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- [00:01]
KPMG Representative
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American Express Representative
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Martin Wolf
Can I get you a refill?
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American Express Representative
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- [00:55]
KPMG Representative
Bloomberg Audio Studios Podcasts Radio News.
- [01:10]
Tracy Alloway
Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.
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Joe Weisenthal
And I'm Joe Weisenthal.
- [01:16]
Tracy Alloway
Joe, we're here in London.
- [01:17]
Joe Weisenthal
Still in London.
- [01:18]
Tracy Alloway
Still in London. It's been interesting, I think I've mentioned. So I obviously I went to university here. I got my first job here first at Bloomberg. I, I left very quickly and joined the FT and I was here for like 10 years and met my husband here. So I've just been walking around the city this week just feeling very nostalgic about everything.
- [01:37]
Joe Weisenthal
This is a very weird time to be in London. For one thing. I have to say, like, the whole time zone thing really messes me up. But like, I'm like, you know me, the concept of time zones still blows my mind a little bit.
- [01:49]
Tracy Alloway
As an American, I'm not surprised to.
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Joe Weisenthal
Hear you say the most obvious. It's like, I can't believe the market's still open. But also, you know, we're at a time where changing perceptions towards the US Are a big story. And normally, if I'm being honest, if I could be a sort of rude American for a moment, always. Joe Global perceptions of the US Are not typically a very big deal to me. They're not something that I think about very often, except insofar as we're in a period where our president claims to want to be doing trade deals with the rest of the world, at which point these elected leaders around the world have domestic constituencies that they have to be accountable to. And as such, perhaps we're in a period where perceptions of the US actually substantively matter.
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Tracy Alloway
Well, here's the other thing I was thinking about. I was walking past my old university and I was thinking both you and I did international relations.
- [02:44]
Joe Weisenthal
Yeah.
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Tracy Alloway
And I was thinking how amazingly irrelevant that degree has become. And I was thinking back to the reading list we had in the early 2000s about, like, implementing globalization and globalization colon the way forward and things like that. So much of that just feels completely off the table at this moment.
- [03:05]
Joe Weisenthal
All these, like. These hopes for, like, various multilateral agreements and we're gonna sign. But now the plan is to sign bilateral agreements with 70 different nations in.
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Tracy Alloway
90 different nations while insulting them on a daily basis.
- [03:18]
Joe Weisenthal
While insulting them. I mean, come on.
- [03:20]
Tracy Alloway
Okay, so I'm trying to unify all these different themes. My former employer, the future of globalization, the fact that we're here in London at a time when Europe, US Relationships really seem to be in the gutter in many ways. So we have the perfect guest.
- [03:36]
Joe Weisenthal
We do have the perfect guest.
- [03:37]
Tracy Alloway
Truly the perfect guest. We're going to be speaking with Martin Wolf. He is, of course, the chief economics commentator over at the ft, sometimes described as the most important economics commentator in Britain, which, given that the UK exports a lot of commentators, is really saying something. Also the author of a book on globalization, of course. Although, as I understand it, your feelings have evolved over the years. So, Martin, welcome to the show. Thanks so much for coming on.
- [04:01]
Martin Wolf
It's a pleasure to be here in beautiful London, which feels very pleasingly away.
- [04:06]
Tracy Alloway
From the U.S. yes, yes.
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Joe Weisenthal
We're setting the tone for the conversation.
- [04:09]
Tracy Alloway
Yeah, There we go. Is it amazing to be an economics commentator in the current environment, or is it incredibly depressing in the sense that, you know, we're seeing a lot of new and interesting ideas. I'm doing air quotes, although I'm on a podcast. New and interesting ideas coming out of certain administrations about how economics works and how it could theoretically work. And at the same time, you're seeing the tearing down of a lot of established norms and principles from traditional economics. There's a lot to write about.
- [04:38]
Martin Wolf
Yes. This was a question that a lot of people asked me during the financial crisis when it was really at its worst and looked very, very frightening, which is in a very different way the closest to what in my professional career to what we're experiencing now. My answer used to be, I divide myself into two people as an economist and commentator. It was the best period of my life as a father and a grandparent grandfather. It terrified the wits out of me. And I would say the same now, but probably even more so.
- [05:07]
Tracy Alloway
Wow.
- [05:08]
Joe Weisenthal
By the way, this is kind of like me and Tracy, except Tracy is the side of you.
- [05:13]
Tracy Alloway
I Fully embody the anxiousness and Joe is basically the exhilaration that things are happening.
- [05:18]
Joe Weisenthal
Well, I said this in a recent review. Like, I just get so excited. I just love seeing the line and I feel like I wanted wish I'm taking a moment to hedge that I actually do have a person. I am not just someone who stares at a screen all day. And I do genuinely care about the actual sort of health of the world.
- [05:35]
Tracy Alloway
The fact that you feel you have to announce that publicly is slightly worrying, Joe, but good. It's good to know.
- [05:40]
Joe Weisenthal
You know, there's a part of me that thinks this is a bigger story in many respects than the great financial crisis, because in retrospect, although the great financial crisis or the global. I forget what we call it. Global financial crisis was enormous and maybe once an entry, it was a very big bank. And bank runs happen from time to time. They're not that unusual. And there's a playbook and you backstop the banks and you do some Keynesian fiscal policies. This feels like to me right now something that could metastasize into a truly bigger story in terms of the lasting imprint it has on the world.
