TRIGGERnometry - ＂We Have Capitalism for the Poor and Socialism for the Rich＂ - Mark Blyth

00:00:00.000 Hello, and welcome to Trigonometry. I'm Francis Foster.

00:00:08.220 I'm Constantine Kissin.

00:00:09.460 And this is a show for you if you want honest conversations with fascinating people.

00:00:14.680 Our brilliant guest today is an economist and the co-author of a brilliant book that Francis

00:00:18.960 and I have just read and really enjoyed, Angronomics. Mark Blythe, welcome to Trigonometry.

00:00:23.660 It's wonderful to be with you. I'm so sorry you couldn't find someone interesting and

00:00:27.420 you got me instead.

00:00:28.060 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.

00:00:39.740 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.

00:00:48.440 What has been the journey that leads you to be talking to comedians on YouTube?

00:00:51.860 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.

00:01:13.800 And there was another bloke who was wearing the kind of spiv suit of the era, who was about 30.

00:01:19.200 And he was from the London Business School. The other guy was Manchester. One had this Keynesian 0.76

00:01:23.120 model with a billion equations and a household sector and all that sort of stuff. And the other

00:01:26.960 one was a monetarist model that had six equations in it. And the right answer was always tax cuts.

00:01:32.260 Right? Now, I may have been 13, but I knew horseshit when I saw it. And I thought, oh, 0.98

00:01:36.080 I want to study this because this seems like fun. So variously through Strathclyde and then to

00:01:41.560 Columbia, my PhD is in political science, but I study economics as a thing in the world,

00:01:46.240 not as a theory of the world, because I think it's there for both good and evil.

00:01:51.040 And we often weaponize economic ideas to get what we want and use them as justifications.

00:01:56.300 But in moments like this, this chaos moment of COVID, we look to models, we look to theories

00:02:01.580 to tell us what to do in moments of deep uncertainty. And that's when they become

00:02:04.540 really interesting and really powerful. So that's basically what I study. My shortest bio says,

00:02:10.000 I study uncertainty and randomness and complex systems and wonder why people believe bullshit

00:02:14.760 economic ideas despite buckets of evidence to the contrary. Well, that sounds like a perfect

00:02:20.380 setup. So one of the things you talk about with your co-author in the book is the different

00:02:25.120 versions of capitalism. So we've just finished what you, or maybe not finished, tell us,

00:02:30.920 we've just lived through a period which you call capitalism 3.0. So just tell us, Mark,

00:02:37.020 where were we before the pandemic hit? Just describe for anyone who hasn't read your book,

00:02:41.980 who maybe is not an economist, what was the world that we've been living through? What did it look

00:02:46.700 like? So the most common way that people talk about this is to call it the neoliberal world.

00:02:51.740 I'm not sure if that's the best way to think about it. But essentially, here's how to think

00:02:56.100 about it. When you came out of the Great Depression in World War II, there was one job for governments.

00:03:01.400 Didn't matter if you were left, right, centre or anything. You had to do full employment because

00:03:05.600 you'd been through half a generation of unemployment that resulted in fascism and the death of

00:03:09.960 50 million.

00:03:11.160 It wasn't clear that capitalism was going to survive.

00:03:13.580 You had a Soviet Union that had abolished unemployment and stopped the Nazi tanks.

00:03:17.760 It was an attractive opera to everybody else on the other side.

00:03:21.020 And basically, capitalism had to reform itself.

00:03:23.160 And the way it did this was to make full employment the policy target.

00:03:27.200 And we had 20 years, almost 30 years of very good growth, very good growth for workers in

00:03:32.700 terms of real wages.

00:03:34.260 The problem with that very labor-friendly order is that if you basically guarantee maximum 0.97

00:03:40.980 employment for a very long period of time, the dumbest guy you know can leave their office 0.83

00:03:45.520 and get a better paid job by 4 o'clock. 0.60

00:03:48.120 That's going to constantly bid up wages. 1.00

00:03:50.200 The way that employers respond is with prices.

00:03:52.240 The result, inflation, the 1970s.

00:03:55.280 When you have inflation, if you're a capitalist, it's a nightmare.

00:03:58.000 Because if I'm investing and expecting to get a 5% rate of return, if inflation goes

00:04:02.260 to 10%, they might as well take the money around the back of the house and burn it.

00:04:05.880 So essentially, capital went on a capital strike, stopped investing.

00:04:10.120 Unemployment shot up.

00:04:11.420 Political parties of the right said, enough, basta.

00:04:13.980 We're not doing this deal anymore.

00:04:15.720 And what did they do?

00:04:17.020 Privatize, integrate, globalize all of the buzzwords of the past 30 years to create a

00:04:22.960 much more open liberal order.

00:04:24.980 Now, in many ways, this was actually a great thing.

