Plain English with Derek Thompson - The UK Is in Trouble: Economic Crises, Energy Shocks, and the Queen’s Death

Episode Date: September 8, 2022

Hours before the death of Queen Elizabeth II, Derek talked to Duncan Weldon, the Britain economics correspondent at The Economist, about the UK's political and economic challenge. Russia’s invasion of Ukraine has sent energy prices soaring across Europe, but few countries have it worse than the UK, where inflation skyrocketed past 10 percent and the Bank of England projects a deep and lasting recession. This comes after a 15-year period of utter economic stagnation, Brexit, and the clown show of Boris Johnson. How did the UK, the birthplace of modern capitalism and the industrial revolution, become such an economic and political disaster? And will the queen's death affect the nation's trajectory? If you have questions, observations, or ideas for future episodes, email us at [e-mail]. You can find us on TikTok at www.tiktok.com/@plainenglish_ Host: Derek Thompson Guest: Duncan Weldon Producer: Devon Manze Learn more about your ad choices. Visit podcastchoices.com/adchoices

I'm Matt Bellany, founding partner of Puck News, and I'm covering the inside conversation about money and power in Hollywood. With my new show, The Town, I'm going to take you inside Hollywood with exclusive insight on what people in show business are actually talking about. Multiple times a week, I'll talk to some of the smartest people I know, journalists, insiders, all of whom can break down the hottest topics in entertainment to tell you what's really going on. Listen now. Today's episode is about the United Kingdom. And we have to begin with the news, the breaking news, that Queen Elizabeth II, the longest reigning monarch in British history, died on Thursday at the age of 96. Taking the throne on February 6, 1952, she ruled for 70 years and 127 days.

70 years and 127 days is incredibly longer than the life expectancy of the average British person in 1952. Now, this episode was always going to be about the United Kingdom and the British economic and political scene. We set it up and planned it just over a week ago, but mere minutes, literally minutes after this interview ended, the news of the queen broke. I know this is strange timing, and for those grieving the Queen's death, do forgive us, please, for any sense of insensitivity or for devoting an episode to the UK without it being predominantly about this once-in-a-century news story. The best way, I think, to set up today's episode is to begin with my own personal curiosity. I have been fascinated for years by the UK's politics and its economy, and not fascinated. in a good way. I didn't understand Brexit. I didn't understand Boris Johnson. And most of all, I didn't understand why the UK, which I had always considered a rich country, had seemingly

slouched through a decade and a half of stagnation. Its GDP per capita today is literally lower than it was 15 years ago. And I wanted to know more. I think most listeners of this show know that Russia's invasion of Ukraine has sent energy prices soaring across Europe as the continent speeds into a winter of sky-high costs and frigid bedrooms. But few countries in Europe have it worse than the UK right now. Inflation is at 10%. The British pound is falling by the month. The Bank of England projects a deep and lasting recession. And according to the economist, British consumers are facing one of the largest energy price shocks in Europe. This comes after a 15-year period, as I said, of total stagnation, followed by Brexit, followed by the clown show of Boris,

and now an energy crisis coinciding with the death of a 70-year monarch. Today's guest is Duncan Weldon. Duncan is the Britain economics correspondent of the economist and the author of 200 years of muddling through a history of the British economy. in this episode, Duncan and I discuss the news today of the European energy crisis and the longer story, the deeper story of Britain's remarkable stagnation, plus the path out of this mess and, briefly, the effect of the queen's death, which, to be clear, was mere hypothetical when we spoke about it, the effect of the queen's death on the politics of the country. Thanks as always for listening. I'm Derek Thompson. This is plain English. Duncan Weldon, welcome to the podcast.