- [06:17]
Martin Wolf
I think that's very plausible. Now, during the financial crisis, I didn't view it quite this way, partly because I know a lot of economic history and not least because my parents were from continental Europe and escaped from the most obvious consequence of the great financial crash, which was the Great Depression and Hitler. In history, we have mostly survived huge financial crises, but sometimes people don't deal with the bankrum. And the most famous case, obviously in history was what happened in the 30s, and it led the Federal Reserve completely failed to deal with it in any sensible way. And it led to the Great Depression, which was the biggest economic downturn in sort of modern history, the last two centuries. And that led absolutely. Clearly it's a theme of one of my books or part of the theme of one of my books to the election of Adolf Hitler. And that led to certain other events like World War II and the death of 60 million people and so forth. So during the financial crisis, I was really frightened now that they did do the sensible things, all the things I wrote at the time they should do. So I feel very happy about that. They went back to Walter Batchart, who knew how to deal with these things, and that seemed fine. Now, right now, I would agree with you. Certainly this is a bigger event because it's a fundamental undoing of the world economic order as created after the Second World War. It is, I think, also in the backdrop, a fundamental remaking of the American republic. And right now, of course, it involves a. Because it's both of these and because of the extraordinary role the US has played in the world since the Second World War, since 41, really, with Pearl harbor, it really means a remaking of the entire world order. So we right now, I think the most important thing that I say when anybody asks me what's going to happen next is I really don't know because nobody can.
- [08:14]
Tracy Alloway
Since you brought up the economic policy of the 1930s and since Joe is currently reading Adam Tooze's Wages of Destruction.
- [08:22]
Joe Weisenthal
That's right.
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Tracy Alloway
And everyone who has interacted with Joe over the past two weeks has heard.
- [08:26]
Joe Weisenthal
Me talk about this.
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Tracy Alloway
Be aware that you are reading about that.
- [08:28]
Joe Weisenthal
That's what I do. I tell everyone what I'm reading.
- [08:30]
Tracy Alloway
Adam owes you a commission at this point because you are literally like, hi, I'm Joseph Eisenthal. Have you read the Good Book of Wages of Destruction? Like, this is Joe right now. Talk to us a little bit more about any parallels you're seeing between the current economic environment or I guess the grievances fel by American policymakers versus what we saw in the 1930s.
- [08:51]
Martin Wolf
I think that what is striking to me is the differences. I do argue in the book I wrote the Crisis of Democratic Capitalism, which you certainly should read. We will. It's on the list is this idea that the global financial crisis was a very big shock. It had quite long lasting effects, notably so in the US And I argue in that book that one of the reasons, probably the main reasons, that the Republican Party, when they start realizing what had happened, shifted from Mitt Romney to Donald Trump as their candidate, which was an enormous revolutionary change, is that that shock had, as it percolated through, helped a very large number of relatively conservative middle class Americans feel that this Reaganite stuff about free markets and so forth was, to put it bluntly, crap. Because these people had led them down the path and they wanted somebody who embodied their ideology, their attitudes, very reactionary ones in my view, but not with that economic baggage. And Trump was the perfect person. So in that sense, I do think the global financial crisis, and it's a theme of my book, it's not the only reason. Deindustrialization and other themes which Trump plays with are also important. And I have a long discussion of that going back to the 70s. But that big shock I think played a very big part in shifting the Republican Party in the populist nationalist direction. And that's of course why we are where we are now. So in that sense, I think there is a link. But of course, and this is the contrast for the reasons we've discussed, in the end, the policymakers involved, basically under the Obama administration, many of whom I of course know, some of them quite good friends, they did manage it in the way it wasn't managed in the 30s, so there was a fairly quick recovery. The financial sector was put back on its feet, though with an immense amount of federal support, and the economies recovered. And what is striking about this revolutionary moment in economic policy we're seeing, it is, I think, sort of unique and I don't fully understand depresses me because, well, I have to admit it, the American economy has done better than any other developed country since the pandemic. The pandemic was a shock, but it's motoring. Real incomes have been rising rapidly. The jobs performance was exceptional. Now, that's about as far as Germany in the 33s, you can imagine, when unemployment was 25% and there was not much of a welfare state. So the economic explanation in the classic sense doesn't really work.
- [11:31]
Joe Weisenthal
I've been thinking about exactly this because I have been reading Adam Tooze's Wages of Destruction, which is that Martin, send.
- [11:40]
Tracy Alloway
Him a copy of your book and he will do the same for you.
- [11:43]
Joe Weisenthal
Yeah, I'll plug it for two or three, three straight weeks. But the only time that I, you know, I have very mixed feelings about all of this because, look, I'm in these wonderful Bloomberg offices and I'm staying in a nice hotel and I have a job where I get to type for a living. But, like, America is an incredibly rich country. And I always think, you know, the distribution of financial assets in the United States is, as everyone knows, extremely skewed to say, like the top 1% or whatever. But the actual distribution of real resources, when you look at the size of American houses, when you look at the number of people, of cars, when you look at the size of American refrigerators with ice machines that typically work, America is an extraordinarily wealthy country for a wide swath of the population. And so when I read history in that respect, it doesn't read at all to me like the actual real economic conditions that I would say associate with the 1930s.
- [12:39]
Martin Wolf
I think that's absolutely right. Of course it isn't, and that's created a puzzle. Nonetheless, it seemed pretty clear, and I refer to quite a bit of literature on that in my book, that it's not surprising people are very, very concerned about their relative positions. People are very, very concerned about their security, their sense of security in their positions. And those anxieties are often related not just with their economic positions, but also more broadly, with their cultural positions. And America's a country that's gone through some big, revolutionary changes. Deindustrialization, for example, is real. That's a transformation of many, many communities. The push for gender and racial equality is real, and it clearly runs up against anxieties and hostility. That was also very, very real, the new economy. Well, you're absolutely right. Clearly right. But it's still true. When I go through America, and on many occasions, I've hired a car and gone across the country to places like Erie, Northern California, way far north. There are lots of poor people in America, and most Americans that I know don't see them because they fly over them. But I've actually driven across it. There are lots of poor people, and people are frightened of ending up there, in my view. They have a sense, you know, I'm one real hospital medical problem away from bankruptcy. So I think there is an insecurity and anxiety which comes up with these cultural and economic things mixed up to which Trump addresses his appeal perfectly. He's the perfect populist for America. And one of the things I've learned, which is new because I've never lived through it with a political demagogue like this, how incredibly good a brilliant demagogue is at exploiting those resentments and offering himself up as the solution to all this. And that's the way I would now see this.
