TRIGGERnometry - Can We Spend Our Way Out of Populism? - Mark Blyth

Episode Date: June 23, 2021

Mark Blyth returns! Mark is a political scientist and a professor of international economics at Brown University. Join our exclusive TRIGGERnometry community on Locals! https://triggernometry.locals.com/  OR Support TRIGGERnometry Here: https://www.PayPal.me/triggerpod https://www.subscribestar.com/triggernometry https://www.patreon.com/triggerpod Bitcoin: bc1qm6vvhduc6s3rvy8u76sllmrfpynfv94qw8p8d5 Buy Merch Here: https://www.triggerpod.co.uk/shop/ Advertise on TRIGGERnometry: [e-mail] Join the Mailing List: https://www.triggerpod.co.uk/sign-up/ Find TRIGGERnometry on Social Media:  https://twitter.com/triggerpod https://www.facebook.com/triggerpod https://www.instagram.com/triggerpod About TRIGGERnometry:  Stand-up comedians Konstantin Kisin (@konstantinkisin) and Francis Foster (@francisjfoster) make sense of politics, economics, free speech, AI, drug policy and WW3 with the help of presidential advisors, renowned economists, award-winning journalists, controversial writers, leading scientists and notorious comedians. Learn more about your ad choices. Visit megaphone.fm/adchoices

Hello and welcome to Trigonometry. I'm Francis Foster. I'm Constantine Kisson. And this is a show for you if you want honest conversations with fascinating people. Our brilliant guest today is a political economist at Brown University in America and a returning guest to Trigonometry. Mark Blythe, welcome back. It's lovely to be back. It's also nice to be thought of as, what was that fascinating? Was that a fascinating guest? Absolutely. Well, you were last time. Always good to be fascinating. You are and we know that you will be again. But last time, last time we had a brilliant conversation. It was about a year ago. And if you remember, we were talking about the fact that one lockdown is probably affordable, two or three, a lot more difficult. How do you assess the year that we've had since? Well, I don't know how many martinis you've had

involuntarily over the past year, but I'd say my pandemic drinking reached Olympic levels and, you know, had to be dialed back. So that was the main personal cost. Is that Scottish levels, Mark? Well, that was just getting up to Scottish levels, you know, so let's keep it real. All right, the serious point on this. You know, one of the funniest things that happened is that we always read these events through our political biases, right? And this is particularly true, even of vaccines, right? You'd think putting hardcore anti-vaxxers to one side, you would think that would be something

that would be kind of beyond politics, whatever, but it's not, right? So the lockdowns, of course, become a classic example of this. At the start of the pandemic, during the first wave, there was a common meme that went around, which I actually enjoyed and shared in, which was the following. Hey, it turns out that if you're a big country run by a big loudmouth male asshole, you're not doing too well. And if you're a small country run by a woman that shuts up and just get shit done, you're doing pretty well, isn't that funny? And that kind of worked for a while, but then it got more complex and it turned out that some of those small countries were just as screwed as everybody else. and then some of the big ones kind of got a little better at it. I don't know if I did this after we talked,

but I did a couple of things online, and a Spanish filmmaker approached me and put together a movie, which you can look at on YouTube, called the Mustang and the Volvo, which basically describes the different behavior of the American economy vis-a-vis the European economies. And when you get right to the end of this one, another fascinating one came up,

which was, now we've got the vaccines, let's see what happens. So, of course, particularly in the United States, but you see this across Western Europe as well. There's the concerned with getting the elderly, the vulnerable, minorities, etc., right? But there's a problem in doing so. These are the people that usually don't trust the state

want to hide from the state and have every reason every now and again to actually, quite rightly, fear the state. They haven't had too many pleasant interactions with them. So there was all this attention, particularly in the blue states in the US, on finding the most vulnerable in the minorities and equity and all the sort of stuff.

And it meant we were absolutely stuffing it. Meanwhile, down in Florida, where they just didn't give a shit. It was like, let's open up a stadium and if you've got an arm, we'll just whack something into you. And they started to do really well. So I think what this whole thing has shown is that it really upends and really exposes how anything can be read through your own political biases. Right. There's no truth about the pandemic, apart from the one that we put on it. And that is a partisan game for better or worse. And it's interesting that you say that, that literally everything has been politicised,

because that's what we see here in the UK. How is that? affected politics. Do you think that was a significant fact on what happened with Trump and Biden, etc? I think it was in the, you know, one way to think about Biden, and I don't think this has changed, is like everybody just needed two years of quiet. It was just like enough of the tweet storm at two in the morning wondering if the missiles are flying, right? So Uncle Joe was just like, can we just have some calm time? That would be nice, right? And the way that he's handled this is very much along those lines. You'll notice that for all the attempt to politicize cancel culture on the wall, etc. That you get with Fox and the other media here and you see also in the United Kingdom.

Joe doesn't play that game because you can bait your activists into having those conversations because that's what your activists care about. But basically, if you don't respond, then it's a non-problem. So what's interesting about Biden is he wants to talk about the things he wants to talk about and he refuses to talk about anything else, which is a very interesting kind of anti-political play because you can't really lever that into the stuff that you want as opposition if he just won't talk about it.

