LSE Public Event Podcast

Episode: Signals: The Breakdown of the Social Contract and the Rise of Geopolitics

Date: January 13, 2015
Speaker: Dr. Philippa Malmgren
Host: George Gaskell, LSE Film and Audio Team

Overview

This episode features Dr. Philippa Malmgren—former U.S. Presidential Advisor and author—on her book Signals: The Breakdown of the Social Contract and the Rise of Geopolitics. Malmgren explores how the “social contract” between states and citizens in industrialized and emerging economies is fraying in the face of massive global debt, policy responses like austerity and inflation, wage/price shifts, and resurging geopolitical tension. She argues that “signals” in daily economics (from Cadbury’s Creme Eggs to rising rents) can help us map these shifts toward a more uncertain order and urges that innovation and participative public discourse become key responses.

Key Discussion Points and Insights

1. The Limits of Mathematical Economics and the Importance of Plain English (03:47–06:25)

• Economics education is becoming more mathematical, but Malmgren advocates communicating economic complexity in plain English for public policy impact.
  • “If you can’t explain it in plain English, you will never affect public policy.” (B, 04:36)
• The myth of the "smart people in a room" is debunked; regular market participants may generate better solutions than closed technocratic elites.

2. Understanding “Signals” in Daily Life (06:26–10:50)

• “Signals” are observable economic shifts not always captured in formal models.
  • Example: Cadbury’s reducing Creme Eggs per box is a subtle sign of price pressures.
  • Rising beef prices and shrinking steak portions signal inflationary pressures.
• Markets generate more concrete information than “smart” policy elites, who can manipulate numbers.
  • "If you torture the data enough, it will confess just about anything." (B, 08:34)

3. The Inescapable Global Debt Problem and Default Mechanisms (10:51–17:00)

• Industrialized countries face debt levels so high that obvious solutions have failed:
  • “If it could be resolved in some easy way, it would have been done by now.” (B, 11:34)
• Default mechanisms:
  • Direct Default: Argentine-style refusal to pay.
  • Haircuts: Greek-style paying back less, later.
  • Broken Promises/Austerity: Governments not delivering on their social contract (e.g. slower ambulances, fewer public goods).
  • Inflation: Historically, the preferred—though socially damaging—escape route.

4. The Deflation vs. Inflation Debate and Its Global Dimensions (17:01–22:30)

• The question: Is the big risk deflation (as believed in the U.S./UK) or runaway inflation (emerging markets, e.g. Russia, Belarus)?
  • “Empty grocery store shelves is a signal: it tells us inflation is not a hypothetical maybe problem.” (B, 16:08)
• Central banks, especially the Federal Reserve, underplay global spillovers of their policies; emerging markets often bear consequences, e.g. in currency and commodity shocks.

5. How Quantitative Easing (QE) Shapes Global Economic Tensions (22:31–28:22)

• QE—industrialized nations' attempts to create inflation—drive up financial and hard asset prices, which has different local effects:
  • Wage pressures rise in emerging markets, potentially reversing globalization (manufacturing returning from China to developed countries).
• Abrupt shifts (end of QE) destabilize commodities and emerging market currencies, worsening their debt burdens.

6. Resurgence of Geopolitics: From Monetary Instability to Military Actions (28:23–36:30)

• As the social contract weakens and debt persists, states seek new means to secure resources, often with geopolitical consequences.
• China and Russia now prioritize direct ownership of “hard assets” (food, energy) as hedges against Western monetary risk.
  • “Military policy becomes a continuation of monetary policy by other means.” (B, 31:37)
• Disputes in the South China Sea and Russian assertiveness in Ukraine and the Arctic are read as responses to these pressures.

7. Colliding Forces: Deflation, Inflation, and Social Divides (36:31–44:00)

• Two key forces—deflation (joblessness/lower incomes) and inflation (cost of living, wage rises)—combine to strain the social contract.
• This stirs intense debate over redistribution versus innovation as solutions.
  • “Will states permit individuals in the new social contract environment the freedom they need to build tomorrow’s economy today?” (B, 41:20)

8. State vs. Society: Changing the Social Contract and the Role of Innovation (44:01–50:00)

• States innovate not just to tax or cut services, but also in how they extract resources (e.g. traffic fines, legalizing “sin” industries for tax revenue).

