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- [00:00]
Patrick Boyd
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- [01:24]
Francis
Why wait?
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- [01:32]
Patrick Boyd
An unfortunate thing for Britain is that almost every disaster that happened over the last 25 years hit Britain full on. Inflation exploded around the world largely due to all of the lockdown. Basically the global economy shut down in March 2020. Now we've got the Strait of Hormuz and once again Britain is the brunt of it. The issue is that even if it opened up tomorrow, those problems are still kind of in the pipeline. It could be a decade before all of this actually gets sorted out to we're back to the normal levels of production.
- [02:09]
Francis
After a while people are going to get angry.
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Patrick Boyd
Patrick oh, I think people are already angry.
- [02:17]
Host
Patrick Boyd welcome to Trigonometry.
- [02:19]
Patrick Boyd
Thank you. It's very exciting to be here.
- [02:20]
Host
Well, it's great to have you. We both have been really enjoying your content. You're on YouTube. You break down complicated economic and geopolitical things with great analysis. I've really enjoyed it and before we get into the global economy, why everything's getting so expensive, you know, oil prices, the war in Iran, all of this other stuff. Tell us a little bit about who you actually are and how you've come to be here.
- [02:44]
Patrick Boyd
Yeah, so I, you know, I, from Ireland, I teach at two universities here in the UK, KCL and Queen Mary. I've worked for about 20 years in the financial industry in sort of the United States and then in London ran a quantitative sort of derivatives trading hedge fund for quite a while. And now I continue to teach and I have a YouTube channel that was sort of one of those side sort of COVID project kind of things when you've nothing else to do. Originally just putting up content for my students and then it suddenly grew into what it is today.
- [03:22]
Host
Well, right. Everything else is now the side gig because your channel is absolutely crushing it, which is why it's great to have you. Listen, let's get straight into it. I mean, Francis and I have had various experiences just on a human day to day level of either ourselves going into supermarkets or talking to people who are less well off than us as well. And it just seems like things are getting so much more expensive so quickly. And I look at the headline inflation figures and I just don't think they're true anymore. What do you make of all that?
- [03:51]
Patrick Boyd
Well, no, there is just that funny feeling where I remember a few years ago you'd see the price of stuff going up and you'd be like, well, I'm not paying that for that. And then after a while you just kind of go, just don't look at the price, do you want it or not? Because that's what it costs. And yeah, we've seen, I mean, inflation exploded around the world largely due to all of the lockdown. Basically the global economy shut down in March 2020. Right. And governments around the world all. There was sort of this choice of you can let everything tank. And there's an argument, a very free markets argument for that. But the problem is that can those things be rebuilt in an orderly manner is sort of the question. And so in most of the Western world and really almost everywhere, there was a decision made that was essentially to leap across that huge hole in the economy. And so there's lots of people and they didn't lose their jobs because of various bailouts, employers were given in the United States or the PPP loans or all sorts of things, you know, stimulus checks and so on. And that's really expensive, you know, like it's, you know, it was kind of a year and a half, two years worth of, you know, largely debt economy. And so we leap across that and then there's massive inflation. And it's really just that we have to pay the bill for what happened. You know, like, you can't, you know, you can't ignore the fact that everyone got paid for a couple of years when economic activity was a lot lower than, than it normally would have been.
- [05:28]
Host
Well, but we're also not paying the bill, are we? Right.
- [05:30]
Patrick Boyd
Well, you know, it's sort of, it's on the credit card is really what's happened, you know. So I mean, and that's even the thing that, you know, it often makes me laugh when people say to me, you know, about, you know, cutting taxes, you know, and they go, oh, well, the cut in taxes is great. And it's like, well, you know, the thing is that the tax really happens when the government spends the money, right? Once the money's been spent, it's been spent. And now we're either going to pay would have been taxed today or we're going to borrow the money and have to pay for it in the future. And then there's even, you know, there's sort of interest rate arguments around that because, you know, especially a couple of years ago when interest rates were almost zero, like actually the, you know, should we borrow the money? Like kind of at 0% interest? Maybe we should. Like, maybe the economy can outgrow the cost of the debt. But now as interest rates are coming up and of course interest rates and inflation relate to each other, you end up with a situation where we're looking around the world. Pretty much every developed country has debt as a percentage of GDP is the highest it's ever been, and prior peaks occurred during wartime, basically. And it's funny, I was teaching a class earlier today to my students, a kind of financial history thing, and we're looking at the South Sea bubble. And I have a chart of government debt as a percentage of GDP. And it was really out of control in the 1740s because it was 20% of GDP. We're at 100% today and above 100% in many parts of the world. And politicians never want to, they never want to deal with this. They've got four years in office and the trick is to sort of kick the can down the road and hopefully blame the next guy. And the problem is that that doesn't really work for the citizens of the country and it works the worst for the youngest people because, you know, now we've got. Especially with higher interest rates. You know, the interest just being paid on the debt is a big problem. And of course, you know, it's the younger you are, the bigger a problem it is, because it's you who's going to pay for it.
- [07:52]
Francis
Patrick. I went for a meal with a mutual friend of ours who runs a hedge fund. And I said to him, this is how I see the UK economy, but also the Western economy. We're basically an alcoholic. It's last orders at the bar. We got 20 quid in our pocket and we think we're gonna be all right. Cause it's last orders and we got 20 quid. The problem is, that's all we've got. And he looks at me and goes, there's only one thing I change about that metaphor, Francis. I go, what's that? And he went, we borrowed that 20 quid.
- [08:24]
Host
Yeah.
- [08:27]
Francis
Is that bleak or is that a fair assessment of where we are?
