An Economist’s Warning: Massive Inflation Is Coming | Charles Goodhart

[00:00:00]the country effectually goes fiscally bankrupt and the outcome outcome is almost certainly massive inflation at some stage with or possibly without a financial crisis >> and I don't think people are really prepared.

[00:00:16]>> Exactly.

[00:00:17]>> So democracy is the block to any kind of long-term economic planning.

[00:00:23]>> We have a democratic crisis on our hands. Those 70 years were probably the best years that not only the UK but effectively the Western world has ever seen.

[00:00:36]>> We didn't know how lucky we were.

[00:00:37]>> We didn't know how lucky we were and many of the conditions that gave us that magnificent period are over.

[00:00:54]Professor Goodart. Uh I feel very fortunate to have an opportunity to talk to you. I like making shows on economics. Uh and I'd like to just sit here and learn from you. Um so when you look at the UK today, what do you see and what concerns you?

[00:01:12]>> I see a country that was imperial and great inevitably declining in position and role.

[00:01:25]Um and that decline which was inevitable uh is always likely to be a concern uh imperial powers whoever they are whether it's been Rome, Netherlands, whatever uh whenever they get into decline it's always a a difficult period. Um and uh again inevitably the some of the great industries on which his country initially was important even dominant such as ship building have completely gone. Um and it's very difficult to adapt to a different world in which one is a a smaller player.

[00:02:18]Why was it inevitable? What what structurally?

[00:02:21]>> Well, the UK was extraordinarily fortunate. I I don't think there's probably ever been a case where there's such a small population in such a small island has come to dominate so much of the world.

[00:02:37]Um and I think this was due to two factors. The first one was at that time the huge importance of naval power and we were a great naval power and also that the industrial revolution really began in this country. You put those two together um and through the course of the 19th century uh Great Britain became a great an extraordinarily great imperial power.

[00:03:10]But uh inevitably when air power came to dominate naval power uh the um powers went to the countries in larger scale. Naval power became less important. Air power and the ability to scale up in the industry became more important. Um World War I was really the turning point. It was a total disaster uh for this country in many ways. We never recovered from it. Um and in a sense from 1914 onwards it was downhill all the way with a greater kick in the pants and World War II.

[00:03:57]>> And so the the postw World War II recovery boom was that just a temporary >> Oh yes. Oh yes. we were never ever going to be able to compete uh with the likes of the United States uh as it turned out later China and as it will come in the next few years into India.

[00:04:17]>> So we're now do you think we're struggling to accept our role in the world? I think inevitably so. Yes, we are. Um, we haven't got the the economic power.

[00:04:33]We haven't got the manpower.

[00:04:35]Uh, we haven't got the the drive and optimism that we used to have.

[00:04:41]>> Interesting you bring up drive and optimism because that is something we can control.

[00:04:48]>> I don't know. You're either born an optimist or a pessimist. I was always been a a pessimist partly on the grounds that if you're wrong, you're happy because things are actually better than you feared. Well, if you're an optimist and you're wrong is doubly awful because not only were you wrong, but things are worse than you'd expected.

[00:05:09]>> I think um I think people are really starting to feel the decline now.

[00:05:14]>> Oh, they've been feeling they've been feeling the the idea that they're just beginning to feel the decline now.

[00:05:19]They've been feeling the decline for decades.

[00:05:24]>> Okay. Interesting. G explain that to me because I like I I talked to you as a 47 year old lived through the 80s. The '9s was all hope and opportunity and we had the technical and internet revolution and there felt like an opportunity a lot of opportunity there. I I I felt like the post 2008 crisis that's where the decline for me has been really visible.

[00:05:47]What am I missing?

[00:05:49]uh but the decline has been going on throughout you know the uh the retreat from the colonies inevitably I from India uh from the colonies in um in Africa uh places like Cyprus Aiden you know you name it it's been going on steadily throughout um the I and the the the movements that you describe have been much more periods in which the advanced world as a whole has either been doing relatively well or relatively poorly and we've been part of that rather than a question of our relative position within the world.

[00:06:36]>> So it's kind of masked what's really been happening.

[00:06:39]>> Yeah. to a sense. Yes. And when the world is doing well, particularly the US and the advanced world, we tend to do well as well. And that sort of attenerate sort of softens the the feeling that we're no longer sort of the great country we used to be.

[00:06:58]>> This I mean there's great country economically and great country uh on the global kind of political scale, but what could we be as a country? uh because you do get uh interesting powerful small nations.

[00:07:14]>> Yeah.

