TRIGGERnometry - David McWilliams: "We Can Avoid a Great Depression"

Episode Date: May 6, 2020

David McWilliams is an economist, writer and broadcaster. Support TRIGGERnometry: Paypal: https://bit.ly/2Tnz8yq https://www.subscribestar.com/triggernometry https://www.patreon.com/triggerpod 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 (@failinghuman) 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 if you want honest conversations with fascinating people. And a fascinating guest we have for you today. He is a superstar Irish economist, broadcaster. He just told us he's the host of the number one podcast in Ireland, David McWilliams. Welcome to Trigonometry. Constantine, thank you very much for having me. And Francis, it's great to be here. What's the crack boys? You enjoy the lockdown? I am. France is not so much. He's starting. completely on his own in a flat in London,

and that's why he looks increasingly more and more like my grandmother. Do you know, I always thought your grandmother was a very attractive lady. I'll tell her you said that, David. Yeah, so if you want to morph into, you know, an attractive grandmother. 90-year-old in Ukraine, yeah. From Ukraine, look, there's a career ahead of you. I'm sure there's an niche. Absolutely.

It's 2020. I can be whatever I want. Exactly. Exactly. Exactly. Exactly. Well, David, welcome. It's fantastic to have you.

This interview has been a long. Cups of tea. No, no, me, you go for it. We've got one here with the Trigonometry branding. Of course. But it's been a long time in the making this interview. So it is a pleasure to have you on. And what a time to have the conversation.

I mean, obviously, very, very uncertain times, very significant times as well. What do you make of what's happening now and particularly the economic impact of of the lockdowns that we've seen around the West. Is this the beginning of a Great Depression? Jim Rickards, who you will know from the festival that you co-organize Kilconomics, we had them on the show a couple of weeks ago, and he said, we're already in a Great Depression.

What is your reading of things? Well, I think Jim is right if you decide that a Great Depression is measured by GDP falls, unemployment, fiscal deficits, all that sort of stuff. It's very clear that we're in Great Depression territory in terms of what's going on right now. The question is whether or not the Great Depression materializes. The Great Depression was a 36-month affair.

It would do it over three years. It started in about 1931, 32. The interesting thing is it didn't start directly after the Wall Street crash. It took a couple of years to materialize. And it went on until the Americans broke with the gold standard and started printing money, which is probably the opposite of what Jim would recommend the solution. So I would say that if we don't fix the next couple of months, there is a chance that there

will be these ideas, these things, these long tails, like talking to economics, that in actual fact the economy will continue to weaken. However, the problem at the moment is really a lack of money. It's a cash flow problem that most small businesses, big businesses are quite okay, but most small businesses are running out of money simply because the trust in the system has broken. So, for example, if you run a small business and you have credit lines with your creditors, and they're saying they are 90 days in good times when everything's normal, so you send out your invoices, you actually use your invoices as invoice discounting.

So invoices in a non-panic situation are actually as good as cash. So you go to the bank with your invoices and you say, look, please, owe me 10 grand or 100 grand, will you give me cash against that? The cash is, yeah, listen, the banks will give you 70 grand. So invoice discount is a way in which small companies manage cash flow in normal times. And the reason I focus in small companies, lads, is that small companies are actually who employ the vast majority of people. This obsession with Google and Facebook and all these big companies, the big oil companies,

which I'm sure we'll talk about, they were big, they're getting smaller. I suspect they'll be very small. by the end of this afternoon. But the point is, so let's talk about the, who I would regard is the real heroes of the economy, the small businesses. So let's come back. So they have a cash flow problem. Most small businesses don't have a big pool of cash.

They don't have investors that are generous. They certainly haven't been able to ride that stock market bonanza over the last seven or eight years and turned their stock into cash. So they're very much week-to-week, month-to-month players. And something like this really shocks them. And what happens in the situation like this is that the trust dissipates. It's not that you don't trust the guy, but it's basically you fear that they are going to run out of cash in the same way you're running out of cash. So basically all credit lines are truncated.

These are 90 days. They truncate down to, let's say, 10 days. So any rollover finance, which is, again, what all small businesses need and they use each other as banks. That's the interesting thing. Small businesses don't go to the banks and say, can I have a 10 grand overdraft? What they say is, I'm dealing with this guy, if you're dealing for 10 years, I'll use his invoice or his cash flow to bolster my cash flow.

And that starts to atrophy as it's doing right now. Now, what you find is small businesses, good businesses, go out of business because of a lack of money, which is probably the least reasonable way in which a small business can go out of money. The problem with the lack of money, if there's a lack of money, you just print it. So what I believe has to be done now

is something that economists call helicopter money, which comes after Milton Friedman's idea that you basically drop money out of a helicopter. It's like if you've ever seen the beginning of apocalypse now, have ever seen that? Yeah. Helicopters come in. Imagine that, except they're dropping money, not napalm.