- [08:31]
Patrick Boyd
It is. You know, it kind of is where we are. You know, the thing is that, you know, and this is almost everywhere where we've got, you know, we've got high debt, it will need to be paid down. At the moment, you know, governments are kind of getting away with it. They're sort of this. This concept of the bond vigilantes, that the bond market, basically, the lenders will eventually sort of crack the whip and say, guys, we've had enough. And we saw that with the sort of Liz Truss mini budget. 44 days in office and sorry, Liz, that's not happening. The thing that's interesting is it also, it relates to the size of your economy. So why is the UK hurting more than the United States? And the answer is that if you're a big global investor, because capital is global, right? Like the money comes from whoever has it. And if you're a big global investor, you're able to look at the UK and you go, you know what? I don't like the way they're running their finances, not buying any government bonds from the uk, and that's fine, because there's plenty of other bonds to buy. If they look at the United States and they say, well, I don't like what's going on. I'm going to put my money somewhere else. There is nowhere else. You know what I mean? Because it's such a big economy. And if you want to park your money in debt, you park it in the United States. And to explain that even further, let's say. Because people often say, well, what if China decided to take all of their money out of US Bonds and put it in European bonds. Well, or name another country. Bond problem is that Europe doesn't actually borrow that much. Right. So if you dumped a load of money into the euro, for example, if you, the European Central bank would just have all of this money and go, oh, what do we do with this? We'll buy US Bonds with it. So it just works back to the United States. And so the United States has this advantage that they are the dominant currency in the world and they print it so they can get away with that. So there's no point in really leaders from other countries or other central banks that are looking at the United States and saying we'll do what they're doing because you can't, the world won't put up with it from you. There's sort of an old example or an old phrase from one of the US central bankers, I think, where he said, it's our currency and your problem. And so while the UK and other countries don't get away with that, because
- [11:07]
Francis
what's been really interesting to see on social media is a rise of this kind of very left wing style of economics. We've seen the tax are rich. I saw an interview with Zach Polanski and I don't think people talk enough about this where he was talking about doubling the national debt. I think we're at 2.9 trillion and he wants to take it to Japanese levels, which is 5.2. Could you explain, you're already smiling. Could you explain to the layman why that is an absolutely disastrous idea?
- [11:38]
Patrick Boyd
Well, it's a disastrous idea because firstly, Japan is already in a bit of trouble over this. Japan has massive, massive debt. But Japan also has had zero interest rates since the 1990s. They've had three last decades. And the only reason there's sort of a thing where there's a lot of people, like even Donald Trump in the United States talks about wanting to get interest rates down. And there's this feeling that you can lower interest rates and that'll lower what you pay on the national debt and it'll make everyone's mortgages cheaper and whatever. But the problem is that those low interest rates relate to. It's sort of like saying like, oh, well, I'm feeling a bit out of shape. I'll put myself on one of those heart machines they have at the hospital. It's like, that's for someone who's dying. You know, zero interest rates are not normal. And if you look at any sort of long term Chart of interest rates. We're at sort of an average to low level right now. We're kind of back to sort of the sort of, I don't know, early 2000, late 90s, early 2000s kind of thing. Like interest rates aren't that high right now, they just feel high because we've gotten used to, since 1980, when interest rates just came down year after year after year. And my whole career in finance, we would look at interest rates and we'd go, well, at this point, we're at historic lows. It can't go lower, it just went lower. But now it's starting to rise and, you know, people don't know how to deal with. I mean, if you think about it, we've had interest rates going down since 1981. There's not. You walk around a trading floor of a bank and find a person who works there, who has worked during a rising interest rate environment. Like, they're not there, you know, so.
- [13:21]
Host
So they don't know, they don't know what to do. And one of the things that's quite obviously has driven inflation hugely, especially in the uk, is house price inflation. But that is now changing. I mean, the UK housing market is going in a completely different direction. Certainly. I'm like, if you spe speak to anyone who's buying a house or selling a flat or anything like that right now, it's very much a buyer's market. People are either selling at a massive disc. There's a whole Twitter account which, I don't know if you've seen this, which shows like flats in London that got bought for half a million pounds getting sold for 250 and stuff like that. Yeah, there's a lot of that going on.
- [13:56]
Patrick Boyd
I don't know, like, in general, I think some of the, like, I know the place like Chelsea and whatever, that probably attracted a lot of wealthy foreigners. And, you know, you sort of end the party and those people up and leave, you know, and so we're sort of seeing some of that and in particular with like the types of taxes that are being brought in and whatever, you know, you know, getting rid of the non dom rule. Like, there were a lot of wealthy people who lived here, they had foreign income that was not being taxed in the UK and that works for them. And if you say to someone, well, we're now going to tax you on your global income, it's like, well, you
- [14:35]
Host
know, London's nice, but it's not that nice.
- [14:38]
Patrick Boyd
Exactly. There's a lot of places to live and so, yeah, I mean, the funny thing though is I would argue, I made a video a little while ago on this topic, that the property market, in my opinion in London is almost the source of most of the country's problem. Not London, but the UK in general. Because there's this funny thing where if you look in the United States, if you ask an American about their investments, they'll tell you about the index fund, they have, their retirement account, whatever else. British people just invest in housing. Ireland is same. The only investment is housing. And some of it is that they also don't trust these other things because there's actually one of the beauties, the reasons that people like investing in the United States is good securities regulation, where as an investor you feel you'll be treated fairly. And it's never seemed as good here. And you kind of think, well, at least if I have a house, I have a house. But the problem with housing as an investment is that it then it sort of incentivizes government. Like no government will get reelected if house prices fall 20% on their watch. Right. Like it's not happening. And so if they kind of even have the urge to sort of keep it stable or creeping upward over time. How do you do that? Well, you don't build enough houses, you know, put in place rules that are sort of very good for the people who already have money, who already have houses. And so that goes up and up and you end up in this situation where sort of, and this is a bit the situation in other countries, but it's just a nightmare in Britain where there's small, unaffordable, low quality housing stock. In truth, like, if a few years ago I kind of made a bit of a joking video. A friend of mine was looking to buy a house and so I thought, well, what I'll do is I'll look around the United States and around the world a little bit and I'll say, you know, you have $1 million to spend. But the thing that makes it a bit interesting is in the United States, like different cities, different states will have different taxes. So, you know, if you look at Texas and you might go, oh, well, the home is really cheap there. But actually it has a really high real estate tax. We have to adjust for that. And so I did all of these adjustments and I think I threw London in as well. And I found like in central London for a million US Dollars, I found this home like above a chip shop that looked like it had been hit with a wrecking ball. You know what I mean, and you just think like, I am sorry, but like you are not moving in.