So you can go on about the woke crew, the squad, all that sort of stuff. He's just got nothing to say about that. So it just doesn't really stick. So he's got a very interesting way that that's playing in a sense and we'll see how long that can handle. But beneath it, you just go back

to the handling of the pandemic. You know, you still have, I think, the latest poll was somewhere in the region of about 40% Republican said that they're definitely not getting it. And I mean, a partisan divide on vaccines just seems crazy if you think about it, but there it is. And you still have over 50% of Republicans accepting the line that the election was stolen. I mean, put that in the British context for a minute. Imagine if the Conservative Party just said, when Labor won, not it was stolen. And everybody

went out and had a look at it and you appointed your commission and you had to look through all the votes and you went, no, actually it was totally fine. They went, nope, stolen. That's it. It's just stolen, right? You're poisoning the well. That's permanent politicization, and it's deeply undermining American democracy. So on the one hand, you've got Biden who's playing a good game of like, I'm not going to play that politics. But on the other hand, you have an opposition party, which effectively has said fuck democracy. And that's not cool. It's not.

On the other hand, I know a lot of people on the right who would make, in my opinion, very legitimate counter argument, which is when Donald Trump got elected, we got Russiagate, which turns out to be a complete nonsense. No, completely. No, no, I totally buy that, right? But there's a difference between that and basically saying an election that was fine was stolen. Right, that's actually qualitatively different. So I just think this is like, I think the United States is very much an inflection point. Basically, what Biden is trying to do is chucking off money at the problem that populism is abated. I'm not sure that's going to work. And we could talk about why, and we could bring that to Britain and Hartlepool, whatever you want to go. Well, let's talk about the economy, Mark. Let's talk about the economy, because that's really the thing that is fascinating to me in terms of what has happened. So we've obviously, in the UK, we've paid everybody not to work for God knows how long now. That didn't quite happen in America. But nonetheless, this is obviously costing everything that's happening is costing people and governments and nations a huge amount of money. Where are we economically around the West? So the United States is, I mean, so here's the thing. Yes, everybody's got more debt than when they started, but interest rates are at a 700-year low, right? And what matters is the maturity of your debt. This is something you never, ever hear in the media. What matters is how much debt do you have coming up at a certain point and how long do you need, how much more do you need to issue to effectively keep that stable? And what's the interest rate you're going to get that out? So there's a little equation, solvency equation you can use to figure this stuff out. And if you run everybody through his number, through it, despite the huge rise in debt, it's actually cheaper to pay stuff off. I mean, the really, the really, duh, question at this point is, if you want to do, you know, infrastructure, if you want to do investment, all that sort of stuff, why not just issue an

absolute ton of 30-year bonds just now basically 1%? Because with 1% inflation, that's a zero interest rate, which basically over 30 years eats itself. Like, why would you not do that? So, you know, there is no giant funding crisis at this point in time, and nor does it look likely that there is going to be one. So then the question is, how big is the rebound? Well, the rebound is kind of proportional to how much slack there is in the economy and how much pent-up demand you have in the economy. And I think what you're going to see is two surprises, not really surprises here. The America's going to come back with very, very strong growth over the next two years, possibly sustaining it above 4%. And the United Kingdom is going to come back stronger than people

think as well. Now, the Brexit stuff is going to weigh on that. If you actually look into the trade stats, you do begin to see this effect. But, it's not really that bad, at least so far. And more importantly, when you consider that you could be stuck in the European Union, where once again the North is about to screw the South and nobody can really agree on anything and the pandemic relief fund is actually too small to do any good even for Italy, et cetera, et cetera, then the UK is actually in a better spot. So as it goes over the next couple of years, there will be a very, very big rebound, which is exactly what people around Biden are hoping on. But Mark, surely, you know, we've got all these people here on,

There's a number of, you know, of companies that have gone to the wall, small businesses, particularly in sectors like travel, retail, I mean, Debenham's catering has gone bust. Surely that's going to have a really serious effect on our job market on our economy as a whole. Yeah, but it depends on how much comes back. So, I mean, for example, I'm going to be going to the Cotswolds in August. Try going, try getting a hotel in the Cotswolds in August anywhere in the freaking Cotswolds. They're pretty book solid, right? So certain sectors are definitely coming back strong.

For me, the really interesting one, and this is the big one going forward, is what happens with commercial real estate? So if you've got to, I'll give you two examples, right? If you're in the tech industry, tons of your really important workers work from home anyway. Techies and basements writing code, troubleshooting, all that sort of stuff. So there's nothing new there. But what it's basically told Google is we don't need that giant campus in Palo Alto. We just don't, right?

Apple doesn't need half of the offices it's got, et cetera, et cetera. So if you're in a tech firm or a firm that can really be platformed, think sort of like corporate human resources, back office to finance, boom, they're not coming back. On the other hand, you've got businesses like finance, think the city of London, where everything's about face-to-face, the ecosystem, deal-making, co-presences, economists call it, right? They're going back to the office.

But a lot of commercial real estate is going to be over the next couple of years. So if you're looking for, you know, fragility in the economy, It's not the fact that a few catering firms are going to have gone bust. They will be picked up again as things expand. For me, the big one is, well, what happens to all that real estate investment, which is super expensive? What happens to the downtown, right? What happens to the preta-manger economy if only half the people come back to the office?