Thank you for having me. So the mystery that I want to answer in the next 40 minutes or so, I think is best represented by a statistic. In 2007, the UK was richer than the U.S. Its GDP per capita was roughly $50,000. And now, 15 years later, by the statistic, the UK has not just stagnated. It is poorer by one-fifth than it was 15 years.

ago. Its GDP per capita is closer to $40,000. And things are almost certainly going to get worse before they get better. And this is stunning and confusing to me because the UK to me represents the birthplace of modern capitalism, the special relationship, the birthplace of the industrial revolution. This is supposed to be a major world power. And yet if you take away London, statistically, the UK is roughly as rich as Romania. And I have no idea. how this happened. So I think what we should do here is sort of twofold. I'd love you to tell me what is happening in the UK right now. And then I want to go back, back, back, back as far as you'd like, and I want you to tell me how you think we got here. So does that sound like an appropriately

ambitious yet barely possible plan? It sounds appropriately ambitious. Okay, okay, great. So first off, in your own words, what is the state of the UK economy at the moment? So let's look at it right now. You know, the British economy today, we've got inflation in double digits just over 10%. That's the highest inflation since 1982, about 40 years ago, so the highest inflation in four decades. At the same time, wage growth is running at about 5.5%, 6%. So people are seeing their real incomes fall. If you look at the most recent forecast from the Bank of England, that's our central bank. Real household disposable income, that's the income of households after you account for

price rises, after you account for changes in taxes and benefits, is going to fall this year. It's going to fall next year. If you put the two together, it's the deepest two-year fall since modern records began in the early 1950s. So for households, it's fairly grim. So, you know, we've got the big inflation. We've got a big hit to household incomes. And the most recent forecast from both the government, the Bank of England, sort of the consensus of private sector forecasters is, the economy is slipping into recession. That's expected to last for most of next year, 2023. So the immediate outlook is, to be honest, pretty grim. As we speak, the Queen right now seems to be in critical condition and her children coming to

her bedside. How would the Queen's death change the political and economic outlook for the UK in the near future? In the medium term, it would be an incredibly sad moment, an incredibly big moment for the United Kingdom. I don't think it's going to have a meaningful political impact. I don't think in the medium term it has any lasting economic impact in the very short term. It probably depresses consumer confidence briefly. It probably leads to less spending, but I think that's a short-term impact. It's a huge moment for Britain as a country, but I don't think it's a, it's an economically significant one. I think that in order to get our hands around the British economic crisis, we have to understand Europe's energy markets. So connect the dots for me. How did a war in

Ukraine become a uniquely disastrous energy crisis for Europe and in particular the UK? Yeah. So, you know, if we look at what happened in 2021 globally, you know, as the world reopened from the pandemic, as economies reopened, demand for energy increased much faster than the supply. of energy. So, you know, by the end of 2021, going into 2022, we were already seeing really high energy prices, not just in Europe, but globally, including in the US. But then the war in Ukraine happens in February. Now, Britain is in a slightly different position to the rest of Europe, in that Britain is actually not that dependent on Russian gas. Germany is very dependent, much of Europe is dependent, Britain is not dependent, but Britain is part of a European gas market.

So it's sort of essentially irrelevant whether or not you're actually using Russian gas. If the supply of gas going into Europe dries up, then the price of gas rises, and that's hit Britain as well. So we've seen sort of a magnitude of energy price rise in Britain and across Europe in the last few months, which we've not really experienced since the oil shock in 1973, but in many ways worse. So, you know, we're looking at, you know, for a household in Britain, heating and using electricity in the house, you know, the typical bill has risen from under £1,000 a year. That's about $1,200 a year ago, to about £2,000 now. So it's already doubled. Before the government introduced changes in the last few hours, really, we were expecting prices

to rise to three and a half thousand pounds this winter and something over five thousand pounds next winter. And that's just for households. If you look at businesses, you know, they're often on a six, 12, 18 month fixed home deal for their energy costs. businesses who are coming off those fixed term deals now are seeing their energy bills rise by four or even five times. Just a colossal hit to incomes and to business cost base, which has been really driving this inflation, driving this economic downturn. And on top of all of this economic and political chaos, you have a new prime minister, Liz Truss, and she just today, Thursday, announced an energy plan.

that you on Twitter called the biggest fiscal policy announcement ever in British peacetime. That certainly speaks to the quality of the crisis that the UK is facing. Tell me a little bit about this new policy from Prime Minister Truss. Well, I'll tell you as much as we can. I'm afraid we don't have a huge amount of details. What Liz Truss has said is that so domestic energy bills, the average energy bill, is currently just below 2,000 pounds. It was due to rise to about £3,700.