- [17:13]
Francis
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- [19:10]
Host
Well, definitely. I mean the housing crisis is something we've talked a lot and obviously you've had two generations now of young people mine ours and down locked out of it effectively. But what I think is happening now is, and this is my point is I actually think house prices are going down. Most people haven't quite worked this out yet, but they are. And this is happening at a time when affordability is getting worse.
- [19:38]
Patrick Boyd
Yeah, it's sort of such an interesting thing because you know, as a seller you might feel sad. You know, you're like, oh, my million pound house is now a 900,000. But as a buyer, you're kind of like, yeah, but 900 is still too much, you know, And. Yeah, and then it's also, you know, some of the reason as well is that people aren't earning as well as they did in the past and so on. And so, yeah, like you said, because even interest rates really affect affordability. And normally you would expect in a higher interest rate environment for houses to not just get cheaper, but to get a lot cheaper. Because essentially how someone buys a home, like I remember when I bought my first home, you know, how much can you afford? You don't know. Right. You know what you get as you know, your monthly income, and you go down to the bank and you say, I earned this much and I spent this on food, so this is what I can pay on rent or mortgage. And then that gets run through a formula with an interest rate in it. And that tells you how much house you can afford. And the lower that interest rate is, the more house you can afford. Right? So. So if you bought a house in 2000, right before September 11, all these things, rates come down and down and down, and your house just goes up and up in value because let's say your cash flow to put into the mortgage is 1,000amonth. That 1,000amonth, whatever it bought in 2000, when interest rates were 8.5% on a mortgage, a couple of years ago, when they were 3% on a mortgage, it was three times as much money. So now that we see interest rates going up, this in theory should undo itself. But of course, this would be so politically harmful. Like I said, what politician could, if we saw house prices in major cities around the world, go back to the prices they were at in the late 1990s, I mean, there'd be war in the streets, right? So. But the truth is that if they don't go back to those prices, they'll be worn. The streets, they just become shockingly unaffordable. Yeah. And it kind of becomes an inheritocracy, right, like where you no longer dream of buying your house, you dream of poisoning your parents, you know, so you can have their house.
- [21:51]
Host
That's right.
- [21:53]
Patrick Boyd
I like that you guys didn't laugh at that. That's my point, mate.
- [21:56]
Francis
We're from London.
- [21:59]
Host
I managed to get to scrape my way into the housing ladder, but he's definitely waiting for the.
- [22:04]
Francis
Yeah, just rubbing my ass.
- [22:05]
Patrick Boyd
If your parents are watching. No more soup.
- [22:09]
Francis
Yeah, no, I just leave a few windows open. You know, let's get the cold air coming.
- [22:14]
Host
The Winter chill.
- [22:15]
Patrick Boyd
This is the global warming problem that won't even work.
- [22:17]
Francis
I know, I know. It's like everything's against me.
- [22:20]
Host
Patrick, but I was gonna ask. You mentioned that people aren't earning as much as they are. I mean, I think one of the things, I don't know if you saw. There were some polls and surveys recently. I wrote an article about it showing the. Basically, British people feel poorer, but they kind of think it's just them. Like, they think it's just, well, I'm getting. The country's fine, but I personally am getting poorer. And they think we are as rich as Americans and as rich as the Swiss and as rich as the Germans and as rich as the Australians, where we're not remotely as rich as them per capita. Why is Britain's economy struggling as much as it is?
- [22:55]
Patrick Boyd
An unfortunate thing for Britain is that almost every disaster that happened over the last 25 years hit Britain full on because Britain did worse out of the global financial crisis than the United States did. Then what country was hit the hardest by the Russia, Ukraine war and the gas prices? It was Britain. Now we've got the Strait of Hormuz, and once again, Britain is taking the brunt of it. So it's easy to sort of. There's lots of commentators and they want to say, well, it's terrible politics or it's lazy. One of the things is that productivity in Britain is a lot lower than in the United States, for example.
- [23:39]
Host
Why is that?
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Patrick Boyd
Well, there's a bunch of reasons for it, but one of the bigger reasons is just that there's way less investment in UK workers. So an American worker sort of turns up at the office and they have more. Because productivity is basically, you combine labor with capital and it turns into economic output. And really, in the uk there's a very highly educated workforce. British people are very hardworking, but they have, I think, something like 50% less capital than an American worker. And so that's everything from even, like software products you're working, or, you know, capital is even the building you're working in or whatever. Because even if you have very high rent, you have very high electricity price, all of these things, they drain away the productive capacity of the countries.
- [24:34]
Host
So we're a lot less productive. But a lot of those other things you mentioned, for example, we'll go on to talk about the war in Iran. Energy, that's a policy issue, right?
- [24:46]
Patrick Boyd
Yeah. Energy is a nightmare problem for the UK because I believe we have the most expensive industrial electricity prices in the developed world. And Then the government kind of look around and they sort of go like, how can we get the steel industry working? And it's like almost all industry is turning power into output. It's kind of almost that interesting thing where every other animal, they eat food and that gets turned into energy for humans. We also burn stuff and that turns into energy. And when you look around the world, often the most development and the most economic output comes from the countries with the cheapest energy. And we have very expensive energy here. And there's not really any good projects in place that are going to make it cheaper. And so when you look at, when people say, how do we bail out the steel industry? It doesn't make sense. For one thing, Britain doesn't even produce iron ore because people often make this strategic argument like, oh, you need it in time of war. And it's like, well, we need to import the iron ore and then we need to, you know, run it through the most expensive furnace in the world. Maybe we'd be better off just buying the, you know, stockpile the stuff if you want to, but the steel industry can't work here with, you know, the current setup.