[00:07:14]>> Well, we do have certain strengths. Uh we have a great strength with the uh the role of London as an international financial hub. It's the the largest international financial hub in the world and it and the some of our services are our legal system is admired largely throughout the world and and so a lot of our services we still have a a very very large surplus on the service side >> but will we not take advantage of this?

[00:07:50]>> I think we take take considerable advantage of it.

[00:07:54]Yeah.

[00:07:55]>> Yeah. Keeps us afloat.

[00:07:57]>> Keeps us afloat. I I don't I feel like we are sinking. Um but I think there are a lot of people who are sensing a different decline right now. Um m maybe because they haven't looked at it at the kind of macro scale you have, but they're seeing uh a real decline in affordability of life, uh ability to get on housing. But then they they're basically I think they're wrong because the data suggests that I'm the people in terms of the standard of living continues to improve although at a relatively slow rate. It's that the rate of improvement has slowed right down.

[00:08:39]>> Right. So they've got used to a rapid or faster increase in living standards.

[00:08:44]>> Yeah. And of course when you get a relatively slow aggregate improvement it means that significant proportions of the population are actually doing worse. And again um the world is changing.

[00:09:00]>> Mhm.

[00:09:00]>> Uh and people on the whole don't like change which is one of the reasons why there's this very strong political backlash against immigration. Has immigration been economically bad or good for the country? Because there's obviously different arguments. Is it is it uneven? Depends where you sit.

[00:09:20]>> It does depend very much where you sit.

[00:09:22]Uh but it improves the ratio of workers to people who need support dependence.

[00:09:29]So the dependency ratio has been going up because there are a lot more old people like me and there are relatively fewer workers and the immigrants that we get are virtually all of working age and so they make the ratio of of workers to dependent better than otherwise. Um but they are different in many ways. You can see the difference. um you know you uh take one totally minor example if you take the train from X to Y in addition to churches you will see quite a lot of mosques and you know that's something that wasn't there 40 or 50 years ago and um no reason why there shouldn't be lots of mosques but people know don't like change >> and it raises questions it can be used by politicians.

[00:10:27]>> Oh yeah.

[00:10:28]>> But we've needed an influx of workers to support an aging population.

[00:10:34]>> When you say we need um it makes life easier, but there are potentially other ways of dealing with a more dependent because much older population. But they're difficult. Uh and inward migration can help. I So let me take simple example.

[00:10:59]I've got a daughter with very bad MS, multiple sclerosis and she needs to be supported by carers.

[00:11:09]The vast majority of the carers who come in two or three times a day because she's a wheelchair bound uh come uh from countries like Zimbabwe and South Africa.

[00:11:25]Right.

[00:11:26]>> No. And as you probably know, the government actually sought to ban uh immigration visas for carers.

[00:11:36]quite what that will do for uh those needing care uh or social care over the next years and decades is difficult to countenance or to quite see how that will go.

[00:11:55]>> When when you look at what the politicians have been doing over the last 10 to 20 years, what what do you think they've been doing wrong?

[00:12:06]Um, one of my particular present concerns is that uh the combination of the worsening age relationship. In other words, the worsening dependency ratio. So that there are a lot more people needing care who are getting old age pensions and all of that. And if you combine that with the need for more expenditure and defense and if you combine that with the need to deal with climate change which we all had a reminder recently uh is with us uh has led to a fiscal situation uh whereby the expenditures are much higher relative to tax revenues.

[00:12:54]uh and that has meant that the debt ratio, the ratio of public sector debt has gone up. Um and that is really complicating our world really very considerably. Um I I've just written a book uh called the unanchored central banker which is really saying that because the politicians have not dealt with uh the worsening severely worsening fiscal position. It's going to be very difficult for central banks to maintain uh infl the inflation target and monetary control. Is it because we want the government to do too much and we can't afford it?

[00:13:39]>> Yes. Um people would always be inclined to vote for somebody who says I will pay I will pay out more money to you. Um and if uh a parties come in uh committed to paying out more money without getting enough tax. Um the situation is that the country effectually goes fiscally bankrupt and the outcome outcome is almost certainly massive inflation at some stage with or possibly without a financial crisis.

[00:14:22]because they won't win an election on austerity.

[00:14:26]>> Exactly.

[00:14:28]>> So we have a we have a misalignment of incentives from what wins power to what the country needs.

[00:14:34]>> Yes. There's a very there's there was a Luxembourg I think it was prime minister called Jelo Junka or Junka.

[00:14:41]>> Yeah.

