I'm not sure whether it's happened at all.

There's been a couple of occasions.

You might recall Mandame, when he won the mayoral election in New York, there was all this talk about Trump was going to destroy him and so on and so forth.

And then there's pictures of the two of them giggling in the Oval Office.

So he does actually, he is able to turn on the charm offensive if he wants to.

I think in this case, exactly as the last speaker just said, this is a family visit.

He's just done the convention.

And then out of nowhere, well, not out of nowhere, but it was still a bit of a surprise, Donald Trump announced this $5,000 for every adult in the United States as a dividend if the Republicans hold on to Were you surprised by that?

And there's just sort of this ongoing disappointment with the rate of change, the scale of change in the country.

I'd put it slightly different.

Brexit became the vector for a lot of different complaints that crystallized around this as being the solution to a set of problems for which it never was the solution.

So let me put this in a longer term perspective.

You have to go back to Mrs. Thatcher.

So Mrs. Thatcher breaks the post-war consensus, privatizes lots of industries, basically creates the kind of much more neoliberal framework for UK economic governance.

And what the original Tories wanted to do was to reinvigorate British industry.

How do you think nationalist populism has evolved since maybe the Brexit vote? Like, is it is it on its way out or is it changing? And if so, sort of into what?

But do they rip up the old constitution or are they just a little amendments, a little tweak here and there?

No, the French never really tweak.

They go all in and they take the constitution and they say, look, you know, 80% of this is working, so it's fine, but we're not going to actually change the constitution for small Mickey Mouse changes.

We're actually going to do substantial changes.

So they change the structure.

I mean, it's again, it's a very French way of doing things.

They sit around and they say, okay, this is not working, and they start again.

The left

How then do we still address the issue of affordability? And I'm particularly asking you that in the context of the midterms happening later on this year.

It's very, very difficult.

I mean, we are now in a world that we haven't inhabited for about 30 to 40 years.

For the past 30 to 40 years, whether it was good central bank policy, I'm skeptical on that one, or whether it was China and Eastern Europe joining the global labor market and adding 600 million workers and pushing down prices and wages.

Whether it was technology, the inventor of containerization on ships, the IT revolution, prices went down and down and down.

And all the factors that made that happen have now gone into reverse.

So we're looking at structurally higher prices, plus adding the effects of climate change on food supplies, which we're already just beginning to see.

And I'm wondering whether as a result of looking at some of the things you've been talking about recently, Mark, you feel that we're missing the point by doing so?

But that norm obviously ended with President Trump.

And ultimately because of, uh, the container ship, the IT revolution, globalization, all of which were pushing down on prices.

And all of those things are either going into reverse or coming to an end.

So I think it's kind of inevitable.

Add climate change into this as a series of supply shocks that are probably gonna get more prominent, and you have all the ingredients you need for sustained higher inflation rates.

To Mark, the calls that executives make with their shareholders are revealing, especially after the pandemic and Ukraine supply chain shocks.

One of the things that we heard on earnings calls through the recent inflation was the, uh, f- spokesmen for these corporations getting on a, the call to their investors and saying, "Oh, we're able to push on through prices in this period.

This is great for our profits." So, you know, you could say on the one hand, they're just talking their book to their investors.

What do you think all of this says about the state of the US stock market at the moment?

It's a huge game of FOMO, fear of missing out.

You have to be in it to win it because everyone else is.

If you think about the AI build-out as a whole, the trillions they're spending on data centers, you don't want to be the one tech firm that doesn't have the killer technology that everyone's going to use.

Now, let's assume that even that pays off with all of the data center build-out that they've done.

I think the figure is 7.6 trillion by 2030.

The household bill per month to use this to justify that spend would be the order of $700 a month.

Again, another sort of a display of power at a time when a lot of very serious change is going on.

They just straight up create money.

So imagine that Willa has a thing for motorcycles.

And she wants to buy a motorcycle, and it's a Ducati, and it's going to cost her $15,000.

