot of discontent swimming around in countries like Spain, Italy, Greece, we've seen
00:28:27.600
that certain parts of the EU could disintegrate?
00:28:31.400
So I was not someone who thought Brexit was a great idea
00:28:37.120
of the British political economy would be addressed
00:28:50.640
but the one thing I always try to remind people on our side is you may think that leaving is not
00:28:56.280
a good idea, but what you're failing to take into account is the long-term consequences of staying.
00:29:02.240
What's the cost of staying? So the first canary in the coal mine for this was the
00:29:05.700
defenestration of Greece through its banking system in 2015. Remember that summer where
00:29:10.840
they were just limiting how much great people could take out the ATMs just to totally undermine
00:29:15.360
the government. So plain pure politics. Now, think about Southern Europe as a whole. They've
00:29:21.120
barely come out of a 10-year long recession. How many Italians have you met in London? Loads. Why?
00:29:28.080
Because they're not staying there because there's no jobs. So they all moved to the countries that
00:29:31.680
have the jobs, which means that their societies are older. The dynamic part of their population
00:29:35.920
is already gone. They've got too much debt. They haven't grown in 20 years. And then the
00:29:42.080
the Eurocrats basically come along in the corona moment and say, well, we can't really
00:29:49.400
The reason you're selling BMWs to the rest of the world is precisely because we are getting
00:29:55.180
You're running what economists call the external surplus.
00:29:58.340
That means there has to be an internal deficit somewhere.
00:30:00.640
And that's what we in Italy and France and Spain are meant to run.
00:30:03.600
You've got all these rules that say everyone has to run a balanced budget, which means
00:30:06.760
that Italy has been running a surplus, budget surplus, for 20 years.
00:30:11.740
Now, for all the people who say debt's a problem, you should run a surplus, look at the Germans.
00:30:15.480
Well, actually, the Italians have run a surplus twice as long, and they haven't grown in 20 years.
00:30:25.580
And how much responsibility does the euro have for this situation?
00:30:29.100
Because to me, again, I'm not an economist, but to me, you've got all these different
00:30:32.920
types of economies, like you said, based on certain industries, and they've all got
00:30:40.900
and they've all got one interest rate, that's also a nonsense. There's absolutely no way that
00:30:45.140
the interest rate they've got is low enough for the Italians, and it's probably too low for the
00:30:49.300
Germans. So one way to think about it is you have national economies because they adjust to shocks
00:30:57.780
in different ways. So when you're hit with a big common shock like COVID, if you are national
00:31:03.460
economies with national currencies, you can do your own thing. We, the Americans, certainly their
00:31:08.500
our own things. We've fucked up royally. But we can do our own thing. If you're the Italians,
00:31:13.540
very limited in what you can do, because you don't have that printing press to respond to it.
00:31:18.020
It's more rearranging those already stressed deck chairs on the Titanic.
00:31:22.800
Then you think about the fact that you've got all these different business cycles, et cetera,
00:31:26.460
that are linked to each other. And they become super linked because of the euro.
00:31:30.740
So the countries that are growing, that grow in a certain way, like the Germans and the Eastern
00:31:34.660
European countries, basically, the supply chain goes from Eastern Europe into Germany.
00:31:38.820
It's assembled as autos and machine parts and then sold to the Chinese and the Americans.
00:31:43.220
That only works for them. That's not what's going on in Italy. They don't have a growth model.
00:31:48.900
Would it be a good idea for them to get out? Yes. But then you get the Hotel California
00:31:53.060
problem. You can check in, but you can never check out. So imagine, Constantine, that you're
00:32:05.180
Believe me, I know Italians who look like Francis.
00:32:08.940
They're not all as suave and handsome as you are.
00:32:13.180
I love the way you managed to praise me and insult Francis in one sentence.
00:32:17.540
I'm making him feel good, which was even more bizarre.
00:32:24.000
And you're Italian and basically you're unemployed.
00:32:26.940
And along comes some populist and says, basta, we've had enough.