She said, actually, it's going to be capped at $2,500 for the next two years, and the government will make up the difference, subsidising the energy producers who are going to be selling at a lower retail price than their buying wholesale, coupled with, for the next six months' support for business energy prices, the government today declined to give any sort of sense of costing of how much it would cost. They said we'll get details later in September. But, you know, conservatively, you're looking at something like 120, 130 billion pounds, you know, 5 or 6% of British GDP over the next two years.

You know, during the pandemic, Britain had what we called the furlough scheme, this idea that, you know, we said to employers, you know, who were closing down because of lockdowns, if you kept your employees employed but they weren't actually working, the government would pay 80 or percent of their wages. That was a huge, huge intervention. That was until today the biggest peacetime sort of fiscal intervention we'd had. And that cost about 65, 70 billion pounds. So suddenly we're doing. something twice as big as our previous biggest ever intervention, although we still don't really know how much it's going to cost. That depends on where wholesale energy prices go. And to bring it a little bit closer to home for American listeners, five or six percent of GDP in

America would be the equivalent of a $1.2 trillion policy. That is a massive, massive bill if you're looking at doing something. We're into big numbers. We're into big numbers. We're in the range of never's here for sure. I want to just draw this out just a bit because it's obviously not just the UK that is dealing with energy crises. It's all of Europe that is dealing with the fact that Russia has shut down its natural gas exports to the continent that relies on Russia for up to 40% of its total gas consumption. It's the US too, which is dealing with energy issues. California, for example, dealing with the highest energy usage in its history after a record breaking a heat wave. It seems to me that the menu of options for dealing with an energy crisis is not that long. It's basically

four categories by my count. And please tell me if you think I'm overlooking something obvious. Number one, you can increase supply, which is of course important, but that tends to take a while. And the UK is trying to do that. They're trying to increase renewables. They're trying to build a nuclear power plant for the first time in 25 years. They want supply to come online. But that takes a long time. Number two, you can reduce demand. You can tell people to conserve. I don't know if you saw earlier this week. This was very interesting. So California, facing that wave of record-setting heat,

texted its residents to help conserve energy to avoid blackouts. And hours after the text went out, you can see in graphs that energy use plummeted. Did you see this? I did. The last night I took from that was, the way we're dealing with the anti-crisis, in terms of the public want to do the right thing.

They want to do the right thing in the same way they did in the pandemic. and if you give them guidance on how to do the right thing, they will respond. Sadly, the British government isn't there yet. The British government isn't talking about, you know, the British government sort of denying there's a problem. They've acknowledged there's a problem in that they're fixing the price, but they're not really looking at this fundamental imbalance of supply and demand. Well, speaking of fixing the price, that would be number three on my menu of options. You can fix the price, for example. You can put a cap on what consumers spend, and then you foot the rest of the bill yourself. And then finally, number four, you can subsidize.

You can give consumers money. You can say, you know, hey, we're sorry your bill went up $1,000, but every month we're going to give you $500. So it won't be as bad. So is the UK doing all of this except asking consumers to throttle demand, or is it really just one and three by my count? They are increasing supply. That'll be a long-term, maybe multi-year, multi-decade policy to increase renewable or

or low emission energy. And then they're also saying, in the meantime, we are going to cap the amount that families and businesses pay on a monthly basis for this skyrocketing energy. And the reason that this plan is expensive is because we are footing the rest of the bill. Yeah, I mean, I think, you know, if you sort of step back for a moment, you know, what Britain and Europe have experienced is in economic terms, a terms of trade shock and negative terms of trade shock, much, you know, in straightforward languages, the kind of stuff we buy overseas has risen sharply in price, and the kind of stuff we sell overseas hasn't risen by the same amount. So, you know, so step back, you know, Britain, and this applies to most of Europe, is simply poorer than we