- [14:43]
Tracy Alloway
Speaking of resentments, I mean, it does seem, if we zoom out on an international scale, so away from the domestic US Economy, it does seem like the Trump administration's major grievance is this idea that the US hasn't been compensated enough for its role in the international affairs, financial system, and the fact that the dollar is a reserve currency and all of that. And it's very difficult for me to wrap my head around that particular position. Like, I understand there are downsides and upsides to that special status, but the Trump administration seems really committed to the idea that this is a giant burden being carried by the United States. What are your thoughts on that particular argument? Like, how true is that? Or like, what are the actual downsides? And then secondly, what do you think of some of their policy proposals where they're trying to attend to this issue and, I guess alleviate some of their complaints?
- [15:37]
Martin Wolf
Well, what's particularly puzzling about the position they've adopted is that while they do think It's a terrible burden. They want to cling onto it with all possible might. I mean, the people who've made the most sort of sophisticated analyses of this, and that's obviously not Donald Trump, Stephen Mehran, he's chairman of the Council of Economic Advisors, sort of make it clear we want to get rid of all the costs. We'll come to that in a moment. But we definitely want to keep the dollar as the world's dominant currency.
- [16:08]
Tracy Alloway
Have our cake and eat it.
- [16:09]
Martin Wolf
They really want to have their cake and eat it. Well, this is really quite complicated. The right answer is half an hour, which we don't have. So the summary of it, the argument about whether the dollar is a burden or a privilege has really been going on since the 60s. And it's when I started studying economics, so I'm very familiar with it. And it led to the first attempt to readjust the cost of this, which has the closest parallels to what we are seeing now, which is Nixon under Nixon, the Nixon shock of 71 when he basically tried to get the dollar devalued. Sounds familiar, right? I mean, that's what they'd. One of the things they're trying to do is to get everybody to appreciate their currencies against the dollar. And the reason they needed to get the dollar devalued is then is they had a fixed exchange rate system. Obviously not the situation now. The dollar was tied to gold. The monetary policy of the US in no way represented what you should do if you're on the gold standard. One of my constant points is that a lot of people say going off gold in 71 was the worst thing that ever happened. But my argument is that the US was never really on gold. We can discuss that if you want. It's rather remote from this. But the key point is he imposed import surcharges. Sounds familiar. And he told them, those will remain until you revalue your currencies. And indeed they did get them revalued. John Connolly, the Treasury Secretary, famously said, the dollar is our currency and your problem. And so he sorted this out, as it were, and that ended up in the regime of generalized floating. So the US got its way, but after that no real effort was made to readjust it. What is true? For reasons that are linked to the Asian financial crisis of the late 90s, after a lot, I won't go through the plaza to the Louvre simply because that's part of. Well, it's part of the story. Of course. Another period of similar problem arose. There are two Other periods when this problem re arose, the excessive appreciation of the dollar from the American sense and the sense that was leading to uncompetitiveness and that affected important parts of the economy and something had to be done about it. And so that was Nixon was the first one. The second one was the Reagan era. And he introduced has some similarities with subsequent developments, more recent developments. He had Paul Volcker running the Fed. So hypertight monetary policy and a floating exchange rate and a big fiscal expansion, right? Tax cuts, the combination of very aggressive fiscal expansion, tight monetary policy is a classic combination in economics to lead to an appreciation of the real exchange rate. And it did. The trade deficit exploded. Japanese cars wiped out American cars. There was hysteria about this. The Americans introduced voluntary export restraint or imposed them. Bob Lighthizer, interestingly, was a negotiator at that time. It has echoes, doesn't it? And finally got so this created so much protectionist pressure in the United States that the Americans decided that they needed to get the dollar devalued. And that was what the Plaza Court was about. And then two, three years later, I think two years later, the Louvre agreement, they decided to stabilize it. So that was another example of this concern about people want the dollar too much. We want it to be the global currency, but we don't want too much demand for dollar. The third episode, the more recent one, is really very interesting and it's a theme of my previous book, the Chips and the Shocks, which is about the financial crisis, is after the Asian financial crisis, two things which came together happened. First was the explosion of China onto the world markets and China's massive accumulation of reserves as a byproduct of its determination to keep the renminbi fixed against the dollar. And that led to the explosion of the Chinese current account surplus. It reached a peak of 10% of GDP in 2008. And the other thing that happened which went parallel is after the Asian financial crisis, every trading power in Asia decided we could never let that happen again. And what they thought had happened to them was running a current account deficit, a big trade deficit and borrowing lots of dollars because they discovered, well, most of the dollars they borrowed was from Western banks and mostly American bankers. They ran, and they didn't have a central bank that could print dollars. So when they had a run, their economies crashed. And so their conclusion was we must accumulate dollars without limit, more or less, and run current account surpluses to accumulate these dollars. Those two things came together and that led to an enormous expansion of the US external deficit. And that in my view directly led to the global financial crisis. So these are the three episodes all around this same problem of the dollar's role. And that's not wrong. Now the question is how you manage it. It's not fundamentally a trade policy problem, pretty obviously it's an exchange rate competitiveness and macroeconomic policy problem. Interacted and reasonably sophisticated policymakers who handled the previous episodes, in the end, the President sort of listened largely to relatively competent economists manage these episodes, including most notably the global financial crisis, which is the biggest of these episodes. The basic point here is, yes, management of a global system in which the money in the system, which is the dollar, is produced by one country, does lead to very significant instabilities, which is why intelligent people have thought about this, have quite logically said we'd have a better economy if we had a world currency. But we don't know how to produce a world currency. The Europeans created the euro for this reason within Europe. I won't go into the question of whether it worked. But the point is there is a problem here. Now the problem is how you manage it without blowing up the system. A trade war with everybody at the same time won't solve the problem because underneath it, it's a currency and macroeconomic policy problem. And I think this mainly nowadays relates to the role of China in the system. They're not wrong about that. I've written quite a lot about this, but unfortunately, the way the US is going about it, I don't see how they're going to get to a resolution. But in the end, the US has to decide, do we really like having the dollar as the global currency? Of course they do. It gives them enormous power. It makes borrowing much cheaper. It allows the biggest economy in the world to run ridiculously large fiscal deficits, 6% of GDP at full employment with explosive debt because everybody is invested in holding dollars. And that gives the American policymakers spectacular room for maneuver. They can have guns and butter, and they've done it many times. And periodically they get very upset about it. But it's a choice they made after the war. They could stop it, but they would lose an awful lot in the process of the idea that it's an unambiguous loss to the US as has just been pointed out, the US is, despite this terrible burden that they are whining about an immensely rich and powerful country which can spend more than its income indefinitely and it's not going to go bankrupt. So from our point of view, and particularly speaking as a British person who knows what happened when we Lost this. All those sterling crises when I was growing up in the 50s and 60s obviously were all about losing that. Very, very undesirable. Because people ran from sterling and we couldn't run fiscal deficits of 6% of GDP. We would blow up. Liz Truss tried. So we would say, stop complaining, guys, you're rich, you're fat, and your currency is basically safe unless you screw up monstrously. So why are you screwing up monstrously? That's where we are now.