So it's much nicer people. It's a whole different experience. If you see them on the horizon, it's like, yeah, come on, come on. A bit of Wagner as well, it's always good, you know. But I think that's going to happen. I think that has to happen. I think that's the only way because it's a very simple thing that's going on here. Two things.

Number one, we have to make sure that small businesses don't collapse, okay, and that they exist when we come out of the lockdown. That's the first thing. Second thing is we've got to ensure that all the government spending that's going on now doesn't lead to austerity. And by that, I mean, it doesn't lead to a massive increase in the debt GDP ratio, push up debt servicing costs, and prompt austerity. two or three years down the road.

So the last thing we want is economies hit by COVID, then just about recovering and then hit it again by austerity. And the way in which you do that is the central bank pays for everything. This sounds like magic because it kind of is. And I speak as a former central bank economist. That's my training. And I was very, very much part of the insight in that in my youth many, many years ago. that the awesome power of central banking is the following,

that they just print money. They make it up. There's no balance sheet. There's no gold. There's nothing they need against it. They print money. That is why central banks are so powerful. It's why it's why it's for hundreds of years,

one of the key battlegrounds in all politics and all kingdoms and all princelings, in all fledging democracies is who prints the money. You probably should have realized there was something up in Cuba when they made Che Guevara, their first central bank governor after the revolution. That was clearly a signal to sell if you could get out of the place. But the point is, whoever prints the money has got the most power. And the power vested in the Bank of England, the Federal Reserve, the ECB, Bank of Japan is phenomenal. And it's right now that we have to, what I would just say is turn right on the

taps. Now, at the moment, the Bank of England and the ECB and whatever are playing around with this, what I've called bond jiggery poker. So what they're saying is, yes, we will give you lots and lots of money, but basically it has to go through the banking system, and the banking system acts as the middleman and the middleman then gets it to you. Now, that demands that the small business that we're talking about has to go to the bank in the first place, has to fill out a form, has to look for a grant, has to give the bank, you know, five or six years of back profits, etc. The balance sheets,

has to wait, has to get rated. It's too long. So my solution is very, very simple. It's not just my solution. Actually, Milton Friedman came up with it. It was basically you just credit

the bank accounts of small business with a zero or maybe two zeros at the end. What this does is it most importantly dissipates the fear that we've got a default on each other. And then the system begins to easily breathe again. And those credit lines, that we are truncated and we're actually screaming bankruptcy, they go back out two months, three months, four months, and we rest easy in the lockdown. And then we wait for the doctors

to tell us what time we should come out, whether it's next month or the month after, whatever. So to answer your question, I don't see a great depression unless, of course, the authorities are profoundly unimaginative and they stick to what they're doing at the moment. They have to do a hell have a lot more very quickly. It can be done. I think we're moving in that direction. And let's see what happens in the next couple of weeks. Francis, before you jump in, let me just ask follow up on this and then you go ahead because you have lots of things you want to ask David about as well. But David, if I'm one of the great things about you is you're very good at explaining economics to people who aren't economists, right? But if I'm an ordinary person and I'm listening to what

you're saying, which I am an ordinary person listening to what you're saying, right? You don't believe that, right? Come on. No, I'm very special, of course I am. But my point is, I don't have the economic understanding and knowledge that you do, right? But what I'm hearing is, well, we're going to create money. Now, if I'm an ordinary person, I'm going, well, I don't know how, I don't know when, I don't know where, but surely that has some negative impact somewhere. Otherwise, we'd be doing it all the time, surely?

Well, this is a very good question, right? The reason central bankers are regarded as the most conservative people in the economic, Savannah, let us say. Okay. And again, as I say, I worked in one for quite a while, is because they build up credibility about fighting inflation. That's the thing. We will not let inflation take up. And the reason you build up credibility about not fighting inflation is when you're faced with deflation, which we're faced now where prices are falling, you actually can unleash this awesome power. And people believe that you will do. the right thing. So that's why central banks are very important. In the wrong hands, at the wrong time,

a central bank can destroy a country by destroying the currency. You saw that in Zimbabwe, for example. Central Bank of Zimbabwe destroyed the currency so much so that the humble liter bottle of Coke became the unit of account in Zimbabwe during the hyperinflation, right? So in the wrong hands, at the wrong time, the central bank can destroy the country. In the right hands, at the right time, central bank and save the country. By doing exactly this, which is by creating money, one of the great myths of economics is that money has value. It has only value in its social context,

that people actually believe it, right? Which is why, for example, if I take five euros out of my pockets, which has no intrinsic value, there's no intrinsic value in the piece of paper, the value is only that I believe that it can buy me two cups of coffee, right? That is a mind game that we play with each other. And so the essential thing about money is that it has no real value other than the value that we ascribe to it. And that value comes from our knowledge that the central bank won't print too much of it in normal times.