- [26:09]
Francis
So, Patrick, I was really excited to have you on because of everything that we're talking about, but also because, as I mentioned before, this rise of extremely left wing economic ideas, which I find quite terrifying. Would you be able to explain to people why the tax rich and wealth taxes is not going to work and it's not going to do what people hope they do, which is create a fairer society and wealth redistribution?
- [26:35]
Patrick Boyd
Yeah, I mean, you know, in truth, like in sort of difficult times like the UK is in right now, many other countries, you see the rise of populism and there's both left and right wing populism. But essentially what populism often is is it's giving voice to anger without necessarily any real solutions. You know, so like you said, an idea of borrowing way more money than the country has ever and probably could borrow, that's not a solution. And a lot of, you know, huge improvement could be made to the tax system in the uk. It's kind of interesting that actually the average British person has lower taxes on average than in a lot of the developed world. But then the middle and wealthier cohort pay very high taxes. So then all of these ideas of wealth tax and whatever, it's a funny thing because really what needs to be done is you need to spur productivity and growth in the uk. You can't tax an economy into growth. And a lot of the solutions that are put forth on really either side are more about voicing anger than about providing real solutions. And they're often, I don't like to beat up on people because they're often very well meaning if sort of economically illiterate, like they don't understand why that policy just wouldn't work. It's even like an awful lot of government interference in business tends not to work. Like I'm not a fan of Joe Biden's subsidies or Donald Trump's tariffs, for example, because I don't feel that these are. The government doesn't need to make business better, they need to essentially get out of the way of business to allow it to be better. And once again, people then get offended when I say that because they think I'm advocating for Chinese type situation where you allow huge pollution, deregulation, doesn't matter mean allowing terrible things to happen. But it often does mean sort of toning down the most extreme regulation that is often prohibiting sort of any project from going forward.
- [28:59]
Francis
So if we did bring in a wealth tax, which is what a lot of people on the left want and certainly the Green Party want, there's people
- [29:06]
Host
in the Labour Party who want it as well.
- [29:08]
Francis
Yeah. Why is it, why would that be so disastrous?
- [29:13]
Patrick Boyd
One reason even is that it's just not enough money. A lot of the argument around wealth tax is sort of about this idea. It's kind of politics of envy. And I'm not awfully interested in politics. But if you, let's say you took every. I don't know how many billionaires are in the uk, but let's look at the United States. If you took all of the billionaires and took 100% of their wealth from them, handed it to the government as a one off tax, the problem is that that would only pay for a few months of US government spending. It would by no means pay down the national debt and you'd probably have shut down every big business or you'd have disincentivized them. Now that's not to say is there a fairer tax system probably everywhere. Because every tax system is sort of a hodgepodge together of sort of prior government ideas that didn't, didn't work. There's a guy, his name's Dan Needle, who, he writes some pretty good things on UK tax policy and he shows the sort of. The lumpy nature of UK taxes often means that it disincentivize you. Like once you hit 50 or 100,000 pounds a year, you sort of. Because taxes are often combined with sort of other government transfers. And as you pass through certain prices, means tested, things fall away. And you could have an example of a doctor where if he worked an extra hour and earned, we'll say, went from 100 to 100, £1,000, he would lose childcare for his children, things like that, that would set him back £20,000. And so a better progressive system straight away makes sense. Often the biggest problems are just rules that are in place that provide perverse incentives that destroy productivity.
- [31:09]
Host
Well, and one of the things that people, I think, don't understand, you know, we are not sort of talking about these things in a political way, but much more in a practical way, particularly when it comes to economics. So we have a friend who runs a couple of restaurants in Kensington. Yeah, they're great restaurants, really, really good. The food is great, service is brilliant. I was talking to him the other day and he was saying to me that business had become a lot harder. As you know, it's Kensington, so wealthier people are leaving the country. And I think this is where people have this sort of myopic ideas like, well, you tax the rich and then all that happens is you get money. But that's not all that happens. Those people spent that money paying other people who are not the super rich for goods and services. Now those businesses are going to struggle. They're not going to hire as many people or close down. And there's this whole effect for, as you say, not a massive amount of gain on the other end.
- [32:07]
Patrick Boyd
Yeah, well, there's also just this thing where the world is kind of more complex. You know, it'd be easy if you could just sort of say, oh, we do this thing and it'll work. But there's sort of this economic law of unintended consequences. You know, even, you know, people have sort of said they come up with an idea of like, well, what if when someone dies, all of their wealth, you know, debt tax, it all goes to the government? That's the thing you could do, because why should their children better? You know, you could make this argument, but you forget that you would change every incentive of that person. Like, if I knew that all of my money was going to zero the day that I died, I couldn't pass it on to my children. Well, I would spend it on my children or I would spend it on myself. I would get them an education that would put them in a place, I would buy their way into certain things. Because, of course, you know, parents have this urge to look after their children. It's sort of parents have more of an urge to look after their children than after themselves. You'll often see. And so there's, you know, the problem with really simple solutions is that you're leaving out the fact that people will behave, you know, they'll adjust their behaviors based on the incentives. So, you know, usually the truth is that a government, government can kind of tax however they want to. Like, you know, if you. Once again, the tariff thing, I don't think tariffs are a good way of taxing, but are they reasonable? I mean, sure, you know, like if a government is sort of spending money on its citizens, they need to raise money for that. And you can sort of choose however you want to bring it in. But you usually want to bring it in in a way that's not too distortive. You know, like that doesn't provide a bunch of incentives for people to do weird things that might slow or harm economic growth or that might cause productive people to leave for other locations.
- [34:00]
Host
And especially in the modern world. I think that's true because people are more mobile than they've ever been. And so the more you pursue high tax policies towards the higher end, you are actually pushing out people who are actually very good at moving.