- [24:34]
Tracy Alloway
Joe, can I just say, that was such a treat. Martin Wolf, on the three defining moments of the development of the global like dollar reserve system. Absolutely amazing.
- [24:43]
Joe Weisenthal
That was fantastic. I just have one question. Can you give us like the 32nd version of why we weren't on the gold Standard prior to 1971? Because I think listeners might be curious about that.
- [24:53]
Martin Wolf
Well, okay, well, I think that's very wonkish.
- [24:55]
Joe Weisenthal
So the 45 cents.
- [24:58]
Tracy Alloway
He gave you an additional 50.
- [24:59]
Martin Wolf
So I'll just start. The gold standard required a very strong relationship. The Go, go back, really. Let's go back. How the gold standard operated was defined by all people, not in economies. But David Hume, the great Scottish philosopher, one of the great geniuses of all time, in the middle of the 18th century when he explained very simply, imagine gold is your currency. In that stage, gold pretty well was the currency. And so if you ran a balance of payments deficit, you financed your deficit with exports of gold. And what that did is as the gold was disappearing from your, you were being demonetized and the money in the economy was shrinking. And so what you had to do was lower your prices. He was a monetarist, as all economists were, and I still am in some ways. And so prices adjust downwards. It makes you more competitive and that will adjust the balance of payments. It'll move into surplus. That's how it's supposed to work. So if you're on the gold standard properly and you have a currency linked to gold with a fixed price, which sterling had before 1931, well, we won't go into the history of sterling and gold. And the US was supposed to have until 71. Then if there's a gold drain, you're exporting gold to satisfy creditors who accumulating claims upon you. Your monetary base shrinks. So your monetary policy should tighten automatically and that will introduce deflationary pressure in your economy and your price level will fall and that will equilibrate it. So in the late 60s and early 70s, let's take this episode. The US ran a huge current account deficit and the main reason was they decided to finance the Vietnam War by increasing the fiscal deficit. So they created excess demand in the US that created inflationary pressure in the US that went on for quite a long time and a huge current account deficit. But they didn't want to allow the Fed to start tightening monetary policy and deflating the American economy to reduce the price level. They were very happy running these huge current account deficits. And that meant, of course, the rest of the world was accumulating dollar claims at a very rapid pace, particularly the Germans, the Japanese and so forth. And after a while they and France and they started saying, we don't want all these dollars, we want our real stuff. And they started converting their dollars for gold. And that's when the drain on Fort Knox happened. And then the US had a very simple choice. It was pretty obvious, we were discussing it when I was a student in the late 60s. They could ignore this and the gold would disappear and then they would have to go off gold. They could reprice gold, which they didn't want to do because it was a recognition of failure, or they could go off the gold standard. And the one thing they didn't want to do was deflate the economy. That meant they were ignoring the rules of the gold standard. The rules of the gold standard were if you were losing gold, you had to deflate your economy to make it competitive again by lowering your dollar prices in a fixed rate regime. And at these crucial moments, this crucial moment, they chose not to do that. So the regime collapsed. And in the Great Depression, by the way, even more important, they failed to do the reverse. At that stage, they had a huge current account surplus. America was very, very competitive. And the US was, of course, price level was collapsing. So it was becoming even more competitive. And that was exporting the depression to the whole world through the gold standard system. And so what the US should have been doing instead of allowing the money supply to collapse, Friedman, of course, wrote classically about this in his book with Anna Schwartz. They should have been expanding the money supply like crazy. So this was the inverse. That was the first great crisis. What I discussed earlier was the second crisis of the gold standard in the 20th century. So in the Great Depression, the US failed to follow gold standard rules, which was precisely when they had a huge current account surplus and they had this immensely strong position in gold inflow. They were not pursuing massively expansionary monetary policy. On the contrary, they were pursuing massively, contractually monetary policy, making it all worse. And the price level was collapsing in the U.S. so again, they failed to follow the rules of the gold standard. The US showed itself unlike the UK in the long period it ran the gold standard, a country incapable of allowing the foreign position, basically the balance of payments, to force its monetary policy in directions either expansionary or contractionary. So my view is that the gold Standard under the US from the 20s onwards, that was basically when it shifted from a sterling base to a dollar based gold standard. The US never followed the rules of the gold standard. In two colossal episodes it ignored them. So of course the gold standard collapsed. And all these whining about this again is ridiculous because the US has never had any intention and that's what we're seeing now of allow any international rules, agreed rules from actually forcing it to do something it didn't really want to do.
- [30:39]
KPMG Representative
KPMG makes the difference by creating value like developing strategic insights that help drive M and A success and embedding AI solutions into your business to sustain competitive advantage or deploying tech enabled audits to deliver more accurate and transparent outcomes. Brighter insights, bolder solutions, better outcomes. It's how KPMG makes the difference every day. KPMG make the difference. Learn more at www.kpmg.us insights.