[00:14:42]>> And he had a lovely phrase which is as politicians we all know what we ought to be doing. What we don't know is how to get reelected if we do it.

[00:14:55]>> It's almost like the crisis has to get a lot deeper for people to >> Yes. And if you look at countries that have actually managed to restore their overall fiscal position, you will find that these are countries which have been through a major crisis, a financial fiscal crisis.

[00:15:15]Give three. Iceland, Ireland and Greece.

[00:15:18]Yes. Yes.

[00:15:21]Um I don't vote in elections because I feel like every vote is for decline. Uh I I don't feel like we get told the honest position. Um I don't think we can afford uh all the things we want government to do. Um but should we therefore should we cut our expectations of what we want government to do?

[00:15:46]>> Yes. Oh, that's the that's the answer.

[00:15:49]>> Yeah, but how do you do that? You see, you're always going to get a party or parties going up saying, you know, if you only vote for me, I will make life a lot easier for you and pay you out more in the way of this subsidy and that subsidy and so on. And people tend to believe them.

[00:16:11]>> Is it because not enough people understand even basic economics?

[00:16:16]Uh I think it's also because people are very short- termist. Um know if I get I if you elect a government that promises to give a massive subsidy to you, uh you will vote for it even when you expect the effect of that in the long term to bankrupt the country.

[00:16:39]>> Do you think we're heading towards bankruptcy?

[00:16:41]>> No. And that's countries actually don't go quite go bankrupt.

[00:16:45]>> Of course. Yeah, but >> but I but we're not alone. We're not alone. I the there are and the United States and France to name but two others are very much in the same kind of boat as we are with the same kind of political problems >> because it's easier to keep printing money.

[00:17:06]>> Um well there you've got the problem between the central bank and the government. The government would like the central bank to print money. The central bank is committed to try and maintain its inflation target. Knows that if it prints money, it won't hit its inflation target. So in order to keep things under control, it raises interest rates. But the moment it raises interest rates, it raises the debt interest on the existing massive debt that the government has to pay and makes the government's fiscal position even worse.

[00:17:44]>> Yes. Which which has happened recently.

[00:17:47]>> Oh yeah. And it's, you know, what happens and the President Trump spends his life uh telling the Federal Reserve Board to lower interest rates in order to make it easier for him to maintain a huge and growing deficit in the US.

[00:18:06]>> 39.5 trillion I believe it's hit now. Is that correct, Con? And it seems it wasn't so long ago it was 35 trillion.

[00:18:15]It it's it r it rises very and it's it's not it's not just Trump and the amount of money that Biden splashed splashed out to deal with COVID was really remarkable. And so it's a um it's I with the Republicans whatever under Trump spending on military affairs like crazy and the Democrats wanting to spend it on social welfare.

[00:18:54]There's nobody in the US at the moment really prepared to um bring about fiscal restraint.

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[00:19:29]When would this obviously become a crisis?

[00:19:34]>> If I knew that, I wouldn't be here. I'd be sitting in an island that I would already have purchased. I mean the problem is that you can you can tell that a crisis has become more likely.

[00:19:50]You can tell that maybe it will be really quite severe but you cannot tell the timing. I mean it what nor can you tell what the trigger will be and and if I could as I say I wouldn't be sitting down talking with you.

[00:20:05]>> I don't know I might have flown over to your island and done this.

[00:20:09]So, so are we facing a risk of much higher inflation coming though?

[00:20:13]>> Yes.

[00:20:14]>> And I don't think people are really prepared for that.

[00:20:17]>> No. And you see the central banks don't feel that they've lost control yet.

[00:20:24]Uh the the central bank independence was introduced in about very beginning of the 1990s. I was actually an adviser to the Reserve Bank of New Zealand when it was introduced in New Zealand at the very t tail end of the 1980s.

[00:20:41]But from the 1990s onwards, the underlying sort of context of the world was quite disinflationary.

[00:20:50]Uh you'd had the decline in the birth rate leading to a much larger proportion of women uh entering the workforce.

[00:20:59]You've got in particular China entering the world's trading system and you had Eastern Europe entering the world's trading system with the end of the Soviet Empire. So you had a huge surge of labor. Labor became extremely cheap. Um, and where labor was cheapest in Eastern Europe and China, you got capital and technical knowhow moving from the west, Germany to Poland, USA to China, developing uh good industries with cheap labor. And during the period from 1990 to about 2020 uh the prices of goods which are internationally traded were going down on average by about 1 to 1 and a half% peranom.

[00:21:57]Um and that meant that you could keep uh economies growing fairly fast domestically and shifting from industry which was had moved to China and East Europe move moving production to services.