00:04:27.420 It increased massive per capita GDP growth around the world.

00:04:30.760 But one of its more pernicious effects was median wages and lower-end wages in the developed

00:04:35.560 countries went down.

00:04:37.120 Very simple way to think about it.

00:04:38.500 If you had 700 million people in the global labor pool, your wages are going to go down.

00:04:42.500 It's as simple as that.

00:04:43.880 So along with technological changes that favored big companies, particularly digital companies,

00:04:48.840 et cetera, we ended up in a classically unequal world.

00:04:51.700 Now, inequality doesn't really matter to most people, so long as it's relative.

00:04:55.340 That is to say, I'm going up and you're going up at the same time.

00:04:58.100 But if you're going up and I'm going down, or when you have a big shock like 2008, when

00:05:02.600 the whole buffer system blows up and the banks blow up, if you then turn around and do basically

00:05:07.700 what was capitalism for the poor and socialism for the rich, you bail out those who have

00:05:12.400 the assets and then stick the cost on everybody else in terms of austerity policies, which

00:05:16.680 is exactly what happened, then you're going to have a lot of pissed off people.

00:05:20.580 If you then, in the British context, do the Scottish project as Project Fear, don't ever 0.99

00:05:25.960 leave no matter how shit it is. If you then do that again with Brexit, whatever you do, don't 0.98

00:05:31.400 doubt whatever the elites tell you, because they're the ones that have been making off like bandits

00:05:35.080 for the past 30 years. You haven't, but honestly, this is the best of all possible worlds. Then

00:05:40.200 eventually, people get a bit skeptical, and they get a little bit annoyed. And also, they notice

00:05:44.920 the fragility in their lives. And if you add to this the fact that we've got an aging society,

00:05:50.280 low productivity society, we've got huge amounts of technological change that demand that all the

00:05:55.560 the stuff we're already doing at work.

00:05:57.060 We have to be more adaptive.

00:05:58.440 We've got a gig economy.

00:05:59.880 We have to be flexible all the time.

00:06:02.060 And then, essentially, all the costs are falling onto us.

00:06:05.240 And then COVID hits.

00:06:06.640 And what you see is a huge expansion of these tendencies.

00:06:09.880 Because people like me, who can work from home, who

00:06:12.060 are at the top of the tree, we're not made unemployed.

00:06:14.680 We're made more invaluable.

00:06:16.740 People who we call essential workers,

00:06:18.800 they're the ones that are getting paid 10 quid an hour,

00:06:20.960 who are risking their lives, whether it's in meat factories,

00:06:24.160 Amazon warehouses, shops, right?

00:06:26.680 They're the ones that are keeping it going.

00:06:28.240 And what do you find?

00:06:29.080 Again, this huge dispersal in wages, this huge dispersal

00:06:31.840 in the earnings of firms, it just gets worse.

00:06:34.600 And that creates a very tense and very angry and fractured society.

00:06:38.260 And that's what we saw just before COVID.

00:06:40.340 Remember, Chile, riots.

00:06:42.660 Hong Kong, riots.

00:06:44.400 France, yellow jackets.

00:06:46.240 Britain, Brexit.

00:06:47.740 America, Trump supporters, Bernie supporters.

00:06:50.560 The whole place was kicking off, and it was kicking off

00:06:53.200 for a good reason. It was becoming harder and harder for ordinary people just to hold their

00:06:57.560 daily shit together and do what they need to do with their families. And they said it passed it, 0.99

00:07:00.960 enough, we're not doing this anymore. And Mark, what you're describing seems to me like a crisis.

00:07:06.380 Do you think that the West in particular had reached a crisis point just before COVID?

00:07:11.280 I think it had, but we're really good at covering it up. We'll cover it up two ways. One is

00:07:15.920 emotionally, that is to say, we always put it on ourselves, stick it on my back a little bit more,

00:07:21.260 mustn't grumble, just keep going a little bit, it's fine, things will be OK.

00:07:25.260 And the other way we do that is with credit.

00:07:27.420 We basically did massive credit expansion.

00:07:29.740 And I don't really worry that much about public debt for the simple reason that when there's

00:07:34.060 a crisis, people dump shares, they don't want to hold equities, they want safe assets.

00:07:39.580 The safe asset is the government bond, which is why now the British government, despite

00:07:43.820 everything they're doing, have a negative real interest rate on a 10-year debt, which

00:07:47.980 is nuts when you think about it.

00:07:49.660 I worry about private debt.

00:07:51.120 And what we did was layer corporate debt

00:07:52.960 on top of credit card debt, on top of educational debt.

00:07:55.980 And ordinary people's wages weren't growing.

00:07:58.320 Think about coming out of university just before COVID,

00:08:01.480 right?

00:08:01.760 And you're going into a flat labor market.