So there won't be too much of it around. So that is answer the first part of your question. Second part of your question is then do you have to mop this money up later on because it's still in the system? system. Yes, you do. And that's a, you do the thing called open market operations where the central bank just comes in and literally taps the banking system on the shoulders. And listen, mate, give us that cash that's sitting idle in your account. So the bank says, fair enough, you're going to pay us? You said, yeah, we'll pay a bit of interest. Banks is fine. Okay, you have it. That's how it works. It's called open market operations. It's a trade done at the end of every day. You can do

that very, very easily. And the third issue is then if you aren't worried about inflation, if this can be done, why don't we do it all the time? Okay, why does it? all happen. And that again is the credibility that we vest in the institutions. It's a bit like saying to an army, if you like killing people, why don't you do it all the time? You know, because that's what they do, right? And we decide that our ministries of defence are sufficiently trustworthy, that they don't send fellows out killing you all the time. You do realize you're talking to a Russian, David. Well, in Russia, you have an entirely different attitude. But you see what I mean, you know, that there are many, many extraordinary powers that can be unleashed by a democratic government, not least its own military.

It's police force, for example, here in Ireland. What I live about Irish cops is they don't, Irish cops are great. I've been watching them for the last couple of days. They don't police the country. They negotiate with the country. It's so nice, you know, like you've got fellas out drinking, pretending they're all. because our lockdown is that basically we can't go more than two kilometers from our house, and we can only be with people in the house.

So you look at fellas on the pier down beside me who clearly do not live with each other and have found each other in that beautiful way that alcoholics find each other on peers and open spaces. And the cops, rather than being heavy-handed with them, just negotiate, say, come on, lass. Be reasonable, whatever. So what I'm saying is there is an awesome power that democratic countries can unleash upon the people. central banking is one of those and as long as that power is not abused it's very credible and then when you have to do it

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slash trigger to check out their mattress and furniture sale. That's avocado green mattress.com slash trigger. Avocado green mattress.com slash trigger. And David, I was reading one of your articles in which you were talking about one of the silver linings of this crisis because obviously there's plenty of negatives, but there will be positives that emerge. In particular, you believe that we are going to create a population that is more socially aware.

Absolutely. Do you still believe that? Yeah, I think that the soft issues of economics are much more interesting than the hard ones. So balance of payments, inflation, exchange, or it's the idea. That's very simple stuff. But what's really interesting is soft ideas, so sociability, trust, credibility, what they call the social fabric, social capital. And social capital is based on having a very strong sense of community. So if you contrast, for example, the reaction of northern European countries, I don't.

don't include the UK and that. UK is a slight outlier. No, I'm only joking. But there has been... We left, mate. We left. Apparently so. Brexit means Brexit.

Brexit means Brexit. It's great that Brexit has not been spoken about as well, which is fantastic. Oh, what a relief, mate. We're getting tired. No, I think... So what you see is that the crisis, you know this expression, where you hear all the time in the health service, which is that 100 people die.

today, but X amount of them had underlying issues, underlying health problems, underlying conditions, they call it, right? I think that the crisis, any crisis, reveals a hell of a lot about societies. Actually, one of the more interesting things about crisis is what it tells you about the state of the country. And the difference between, let's say the United States, which and Northwest Europe has been quite profound. And it's the following is that the United States, in the same way as a patient who has underlying conditions is more fragile in the face of the pandemic, a country that has

underlying conditions, those conditions are exposed in the pandemic. So what you see in Northwest Europe is social solidarity, a belief in science, a belief in the government, and understanding that the police force and the medics working together are actually working in our favor. And they believe in what's called in economics the paradox of aggregation, which is basically that what is good for the individual is not always good for the collective. So basically, if the collective say we should all stay in, then we stay in, even though it subjugates individual rights to the extent that we believe that we happen. In the United States, I think what you've seen is an exposure of these underlying conditions.

So the death rate is much higher, it's much higher amongst poor people. Why? Because the infrastructure isn't there. The public hospitals aren't there. The president is regarding the entire thing as, it's what he's seen the entire thing through his own personal lens. How do I, Donald Trump, play out in this? He has the governor's bidding for PPE equipment against each other. Inequality is exposing the fact that poor people are dying in much greater numbers. You know, I could go on.

But my sense is that the social solidarity that has been evidenced is very, very significant and it changes the world. So I'll give you an example. In 1945 in the United Kingdom, Britain wins the Second World War, okay, with the Allies, of course. I'm sorry. I'm sorry, I have to laugh at that a little bit. So do I. I mean, the idea that the Brits won the Second Wars, for me, complete palaver.

