Peter McCormack (5:31)

How do you understand what is the right level of regulation? Because a raging anarchist would say there's no room for any regulation. Some libertarians will question it on the margins of regulations, and a leftist socialist would believe we should give the state full control of everything. How do you hit a sweet spot?

Shanker Singham (5:52)

So I think competition is the benchmark. So basically, when you talk about willing buyers, willing sellers, meeting in voluntary exchange, what you're talking about is competition on the merits as an organizing principle. Again, this comes back to agency and thriving. You know, I ought to feel like I can go if I have an idea, I can take that idea from generation to crystallization as quickly as possible. There's very little in the way of that. That's how you increase the velocity of your economy, which is absolutely critical. And that's where we're slow. Our economy basically just moves too slowly. It takes too long to do anything. It takes too long to build things. It takes too long. Time is a critical component of this. So if competition is the yardstick, then the measure of whether a regulation is at the right level is its effect on competition. There are lots of regulations and lots of distortions that have either no effect on competition or they in fact improve competition. I mean, that's why we have antitrust laws and competition laws and so forth. We don't want companies to cartelize up markets. We don't want monopolists to do things that are illegal. And that's an important distinction, because every business wants to be a monopoly, and there's nothing wrong with that. But once they are a monopoly, if they become a monopoly, then you have to be very careful what they do, because they can price at predatory levels. They can do all kinds of things that are ultimately damaging to competition. So competition is the yardstick. And that's why our model measures things on the basis of effect on competition.

Peter McCormack (7:30)

What about safety?

Shanker Singham (7:32)

Safety. So any regulation, whether it's health and safety regulation, prudential regulation in banking, whatever it happens to be, should be judged by the same standard. And the standard is Basically, what is the least anti competitive regulatory system consistent with a legitimate regulatory goal? So it is up to the people to decide where they put that balance. So what I want to do and what our model does actually it shows the anti competitive effect of regulations in certain areas. And let's suppose there's a health and safety regulation that costs the average consumer in the UK 2,000 pounds a year. Let's just imagine one, what the people need to do is, well, what's the legitimate purpose? What are you actually protecting? So first of all, are you actually protecting a safety interest or is it just a disguised method of protecting your company or something like that, or an incumbent operator? So first of all, is it actually doing what you say that it's doing? And then what's its effect? If it's £2,000 a year per person, the British people have to decide whether that's worth paying for the supposed regulatory prudential effect. And maybe in some cases they say, yeah, that's a price worth paying. That's up to them. It's very important that officials, ministers, et cetera, the actual owner of the actual governor of the country, that is the people of the country, make those decisions. But what they need in order to make those decisions, they need the raw material. They need to know how much something is going to cost. So right now nobody knows what anything's going to cost. They know there's a problem, global financial crisis, fire in a tower block, whatever it is, bad thing has happened. Now we're going to regulate, but no one is thinking about the costs of that regulation. And there may be other ways of regulating to achieve that legitimate goal that are far less expensive, far less costly in terms of market competition. And this is an important point because we're not talking here about we want to reduce business burden now. Absolutely, it's a good thing to reduce business burden. You don't want to, you know, you don't want to burden your businesses more than is, you know, necessary. But it isn't. This regulatory issue is not about red tape and it is not about business cost and it's not about, you know, small businesses versus large businesses or anything like that. What it is about is the effect of that regulation on GDP per capita on the overall economy. There may be many things that, you know, increase the burden on certain businesses, but actually net have a positive effect on GDP per capita or not. What matters is the effect on GDP per capita, not the effect purely on, on the business. So we tend to think of regulations and red tape as a problem Only because of their business effect and we need to unshackle our businesses. This is the language politicians often use. And there's an element of that that is right. I mean, you don't want to shackle your businesses, but there's a much bigger amount of economic impact that is the effect of this on the economy as a whole. This is why we get into, because we don't understand this and we don't express it this way. This is why we get into trouble on things like the EU reset that the government's negotiating. So the government's saying, well, there's all this trade friction of leaving the EU single market customs union. And of course, yeah, if you leave a single market in a customs union, you're going to get trade friction. Now what you should also be getting is the ability to move your regulatory system from what it is now under the EU to a pro competitive system that will generate much more GDP per capita. And our data suggests that the amount of GDP per capita you'll generate is three or four times the trade, well, maybe even six times the trade friction effect.

Peter McCormack (11:42)

Well, that suggests we fumbled the opportunity.

Shanker Singham (11:45)

Well, we have, because we haven't done anything with the opportunity. So we haven't even tried and failed. We've not done anything at all. So other than very minor things around the margins. But we haven't done it because we don't understand why we're doing it. We think that it is all about reducing business burden. Well, if you're in a world where all you care about is business burden, you're going to think that the trade friction cost is the thing you need to minimize. And in a world where our regular, let's imagine the European Union's regulatory system was as pro competitive as it could possibly be, then you only have the trade friction cost. And yes, you want to minimize that. But if you're in a world where the European regulatory system is, as the EU themselves acknowledge, incredibly anti competitive and wealth destroying, then you've got a huge range of options to move to increase your GDP per capita. That absolutely dwarfs the trade friction cost. But if you're not having that discussion, if it's only about what do businesses want, the businesses are always going to say, get rid of my trade friction. So that's why we're not able to have in this country a proper debate about what new regulation should look like. And that's why you get some very absurd results. Like all the chemicals businesses in the UK before we left the EU were absolutely opposed, implacably opposed to the REACH chemicals regulatory regime, which was the EU's imposed regime, that increased their burden enormously, but also more importantly, it damaged the overall economy. Well, of course, the moment we leave the eu, they must have, you know, we must be under the European REACH regiment because they only care about the trade friction. They don't care about the impact of having the REACH regime over the UK economy for the UK economy, not for them, not for their businesses, but for the whole UK economy. So, I mean, the Chancellor said something quite interesting, I think about a year ago maybe, or perhaps just when the reset was launched. And she basically said, well, nobody was thinking about chemicals regulation when they voted to leave the eu. Which is interesting because that's exactly what they were thinking about. They weren't thinking about. I mean, to some extent they were thinking about immigration. But the big driver was control of your own laws. And it's those laws that people were upset about, the fact that they didn't control. And because they didn't control them, and because they were controlled by the commission that tended to promulgate anti competitive regulation that had a burdening effect. Not on businesses. I mean, yes, on businesses, but that was very minor compared to the burdening effect it had on the whole of the economy. So if you think about what I said about the velocity of your economy and thriving and flourishing, all of these things stop that from happening. And that's just chemicals. So if you multiply that across the whole regulatory, the arsenal of regulation, then you get a huge stultifying effect on the ability of your economy to move quickly.

Peter McCormack (15:09)

So why do they do it if it's so obviously detrimental?

Shanker Singham (15:14)

Why does the EU do it?

Peter McCormack (15:15)

The EU and why do we do it?

Shanker Singham (15:17)

Or indeed anyway. Well, I think there's a lack of understanding of the impact of it on markets, on competition, on GDP per capita, because you don't see it. I mean, the problem is if something goes wrong, global financial crisis building goes up in smoke, whatever it happens to be. You see that? That's very obvious, right? So do you see the £300 a year that you just injected into the UK economy per person? Now, you don't really see that, but it adds up, obviously, and it ultimately becomes the difference between a functioning economy. I mean, you just look at the different US states and their comparison of their GDP per capita with European member states and the U.K. and you see this, the EU member states, with the exception of some of the central Eastern European ones, are just slipping down. My colleague Ewan Stewart just wrote our Growth Commission report on, on the eu, they're all Poland to us yesterday, they're slipping down. Other than Poland and Slovenia and so on, they're going down. Including the UK and the US States are going up. So we all know that Mississippi now has a higher GDP per capita than the uk. But what people don't generally know is that soon West Virginia, the second poorest US state, will have more GDP per capita than Germany. So the US is going up like this, Europe is going down like this. And with it, people's hopes and dreams are also going up in smoke in Europe.