So lacking the cash, you go to the bank and say, I'd like to buy a life-ending motorcycle, please.

And they go, yes, absolutely.

There you go.

So you put down 3,000, and then they lend you 12,000 to 10%, right? Yeah.

Do you mean to say they don't? They have it, right? Don't they have that?

People like me.

You're the depositor.

Willa comes along, drops 100 bucks into the bank.

The bank says, "I'll pay you 3% for a year for holding that." And you're like, "Well, I suppose that's better than sticking it in a mattress.

Whoop-de-doo." So you give the bank the money.

The bank then finds thousands of other Willas of different sizes and collects all of those deposits and then says, "Right, I've now got a million bits of currency.

What am I gonna do? I'm going to lend this on to all the people on the other side who want to borrow it at 6%," and that 3% difference is the spread that I make my money on.

They, they have it, right? Don't they have that?

They just straight up create money.

So imagine that Willa has a thing for motorcycles.

And she wants to buy a motorcycle, and it's a Ducati, and it's going to cost her $15,000.

So lacking the cash, you go to the bank and say, I'd like to buy a life-ending motorcycle, please.

And they go, yes, absolutely.

There you go.

So you put down 3,000, and then they lend you 12,000 to 10%, right? Yeah.

Do you mean to say they don't? They have it, right? Don't they have that?

This story, the one you hear in Econ 101, starts with ordinary people making deposits, people like me.

You're the depositor.

Willa comes along, drops 100 bucks into the bank.

The bank says, "I'll pay you 3% for a year for holding that." And you're like, "Well, I suppose that's better than sticking it in a mattress.

Whoop-de-doop." So you give the bank the money.

The bank then finds thousands of other Willas of different sizes and collects all of those deposits and then says, "Right, I've now got a million bits of currency.

What am I gonna do? I'm going to lend this on to all the people on the other side who want to borrow it at 6%," and that 3% difference is the spread that I make my money on.

They, they have it, right? Don't they have that?

if the Federal Reserve of the United States no longer looks independent or is in the thrall of an inflation nutter?

All of that is true, but you need to put this in a historical perspective a little bit.

There, there's a kind of feeling amongst Americans who think about this stuff, that Moses found the tablets.

He handed them to George Washington, and the 11th Commandment is, "Thou shalt have an independent central bank," and this has been true for 4,000 years.

That's not what happened....

The United States only got a Fed in 1913, [chuckles] and that Fed was actually quite supportive of government actions all the way through the New Deal.

It's only in 1951 that it carved out its independence.

[chuckles]

Yes, it could be an authoritarian power play or a Trumpian distraction, but he favors another reason: that this is a story about a trend, the slow decline of the power and independence of central banks everywhere.

There's a kind of feeling amongst Americans who think about this stuff, that Moses found the tablets, he handed them to George Washington, and the eleventh commandment is, "Thou shalt have an independent central bank." That's not what happened.

The United States only got a Fed in 1913, [chuckles] and that Fed was actually quite supportive of government actions all the way through the New Deal.

It's only in 1951 that it carved out its independence.

There's a bit of a spat between the Fed and the Treasury and Harry Truman, and the bank says, "Our job is actually just making sure that the currency is stable and inflation doesn't get out of control." So they had what were called the Fed-Treasury Accords, where they basically divided up the territory, and this is where we get the distinction between fiscal policy, what the government does, taxes and spending, and monetary policy, what the central bank does.

Now, this is complicated by the fact that the Fed has a dual mandate that also comes out of World War II, which says that you'll also maximize employment.

Now, if you think about this for a minute, if you have a standing charge from the legislature, you only exist because of Congress.

[laughing]

Do we have a sense of like what the balance of those th- three elements and if there's another one as to what contributed to the inflation?

Yeah.

There's loads of these de- so-called decomposition analysis that are out there and you can tweak them a little bit.

But essentially what it says is that, you know, the Biden stimulus checks or the big deficit, et cetera, did it contribute to inflation in the United States? Probably.

Was it the majority caused? No, because it was simply that that meets a supply shock.