Constantine's people won the Second. World War, the Second World War, and then the English speakers came in on the far side and, you know, whatever. But anyway, my point is, let's come back to. Had you said on the eve of the surrender of Hitler, when Churchill is bestriding the globe and is at Yalta, and he's talking to Roosevelt and Stalin, et cetera, that Churchill would have been defeated in the next general election, you've said, no way, that's not half possible. But what happened in the Second World War was the trauma of the war and the social contract

and the extraordinary coming together of the people in the Second World War changed profoundly the way they looked at the world. So suddenly they said, actually, let's have a national health service. Let's have a free education. Let's have a national this, that, and the other. The soldiers coming back from the front said, no, no, no, we're not going back to the same. We're not going back to, you know, Toffs running the place, as was the case. after the First World War, we're actually going to change the country. So, you know, Churchill gets

kicked out. It's amazing. Less than 12 months after he wins the Second World War. And what he's replaced by is a reflection of the national solidarity in policy, which was a Labour government. I'm just doing this for our UK viewers because, you know, it's important to see things from the UK perspective. That's one example. You'd Think after the Spanish flu, for example, in the United States, the 1920s is without a doubt the most technologically and financially sophisticated decades in most of the 20th century. You get to think about what happened. So the Americans respond to this trauma by extraordinary technological innovation, electricity, radios, telegrams, telephones, cars, all this sort of stuff. So my sense is that there is a way to look at the. this, Francis, which is that the social glue, the social capital that has been, become more

adhesive in the crisis, could be used as a platform of which to change societies for the better. And do you think that the youth can become a vanguard for change? Because they're the ones, as far as we know at this point, who are least affected by the virus. So you were proposing that Actually, they should be the ones at the vanguard of reinvigorating the economy, starting everything up. And let's get some youthful energy changing our economies. Francis, they're the least affected by the virus, but most affected by the shutdown. That's so like everything you should see through generation. Well, you should.

You could, you can see the world through these generational lenses. I remember years ago interviewing Tony Ben. Do you remember Tony Ben? Yeah, of course. Yeah, yeah, yeah, yeah. And I was presenting a show here in Ireland after my central banking days when I went rogue and abandoned sort of conservative economics and went down to doing media and all that. Anyway, and I was interviewing Tony Benn in his house in Holland Park and he used to do all his research from this quite dusty, quite an actual fact, he looked, he would be a perfect person for the webcam era because the back was always. full of books, you know. Whereas, as I said, we prefer the Fallujah. I've just been captured

by ISIS look. But whereas Tony Ben was very much the, do you imagine the economist says, oh, I'm going on user 10 now. I'm better put up all my books behind me, so I look very clever. Well, Tony Benn was clever. That's the difference. And, but he said something about generations. He said, I was interviewing me. He said, young man. He said, young man. He said, you and I have something in common. And I said, what's this? And I looked at young. I remember this at my age at the time and he said, he said, the young and the old have one thing in common. And I said, what's that? He says, we're fucking bullied by the middle-aged.

I thought it was a really good expression to explain the way the world works. So if you look at it in a generational thing, the youth in Ireland where we run the numbers, Ireland has a population of five million, of which about 1.4 million are under the age of 35. they should be released straight away back into the economy to do their thing to create a youth economy it'll be like do you remember Logan's run did you ever see that movie from the 70s

A long time ago, great movie though great movie and the over 35s were all shot so if you were over 35 you couldn't go out in the public because you were so ugly you were getting wrinkles and all sorts of things right so I think that basically what we know to be serious what we know is

the lockdown will be staggered in terms of who we let out first. We clearly can't let out. My mom is 84. I'm going to the visitor now. Her generation have to be kept in isolation for as long as it takes, because we know what the data tells us.

And then as you go down through the population, you get less and less and less. Exposed, or if you do get exposed, you actually can survive, except for some very, very unusual cases and unfortunate cases. And ultimately, there needs to be some sense of national collective immunity coming in

so that we can actually physically fight this ourselves. So it strikes me that the first way you should do it is to release the under 35s who don't live with their parents. And I know in Ireland and Britain, that's a big problem because many people in the 20s, in my generation, obviously didn't live with their parents, but now that's the case they do. But to the extent that there is a size of a population in Ireland,

the mathematics is about 70% of the under 35s are in, employment and don't live with their parents. So that's a big chunk. That's, you know, seven, eight hundred thousand people here. I think the UK figures would be multiplied that by a factor of five, six, whatever UK population is now. I think it's 65 million or something. Or is it 60 million?

No, it's over 60 million. It's been over 60 million for a while, yeah. There's fucking loads of you. So that's my point is, and then, you know, what I find interesting to Francis is, we're very happy to cede authorship to the youth in terms of music, in art, in sport, and lots of areas. We don't find it unusual that kids are making the running. Are people in their 20s? So I think that this idea that there needs to be some sort of headmaster, middle-aged headmaster in charge of the economy is kind of ludicrous.