00:08:04.040 Wages aren't rising even for university graduates.

00:08:06.520 You've got possibly $40,000 worth in debt.

00:08:09.100 And your chances of buying a house in London,

00:08:11.200 even if you save every penny you've

00:08:12.840 got over the next 10 years, are zero.

00:08:15.240 Why should anybody think this is a success story?

00:08:17.340 and i mean it does sound fairly bleak when you explain it like that but surely people would

00:08:26.200 argue look you know things have never been better look at the technical advances look at the way

00:08:30.800 you know society has become ever more equal haven't things been improving or do you think

00:08:35.180 we've actually been regressing it's a bit of both my favorite line on this comes from one of obama's

00:08:40.840 economic advisors where he stood up in 2000 i think it's 2010 2011 the guy's name is jason

00:08:45.620 Furman. And people were complaining during the recession then that followed the banking crisis

00:08:50.740 about the cost of living. And he said, yeah, but the cost of things like technology goods are

00:08:55.540 falling all the time. I mean, iPads are incredibly cheap. And somebody shouted out,

00:08:58.840 you can't eat an iPad, asshole. If you're at the bottom end of the income distribution, 1.00

00:09:04.960 which in British terms, the bottom 40%, right, you're not earning any more than 18 quid an hour.

00:09:10.720 Now, think about all the costs that you have to put into a normal person's life. Yeah, it's great

00:09:15.280 the technology has made us more connected. But if I've got three kids, and I've got to get them off

00:09:20.340 cell phones that look like this, and I've got to pay for those plans to keep them connected,

00:09:25.680 a lot of financial stress out there that goes with this stuff.

00:09:29.420 And Mark, one of the points you make as well, just as we wrap up talking about prior to COVID,

00:09:35.060 is I want to just briefly talk about the crash and the crisis of 2008. Because one of the things

00:09:41.680 that I've often been talking about is we're massively indebted as a country. But one of the

00:09:46.960 things you talk about in the book is actually this idea that we spent too much as people,

00:09:52.560 as individuals, and that's why we're so indebted. It's complete rubbish. Actually, 0.99

00:09:56.520 what happened is we bailed out the very people who got us into trouble using the money of ordinary

00:10:01.960 people. So talk to us a little bit about that. Yeah, sure. I mean, you just nailed it right

00:10:05.900 there, if you look at average OECD rich country debt from 2000 to 2008, it's going down, because

00:10:13.340 economies are growing. And so long as your economy is growing faster than the rate of growth in your

00:10:17.580 debt stock, the debt shrinks. So think of it like a fraction, numerator, denominator. Your denominator

00:10:23.900 is debt, your numerator is your economy. If your economy is growing faster than your debt stock,

00:10:28.220 it's going to shrink. So that's what was going on. Then there's an almighty banking crisis,

00:10:33.100 and you basically buffer the recession, bail the banks, provide them with equity, do all

00:10:38.500 the stuff you need to do, you get a 30% jump in GDP in terms of debt to GDP.

00:10:43.700 And then George Osborne comes out and goes, oh, my god, Labour's been spending like drunken

00:10:47.880 sailors. 1.00

00:10:48.880 Fuck all the deal with them. 1.00

00:10:50.560 It was bailing a banking system. 1.00

00:10:51.980 And if you think that's true, go check every other country's balance sheet, because exactly

00:10:56.220 the same thing happens.

00:10:57.220 The Americans go up 40%.

00:10:59.220 with a big financial sector, ends up bailing out, and it costs them about 30% or 40% of GDP.

00:11:04.340 That's where all the quote unquote debt came from. Now, if you're on debt, let's stay with that for

00:11:09.100 a minute, right? Oh, there's terrible debts, the worst thing ever, blah, blah, blah. Who's buying

00:11:13.620 all that shit? It's the rich. It's the 1%. It's the banks. Because at the end of the day, 1.00

00:11:20.240 government debt is the bottom of the credit pyramid. It's what you then lever up to do

00:11:24.920 all the other things you want to do, from lending for a mortgage to derivatives to anything else.

00:11:29.220 There's never been a failed bond auction for sterling. There's never been a failed bond

00:11:33.380 auction for US Treasuries. So the same people that are holding this stuff and making an interest rate

00:11:39.220 off it, at least until very recently, are the ones who are going, oh, my God, this is terrible,

00:11:42.980 right? That to me just, oh, hang on a minute, right? Let me see. You're the one that's holding

00:11:48.180 the asset, and you're telling me you're terrified of it. Yeah, that's bullshit. 1.00

00:11:51.620 ED HARRISON So just to summarize then, 0.99

00:11:53.940 just for people who may not be expert economists, what you're really saying is

00:11:57.620 We have stagnating or even falling wages for ordinary people.