That's where you really begin to see structural change. And it also brings into question, Mark, what is going to be the future of cities? Has COVID rendered the city irrelevant? So it's funny, I was just talking to John Friedman, who's an economist friend of mine here at Brown. And he had a great line on this, which is basically cities have been the growth nodes and have pulled in people, capital and resources from everywhere for the past 150 years. It doesn't matter where you look.

So are we actually saying that there'll be a slight rebalancing against that in certain sectors, probably, or we're saying that the city's days are numbered? That's a big bet. That's a big bet, right? So, you know, it would take a lot to unwind London. Now, you know, on the one hand, given the fact that if you look at GVA, which is gross value-added, the underlying component of GDP growth, the only bit of London that grows according to the ONS is actually London. And effectively, the rest of the country lives on transfers. Now, it would be nice to rebalance that.

And they're, you know, thinking about leveling up all the rest of it is exactly the way to do that. But you know what? nobody's sure how to do that. Basically, once a city loses this industrial rationale, it's kind of hard for it to reboot its way back. Some places manage it. There's Pittsburgh in the United States, which was the steel town,

which became basically biotech university healthcare, right? But not everybody can play that trick. So take Dundee, where I'm from, right? We have the unique honor of being the first town in the world as far as I'm aware to de-industrialize. Because we were screwed by nylon, right? We used to be the packaging plant for the world. All the jute fibers would come from India.

They'd boil them and turn them into packaging in Dundee, and then they would send them out to package everything. Nylon comes in, you're done, right? So we effectively started losing that industry in the 1950s. Has Dundee come back? Right? It's got games, video games. It's got biotech a little bit.

It's got a few things. But there's nothing there when you think about Dundee, and you go, that's what they do. So the future for those cities is actually much, much more uncertain than a place like London, essentially dissolving, right? That's not going to happen. Mark, and from the economic point of view, if you come back to the macro side of things, there's a couple of things I want to ask you about. First of all, what did you make of the difference? Now, I understand the Volvo and the Mustang metaphor, which we talked about last time,

the difference between America and the UK. That's obviously very clear. What did you make of the decision in the UK, for example, to have a furlough, to have self-employment grants, to give companies grants and to support people through this period. Do you think that was the right decision, or is the American model a better one? Well, here's the weird thing about it. Eventually, the American model became more like the British model, right? So they ended up extending unemployment benefits, even in places like Florida where they really didn't want to do it. You had to be hardcore Alabama, Mississippi, deep south, not to take the free money that was on the table, right? And, you know, is there such a thing as free money? Well, at the moment, there is because essentially

you can borrow a negative real rate, which means somebody out there in the world is so keen to hold a bond as a safe asset, they're willing to lose money on the transaction if they hold it to duration. So in other words, I borrowed $10 from you and a year from now I give you nine back. I mean, it's a no brain to do that. So on a 10 year bill, on a 10 year bill, right, if you've got like a negative real rate and you're on it over 10 years, you get nine bucks back. That would be it, exactly. But you're willing to do that because you're betting essentially that that $9 not only will be there, the economy that the bond is tied to will be bigger, so in a sense you'll get more for your nine bucks, right? So it's the safety play. And if the whole world's in safety play mode, it's dead easy to do that. So, you know, which one's better? The puzzle in the United States just now is everybody just lying, as we were used to call it in Scotland, on the brew, because they're finally getting decent unemployment benefits and nobody's going back to work. Well, you know, if you actually look into the data on this, it's kind of weird. It's like some

sectors rather than others or whatever. But here's the thing. thing. We've had chronic wage stagnation for the bottom 40 to 60% in the US for the past 30 years. This is a feature. It's not a bug, right? The design is we need to get wages for the bottom 60% of people up. That's why they're so angry. That's why they're so pissed off. So the fact that there's a shortage in certain sectors and employers are having to pay more, that's the plan. That's not an error. That's exactly what they're aiming for. Well, that was going to be my other question. question to you because one, and look, I think economically I'm probably in the center, maybe even Eileen Wright on economics, I would argue. But when I look at something like

inequality, to me that's a huge issue. And one of the things that has happened during the course of the pandemic is I don't know whether it's a transfer of wealth and income, you tell me, or is it just the accumulation of wealth and income right at the top by the people who already had everything while everybody else essentially forced to live off handouts? what has been the impact of the pandemic and what do you think will be the impact on the pandemic, the lockdowns and everything else that we've done in terms of income and wealth and equality going forward? Well, it's made it worse. I mean, there's no doubt about it. There was a big piece in the Financial Times, which you can probably get through the paywall if you try hard enough. But essentially looking at how much

billionaires have made the billionaire class, the 0.1%. And it's astonishing. I mean, you'd expect it would be, you know, the United States, et cetera, and they're up there. but it's the Swedish billionaire class which have made tons, right? It's the Russians, it's other people there. So it's a global phenomenon. It's not just the US and the UK by any means. And here we call this the K-shaped recovery, right? So if you think of the letter K, if you're on the top end, that's great.