So I'd say let them out and do their thing. And also because it's a very interesting thing is a thing in economic, scarring. So scarring is what happens, and you see this in longitudinal surveys. If in your 20s you fall behind economically, you never, ever recover. Your wages are never, never recover, your status never recovers. And ultimately, your entire world economically is dictated by relative failure in your 20s. So it's called scarring. And you see this both in terms of individuals, but also you in terms of generations. So generations who leave university, for example, or leave college or come into the education in the midst of a recession, actually do considerably worse over the long term

generations who actually leave college or leave school, come into the workforce in a boom. This is very interesting, and it's got to do with your sense of yourself, now you're negotiating, lots of issues. So scarring is something that we cannot risk this generation who came into the labour force during COVID, are scarred forever because of this. The way in which you actually militate against these ideas is you release them early and let them do their thing. And do you think moving forward now, looking at Europe as a whole, do you think that the EU have handled this crisis well, number one, and number two, the second part of this question is, do you think we're going to see the collapse of the EU as a result of COVID, as more and more countries,

your Italy's, your Serbia's, have less faith in the EU. Well, you've just, Francis, given me the next Daily Telegraph editorial. As I've always said to clients of mine, when I was working in investment banking in the UK for many years, I said, look, lads, if you really want to lose money, the quickest way to lose money in Europe is read the Daily Telegraph, because it's always wrong, okay? I write for the Daily Telegraph, David, but thank you very much. very much for that. So well done, David. Correct. You know, I mean, concepting, you know, on Europe, it's always wrong. And the reason it's always wrong is because, in general, the English

upper class and their lackeys have never really, this is going back to Agincourt, this is not to do it now, this goes back to the 14th century, have never really got, when Edward II defaulted of the Medici's, you know, it goes back a long way, all this stuff. I've never really got Europe, and there's always this sense that Europe is going to, Europe is one iteration or crisis away from collapse, okay? And here's the latest example of that. My own, and of course, Brexit spices that particular dish in a sort of a mental way. But my own particular feel is that Italy is a big, it's a big problem because

Italy, if you go back even to 1987 when you had a little bit of, large lira devaluation, then 1991 even lira devaluation, 1993 even lira devaluation. You have these periodic crisis in Italy, and it hasn't been able to recover properly. So every time there's a crisis in Italy, the legacy is slightly higher unemployment, etc., slightly bigger budget deficit.

Poor Italians have been running the budget. What people don't realize is that Italy has been running a primary budget surplus. So on the day-to-day basis, it has been running the budget surface. for the last 15, 16 years, which is extraordinary. The problem is they have a legacy of this massive overlap of death that they took out in the 70s,

which frankly should be written off, I think. Anyway, it may well be at the end of this. And you've got, in Italy, you've got the, how would you describe it? The Golden League are not a fascist party, but a crazy fascist party waiting in the wings, okay? But my sense is that, the European Union under the European Central Bank has been behaved pretty well. It has made a lot of money available.

European politicians, of course, have defaulted back onto traditional lines. So you have what they call the frugal four, Austria, Germany, Netherlands, and Finland. God knows why the Finns got involved. But as a friend of mine said, with the exception of the Dutch, they were four, three proper Nazi countries, Finland, Austria, and Germany. and they can't get over there, but I'm only joking, right? And then on the other side, in the other side, you basically have the Catholics, right? You've got us, the Spaniards, the Portuguese, the Italians, right?

The Catholics and the Irish, and the Greeks, of course, who, for a variety of history and geography are an exceptional case in the context of the European Union. You mentioned Serbia. Serbs aren't in the European Union yet, and I would say, I actually spoke to a Serbian, made of mine, not that'll actually met her walking out here on the pier that she's married to a maid of mine.

And I said, how are things back home? You know, in Serbia? She says, man, we've gone through much worse than this. The Serbs have gone through and caused much worse than this. So my sense is the European Union

will muddle through. I don't think it's going to be an existential crisis. I think Germany and Holland, particularly Holland, will buckle a bit on whether or not they support, the rest of Europe.

Last Thursday, they had a big shindig at the European Council. Nothing really happened. But that's the way Europe works. It works. It goes two steps forward, one step back, two steps forward, one step back. At the core of the European Union, which I think English people don't understand, is Germany.

And Germany does extremely well at the European Union. In fact, the European Union, particularly the Eurozone, allows Germany to recycle its current account surplus. And that is exactly what it wants to do and it will do that. So they basically sell us Mercedes.