00:12:01.560 We have socialism for the rich. 0.98

00:12:03.820 When they fuck up, we bail them out using the money of the ordinary people 0.99

00:12:08.640 who've been losing out this whole time. 0.99

00:12:11.640 And that's where you get more inequality and more unfairness

00:12:14.200 and therefore more anger, OK?

00:12:16.620 And then to balance the books, what you do in Britain,

00:12:18.960 and anybody who wants this, I can send them the sites to the work on this.

00:12:22.600 You do things like Preston Council up north.

00:12:25.000 they lost almost a third of their budget during the austerity years. What does Preston make?

00:12:30.980 Not a lot. It's one of the most depressed areas in the country. How much austerity was there in

00:12:35.860 London? Practically none. What's the only bit of the country that's growing? London. I mean,

00:12:40.660 it wasn't just across incomes. It was across geographies, the way that this played out. And

00:12:45.380 it was a lot of the anger behind Brexit. You remember the bedroom tax? I mean, let's just

00:12:50.540 think about how insane that was, right? Basically, you live in a shit part of the country. You have 1.00

00:12:55.700 no assets, but you have a bedroom. I'm going to use that as an excuse to basically cut whatever 0.98

00:13:00.120 benefits you've got. Listen, we look back on that period. It's crazy.

00:13:06.140 All right. So that's where we were. Now, take us through to COVID. COVID hits. What's now?

00:13:11.820 What's happening now?

00:13:13.360 So there's a film that I can send you guys, which I'm going to get out next week, which you can

00:13:18.340 stick up on the website for the podcast.

00:13:21.160 And the way I explain this, a filmmaker in Spain

00:13:23.440 liked it so much that she made a film around it.

00:13:25.460 I call it the Volvo and the Mustang.

00:13:28.120 So bear with me, and I'll tell you the story. 0.96

00:13:30.740 I drive a Volvo because I'm a white bourgeois git. 0.98

00:13:35.640 It's true. 0.97

00:13:36.480 I've also got a golden retriever.

00:13:37.860 I have literally become everything I hate, right?

00:13:41.880 So this Volvo is covered in airbags.

00:13:44.560 It's quite fast, but you don't drive it fast

00:13:46.520 because it's a Volvo.

00:13:47.160 and it's got loads of airbags if you crash in it you'll probably survive basically it's kind of

00:13:51.920 the automotive equivalent to a european welfare state costs of fortune to run loads of safeties

00:13:58.000 and redundancies if you crash in that thing you'll be fine here's the american economy and to a

00:14:03.400 certain extent the british economy it's a five liter mustang gt everything's great so long as

00:14:09.280 it's going pull pelt down a straight road it's in gear there's no bumps on the road and you're just

00:14:13.800 going, whoa, because let's face it, that's a lot of fun.

00:14:17.740 If you try and break that thing, if you tell the entire economy to slam on the brakes and

00:14:22.520 go down for three months, boom, the whole thing just falls apart.

00:14:26.120 If you think about this in terms of what economists call growth models, what's the underlying

00:14:31.340 bit of what's called gross value added, you tickle, if you will, to get growth in the

00:14:35.860 economy?

00:14:36.860 For the Germans, it's autos, selling BMWs to the rest of the world, right? 0.97

00:14:40.080 For the Greeks, it's getting people to come into the country and sit on their beaches 1.00

00:14:42.860 and sell them Retsina, right?

00:14:44.180 That's how you do it, right?

00:14:45.500 For Italy, it's tourism around all the Roman monuments.

00:14:48.760 What is it that America does? 1.00

00:14:50.380 It's 25% of the global economy.

00:14:52.240 It does a little bit of everything, but it's tight.

00:14:54.640 It's tightly coupled.

00:14:56.140 80 million American workers are hourly employees.

00:14:58.840 None of them have any statutory sick payer benefits, right?

00:15:02.220 You tell them to go home for three months,

00:15:04.340 and everybody goes, hey, isn't it

00:15:06.140 the case that 40% of Americans would have a real trouble

00:15:09.160 getting $400 together at short notice?

00:15:11.440 Yeah, well, that was three months ago. 0.86

00:15:13.740 So they're now screwed, right?

00:15:15.600 There are five mile long queues for food banks 0.83

00:15:18.280 in the US at the moment, right?

00:15:19.700 People are driving there.

00:15:21.260 But the only reason they're driving there

00:15:22.380 is because they all hire their cars.

00:15:23.860 They lease their cars.

00:15:25.420 If their unemployment benefits fail,

00:15:27.700 if the economy doesn't pick up, that SUV

00:15:30.200 is going to go back to the repo guy.

00:15:32.200 How are you going to get to the food bank at that point?

00:15:34.820 All the wheels come off.

00:15:36.960 European systems, they cost a fortune.

00:15:39.380 There may be a disincentive effect.