- [34:16]
Francis
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- [35:42]
Patrick Boyd
Yeah, well, it's that business is more mobile because if you go back 50, 60 years when a big business was auto manufacturing or something like that, you could kind of do what you want to that guy and how's he gonna move his factory out of the country? But more and more business is sort of intellectual property. It's software, it's ideas, it's patents, especially in western countries. It's all, it's legal work, it's things like that. And these are highly paid, good jobs. But you know, if you're gonna like really aggressively go after these people, it's not, they don't have to move like a coal mine out of the country, they have to move a laptop out of the country.
- [36:27]
Francis
So another one of these ideas that I've seen starting to bubble is rent control.
- [36:34]
Patrick Boyd
Yeah.
- [36:34]
Francis
And I get it on the surface, you know, you look at London, rents are insane.
- [36:38]
Patrick Boyd
Yeah.
- [36:39]
Francis
And you think, well, why should we pay that amount, 2,000 pounds to live in a one bedroom flat in a nice area? That's obviously ridiculous. But why is rent control a bad idea? Because there's a lot of people, like I said, online talking about it.
- [36:53]
Patrick Boyd
You see, once again, it's a simple solution and it sounds great, but you just have to look at New York City where they implemented this in the past. And it's about all of these distortions that it causes. Because in a way with rent control you're often picking a favorite class, like a group of renters who will get it. But, but it also disincentivize landlords to, we'll say, repair and improve their buildings. You end up with funny things. Like, I had a friend who had a rent control apartment in New York, this is my parents age, she rented it in the 1970s and left New York, like was living in another state, but kept that as her main address because it was. She's paying 1970s rent in, in 2025. Right. Like, I mean it costs nothing. And so, you know, and the landlord would go to all sorts of extremes to try and knock her out. But she had a good lawyer, she's not getting knocked out. But that apartment, she would live in it like you know, a week, a year kind of thing, if even, you know. And I used to joke with her, I said, I know you've got low rent, but actually your rent is still more than a hotel room in New York. But you know, you cause these distortions where Things get locked in. It's just, you know, the problem with real estate is often a supply and demand problem. You know, the reason, like, why is it. Why do you have to pay really high rent for apartments in London? Well, there's a lot of people and there's not so many apartments. So you need to build more. You need to deal with planning regulation. And there's a lot of really bad planning. You know, like, I had a friend who owned a place and, you know, it's one of these apartments in Hampstead. It's nice, but, you know, it's one of the thousand ones around, you know, so red brick kind of thing. And he wanted to put new windows in because, you know, I mean, there was, like breezes blowing through his living room, you know, the heating bills through the roof. But of course, it's, you know, some somehow listed such that he would have to sort of have a craftsman build a window like it was built 150 years ago that costs about 20 grand. So what do you do? You squirt a bit of caulk into the window and open holes up. And so there's many of these ideas where people think like, oh, well, it's good, we'll stop people from putting ugly windows in their apartment. And instead you have the really high heating bills, you have degrading housing stock, all based on a rule that was sort of meant to keep things looking nice, and it doesn't look nice and that the windows are all rotten either.
- [39:32]
Francis
It's such a good point, because I think this is the problem in that people don't understand that these ideas sound good on the surface. When you scratch that surface, they will cause far more harm than good. And I just worry. I guess my question to you is how do we teach people so that we actually have better ideas, particularly when it comes to economics.
- [39:59]
Patrick Boyd
It's hard because even one of the issues is I try to think of economics as sort of thinking through the most efficient way to do things. But of course, economics is always intertwined with politics, and that's kind of where it gets ugly. And even just the idea that politicians want to lie to you and say, I have a solution, you know, I've all these great ideas. One good trick in the British economy will be great. And it's like, oh, well, you said it on the campaign trail. Can't everyone implement, it's not a good trick, you know, and people buy it, you know, because it sounds good. It sounds like, you know, you're going to fix my problem. Great. And even they'll sometimes recognize. Like, they'll say, well, I don't think he will fix my problem, but at least he understands I have a problem. They'll even vote in a person who they know it's a failed policy, but they hope that it's a step in the right direction.
- [41:03]
Host
And speaking of damage, I mean, one of the issues we covered extensively when it first broke out was the war in Iran. And look, there's obviously a geopolitical dimension to that and a security dimension to that. You might be one of the people who thinks it's really, really important to prevent Iran from getting nuclear weapons. And almost no matter what the economic cost was, it was still worth doing, which I don't necessarily agree with entirely because it's not clear to me that this war will do better than what was already available in terms of achieving that objective. But even if you think that, let's just park that to the side. I just want to talk about the realities of the economic impact now and also over time, because most people don't understand that some of the disruption we've seen hasn't actually materialized in outcomes yet. So can you talk to us about the war in Iran and the closure of the Striat Hormuz and the impact of that?
- [42:02]
Patrick Boyd
The issue is that even if it opened up tomorrow, those problems are still kind of in the pipeline. Because essentially everyone's sort of saying like, oh, prices have gone up a little bit, but we haven't really run out of anything. And one of the reasons we haven't run out of anything is that there's sort of stores all around, like, there were ships at sea filled with oil. There's pipelines that have oil in them and so on. But a lot of infrastructure was damaged over there, like all of the bombing. You've knocked out refineries and things like that, even the ports for loading oil onto ships or liquid natural gas or whatever. The other issue is that oil wells work very well when they're producing at a very steady state and a problem occurs. We saw this during COVID when you had to stop the wells. You know, you can't. People think of it as like a big tap and you turn it off and everything's fine. But there's all sorts of gases and settling and things that happen inside wells. There's even, like, background bacterial growth that can occur to damage the oil and so on. And so you have to shut these things down slowly. You have to start them up. Even the pipes that run the liquid natural gas, you know, liquid natural Gas is when it's compressed, very cold. Right. And so when these things kind of change temperature quickly as you pressurize and depressurize them and so on, you end up with the pipes cracking and that sort of thing. So a lot of infrastructure, a lot of oil infrastructure can't be turned on and off the way people think it can. A lot of it is just damaged. And so even if we leave the podcast studio and look at our phones and it says the Strait is open, these problems are still in the pipeline, they're still coming at us. It could be a decade before all of this actually gets sorted out, until we're back to the normal levels of production.