00:32:38.280
You say, this is the worst idea I've ever heard.
00:32:40.400
Because all the assets that you have are in euros.
00:32:42.920
So what you're going to do is you're going to go to Germany and open up a bank account,
00:32:47.780
And you're going to move all your Italian euros, which are euro-euros, into a German
00:32:52.960
And that means when the Italian government comes in and says, we're going to have a new
00:32:56.660
lira, you're going to say, yeah, but you're not making out of my bloody euros.
00:33:01.200
So you get this problem of capital flight within the common currency the minute you
00:33:06.220
Estimates that Simon Tilford, who's an economist, and I did for this a few years ago, the Italians
00:33:10.780
would probably destroy between 40% to 50% of national wealth and national savings if
00:33:18.360
So basically, you're checked into the Hotel California
00:33:20.860
and you find out you're in an abusive marriage.
00:33:30.120
but it just sounds like they're fucked either way, really.
00:33:36.740
But I would say that they're not in an ideal position.
00:33:44.440
That was the most political answer I've ever heard, Mark.
00:33:47.260
well i've been you know i've been watching because you know everybody's watching shut
00:33:50.760
on lockdown i started what re-watching all of yes minister yeah it's actually just as good now
00:33:58.180
and you could almost there was one episode i was watching i was like holy shit that's today
00:34:02.120
this stuff never changes so what are the long-term implications for italy for spain for greece is it
00:34:11.380
just going to be that they're just going to continue to deteriorate because isn't that
00:34:20.540
And a few years ago, Joe Stiglitz, the economist,
00:34:22.980
suggested that you have a dual euro, a northern euro
00:34:28.400
But if you could wake up overnight with two different currencies
00:34:39.100
Because at the end of the day, even if the northern Europeans
00:34:44.220
you're always needing bailouts, blah, blah, blah. All right, do the other way around, right?
00:34:48.380
If you say that too loudly, the markets look at Italian debt and go, they're not going to back
00:34:53.920
this shit anymore, are they? And if that happens, you will get that huge yield spike that even the
00:34:59.020
ECB won't deal with, and then the bottom falls out the Italian bond market. Given that that's
00:35:03.920
denominated in euros, what's that going to do to all other euro-denominated debts?
00:35:08.920
So I can threaten you, you can threaten me, but it's a mutual suicide pact.
00:35:22.100
My favourite one is get it done because it sounds so good,
00:35:24.740
but I'm not sure what it actually means because get it done means
00:35:26.720
now we'll spend two years talking about what we actually want to do
00:35:31.640
Well, we're about to find out, or maybe not, who knows what it means.
00:35:34.840
But you said when we were talking about the impact of the coronavirus,
00:35:38.060
you said the next period is going to be horrible.
00:35:44.220
all right so think about it this way and this is particularly true the united states but it's
00:35:49.120
true everywhere but other places are volvos and have better airbags right so um do you guys ever
00:35:56.540
get therapeutic massages yeah yeah i don't don't know francis not that smile
00:36:02.420
immediately he thought happy endings the minute i said that i've just got to look it's not my
00:36:09.440
MARK BLYTHER RUBINES Regardless of whether it's therapeutic
00:36:13.760
With COVID being, let's say COVID is active for two years,
00:36:16.920
there's no medical vaccine, and there's multiple waves,
00:36:25.440
In terms of the models that are reasonably good in terms
00:36:43.080
Yeah, just sitting there with hundreds of people
00:36:45.180
coughing and spluttering into the air, that's a good one.
00:36:53.120
and a lot of those are personal services that are relatively
00:36:58.980
don't come back because the US's current 22% unemployment,
00:37:04.260
which is insane, is massively concentrated in those sectors. So if we are in that second world
00:37:11.320
where the end of the lockdowns don't work, and we go into that, every sector is affected. But at
00:37:18.520
the same time, some sectors are going to be massively affected more than others.