• Innovation, especially in small enterprises (crowdfunding, 3D printing), is positioned as an essential solution—unless stifled by government.

  • “Crowdfunding is changing everything. And that's a signal we should pay attention to and it should give us a lot more optimism about the future.” (B, 47:41)

• Launching the “Signals Ambassador Program” to bring youth into economic discourse, equipping them to “write a presidential memo”—to distill complexity into actionable knowledge.

Notable Quotes & Memorable Moments

• On the limits of number-crunching:

  “If you torture the data enough, it will confess just about anything.” – Dr. Philippa Malmgren (08:34)

• On the new role of innovation:

  “We are, in fact, on the brink of a third industrial revolution... The degree of innovation that is in play is truly extraordinary.” – Dr. Philippa Malmgren (41:08)

• On shifting geopolitical strategies:

  “Military policy becomes a continuation of monetary policy by other means.” – Dr. Philippa Malmgren (31:37)

• On what regular people should do:

  “If you can develop that skill, you can answer the questions for yourself about what you should do... You can write your own memos to yourself.” – Dr. Philippa Malmgren (48:28)

Q&A Highlights

Immigration, Hard Assets, and the Social Contract (52:26)

• Malmgren supports free movement of people, arguing human capital is the main driver of innovation.
• Economic weakness reduces social tolerance, leading to restrictive immigration policies and politically-motivated “asset nationalism”. (B, 53:35)

Distribution of Wealth—Can Capitalism Survive Inequality? (54:53)

• She distinguishes between “financial capitalism” and real-economy innovation, advocating support for small businesses as the heart of real capitalism and job growth. (B, 55:37)

Emerging Markets and World Order Alternatives (58:00)

• BRIC innovation (development banks, non-dollar deals) is a response to disillusionment with the US-centered system, but alternatives are unclear and face internal philosophical divisions. (B, 57:45)

Why QE Didn’t Create Inflation and the Role of Entrepreneurship (60:57)

• Asset prices are excluded from official inflation measures due to technical modeling limitations—yet immense impact remains.
• In Japan, QE lacked the desired effect because social and economic systems stifled entrepreneurial “traction”. (B, 61:01)

Non-State Actors and Social Contract (69:44)

• Non-state actors (corporations, NGOs, groups like ISIS) increasingly shape economic confidence (e.g. via alternative currencies like gold coins).
• States outsource functions due to fiscal shortages, shaping new forms of social contract, accountability, and public-private boundaries. (B, 64:50)

Efficacy of Democracy and Youth Innovation (68:24–76:58)

• Voter disillusionment and the appearance of new political parties signal grassroots social contract renegotiation, not democratic failure.
• Example: Youth innovation is often stifled by authoritarian capitalism; successful transitions will empower young entrepreneurs and new models. (B, 72:22)

Geopolitics of Oil, Trade Deals, and US/China Rivalry (78:11)

• Dr. Malmgren’s own PhD thesis addressed economic statecraft: trade rules are used by nations to compel others to conform to their own interests.
• Mega-deals like TPP and TTIP can be seen as tools to contain China, reflecting the return of power politics into trade policy. (B, 79:09)

Timeline of Important Segments (Timestamps)

• Introduction and speaker bio: 00:00–03:47
• Plain English vs. Economics math: 03:47–06:25
• Explanation of “signals”: 06:26–10:50
• Debt defaults, social contract breakdown: 10:51–17:00
• Deflation vs. inflation debate: 17:01–22:30
• Global consequences of QE: 22:31–28:22
• Geopolitics and resource conflicts: 28:23–36:30
• The collision of deflation/inflation: 36:31–44:00
• Innovation and reconstructing the social contract: 44:01–50:00
• Q&A (various topics—immigration, capitalism, democracy, oil, geopolitics): 50:29–81:55

Conclusion

Dr. Philippa Malmgren delivers a sweeping analysis of the brewing crisis in the social contract and the simultaneous reemergence of geopolitics, seen through the lens of everyday “signals”. She argues that solutions depend on empowering ordinary people—through accessible economics and support for innovation. Meanwhile, policy failures, opaque financial systems, and revived great-power competition demand renewed civic engagement and clarity of thought to reshape both national and global compacts.