Sometimes we have money, sometimes we don't. Then we borrow money from them to buy their Mercedes, and periodically we default. That's it. And we set the button. And what you've seen in the Brexit negotiations was, you know, that basically what England didn't understand a British, not Britain, conservatives didn't understand,

was that they were facing Germany across the table. nobody else. And basically what happened is Gunter just basically squeezed the Brits and every time at the negotiations and they just squeezed them and said, look, you're a small country, you're big notions based on history,

you're not really at the races, you give you a deal, but don't fuck with us. And that's really what happened. And that's what's going to happen this year as well. You don't think that that was kind of how they treated Theresa May but Boris Johnson is going to be in a much strong. a stronger position given his large majority to do better? That's internal politics.

I mean, nobody cares in the rest. What people in England don't seem to understand is we don't give a shit whether he's got a big majority or not. That's your own internal dialogue. And that's fair enough, you know. I'm sure most English people don't even know who's in the Irish government, right? You know, who's in the French government? What's the actual makeup of the National Assembly? I'm sure most English people have no idea what coalition Mrs. Merkel is on top of.

I'm sure of that, right? Nobody cares about what goes on in your own country. No, but my point isn't the external forces care. My point is that Theresa May had lots of people sniping. She wasn't able to get rid of people in her own party who were undermining her efforts. With Boris Johnson, he made it very clear, you're either with me or you're out,

and people had to sign up to his pledges, and now the Conservative Party, at least, seems like they were speaking with one voice under his leadership. Yeah, but it doesn't make any difference. Trade negotiations are about size, right? The little fella gets destroyed because they've nothing to bring to the table. So, you know, let's cut to the chase. Half of the UK's trade, both imports and exports, is with the European Union.

Not one third, one, one tenth, not 20%, half, okay? Flip it the other way, 12% of the EU's trade is with the UK. It's a done deal. Britain will take whatever it gets. And if it behaves well, it'll do well, to get a little bit better. And if it doesn't, it'll go to WTO rules, which are kind of a disaster. Which is why, you know, there has never been a situation where a government goes into a trade negotiation willingly in order to put up barriers. That's what's happening.

It's bonkers. But that's Brexit. It's boring stuff, you know. That's, it's going to look to something much more interesting. I mean, you've brought up Brexit, and you mentioned that we haven't talked about it for a long time. No, no. I just, what I brought up was that this idea that I see peddled in the British press, that Europe is one crisis away from catastrophe, is something I've seen since I was a kid here.

Since the 1980s, 1990s. I've seen it with Mrs. Thatcher. I see John Major. I see it even through Tony Blair's periods. I see with Gordon Brown being against the Euro, all that sort of stuff. Then, of course, I see it Cameron. I see it with Theresa May, and now I see it with Boris Johnson. This is a thing.

This is a disease. This is a virus that is deep in the Conservative Party. Nobody else has it. The rest of us have the vaccine. Euroscepticism, right? Okay? For some reason, there's a small population in the UK that doesn't have the vaccine and continues to show signs of, as I said, the underlying conditions.

So you don't think that with Germany, because you wrote a very, very good article for the various times where you explained that, you know, Germany is in real financial difficulties. Their economy is not doing well at all. And the long-term prognosis is pretty bleak. You don't think that will weaken them when it comes to having a trade negotiation? Well, I think no, no, because it's kind of relative, right? So you've got two sides of the trade thing. You've got the trade side and the services side, right?

In terms of trade, the Germans are very, very strong still. They make a lot of stuff. They make a lot of heavy stuff. They are heavily diversified around the world. In fact, they make a lot of stuff that Britain used to make. Like when I was a kid, the amount of cars on the road here in Ireland and made in Britain was phenomenal. Every second car, you'd pick up things.

And I remember even my dad saying when he was a kid, basically everything was made in Britain. And all those things that were made in Britain were increasingly made in Germany, and now a lot of them were made in China. So the German big fear is that China will come after the German car industry in the way Germany went after the Italian car industry,

which was something that happened throughout the 1990s and into the first decade of the North With respect to Germany's overall position, the basic problem with Germany, from where I've seen as an economist, is that it doesn't like to spend the money it earns. The basic problem with Britain is it likes to spend other people's money, right? Because so Britain runs a current account deficit, Germany is surplus. If you want to look at the two countries, what could really help the Germans is if they expanded their budget deficit and began to spend money. And in actual fact, if you've traveled in Germany recently, I did about a year ago. I was quite shocked, actually.

You know, my memory of Germany had been of extraordinarily brilliant autobans, for example. I drove from Dublin to Croatia, don't ask, because we have a dog, and our children demanded that I tick the feck and dog to Croatia. So I drove with the dog. And anyway, in the German auto bans, I was quite shocked by, you know, they're not in great Nick. There's a lot of, have a lot of traffic on the roads, et cetera. So it's very clear that Germany could expand their budget deficit quite dramatically if they wanted to, but they really don't want to. So I think the dilemma in Germany is twofold. One is how they deal with China.