That means you have assets. We've pumped tons of cash into the economy. When you do programs like QE and you're buying bonds, you're swapping out bonds for cash, you're putting it in the hands of people who already have assets. What do they do? They go buy assets. You should see the housing market over here just now. Holy hell. I mean, you can literally put a shipbox with lipstick on the door and you can sell it for a million bucks in some places. I mean, it's ridiculous. Why is that? Because everybody's dying for houses. Well, they're certainly pent up demand. We didn't really do any housing starts in 2020 because of COVID. But a lot of it is just like the people who have assets now now have cash and want to buy even more assets because that's what goes up in value. So a lot of this also feeds into the inflation fear that we've got just now. It's like, look, at the price of housing, that's going up. That's not on inflation. That's a bunch of people

who already have everything buying even more stuff, pushing the prices up, right? It's a very different thing. But it's definitely made it worse. This is, again, to go back to what Biden's trying to do, and you can think about a sort of a weaker version of this, at least vocally, is the leveling up the country discourse in the UK, is that it's going to be really hard to take that top end where all the wealth is concentrated and redistributed down. So what we need to do is push the bottom up. So you basically make the curve flatter, right? That's how you're going to do it. And that's basically, you know, the thinking on raising wages, running the economy hot, etc. They realize they've got to do something about inequality. And the way they're going to do is raise the

bottom rather than try and tax the top, because the top won't let you do it. And but Mark, isn't also the problem that you raise wages at the bottom, what COVID has allowed a lot of companies to do is usher in automation via the back. door very, very easily. Yeah, and some of those jobs should be automated, right? I mean, that's the thing. Are we really better off as a society or even individuals if you have people working for a couple of quid an hour doing something that could be automated? Wouldn't it be better for that person not to do that? You wipe out all those jobs and effectively what you then have as a higher wage floor. So then it's up to those people to get the skills to get in to get on that

wage floor and then the whole of the country is working at a higher level. So, you know, a good example is there are no hand car washes in Scandinavia. None. Everything's automatic because basically they just automated that whole sector. Why is that? Because basically they don't want to have a low wage economy. It's like, why? I mean, this is the thing. If you go to, go to Denmark, go to Copenhagen, and go into a McDonald's, buy everybody breakfast and then shit your pants about how much it just cost you. Right. It's a fortune, right? And that's a policy choice because basically you want your wage flow to be high and you want to have a certain type of society. And what What we've been doing in America and the UK is running a very different one, the low tax, low wage one.

And that's great for corporate profits, but it sucks for the people who have got the low wages. And there's a question of, you know, have we hit the buffers on that model? Have we taken that as far as we possibly can? And yeah, that's pretty much where we are. But isn't that also, if you try and change that, that's what America's built on. That's their ethos. Those are their values. Are you going to be able to do that?

Is that realistic? Well, it's a bit like, you know, it goes back to the question of can you afford this. And if you look back in time, you go, well, you used to pay more taxes. Why can't you do it now? Right? It's not as if it's unprecedented. So, you know, we talk about the Biden increase in corporate tax. If you follow it through on a graph, right, Gabriel Zuckman put this on Twitter, here's the rate of corporate tax. It goes up to basically 50 odd percent. And then it dives down to where it is now at 21. And he basically wants to take it to 28. And this is called an unprecedented. rise. It's like, no, no, that's not unprecedented, right? You've got lots of room. And the simple fact is that particularly large corporates, this is not true of small businesses, and this is an issue, right? But if you're talking about large corporates, they've never made more money. I mean, Apple's cash pile is bigger than the GNP of around 40 countries. And they hide it in tax havens and pay no tax on it. And it's like, no, enough, we're just not going to do this shit anymore. You guys need to pay more to your workers. That's the deal. Well, and more tax to the...

economy for that would be nice as well. Mark, why do, this is an issue that to me seems very odd that we're even having this conversation because it seems to me like the only way that the current system of tax loopholes would exist is if we had corrupt politics where the people with the money are paying off the politicians to keep it that way. And we're all seven billion of us sitting around just letting it happen. Now, given the fact that you guys are domiciled in the UK and and I don't want to get done for libel. I'm not going to say what's in my head right now. What I am going to say instead is that, yeah,

absolutely. You know, a great example of this is that sort of like, how can I put that? The former Prime Minister, formerly known as David Cameron, before he became Mr Greenshill. In 2010, he did the so-called Edinburgh Declaration, which, as you know, as part of our fiscal belt tightening

we're about to do, we're going to raise more taxes. in the era of tax dodging for companies over, blah, blah, blah. And what did they do? They cut taxes and loosen the tax codes. I mean, if you look at the maps of global finance in terms of financial flows, London is this enormous hub for money that comes from all over the world

and they get shipped out to a series of tax havens. And then those tax havens actually serve as the headquarters for companies, but they have no local tax rates, so they have to pay there. And, yeah, like London is at the absolute epicenter of this stuff. So the level of hypocrisy on taxation, is just absolutely astonishing. But again, to go back to your earlier point,

I mean, this shows you the power of the billionaire class, right? I mean, why was Lex Greensell, right, this basically billionaire bullshutter, able to get access to the phones of every member of the government that mattered? Right? I mean, you know, in any other country, you might be calling that corruption.

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In fact, respected food critic Jay Rayner called them deserving of poetry. What a cuck, man up, Jay. Their sauces, noodles and broths are created using skills that were developed over years of working in Michelin-starred kitchens. They're dead easy to make. The noodles take one minute to cook and the whole dish takes only 10 minutes to put together in the comfort of your own home. I'm hungry just explaining this to you. You're always hungry, mate. I mean, that's a fair point. Go to bea-rebel.com. That's b-I-a-r-e-b-E-L dot com and get a tasty flavor of the east in your dinner time. So how does it work on the political level? If I am some junior member of

the Prime Minister's staff and I'm like, hey, Prime Minister, we're going to solve the corporate tax loopholes. I run in there with this great plan. What happens from there? Well, what tends to happen from there is Treasury comes in and says, well, it'd be nice to have more money, but I don't think it's going to work. And then somebody from legal is all come in and say, well, in order to do that, you're going to have to violate the Dominion status of Jersey. And you're going to have to change our relationship with all these other Crown dependencies. And you don't want to get into that because then what will happen is the city of London, which has its own representative in Parliament.

