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Welcome to the LSE Events podcast by the London School of Economics and Political Science. Get ready to hear from some of the most influential international figures in the social sciences.
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Good evening everyone. Welcome to this LSE public event on why We're Getting Poor, a fantastic book by Kaha Moran. We'll get started. My name is Ganga Sridhar. I am assistant professor in the Department of Psychological and Behavioral Sciences at the lse. A colleague of Cahal's. It's my great honor to chair this event today. First of all, a big welcome to all of you and thank you for making it out. It's fantastic to see so many people here and a full up auditorium still. Welcome. I'm looking forward to an amazing discussion. Afterwards, a little a few notes on housekeeping. The event will be live streamed. A podcast will be up later if everything goes well and we have no technical issues and we're hoping that we had around. We have a couple hundred people signed up for the live apart from the number of people here in this nearly full auditorium. So it's going to be a good discussion I think. So I'll just do a quick introduction to Cajal and then I'll just give the floor to him so he can talk about this book. Kahal Morin is a visiting fellow at the Department of Psychological and Behavioral Sciences and a behavioral economist who looks at how biases and heuristic affect consumer behavior. He's also the creator of a YouTube channel called Unlearning Economics which has over 240,000 subscribers and really seeks to and is a brilliant public resource. It really seeks to demystify economics for everybody in a very compassionate and grounded way by relating it to people's everyday lives and experiences. This really takes economics out of the clasp of say technocratic narrative and dialogue and really brings it out to the people, so really democratizes it. And this is not the first time he's tried to do that. When he was just a postgraduate student at the University of Manchester, he co authored a book called Econocracy which really tried to figure out why economics had failed its students and the public to predict some of the most huge events of our time in terms of the global financial crisis in 20078 and why and really interrogate why economics was so divorced from people's lived experiences and reality. This book sparked not only a student movement which sort of really challenged the way economics was taught, but also policy movement in the form of rethinking economics. So I urge you guys to check out both channel to understand a bit of what Cajal is doing and also the book, because it really is the first sort of, I think, intellectual work and a foundation for the book which is coming up right now. So I have a copy of the book here. You can buy it outside when we're done. And I think Cahal will be up for signing it as well. Might give you a cute message. I got an excellent one and I had the best time reading this book. Now, writing a book about why we're all getting poorer is not covered the best news story out there, right? It's not about cute cuddly dogs or cats. It's literally about how people perceive and their lived experiences, but also actually their purchasing power, like very serious economic. It's tough. It's a tough. It's a tough one, right? But not only did I find myself learning as I read the book, I found myself laughing loads because this book is funny and it's grounded and draws and experiences that we all actually go through, whether it's watching football and rugby or eating chocolate and why that's so expensive or why the prices that has changed or even just like sitcoms which are popular. So there are these really interesting anecdotes and experiences that pepper the book to not just make subjects which are quite heavy accessible, but also actually make it more human. Right. So it's really moving outside abstract concepts like the invisible hand and markets and taking it into people's lives and homes. And I think that's one reason why we should all be reading this book. It covers a wide range of topics, right? From what is money, what is debt, to what about the global transport and logistics system. And it actually does it in an interesting way. Right. So he busts mitts and for me, I think what was particularly appealing and also made the book again quite compassionate was he drew upon a range of resources and sources. So not just economists, but sociologists, anthropologists, activists and even billionaires.
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Right.
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So again, urge you to read the book and I'll hand over the floor to Cahal right now so he can actually tell you what it's about.