[00:22:17]Um and it was it was very easy and in in nominal and real interest rates kept on coming down. There was no conflict between governments and central banks.

[00:22:30]There were one or two very minor, but on average, central banks were doing exactly what governments wanted, making life easier for them by lowering interest rates.

[00:22:39]>> So, was that a temporary and fortunate period?

[00:22:42]>> It was a temporary fortunate period. But people didn't realize how temporary and how fortunate it was. partly because they thought it was all due to the brilliance and expertise of the central banks in maintaining these inflation targets. But the central banks didn't have any difficulty. Indeed, if you take the period after the great financial crisis from about 1910 to about 1990, the problem that central banks had was easing monetary policy sufficiently to bring inflation back up to target because the inflation rates were running at about 0 to 1% peranom rather than the 2% target.

[00:23:24]>> Uh so we're in a new period now then. Oh yes, it's a very different world and will go on being a very diff different world and it will become a much more difficult world than even it is at the moment. uh because China is still keeping goods prices down and the demographic developments in China are much more extreme and much more concerning than almost any well East Asia, China, South Korea and a few other countries because in those that world that the birth rate is below one something between 0.5 and 0.7 uh and that means that there will be fewer workers than old old people in the not tooistant future.

[00:24:19]M >> and when that happens uh the Chinese private sector savings ratio which has been huge because the Chinese safety net welfare net support in terms of the government pensions and medical aid and so on is not very good.

[00:24:37]So if you're growing if you're working in China you're saving for your old age but when they all get too old to be old they will have to disave.

[00:24:48]So the current huge uh Chinese current account surplus is going to shift to becoming a current account deficit in the not tooistant future.

[00:24:58]>> And will this lead to a shift in power to the workers?

[00:25:02]>> Oh yes. But at the moment the great bulk of taxation falls in incomes and profits.

[00:25:12]And unless there's a change to shift taxation away from incomes and profits, there will not only be fewer workers, they'll be taxed a great deal more and they won't like it naturally because, you know, they're in demand. There are fewer of them. Um, and they will want to wage r raise wages in order to maintain uh and increase their standard of living.

[00:25:39]So where where how should the tax system shift?

[00:25:44]>> Um it ought to shift away from uh taxing incomes and profits to taxing assets particularly land and property.

[00:25:55]>> The wealthy won't like this.

[00:25:57]>> I know. But I you try and raise any tax you like and somebody is going to get badly hit >> and whoever gets badly hit doesn't like it.

[00:26:09]So, we need to cut our spend and raise taxes to get to stability. Can we even get to a stable system in the UK?

[00:26:17]>> Not quickly, but we need to go there.

[00:26:20]>> So, we've got to set the path ready.

[00:26:22]>> We got to set the path and there's got to be a path. There's got to be um a long a longterm path. And what Rachel Reeves did uh was try to reduce the scale of the deficit by not shifting the thresholds at which you pay income tax to take account of inflation. Which means that more and more what you might describe as perfectly ordinary working people are getting moved into higher and higher tax brackets. And that is extremely unpopular >> and also is a disincentive to work. It's a disincentive to you know to try and improve your income standards if so much is going to get taken away from you in tax. We've got to shift we've got to shift taxation away from uh the producers, the workers and the the businessmen and put it on those who whose assets have increased dramatically in value. You know the increase in the value of housing has been dramatically faster than the increase in in real incomes. So that the ratio of house prices to incomes has gone increased very very fast.

[00:27:49]>> So not only are the young workers taxed more, they can't afford houses either.

[00:27:57]>> And Okay. Interesting. So not only would that bringing more uh revenue for the Treasury, but that would balance out the opportunity for people to go on the housing ladder. Yeah, we need we need to do that >> because I if if one of the reasons why the birth rate has been going down and the marriage rate has been going down is you don't marry and don't have children if you're living with your parents.

[00:28:25]>> Is that true, Connor?

[00:28:27]You don't marry and don't have children when you're living That's my son.

[00:28:31]You don't marry and have children when you're living with your parents. I think it's harder and harder to >> Yeah.

[00:28:39]What why why has it be become that the assets have increased so dramatically in value? Is that a reflection on bank interest rates being so low that people >> Yeah. Yeah. Yeah. Yeah. Yeah. Um as as interest rates decline, asset values rise because the the determination of the asset value is effectively what you expect with the asset to bring in terms of returns discounted by the interest rate.

[00:29:09]>> And if the interest rate which you're discounting is goes down, the asset values goes up.