Not many people know this. Really? Yeah, no, the city of London has its own representative in Parliament who is not elected. Look it up. It's amazing, right? And they will basically lobby the crap out of us. And at the end of day, 11% of GDP and 8% of all jobs is connected to the financial centre.

And given the fact that basically the London housing market is the world's largest money laundering operation, do we really want to screw this up? Let's think it through. How about a commission? We'll have a royal commission to study, and then five years from now when they report, I'll be gone, you'll be gone.

That's what happens. I mean, it's so depressing because, as well, it's not in their interest, like you said, and everybody's playing the game. The EU's playing the game. Everybody's out of absolutely, and this is why you can never... I mean, you're beginning to see this now because what happens is,

I mean, the Americans are still the elephant in the room, right? And if the elephant shits in the room, everybody notices. So under the Trump administration, they pulled out of the OECD corporate tax harmonization stuff on the grounds, quite legit, that this is all aimed at the digital firms. And it's right, they pay no taxes, and that's an issue and all the rest of it. But the way this is structured, they'll be the only ones paying tax. And they're American firms. So forget it.

We're done. So they walked out. So then they came back and said, all right, no taxing the digital on their own. everybody, let's hit 28%. And the French went, holy shit, are you serious? That could be awesome. So there's convergence between the EU and the US. And if you get the two of them to agree, right, then basically you've got it. Your problem there is the Latvians, right? The problem there is who else? So the Dutch, right? So all the people that benefit is from being kind of financial intreposed, they're not going to like this one at all. And because you need unanimity in the EU to do

anything, right? It's going to be tough to get that through, which is why they're doing it through a different organization called the OECD, which makes it easier, but they are trying genuinely to get there. They understand that this is a problem. And also what's interesting, if you talk to corporates in the US about this, it's kind of funny. Some of them don't mind. Because basically they're like, yeah, you're right. I mean, basically we wake up as a firm, we make a billion dollars a minute, right? I mean, it's absurd. So why are we, you know, not tax? We should actually be a bit more tax. Another one you get is, yeah, I'm in favor of taxation because a lot of firms are just basically profitable because they don't pay any tax.

So if we actually all pay the same tax, you get to figure out who's basically a bullshit or who's not. So the great reveal would be like, oh, look at that. We thought you were a firm, and it turns out you're just a tax dodge. So if you're actually an efficient firm, you could see this is gaining a competitive advantage. I actually make sure you're just a tax dodger. I'm going to take your market share. So there's a way in which actually having a higher but equitable tax base might benefit firms overall. So that's That's why there hasn't been the foaming at the mouth you would expect over this topic. And Mark, isn't there another incentive the fact that a lot of, well, every country at the moment is urging on being broke because of COVID,

they need to find a way to generate more income. Therefore, you tax these huge multinational digital corporations. Yeah, I'd put it slightly different. So long as you're not in the EU and you haven't given up your printing press, technically you can't go broke. And the only real constraint is, are you having a large inflation, of which I mean double digit and it's sustained, which is a problem? Or alternatively, what you have to pay an interest on your bonds goes far higher than your growth rate. So as far as we can see it, one you can do is basically look at what's called the yield curve, right? Basically, 10 years out, what's the interest rate likely to be on these bonds? And basically for pretty much all the OECD, you've got a negative real rate out to 10 years. Like the Germans are trading at like negative 6-8 or something like. this. So essentially what that means is you don't have a financing constraint. It's not you can't go bankrupt. Now, do they want the extra taxes? Yes, they do. And they want the extra taxes because they want to, A, stop populism by B, raising wages, by C, making people a bit happier about their general condition and labour markets so that they can restore faith in the basic institutions around them. And D, so that these elites don't eventually end up getting hung drawn and quartered. So that's

basically the game plan everywhere. Mark, can you explain something for our viewers who may not be economists? I studied economics at university a little bit, but even I kind of, I understand the explanation, but I'm not sure whether I believe it. We do have in the West, in many countries, levels of debt that are huge, particularly for peacetime, right? Yeah, totally. The cycle used to be you spend money on wars, then you recover.

in peacetime, you build up some reserves, and then you spend them all in another war, right? Whereas what we have is essentially COVID is like a war, but we were already deeply in debt before it happened. Now we've borrowed more money, but you're saying we can borrow more, we have to pay back less, it's fine. A lot of economists talk about MMT, modern monetary theory. Again, to an ordinary person, it sounds absolutely fucking crazy. Sounds bonkers, right, absolutely. And the key thing is because anybody who says to well, the economy is a bit like a household is either an ignorant person or a bullshitter

because an economy with its own printing press is nothing like a household. There is no such thing as kissing dollars. If there were kissing dollars, I'd short the shit out of them, right? They wouldn't last very long, right? There's no such thing as a Mark Blythe 10-year bond because I'm Scottish. I might be dead within 10 years, right?