If you give people more money because they're poor and you want them to survive COVID at the same time as you can't get anything, that's gonna add pressure to prices.

It simply has to.

Do we know why he's doing this?

It has broad effects, and the question is, did it get at the policy need?

So this goes back to that sort of alternative, let's call it the blinder reading of the 1970s.

And I didn't really go out to sort of proselytize this, but it just seems to make sense.

So the traditional picture, of course, is that 78 Carter points Volcker.

Inflation's out of control.

We're beginning to talk about inflation not as some kind of hydraulic phenomena, but as a problem of expectations.

And the idea is that, first of all, through basically control of the money supply, which doesn't really work.

In other words, we're trying to make these cases that the central bank, in aggregate, for society.

(laughs)

Um, so imagine the following, right? Imagine...

You're probably not old enough to remember this, Bob, but there was a year called 1977.

And in 1977, I think the US was still telling people if their license plate ended in an even number, they could gas up on a Monday, Wednesday, Friday.

It was just a few years before that they actually had price controls in peacetime on beef, lamb, and pork.

Uh, wages were in a freeze across the economy and there was no war going on.

If you look at the commentary of the time, people thought we had a terrible amount of federal debt, the government couldn't stand up to anyone, we were adrift, we were ungovernable, and it was all gonna go to hell in a handbasket.

Like-

Is there like a new economic order that's actually emerging? Does all this sort of chaotic Trump activity add up to something cohesive? Do you have a big picture for us on all this?

Oh, do I have a big picture for you? Absolutely.

So imagine the following, right? Imagine you're probably not old enough to remember this, Bob, but there was a year called 1977.

And in 1977, I think the US was still telling people if their license plate ended in an even number, they could gas up on a Monday, Wednesday, Friday.

It was just a few years before that they actually had price controls in peacetime on beef, lamb, and pork.

Wages were in a freeze across the economy, and there was no war going on.

If you look at the commentary of the time, people thought we had a terrible amount of federal debt.

Yeah, no go for

addled with

all the travel.

Oh no, I know.

Just tell me about it.

But you know, when you go to South Africa, what happens is you talk to somebody and you're talking to a guy and he speaks five languages.

This is quite normal in Africa.

Wow.

And

Do we have a sense of like what the balance of those three elements, and if there is another one, as to what contributed to the inflation?

Yeah, there's loads of these so-called decomposition analysis that are out there and you can tweak them a little bit.

But essentially what it says is that, you know, the Biden stimulus checks or the big deficit, et cetera, did it contribute to inflation in the United States? Probably.

Was it the majority cause? No, because it was simply that that meets a supply shock.

If you give people more money because they're poor and you want them to survive COVID at the same time as you can't get anything, that's going to add pressure to prices.

It simply has to.

But if you look at a country like Germany, they had inflation too.

Do we know why he's doing this?

Explain to me why you think we're back and inflation may well be the key economic metric for the next couple of, let's say, the next half decade.

Because the way that we thought about inflation, and we still think about it, which isn't wrong, comes out of the 1970s.

And you'll remember the 70s.

We were barely old enough to remember the 70s.

But it was a period when we had high inflation.

And the diagnosis at the time was governments were spending too much money, number one.

And you had all these trade unions that were striking all the time and pushing wages up.

What are the factors that you think are going to feed into a rising level of prices? And what does that rising level of prices do to society?

Well, I do wonder, is the theory of the case right, that if you put up huge tariffs, you're gonna re-industrialize America? Or is that just basically wishful thinking that we could go back to 1940?

I, I think the way you're framing it's exactly right.

The foreign policy imagination of these guys seems to be the 19th century.

Someone told them what McKinley did, and the next thing is Canada's on your bingo list.

The 1950s is definitely the imaginary for, like, the factory jobs, et cetera, they're coming back.

There is a way of doing this, absolutely, but it involves things like having a functioning state that can guide the re-industrialized process, not one that you're trying to hack bits off at the same time 'cause you don't like it.