- [31:14]
Thrivent Representative
Thrivent can help you plan your finances for the people, causes and community you love. What makes Thrivent different? A combination of financial services and generosity programs. Thrivent offers advice, investments, insurance, banking and generosity as well as resources to fund service projects or direct dollars to causes you care about. With more than 120 years serving clients, you can plan your finances with confidence. Visit thrivent.com to learn more. Thrivent where Money Means More we could.
- [31:44]
Tracy Alloway
Happily just keep asking you questions about, you know, financial history, but since we are in London and there is a lot going on, I feel like I have to ask at least one UK specific question. So I met with some friends of mine from university. I've been meeting with them like over the past few days. All of them are professionals, seem to be doing pretty well in their career, but the discussion always ended up centering on salaries and real wages. I knew the UK had a productivity problem and a real wage problem, but I was surprised to hear the extent of it, at least according to some of my friends. What's going on there? Why has this happened?
- [32:23]
Martin Wolf
I think that unlike what we've been discussing so far, this is one of the great puzzles. Actually I call about this very very recently or based on recent work and it's not unique to the uk though I will describe one aspect which is an outlier up to 2008. So from about 1990 to 2008, so after the Thatcher revolution to 2008, British productivity growth was really pretty strong. So between 1990 and 2008, output per head in the British economy rose by, I think it was about 38%, which is pretty good. Over a period of 17 years, it was around 2% a year and that was much better than our European peers and quite a notable improvement of what had happened in the 70s and 80s. So we felt pretty happy. We were catching up again since then, since 2008, output per head has gone up over the entire period by just a little over 5%. Just think of that contrast. It's dramatic. Now, output per head in other European countries has not been much better over this period, but they were already doing relatively poorly before 2008. The slowdown in the UK has been greater than anywhere else. Up to 2008, we were doing about as well as the US and since then we've been in a different class. Though it should be said, if you look at the whole period since 2008, the US has actually been doing worse than in the previous period. The US looks so great because everybody else has been doing so badly. So the question is, why has this collapse in the UK happened? And I honestly think we can think of lots of possible explanations, but we don't fully understand it. You can't identify it in just one sector, though there are some sectors which are particularly important. It seems to have happened in most sectors. Our investment rate is very low, but it's always been relatively low. So it's difficult to say the change there is decisive. There are some aspects of the public sector which clearly are important. The weakening and decline of the oil and gas sector is important. The fact that the financial sector has never been as dynamic as it was before 2007 and 08 is important. But the extent of the decline and what is essentially the loss of dynamism in British capitalism. If you just look at the ftse, look at the stock market index, most of the companies there are old and sort of dying. We don't fully understand it. There's no doubt that the complete absence of a dynamic technological, high tech sector is important. When you start looking at the detail, though, and that was very interesting in this column and the work I did in this column, it's pretty clear that an even bigger difference is in the use of technology in the rest of the economy compared with the us. So I think that we can see what's happened. There's been a general loss of dynamism in the private sector. But it's very difficult to ascribe it to specific policy changes because there really haven't been dramatic ones. We very much, the tax regulatory system is much like it was before. So what looks like is that they're sort of just dying. And this is sort of a European wide problem too. So. And of course, if productivity growth disappears, real wages growth stops, because in the end the real wages are incredibly highly correlated, not perfectly with the rate of growth of productivity in the economy. The same is true for the US if you look at long periods, distribution matters a little. But I mean, Paul Krugman actually said this once a long time ago, productivity isn't everything, but it's almost everything. So the basic answer to this question is we know, as it were, what the proximate cause is, but we don't know why it's happened fully. I have lots of theories, but we don't really know why this has happened. And it's a general European problem to some degree. Also in East Asia, Japan is noticeable, though actually in the recent past pandemic, post pandemic period, Japan has done relatively well.
- [36:37]
Tracy Alloway
Since you mentioned Europe, one of the things people are getting excited about now is the idea that maybe the tariff war, US isolationist policy is going to be this big catalyst for Europe. And we've seen European mainland stocks certainly go up recently. People are getting excited about, finally we're going to have, you know, maybe the prospect of some real fiscal integration, or if not real fiscal integration, at least a lot more fiscal spending on things like defense and stuff like that. Is that a realistic possibility in your view?
- [37:08]
Martin Wolf
Well, and just to support this, even though it's partly an economic shock which the Trump administration has given Europe two big shocks, it's created a sort of security panic. Is NATO over? And that was particularly focused on the issue of support for Ukraine and an economic shock which was the proposal now withdrawn for another 80 odd days of penal tariffs, 24%. I can't remember what exactly the figure for the EU was. Somewhere in that range. You add the two together. This is a crisis. So if not now, when? If you believe, as Jon Monet, one of the great founding fathers of the EU said, that Europe is born in crisis. This is a big crisis. The world order is being transformed and the crucial ally, the country on which we are heavily dependent, has gone absent, as it were, possibly even hostile. So that's the plus side. Yes, they really ought to respond. The obstacles to change are also very, very big. Europe is fragmented, it doesn't have a genuine people. The Brexiters were right when they always said Europe doesn't have a demos, it doesn't have a people, it has peoples. That's not surprising. Look, you know, the Roman Empire disappeared 1500 years ago and Europe has effectively been divided ever since, except under the Catholic Church. And we know where that ended up in the 16th century. So the answer is that I don't know whether this crisis is big enough to force the sorts of changes economically which Mario Draghi wrote about in his report, or politically to deal with the security questions. I tend to be skeptical simply because I know how big these challenges will be and how much resistance there has been to every other necessary change. I think the crisis may have to get bigger. But I don't rule out the possibility that the crisis will get bigger because if you ask me what will the American policy look like a year from now, I've absolutely no idea. But it could be much more hostile than it. It's quite fickly possible. In which case maybe the Europeans really will be forced. At the moment it looks like individual nation state response, not collective. And there the one really big change I think is that the Germans are panicking and Germany in the center of Europe is always prone to feeling insecure. That's part of its history. And I think it's pretty clear that the new government coming in will be much more aggressive on economic policy. It's forgotten the debt break nonsense. It clearly will mount a pretty big defense buildup. It will become a much stronger motor of demand. And all on its own, though it can't carry the whole of Europe. That will make a big difference. But I think in the end, at least in the next few years, we should trust more on what individual nations above all Germany do. It's much more difficult for France which is also very divided politically. Remember, there's a very big, what I refer to as fifth column of Putinist fifth column in Europe and France is hugely fiscally constrained, unlike Germany. So I'm modestly optimistic about the near term, but a really big leap into union I don't see.