expected it to be in February before the war in Ukraine happened. And, you know, that's fundamentally the problem. The country is poorer because stuff that we need, which we have to. import, which on a 24 to 36-month view, you can't really increase domestic supply of, is pricier because of Russia's actions, because of the war. The policy debate in Britain is sort of skirting around that. It's skirting around the fundamental problem that the country is poorer. And the real public, the real public policy debate should be about, okay, the country is poorer, how do we go about allocating that cost, that pain between different households, between different businesses, between the government's own balance sheet in forms of government

borrowing? You know, the message from the trust government so far is very much, you know, hopefully a can-do attitude and a few tweaks can, you know, make that pain go away. We can't make that pain go away. The real debate over the next few months is going to be how we have. allocate. So this is the day's news that we're talking about. And there is a lot going on. There's the queen and there's a new prime minister and there's the energy crisis. But I think it's really important to take the long view here because the UK's problems did not begin with the war in Ukraine. They did not begin with the pandemic. This is something more chronic. So if we want to understand how the 21st century has seemingly gone so wrong for the UK,

Duncan, where do you think we should begin to tell this story? Okay, so you're completely right. We're going through this immediate crisis now. There's big hit to household incomes, this likely recession, this high inflation. But what makes it almost doubly painful is this doesn't come off the back of 10 or 15 years of good economic performance. It comes off the back of 10 or 15 years of really, in many regards, disastrous economic performance. In the 10 years until 2008, Britain was the second fastest growing country in the G7 group of leading economies measured by GDP per capita.

Second fastest in the decade before the crisis behind only the US. In the 10 years afterwards, it was the second slowest ahead of only Italy. So, you know, something changes. Now, yeah, sure, you get a financial crisis. in 2008. And Britain as a country with quite a large financial sector, as a share of our economy, is almost uniquely amongst the leading economies exposed that you expect to hit. But Britain never quite recovers from it. If you look at sort of output per head, the traditional measure of productivity, Britain's productivity growth just falls off a cliff in 2008 and never quite gets back. To put it in context for American listeners who may not be aware of this, real wages, you know, wages accounting for changes in prices, changes in inflation, are currently roughly

where they were in 2008 in Britain. We've had 15 years, a decade and a half, of no real rise in living standards. And that's something that's not happened to Britain since the Industrial Revolution at the turn of the 19th century. You know, when there's not two hundred years, 200 plus year territory of a problem. If you look at what's really happened in Britain over the last 10, 15 years, okay, you had the financial crisis. You then had a government elected in 2010, at that point a conservative liberal Democrat coalition. And I should be absolutely clear that liberal Democrat means something quite different than Britain, too it does in the United States. We had this conservative liberal Democrat coalition, which pursues.

policies of trying to get down public debt, trying to close the government's own deficit. They had their reasons for doing that, but it meant there wasn't much demand in the economy. It meant that growth was quite weak. And then in 2016, we had a referendum on our membership of the European Economic Community. We voted to leave. For the next three and a half, four years, it was completely unclear what leaving the European Union meant. There were various ways you could leave the European Union which had different economic effects. We had three or four years of extreme economic uncertainty whilst politics became really volatile,

and that was three or four years of businesses, particularly international firms, canceling investments or at least postponing them, because they weren't clear what Britain's trading relationships or regulatory setup would look like. we finally got Brexit, we finally got some certainty on what the deal looked like. It wasn't a great deal for the economy, but at least we knew what it looked like. And then we were hit by the pandemic. I'll just step back for a second and say, you know, what I find really fascinating about the British economic debate over the last decade, decade and a half has been, you know, in Britain, much as in America. There have been many books written worrying about all the robots going to take all of our jobs?

You know, are our knowledge workers going to be replaced by AI in the same way industrial workers have been replaced by industrial robots, whatever? I've never quite understood why this has been a popular sort of genre of economic journalism in Britain, because Britain has had precisely the opposite problem. We've had 10 years of, you know, really quite fast jobs growth, awful corporate investment figures and weak productivity. I'll give you a stat on this, which I find really striking, that if you go back to 2003 in Britain, between 2003 and 2018, 15 years, the number of what we call automatic car wash, automatic roller car washes, you know, a proper car washing machine you

might see on a petrol station four-court or I'll put an American, a gas station four-court, declined by 50%. The number of hand car washers, or four or five men with a bucket and some soap, increased by 50%. By 2018, 80% of the car washes in Britain were not an automatic car washing machine. It was a bunch of guys, and it was usually men, with a bucket and a sponge. In Britain, the problem we've had is that we've been taking the robot's jobs and productivity. and growth has collapsed. This is an amazing, an amazing point.

