Latest / Stephanomics / Voternomics: Why Politicians Are Paying the Price for Central Bank Sins with Karen Ward

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Voternomics: Why Politicians Are Paying the Price for Central Bank Sins with Karen Ward · Stephanomics

0:03
Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
0:16
Speaker 2: I think inflation is a huge part of the story,
0:19
Speaker 2: a huge headwind to politicians, and it's not going to
0:23
Speaker 2: be a meaningful to wind anytime.
0:25
Speaker 1: See Welcome to voter Nomics, where politics and markets collide.
0:32
Speaker 1: This year, voters around the world have the ability to
0:34
Speaker 1: affect markets, countries, and economies like never before. So here
0:39
Speaker 1: at Bloomberg, we've created this series to help you make
0:41
Speaker 1: sense of it all. Back for another week. I'm alegro Stratton,
0:44
Speaker 1: I'm Adroom Woodridge.
0:46
Speaker 3: And I'm Stephanie Flanders. This week in Dubai. Why are
0:49
Speaker 3: you in Dubai, Steph, Well, you know this, this vast
0:52
Speaker 3: empire that I control of Bloomberg, or at least this
0:54
Speaker 3: large number of reporters in economy also include Dubai. Absolutely
0:59
Speaker 3: it does, and there's different bits of the empire converge
1:02
Speaker 3: in Dubai.
1:03
Speaker 1: Well, at the top of the show you heard from
1:05
Speaker 1: Karen Ward of JP Morgan Asset Management. We're going to
1:08
Speaker 1: speak to her a little bit later and she's going
1:10
Speaker 1: to help us unpick those difficult dynamics between economics and politics.
1:16
Speaker 1: Also on the show this week, we have Bloomberg reporter
1:18
Speaker 1: Craig Trudeau, who is our tesla expert here in London. Steph,
1:22
Speaker 1: how big is his team? See? Does he fly solo
1:26
Speaker 1: or has he got lots and lots of people?
1:27
Speaker 3: I suspect he's got more and more people. We have
1:29
Speaker 3: discovered that you can support a whole Elon Musk podcast,
1:33
Speaker 3: and I suspect over time we will just acquire a
1:35
Speaker 3: larger and larger team covering what he's doing.
1:37
Speaker 1: So he's going to be for those for Muska fiscionados.
1:40
Speaker 1: He's going to be joining us in a second to
1:42
Speaker 1: talk about Elon Musk's deal with China and also what
1:45
Speaker 1: the TikTok bill tells us about this phenomenon of tech decoupling.
1:49
Speaker 1: But first, Adrian, you have a B in your bonnet.
1:53
Speaker 4: Yes, I was very struck by William Haig's column in
1:56
Speaker 4: The Times this week. And I think William Hage is
2:00
Speaker 4: a very good columnist. I always enjoy his column in
2:02
Speaker 4: the Times, but this week I was a bit disappointed.
2:04
Speaker 4: He argued in this column that this is the era
2:08
Speaker 4: of elections, which is what we're all about here, and
2:10
Speaker 4: he said, so far it's been a great trime for democracy.
2:13
Speaker 4: More than four hundred million people have gone to the polls,
2:16
Speaker 4: and those people have been exercising their rights extremely well
2:20
Speaker 4: with good effects. And he points to the example of Turkey,
2:23
Speaker 4: poland various other examples. And as I read this, I
2:25
Speaker 4: thought that may be true, but they haven't really changed
2:30
Speaker 4: the direction of history. And the one big election that
2:33
Speaker 4: looms over everything else, which is the US election in November,
2:38
Speaker 4: that can hardly be categorized as a trime for democracy.
2:40
Speaker 4: We have two really old candidates, one of whom has
2:44
Speaker 4: led an insurrection as many of us would see it,
2:47
Speaker 4: one of whom is looking visibly very elderly, and a
2:51
Speaker 4: real possibility that election will go down to a very
2:54
Speaker 4: few votes in a very few places, which will spark
2:57
Speaker 4: civil disobedience. So looking at William's excusamples of a few
3:00
Speaker 4: good things about democracy, I didn't feel myself really thinking, yes,
3:04
Speaker 4: this is a great system in the great flushings of triumph.
3:08
Speaker 1: I felt it was a bit of a list of
3:10
Speaker 1: elections that have taken place, and I wasn't sure. I
3:13
Speaker 1: thought perhaps there was a little bit of cherry picking.
3:16
Speaker 1: And actually, for me, the more interesting things are how
3:19
Speaker 1: you have across the Western world or more developed, richer economies.