Peter McCormack (16:56)

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Shanker Singham (18:46)

Yeah, I mean, that's an interesting concept there. I mean, I think it isn't the fault of the electorate that the choices they are presented with, don't actually give them any real fundamental choice. Because in a political marketplace, if that's the case, and we're seeing this in the uk, if that's the case, then actually both on the left and on the right, new things will emerge that will offer those choices to people. And I think a winning political party in the uk, or frankly anywhere else in the world, needs to present the public with a narrative that is along the lines of what we discussed at the beginning, which is we have a core moral philosophy that you can bank on, you can rely on, and that is we're going to take a very limited view of what are actually rights in terms of your security, your property, your right to economic freedom. That is going to translate itself into our approach to laws and regulations and so forth. We want competition to be the benchmark economic force around which our economy ought to align. And therefore people know that when that government is going to look at regulation, they'll be looking at it through a competition lens. So that that is pretty solidly accepted by the people. And you can trust that the government will do that and that the government's going to essentially allow voluntary exchange between willing buyers and willing sellers and is going to minimize the amount of distortion that gets in the way of those buyers and sellers. If you're confident that that's the sort of moral philosophy of the government that you're voting in, then you can rely on the decision making of that government, provided that the people who are executing the will of the government are actually aligned with that. That's a separate issue and a separate problem we have in the uk. That's not always the case, as I think both the Conservative and the Labour governments have found.

Peter McCormack (21:00)

This is the civil service we spoke about before.

Shanker Singham (21:03)

It's not only the civil service, it's actually a lot deeper than that. I think it's both Keir Starmer and various former prime ministers, Conservative Prime Ministers and Nigel Farage have all said variants of exactly the same thing, which is that over the last 25 years, maybe even 30 years, ministers have delegated to officials arm's length bodies, a whole set of quangos, a whole set of groups and commissions and so forth, any real decision making power. And because they've done that, in the words of Keir Starmer, I mean, nothing can be done. There's a thicket and nothing can be done. In the words of Nigel Farage yesterday, I mean, it's a huge delegation of authority and so the will of the people is being subverted. But I Think politicians of all stripes have recognized this is a problem. And it is. You know, if I were looking at the UK economy and I was sort of the UK and I was sort of making an assessment for an investor, I would say that the regulatory bias in the UK favors the incumbent. So forget it if you're a new entrant or you're trying to be a new entrant because you'll find that the regulatory bias favors the incumbent. It favors the incumbent because all of these commissions and arm's length bodies and so forth are populated by incumbents. So if you want to change a rule on if you want to change the electricity regulation so it's more pro competitive, you'll find that all the incumbent energy companies don't want to change it and they're all sitting on these bodies. And that's true of every area. So that's why nothing can really happen. But the solution is that ministers have to take charge of these things. But in order to do that they need to have a set of officials who they can rely on to deliver, to deliver those things. And they also need. It's not just the sort of incumbency advantage, it's also a. The world is very complex. The world requires a degree of specialism that certainly 100 years ago, 200 years ago, we didn't need to the same extent. So the amount of knowledge you need to have in any of these areas, it requires you to have done only that basically in your career. We have a civil service where the whole function of the civil service was to create these great generalists who knew a little bit about lots of things. And I would argue that in the 19th century that was a great system, but maybe even more recently than that. But the problem is now it doesn't work because a very, very obscure piece of knowledge about a very obscure thing in a department like DEFRA, for example, which is very complex regulations that can be the difference between success and failure of a company. So you need to have specialists who have that kind of business experience, experience of the real world, 20, 30 years of experience that they can deploy, which we don't have. I mean, you wouldn't run any private company in this way. I mean, in a private company what you do is you allow people to get the general experiencing when they're very young. In the first couple of years, you know, you move them around, but then over time they start to specialize more and more and more we move people around, you know, at the perm SEC level and DG level, I mean we're moving them all over the place. Ministers, we move around as well. That has to end this idea that political patronage means that if somebody is the Secretary, as a random example, somebody is the Home Secretary and is starting to get to know his or her brief, you shouldn't be moving them to becoming the Foreign Secretary and move somebody else into the Home Office role. In all countries other than the UK that I've worked in, if a government wins an election, the people who are running those different departments, they remain running those departments for the lifetime of the government, unless they've done something really bad or they've shown incompetence or something.

Peter McCormack (25:43)

We recently interviewed Curtis Yarvid, kind of out there, but he very much talks about the problem with government is you would not run California. So he said California couldn't build the iPhone.

Shanker Singham (26:00)

That's fair. Yeah.

Peter McCormack (26:02)

And he says we need to get to the stage where we consider running government, like running a company.

Shanker Singham (26:07)

Yeah.

Peter McCormack (26:08)

And we need a CEO of that company as such.

Shanker Singham (26:13)

Yeah. I'm. It's. It's not quite as simple as that. Yeah. Because, I mean, there are other things that a government has to do and has to consider, and it's more complicated running a country than it is running a set of companies. But the principle, certainly the principle that the implementation of government policy, the departmental implementation, should be run by people who know what they're doing and have known that for about 30 years, is really important. And the answer that we've had to this so far, we've had two answers. One answer was to bring in these special advisors so they would come in so that the Minister's views could be sort of, you know, pushed, pushed through the Civil Service, but, you know, based on what we pay them and so forth, you get very young people generally out of the media world. They care about. All they really care about is how do I make my minister look good on the media? Because that's what they know, you know, so. So fair enough. That's one. So that's not succeeded in the goal of making the government conform to the Minister's wishes. The other thing we've done is we've brought ministers into the House of Lords, but ministers in the House of Lords just bounce off the Civil Service. I mean, the Civil Service is like a hermetically sealed thing that they just bounce off, so they don't really achieve anything. There's only a handful of examples, I think, of Lords, ministers who've actually been able to penetrate the steel curtain of the Civil Service. And when they've done it, they've done a decent job. But it's very much the exception and you don't build a system on exceptions. So I see no other alternative but to do political appointments into Permanent Secretary and DG level. I don't see any other alternative.

Peter McCormack (28:11)

But that's going to require a fundamental re engineering of the British state government.

Shanker Singham (28:17)

Yes, it is, it is. But you know, I don't think we have the freedom, I don't think we have the luxury of, of delay or the luxury of, of not doing it because the world is moving faster and faster and faster and other countries capital is moving very, very quickly all over the world. If you don't, if you don't look attractive to will not come to you and it won't come to the UK Just because we're the uk people don't think that way anymore. They look at what is the best place for me to be. And we need to radically rewire, I think the British state to basically align to the needs of the 21st century.

Peter McCormack (29:03)

Well, we know this firsthand, don't we? We just went out to America. This is why we had to delay this to see an investor. And they're very clear to us, can't invest in the UK at the moment. First and foremost you need to deal with your energy policy because you're anti competitive and you need to do exactly what you said, which is deregulate massively. We know this now and one of the difficulties is trying to communicate this to enough people. You talked about a government needs to come in with a moral philosophy of this is what we think. But the next election will be a battle of moral philosophies. One moral philosophy will be freer markets, a voluntary exchange opening deregulation and the other one will be quite the opposite. We see it very clearly from say a Zach Polanski or Corbyn or even Labor. This kind of left wing coalition will want to do the opposite. We want more government. And the challenge is, I see this as a big challenge is I don't think we've done a great job of educating the public on economics.

Shanker Singham (30:05)

I agree with that totally. Well, we've done a great job of educating them on the wrong economics. Basically. Yeah, Keysian economics or even Marxist economics in some extreme cases.

Peter McCormack (30:16)

No, very true. Yeah, very. I mean it goes back to a fundamental level. I was talking to Ewan about this yesterday when I studied economics at a level we studied cases in economics. I didn't discover Hayek and Milton Friedman until I was in my 30s when I was looking at this weird bitcoin thing. And so we don't do a job of teaching. And even the people who do lie.

Shanker Singham (30:41)

Yeah, yeah. Or they don't know, they don't recognize. I mean, I remember I was at Babson College and I helped run the international venture arm of the college. And we had various. Babson is the most entrepreneurial school in the. In the US as was famous for. But there were economics professors who were sort of avowed Marxists. And they were. And I say avowed. They weren't ashamed of being Marxists. That was their economic view. I think the problem we have, and this is why we've set up our institute actually, to do this, to teach in schools and universities, is we teach, even in the best of times, we teach economics completely unmoored from any. From where it fits, from where it sits. So what I. What I said to you in terms of how a government should approach economic policy is also the way any human being should approach economic policy, which is you start with, what does it mean to flourish? You know, what does a flourishing society look like? What does a flourishing person look like? We talk about things like the use of language. We've got to be very. One of the problems we have is we don't. We don't use words very precisely. And lots of people have written about this. You know, Orwell has written about this. I mean, everyone has written about how. And in fact, I can go back all the way to this Chinese philosopher 100 years after Confucius, Xun Qi. And, you know, your listeners will probably resonate with this. Jun Xi said that when we cease to use the meaning of words properly, society falls apart. You know, what is a woman?

Peter McCormack (32:26)

You know, I know exactly what you believe.