00:15:41.480 They don't create the type of dynamic economies

00:15:43.380 you get with a Mustang.

00:15:44.700 But when you crash, you'll probably survive.

00:15:47.640 That's the world of COVID.

00:15:50.100 But I suppose a Mustang's better for picking up women, 1.00

00:15:53.180 though, Mark.

00:15:53.960 Oh, definitely.

00:15:54.680 Well, it depends on a certain type, right?

00:15:58.120 If you're signaling lifetime earnings,

00:16:01.260 safety and security, a top-line Volvo is definitely it.

00:16:04.280 If you're like, let's go mental, then yes,

00:16:07.020 I suppose a Mustang would be that.

00:16:08.340 oddly enough i own both well we know which one other francis prefers go ahead yes exactly

00:16:15.980 there's no doubt about that but so what you're saying really is that america is teetering on

00:16:22.120 the edge of a precipice at the moment because if people can't eat that's and as somebody who comes

00:16:27.340 from a venezuelan background that's the moment when social unrest happens oh yes exactly and

00:16:35.520 we're running a giant natural experiment now by basically opening up. And the reason we're

00:16:39.540 opening up is because you can't shut this down. It's the Mustang, right? It's not a Volvo.

00:16:43.620 So you open all this up, and then you remember things like, well, Texas, right? So Texas,

00:16:49.200 only 18% of Texans had no health insurance. Everybody else has their insurance through

00:16:54.200 their employer. 30% of that remainder are now unemployed, which means huge amounts of people

00:16:59.920 who are no longer social distancing, who may be getting infected, have no health coverage.

00:17:06.080 That's going to go well.

00:17:08.060 Now, it may be the case, we simply don't know,

00:17:11.660 that the, go back to that numerator-denominator thing

00:17:13.800 and think about COVID, right?

00:17:16.060 If your underlying rate of passive infection,

00:17:19.540 asymptomatic infection, is much wider than we think, 0.96

00:17:22.580 then all these people going out and doing shit just now 0.98

00:17:24.660 is kind of brilliant. 0.98

00:17:25.500 Because what it's doing is it's going to show us

00:17:27.600 that's the case.

00:17:28.760 And that means that the denominator expands,

00:17:30.720 so the numerator shrinks, so lethality goes down,

00:17:33.020 which basically makes everyone go,

00:17:34.380 hey, it's not so deadly. We'll be fine. We can open the schools. We can get back to work. You

00:17:39.120 can start up the Mustang, right? If, on the other hand, four to six weeks from now, we find in Texas,

00:17:44.600 Georgia, and all these places that are now basically abandoning the whole thing and going

00:17:48.340 for it, that the models that say hardly anybody's been infected, that this is hyper-infectious,

00:17:55.020 that 10% of cases result in hospitalizations, wow, then you're in trouble, because then you're

00:18:00.560 have to shut down the economy again. And you don't have any of those European-style airbags.

00:18:04.900 So how are you going to feed people? You're going to put them on unemployment through June,

00:18:08.400 take them off June, and then put them back in September? What are they going to do in the

00:18:11.820 interim period? Because if you could open the economy, what happens if nobody comes?

00:18:15.760 Because everyone's freaked out. Wow. And so what would that mean later on

00:18:21.340 for the Trump election, do you think? Because he's banking on the fact that his major card

00:18:27.340 is that, hey, the economy is great, America's working, let's go again.

00:18:32.520 ED HARRISON If he gets it right, in a sense, it's a

00:18:35.320 binary bet, right? 0.69

00:18:36.240 It's 50-50.

00:18:37.320 Either you open up and you're OK, or you're terminal anyway, right?

00:18:41.340 So he's got nothing to lose in terms of terminal anyway.

00:18:44.460 If he continues on this, it can only be bad for him, not his social distance and all the

00:18:48.140 rest of it.

00:18:48.720 So you might as well go for it.

00:18:50.060 If he goes for it, and he turns out he's right, he wins, no doubt about it.

00:18:53.860 Because at that point in time, people turn around and go, God, there you are again, those

00:18:57.240 in elites. Oh, yes, science. Yeah, he didn't know shit because, look, we went out and did stuff,

00:19:02.600 and it was fine. We totally see how this plays out, and with justification, right? If, on the 0.96

00:19:07.600 other hand, it goes pear-shaped, right, then you've got a real problem. Let's say that there's

00:19:12.720 a big surge in cases through the summer, and there's a second wave, and it really shuts

00:19:18.420 everything down again. Do you even have an election? What do you do with precincts? There's

00:19:23.440 huge battles over here about the right to do mail-in voting. California is in the crossfire

00:19:27.840 for this one today. Other states will be trying this. There's a lot of contention around this

00:19:33.020 election. So in terms of what happens, if we open up and things go well, then Trump wins.