[00:29:15]>> But do the asset holders themselves now have too much power?

[00:29:21]when you say too much I people who are powerful have always dominated control of assets so I don't think there's any difference there from where it's always been in the past and I think the degree of inequality in this country now is considerably less than it was sort of say at the end of the Victorian era.

[00:29:47]>> Okay. interesting because a lot of people say inequality is a a lot higher.

[00:29:52]>> World world inequality has gone down. M >> uh and the reason why that is is because if you go back to 197075 the end of Mong and all that something like 80% of the Chinese were living in poverty >> right >> now less than 1% of the Chinese are living in poverty and the increase in the standard of living in Asia uh China in particular but also Vietnam Thailand and increasingly now India in these populist countries has gone up much faster uh than in the west. So world inequality is down. Um and it in part the increase in inequality within the west is due to exactly the same feature because if your manufacturing is shifted to China and the Chinese are doing what you used to do or the Poles or the Romanians whatever doing what you used to do. um then um some of the of of you know the the world's I the effectively the available supply of labor has increased dramatically and labor has become cheap relative to capital. So the people who own capital have done very well and labor in the western world has done relatively badly but labor in the Asian world has done extremely well. So the world inequality is down.

[00:31:30]That that doesn't mean anything for the working class here though. They just know themselves. They've been uh forgotten.

[00:31:41]Um the there I think that the exactly the same feeling of we being forgotten is not just the UK.

[00:31:52]>> The US >> felt exactly the same way. That was really what fueled the make America great again the MAGA support for Trump.

[00:32:03]there was a feeling that the bluecollar workers in the US had been forgotten. Uh to some extent exactly the same is true in France uh with Mar Le Pen. Uh there's a feeling that um they've allowed immigrants in uh we've lost production of our main industries elsewhere. Uh, no one is fighting for us. The capitalists are doing well, but we're doing relatively badly. Um, we don't like it.

[00:32:41]>> Well, the white collar workers are going to start feeling or are feeling it now with a similar loss of jobs to um the AI industry. It was um it was a question I put to um your nephew. I question whether AI is going to do for the graduate elite what globalism did for factory workers.

[00:33:02]>> It may be.

[00:33:03]>> Yeah.

[00:33:04]>> And one of the problems here is that actually nobody knows.

[00:33:06]>> Nobody knows >> and the range of views about what may happen with AI. But that said, um I think that the conditions for young university levers at the moment are considerably worse than they would otherwise have been because of AI. And again, you know, add uh the problem of you can't afford housing. It's increasingly difficult to get a job. Um and uh the young potentially white collar workers uh are certainly joining the blue collar workers in feeling that the situation conditions have moved against them.

[00:33:58]>> Do you think that's why we're seeing this kind of rise in people who are supporting more socialist ideas?

[00:34:05]>> I think there's a lot in that. Yes. Um and the one of the difficulties somebody of my age is that in the old days you always had uh effectively a two-party system where the difference between the left of if you like the conservatives and the right of the labor was pretty small butism as it used to be called with Rab Butler on one side and Hugh Gates on the other and they could easily have been members of the same party in effect. And now we've got a an increasing political polarization um with the parties both at the right and at the left sort of going out.

[00:34:51]>> Yeah.

[00:34:51]>> Becoming more extreme. Uh and for somebody who was brought up essentially to be a centrist like myself uh feels that this polarization makes life even more difficult.

[00:35:05]um you know what happens in a world I mean when in the old days when shifted from labor to conservative or conservative to labor not a huge amount changed but when we got Trump on the one hand and Mamani in New York and the other or um uh my memory at my age is going the man who's in char one hand >> um and say Ty on the other. Uh the shifting from one to the other is is a huge change and one that uh could lead to um a feeling at both extremes that if we lose to the other extreme, it is so awful that we simply cannot allow it to happen.

[00:35:59]>> It's existential if they win.

[00:36:00]>> Yes. Is this a reflection of the middle ground having failed and therefore people are just looking for an answer?

[00:36:13]>> Good question. Um, when you say the middle ground having failed, it's not entirely clear to me what else could or should have been done. Again on if you look at economics >> uh the decline the combination of the decline in the birth rate everywhere very sharp and the incre the a rise of China and the the end of the Soviet empire and the inclusion of Eastern Europe into the world's trading system.