And the second one is whether or not they expand their budget deficit, which would actually limit dramatically some of the conflicts at the heart of the EU. you. Interestingly, I think the long-term implication of COVID on China is that never, ever, ever again, will any of us, including the UK and this, Germany, France, the United States, ever be dependent on China for essential equipment. I mean, the idea of the Western companies, governments, queuing up and bidding with each other to buy little bits of face masks and think of that from China, that will never happen again. And so I think the long-term implication of all this is that the supply chain management that so dominated global economics for the last 20 years, of which largely China was at one end and the rest was worth the other, okay, I think that's over. I think we're going to see a huge amount of onshoreing back into the European Union,

back into the United States, maybe even back into the United Kingdom of British companies, particularly some of the big British pharmaceutical companies. And I think the reaction to this will be that the Alfresco globalization, of the last, what, 20, let's say since the fall of the Berlin Wall, will be replaced by more managed trade. And I don't think China will recover, either its reputation, its brand, or its assumption that everybody will do business with China no matter what. I'm not too sure that's going to happen.

Well, that's been one of the big issues that we've been talking about to a lot of people, particularly, and I have noticed there seems to be a correlation between being kind of on the right of politics and being a China hawk or a China critic. I'm on the center left of politics in China. But you're also saying. It's still problematic, David. You're still problematic because you're not on the far left and you probably don't have your pronouns on your Twitter account and stuff like that.

Oh, man. Anyway, enough. Yeah, let's not get you in trouble with your own side. But on the China thing, David, it's, I mean, one of the things that is becoming very clear is that while none of the externalities of doing business with China, visible to us while we pretended that, you know, there's no cost to do in business with China. Everything was fine. Now, suddenly people are starting to realize in terms of the economic impact, in terms of the national

security impact. Also, you know, we used to talk about China's human rights record. No one talks about China's human rights record. They're talking about concentration camps now. Those are very different ways of framing the question. Yes, yes. Yes. I think that, you know, what we know is that pandemics

have lingering long-term influences. We spoke about, for example, the trauma of the pandemic, the flu pandemic. But even if you go further back, you go back to the outbreak of the plague in Marseille in 1720, have profound impacts on the French society. Currency collapsed, unbeliefings. And if you can go back as far as the Black Death in Florence and what happened thereafter, was actually a renaissance and huge increases in scientific inquiry and la la la. So these have profound effects.

My sense is that after the Black Death, for example, there was an extraordinary increase in anti-Jewish sentiment in Europe. It was a phenomenal brutality towards Jewish communities because rumors were spread that Jewish folk had, I think, poisoned the wells, what had actually happened was because the Jewish folks had been ghettoized by Christians. They didn't actually mix with Christians, okay, and therefore had a slightly higher rate of, they survived more because they weren't infected because they didn't mix with the local population. So, nothing to do. But there was a vicious, vicious pogroms against Jewish people in the late 14th century. And those pogroms really ended with the expulsion of the Jewish community from Iberia, where they'd been there for a thousand years.

So you have the historical evidence that pandemic. So, for example, Irish people were blamed for typhus in the United States. There was an outbreak of typhus in 1848 in New York, or sorry, cholera, cholera. And the Irish were blamed. And it was very much second nature in American circles to blame the Irish as being carriers of cholera. But they just happened to be poor. And poor people got this more than. anyone else. So I do think that there will be a material impact on China's brand from this. And I'm not

sure that it will play out how it will play out geopolitically. But what I am sure of is that it will play out in corporate boardrooms. The idea is, do we want to be so exposed to that country? That's it. Do we want our supply chain to end in China where it might end in Vietnam? where it might end in Thailand, where it might end in some other Asian country, and do we want to be, it's like the supply line of an army, do we want to be overstretched?

And I think that these are big, big issues. And we have an addiction to, and I use that word, and it's true a sense, to essentially cheap goods from China, whatever it may be. And it funds our lifestyle, and we see that as a universe.

All this that we're working with. Yeah. Absolutely. And until now, we never questioned it. Do you think we're going to enter a world where people are going to be like, do you know what? I don't mind paying an extra tenor for an electronic good

as long as it's not made in China. And if it is, I'm not touching it. Well, I'm not sure it'll be that extreme. But I think that the corporate world will change their perceptions of, as I said, exposure to China. I think, I'm not sure there will be a consumer boycott of Chinese goods, but the idea that China is a neutral player in the world, I think, has been badly affected by this. Yeah, that's a mild understatement, I think.

So, you know, and it's interesting. And that's the funny thing about when we talk about Europe, et cetera, that there's actually much more that bonds us together and separates us. in these perceptions, that the European way, for want of a better word, which is shared by people in Dublin, Manchester, London, Sondola, Newcastle, Marseille, Cologne, there is a European sensibility about the way we run our societies, our countries, etc. And as long as we fight amongst each other,

we don't see that we've extraordinary similarities. I think it was Freud described at the end of the Austrian-Hen Hungarian empire, where the Czechs and the Slovaks and all these characters, he described it as the narcissism of small differences, nationalism. And I actually do believe that in the European, British European context, that what would be narcissistic about very small differences. And one of the maybe enduring impacts of this will be to wake us up to the fact or alert us to the fact that, you know, we're doing all this trade with China.