It involves things like having really world-class training institutions, so why beat up on your university sector at the same time? So whereas the IRA was the smart version of this, meaning the Inflation Reduction Act, and even then, whether it would work or not is an open question, what you've got now is no state action, no training, just tariffs, and then the magic of the market's gonna do it.

Who are the people who've been peddling this idea, and how seriously should we take them?

Um, do you think they're lying to us?

I think there's a real danger that what I could be doing and a lot of other people are doing are basically looking for the signs within disorder.

This could simply be brainwashing of somebody who's put it the way that the Trump administration is essentially just going for the grift, whether it's on taxes, whether it's hollowing out the state, we don't know.

But let's assume for a second that the United States government isn't just a giant grift machine and this is the play.

We got to think it through as to what's gonna be coming ahead and also how we're gonna deal with the fallout from it.

If...A- and I'm, I'm, I don't wanna put words in your mouth, but if this is worse than the Great Recession, what does that mean for the scarring for, for the next 10, 15, 20 years in this economy?

What it means is, it's really hard to get back to where you were at the start.

That was the lesson of the Great Recession.

Yeah.

... hasn't worked at all. There is zero evidence for this. So that tells me right now they're being disingenuous. Is there a genuine concern over this? Well, it depends how you look at it. Again, you know that clock in Wall Street buzzing around the size of the national debt? That's literally also national savings, because that bond market where they say to the private sector, "How about you give me a bunch of money and I'll give you this promise that 10 years from now you'll get all the money back with interest?" You know the only thing you can redeem the bond for? Money. What does the government print? Money. But 70% of American bonds are in the United States, they're basically savings bonds that sit at the bottom of loads of credit arrangements for banks and financial firms. If you reduce the United States stock of debt overnight, you would cause the world's largest financial crisis. These things are called assets as well as liabilities. So when you only look at this as a liability that we need to pay back, which so far hasn't actually seemed to be much of a problem 'cause the whole world wants to hold them as the savings asset, then you're only getting half the picture. The other side is, this is the positive side of the balance sheet, that's the savings asset that everybody else uses. Now, there are costs to this, which is everybody's so willing to hold this stuff and then s- give us stuff in return that we've had this hollowing out effect on the economy, so maybe you want to do something about that. But the notion that this is leading to bankruptcy, etc., is just nonsense.

(laughs)

2015, Austerity: The History of a Dangerous Idea. There's the book plug. It goes back a very long time. One version of it comes from the Scottish philosopher David Hume and he worried about public debt because he thought, okay, there's only a me- certain amount of credit in the world at any point in time and if you're an entrepreneur, you want to take that credit and borrow it, let's say at 5%, and then invest it and get 10%. You made 5%, whoop-de-do, right? But what if the government wants to basically spend a lot of money? They're gonna have to issue bonds at five and a half. Then what happens is the bakery doesn't get built, it goes into government debt and that's less productive than the private sector. You get this phenomena called crowding out. The available pool of money for the private sector goes down, the interest rates go up, this is bad for the economy, etc., etc., right? The problem is that's probably not been true for about at least 30 years. The way it actually works is banks create money out of nothing, right? We learned this in the financial crisis. I walk in and say, "I wanna buy a new guitar." They're like, "Great." "So I want a loan." "How much do you want a loan for?" "I want $1,000 loan." Okay, the minute they create that loan-... right? That has created an asset on their books because I will pay that loan. When I come back and pay the loan, that closes the loop and creates the deposit. So, the way the banks actually create money, and 90% if not more of the money we all spend is bank credit, right? It's basically created out of nothing, o- of expectations of profitability. If that's the case, the notion that the government's coming in and crowding out this limited market is just nonsense, but it's an incredibly intuitive nonsense. Angela Merkel played this one like a classic one, the Schwalbian housewife in the financial crisis 10 years ago. The notion that sort of the German government has to run itself as if it's sort of like a hausfrau in the 1950s. I mean, think about this for a second, right? Think about it, right? Have you issued any bonds recently?