00:19:39.900 If we open up and things go badly, I don't even know if we have an election.

00:19:43.460 That's really interesting. And Mark, you mentioned the elites. Let me ask you this.

00:19:47.000 And look, obviously, you're not a medical expert, so I'm not asking you from the medical point of

00:19:50.800 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?

00:20:02.060 But we've taken these measures.

00:20:03.920 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.?

00:20:17.800 et cetera. Some of those people that were making those decisions are the people who are unemployed

00:20:22.200 now. Do you think we would have been quite as keen to go into lockdown? That's a really great

00:20:27.780 question. I mean, part of me wants to say, no, we wouldn't. And I think that that's kind of true

00:20:33.560 because the people who do make these decisions can work from home and have the economic resources

00:20:39.260 and family networks and other things to make it happen, right? Even Dominic Cummings had to

00:20:44.160 basically hand off his kids to his parents 200 miles away. But he could do that, and he probably

00:20:49.100 drove there in a Volvo. So if you have those things, then yes, it's a lot easier. But here's

00:20:55.980 the question on the other side. It's not as if people who don't have those resources are

00:21:01.140 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

00:21:14.280 as diabetes, et cetera, particularly amongst minority populations, then would you be willing 0.99

00:21:19.380 to say, hey, these guys, we're not going to do that lockdown thing.

00:21:23.220 You should just go back to work.

00:21:24.540 But there's a pretty fair chance one in 10, on average, will end up in hospital.

00:21:28.720 From your demographic, maybe even higher. 0.81

00:21:31.500 And you might actually end up dead.

00:21:33.160 You want to go for it?

00:21:33.840 So again, the class skew in this and the income skew is incredible.

00:21:39.640 People like us are highly unlikely to die from this.

00:21:42.980 And what's even more crazy in this one is I downloaded the ONS data, the Office of National

00:21:48.340 Statistics for the UK.

00:21:49.860 I encourage everybody to do this.

00:21:51.200 It's amazing.

00:21:51.880 Just type in ONS UK COVID-19 death, right?

00:21:56.120 You'll find it.

00:21:57.000 Open it up in Excel, and then just look along at the age profile.

00:22:00.680 This is the bit that blew me away.

00:22:02.360 And this is the April figures.

00:22:04.300 Do you know how many people under the age of 45 have died from this?

00:22:07.540 It's like 200 or something, isn't it?

00:22:09.080 Yeah, it's 500, right?

00:22:10.480 And then, so what's the total death figure at the end of April?

00:22:13.180 It's like 30,000.

00:22:15.220 The age skew is incredible, right? 0.99

00:22:18.900 Guess what also skews with age?

00:22:21.600 Poverty.

00:22:23.900 All these things are tied in together.

00:22:25.860 So making a simple decision about this is never simple.

00:22:28.940 and the one thing that i'm really concerned about mark is the long-term implications of this for the

00:22:37.660 british and the american economies i read a stat i think it was a couple of days ago that britain

00:22:43.380 spent more in april on the spent more in april than it did in the whole of 2019 and you're

00:22:51.140 thinking i'm thinking to myself this is simply not sustainable we can't carry on like this

00:22:56.080 well yes and no because there's always the americans have a great phrase for this which

00:23:02.240 is the most attractive horse in the glue factory so here's what happened on march 18th when the

00:23:08.840 british government unexpectedly came out and said we're going to support 80 of wages which is exactly 0.88

00:23:13.580 what you should do because giving people checks and all this sort of shit is just plumber something

00:23:17.960 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.

00:23:27.560 But here's what happened. Sterling fell 5%. Pound went 5%. And the gilt market, the government bond

00:23:33.880 market, prices went down, yields started to spike. And this is almost as if the financial markets

00:23:38.600 were saying, you're going to spend how much? Are you kidding me? Within two hours, they stabilized.

00:23:45.400 Why? Because everybody else was doing exactly the same thing. So it's all relative. And at the end

00:23:51.080 of the day, do you want to buy stocks just now, or do you want to buy bonds? Because at the end

00:23:55.560 of the day, the government in the United Kingdom, regardless of who's running it, will be there in

00:23:58.840 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 1.00

00:24:41.080 blow up the whole project? You can't buy any Chinese external assets. They won't let you. 1.00

00:24:46.600 So at the end of the day, this is sustainable because everybody else is in an unsustainable

00:24:50.440 position for relative trade.

00:24:53.040 Let me ask you this, because we talk to economists a lot.

00:24:55.400 I'd like to think I'm reasonably intelligent.

00:24:57.560 I studied economics at university.

00:24:59.600 I should be able to understand this.

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

00:25:39.020 the taxes to, quote, unquote, pay for them.

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,

00:25:55.420 you're running risks.

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? 0.71

00:26:02.000 You're going to buy some Euro debt?