3:24
Speaker 1: This deep dissatisfaction with democracy, and you can see in
3:27
Speaker 1: the polling in developing economies, actually there's more of an
3:31
Speaker 1: enthusiasm and a sense of that democracy may yet deliver
3:35
Speaker 1: for them, and it may yet raise living standards itself.
3:38
Speaker 4: That Hague is writing that column at the beginning of
3:41
Speaker 4: this huge six week process soon say, of the Indian elections,
3:46
Speaker 4: and that is an election which really features one man.
3:49
Speaker 4: There isn't really a significant opposition to Mody, and Mody
3:52
Speaker 4: is an illiberal democrat. He's somebody who, whilst quite popular
3:57
Speaker 4: and going to win the election, is eroding basic many
4:01
Speaker 4: of the basic constraints on the power of central government.
4:04
Speaker 4: He's a sort of ceo figure. He's a strong man figure.
4:07
Speaker 4: He's not an example of liberalism. He's the worst sort
4:09
Speaker 4: of modern democracy. So again I thought, actually democracy only
4:14
Speaker 4: really works when it's qualified by liberalism. Democracy as a
4:17
Speaker 4: sort of triumph of populism isn't very good. So even
4:20
Speaker 4: in the emerging world, where you do have a general
4:22
Speaker 4: sense of optimism and growth, indias growing by six or
4:24
Speaker 4: seven percent a year, you don't have an ideal version
4:27
Speaker 4: of democracy being put in place in the world's biggest democracy.
4:31
Speaker 1: Because we're guarded the way through this huge year of elections.
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Speaker 1: What do you think the picture is when we're fully through.
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Speaker 4: I'd say that my example would be India, the world's
4:41
Speaker 4: biggest democracy, a strong man winning, and the United States,
4:45
Speaker 4: which I suspect will produce a lot of civil disorder.
4:48
Speaker 4: I think if it was a close election, it'll be
4:50
Speaker 4: a very unpleasant election. And it's a choice between two people,
4:53
Speaker 4: neither of whom, in my opinion, should be running because
4:56
Speaker 4: the party apparatuses couldn't get it together to choose in
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Speaker 4: this vast country, two people who are a bit more
5:02
Speaker 4: appetizing than Trump and Biden.
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Speaker 3: I did think it was a reminder, since you're dumping
5:07
Speaker 3: on William Haig lifting up his column only to tear
5:10
Speaker 3: it down again, I thought that it was a useful
5:12
Speaker 3: reminder that these a lot of elections have already taken
5:16
Speaker 3: place that involve a large chunk of the population or
5:18
Speaker 3: are now ongoing. So and if you think of Indonesia,
5:22
Speaker 3: Russia and India, by the time that's finished, that's nearly
5:26
Speaker 3: two billion people who will have cast their vote. Although
5:30
Speaker 3: we make a lot of the uncertainty created by all
5:32
Speaker 3: these elections, that two billions were were never in doubt.
5:37
Speaker 3: We've got all places where the incumbent won and it
5:39
Speaker 3: was no surprise. Whether it's Pakistan, Taiwan, Bangladesh. I'm not
5:45
Speaker 3: sure I would read the results as positively as William
5:48
Speaker 3: Haigu does. The Pakistani voters did deliver a rebuke to
5:51
Speaker 3: the military, but the military rigged the system so much
5:53
Speaker 3: that still nothing's changed, and the same person became Prime
5:55
Speaker 3: minister Bangladesh, the incumbent authoritarian one, even though there was
6:00
Speaker 3: something of a backlash, the strongman one in Indonesia. So
6:04
Speaker 3: I think it's so far it's the incumbents, and as
6:07
Speaker 3: you say, Adrian the not necessarily the most democratic of incumbents.
6:10
Speaker 1: And one last point for me, which was in his piece,
6:13
Speaker 1: he ended up talking a lot about the importance of
6:16
Speaker 1: local elections, which obviously we're going to see in the
6:19
Speaker 1: UK this week. To be clear, we're recording this before
6:22
Speaker 1: people have gone to the polls. But one of the
6:24
Speaker 1: aspects which our reporter Alva Ray points out in her
6:27
Speaker 1: piece from she went to both Teaside and West Midlands
6:31
Speaker 1: was that it's looking like turnout will be incredibly low.
6:34
Speaker 1: So we keep having these establishment figures saying the answer
6:37
Speaker 1: is drive power out to local elections, have more power
6:41
Speaker 1: nearer to people. When you actually look at those elections,
6:44
Speaker 1: people sort.