So all of the things that states can do bring people into the household, they're called immigrants, you can tax them over the generations, right? all that sort of stuff, households can't do it. It is just simply not the same thing. So when they say that, right, well, you can't spend more than you earn. It's like, well, actually, you can because there are people out there in the world called investors who are willing to basically loan you money because they want the security of knowing that it's safe for up to 30 years.

And because of that, what you're effectively doing with a bond is taking your tax revenue. None of this is MMT. You don't need to go near that. It's straightforward, right? You're essentially taking the tax revenue you will have in the future and borrowing it from someone, and then with the tax revenue in the present, you're paying it out. Now, what is then important? How much taxes you generate and the interest rate on the debt?

As far as we can see, just simply because of demographic pressures, the fact that interest rates honestly have been falling, with the exception of the 70s and 80s for 700 years by most estimates, straight down, we're going to be in a very low interest rate environment for a while. It's also with zero wage pressures unlikely that we will see a sustained inflation. So you just don't have that. that problem because a state is not a household. And so long as you have a global investor class that wants to hold these bonds as safe assets, the game just continues. But if I'm an ordinary person,

which I am, and I'm hearing you explain that, I'm going, well, why don't we borrow endlessly all the time to continually invest in stuff and buy nobody? Buy everybody a Porsche. It sounds great. Well, you don't have to buy everybody a Porsche, but you could get them up to the level where, let's say, there's a recent study by Rand. So if anybody wants to do this, go on. go on a line and look for Rand Corporation, R-A-N-D, and I'll look for a paper called Trends in Income, 1979 to 2020. And what it shows is that if you haven't changed

any of the regulations in the United States economy or any of the tax rates in the United States economy since 1979, your average worker would have been $15,000 a year better off. Yeah. So add that up over 40 years, they could buy their own Porsche. So there's a way in which we set the means. When you change taxes, when you change regulations, you're benefiting one group over another.

And to go back to your inequality point, what's happened is the corruption of politics has essentially meant that it's all gone to a tiny sliver of humanity and the rest of us have been living on crumbs. So debt is part of the equation, but so are wages, so are taxes. And if you have a decent tax system and a high growth rate, say your growth rate's here, interest rate and your bond is here. It literally doesn't matter because this will shrink over time.

Take the example of wartime. United States comes out of the Second World War, 164% debt to GDP. Huge amount of it. Ludicrous. Way more than we've got now. And that's when it had the fastest and uninterrupted period of growth in its history. And after 30 years of that growth, its debt to GDP was down to 40%. So again, the story that we tell each other is a particular version of the story, which, when you figure out how this actually works, it's all financing. Can you finance it or not? You live in London.

Let's say 10 years ago somebody said, I'm going to buy a house in Crouch End. You're like, well, you're brave. All right, so it's half a house in Crouch End. How much is it? 350,000. How much is your wage? It's 50,000.

Shit, seven times income. I'm going to buy it. You're over levered. You've got way too much debt. Ten years later, how much is that house worth? About 10 million at the moment. Right, exactly, right. So therefore, because the economy grew so much,

the amount of debt shrunk in real terms, That's the analogy you need to think about. It's really interesting that you say that. And also, as well, Mark, at the point that the elites want to do this in an effort to stop populism. But I'm looking at what's happening to the EU, you know, the situation in France, their abysmal handling of the vaccine. Isn't the cat already out of the bag when it comes to populism?

No, it certainly is. And if you think about it this way, the two largest parties in Italy are basically the Fratelli de Italis. who are the ones who are like, no, no, we really are a fascist party. We're not hiding it. Then there's the Lega, which is kind of like, well, some people say we're fascist, but honestly, we're kind of not. Maybe we are. And then you've got the rump of Berlusconi, which is a vision you didn't need in your head, which is Foursa Italia. And if you put all of them together, you can have a government, right? And that's the one where investors go, oh, shit, right? And then the Italian debt market's a problem. All right, so where is, let's think about, go back to debt. Where is debt a problem? Italy. Why is Italy a problem?

The whole thing is, so long as your growth rate's higher than the interest you pay in your bonds, you're fine. Italy hasn't grown in over 20 years. And it's piled on a ton of debt since the pandemic. And because it's in the EU, it doesn't have its own printing press. So it can't do certain things, like basically stimulate the crap out of the economy and hope for the best. So it then relies on the ECB buying its bonds to keep the yields down, keep these interest rate payments down. But once the EU recovers, whatever that is, then they no longer buy those bonds.

And at that point, investors hold an Italian debt go, no way are you guys going to grow enough to generate the taxes to pay these bonds, so the interest rate's going to go up and you could have another crisis. At that point in time, that's when the populace go, told you, and boom, they're in, right? So there is real risk there that is baked into the cake. So much of it has to do with the fact that when you join the euro, you give up your own print and press.

And you get some advantages from that, but whenever there's any kind of turbulence, bad idea. And you say it's a bad idea. How close do you think the entire EU project is to failing? Not as much as most British people hope, to be frank. Because, you know, and I've used this analogy many times, and I think it still works. It's the Hotel California. Once you check in, you can't check out. If the Italians were to go, stuff this, we're out, enough of the euro, we're going to bring back our own currency.