00:37:22.300
Hold on, Mark. But that's a very, very pessimistic view, at least from what I'm seeing at this point,
00:37:27.160
in terms of the medical situation. I'm not sure it's going to go that way. So let's say that
00:37:31.680
We start to open up. The infection rate goes down progressively by September, October. We're well on our way towards being back to where we were before. Do we avoid a disaster then?
00:37:46.620
Yeah, absolutely. We do. Because what's key here is the length of time that you do lockdowns or you have to do it two or three times. If you have a second wave or a third wave, think of the behavioural response. Just now, I'm a little bit sceptical about going out for a pint.
00:38:04.400
I'm a wee bit skeptical about going to see my beloved Everton next time I fly to the
00:38:11.420
If you guys suffer three waves of lockdowns and there's food riots in the streets, I'm
00:38:18.400
So it's all about how long it lasts, the number of waves, and the behavior response.
00:38:21.840
If we get one, everybody puts a discount on it, boom, we'll be back.
00:38:27.060
Maybe not to cruise ships, because they were giant floating petri dishes of sickness anyway.
00:38:31.400
they were just different bugs. But to everything else, yeah, that can pretty much come back.
00:38:35.640
So I really hope that that's true. But if it's not, then that behavioural response is going to
00:38:40.520
tap in. And a lot of those jobs in a lot of those sectors simply aren't going to return.
00:38:45.320
And they're all concentrated at the back end of the income distribution. That's the problem.
00:38:49.400
If you were stuffing rich people, they have assets, they can liquidate them,
00:38:52.680
they can do stuff, they're mobile, right? You're poor, it doesn't work like that.
00:38:56.120
RAOUL PAL And so what are going to be the implications
00:38:58.600
on society then if that happens that'd be pretty shit wouldn't it yeah but look i think at this
00:39:06.060
point i mean we don't know for certain but it's not looking like the most pessimistic scenario
00:39:10.820
will play out no absolutely we don't know yet but then again you know you didn't bring me on
00:39:15.180
for my sunny disposition right i am from dundee we're not exactly known as the happiest people
00:39:21.600
in the world sorry dundonians if you're watching you know it's true but no i mean this this is how
00:39:27.100
I think about it, I tend to think about what's the kind of the, if you will, in the distribution,
00:39:31.900
the tail? What's going on in the tail? What's the stuff that can really hurt you if you're
00:39:35.900
not paying attention to it, right? I've been deeply affected by Nassim Taleb over the years,
00:39:40.540
not just the black swan, the whole way that he thinks. And I tend to look far out in the tail
00:39:45.260
and say, OK, if we end up there, how bad can it get? And what do I need to do to think about how
00:39:50.540
to get away from that shock? So that's where this conversation transformed. I hope I'm completely
00:39:56.300
wrong i'm one of the few economists you'll ever meet who's delighted when he's wrong all the time
00:40:00.640
yeah that makes sense but with with this uh let's say we're not looking at the tail we're
00:40:06.180
looking towards the middle of the most probable scenario you can't do that you don't know the
00:40:11.500
distribution that's tiller's point right you don't know the distribution all right well just
00:40:16.640
humor me no i get it we don't know but let's just take go with me on this which is let's say
00:40:23.780
broadly speaking september october we're well in our way there is no massive second wave
00:40:28.520
uh we find that most people or a lot of people have already had it we eventually get to the to
00:40:35.120
this evil herd immunity that that everyone misunderstands etc but we've got enough people
00:40:41.460
that have had it we're not catching it again we're all in our way have what is the impact
00:40:46.840
of the economic measures we've taken so far are we gonna see another bout of austerity which
00:40:53.460
according to your way of thinking, is counterproductive anyway? Are we going to see
00:40:57.180
taxes go up, spending go down? Or does the government need to just try and grow their
00:41:02.220
way out of this? So the way the Anglo economies usually adjust is through a combination of
00:41:07.960
guarantee the banking system to keep payments going, austerity on budgets to basically stabilize
00:41:13.760
debt stocks, and then unemployment. And that works. It's brutal. It hurts some people more
00:41:27.060
They do it a little bit through debt, but mainly they do it through basically hiding
00:41:31.040
unemployment by declaring people early retirement schemes and all this sort of shit, and then
00:41:42.400
Then there will be a dramatic and rapid recovery in the Anglo-American economies, at which
00:41:47.940
point in time, austerity would be totally kind of productive because, again, if your
00:41:52.100
G, the rate of growth in your economy is greater than R, the rate of growth in your debt stock,
00:41:56.420
it's shrinking anyway. So if you then start cutting spending, you're just going to slow
00:42:01.060
down your rate of growth. But that's the kind of bullshit, stupid stuff we do, so we'll probably
00:42:04.980
do it anyway, right? In terms of the way that, really, no good idea goes ungenuflected.