00:26:03.420 It's probably more hammered.

00:26:05.040 You're going to buy some Dutch debt?

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.

00:26:31.120 right?

00:26:32.120 What I worry about is Italy.

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

00:26:40.240 economy.

00:26:40.960 That's not good, right?

00:26:42.960 And they've spent, like everybody else,

00:26:45.120 an extra 30% because of corona.

00:26:47.360 So their debt's going to blow all the way out.

00:26:49.300 Now, they don't have their own currency,

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 1.00

00:27:05.620 shit. 0.99

00:27:06.380 So they've made up a new thing this week, which is the Franco-German Pact that basically 0.99

00:27:11.440 says they're going to issue new debt through the European Commission, and we're going to

00:27:16.160 help the corona-affected economies with this.

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, 0.89

00:27:29.120 it doesn't issue its own currency.

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? 0.98

00:27:41.460 You can go full Venezuela. But remember, to go Venezuela, you need to be reliant for 96% 0.81

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

00:28:23.280 with the rise of populism.

00:28:25.060 Do you think that if things go badly in Italy,

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

00:28:34.700 in the sense that the most pressing problems

00:28:37.120 of the British political economy would be addressed

00:28:39.340 by leaving the EU, right?

00:28:42.340 You're better off out of it. 1.00

00:28:45.400 Because that's a shit show. 1.00

00:28:47.160 It's a shit show. 1.00

00:28:47.920 That's what I always said. 1.00

00:28:48.960 Francis and I both voted Remain.

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? 0.99

00:29:28.080 Because they're not staying there because there's no jobs. So they all moved to the countries that 1.00

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

00:29:46.360 go around bailing people out.

00:29:48.140 It's like, well, hang on a minute, mate.

00:29:49.400 The reason you're selling BMWs to the rest of the world is precisely because we are getting 0.72

00:29:53.440 squeezed here in the South.

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. 0.99

00:30:15.480 Well, actually, the Italians have run a surplus twice as long, and they haven't grown in 20 years.

00:30:21.160 So your debt's not your problem.

00:30:22.800 It's your lack of growth that's a problem.

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

00:30:37.320 the same currency.

00:30:38.220 That, to me, seems like a nonsense.

00:30:40.340 Yeah, absolutely.

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, 1.00

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

00:31:58.100 You're an Italian with money. 0.94

00:32:00.340 Stop stereotyping me.

00:32:02.040 I know I look Italian, but.

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.

00:32:11.780 Anyway.

00:32:13.180 I love the way you managed to praise me and insult Francis in one sentence.

00:32:16.980 That's what we like.

00:32:17.540 I'm making him feel good, which was even more bizarre.

00:32:21.380 I'm Italian.

00:32:22.560 You're Italian with money, right? 0.99

00:32:24.000 And you're Italian and basically you're unemployed. 1.00

00:32:25.960 You don't have any money.

00:32:26.940 And along comes some populist and says, basta, we've had enough.

00:32:30.460 Let's get out of the euro.

00:32:31.420 Because then we would be able to grow.

00:32:32.960 We'd be able to devalue.

00:32:34.140 We'd have our own currency.

00:32:35.300 We could bail our own banks.

00:32:36.900 You go, yes, that's brilliant.

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,

00:32:46.340 because you can as an EU citizen.

00:32:47.780 And you're going to move all your Italian euros, which are euro-euros, into a German

00:32:52.340 bank account.

00:32:52.960 And that means when the Italian government comes in and says, we're going to have a new 0.78

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

00:33:05.180 try this.

00:33:06.220 Estimates that Simon Tilford, who's an economist, and I did for this a few years ago, the Italians 1.00

00:33:10.780 would probably destroy between 40% to 50% of national wealth and national savings if

00:33:15.260 they tried to exit the euro.

00:33:17.220 Wow.

00:33:17.760 Yeah, exactly.

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.

00:33:25.200 So essentially, it sounds like,

00:33:28.260 I don't mean to use technical language, 0.99

00:33:30.120 but it just sounds like they're fucked either way, really. 0.97

00:33:33.040 Well, you know, we don't have to stress 0.98

00:33:34.620 the technical aspect of this so much.

00:33:36.740 But I would say that they're not in an ideal position.

00:33:41.160 How about that?

00:33:42.100 Yeah.

00:33:42.680 Are you running for office anytime soon?

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 0.86

00:33:58.180 and you could almost there was one episode i was watching i was like holy shit that's today 0.53

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

00:34:15.720 unsustainable.

00:34:16.520 You can't keep doing that.

00:34:18.820 MARK BLYTH I think that's pretty much it.

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

00:34:26.120 or a southern euro.

00:34:26.980 I don't know how you get there.