Shanker Singham (32:27)

So. So language is really, really important. And. And it's really quite fundamental because that whole discussion about, you know, what is a woman, for example, is a discussion that. That assumes that language is whatever I want it to mean. And actually, it's pretty fundamental that language is supposed to communicate the discovery of an objective truth. You know, a woman is something, you know, objectively. And my job is to discover what that is and then to write the words, to use the words, to use the language to reflect that objective truth. That's the way language is supposed to be. And this is what Xun Xi said. When you get away from that, your society falls apart. And we've seen societies fall apart, you know, basically. So you've got to talk about language. Now, the reason I say this and the reason I focus so much on. On the use of language is the big problem we have with. With the generation that's been coming up. They're not so. They're not young anymore. This generation that's come up and been educated badly in this way, they're in their 30s and 40s, frankly, some of them now. So I've written four books on economics, on distortions and trade and so forth, hundreds of articles. I've never once used the word capitalism. There's a reason for that. Capitalism is the word that Marx and Weber coined. It's not our word. Those of us who believe in voluntary exchange and so on, and they coined it very specifically to say that those who have capital are the oppressors and those who don't have capital are the.

Peter McCormack (34:07)

Oppressed, to create an enemy, to create.

Shanker Singham (34:10)

A Marxist kind of structure to society. And that. Because that's the word. Because that's the words really matter. And words create battlefields. And the battlefield we have been on, those of us who defended the sort of free market system, the battlefield we have been on has been on Marx and Weber's battlefield. So we're going to lose. You're always going to lose. When I talk to young people in the course of the institute, doing talks at universities and schools, what I find is when you drill down, what they don't like is cronyism. They think cronyism equals capitalism. So if I keep banging on about capitalism, as far as they're concerned, I'm banging on about cronyism, and I like cronyism. Well, what do we talk about in terms of. The uk? British state is sort of controlled by incumbents. That's cronyism. So in fact, the view of a young person who hates capitalism, who gets out on the street, you know, with their, you know, their mask and whatever else, and they oppose capitalism. They are opposing, actually the very same forces that cause the British state not to function properly and become, as I put it, you know, the regulatory bias favors the incumbent. They're complaining about the same thing. They want to see a world where they can flourish. They want to see a world where new entrants can have a go and that sort of thing. So that's why language is so important. So we talk about language, but so on that.

Peter McCormack (35:41)

What do you say instead of capitalism? You just say free markets?

Shanker Singham (35:44)

I say voluntary exchange. I mean, that is. You mentioned Hayek von Mises. I mean, that is their word, voluntary exchange. Willing buyers, willing sellers coming together in voluntary exchange actually means something to people. You understand what that means, right? Capitalism, what does that mean? It means all sorts of different things.

Peter McCormack (36:03)

Can we have that without a free market for money? Can we have it with the central bank?

Shanker Singham (36:07)

Well, see, that is the question that we have to grapple with, which is, in a world of voluntary exchange, willing buyers, willing sellers, is the fiscal distortion a significant distortion? And, you know, fiat money and the ability to print it, and what we've done in terms of printing it is clearly a distortion. And we've built a whole range of distortions on top of that. Now, my view is you've got to pick your battles and you've got to eliminate the distortions, first of all, that you can, because you could beat your head against a wall on the fundamental fiscal distortion and get nowhere and have allowed all these other things to continue to worsen. So, yeah, it is a distortion, but it will take some effort to correct it.

Peter McCormack (37:01)

Yeah. As you know, I think, you know, previously, this show for eight years was a show about bitcoin. That's what took me on my journey of economics and understanding. And I actually think in the life of bitcoin, we're very early. It isn't ready yet to replace money, but it cannot have distortions because it cannot be printed.

Shanker Singham (37:18)

Yeah. And, you know, you mentioned Hayek and von Mises in particular. Von Mises has written a lot about money and Hayek has written a lot about getting back to a system where, I mean, the problem we have is that money is the currency is not backed by any kind of value now. And so trying to move into a world where your currency is backed by some sort of value. However, I'm not talking about a gold standard. I mean, there are lots of ways of doing this, including through competitive currencies. There are countries now like the uae, where you basically have a free market in currencies. You can go into the UAE and you can pay for things in dollars, euros, pounds, whatever you want to do, and people make decisions based on that. Competitive currencies are one way of improving that distortion. And there are other ways. And you mentioned bitcoin.

Peter McCormack (38:26)

Well, so interestingly for me, just on a personal level, I believe I live on a bitcoin standard the way we used to live on a gold standard, in that bitcoin is now my measuring stick and it affects my decisions when I buy. Same with Conor. I mean, Connor wants to buy a house at the moment and he's looking at his optionality there compared to holding bitcoin and. Yeah, and what's happening with our currency in the basement and should he Buy a property or should he keep it in bitcoin? So bitcoin, actually, weirdly, you can live on a bitcoin standard because it doesn't require a government to enforce it. Gold standard requires a government to enforce it. But because bitcoin is decentralized, you don't need to.

Shanker Singham (39:04)

And gold is a bit artificial, wouldn't you?

Peter McCormack (39:05)

Yeah, exactly. But I mean, look, bitcoin has its own distortions at the moment because it's still a relatively small new thing. Yeah, it's liquid in most countries, but it's not as liquid as you want it to be. But directionally it's headed there.

Shanker Singham (39:18)

No, it's definitely worth watching this one because, I mean, this could be an answer to the fiscal distortion which has been driving a lot of these other barriers and other distortions.

Peter McCormack (39:33)

Yeah, right. We should get to your white paper. That was a long intro. The trade policy in the Trump administration advancing reduction of anti competitive market distortions. There's a lot of misunderstanding of these tariffs.

Shanker Singham (39:47)

Yeah, right.

Peter McCormack (39:48)

Where would you want to start with that? For a listener who's probably heard Rachel Reeves blame tariffs for tax rises that have come in to see in Trump offering to give $2,000 to every person because of the benefits of them, what is the fundamental misunderstanding of Tarasen and ultimately, what have they exposed?

Shanker Singham (40:08)

Yeah, I mean, it's a very big question. I think if we go back to, I mean, like many things, the root of the problem is the last 30 years. Why have we had very, very limited GDP per capita growth in the developed countries? I mean, US has had relatively robust growth compared to Europe and compared to the other G7, but not great by any means, compared to the sort of growth rates that we were used to in the 80s and 90s of typically 3% year on year. Why did we get this static period that we're still kind of living through? I would argue that one of the reasons is that we failed to deal with any of the things we're talking about. We dealt with tariffs, and in the global trading system, we succeeded in lowering tariffs significantly, and that was a good thing. And that created the transnational supply chain and it created a lot of efficiencies and it led to the growth that we saw in the 80s and 90s. Now, the problem that occurred is that there were a whole set of other barriers that countries tend to use. And if your tariff is 50%, they don't really care about what. That's enough protection. You don't need to worry about anything else. If the tariff comes down Then those incumbents that I mentioned before, they're going to find ways of protecting themselves that aren't the tariff. And that's what they did. They found regulatory ways of protecting themselves. We'll have a rule here that prevents a foreign company from succeeding in our market. And there were a whole slew of these things, of these what we called anti competitive market distortions in all of these countries. And as I say, when we did our economic analysis of the, we found that if you open up trade at the border, so trade liberalization, that's one pillar of economic growth. If you have competition on the merits, that's another pillar of economic growth. And if you protect property rights, that's another pillar of economic growth. Those three very closely correlate to GDP per capita movements. So there may be other things that affect it, but they don't affect it very much compared to those three. And within those three, the competition inside the border, the regulatory, pro competitive regulation is about three times the effect of the trade pillar. So effectively, and the trade pillar consists not only of tariffs, but of trade facilitation and other things that anything that happens at the border. So what we're effectively saying is by focusing only on tariffs, you're focusing only on about 20% of all the things that have an effect on an economy growing. And you're completely ignoring 80%. And the Trump administration's argument would be we spent 30 years focusing on 20% and ignoring 80%. And in fact, the 80%, the under the water level of the iceberg, if you like, that 80% has been growing. So we need a course correction. We need to turn the ship around and we need to now focus on those things. And the only way we're going to succeed in getting countries to focus on those things is to use access to the US Market, which is the only market in the world that has the combination of GDP and GDP per capita that are both high. Lots of countries have higher GDP per capita, like Singapore and Luxembourg, but they're tiny. And lots of countries have big GDP but very low GDP per capita, like China. So it's only the US that can do this. So what they're effectively saying is we're going to condition access to the US Market on you reducing your barriers and barriers, not in the conventional trade sense, but in all these other things that you do that damage in their minds, US Exporters. But actually not only do they damage US Exporters, they damage the country itself.

Peter McCormack (44:21)

Hold on, help me understand. So the tariffs themselves become a force in function for other Countries to become more efficient and competitive internally so they can afford the tariff.