How would you do it? You'd probably have a parallel currency, right? And you would use that, we'll call it the new lira. And you would just put it in the ATMs, and you would have euros, but you'd also have these. and you could say these things, you can't use them in shops, but you can use them to pay your taxes. All right, that's great. That's 40% of my income right there.

I can just take care of that with this new currency. So when you're doing that, you're basically allowing it to spread. People start to go, well, if I could pay my taxes with it, I might as well buy groceries with it, right? And suddenly the euro is one of these parallel things. It's like a Latin American economy. And at that point in time, you've got to wonder if this thing's going to work or not. And there's a good chance that anybody who's holding that's like,

do I really want to hold new lira? or would I rather have a bank account in Germany with real euros? So any Italian with money that doesn't have rocks in their head basically opens up a bank account in Berlin stuffs it full of euros, that huge amount of capital flying out of the country would cause its own economic crisis. And in general, the cost of getting out of the euro,

probably 50% of national savings. Now, you may be a fascist and you may be a populist, but you really want to destroy half a national savings to prove a point? That's a tough one. Mark, one thing that goes somewhat again, the narrative that we were discussing earlier, which is working people, ordinary people, the bottom 60%, if you like, really struggling, not happy with the situation. The bottom 20% are really struggling. The bottom 60 are just pissed off.

Right, right. So the bottom 60 are pissed off. What they want is higher wages, their purchasing power over God knows how long has been plummeting, savings. People really struggle to put any money aside, et cetera, et cetera, et cetera. But the one country that bucks the trend on that, you might say is the UK, because we've voted now, basically, all the polling shows that ordinary people in this country completely support the right-leaning party. How do you explain that? It is a fascinating one, but I don't actually think it's a disproof or a contradiction. I mean, if you had the Tory party, circa 1987, they wouldn't be talking about leveling up, right? They wouldn't have done furloughs. They wouldn't be talking about big investment projects, greening the

economy. None of that would be on it. It's just be like, tax cuts for us and screw it. everybody else, right? So it's a very different conservative party. And what they've done is they've moved to the left economically and stayed on the right culturally. And that is the winning combination. And the reason Labor got slaughtered is because if you are perceived to be a

party essentially of elite intellectuals, cities, universities and minorities, you're never going to get the white working class to support you. And that's basically what's happened. And so long as the Tories have moved to the left whereby their interests are being recognized economically, and

then they want to stay right culturally. That is a winning combination. There's no way for labour out of that box. I think Matt Goodwin has got this absolutely right. Well, we've had him on the show a few times, as you probably know. But I'm curious, then, what about, is that different in America in the sense that the sort of progressive coalition play? We just need basically for the country to get darker and, you know, more LGBT and more this and more that. And we'll get to a point where that's, that is the winning formula. Is that going to happen? So that's still the debate very much in the Democratic Party. And what you see with Biden and the whole attempt to raise wages at the bottom is that's not enough.

Elections are increasingly won by tiny, tiny fractions. So when you see a result like you see in Hartlepool, you sit up and go, wow, that's a big thing. That's structural. It's a lot of information in that. And if I was the Biden team, I'd be looking at this and saying, okay, what exactly is the Conservative Party? The Conservative Party, with one or two exceptions, is about as right wing as mainstreamed Democrats. at this point in time. They're way closer to the Democrats than they are to Republicans. So at that point in time, you know, if that's the play, why wouldn't we do that play?

Now, Biden's not going to piss off his activists. He's not going to alienate his base. He's not going to do this. But he's not going to talk about trans every day, right? He's not going to talk about police violence every day. He's just going to keep silent on those issues and concentrate on what he does, which seems to be stuff that people find popular. So, yeah, there's definitely a sort of a struggle in the Democratic Party over basically how to use the word woke the party wants to be. And you've got people like Jim Carville saying this is a problem, not because it's ethically

a problem or morally a problem, just politically you can't mobilize enough people if you go down that road. And part, one way to look at what's happened to Labor is by going significantly down that road, they've kind of tested that theory and shown that it's probably true. And all these parties seem to be struggling with the effects of globalization. What can you do with these communities

that have had the heart and soul ripped out of them? Are there really any solutions to this problem, Mark? Well, that's it to go back to the thing I was saying earlier about cities, right? Once they start on a decline, some of them can bootstrap their way back and reinvent themselves, but not everywhere can. You've got to have a reason to want to put capital into a place.

You can move government jobs around. You can take the DVLC out of Cardiff and stick it somewhere else if you really want to, right? But getting private sector capital in these places depends upon making them actually much better places to live. So if you think about a city like Manchester, I would bet on Manchester, and also bet on Liverpool. Huge investment in the 1990s in improving, if you were,

the basic infrastructure of those cities. You get better transportation and communication links there. What have you got? Really good cheap housing that you don't have in the southeast, right? And the ability to basically grow those economies out and then you've got skilled labor forces, you've got good universities. that's a place where you could bet on, right? What about your buries?

What about Norwich, right? What about places like that that basically, you know, are on the skids? The classic one are sort of the coastal community, south of London, on the east coast, right? It's not clear what you do with that. I mean, once Skegness loses its appeal, it's not coming back. But it's not true everywhere. So the question is, where do you put your money and where do you maximise your bets to try and balance things out about?