- [44:01]
Host
And can you quantify the levels of oil price changes and other things that have already happened? Like, where are we?
- [44:08]
Patrick Boyd
Yeah, I mean, so we've seen oil prices go up. There's an interesting thing where, you know, obviously in the uk, we've been hit quite hard by it. There's interesting incentives that even then exist around the world. Like a good example would be, even if we go back to Russian invasion of Ukraine and in places like Britain, the government said, well, we're going to try and take some of the impact will reduce taxes on it or whatever. The problem even with doing that is it doesn't send. The price has gone up. And the price going up is a signal that this thing is rare and to use less of it, if the government dampen that signal, we continue to use it as normal. And of course, in wealthy countries, we can kind of get away with that. But then you see in parts of the world where the governments have no budget to deal with this, in the poorest parts of the world, like Bangladesh and so on, they just don't get any. They just don't get any energy supplies, you know, so it causes huge problems everywhere. Yeah, I guess, once again, it's sort of the world is way more interconnected and way more complex than it would have first appeared. Because even in the United States, there's people saying, like, well, why is petrol gas prices gone up in the United States? And the reason for that is there's a whole industry of people trading.
- [45:31]
Host
There's a global market.
- [45:32]
Patrick Boyd
Yeah, there's a global market. And of course, you know, if someone, if you're a US producer and, you know, you can put this stuff on a ship and send it to Europe and get twice the money for it, you're doing that and that's driving up the price in the United States.
- [45:45]
Host
And so where are we with the oil price? How much of an impact has this been?
- [45:50]
Patrick Boyd
It's a big impact in inflation. I think, you know, there's a number of things playing into inflation right now. You know, that is one.
- [46:00]
Host
It is.
- [46:01]
Patrick Boyd
You know, there's an argument that that could be a temporary one, you know, depending on how quickly things tidy up. And, you know, as I said, it will linger. It'll have a long tail to it, but it could tail off. But there's even just a number of other sort of big global macro things happening in the world that are inflationary, you know, just tied to even things like aging populations and so on that just mean that the levels of inflation that we've seen in the past. There's a very good book that I just read a few weeks ago called I think the Unanchored Central Banker, and the author is a friend of mine. But in it he makes the argument that up until recently, for the last 20, 30 years, central bankers around the world have looked like geniuses because they've managed to have lots of growth and keep inflation under control. But of course, there were big macro forces that were keeping inflation under control. Like even just the fact that we were importing all this stuff from China, just the demographics, the number of people working versus the number of people outside of the workforce. And now as we have aging populations, we have all of these inflationary pressures from a variety of reasons. The central bankers are no longer in a situation where they can really control inflation as they did in the past. I made a video a little while ago where I talked about the example of Paul Volcker in 1981. He's sort of given credit in the United States. He stepped in when inflation was way out of control, hiked interest rates about 20%. Obviously, Ronald Reagan at the time would have been furious, like, you're killing the economy. Right? But it got inflation under control and interest rates come down and the US Economy booms. And that's sort of a heroic story. But the US national debt was way, way, way smaller back then than it is today. And you can't do that today because if you hiked interest rates that high today, the interest that the government has to pay on their debts will cause so much, so many problems that it would it just. Once again, things are, you can't hold the same medicine doesn't work the second time around because it's not exactly the same illness.
- [48:26]
Francis
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- [50:16]
Patrick Boyd
Well you know there's an interesting thing, there's actually a funny lag that's occurred with the price of fertilizer and the reason for this. You would expect the fertilizer issue to hit a lot harder here in Europe. But Europe instituted a new like a higher tax I think like a carbon type tax or something like that on nitrogen fertilizer that was going to kick in around now. And so all of the farmers knew this was coming so they front loaded, they stocked up with loads of fertilizer. You know a year or two of fertilizer could get it now before the carbon tax hits. So the farmers in Europe are great. Not in the UK because the UK wasn't going to be hit by this. But actually Europe is kind of okay for Fertilizer. But the problem is that the next lot of fertilizer coming out, people don't realize this. They think, what's fertilizer? Is it, you know, it's cow poo? It's not. It's natural gas, basically. You know, it's basically what we have done. You know, what the human development has been is just converting energy into goods. And one of those things is fertilizer. Like the reason the global population, you know, you go back a century and people would have said, well, the planet couldn't hold the amount of people it has right now. There's not enough agricultural capacity. But actually there kind of is once we worked out how to make turn energy into fertilizer.
- [51:46]
Host
And so that being the case, if this war carries on, these shortages are actually going to manifest them in the same way that you're talking about. Well, we've got stockpiles of certain things. But they will run out, right?
- [52:00]
Patrick Boyd
Yeah, they'll run out or they'll run low. And that then means that farms are less productive, essentially at first, less productive because the farmers will continue to fertilize, but just with less. And I'm not really much of an expert on this, but I believe that kind of compounds out over the years. Like apparently there's sort of an optimal level of fertilizer to lay that if you kind of back off on it now, apparently it'll harm things in the future. I don't exactly understand that. But almost everything we have ties back to energy prices because even just stuff being moved at sea is a huge energy cost to that. Almost every product that we have in the modern world traces its way back to the oil and gas industry.
- [52:47]
Francis
Because if we're looking and we're saying there's going to be fertilizer shortages, I'm just a layman, what do I know? But fertiliser shortages to me means less food being produced.
- [52:58]
Patrick Boyd
It's less food and more expensive and
- [53:00]
Francis
more expensive, which means inevitably some people aren't going to be able to afford food. Therefore, you get food shortages, which means you get a horrific consequences that come from that. One of them will be severe political unrest.