And it's interesting to think that behind the UK's economic stagnation, there's productivity stagnation. And behind that productivity stagnation, there might even be a kind of technophobia, a fear of investing in the kind of technologies that would make the typical British worker more productive, like, for example, at gas stations. I'm really curious to know how this happened. because if I was going to think of any country with a longer legacy of technophilia, of welcoming productivity growth, I would think, despite some of the chapters of the Luddites in British history,

of the UK. This is where the Industrial Revolution started. This is where, in many ways, the Malthusian trap ended, and the extraordinary story of decade over decade, century-over-century productivity growth really exploded. So tell me, maybe coming in a lot of a lot of a century-over-century productivity growth, really exploded. So tell me, maybe coming out of World War II, how do we understand UK economic history? How did the British Empire become the country that you're now describing? Yeah, I mean, if you want to go back even a century before World War II, you know, Britain is the first country to have the industrial revolution. You know, Britain is the first country to hit takeoff, whatever you want to call it, the first country to really industrialize, the first country to get this

well, pick up in productivity growth, driving living standards higher. So, you know, by 1850, middle of the 19th century, Britain is the richest country in the world because it's gone first. Now, you know, on a broad level, the last 150, 170 years of British economic history is one of relative economic decline. Because if you go first, you hear it. You hear. the top first and eventually other countries will catch up. It's not that there's something in the water in Britain, which makes Britain a more productive country. Other countries were always going to catch up. But zooming forward to the aftermath of the Second World War, the 1950s, the 1960s, the 1970s in Britain, those three decades after the Second World War, were on one level good decades

in that if you look at the growth rates Britain achieved in that time, they were higher than what had come before, they were higher than what had come since. But they were slower than the kind of growth rates being achieved in continental Europe. So you find yourself in a sort of national debate about relative economic decline. So countries like France, countries like Germany, countries like Italy, find themselves with higher GDP per capita than Britain. from the late 60s until the early 1970s. And, you know, Britain finds itself in this funk, this national debate about why are we falling behind. That really changes in the 80s and the 90s. From the 1990s into the 2000s, Britain is suddenly a fast-growing country. This gap, which has opened up with our continental European peers, reverses. That's partially a result of the changes Margaret Fatcher makes. in the economy in the 80s, you know, very big structural changes in the economy.

I think it's probably more importantly because in 1973, Britain joins what is then the European economic community, which later becomes the European Union. Britain from the 1940s to the 1970s have become an increasingly insular economy. It really starts to open up once you get yourself into this rather deep free trade agreement with Europe in that suddenly exporters have access to a larger market and imports are easier into Britain. So, you know, firms are exposed to much more competitive pressure, you know, bad firms are driven out of business. It takes 10 or 15 years to show up in the numbers in the way that any real big change in productivity does. But, you know, Britain then accelerates. And we have a very good 90s and 2000s. And then, as we

we've been discussing a fairly miserable last 15 years. What's a good way to think about the legacy of Thatcherism? On the one hand, it's incredibly controversial, both in the U.S. and in the UK, as this sort of icon of neoliberalism that didn't care about the common man. And yet at the same time, it achieved this growth and productivity that at a sort of bottom dollar level is an important thing to have in the overall calculation of wage growth. So how do you cash out the influence? of Thatcher's from the U.S. in the UK?

Yeah, I mean, so I think, firstly, I think, you know, sort of the influence of being part of a more open economy joining the European economic community is underplayed in the productivity change we had in the 1980s and 1990s compared to, you know, raw Vacherism. I mean, you know, on the other hand, some of the changes that Fetcher pushed through have in the long run been beneficial or at least were beneficial in the 90s and 2000s to our economy.