6:44
Speaker 3: Of shrug yeah, because they're so denuded of any power
6:48
Speaker 3: in the UK.
6:49
Speaker 1: Look at what Ben Haushin's done in Teaside. He's done
6:51
Speaker 1: quite a lot with what he with the powers that
6:53
Speaker 1: he does have. But it will be interesting to see
6:55
Speaker 1: the turnout when we've actually got some facts to dissect.
7:04
Speaker 1: So let's get to our on the ground reporters for
7:06
Speaker 1: the week. We're fortunate enough to have this week's guest
7:08
Speaker 1: with us here in London. Reporter Craig Trudell. You dedicate
7:12
Speaker 1: most of your waking hours to following the latest Tesla
7:15
Speaker 1: and Musk news, don't you, Craig.
7:16
Speaker 5: It's been a few crazy few weeks on the Musk.
7:19
Speaker 5: Be it fun.
7:23
Speaker 1: So Mauksk has obviously been to China. Just give us
7:27
Speaker 1: what it all means.
7:29
Speaker 5: Yeah, this was a surprise. It was a sort of
7:31
Speaker 5: over the weekend wake up and oh Musk is in
7:35
Speaker 5: Beijing in India. But then yeah, a week earlier he
7:39
Speaker 5: was due to be in India and he was supposed
7:40
Speaker 5: to meet Prime Minister Modi. It was a highly anticipated
7:45
Speaker 5: trip where everybody was expecting Tesla to announce a new
7:49
Speaker 5: plant in India, which would be quite a big deal.
7:52
Speaker 5: That got thrown out the window at the eleventh hour,
7:54
Speaker 5: and a week later, Lo and behold, Musk shows up
7:57
Speaker 5: in Beijing. And I think it really speaks to the
8:00
Speaker 5: idea that Musk still very much needs China. He very
8:04
Speaker 5: much rode their support to the position he's in today
8:08
Speaker 5: of having the world leading electric vehicle company, and in
8:12
Speaker 5: order to cling to that position he needs some help
8:17
Speaker 5: again from the CCP.
8:20
Speaker 1: He actually did achieve things with this trip. It did
8:22
Speaker 1: actually move the ball out of the pitch for him.
8:24
Speaker 2: Yeah.
8:24
Speaker 5: I think a couple of hard developments that did come
8:27
Speaker 5: out of this. One was a partnership with Baidu, which
8:31
Speaker 5: is China's Google, effectively a deal for mapping and navigation,
8:35
Speaker 5: and that's one element of if you want to put
8:37
Speaker 5: these systems on the market in China, you need to
8:40
Speaker 5: have such a partnership. And he also just got another
8:43
Speaker 5: sort of incremental regulatory step having to do with something
8:48
Speaker 5: very similar with data collection and storage in China.
8:51
Speaker 3: I maye Craig have got to the point where I'm
8:53
Speaker 3: just seeing decuttling and deglobalization everywhere I look. But I
8:56
Speaker 3: was very struck by that deal sort of cementing something
9:00
Speaker 3: that we see and you feel very much when you
9:02
Speaker 3: go to China is just a completely separate economy being
9:06
Speaker 3: developed in sort of key ways, particularly since COVID you
9:10
Speaker 3: can't use Western cards, people constantly having to borrow money
9:13
Speaker 3: for the taxis because all the things that used to
9:16
Speaker 3: work no longer work, and things like Tesla. If you're
9:20
Speaker 3: working for the Chinese government. Someone had told me who
9:23
Speaker 3: works with Chinese government, you can't drive a Tesla into
9:26
Speaker 3: a government car park and leave it there. There's constraints
9:29
Speaker 3: on what you can do. So the idea that you're
9:32
Speaker 3: actually locking in parallel technologies and potentially laying the ground
9:38
Speaker 3: for a complete technological decoupling struck me as it was
9:42
Speaker 3: coming through very strongly in this deal and being cemented. Yeah.
9:46
Speaker 5: Absolutely, and this goes back a couple of years. Actually,
9:49
Speaker 5: we broke the news about this idea that China had
9:52
Speaker 5: moved to ban Tesla's from military facilities, having to do
9:57
Speaker 5: with the concerns that these driver assistants systems that Tesla's
10:01
Speaker 5: betting big on are reliant on cameras and so these
10:04
Speaker 5: cars are rolling around everywhere, taking in footage everywhere they go,
10:08
Speaker 5: and there's a real concern on the part of the
10:10
Speaker 5: government of wait a second, where is that footage going.