- [53:16]
Patrick Boyd
Well, you know, once again, like, who's going to be hit by this? It's going to be people in poor countries. Right? Because it's unlikely that people in, you know, the western developed world are going to actually be experiencing famine, you know, will pay up for the food. And then in other parts of the world where they can't, they have real problems.
- [53:38]
Francis
But you say that And I know, like, we won't have famine in this country, but I'll give you an example. So I live in quite a she. Part of North London, you know, the place where everybody supports BLM but no one's got a black friend, that kind of area. And I go into the butchers and I say, oh, how's business? And the butcher goes, to me, it's a true story. He went, well, it's quite interesting because the people who normally come in here four times a week, they're down to three or sometimes two. And sometimes people come in twice a week. They're now down to once a week. So what we're seeing, I mean, that's meat rationing.
- [54:12]
Patrick Boyd
Yeah, but that's how people deal with higher costs, right? Like, because you need a certain amount of calories, you don't necessarily need it to come from caviar, you know, so as prices go up, you adjust, you know, you find substitute goods. And so eventually, maybe we'll be like Ireland a couple hundred years ago and try and get by on potato.
- [54:33]
Host
That. That sounds like a promising scenario for, For Britain to embrace. Looking forward to it.
- [54:38]
Francis
But it comes to a point where, look, and we can go, all right, look, you can substitute calories. You, you're not going to be able to afford chicken thighs. You can get, you know, you can get, I don't know, a good fellas, pizza, whatever it is, you can get your calories in that. After a while, people are going to get angry. Patrick.
- [54:54]
Patrick Boyd
I think people are already angry because, like, it angers people, even having to downgrade. Like, you know, people aren't angry because they're hungry, but they are angry if their life is slowly getting worse. Like, if they're like, well, I'm working harder, I'm doing all the right things. I'm doing everything I was told was supposed to lead to a successful life. And here I am growing potatoes in my backyard to feed the family, you
- [55:18]
Host
know, so well, and I do, given the historical example you mentioned, I do remember the Irish getting a little bit angry. I hope I don't get killed for that joke. But look, it's. We've talked obviously a lot about the fact that there are no simple solutions to complex problems. It's actually one of the things we talk perpetually about on the show. What are some of the things that we should be looking at adjusting in terms of government policy and other things to try and turn the economy around in this country to be more productive, to generate more wealth? Because this is one of the Other things that I think, I really struggle with understanding how people can reconcile these two things in the head. On the one hand, they want lots of government spending, but on the other hand, they're completely uninterested in growth and doing things that will grow the economy. You can't have those two things happening together. You've got to get the money for welfare from somewhere.
- [56:16]
Patrick Boyd
Yeah.
- [56:17]
Host
So how do we adjust things in your.
- [56:20]
Patrick Boyd
I think for the British economy, like, energy is probably the biggest problem. But, you know, often I'll talk about deregulation. People get angry, as I've said earlier, you know, not saying that we need to put poison in people's food. Deregulation, though, sometimes. A great example is Hinkley Point C, the nuclear reactor that they're building here in the uk, which is now on schedule to be the most expensive nuclear plant in the world. And the reason for this, they picked an off the shelf sort of reactor, I think, from EDF in France. And then they said, well, we need to make a few adjustments to it. Right. They've made 7,000 adjustments to the reactor. It's no longer. This is no longer a generic thing. If you look in places like South Korea, where they have a more sensible approach, they build one reactor, they see that it's good, and they kind of go, okay, now let's duplicate. We'll replicate this. We'll put up multiples of the same thing. And the problem is that there's almost this problem in the developed world where sort of everyone has a veto. And so any project. There was a great example of the Madrid metro system where I think in the 90s, early 2000s, they tripled the size of the metro system in Madrid, and it makes Madrid a great city. And they managed to do that. I think it was something like 35 miles of underground tube stations for about the same price as they spent on about a mile and a half of the Hudson Yard extension in New York. And the reason they did this was they just, just simplified it all. Like they said, look, if there's been sort of planning an environmental analysis for other stuff in this area in the last few years, we can just rely on that instead of each getting a different architect to build each station. So it's sort of interesting and arty. It's like, same station, we'll develop a good one, build them all the same. And they just sort of simplified and they built it out way cheaper. And it's a funny thing because, of course, even one of the problems, if you want to talk about, like Apart from high real estate cost in London, the cost of getting around is really high. And so you might say, oh, well, a young person could live out in the suburbs and come in and it's like, well, what's their commute going to cost them? It's often the commute could be worse than the rent they have to pay. And so getting things like even being able to get people to the places where they work in an affordable manner boosts productivity. Having a sufficient amount of energy to run the kind of businesses that can be run in the uk. Britain, it's where the Industrial Revolution came from. And there's amazing engineering talent in the uk. I think almost. I forget what percentage of Formula one cars are all engineered in the uk because there's that history and that education here. But then you need to water those seeds. Right. And what is needed is maybe when I'm talking about rolling back regulation, I'm not sort of saying that we do terrible things, but I'm saying that maybe certain planning rules and whatever need to be. We need to look at the. Because actually, for example, like in Madrid, where they built out this great metro system, you could say, oh, well, what about the environmental damage? But it's like. But now we've got 25 years of people going around on. On subways rather than driving cars and motorbikes and whatever around the city. There's an environmental benefit to that as well. And so you have to look at the whole project and the overall gains and losses rather than sort of just allowing everyone to object to sort of their neighbor painting the garage door a funny color.
- [60:14]
Host
Well, and you've got to produce your own energy to the extent that you can, you know, and that's really important, not just economically, but from a security perspective as well. Right. What about. I mean, I don't know if this is true, but it sort of feels like that to me. From conversations that we've had that we. There is a lot of. We have a lot of government spending.
- [60:37]
Patrick Boyd
Yeah.