- [05:16]
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Yeah, thanks. Thanks very much, Ganga. That was a really glowing profile. I don't know if I'll quite be able to do it justice, but I'll give it a go. So. So. So the idea for the title of this book actually came from the chief economist of the bank of England, Hugh Pill. When I was in the midst of writing it and I wasn't really sure what the title was going to be, he announced that Britons needed to accept that they are poorer. He was of course, speaking at the height of the cost of living crisis. During this crisis, inflation went into the double digits in Britain, in countries across the world. It was actually slightly worse in Britain, owing to numerous factors that I'll talk about. And it wasn't just the fact that people had taken a really serious hit to their standard of living. Inflation did come down eventually, but that didn't mean prices went back down. People saw a 20 to 30% hit to their purchasing power, to their standards of living, that it was in some sense permanent. It still persists to this day and people are still struggling with it. But the institution that Hugh Pill works for, the bank of England, is tasked with managing inflation. And what really struck me was not just this crisis, which was caused by numerous factors. Most notably, the Russian invasion of Ukraine triggered Western sanctions on Russia. The price of oil and gas went up. People struggled with their energy bills. There were also, as Ganga alluded to when she mentioned the logistics network, there were huge problems coming out of COVID and lockdown, huge queues, ports. And globalization, which had once seemed so tightly coordinated, kind of fell apart for a bit. That led to scarcity of goods and further increases in prices. Now the way we manage this in the UK and in countries across the world is through inflation targeting. When inflation is high, the bank of England increases interest rates. That is supposed to encourage saving, discourage borrowing by making it more expensive, suck demand out of the economy, reduce the boom and reduce inflationary pressure with it. Conversely, if the economy isn't doing so well, you can slash rates, stimulate spending, stimulate the economy, and inflation will probably go up with it. Now another moment while I was writing this book came to me when a family friend asked me, he said, why is this our way of managing inflation? Because it seems that the primary way that we have to deal with the cost of living crisis is to increase the cost of living. It's well known that the primary way that interest rates work is through housing. Most people who have mortgages have variable rate mortgages. They are attached directly to the bank of England's base rate. When that goes up, their monthly payments go up, often substantially. If you're a renter, that's likely to be passed on to you. My rent increased by quite a lot during this period, as I'm sure many people's did. So a cost of living crisis that was caused by increasing energy prices, increasing prices of microchips and automobiles. We were managing that by making housing more expensive. Why? Why is that our tool for dealing with that kind of crisis, when people are really struggling, why is it that we choose to make their lives harder? Now you might say, well, it kind of works. Interest rates go up, inflation goes down. That is true. And inflation did go down, probably largely owing to the increase in interest rates. But my concern is whether we solve the disease of inflation by essentially killing the patient. You virtually. You crash the economy, you reduce GDP growth, you reduce wage inflation, so you reduce the amount people are earning. That does take the steam out of the economy, but it hurts a lot of people in the process. Can we think of better ways of doing this? It's not just inflation and it's not just interest rate management. Time and time again when I've looked at the economy, I've seen that our modern economy, which seems to be beset by crisis, we lurch from crisis to crisis. In the current era, when these hit, we don't have the right tools to manage them. We use tools that don't really seem to work or they seem to make a lot of people's lives worse in the process. In many cases they seem to benefit the rich over the average person. Now I think an extremely formative event for me was the 2008 financial crisis, which hit just as I started studying economics at a level. This was in 2007. In some of our first classes in September, there was a bank run on Northern Rock in the uk. Now this was actually the first bank to go globally in what would become known as the Great Financial Crisis. And that recession was unprecedented. People didn't see it coming. I think it was the largest recession and the first instance of bank runs since the Great Depression 70 years earlier. GDP fell by about 5% between 2007 and 2009. We didn't actually see a full recovery back to the pre crisis level until 2013. That was a six year recovery that's very long by historic standards. And ever since then, GDP in as well as Europe and the Eurozone has just kind of pootled along. We never really got the boom that you're supposed to get after a recession. Now again, it wasn't just the crash, it was how we chose to respond to the crash. The Labour government were kicked out in the uk, understandably owing to the fact that they presided over the financial crash. And the incoming coalition government led by the Tories, decided to embark on an ambitious program