00:42:11.300
So well, let's see, what's happened to the Europeans?
00:42:16.020
For Northern Europe, if the Americans recover, they start buying BMWs again, so long as Trump
00:42:23.380
And if China recovers, they do the same thing, and the Europeans will sell to anyone, so
00:42:28.440
So Northern Europe will do reasonably well out of that.
00:42:31.860
The big problem, once again, is Southern Europe.
00:42:34.340
Italy went into this with 12% unemployment, no growth for 20 years, running a budget surplus.
00:42:40.400
If you have then have got 30% unemployment and you basically say, right, lads, now let's have a big austerity binge.
00:42:50.500
There'll be one colour for the shirt and it's brown.
00:42:59.520
So, I mean, that is a very, very worrying situation where you're essentially saying that we're going to see the rise of fascism again.
00:43:16.720
And in fairness, Mussolini did make the trains run on time.
00:43:25.000
We've talked about this with quite a few economists,
00:43:27.340
but it's always good to hear your opinion, Mark.
00:43:29.180
What do you think is going to be the West's reaction to China?
00:43:32.420
Do you think it's going to be business as normal
00:43:38.960
So the EU reaction is going to be one of continuing to do the kowtow, by which I mean,
00:43:43.460
if you go back six months ago, the Chinese threatened German car exports in retaliation
00:43:52.780
Just a few weeks ago, something else happened, which was the EU was going to be critical
00:43:57.560
of the handling of the virus crisis in a report.
00:44:00.960
The Chinese got wind of it and said, don't even think about it.
00:44:05.780
the Brits are committed to basically backing out of the Huawei stuff. So what you're beginning to
00:44:12.260
see is, and this is regardless of whether Trump's president or not, what tech people call the
00:44:17.220
splinternet rather than the internet. It's going to be our tech versus your tech, our standards
00:44:22.440
versus your standards. And that's the way that the world's going to go, regardless of Corona,
00:44:27.320
regardless of Trump, regardless of anything else. At the end of the day, the story on this,
00:44:31.740
I prefer comes from a guy called Herman Schwartz, or at least this is my version of what he
00:44:36.520
He says, look, when you think about the global economy, you're thinking about half a dozen
00:44:40.460
firms in different sectors that are really big that earn all the profits.
00:44:44.160
The way they do this is through huge, long global value chains that manufacture here
00:44:48.700
and assemble there and do all that and tie their taxes somewhere else, right?
00:44:54.380
They control 80% of the gross value added in the world, right?
00:45:00.440
right? That's where they make all the money. Now, most of those firms are Americans. And
00:45:05.980
if that's the case, the reason that you're willing to tolerate multi-trillion dollar
00:45:10.120
deficits, the reason you're willing to invest in American stocks is because they grow faster
00:45:15.200
than everybody else. And they do because they control the intellectual property rights
00:45:18.640
and the patents that make that extraction possible. China is different from Europe.
00:45:24.160
Europe has its own standards. It has its own model. The Volvo is not the Mustang. They're
00:45:28.540
building their own Mustang. They want to have the standards. They want to control the intellectual
00:45:33.440
property rights. They want to be in charge of that space, hence China 2025, Belt and Road,
00:45:39.860
all the rest of it. So they're out for your IPRs, essentially. They want to set the standards. They
00:45:44.460
want to challenge you. If you do that, that is a direct threat to the American growth model.