I think actually rather than questioning the nature of the changes that were pushed through the British economy in the 1980s, it's worth stepping back and asking whether the pace of those changes was appropriate. So, you know, Margaret Fatcher's whole thing was there is no alternative. We just have to do this. We have to close our coal mining sector. We have to, you know, essentially, closed them most of the British steel industry. The economy has to adapt. Now, in the long run,

there is certainly, you know, a strong case that Britain's comparative advantages by the 1980s and the 1990s did not lie in heavy manufacturing and, you know, coal mining and primary activities like that. But the pace of change, arguably, did not have to be so fast.

And I think there is a strong case that the pace of change was so fast that even if there were long-term benefits, it caused more short-term pain than was necessary. Other European countries underwent a similar transition away from that manufacturing primary industry heavy model and did it less painfully. You know, we talk about Britain as a country which was the first to industrialize. it was also in some ways the first to de-industrialize. You know, Britain is a much less industrial economy that was. And it's really striking that, you know, if you look now, so we are now a country where about fewer than 5% of workers work in manufacturing, where manufacturing share of GDP is the

smallest it's been in, you know, over a century. But Britain was once a very, very industrial country. You know, if you look at the mid-1960s, that's the real peak of industrialization in Britain. At that point, it was a huge part of her economy. So even though sort of the manufacturing employment share and the manufacturing GDP share in Britain today is quite similar to that of France or Italy or Spain a bit below Germany, we started off at a much higher point in the 60s. So that process of deindustrialization was much more painful in many ways, particularly. for communities outside London. In this context, de-industrialization refers to the decline of manufacturing share in employment and in overall GDP.

Is that correct? Yeah, absolutely, yes. I wonder, because this is an issue that is very germane to American politics and American economics, right? The U.S., Joe Biden administration just passed the New Chips Act. There's a lot of energy around this idea of new industrialism. Should we bring back chips manufacturing? Should we bring back manufacturing jobs that we must.

or too quickly offshore to other countries around the world where labor was cheaper. Is the UK having a similar debate, a debate about whether or not, all right, we were the first to industrialize, then we were the first to deindustrialize. Maybe we should be the first to re-industrialize. You're the first to recognize the errors of pulling back in this way. Is that a debate that is underway in the UK right now? That's the debate that's been underway in the UK for the last 30 or 40 years to be almost done. I mean, there's no... But I think, you know, what I sometimes find frustrating about the UK economic debate is

it's an economic debate which often feels sort of disconnected from what the UK is good at. So, you know, you ask policymakers, what should we be doing to boost growth? And they start sort of reeling off this list of things Britain is bad at and saying, how can we be better at them? And I sort of feel that's the wrong way to look at it. What you should be saying is what is Britain good at? And how can we be even better at that? How can we play it to our comparative advantages?

You know, that's not just finances. It's the wider service sector. It's creative industries. It's a huge suave of high-end services. And it's parts of manufacturing. You know, the British car industry is actually having a really good time. Aerospace and defence, pharmaceuticals, all of this. And I sort of feel, you know, the policy of edge should be more focused on

here is what we're good at. How do we get better at it rather than how do we be more like, I don't know, Germany or Italy or whoever is the sort of, you know, comparison of the day of what we're bad at? So you told this 80-year history of the British economy. You're coming out of World War II, which is arguably in many ways an apogee of British power. There's a slowdown in the rate of growth in the next few decades. That slowdown, versus itself in the 1980s, 1990s with the legacy and policies of Margaret Thatcher and a certain opening up to the global economic community. There's a run-up in the first decade of this century in the 2000s, I think largely a run-up that, from my understanding of it, has a lot to do

with the real estate industry. Home prices go crazy. And the first seven years of the 2000s are just really extraordinary for UK GDP growth. You have this crash in 2007, 2008. The global financial crisis is particularly rough for the UK because the UK's powerhouse, London is a financial powerhouse and as goes the financial community, so goes London. And in the 15 years since then, you've had a kind of lost decade and a half. We have to talk a little bit more, I think, about Brexit. This is both a, I think, interesting question and maybe a stupid question. What was Brexit about, do you think? What is Brexit about today? I've said that that is indeed a very tough question, as how I put it.