[00:36:50]it was inevitably uh going to make reduce real wages in the advanced economies because there was a huge supply of additional you know good labor cheaper labor elsewhere. So it was inevitably going to reduce reduce e equality to some extent and I think on the whole in the UK and we've all we've fought against that and maintain a reasonable degree of equality. I think that the main and I keep on saying that the main failings and particularly in the last few years have been to realize how fragile the fiscal position was and a failure to persuade the general public uh that um uh changes were necessary. Let me give you one example.

[00:37:52]uh the triple lock on pensions effectively that means that the old get an everinccreasing share of GDP >> Mhm.

[00:38:02]>> which is both nonsensical um and when the old are becoming a larger proportion of the population um is clearly unaffordable.

[00:38:16]So the triple lock uh on any decent logical piece of economics is is indefensible.

[00:38:27]And I would have thought that a sensible political system would have led to a at least the central parties if you like the conservatives, the Lib Dams and Labor actually all agreeing jointly to get rid of the Triple Rock.

[00:38:49]And yet, as far as I'm un I've understood it, Andy Bernham has yet said he's going to maintain it.

[00:38:57]>> Nigel Nigel Farage said he'll maintain it.

[00:39:01]>> Well, Nigel Farage would because, you know, he's on the extreme side. I He's He's got to promise the earth in order to persuade people to >> They're all scared of losing your vote.

[00:39:13]That's what it is. They're scared of losing your vote. And >> yeah, and the old vote and the young don't.

[00:39:21]>> Yes. Yes. And they're very scared of losing your vote.

[00:39:25]>> Yes.

[00:39:26]>> Um >> and that, you know, that's that that in a sense is the number of the problem.

[00:39:33]>> Yeah. I do I do also wonder if they've got um addicted to cheap money.

[00:39:42]>> Well, they're going to get unaddicted fairly soon. I mean they're getting unaddicted now. Um but again the problem is given that the inflationary problems are going to become are already sort of becoming worse and are likely to become even worse.

[00:40:04]Um I how you get people to realize uh that interest rates have to be higher but that again in turn makes the fiscal problem itself worse.

[00:40:22]>> It's like we're stuck between a rock and a hard place.

[00:40:24]>> Yeah. And it may not be until like other countries uh we have a real crisis that forces people to reconsider.

[00:40:35]>> But like you said with New Zealand and Greece, no sorry Greece, Ireland, Iceland and Ireland, this is fixable.

[00:40:43]>> Yeah. Yes.

[00:40:43]>> So it sounds to me >> technically technically it's feasible. I there's not a reasonable economist in the world who couldn't actually design you a um a new set of expenditures and taxation uh which would deal with the fiscal problem with fairly minimal impact on potentiality for growth. But yet to do that is will it involve hurting people's pockets in the short run and enough people and enough powerful people so that it it doesn't get done.

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[00:44:05]So democracy is the block to any kind of long-term economic planning.

[00:44:10]>> We have a democratic crisis on our hands.

[00:44:13]>> That's it. You you feel it. You know it.

[00:44:17]>> Yeah.

[00:44:19]>> Sounds like they need you in government.

[00:44:21]>> Sorry.

[00:44:21]>> Sounds like we need you in government.

[00:44:23]>> No, thank you. You could do a better job than Rachel Reeves. Surely >> maybe. But I >> So is the inflation the inflationary issues that we faced we faced them over the last few years um and we're going to continue to face them. Is that itself inevitable?

[00:44:44]Um I think to a large degree yes and you've got these huge demands on the public purse name aging defense climate change.

[00:44:58]Um you can't remove and you shouldn't remove the welfare net from those who need it really. Uh what are we going to do?

[00:45:09]>> What can we cut?

[00:45:12]Well, I I think that we have to um be less forthcoming to the old people like me. I think that we have to shift taxation uh from taxation on workers and business to taxation on assets and property particularly land. Um the difficulty of a wealth tax overall is you can avoid it by going abroad and they would to some large extent.

[00:45:45]Um and I the great advantage of taxing land is it's immobile and if anything if you tax land it actually encourages people to make better use of land. So if anything it it enhances growth >> and can drive productivity.

[00:46:04]>> Yeah.

[00:46:05]>> Yeah. Interesting. Um I mean if if you I know it's a slightly unfair question but actually let me ask it differently. Do you do you think governments know exactly what's happening and they don't believe the public can handle the truth or do you think governments themselves are dominated by people are actually incompetent?

[00:46:33]>> No, not incompetent. And there's no incompetence. They can be dominated by people who are sufficiently keen to obtain power that they are prepared to ignore um know the the economic side effects of what they're doing in order to encourage people to vote for them.

[00:46:59]>> They can get us to kick the can down the road a little bit further.