And maybe it's not necessarily this sort of regime that we should be opening our arms to all the time. And I think you'll see that changing the corporate world first. It's really interesting. And in terms of the China thing, do you think that in terms of the other changes that result from the COVID situation, you talk about nationalism? Obviously, there's been, you know, nationalism has been swept through Europe in recent years and been very successful. Do you think that this will create more of that in the sense that people start to question

other aspects of globalization? We talk about China and outsourcing all manufacturing to China, but there's also immigration that people have been very concerned about, particularly in this country, for a long time. And look, even as an immigrant, I understand it, we've had a very large wave of immigration, right? So are people going to start to question the level of, you know, the level of, you know, the level, of immigration into our Western societies? Are we going to start to talk about, well, do we need free trade?

Maybe we should just make everything ourselves, like all that kind of stuff. Do you think that will have a, there will be a market shift on those issues as well? I suppose, I suppose, guys, the way, the best way to look at all these big questions is whether or not there has been a fundamental change in attitudes or whether or not the pandemic simply accelerates trends that we already see. Yeah. And those trends that we already see, as he said, are nationalism, protectionism, a sense of putting up the barriers. But we certainly see those in the United Kingdom.

You don't see them to such a huge extent in the rest of Europe. In fact, the most recent parliamentary elections have kind of seen a trouncing of those forces. But still, it's in the ether. You know, it's in the ether. what I would like as a liberal and somebody who comes from a country that has had a sort of conversion to liberalism in later life in our middle age,

is that I know what nationalism is all about. Irish people understand that nationalism can lead you up a ridiculous and very nasty and violent cul-de-sac. So we know what it's like. It's not a game for us. It's not a sort of a something like, oh, let's infantilize politics for a while and play with these little sort of smouldering embers and see what happens.

It's very dangerous. But I do fear that the liberal Western order has been badly damaged by this virus and badly damaged by the economic downturn now and the long-term legacy of that, unfortunately. And are you hopeful for the future, David, or do you think we're going to get into quite a tricky period post-COVID? If we come back to where we started, Francis, if the policy response is radical now. And what you notice always in crisis is that what was radical becomes mainstream, what was mainstream becomes redundant. Okay. So if we try and save our small business sector with the radical moves that I suggest that we need,

I see the long-term implications being quite positive because I think we like. actually come out of this quite quickly. If, on the other hand, we let this go on for a while and we follow COVID with austerity, then I think all bets are off. And I wouldn't be as optimistic. But I'm a great believer in that after having tried all other alternatives, we will do the right thing eventually. Well, what a good note to end the interview on, David. The last question we'll ask you is the one we ask all our guests, which is what is the one thing that people aren't talking about, that we really should be talking about as a society? I think that the major change in all this in COVID

will be the change in people's perceptions of what commuting is about, what working is about, how our whole relationship with consumerism. If you're looking, for example, the United States, that online shopping went up by 30% in a month. Of those people, this is food shopping, food routine, of those people, 50%, or half of them, have never shopped for anything online before.

Now, this is a big change. This is a massive change. I think the way in which large companies have been able to keep working without any centralized function with people working from home profoundly changes the way in which we will be commuting. I think it's now time to introduce things like road pricing for traffic. Because traffic is basically road is real estate in Russia. I wouldn't like to be in commercial property. I think it's been profoundly overvalued.

I wouldn't like to be exposed there. And so I think there's a lot of stuff that we're not actually talking, because we're all talking about macroeconomic stuff and politics. But there's a lot of micro stuff that will change profoundly as a result of this. So I think it's quite interesting. That's very interesting. And who knows? I mean, that's the one thing that Alina and I, my wife, we keep talking about,

is like, what do you think some of these changes that have come in now with people shopping differently, with people consuming, less. I mean, just in terms of our house, we've just found ourselves spending a lot less money on stuff. Yeah, us too. We're not spending. I think these changes are, you know, in a way, people demand permission to change the behavior. It's quite interesting if you look at psychology and whatever. And COVID has given us permission to entertain a different way of living.

And I'm not sure that that is going to evaporate, I think that that might have some significant legacy. Fantastic, David. Well, thank you so much for coming on Trigonometry. For anyone who wants to check out your work, where do they go to follow you? The best thing is the David McWilliams podcast. It's on iTunes and Spotify and all the usual, wherever you get your podcast. So it's the David McWilliams podcast. Check it out, guys. A pleasure to have new listeners. Yes, and we'll send them all your way. Thanks, David.

Cool, guys. Take care. Thank you.