Shanker Singham (44:33)

No, so, so not, not really. So, so the tariff, they're not using the tariff to leverage these distortion reductions in other countries. They're using access to the US market. Slightly different thing. So what they're saying is we will lower the tariff if you lower your distortions. Okay, so in other words, we're going to do deals with you if you agree to change all these things that. So, so the, the things that they're complaining about are things that they damage US exporters and that's why the US is interested in them. But actually the countries that do them should be interested in them because they damage the GDP per capita of the country itself.

Peter McCormack (45:10)

So if the other country listens, it becomes a win win.

Shanker Singham (45:15)

It's a win win. Absolutely. We just did a. I was in Korea last week. There's lots of stuff on digital platforms in Korea. Legislation, regulation, use of the competition authority in very damaging ways. The cost of this is enormous. The cost of this to the Korean market is about, our studies suggest over 10 years, $460 billion. The damage to the US over 10 years, $525 billion. But if you solve these things, then that's a win win for the US and for Korea. So that's why we've said if you actually get rid of all of these distortions in the world, which is an academic exercise, right, because you're never going to do that. But if you did get rid of distortions from, let's say you started doing it in 1990, which is when we probably should have started to do it. By 2016, the global GDP per capita would have been three times as much as it actually was.

Peter McCormack (46:16)

Just. Sorry, another question. So I can understand these anti competitive market distortions, ACMDs, are they good for an incumbent but bad for the nation as a whole and the individuals.

Shanker Singham (46:31)

Correct? Yeah, they are. They're usually there because incumbents have put them there and because the effect on the incumbent is very significant and because the effect on the rest of the country is spread across lots of people and so it's less impactful for each person, they tend to get away with it. So it's your classic public choice argument on trade barriers, for example, which is why is protectionism attractive because the people being protected have very narrow interests and the people who will benefit from the lack of protection, the liberalization, their benefits are spread across all consumers. It's very, very disparate. Now the net effect on the economy is significant, but you're not going to say, I'm going to get out of bed and fight. I'm going to die on this hill because I'm going to get an additional 65 pounds a year from a particular change. Whereas the incumbent, in that particular case, they might be benefiting. Remember, all the gains of protection are aggregated to the incumbent. So they're getting a lot from that, which is why they fight very hard to keep it. That's one of the reasons I think the Trump administration is doing what they're doing, because you cannot expect, I mean, the record proves you cannot expect countries to reform themselves. Even the developed world, you can't expect to reform itself, never mind the developing world, where a lot of these forces are even more concentrated. So you need some external forcing event or activity. And that's what they've done with this tariff. Now, I'm not going to say that that's the only reason in the mind of the administration that they're doing this. I fully acknowledge there are lots of other strands of thinking in the administration. There are strands to do with tariffs for revenue. There are strands to do with bringing manufacturing into the U.S. most recently, we've seen a strand we want to fund. We're going to ask the Koreans to transfer 20% of their GDP, basically, to a fund that the President will personally administer. So there's a lot of other things going on. What I would say, though, is there is one that has an inherent logic to it. The others don't really have an inherent logic to them, nor do they come from a moral philosophic mapping, the one that does make sense. Looking through the historical perspective back to 1947, this makes sense, right? We should have done this before. We were trying to do it actually before. So we did the Uruguay round between 86 and 94, and we got rid of lots of barriers and border measures and so on. And then we started to get into the property rights area. We said, we're going to protect intellectual property, we're going to have an agreement on that. And then the next year, in 97, we were supposed to all come together in this round in Singapore, and we were supposed to put disciplines on investment and competition. So we were starting that process. Now, the problem is that developing countries largely rejected the idea that domestic regulation had any effect on trade, which is absurd. But they basically said, led by countries like South Africa and India and Brazil and so on. They basically said, no, no, this is a matter of our domestic sovereignty. We can do what we like. The problem is that in a world of transnational supply chains. Stuff that you do in your domestic regulations is going to affect your trading partners. We were supposed to launch another round in 99 in Seattle. This goes back to the conversation we had about education. We had all these college students on the streets in Ninja Turtle costumes and so forth protesting the Seattle round of trade liberalization because they thought it was damaging to the environment. And so that collapsed and we've had no negotiations since. So we're now 30 years on. And we'll also have to remember that when China came into the wto, it was supposed to come into a WTO where all these issues were on the table. Well, it didn't. It came into a WTO that was completely static on these issues. And so China was able to game the system and had a lot of support from countries like Brazil and India and South Africa and so forth. To say that what we do in our own country is completely irrelevant to you. We can do what we like. And that's what they did. And so what they did is they massively distorted their market for trade advantage. They wiped out US Steel manufacturing, they wiped out Central American textile manufacturing. They wiped out UK steel manufacturing. They wiped out everything in a very short period of time. And all these people, you know, were essentially laid off and complained. And one of the reasons that Trump won his first election in 2016 is because he was the only person who was recognizing that was a problem. Now, I would argue that the solution is to use the policy. And it's not just me. I and 155 other economists just wrote to the President, an open letter basically calling for him to use the tariff policy to lower distortions in other countries. So a lot of people will say, oh, no economist likes the Trump policy. Well, I've got 155 economists who just called for it to be used in this way. None of those, or very well, probably none of those would advocate a tariff for revenue. None of those would advocate a tariff to bring manufacturing into the US none of those would advocate a fund. But they all advocate using the tariff to reduce these barriers in other countries.

Peter McCormack (52:26)

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Shanker Singham (54:25)

I would say that you enforce border security by enforcing border security. Okay, so not needed. I wouldn't use a tariff and that's why I'm sceptical. And I think it sends a very confusing message to have so many reasons like fentanyl and all these things. I would, you know, you can crack down equally hard on countries that are violating the rules on border security without, you know, I would keep. The reason I would keep the tariff to distortions is that's all part of the same economic, you know, set of arguments. It's about trade liberalization and competition and property rights. And that's all that all sort of hangs together, you know, illegal Immigration from Mexico into the US Is not really in that area. They absolutely have to do something about it, and they have done something about it.

Peter McCormack (55:18)

So do you think, because Trump was talking about tariffs very early on, do you think he. Because I think the fundamental misunderstanding is that people think of tariffs as protectionism, but what you're saying, it's a negotiating tool.

Shanker Singham (55:32)

Yeah, I mean, if you decide that you're going to have a 50% tariff on another country and that's always going to be the case regardless of what that other country does, then that's protectionism. If you have a tariff because the other country is deeply violating all kinds of basic competition norms and liberalization norms and free market norms, then the deal is that you'd lower that tariff when the country changes. And that's not protectionism, that's a trade negotiation.

Peter McCormack (56:07)

Do you think strategically Trump knew exactly what he was doing with tariffs and it was a negotiating tool, or do you think this is just a benefit that we've realized downstream and now we can.

Shanker Singham (56:16)

Oh, no, no. I think if you look at the Liberation Day announcement and you look at, and we talked about this last time, he waved a book around, which was a national trade estimate, that's an inventory of foreign country barriers. Why would he wave that book around if that was not the relevant issue? He said other countries are very bad. Why would he say that if it was not about that, it was about just having a tariff for revenue. Other countries could be really good and you still have a tariff for revenue if that was your purpose. So I think you have to. With Trump, you have to. There's a revealed preference of what he's doing. And if 80% of what he's talking about on the day that he announces the tariff is about how other countries are basically abusing the US Then that's what it's about.

Peter McCormack (57:04)

Is anybody else using tariffs as a negotiating tool now?

Shanker Singham (57:08)

I'm not sure anybody else can, to be honest. I mean, I think maybe the Chinese could, if they were doing it with small Southeast Asian countries, they, they certainly. But the problem is that the Chinese are not concerned about anti competitive distortions because they have so many in their own market. So the only country that's going to do that really is. Is the U.S. i mean, the U.S. could do it in concert with other countries. I mean, we could. And in fact, they're starting to do that. So the recent negotiations with Cambodia and Malaysia and some of the Asian countries, they've got provisions saying that those countries have to mirror US Tariffs and secure national security tariffs on third countries, which is obviously China. So if the US raises a tariff on China because of distortion, Cambodia, Malaysia, Vietnam, they all have to do the same thing with their neighbor. With their neighbor, which is. It's actually a very successful piece of negotiating to get that into the agreement. But more importantly, I think we want to get the same approach from the us, the uk, Australia, Japan, even the EU to third countries. So that's the way you're going to get the whole global system to orient in a different direction. But it is also, I have to say, it's very important for the administration to get some deals and get some wins and show that it works. Because otherwise, if they can't do that, then the other pressures for doing it for reasons of revenue or reasons of any of these other reasons will start to become more attractive.