But you're right. See, one of the things about globalization we don't talk about is what it does is it creates the dominance of cities. So there's a paper I'm working on just now and I found these statistics and I was absolutely fascinated by it. You know what percentage of GDP London creates for the whole country?

22. I was going to say 20, yeah. Right, now here's one. Paris. What do you think it is for Paris vis-à-vis France? Five? No, 30. What?

Yeah, right? Here's one. The Netherlands. Amsterdam. 30. Wow. Right. So, and then here's the best one. Dublin. Yeah, that makes sense to me. Paris and Amsterdam doesn't. But what's actually happening is that you get globally connected cities that become the real wealth generators.

So when we think about Holland, what you're effectively talking about is Amsterdam, right? When you think about Britain, you do really think about London, right? That's it. And if you think about Germany, that's actually very different because Berlin, the Hopstadt is bust bankrupt, right, from the unification period. three lander in the South make most of the money, but it's not city-based, right? And there's much more kind of like, you know, general redistribution because of the federal system. So, you know, globalization affects countries in different ways, but one of the predominant ways it does is basically by making these global growth cities like the main story. And, you know, when you've got that, that's a dynamic. What do you want to do?

Do you want to not play that game? Right? There's going to be cost to doing that. Mark, I was going to ask you, we've talked about the fact that different, people in society, different strata of society, have benefited and suffered differently as a result of the pandemic. What about geopolitically? One of the things that people talk about a lot is China. What will change and what has already changed in terms of the economic power balance and also going forward? What will be the impact of the pandemic in terms of China, the US and the rebalancing

of power in the world? So it's an interesting one. My bellwether for this, is usually the EU who like to play a game of hide-seek and take the money. So, you know, they're about as principled as Robin Hood's bad cousin, right? So, and they signed this big investment agreement with China, but it turns out the European Parliament put the whole thing on ice. They're just not going to play. There are genuine security concerns around Huawei, 5G, even if you don't have substitute tech, all this sort of stuff. So we're already seen the beginnings of what tech people call the splinternet, as it splinters into different national versions of the internet.

there's a really interesting investment firm in New York actually that's betting on this and they basically are looking for who's going to be the deliveroo for Indonesia because it's not going to be deliveroo. Why would you need an American firm to do this, right? So you're going to see more and more of this kind of like local, national or regional hubs in terms of that. In terms of the overall geopolitics of it, there is an increasing school of thought that thinks that Xi has overplayed his hand. if he really does something like try and grab all the semiconductor manufacturers for the world by invading Taiwan, then the costs of doing so would be very, very high for everyone, but particularly for China, because it would effectively turn everybody else against them.

So the Belt and Road stuff has been at best a mixed bag. A lot of it tends to basically indebt the people who are borrowing, and then you end up owning the asset, which is good for China, but not for the other side. And then, of course, the whole sort of, you know, the human rights data surveillance, surveillance society type stuff, which, you know, when you describe it neutrally, just doesn't sound like an appealing place to be. If that's going to be the future, maybe, you know, maybe liberalism isn't dead after all. Maybe it is worth fighting for. So I think at this point in time, you know, conflict is baked into the cake, but how that conflict manifests itself is going to be an

interesting one. The last one on this, and then I've got to go run and pick up my kid, so I'm going to have to go. But anyway, is how climate intersects in all of this. So if, if the Republicans come back in at some point, which they probably will, then America drops off the climate change bandwagon again. The problem with this is the rest of the world will eventually turn against carbon assets, oil, gas, etc., etc. The Bank of England came out today and basically said we've got a new ratings regime. Next time there's a crisis if you want your bonds bought, you'll get a premium on them if you're not carbon heavy. And if you are carbon heavy, you'll have to pay a tax and we might ultimately not buy your shit. Whoa, there's a big

threat. So you can see all of this moving in one direction. All of that, bespeas, co-operation with China. Because if they play this game, they've declared net zero by 2060. And the communists don't usually do plans or at least claim them unless they're serious about them. So they're going to do this. The EU's going to do it. If the Democrats control the US, they're going to do it. If the Republicans come back in, the rest of the world is going to move that way anyway. And all those carbon assets in 20 years time are going to be worth a lot less. So you've got conflict on one side, but you really need to cooperate with them on another. So it's going to be interesting how they square that circle.

It's going to be very, very interesting. Would you say that China's reputation as a result of this mark has been irreparably damaged? I don't know irreparably, right? Because ultimately, there are people for whom reputation doesn't really matter. And there are countries for whom Belt and Road is like the only source of investment they're going to get and they're simply not going to say anything. And there are plenty of dictatorships in the world who are like, you're a score, what a great model. Let's go that way, right?

Think places like Burma, right? sorry, my Anmar, right? But anyway, so yeah, unfortunately, you know, that doesn't mean permanent de-legitimization, nor does it mean that they'll go, oh, we went too far, maybe we should come back this way a little bit. They have their own game plan and as far as they're concerned, it's working for them. Mark, listen, we've got to let you run. Otherwise, we could chat to you for hours, as always. We'd love to have you back another time. Thank you so much for coming on. Remind everybody before you go where they can find you online. You can find me at M.K. Blythe on Twitter. That's the easiest one. I have a website, but I haven't updated it since 1972.

Fantastic. Thanks for coming on, Mark, and thank you all for watching. We will see you very soon with another episode like this one. Or a live stream, and they always go out at 7pm UK time. Take care and see you soon, guys.