of austerity. Tens of billions in spending cuts. It was thought that we should reduce the deficit, reduce the amount that the government was borrowing, fix the government finances. Everyone was tightening their belts during the recession. Why shouldn't the government do so too? Now, it's my opinion that this was a case of misdiagnosis and misdirection. The deficit wasn't very high before the crisis. Whenever a recession hits, the economy declines, economic activity goes down, tax revenues decline, unemployment goes up, benefits paid out to unemployed people increase. That explained the sudden rise in the deficit. Once you get back on a sure footing, once the economy starts growing again, the deficit does tend to reduce. Essentially, this misses the crucial role that governments have in an economy. Governments provide a range of essential services that underpin a lot of social life, a lot of economic activity, a lot of people's welfare. Just taking these away is not a good thing for the economy. And I think this abject failure to understand this point was illustrated most clearly by George Osborne's words, because in 2015 he said that the deficit, reducing the deficit was fixing the roof while the sun was shining. Like a family, while things were going well, you would squirrel away a few quid for a rainy day. But this metaphor came back to bite George Osborne because he said they were going to fix the roof while the sun was shining. Years later, his cuts led to the collapse of an actual roof in a school in Kent, as well as the roofs of many other schools across the country. Not just schools, hospital wings have collapsed, rendering them unusable. Now, in 2022, the Bennett Institute at Cambridge found that what they call physical and social infrastructure has declined in almost every area across England. This is things like schools, this is things like GPs, mental health services, hospitals. It's also things like train stations, bus routes. One fifth of bus routes in the UK have disappeared over this period and fares have only gone up in the meantime. Now, it seems to me that if people can't get around, if they can't get to work, if they're not getting a good education, if they're not healthy, that is hardly the basis for a strong and growing economy. This issue pops up again and again that we make these short sighted decisions that are focused on petty pinching but actually come back to bite us. In 2013, David Cameron ordered civil servants to cut what he called the green crap. Now, this meant things like retrofitting homes so that they were more energy efficient. It meant subsidies to renewable energy, solar and wind in particular. As a result, we've kind of fallen behind in the renewable energy race. When Russia invaded Ukraine and we became much more and we realized how reliant we were on oil and gas from Russia, the think tank carbon brief estimated that the Downstream cost of these cuts to the green craft was 150 pounds per family per year. Again, we had failed to invest in our economy and this had cost us down the line. And of course, the government had to bail people out so that they could pay their bills. So it didn't even work in terms of the government budget. The worldview of these governments, this government, the Tory government that lasted 14 years, I think was best summarized by Dominic Ra, though in 2017, he said, I can think of lots of things that I would like to avoid making difficult decisions on, and lots of areas like health services or schools that I want to put even more money in. But unless you've got a strong economy creating the revenue, it's just a childish wish list. So here we can see Raab's view encapsulated. He thinks that the economy is something that we have to grow. It exists kind of separate from these social aims. And if we grow it enough, if we've got enough revenue, then we can afford social services and public services specifically. Rob was actually responding to a woman who was criticizing his cuts to disability benefits. Now, in Rob's worldview, that's just a cost, because disability benefits, they'll typically go from people who are disproportionately working to those who aren't. So it's a question of, do you raise taxes? Can we afford it? But there was a study done in Denmark on cuts to disability benefits, and it found that they saved almost no money whatsoever.
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Why?
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Well, the thing about, the thing about care, care for people with disabilities is that it needs to be done no matter what. You can withdraw the benefits. And if those benefits were being used to pay for a carer, somebody who knows the person is going to have to drop out of work and take care of them anyway, in this case, because care is historically disproportionately done by women. This led to quite a. A notable withdrawal of women from the workforce that reduced tax revenues. Therefore, the policy didn't save any money, as well as making a whole bunch of people's lives much more difficult in the process. So whether we're talking about inflation targeting and the cost of living crisis, whether we're talking about investment in essential services like transport, health and education, whether we're talking about the environment or care, we find again and again that the way that we've chosen to manage the economy, particularly in the uk, is self defeating. And it's no wonder that, of course, this government missed their deficit targets, that the economy was.