Peter McCormack (58:56)

Is there any evidence that these are working, that these distortions are being removed?

Shanker Singham (59:01)

I think there is. I think there is. I think, as I say, I was in Korea, they're willing to have a conversation about what they're doing, largely because of the high tariff that the US imposed. The EU is discussing EU deforestation regulation and sea ban with the US and things that were verboten they would not allow. You simply shouldn't discuss. These things are being discussed. And EU commissioners were in the US recently trying to explain how they would not be implementing these measures in ways that damage the U.S. economy. So I think it's, you know, it's starting to work. It's a massive change. I mean, you're turning around a tanker, and in turning it around, you're breaking a lot of things. So the administration needs to have time to allow these things to take effect. And I'm not sure they're going to have time. That's the problem because there's very little time. If there's inflationary pressure that's starting to feed through into the US economy, which is kind of starting now, then you've got the midterm election next year. Members of Congress will start to get very nervous. Obviously, there was an election that did not go well for Republicans recently, and members of Congress will start to give the President a lot less rope and it's possible that it will fail. And then you've also got the Supreme Court case going on as well. So difficult. It's hard to predict whether this will be successful, but I think that it's certainly having an effect.

Peter McCormack (60:43)

But your belief is that as a policy and a strategy, it's good.

Shanker Singham (60:48)

It's a good strategy.

Peter McCormack (60:48)

It's A good strategy. And even if the. So you said pretty much only the US can do it, maybe China, so the UK can't really do it.

Shanker Singham (60:55)

The UK couldn't do it by itself, but it could certainly do it in concert with other people.

Peter McCormack (60:59)

But is there another point to that? Is that it doesn't need to essentially. Look, if our understanding is that.

Shanker Singham (61:08)

If.

Peter McCormack (61:09)

We want to focus on the growth and the success of our nation and understand that we want to grow GDP per capita, it's maybe not comes down to how much we trade, but how freely we can trade within our borders. If we understand the mechanics.

Shanker Singham (61:23)

Both.

Peter McCormack (61:24)

Yeah, yeah, both. But if we understand the mechanics that maybe we don't have to use tariffs, maybe if we recognize it we can just start to reduce it here anyway.

Shanker Singham (61:35)

Yeah, exactly. So I mean what I would say to countries, the advice I'd give to countries, non US countries is it's very simple. What you have to do is you have to lower your distortions so that you can get the best deal possible with the US because your deal with the US is really important to your economy. If you face a big tariff to the biggest market in the world, you're not going to do well. And we've already suggested, I think it's between 1 and 2% GDP per capita hit for the UK if the tariff is 25%. And so getting it down is really important. So all countries need to reduce their distortion so they can get the best deal they can with the US and then they need to liberalize massively with each other. And actually you're starting to see that I'm sure this is not something that Trump had in his mind, but you are starting to see this unintended consequence that lots of countries are starting to look at reducing barriers to each other. So we've got in Africa, in the African Free Trade Agreement, they're now talking about non tariff barriers and other things that they never did before. There was a live conversation. There are a number of former trade ministers of European member states who are actively talking about the eu. Acceding to the CPTPP again would never have been talked about before. And actually if that all happens, that's all good. It's good for the global economy, it's good for those countries. So the two things together could actually be very powerful for the world.

Peter McCormack (63:15)

And this is kind of what we need in the EU being the most anti competitive part of the world.

Shanker Singham (63:20)

Well, you know, I think there are only two things that could cause the EU to change its domestic regulatory policy. One is The US pressure and the other is if they were to try to accede to the cptpp. I mean, look at the agriculture. I'm sure that the Australians and the New Zealanders would not allow them to accede to the CPTPP without significant changes to their agricultural regime. So maybe as an instrument of European reform. Remember when Mexico joined the Canada US Bilateral and it became nafta, that was a reform document for Mexico. Salinas was doing reforms in Mexico and he wanted to lock them in. That's why he went to George Bush senior and said, I want to be part of this NAFTA arrangement. CPTPP accession could be a powerful reform spur for the eu. Accessions tend to cause countries to reform. In fact, one of the most successful accession processes is the accession to the eu. So you saw countries. One of the reasons the Central and Eastern European countries are doing so well is because they had to do massive reform in order to get into the EU back in the day. So they reformed and the EU meanwhile, went in the opposite direction, kind of.

Peter McCormack (64:44)

Pulling in different directions.

Shanker Singham (64:45)

Yeah, well, I mean, at the time that they went in and at the time that they were negotiating and we did the Europe Agreement discussions for Poland and Hungary in the early 90s, which is the very first step of European accession process, at that time, the EU was a very different animal to what it became later. Those countries definitely benefited from accession. Now, I'm not sure that accession now would have the same effect with the EU because I'm not sure what the EU would ask them to do. We'll see this live with Montenegro and even possibly Ukraine, what they're really asked to do and what effect it will actually have. But certainly for Poland and Hungary and the Czech Republic and Slovenia, and though that wave made a big difference.

Peter McCormack (65:40)

So if we think back to the uk, are we in a really advantageous position post Brexit that we still yet to benefit from? And should we be therefore taking a more hardline approach than a fear approach of the EU?

Shanker Singham (65:55)

I mean, I was a clear advisor to U.S. trade Rep. And Department of Commerce and on these technical barriers to trade and SPS issues and standards issues that. So we were negotiating with the eu. The government, the US government was negotiating with you. My sense of the way the EU negotiates from that time, and it's been, if anything, reinforced by the way they negotiate with the UK is that they will go in way above their bottom line in a negotiation. And unless you're prepared to counter with real force, you're going to get steamrollered by that negotiation. I think historically what tended to happen is they would go in way above their bottom line and we thought we were negotiating with a friend, and so therefore we'd say, this is our bottom line. We'd tell them what our bottom line was, basically, and so they'd pocket that and then move on.

Peter McCormack (66:55)

They're better negotiators.

Shanker Singham (66:58)

It's a kind of negotiation. I mean, I don't think it's a very. I don't think it's very effective for their own purposes.

Peter McCormack (67:04)

Well, it feels like a lose, lose negotiation.

Shanker Singham (67:07)

It is, very much so. I mean, that's the way they think about it. So that's why they're saying, you know, so the government wants to do a veterinary agreement, an SPS agreement. Why would the government want to do a veterinary agreement? Nobody really knows. But the bulk of the trade in SPS goods is from the EU into gb. So an SPS agreement is clearly going to benefit European exporters more than anyone else, more than UK exporters.

Peter McCormack (67:38)

We hold the cards, so we should hold the cards.

Shanker Singham (67:40)

But what the EU is saying now is that in order to have that veterinary agreement and be part of the internal market in that respect, or have access to the internal market in that respect, you need to pay. So we're going to end up paying more into the EU budget so that they can have better access into our market for SPS goods. So this is the way these negotiations go if you're the eu, and I think they respond better, just like, frankly, I think anybody responds better in a negotiation to somebody who's pretty clear about what they need and goes in and says, this is what we need and we've made the mistake, I think, of thinking that the EU is not on the other side of the table like you are from me, but they're kind of on our side of the table and we're mutually trying to solve this problem of Brexit. I think that's been our negotiating position and that's not the case. That's not what's happening here. And that's why we've ended up with bad deal after bad deal. Really. I think you could, in any negotiation, I would be a lot more robust.

Peter McCormack (68:56)

So when you look at the UK economy and the challenges that Rachel Reeves is facing and any. I think I asked you this last time, but it feels like you look at our problems and see, oh, this is easy to fix.

Shanker Singham (69:12)

Yeah. I mean, I think these problems are easy to fix. Yeah. I think we might need some help from the US to Fix them. But, but, but, but I think that you can see a way, route, you can see a way, you can see a solution to them. Where I have more difficulty actually is the labor market issues, because I'm not sure they're easy to fix at all. I mean, the way AI is decimating labor markets, particularly, you know, new graduates fields, I don't really see a way around that because the problem with that is, I mean, I use AI a lot in my work and it works really well for me because, you know, I have a custom model that is trained on all my books and articles and everything and I'm training it constantly back and forth. But I can do that because I have 30 years of experience doing the same thing. AI works well if it's doing something that you already know how to do and it's just doing it faster. It does not work well in the way that a lot of young people use it, which is, I don't know the answer to this, I don't know how to do this. I'm going to ask the AI to tell me how to do this. You have no idea what's coming back and you have no way of testing it. So my concern about all of this is, I mean, I see it now in my own work. If I'm faced with the choice of do I ask an associate to do this, human associate, or do I ask the AI to do it? I'm always going to ask the AI. It's quicker and I'm going to be able to correct it more quickly. So if that's the case, and it is the case because that's why the labor market is so, you know, you're getting hundreds of thousands of people being fired from firms, you're getting stalling of hiring. We are going to see very bad labor numbers. Employment already is. Unemployment is already 5% in the UK.