- [40:47]
KPMG Representative
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- [41:22]
Thrivent Representative
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- [41:55]
Joe Weisenthal
90 days and the US is going to sign all of these bilateral trade deals with partners all around the world strikes me as absurd on its face. I mean, these, you know, trade deals take years and years to negotiate and especially the limited constraint, just whatever strikes me as absurd. Nonetheless, I mentioned in the beginning, you know, normally, I'm sorry, I would not typically care how, you know, the approval ratings of the United States and Sweden or Denmark do not typically particularly interest me. But in an environment of attempting to do deals, it strikes me as very relevant that the leaders of these countries have to be accountable to the individuals who elected them. Talk to us about the mood either among the elites who are going to be involved in these theoretical negotiations, which I don't even know if they're existing, and the impulse to try to rectify, to try to come to friendly relations with the new administration in the United States right now. How bad is it and how much of a hindrance is that to achieving something that resembles a happy outcome?
- [43:05]
Martin Wolf
So I think this has to be broken down also into several elements. Countries will want to reach a deal with the U.S. the U.S. is very important. It's a very important partner in terms of both security and trade. And the administration is correct that these are linked in people's perceptions. And this is particularly true for Asians, broadly defined, particularly East Asians and Europeans. So they will want to reach a deal if they can. The second issue which is really important is they will need to feel that this is a deal and this is about trust. Yeah, that's particularly got politically painful aspects to it. And I'll come to the substance of the deal next is they need to feel that the US is going to stick with it. Okay. And there's no doubt whether in a way, I think for policymakers who are reasonably professional, whether you like the country or not is not that important.
- [44:02]
Joe Weisenthal
Okay.
- [44:02]
Martin Wolf
Though obviously the people really hate the Yanks. It's going to become more difficult. But the crucial question they have is can we trust this? We're not going to go through this every week, are we? And at the moment they're not sure if they won't have to do it every week. And there's no doubt in this regard that the treatment of Canada has been quite a shock.
- [44:22]
Joe Weisenthal
Yeah.
- [44:22]
Martin Wolf
That, you know, that really came out of the blue sky. I was always pretty pessimistic about what the Trump administration would do, but this has been really quite out of left field. And the.
- [44:34]
Joe Weisenthal
So the Greenland.
- [44:35]
Martin Wolf
Well, Greenland, yes, but Greenland is less important than Canada's a real long term Alvino Friendly. You Trump himself signed the United States, Mexico and Canada Agreement and then sort of blew it up. So that makes do we trust them? The third is obviously you can't do a detailed trade deal and they seem to have an ambition to somehow link the currency with it. I have absolutely no idea what's going on in these discussions. None of nobody, I think seems to do and that seems to know in detail. But there is something that somebody suggested to me and I've been thinking about that the Americans might be saying, which might fit into their general theme. Assume that all this smoke and mirrors is basically a cover for the complete decoupling of the world from China. That's all they're trying to do. And this is a.
- [45:30]
Joe Weisenthal
And is Europe willing to be part.
- [45:32]
Martin Wolf
Of that decoupling and having frightened people and shaken them enough with these absolutely ridiculous bilateral tariff nonsense which everybody can see is an unworkable way of running world trade, we'll discuss that too. But that's a different matter though. Basically what the U.S. let's suppose the U.S. comes, we will go back to the status quo ante if you follow our tariffs on China. Right. That's the deal. And we promise again, this comes back to the trust if we're going to completely burn our boats with China, and this particularly applies to some of the Europeans and Japan, all the countries in the region, we really have to trust America. So it's a very big ask. But that's a deal that maybe quite a few countries will be willing to sign. But I certainly wouldn't guarantee it because as I said, it's a tremendous cost. They all know China is an immense and rising power. For many countries, it's their most important trading partner. For most countries, their trade with the US Though important isn't that Europe can survive without it. Let's be clear. I mean, it'd be a real adjustment, but it's not, you know, their most important trading partners are themselves. If I remember correctly, they trade more with the UK than the US So they can survive. But if the US is really after getting everybody else to break with China and or Agreeing that they're going to go on holding the dollar. They are going to. They're not going to increase their reserves. Europeans don't have much anyway. But I could imagine a very simple deal like this might work with quite a few countries, but it won't work with everybody and it will shatter the world. But at least it sort of makes. If you think that really what the US is about is breaking China, which I don't think they can achieve, by the way. I don't think they can. I think China will survive perfectly well. But the. It's another matter. But the. Then I can see something might come out of it. But if they're really trying to negotiate a real trade deal with every single country and it's all going to be different, that's completely impossible.
- [47:45]
Joe Weisenthal
Tracy, there's a good article yesterday on the Bloomberg Trump putting pressure on the Hungarians, saying because there's a. Hungary is a huge destination for like real capital in inflows from China. Like Nick Denton was talking about it, there's BYD factories there. So like the pressure there and you know, Orban is like a Trump guy, et cetera. So these are really interesting tensions.
- [48:06]
Martin Wolf
Well, Orban has a very bad economy. He runs his system as a crony capitalist system. Surprise, surprise, it doesn't work very well. He's desperate and the Chinese know he's desperate and the Chinese are very clever. So he's playing both sides. My feelings, it couldn't happen to a nicer man to be squeezed by the two, the totalitarian system and the authoritarian system at the same time. Viktor Orban deserves it.
- [48:30]
Tracy Alloway
So I'm just going to ask one more question, the most important one. You know, we started this discussion talking about the development of our current bout of political populism in the States. On behalf of my dad, who believes that the bank for International Settlements is secretly ruling the world, can you please tell him what actually happens at Bilderberg? You've been there, right?