[00:47:03]>> Yeah. I and one of the and one of the advantages and similarly exactly the same moment disadvantage of democracy is that you're always looking to the next election. The next election is never very far away. So you can't take the or not easy to take the long-term view.

[00:47:28]Sounds that we need sounds like we just need some politician to just to be honest and tell the truth and say this is the reality of where we are. We're on a war footing of sorts.

[00:47:45]>> I I tend to agree with that. But um I I think things will have to get worse before a politician can do that uh without being claimed to be defeist.

[00:48:01]And again that there's always some ground I ground for hope the moment is the AI that you talked about. You know I don't worry about we're going to have very far fewer workers. a combination of AI and robotics will do it for us.

[00:48:21]And you can't exclude that. I have no way of saying that ain't true. And but the problem is we don't know. And until and unless it actually happens, we're heading downwards.

[00:48:36]>> If we can harness the the growth and the productivity gains, >> yes, >> then we could see. But if they if they if they're going to come and some of the productivity gains are and people look back at the sort of the um 50s60s7s and 80s really and say the rate of growth of productivity was very much higher.

[00:49:03]Well, yes, in a way, but not as much as it appears. Because what was happening was that you go back to sort of the beginning of 1950, the proportion of married women working in the workforce was by 25%.

[00:49:17]By the time you actually marital age women, by the time you get to about 2020, it's 75%.

[00:49:31]And what you got was with the fewer births and the arrival of consumer durables, women were able to leave the home and go and produce and work. But GDP never included the work that they were doing at home.

[00:49:48]And GDP never included the work that was done by parents primarily the mother in bringing up helping to educate and look after the young. And the the greater proportion of our lives and the greater proportion of what gives us either pleasure or pain is within the family. And nothing within within the family is actually enters GDP. And what you got what you got in the between the 50s and the sort of 2000 was a huge shift of work that was done within the family and not included in GDP to work that was included in GDP because women now were outside and know working in the norm. know in the normal sort of public work >> that's a that means we had a significant miscalculation >> of course >> I you should you should never believe that GDP equates with welfare and happiness it doesn't it it's a shortrun movements in GDP are a fairly good indication of what is happening ing to the business of the economy whether it's booming or going in for a bust. But in terms of of welfare, it's neither here nor there. Um again to take an example, if you look at GDP alone, the US is streets ahead of Europe. You take any account of sort of welfare and family and health and all the rest of it, Europe is probably not only at least as good as US in many respects is better >> because there's a tradeoff.

[00:51:52]>> It's not so much a trade-off what you measure and what you don't measure and all that.

[00:51:57]>> H >> and it's not so much a trade-off.

[00:52:00]Um >> well I mean there was a if we if we'd have calculated the GDP of the mother being in the home if we'd have moved them into the workplace we would have had a >> it's much smaller increase.

[00:52:13]>> Yeah. It's much smaller increase but we would the trade-off would have been a mother raising the children and looking after the home and not having two people working.

[00:52:21]>> Yeah. Yeah. Yeah.

[00:52:22]>> Which probably wouldn't have been worth it >> in many instances.

[00:52:26]>> No. Remember that the the the the decline in the birth rate uh was a choice that women made when birth control became possible.

[00:52:45]>> Yeah. Okay. But it's a but there's a different choice now. They have obviously birth control available, but as you said, if we can't get young people into houses and into their own home, they maybe won't have children or leave it too late, that is a risk.

[00:53:01]>> Yes. Yeah.

[00:53:02]>> And we won't know how we're going to pay for you.

[00:53:06]>> Absolutely.

[00:53:08]Um when you look at um what's happening with the UK economy as well, we we've seem to have been a country that's finds it harder and harder to make stuff and and and see productive gains and get things done.

[00:53:21]>> No, we don't find it harder to make stuff. It's just that stuff gets made cheaper elsewhere. Well, I think to get things done, houses built, train lines built, we seem to struggle compared to say the the Chinese, not just on price, but on speed, on efficiency. We spend a lot of money in the public sector.

[00:53:40]>> But a again, it's partly democracy.

[00:53:45]Something goes wrong and the cry is that must never happen again. And things always go wrong. And so there are so many sort of constraints on what you can do. All the constraints are generally in themselves desirable. But you add one constraint to another to another to another and you become um you become stuck. I mean it does take a much longer time uh in the UK to um uh to get things done than it should do. But again, we're not alone. Now, in the old days, if you remember, um, Germany, the trains were always on time.

[00:54:30]>> Yeah.

[00:54:31]>> Now they're worse than ours.