Peter McCormack (71:03)

Can I just ask on that very quickly? So the political blame for that is put on the national Insurance rise. But do you think actually some of this.

Shanker Singham (71:13)

No, no, the unemployment. There's an underlying problem. Yeah, I mean, yeah, I mean, absolutely. If you, if you whack up the minimum wage to levels that are way beyond two thirds of median income now competing with entry level jobs in the city, you're going to export unemployment of the youth and that's clearly going to happen. And that's what will happen. The unemployment, the, what Andrew Griffiths calls the Unemployment Rights Bill, the Employment Rights Bill that you know, is massively affecting the flexibility of the labour market. And under our models, it will cause a big negative effect on the UK economy. It will cause a pound a person. Yeah, that's about.

Peter McCormack (71:49)

Read that on your website.

Shanker Singham (71:50)

Yeah, that's what we. That's what the Growth Commission projected. So, you know, that's all true. But there's an underlying trend that is much bigger in many ways, which is the whole AI trend. And it's not clear to me where in 30 years time the people like me who can use AI are going to be if we're not giving them any of those responsibilities now. So, I mean, in human progress, it is always pointless to ask the question, what's the next big thing that's going to employ all these people? Because by definition you don't know. If you knew, then it wouldn't be unpredictable. If somebody was riding a horse and carriage and said, well, I know the next thing is going to be the internal combustion engine, it wouldn't have been in anybody's mind at the time. Right. So it's pointless to ask the question, where's the next big thing coming from? Assuming you get all these other things that we talked about, right, in terms of innovation and competition and flourishing and all these things, then there will be the next big thing. I'm not worried about that. I know there will be something. What I am worried about is where's the person? Let's imagine there's a new industry, let's call it X, that is created. We have no idea what it is. It's called X. There are companies in X, companies A, B and C. Those companies need to merge. Those companies need to do things. They need lawyers, they need bankers, they need all these people. So when they're doing those things, where are the people who are going to do that? Because for 30 years it's been AI doing that under my supervision. Now I'm dead. Who, who's doing that? Where are they coming from? I don't see an answer to that. So I think that's something we have to struggle with and think about. But coming back to your point, how you improve your regulatory system to deliver more competitive outcomes, that is not difficult. Compared to the scale of the other challenge, that is not difficult. We know what we need to do. We know what it will do in terms of GDP per capita. We know where the opposition is going to come from. It's going to come from the large incumbents that don't want things to change. And a government that wants to do those things needs to build up a strategy about how they're going to deal with that issue. I Think you also need to think about sequencing. So I would sequence regulatory reform first because it's the biggest gainer. I wouldn't necessarily talk about tax policy right from the off.

Peter McCormack (74:31)

Energy.

Shanker Singham (74:33)

Energy is part of the regulatory reform picture. So yeah, absolutely, that's number one. I mean, I'd also make sure that you have a flexible labor market and all of these things. I did a thing on Radio 4 with the TUC General Secretary and it was quite funny because it was very much the old thinking of there's always going to be this number of jobs so we just need to protect them more. And I was saying, well, with AI and with all of these things, there's huge pressure on young people in the marketplace. They need to be able to have maximum flexibility because they want to be able to have multiple. They're going to have multiple lines of revenue. That's how they're going to live. It's going to be lots of different things. This idea that there's a single job, you go in at nine and you leave at five. I mean, that may be true for 50, 60 year olds, but it's not going to be true for 20 and 30 year olds anymore. So you need to have lots of. So you take away their flexibility and you take away those jobs, which is what the Employment Rights Bill will do, then you're not really helping them. So there's this. Again, it's a little bit like the regulatory discussion. There's a sort of antiquated view that things like labor protections set up a conflict between a, between an employer and the employee. One is good for employees, one is good for employers. Well, that's just not the case. Labor market flexibility is good for employees. You know, what makes it easy to hire, what makes it easy to fire people, makes it easy to hire people. If you make it very hard to fire people, no one's going to get hired. That's great if you're about to leave retirement. It's not so Good if you're 25 years old and you're entering the workforce. So again, we need to take a. That's why we take in the growth commission, a GDP per capita view, because that's the only sensible view you can take of any of these things that affect the economy as a whole. Our goal. We all need to be swimming in the same direction towards increased GDP per capita growth in the country, no matter where. That leaves different types of businesses and different types of employees and employers and so forth. I mean, if you go for that goal, then net you're Going to have so much gain that that will help all of the people. I mean, it will be a win, win situation.

Peter McCormack (77:05)

It feels like we're almost woefully preparing our young people for what the world will be like. I think of my daughter, she's doing her GCSEs.

Shanker Singham (77:18)

Yeah.

Peter McCormack (77:19)

In two years time she'll finish her A levels. If she goes to university five years, five, six years time, she'll be entering the workplace. And I think how my use of AI has changed just in the last year alone, let alone last two years. And the changes are exponential. How it's got to learn me, understand me. We use it to prepare for interviews. I can now, if I need to, I can prepare for an interview in five, five minutes.

Shanker Singham (77:39)

Yeah.

Peter McCormack (77:40)

I don't usually do that because I want to understand the questions and I want further research. But, but I can plug in your white paper. I say, give me the summary. Are the relevant arguments, what are the counter arguments? So I can most of the time sit here without looking at it, but it's also got to know me.

Shanker Singham (77:56)

Yeah.

Peter McCormack (77:56)

And so when it starts structuring questions, it asks them how? I ask them.

Shanker Singham (77:59)

Yes. Right.

Peter McCormack (78:00)

And, and I've watched it change. It's. And it's fascinating because the questions are based around my kind of philosophical thinking or my understanding of the world. And so if it's moving at that speed, what people are entering a degree this year that won't require those skills in three years? And how do you prepare? I mean, if you've got a five year old, how do you even think about their next 15 years of education for a while? We've got no idea what's coming, but it feels like this Victorian era education system just needs to end.

Shanker Singham (78:33)

Yeah, yeah. It doesn't really doesn't produce people who are ready for that kind of world. I mean there's some very basic things that need to change in, in, in the US and in the UK and in the west. Like, like for example, we need to graduate far more scientists and, and far more engineers. I mean, China and India graduates and roughly 50% of their graduates are engineers. The US percentage is 8, 8% of US graduates are engineers. So we're not really producing people who are fit for the workplace of the future. So certain things like that need to change. But it isn't always just at the high end, engineering end. I mean there's a lot of plumbers and welders and those kinds of vocational jobs. Actually those are the ones that are the most shielded in some ways. From AI, of course, until we get Optimus and then they'll be gone as well. But there are things that you can do that people don't need to always go to university. This idea that everyone has to go to university also doesn't make any sense.

Peter McCormack (79:49)

Well, I think that is collapsing.

Shanker Singham (79:50)

Yeah, I think that is collapsing.

Peter McCormack (79:53)

I meet more and more youngsters who are coming to me saying, do you have a job? Or what do you think of? I mean, I met somebody the other day. They're delaying for a year because they're not sure they want to go. I think it's because what's happening, you know, younger siblings have the benefit of seeing older siblings come out of University with 60, 70 grand of debt and no job.

Shanker Singham (80:11)

And no job. And no job. And I have a friend who said, who says quite amusingly, the don't do any degree that has the word studies in it. If you do a degree that has the word studies in it, you're not going to get a job.

Peter McCormack (80:25)

No.

Shanker Singham (80:26)

And that's a facetious thing to say, but I mean, I think there's an element of truth in it that. I mean, one of the things that really does need, the education system needs to deliver is critical thinking.

Peter McCormack (80:43)

Yes.

Shanker Singham (80:44)

And that is actually not being delivered. I think based on what I'm seeing, that ability to. And that's one of the reasons we set up this institute is to go in and, and teach them how to put economics in context.

Peter McCormack (80:58)

But the critical thinking, a critic, a nation that can think critically doesn't really suit government.

Shanker Singham (81:05)

Some government.

Peter McCormack (81:07)

No, but it, but it does. I mean, I again, I think of my daughter's, when she was selecting her A levels, we had a long conversation about it, what is useful. She actually wants to do economics, which surprised me a lot, but she also wanted to do philosophy and I was like, great.

Shanker Singham (81:21)

Yeah. I mean, it is not obvious at all and it would be a mistake to think. Oh, it's. Things like that don't matter anymore, actually. Things like philosophy and the understanding of how to think and the ability to put things in context, the ability to think horizontally actually will become much, much more important as time goes on. I can see, when I do work with associates and not my AI.