00:45:49.900
Doesn't matter who's in charge. So basically, bumpy road ahead, no matter what.
00:45:53.880
Oh, really? And what do you think will be the American response there for? Do you reckon they're
00:45:57.880
going to double down and say, right, we're going to withdraw from China. Our companies are going
00:46:02.760
to get out. We're going to go to other places. That's really hard to do. So I was talking to
00:46:08.820
somebody who actually knows how this stuff works. And she gave me the example of a cotton bud
00:46:13.720
factory, because I was thinking about medical supplies. She was like, you know, cotton buds,
00:46:17.320
swabs, all that sort of stuff you need for COVID, right? It takes you about three years to build a
00:46:20.840
factory with a certification to make that ship just for cotton buds, right? You spent 20 to 30
00:46:27.520
years moving all that tech abroad, you don't bring it back in three months. Also, it's constantly
00:46:32.860
evolving. By the time you get it back, it's probably redundant. So it raises huge questions
00:46:38.440
for the profitability of firms, how you actually manage the stuff and what you do with it.
00:46:42.640
So it's not clear that you can turn off globalization that way, because we do have a
00:46:47.180
global economy. I like to put it in the passive voice. Globalization is upon you whether you
00:46:52.580
wish it or not. It's not a choice. It's just there. And you can choose at the margin, but that's
00:46:58.700
about it. So you've got fractious politics. You've got a Chinese Communist Party that's always said
00:47:04.260
that we are legitimate in the eyes of our people so long as we're growing fast enough to basically
00:47:08.600
legitimate their ambitions. That growth is going down. This year is the first year they don't have
00:47:14.540
a growth target. The cult of Xi is back. It's very much one guy, personalist rule, authoritarianism.
00:47:20.840
the move into Hong Kong could presage a move against Taiwan. If you do, then you really are
00:47:27.060
calling the Americans bluff on this one. And do you really want to get into a shooting war with
00:47:31.080
these guys? Because when they've got their backs up against the wall, the Americans will react very
00:47:34.880
badly. So yeah, it could get very, very fraught very quickly. All right, Mark, well, we've got
00:47:40.980
to let you go, unfortunately. But next time you're in the UK, let's have a, if we're allowed at that
00:47:46.560
point let's have another interview in studio but before we do let you go uh we've got one more
00:47:51.200
question for you and it's a question we always finish with which is what is the one thing people
00:47:56.520
aren't talking about but they really should be talking about
00:47:59.440
is it possible to lead a full and meaningful life without premier league football
00:48:07.340
and the answer of course is no i i think that's exactly right i think it's going to be really
00:48:13.760
difficult i'm utterly amazed that when i switch on the bbc news on my phone i i hit the sports link
00:48:21.760
and they still have pages and pages of stuff but nothing's happening yeah it's amazing and then i
00:48:29.580
read it and i feel so empty and and sort of like content listen and sort of just like yeah and then
00:48:36.020
i wonder if i'll ever get rid of that feeling so there's a very very sad insight into what middle
00:48:41.300
age for men is like and that's all three of us i'm including and we all agree on that that this
00:48:46.200
is actually a major problem absolutely well i don't know i'm a west ham fan so actually it's
00:48:51.480
probably better mate yeah fair enough and on that very happy note for me as a fellow of a tonian i'm
00:48:59.820
delighted to hear that there's someone worse than us uh mark where can people follow you uh to check
00:49:05.420
out your work and also tell everybody where to get the book when it comes out at mk blythe on
00:49:11.280
twitter.com um i have a website somewhere but i don't think i've updated it in forever so like
00:49:16.420
don't even bother with that just mk blythe on twitter and you'll find me and the book is
00:49:20.680
available everywhere waterstones go for it we're actually on amazon is number one anticipated
00:49:25.980
release in political economy so go pre-order and make it minus one that'd be even more amazing
00:49:31.840
No, we do thoroughly recommend that both Francis and I really enjoyed reading it.
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And we'll see you very soon with a live stream or another brilliant interview.