So, you know, in 2016, we get this referendum on should Britain be a member of the European Union or not. And it was a tough referendum because, you know, everyone knew what staying in the EU looked like. No one quite knew what leaving looked like. There was this huge menu of different options as to how you left. But we had a question on yes or no. You know, the consensus view of most pundits, of the betting markets, of financial markets, was that remaining in Europe would win, probably quite handily. In the end, Leave 1, 5248. It was closer than we sometimes remember. And, you know, much of British politics over the last

seven years has been about what did that Leave vote mean. You know, the popular view is that that leave vote was sort of a rejection of the economic consensus as it then existed. It was people saying, this is not what we want. Now, there are two ways, there are two ways to read that. One is, as a sort of revolt of, for want of a better term, left behind economic communities who hadn't taken part in the boom before that, had suffered from the aftermath of the financial crisis and the austerity, the government sued. But I'm always a bit cautious about that narrative because when

you look at the raw numbers of the voting, actually, you know, the people most likely to vote for Brexit were generally older voters. Homeowners were more likely to vote for it than renters or people in the social rented sector.

Older people more like to vote for it. And it sort of feels, you know, less like a revolt of the economic left behind and more like a revolt of, you know, older, relatively prosperous voters. You know, I always think, you know, so your stereotypical Brexit voter, if you were to watch sort of the Voxpops on British television in 2017, 2018 was a man with a northern English accent in a working men's club. But actually, you were more likely to find a Brexit voter in a Southern English

golf club. It was a very different demographic that was sometimes betrayed. But to go back to your question after that long preamble, we didn't quite know what Brexit meant. British politics from mid-2016 all the way until the end of 2019 was about trying to answer that question. And what we ended up calling harder forms of Brexit or softer forms of Brexit. In the end, we went for quite a hard one. And I'm curious to know how you see Brexit as an important prelude to the economic crisis that the UK is going through right now. So to put a little bit of preamble on that question, I was looking at OECD figures about

the economic effect of Brexit. And just to give you a brief flavor, although to give, sorry, listeners a brief flavor, you already know a lot of this. Trading goods and services, the shared of GDP declined more in the UK than any other rich country. The UK immigration population has fallen behind other advanced economies. Foreign direct investment in the UK has fallen as well. How did all of this? How did the material legacy of Brexit leave the UK in potentially a worse position going into this energy crisis? Yeah. So, you know, I think it's important to say, you know, had this energy crisis hit,

whilst we were still a member of the European Union, we'd still be feeling a lot of pain. You know, I don't think Brexit has transformed that, but I think it has made it worse. So the consensus view of most economists in Britain is that Brexit has probably reduced the size of our economy by something between 3 and 4% of GDP in the long run. Again, a big number. And that's come in two ways. So the first way was that uncertainty from the vote until the deal was done. When we just had three and a half years of being completely unclear what our trading relationship with our biggest trading partner would look like and lots of investment. was postponed or cancelled or whatever.

You know, since then, I take the fairly conventional economist view on this, that we used to have an almost frictionless trade border with our largest, richest, and nearest trading partner, where nearly half of our exports go to, and now we've put frictions in their border. And the frictions vary by sector. So if you're involved in sort of fresh goods, agriculture, meat, work. whatever, the frictions are quite severe. If you're involved in the service industry, they're quite bad. If you're involved in pure goods, manufactured goods, whatever, it's worse than it used to be,

but better than some other sectors. But you put frictions in that trade. You put frictions on a trade border. What's going to happen? There's going to be less trade. And that's what we've seen with British exports failing to recover from the pandemic in the way many of her peers have. And also, you know, it's made it harder to import goods into Britain, which just generally makes the economy a bit less dynamic, a bit less competitive. None of this helps with productivity in the long run. It's interesting to think about the popularity of Brexit being extremely similar demographically to the popularity of Trump. This is an overplayed similarity to a certain extent, but you're talking about a high-income, low-education voter to a certain extent. And that is precisely the demographic that came out surprisingly for Trump.