Peter McCormack (81:48)

I.

Shanker Singham (81:49)

Can see the difference between people who think horizontally and can think critically and understand how to put something in a wider context. I think that's almost the most important skill to have is the ability. And that's one of the reasons we have this difficulty with the slowness of the pace of the UK government is that we have lots of people who don't know how to put things in context. And so they work in their little silo, but they have no idea how that silo relates to any other silo. And it has always surprised me how little people can do that. And it must be an aspect of the education system that they're not really being trained to do that. And actually I would strongly support, even though it doesn't have a particularly obvious end application in a job, a degree that really requires you to look at the great books of Western civilization and look through ancient. The wisdom of the ancients and philosophy and so forth.

Peter McCormack (82:56)

Give me three books to put in.

Shanker Singham (82:57)

Teach you how to think.

Peter McCormack (82:58)

Give me three books you would put in that list. I'm going to write them down.

Shanker Singham (83:01)

Oh, wow, there's so many. That's a very difficult question to answer. Well, I would always start with Aristotle McCamean ethics. I would read that book over and over again every year. Because the other thing is with these books, when you read them, it's like a conversation. This is the other problem we have. We teach these incredible books to kids when they're like 15 or 16 years old and then they expect them never to read them again. Oh, you're 15 or 16, your brain isn't remotely formed. You can't get anything. You just read these books over and over and over again. So that would be. I mean, Aristotle absolutely would be. Would be very, very important to read, I think, within the economic sphere. I mean, I would. My advice to a person, to your daughter as she, as she starts her economics, you know, process. I would say read Adam Smith and David Ricardo in the original, you know, don't read what other people have said about it. Read it originally, you might not understand it now, you probably won't at the age of 16. But. But if you read it over and over again and you'll get something out of it, is a conversation. And then von Mises, absolutely, I would, I would read and his predecessors that whole strand of thinking that goes through into Hayek.

Peter McCormack (84:32)

I hope she does it when she studies economics. I'm looking forward to arming her with some Austrian hand grenades to throw out of her teacher.

Shanker Singham (84:41)

Yeah. I say this as someone who spent a lot of my life doing economic models and fairly sophisticated mathematics in economic modeling. But this is the problem in the economic discipline is we do all that without really understanding the context, that an economic model is only a relatively useful way of understanding the direction of travel, of things, of the sign of things, of the magnitude of things. And if you have multiple models that tell you roughly the same thing, that's really useful to know. But the idea, and you see this in the treasury, and you see this with the OBR forecasts, you know, Rachel Reeves desperately trying to find 5 billion here and 5 billion there, when our debt service is 120 billion a year and the NHS is 200 billion a year, 5 billion here or 5 billion there is nothing. I mean, but it's very much based on the model says this, therefore you must do this. No, that's not how you use economic models. You use them to develop an understanding of sign. And you put it in the wider context of, frankly, of. Economics is not really a science. First of all, economics is more of an art and it's about human interactions and it's about human incentives. What's the regulatory framework that causes people to do things and behave in a certain way? And that is not a deterministic calculation, that's about probabilities. And all you can do as a government, as a policymaker, trying to craft the right policies, is to understand different scenarios have different probabilities and to understand, if I do this, if I pull this lever, people are more likely to do something that I want them to do and that's the best you can use. Models are useful for that, but they aren't sort of some sort of. The model says this, the laptop says this, so therefore I'm going to do this. We tend to fetishize them, particularly in the Treasury Department in the uk. And of course, if your model's wrong, then you're going to get all kinds of wrong responses. And you might not know that. If you don't think critically and you can't put things in context, you might not know that.

Peter McCormack (87:09)

So economics is an art of understanding human nature, but humans are imperfect.

Shanker Singham (87:14)

And this is why von Mises and Hayek always railed against over reliance on mathematical theories to underpin economics. They're useful, but they aren't the be all and the end all. And without the context, they're useless. So you need to have the context. This year's Nobel Prizes went to people who focused their attention on creative destruction and innovation and the role of competition in fostering innovation. So that's the direction we need to be going in, not sort of ever greater complexity of economic models. And I say, I say this as you know, someone who does this a lot. And we are actually working on probabilistic models because economic models tend well, they are all deterministic, whereas human behavior is not deterministic.

Peter McCormack (88:16)

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Shanker Singham (89:25)

Yeah, I mean, I'd say there's certain basic things. So the natural state of human beings, I think I mentioned this last time, is poverty and war. I mean, that's what we are for. I think it's something like 0.005% of our history on this earth. We've had something akin to prosperity. Okay, most of it is poverty and war. And, you know, we can, even with poverty and war, still develop great innovative things. We have done in the 19th century and the industrial. That was a period of great war and conflict. And we still managed to do some things that increased human GDP per capita, for example, I didn't say prosperity there because I think prosperity requires a few other things besides GDP per capita increases. But that's the natural state. You have to work very hard to get out of that. While it is not true to say that war prevents economic growth, it's not helpful. It's not helpful. And also, where there is conflict in a country, economic growth will be impossible to achieve. Where there's a generalized conflict like a world war, then sometimes there are other factors that are at play, like the need to find better weapons to kill the other guy with, and that actually leads to some innovation, as we've seen in the Second World War, for example, and the nuclear industry. But so we have to work Very hard to get prosperity and peace. What are the things we have to work on? I think the things we have to work on are ensuring that we have higher levels of GDP per capita, significantly higher levels of GDP per capita. Because in that kind of world, you don't have the scarcity with regard to resources like critical minerals and all these other things. If you have scarcity because you aren't increasing your GDP per capita, then you're going to have localized conflicts in those countries, which is bad for those countries, obviously, but ultimately creates the possibility of spreading of that more broadly. And that will spread not just to critical minerals, but things like water and other critical resources. So GDP per capita is incredibly important for geostrategic and national security reasons and other reasons. But if the question is, do I think in 100 years time human beings will be more prosperous as we've defined it, than they are now, I think there is a very good chance that is, that that will be the case. I think the long term, human beings will, Will, will get this right and we will prosper. The problem is not the long term. I think the problem is the immediate short term where we seem to be going in the opposite direction. But part of why I think we will prosper in the long term is there will be reactions to the failures that we have in the short term that cause the changes. People will come into power. We've seen this in, you know, throughout history. There's a long arc of history. If you look at the Soviet Union, eventually they realize that it doesn't work. The problem is eventually can be a very long time. As Adam Smith says, there's a lot of ruin in a nation.

Peter McCormack (93:08)

The arc of justice. No, the Ark.

Shanker Singham (93:12)

What is it?

Peter McCormack (93:13)

The long. What did you say? The long.

Shanker Singham (93:14)

Well, I think the expression is the long arc of justice always bends in the right in the.

Peter McCormack (93:20)

But it takes a long time.

Shanker Singham (93:21)

But it may be a very long off. Yeah, I mean, I mean, this is the problem with the UK at the moment is you could. You're unlikely, I think, in the UK to have a massive financial crisis in the next couple of years. Some people disagree with me. I mean, some of my commissioners disagree with me. And they say that, yes, it's coming and it will be here in a year and a half, two years. I think it's much more likely that we'll have a slow burn. You know, we'll have a slow degradation, a slow deterioration. And if there's a slow deterioration, it can take a very long time for a correction to emerge.

Peter McCormack (93:53)

But there is a reaction now and a reaction that has allowed a new party to form. Yeah, to form and lead the polls from a standing start just a couple of years ago.

Shanker Singham (94:03)

And so, I mean, that is a reaction to all the wrong things that we've been doing. This is why I say in 100 years time, I'm fairly confident that we will be more prosperous because that's a pretty long arc and I'm pretty confident that these sorts of things will happen. And though these corrections will occur and.

Peter McCormack (94:21)

Potentially our trust in knowledge from AI will lead us to understand. Terrible.

Shanker Singham (94:28)

Yeah, I'm very positive about AI generally, notwithstanding what I said before. I mean, I am very positive about the good things that can come as a result of this and the efficiencies that we can see out of this. And you know, I think, I think it is the next. I don't think that this is totally different in kind from other, other great developments that we've had. Industrial revolution, I mean, printing press, industrial revolution, all these things. I think it's the next wave of that. I don't think it's radically different. And therefore, you know, has got the seeds of human destruction, you know, within it, as some people do. I think it's going to be a force for a lot of positive things. But like everything else, I mean, the Industrial revolution gave rise to lots of things that, you know, man uses to damage other men. And I'm sure there will be some of that with AI just like there always is. And we're, you know, we're a fallen group of people. So, you know, we will do bad things to each other, no doubt. But I think overall you'll see this. I mean, if you look at the Angus Madison curve of GDP per capita and this sort of hockey stick kind of shape, I think that's going to continue. I don't think that, that that overall trajectory of humankind over the last 2000 years is going to change.