00:34:28.400 But if you could wake up overnight with two different currencies

00:34:31.080 with two different relative values,

00:34:32.560 it would actually probably be a good idea.

00:34:35.040 The problem is getting out.

00:34:37.020 It really is a bad marriage, right?

00:34:39.100 Because at the end of the day, even if the northern Europeans 0.98

00:34:41.620 are like, we've had enough of you people.

00:34:43.380 You don't grow.

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 0.99

00:34:53.920 this shit anymore, are they? And if that happens, you will get that huge yield spike that even the 0.99

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.

00:35:14.220 It's fun and games. 0.84

00:35:15.860 Look, enough about the Europeans. 0.96

00:35:17.460 We left for a reason.

00:35:18.600 Brexit means Brexit. 0.78

00:35:19.800 Exactly.

00:35:20.300 Brexit means let's get it done. 0.90

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

00:35:30.140 because we don't really know.

00:35:31.380 Right.

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.

00:35:41.220 What do you mean by that, Mark?

00:35:42.780 What are you talking about?

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

00:36:12.160 or 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,

00:36:20.480 you're never getting another massage.

00:36:23.280 It's just never going to happen, right?

00:36:25.440 In terms of the models that are reasonably good in terms

00:36:29.220 of how these things spread in specific areas, 1.00

00:36:32.180 restaurants are shit. 0.99

00:36:33.960 Because you sit for an hour and a half 1.00

00:36:35.820 in a confined space with poor air circulation.

00:36:39.960 So that's bad.

00:36:41.500 Let's see, movie theaters.

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.

00:36:48.300 So when you have, like the US and the UK,

00:36:50.520 very, very large service-driven economies,

00:36:53.120 and a lot of those are personal services that are relatively

00:36:55.880 low-wage employers, and a huge number of them

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.

00:38:01.680 But I really want to, right?

00:38:04.400 I'm a wee bit skeptical about going to see my beloved Everton next time I fly to the

00:38:08.440 United Kingdom.

00:38:09.440 But I really want to.

00:38:11.420 If you guys suffer three waves of lockdowns and there's food riots in the streets, I'm

00:38:16.120 not going to do any of that stuff.

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.

00:38:26.060 It's fine.

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 0.98

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 0.80

00:39:06.060 point i mean we don't know for certain but it's not looking like the most pessimistic scenario 0.92

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 1.00

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

00:41:19.460 than others, but that's our model.

00:41:21.100 That's how we do it.

00:41:22.080 The Europeans don't do that.

00:41:23.420 They have bigger and different airbags.

00:41:24.920 They basically have less unemployment.

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

00:41:36.440 more generous benefits.

00:41:38.060 France is the typical example of this. 0.70

00:41:40.320 Now, let's say that we play your scenario out.

00:41:42.400 Then there will be a dramatic and rapid recovery in the Anglo-American economies, at which 0.91

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 1.00

00:42:04.980 do it anyway, right? In terms of the way that, really, no good idea goes ungenuflected. 1.00

00:42:11.300 So well, let's see, what's happened to the Europeans? 0.90

00:42:16.020 For Northern Europe, if the Americans recover, they start buying BMWs again, so long as Trump

00:42:21.140 doesn't stick tariffs on them.

00:42:23.380 And if China recovers, they do the same thing, and the Europeans will sell to anyone, so 0.66

00:42:27.260 they don't care.

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.

00:42:47.720 I'm opening a shirt factory in Italy.

00:42:50.500 There'll be one colour for the shirt and it's brown.

00:42:55.960 That's the political response you get.

00:42:58.680 Wow.

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.

00:43:07.980 It's only Italy, mate.

00:43:09.280 They're not very good at it.

00:43:10.260 They can't really get organised.

00:43:11.600 They'll be fine.

00:43:12.340 They'll be nice brown shirts, though.

00:43:13.840 Very well-tailed.

00:43:14.380 Very stylish, yeah.

00:43:15.420 Very well-tailed.

00:43:16.720 And in fairness, Mussolini did make the trains run on time.

00:43:19.900 So, you know, there is a payoff on some level.

00:43:23.060 What do you think is going to be the West?

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

00:43:34.200 or do you think we're going to see a backlash

00:43:36.300 against the CCP and the Chinese?

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

00:43:49.140 for not doing Huawei, and the Germans folded.

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.

00:44:03.460 And they went, not even thinking about it.

00:44:05.260 That's 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

00:44:35.720 says.

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?

00:44:52.640 Those firms are incredibly powerful.

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, 0.89

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 0.98

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.

00:49:36.240 So make sure you get Angronomics.

00:49:38.940 And thank you very much for watching.

00:49:41.120 And we'll see you very soon with a live stream or another brilliant interview.

TRIGGERnometry - May 27, 2020

＂We Have Capitalism for the Poor and Socialism for the Rich＂ - Mark Blyth

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