[00:54:32]>> Are they really?

[00:54:33]>> Yes.

[00:54:34]>> Well, they have they have a lot of their own deep economic issues now with >> Oh, yes. See, Germany used to be the powerhouse of Europe.

[00:54:43]>> Yeah.

[00:54:43]>> Because its business plan was very simple. You imported cheap energy from Russia and you exported machinery and cars to China.

[00:54:54]Both of those have gone and that means they're without their standard business model. So from being the driving force of Europe, uh Germany is now at the tail end and the the the the countries in southern Europe which were much earlier hit by competition from China are doing relatively better >> particularly Spain. C can we become prosperous again?

[00:55:26]>> Oh yes, you never say never about anything.

[00:55:29]>> Of course we can become prosperous. But can we ever become imperial world leaders again? No.

[00:55:35]>> No. Well, I think we've all accepted that.

[00:55:37]>> But I think just dayto-day normal people would just like to see their living standards improve and >> but they are going up. Admittedly, they're going up a lot slower.

[00:55:47]>> But it's uneven. And the next, you see, the the next 30 to 40 years are going to be very difficult because as the birth rate goes down and it expectation of life goes up, the dependency ratio increases. Um, and until that stabilizes and we deal with that, we're going to be in in we're going to be in difficulties.

[00:56:14]So I the I I Those who lived primarily in the years between 1950 and 2020, those 70 years, those were probably the best years in terms of growth, living standards, conditions that not only the UK, but effectively the Western world has ever seen.

[00:56:42]>> We didn't know how lucky we were.

[00:56:44]>> We didn't know how lucky we were. and many of the conditions that gave us that magnificent period are over.

[00:56:55]>> So, it sounds like people aren't really prepared for what's coming because I think a lot of people think there's a way of voting for us to return to that.

[00:57:03]>> Indeed, and there's not. And that's again one of the problems that maybe expectations are too high given the underlying context.

[00:57:12]>> I think the problem is democracy. and we have to keep telling lies.

[00:57:16]>> Well, remember I think it was Churchill said that democracy is the worst possible form of government until you've tried everything else.

[00:57:24]>> Yeah. But it's um we we're living in a period where I see I think the political fragmentation is coming from governments being unable to deliver uh a good enough story for the country that enough people feel that life is >> but the underlying story is such that governments cannot the idea that a government can somehow deliver something much better given our position in the world and given world conditions and particularly Clearly in the last few years given Trump just not feasible.

[00:57:59]>> Do you not a fan of Trump?

[00:58:01]>> No.

[00:58:03]>> Is that because of who he is or policy wise or both?

[00:58:07]>> Both.

[00:58:07]>> Both.

[00:58:11]Oh well, I guess what should people be prepared for? I mean if people are listening now this sounds for some it will sound scary for some it will sound pessimistic it might be that you're saying well it's reality >> but but if somebody's listening now how what should they be doing how how do they prepare for this new world >> I wish that the longer term increasingly difficult context in which we and everyone else in the world now finds themselves was more generally understood.

[00:58:57]And that there was a wider appreciation that uh fiscal position has become unsustainable and that we need to change um much of the structure of our public expenditures and taxation in order to deal with the with a much more difficult condition.

[00:59:23]It sounds like the media and the public, the voters need to be able to collectively create the conditions for the politicians to deliver the truth. If we all have collectively understood and accepted it, then we could deliver the environment where they could be honest with us. But if we're so demanding, we have these expectations.

[00:59:44]>> Yes, to some extent. And the expectations I think are just exaggerated.

[00:59:57]Well, what do you think, Con?

[01:00:02]>> I think we need you out there talking to more people.

[01:00:08]>> I won't be around for that much longer.

[01:00:10]>> Well, don't like you say, good law, you can't put a target on it, otherwise it will throw us. Um, is there anything I haven't asked you that you wish I had that would be useful for people listening?

[01:00:23]>> Well, I I I'd like them all to read my books, the last couple of books, The Great Demographic Reversal and the latest book, The Unanchored Central Banker. Um, is that's I'm afraid a pure advertisement.

[01:00:38]>> No, you should do that and uh we will put it in the show notes and make sure people read it. And look, I appreciate you coming over because it was meant to be last week and we had to cancel because I was sick. So, I do appreciate you coming over. Had two good hearts in a week. That's not bad. Um, yeah. Thank you. I appreciate that. Please go and buy Professor Charles Goodart's books.

[01:00:58]We'll put them in the show notes. Thank you for listening and thank you for coming on. Really appreciate your time.

[01:01:03]Good.