- [48:52]
Martin Wolf
Well, they are two very different things.
- [48:55]
Tracy Alloway
Yes, I realize, but it sounds as.
- [48:57]
Martin Wolf
Though your dad, I'm shocked to know, is one of these American conspiracy theorists.
- [49:02]
Tracy Alloway
Yes, to put it mildly.
- [49:04]
Martin Wolf
Bilderberg and the BIS are two completely separate institutions to do completely separate things. And all I can say, having followed the Biscuit pretty closely for a very long time, they might wish to be that powerful, but they surely are not. And one of the best examples of this, I will give you, of their failure. I like evidence. Right. Strange thing. Up to 2007, the chief economist of the BIS was a very Dear friend of mine whom I much admire, Bill White, a Canadian, and he was arguing against all the central banks, particularly Greenspan's Fed, that monetary. And Ben. Ben Bernanke's Fed the monetary policy was far too loose, that as a result the financial sector was going completely crazy, and that if they didn't do something about this, they were going to end up with a whacking great financial crisis. And the BIS did a wonderful job of warning people. Clearly no one listened and nobody listened, which would suggest to me it's probably the clearest evidence yet that they don't run the world. And also, quite possibly, if they had run the world, and I wrote a bit about that at the time, I think it was a bit more complicated even than that, linked to the balance of payments and so forth. If they had, we might be in great, much greater shape, better shape now, and Trump would now be president. And so if only the BIS had run the world is my answer. Bilderberg was just a very meeting of business people, politicians and so forth, created by the Dutch, of all people, hardly the world's greatest enemy of freedom and so forth, one might say. Even the inventors of modern capitalism at a national level. And because they thought after the Second World War we needed informal meetings among elites, yes, there are elites to keep the transatlantic relationship working. That was what it was for. And it was set up by the Dutch royal family to make this work. And I was at many, many meetings with Bilderberg. I'm very proud of that. They were in fascinating discussions in which people said things that would never, I think, have been said in public, and from which I learned hugely. The greatest example, to me, which was unbelievable, was the relationships between the Americans and the Europeans, particularly the French, in the lead up to the Iraq war, when it became perfectly obvious that the US was crazy. Another example, alas, again, if Bilderberg meeting had been as powerful as everybody thinks it would, Trump would never have happened, because that's exactly, precisely what Bill Berg was trying to prevent.
- [51:51]
Tracy Alloway
I will communicate this to my dad. I'm not sure this will convince him.
- [51:55]
Joe Weisenthal
He's not going to listen, but I'll try.
- [51:57]
Martin Wolf
All I can say is Bilderberg and the BIS have been astoundingly unsuccessful in achieving what they wanted to achieve.
- [52:04]
Joe Weisenthal
I just have one last question. It kind of goes back to Tracy, when we were talking about the dollar and, you know, and you talked about the mechanics of the old gold system, in which you deflate your economy and your exports become more competitive. One of the things that is a recurring theme on this podcast is that when it comes. And you talked about deindustrialization, when it comes to industrial capacity or even construction capacity, we sometimes talk about nuclear. The US Is out of practice, that setting aside exchange rates, et cetera, that, that institutional muscle to build a new nuclear plant or to build a very, you know, productive new Carl Ev line.
- [52:43]
Tracy Alloway
Even a T shirt factory.
- [52:44]
Joe Weisenthal
Even a T shirt factory. We're out of practice. And it makes me wonder, like, are exchange rates really even an important, important lever in the modern economy when we think about it? And there's so much about network effects in San Francisco. There's only one San Francisco and there's only one Shenzhen, et cetera. Just putting on your purely economics commentator hat, do you see exchange rates as being particularly important in the modern economy to think about the distribution of production?
- [53:13]
Martin Wolf
The short answer is no. They're not completely unimportant. I mean, if you want to have the capacity to build infrastructure, it's a good idea to build infrastructure. And anyone who wanders around the US a lot realizes you haven't been. If you've been wandering around China and wandering around the US as I have in the last 20 years, and it's.
- [53:31]
Joe Weisenthal
Not because of our currency that we're not building infrastructure.
- [53:33]
Martin Wolf
No, it's because you decided to waste your money on tax cuts instead of build things. When did you last build a nuclear power station?
- [53:42]
Joe Weisenthal
No, there was the vote, the vocal one, but yeah, other than the one in Georgia. Georgia, yeah. It's been a long time.
- [53:47]
Martin Wolf
So it's a long time. When did you last build major roads? What happened to your fast, high speed trains, your subways? I mean that's not a dollar, nothing. That's because The Chinese invest 40% of GDP. You invest about 20 difference. Yes. And they invested in infrastructure to make them a modern economy. So they have stupendous capacity to build infrastructure. Do you Want to invest 40% of GDP? You can. All you have to do is cut consumption by 20% of GDP. Good luck with that, chums. So obviously, deindustrialization. Every developed world country is deindustrializing because why consumers aren't spending much as much as before on manufacturers. Cause it's a very rich country and every American has every machine you can imagine. So it's just replacement stuff. The replacement demand for iPhones is there, but it's small. So in the end, of course you're not. Now it is true, you could be making more of your consumption at home. That would possibly raise the share of manufacturing US GDP by 3 percentage points at most. If you eliminated the deficit, maybe four, maximum five. That's not going to fundamentally transform industrial capacity because unlike China, which is still a very poor country where people are still buying their first car, their first everything, the US doesn't have the demand. And of course Chinese wages are genuinely cheaper, much cheaper because it's much poorer. Do you want to be that poor? So no, of course these are real forces. Of course the trade surplus of China is I think, a bit of a disruptive factor and I've argued for 20 years something should be done about it. But the idea that that's the principal problem of the US and of de industrialization in the US is just nonsense.
- [55:40]
Joe Weisenthal
Tracy, I just got a new fridge with a working ice maker. I'm not signing up for a big consumption decrease. I'm just putting it out there.