- [60:38]
Host
And we have a lot of taxation, which means, you know, we run a small business effectively with trigonometry. It just makes it that much harder to hire people. It makes it harder to adjust the business as you go. You end up spending a lot of money on taxes and all other things that, like, we know from our experience, if we didn't spend so much money paying tax, we would hire someone else to do something else, to create something else. Is there a room to adjust in that area for the UK as well?
- [61:06]
Patrick Boyd
You know, the problem is that There isn't, isn't. Right. Because the problem is that when national debt is as high as it is, you know, the answer really is more that spending has to be cut in certain ways. And, and even if you look at it, I think that the average sort of 65 and older British person has maybe a net worth. This will include their house of around £600,000. You look at the average 30 year old and they have student debt. And then you have all these policies where they're like, well we have to maintain the triple lock pension and things like that. And it's like, well, do we, do we have to do that? Because you have to recognize that almost every government policy is a transfer from one group to another. That's what governments do. A good example is even interest rates. Who is a hike or a cut in interest rate, transferring wealth between. Well, if you cut interest rates, that's good for borrowers, it's bad for savers. Borrowers tend to be the business sector, savers tend to be the household sector. And you can look through almost everything like that. Like if you wanted to stimulate the economy, you could cut the cost of Tube fares, for example. That would benefit the working people rather than retirees, for example.
- [62:23]
Francis
I mean, or you could just bunk, which is what everybody does now in London anyway, it's entirely optional. Sorry, Patrick.
- [62:29]
Patrick Boyd
I have seen that actually like people just storm through the gates.
- [62:32]
Francis
Yeah, anyway, sorry, but I think part of the problem is as well, it's we've got low growth economy but we've also got a low wage economy. So for instance, I was talking to an American engineer and he told me a story that whenever he wants to have a good laugh, what he does is he goes to look at the London branch wages of his company, of his company for the equivalent. Why is it that our wages are so low?
- [62:58]
Patrick Boyd
So this is quite an interesting thing in the UK because actually the sort of minimum wage is quite high in the uk so we'll say like, you know, in times hardly unskilled work, like the kind of job a teenager could get, pays much higher in the UK than anywhere else in Europe and in the United States it's really high. But then it's that kind of university educated, like, you know, it's sort of the worst thing where if you're like a junior engineer, you might be earning 10% more than the guy making the coffees in the cafeteria. And that of course, you know, I mean, once again it's not for me to decide who gets paid what, but it does Sort of it makes people miserable. It makes, you know, there's very highly educated people in the UK who are quite angry, you know, because what was it, Maybe a decade, 15 years ago, they introduced like the, you know, much higher university fees and things like that. And so you go, you've got a load of debt and then you're not really earning the premium for your education that you earn in other parts of the world. And that is upsetting. In fact, in many parts of the world, this feeling of the squeezed middle, it's slightly. An interesting thing, is that often the poorest people, like when we look at inequality, the lowest paid, we'll say in the United States, States are doing a lot better now than they were in the past decades. The extremely wealthy are doing a lot better as well. And it's sort of that middle class is sort of seeing the guy who works at McDonald's sort of catching up on his wages and then he's seeing the person who owns his business buying his 50 odd. And it's kind of like, well, what's going on with me? This isn't the American dream anymore. That there's no English dream is not,
- [65:01]
Host
as far as I know. Patrick, it's been great having you on. Before we head over to Substack, where we ask you questions from our supporters, the question we always end with is, what's the one thing we're not talking about that we really should be?
- [65:14]
Patrick Boyd
Gosh, what are we not talking about that we should be? I am stuck. I think we had a good conversation. Let me think.
- [65:24]
Host
I mean, one of the things we've touched on but haven't really talked about is you made what I think is an incontrovertible claim that the debt we've all accumulated has to be paid off. Except I don't see any government anywhere remotely attempting to even say we should forget about that.
- [65:40]
Patrick Boyd
I mean, that's definitely true. Like all of the talk is about how can we cut tax or, sorry, how can we deal with the tax system, how can we boost this and that. But the truth is, yes, no one running for government. And that's back to that idea that the problem we have these sort of middle of the road politicians who are sort of the status quo and people point at them and say, you got us in this trouble. And there's very strong argument for that. But then you kind of have the sort of populists shouting outside the gate both on the left and the right. And they are angry, but they're not providing solutions or the solutions they're providing, they are suggesting are entirely useless and ill thought out.
- [66:28]
Host
So how are we going to pay this off? Is there a way to actually do this without extreme pain?
- [66:35]
Patrick Boyd
I think that the biggest issue for the UK is energy. I think more building is needed so that people can afford to live and work where they are. And I think that in almost everywhere in the Western world, retirement benefits probably have to go down because we're in a situation. There's sort of an interesting demographic thing where in the post World War II period a lot of this sort of social contract came in and at that time there were probably about eight workers to every retiree. Now we're reaching the point where it's sort of one worker because. Well, there's because economically inactive people, which is both children and the elderly and you've got a ratio of one to one we're starting to reach. So essentially you've got one person wage that is supposed to support more people and there's not really that social contract of sort of cradle to grave social insurance sort of idea. Doesn't really work. And in particular you look in places like Italy where that I think in a few years time there's going to be 0.8 workers for every economically inactive person. And whenever you try and sort of cut pension benefits, you look to France, they set the whole city on fire every time anyone suggests it. But. But the truth is that in order to balance the books, we need to balance the books.
- [68:13]
Host
Well, whenever anyone brings up this point, which I think is very valid, I always make the point. I'm from Russia originally. Vladimir Putin tried to increase the pension age and he had to backtrack.
- [68:24]
Patrick Boyd
Yeah, so that's the thing is there's some difficult conversations.
- [68:30]
Host
You can literally be an authoritarian dictator and you will still have to reckon with the public's vitriol about this. Patrick, great to have you on. Head on over to triggerpod.co.uk where he's going to answer your questions.
- [68:45]
Francis
What do we have to do to stop governments printing money? Governments are living beyond their means. Invent a problem, spent big on it, repeat, how do we stop this?
- [69:03]
Patrick Boyd
Sam?