Peter McCormack (95:59)

Political blip at the moment.

Shanker Singham (96:01)

Yeah. I mean, over thousands of years. Well, 2,000 years, you can see, you know, it looks fairly smooth. There's a lot of, there's a lot of, you know, there's a lot of ruin in many nations along the way.

Peter McCormack (96:17)

Is there anything I didn't ask you about regarding your white paper? You wish I had Not.

Shanker Singham (96:23)

Not really. I mean, I think the main thing about that is if the administration can get some wins, then I think the policy can start to bear fruit. If it doesn't and we move into this sort of other world of tariffs for revenue or what have you? I mean, the only thing I would say is if you look at the Hamilton tariff, you know, the Hamilton tariff and Hamilton himself says this in the report on manufacturers. He says if the. Again, he's responding to Smith, he's criticizing Adam Smith. He thinks Adam Smith was some advocate for the East India Company or something. He thinks this is all about British imperial measures. Free trade was a way of looting the rest of the world, basically was Hamilton's kind of view. But Hamilton says very clearly if the conditions in other countries were liberal and free, free markets, in other words, low anti competitive distortions as we would say. Now if that was the case, then there would be an argument for low U.S. tariffs. But that isn't the case. In fact, it's going in the other direction and that's why I'm going to have a tariff. And that's partly why the Hamilton tariff was accompanied by a massive increase in US GDP per capita, 25% increase over five years. Contrast the McKinley tariff at the end of the 19th century, which the president mentions from time to time, 1890 to 1895, 4% contraction in US GDP per capita because the tariff was being imposed at a time when the rest of the world was a lot less distorted. So it very much depends on this level of distortions as to whether this is a good policy or not a good policy. If you're using it to lower the distortions and then lower the tariffs, then I think it makes total, total economic sense. I mean, there also was an economic crisis in 1893. Arguably some of the tariff policy may have triggered that. So I think again, this is all part of looking at things in context. So you can't say the tariff policy worked in Hamilton's time, so it must work now. It worked in Hamilton's time for a very specific reason, some of which is present today in a different kind of way. And therefore. Yes, but Hamilton himself was very clear about why he had to, why he felt like they had to do it.

Peter McCormack (98:58)

Well, all I hope is we get better education on the basics of economics for our electorate so we start voting intelligently.

Shanker Singham (99:06)

I mean, partly why we set up this institute is the Institute of Human Flourishing and why we've done it is because I saw all of these graduates coming out of universities and schools with this very strange idea of how the world works, which is essentially a Marxist, not just in economics but in everything. A sort of Marxist worldview that it is all about the will to power and all that matters. There is no such thing as truth because all that matters is my ability through my power to impose my truth on you. And they honestly come out of high schools and universities believing this. And as opposed to believing what I've always believed and what I think maybe the older odd sort of generation has always believed, which is that truth is not my truth or your truth. It's objective. It's an absolute thing that I can discover through a process of hard work. And it is a discovery process. And it doesn't matter about who has what power and all of those things. And that you're defined as an individual in your ability to discover the truth. And that's what matters, not the group that you belong to, because the group that you belong to is irrelevant in terms of what the truth is. The truth is the truth. So that's the fundamental difference between the sort of two approaches. And the other thing I would say was when we talk about freedom and liberty and so forth, and this is where I would diverge a little bit from some of my libertarian friends, is that liberty doesn't mean the freedom to do whatever you want. You know, liberty is in some senses constrained by a sort of moral purpose. So am I free as an incumbent to. Is it liberty for me to do whatever I want so that I can seize up monopoly rents from the people from the economy? Is that okay for me to do that? Is it different from a new entrant having the freedom to engage in voluntary exchange? Yeah, I would argue it's very different. It's very different because there's a fundamental moral difference in the two things. One is cool, I would say one is license, the ability to do whatever I want to do as long as I'm not harming people. It's kind of license. That case, obviously there is a harm. But. But let's assume the libertarian view. You know, that's license. And I think that's different from liberty. And what we want to. We want to have an economic and a social system that promotes liberty, not license and true sort of freedom, which does frankly require some constraints. I mean, in order to guarantee people's economic freedom, you have to have things like competition laws, you have to prevent anti competitive private and governmental practices. So it's not just let everything go.

Peter McCormack (102:18)

And I think it means we need better education, we need to be educated people on liberty and freedom as well. We don't have a culture.

Shanker Singham (102:25)

Well, that's part of what we're doing in this institute. I started talking about the. You start with flourishing, you move through language. You talk about liberty versus license, you talk about Even things like, what is money? What is wealth? Even that they don't understand. And this goes back to the meaning of words. So wealth is the creation of ideas. Money is a measurement of how well you do it. Basically. Well, if I said I want to create wealth into a room of 500 people, most of those people, I would think, would assume that. I'm talking about generation of money.

Peter McCormack (103:04)

Collecting money.

Shanker Singham (103:05)

Yes, collecting money. Wealth is the realization of ideas. Basically, money measures how well you go from idea generation to idea crystallization. That's what you should be doing in your economy. So we talk about wealth creation. What does it mean? By the time we get to the economics of voluntary exchange, we're like at module 10. I mean, there's a long way down the road. By that time, they are equipped to understand what it means. Whereas the way we teach economics is we start off with the. Well, you don't even teach voluntary exchange. We teach. We teach Keynesianism or whatever we teach, but we teach it straight off without any kind of, why are we doing all this? What is the purpose of all of this? So we're trying to sort of correct the way this is, the way this is taught. And I think there's certainly a demand for it. I mean, we saw, I mean, the fact that in the New York mayoral election, somebody who has said very specifically advocated government control of the means of production. Yes. And that he won vast numbers of voters of every description. I think he got over 50% of the vote. I mean, significant number. That's a problem. That's a real problem.

Peter McCormack (104:33)

But. But the blue ticket was always going to win in New York, whatever it was.

Shanker Singham (104:37)

Yeah, but I would. I would submit that he should not have been anywhere near that kind of number. And, you know, if Cuomo won. Cuomo won, fine. But.

Peter McCormack (104:49)

Yeah, but he. He attracts the people who've been. Feel like they've been left behind because of cronyism and those who feel.

Shanker Singham (104:56)

Exactly, exactly. So. So this is the point. This is why education is so critical. You need to explain why things have happened in the way they are. Why were you left behind when you lost your steel job in Ohio? It wasn't because the whole system of, let's quote the way they talk about capitalism, Capitalism delivered that. And therefore you got to throw the whole thing out. You lost out your steel job because we did nothing about China distortions. They massively overproduced steel and they wiped you out. They wiped your employer out. So we need to explain to people why things are the way they are in the world. Why are people. Why is it so. It goes back to your issue about financial distortions. Why is it so expensive to live in New York? Why are property prices so high? Well, there's a lot of financial distortions that are at the root cause of that. You have a system. You have a kind of. Well, in many, in many countries it'd be called a Ponzi scheme, where you have massive overproduction in places like Japan and Korea and China, overproducing, absorbed by US consumer. This transaction funded by the investment banks on Wall street who were paying effectively dollars going into the central bank reserves of those countries. And so the cycle continues. A lot of that. That's why the top five investment banks have grown 11 times the size they were in the 80s, whereas community banks have either disappeared or they've grown twice as much or something. These are all big distortions. They lead to a property, a massive speculation in property that leads to very, very high prices that people cannot afford. And so you talk about, well, let's understand why this is the situation and why is everything so expensive? Well, this is the reason it's so expensive. Maybe we should do something about the reason it's so expensive. Not do something that is a distortion on top of a distortion that will make it even more expensive ultimately in the, in the, in the long term, except for the tiny group of people who get the benefit of the free stuff. Yes.

Peter McCormack (107:10)

Brilliant. This is brilliant. Brilliant. Loved it. Whenever you want to come and let me know because I. I love it.

Shanker Singham (107:17)

I love it.

Peter McCormack (107:18)

Yeah, I love talking to you. I learned. I've learned so much in two short sessions from you, and this might be a rare one I listen back to and I might steal some of your lines.

Shanker Singham (107:26)

Oh, that's why I. That's why I say them.

Peter McCormack (107:29)

Thank you for coming back on and thank you to everyone for listening. We will see you all soon.

Shanker Singham (107:34)

Bye. Thanks very much.

Peter McCormack (107:35)

Thank you.