- [55:47]
Tracy Alloway
Aren't you going to have to buy another fridge with a working ice maker? I know, because they never work in like a month or something.
- [55:53]
Joe Weisenthal
Yeah, sure, those never work.
- [55:54]
Martin Wolf
Well, that works. If you could scrap, you buy a fridge every year and scrap it and make sure it's an American made fridge, then we'll get that, ramp up in production, contribute substantially. But obviously if you smash domestic consumption in the US that's not going to do much for domestic manufacturing. It will shift, however, to the sort of products that go into investment. It is perhaps important to remember the composition of demand is very important in determining the sorts of stuff you make. But as somebody said, well, you talked about T shirts. Does the US really want to go back to being the T shirt hub of the world? And I mean, it's just ridiculous, isn't it?
- [56:31]
Tracy Alloway
This is the thing that I really don't get about the push for the weaker dollar. It's like we're gonna trade off slower growth for a few T shirt factories potentially and a very slight like, I guess, accounting effect from the exchange rate. It doesn't seem like the best deal to me. But here, here we are. Martin Wolf, thank you so much for coming on. All thoughts.
- [56:54]
Joe Weisenthal
That was fantastic.
- [56:55]
Tracy Alloway
Yeah, really enjoyed that.
- [56:56]
Joe Weisenthal
Really, that was great.
- [56:57]
Martin Wolf
Thank you.
- [57:10]
Tracy Alloway
Joe. That was so much fun.
- [57:11]
Joe Weisenthal
That made the whole trip to London basically worth it. I mean I, I imagine if we had cajoled him, we could have gotten, gotten him eventually to come on Zoom, but I feel like that made the whole trip worth it.
- [57:21]
Tracy Alloway
It was definitely better in person. And I have to say, when I used to work at the ft, Martin was there, I never spoke to him. I wasn't like important enough to interact with one of our best columnists. But I remember I used to see him like in the FT cafeteria with like 12 different newspapers spread out in front of him and I was always like, oh, there's Martin Wolf thinking deep thoughts about the world.
- [57:45]
Joe Weisenthal
And there he was. You know, I'll say two things, one macro thought and one micro thought, which is Martin, yet another example of someone who is interesting because he knows specific details which I'm always trying to hammer home. Like people who know actual dates and figures, et cetera. They're always smarter and better thinkers than the people who don't commit those things to memory. And then the micro thing is I'm really just like interested in this idea that they're used to be a world economy in which things adjust. Right. That okay, you export your gold, you have deflation your competitive, your domestic industry is more competitive, you get sales globally and then, you know, you reflate your economy, et cetera. I just do not right now believe the world works like that in such a way that suddenly the US would become a competitive manufacturer of goods simply by dint of having a weaker dollar.
- [58:48]
Tracy Alloway
Yeah. And certainly not as quickly as certain US policymakers seem to think it could happen.
- [58:53]
Joe Weisenthal
Right.
- [58:53]
Tracy Alloway
The other thing I would just say is it's good to talk to Martin for many, many reasons. But also I think he's sort of representative of the fairly like baseline view among European policymakers about everything that's going on right now. And his point about making trade deals with the US at the moment, I mean, I think that's like the realistic position that a lot of people are taking.
- [59:15]
Joe Weisenthal
It's interesting because one of the things that I've been wondering about. So like that chart that Donald Trump showed on April 2 was complete nonsense.
- [59:22]
Tracy Alloway
The board, the job.
- [59:23]
Joe Weisenthal
Yeah, the board that changed the world, the Liberation Day board. So it's like what is the ask? Because it's obviously not lower tariffs or lower non tariff trade barriers, because that's all right. Fabricated it is. And people are converging on the idea. The only realistic ask is asking other countries to truly break their relationship with China. And it's interesting that Martin thinks that there could be a number of them who actually would be willing to sign up for that, that the price of free trade with the US is much more restrictive trade with China.
- [59:59]
Tracy Alloway
I'm glad you also brought up Hungary because I feel like that's going to be a really interesting test case to watch because you know, if anyone is going to walk from China because the US is telling them to effectively. It seems like it might be hunger.
- [60:11]
Joe Weisenthal
Except that there's such a destination for Chinese capital investment, right? There was so much in that conversation. There are other things that I probably wanted to mention and pull out, but all the listeners heard them, so those were the things that stood out.
- [60:25]
Tracy Alloway
Let's go to Nando's instead.
- [60:27]
Joe Weisenthal
Okay?
- [60:27]
Tracy Alloway
Shall we leave it there?
- [60:28]
Joe Weisenthal
Let's leave it there.
- [60:29]
Tracy Alloway
This has been another episode of the Odd Lots podcast. I'm Tracy Alloway. You can follow me at Tracy Allaway.
- [60:34]
Joe Weisenthal
And I'm Joe Weisenthal. You can follow me at the Stalwart. You can follow an automated feed of Martin's columns at the FT Artinwolf. Follow our producers Carmen Rodriguez Ermenarman, Dashiell Bennett at dashbot and Kel Brooks at Kell Brooks. And thank you to our London producer Moses Andam, who made this episode happen. For more Odd Lots content, go to bloomberg.com oddlots where we have a daily newsletter, Twitter and all of our episodes. And you should chat in the Odd Lots discord with fellow listeners 24 7, Discord, GG Oddlods and if you enjoy.
- [61:09]
Tracy Alloway
Odd Lots, if you like it when we take these trips to London to speak to people like Martin Wolf, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg Channel on Apple Apple Podcasts and follow the instructions there. Thanks for listening.
- [62:02]
KPMG Representative
KPMG makes the difference by creating value like developing strategic insights that help drive M and a success or embedding AI solutions into your business to sustain competitive advantage. KPMG make the difference. Learn more at www.kpmg.
- [62:20]
Verizon Representative
Big news Verizon Small Business Days are here from April 21 through 27. Book your appointment today to make our experts your experts get a free tech check, special deals and personalized advice. Call 1-800-483-4428 or visit verizon.com small business we got you covered. Verizon Business.