Trump in 2016, putting together a couple of these things, the fear of openness behind the leave vote, the fact that you have people replacing robots rather than allowing robots into the workplace to make workers more productive. This other phenomenon of degrowthism, which for whatever reason seems to have a pretty deep root in the UK. This is a philosophy that says that the best way for us to reduce the effects of global warming is not so much to decarbonize the grid, but rather to pull back economic growth rather purposefully and essentially accept significantly worse living standards forever for the purpose of saving the biosphere. All these things happening in the UK leads me to a question that I hope isn't oversimple. But where do you think this

fear of growth, this fear of openness in British politics comes from? Yeah. So, you know, well, I wrote a book on the last 200 or so years of British economic history. And, you know, much of that's about political economy. And when you look at political economy and the history of it in Britain, it's about different sort of economic vested interest groups fighting over the boils of the economy. So you start with, you know, new capital versus agricultural landowners. Then you get into the rise of the industrial working class. And then, you know, agriculture drops out of it. And much of the 20th century is about sort of the industrial workforce versus the owners of capital. I think what's happened in Britain in the last 15, 20 years is the rise of

something quite new and almost post-economic voting bloc. by which I mean people who are generally either retired or at least near retirement, who generally own their own home or at least have a very small mortgage they've nearly paid off, who generally have quite a secured pension income from, you know, having lived in the era of defined, worked in the era of defined benefit pensions, whatever. So suddenly you've got this big block of voters. And, you know, Britain, you know, really is an ageing economy. the average age, the median age is rising, we're becoming an older country.

And suddenly you've got this big block of voters who are sort of insulated from what's happening in the labour market. They're insulated from interest rate shocks. They're insulated from basically the wider economy. And they can vote not on the basis of economic interest, which is how I've generally understood most of British politics since we've got universal suffrage 100 years ago, but instead on, you know, other things, whether that's not liking immigration or whatever it happens to be. And, you know, all of these lists that civil servants in Britain come out with, think tanks come out of ways to boost economic growth, whether that's increasing immigration or reforming our planning

law so we can build more houses and infrastructure, you know, in certain parts of the country, or supporting our universities or whatever it happens to be. These are things this group tend not to like. So I think we have seen this rise of this big voting bloc. And, you know, we end up in the position in 2019 when Boris Johnson and the Conservative Party won, you know, a big majority in the House of Commons re-elected very strongly, and yet most people of working age did not vote for them. I'm pretty sure that's the first time that's happened, this sort of post-economic, older, economically insulated voting bloc.

I think whether they're anti-growth, you know, they're not anti-growth in the way that some greens are. They're anti-growth because it inconveniences them, but it's more, it's more a sort of a luxury that they don't so much have to care about economic outcomes as many other voters do. It's such an interesting point. It's frankly something that I'm totally fascinated by. The idea that for some people who are rich enough and secure enough, growth is a luxury that they don't need. The future is a luxury that they aren't interested in investing in.

And there's a political scientist, Ronald Englehart, who wrote that as societies get richer, this is what generally happens. Voters care less about, economic material issues. And they care more about what he called post-material issues, social and cultural issues. And so it's as if, like, with rising well-being, we climb Maslow's hierarchy to the top of the pyramid. We have shelter. We have food.

We have clothes. We get to the top of the pyramid. And we start to get, like, woozy with altitude sickness and start screaming at each other about the culture war. And this is the electorate that I see taking over in parts of the American right. And it's clearly incredibly powerful in Britain, which is older and has. an older electorate with a really, really high turnout rate. Let's end with a question on the near future of the economy.

What do you think is next for the UK? How bad could things get? Things are going to be a little bit better than if you'd ask me that question a few days ago. So we've now had this Liz Truss, my new Prime Minister's announcement, on capping energy bills. So what we're now looking at is energy bills,

much are sort of incredibly painfully high for households and firms, but still an order of magnitude smaller than they would have been about this cap. I think it is still likely Britain is going to fall into recession next year. It's still likely we're going to have quite grim, high inflation for at least the next five or six months. But things are not going to be quite as bad as they would have been if the government hadn't stepped in and limited these energy price rises in the same way governments across Europe are currently doing. Duncan Weldon, thank you so much. Thank you. I'm Derek Thompson. That was Plain English. Thanks very much to our producer, Devin Manzi. If you have any questions, comments, ideas for future episodes, please shoot us an email at

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