10:13
Speaker 5: Is it staying here or is it going back to
10:15
Speaker 5: the US? And at the moment, given the fact that
10:18
Speaker 5: Musk is trying to perfect or improve these systems by
10:23
Speaker 5: training them with supercomputers, there's real concern about that data
10:27
Speaker 5: going from China back to the US. And I think
10:30
Speaker 5: we're seeing this kind of left and right in the
10:31
Speaker 5: car industry, where when you go to China you can
10:35
Speaker 5: find incredibly cheap evs that you can't find in the West.
10:39
Speaker 5: You can find these driver assistance systems for much more
10:42
Speaker 5: affordable prices than you can find in the US if
10:46
Speaker 5: you want to have this similar capability in a tesla.
10:50
Speaker 5: It's absolutely the case that there's a sort of dual
10:54
Speaker 5: track here.
10:54
Speaker 4: But on the one hand, we've got this duel track
10:57
Speaker 4: economy developing. On the other hand, the world's richest America
11:00
Speaker 4: goes over his genre and solves an American problem and
11:04
Speaker 4: stop valuation goes up. Isn't that an extraordinary confusion?
11:07
Speaker 3: I think so.
11:08
Speaker 5: I think it's fascinating because this is someone who, oh,
11:12
Speaker 5: by the way, has just you know, more than just
11:15
Speaker 5: Tesla as part of his business empire, and has repeatedly
11:19
Speaker 5: made these accommodations or these statements that are very China friendly.
11:23
Speaker 5: I go back to some of the comments that he's
11:25
Speaker 5: made about Taiwan and weighing in on things there to
11:29
Speaker 5: where Taiwan has no interest in, for instance, using Starlink
11:33
Speaker 5: his satellites business that he's building with SpaceX. I do
11:37
Speaker 5: think it is also very interesting that this is coming
11:41
Speaker 5: on the heels of the TikTok ban or so called
11:44
Speaker 5: ban and in the US, and he has also taken
11:47
Speaker 5: a position on that. While we're talking about this idea
11:49
Speaker 5: that he's very China friendly, even as the owner of
11:53
Speaker 5: X formerly Twitter, he came out and said, you know what,
11:56
Speaker 5: I don't think that we should do this with the US.
11:59
Speaker 3: Which cool the sort of double standard that none of
12:01
Speaker 3: the big US social media firms, none of them can
12:04
Speaker 3: operate in China, but you now have the US legislation
12:07
Speaker 3: to potentially band TikTok if they don't transfer ownership to
12:13
Speaker 3: a non Chinese company. It did also it just it
12:16
Speaker 3: struck me that the definition of a strategic asset of
12:20
Speaker 3: you know, what is a national security threat just keeps
12:24
Speaker 3: broadening all the time. China has always potentially had a
12:28
Speaker 3: very expansive definition of that, as we've seen in the
12:32
Speaker 3: controls it already had, and the US are starting to
12:35
Speaker 3: go down that road. It makes you feel when Jake
12:38
Speaker 3: Sullivan talks about having small yards with a high fence
12:41
Speaker 3: and the sense that we're not really going to decouple
12:45
Speaker 3: or divide the global economy. We're just going to have
12:47
Speaker 3: certain things that we protect. The certain things we protect
12:50
Speaker 3: seem to be expanding all the time.
12:53
Speaker 5: Yeah, and I think that's absolutely right. And along those lines,
12:56
Speaker 5: I think one of the things that we've been reporting
12:59
Speaker 5: out of Washington recently, there have been concerns among folks,
13:04
Speaker 5: whether it's in Washington or in Brussels, about how cheap
13:07
Speaker 5: these Chinese electric vehicles are, and China has much more
13:11
Speaker 5: capacity than they have demand. That's something that Janet Yellen
13:14
Speaker 5: has made quite a lot of noise about recently, including
13:17
Speaker 5: on her trip to China. I think it's very much
13:21
Speaker 5: the case that in trying to put up barriers to
13:25
Speaker 5: keep Chinese evs out of the US, Gina Romando is
13:29
Speaker 5: talking about not just raising tariffs that, by the way,
13:32
Speaker 5: we're raised under the Trump presidency, but looking at whether
13:36
Speaker 5: or not there is a path to blocking these vehicles
13:40
Speaker 5: on national security grounds, which is very reminiscent of exactly
13:44
Speaker 5: what China was doing over the last couple of years
13:47
Speaker 5: of being cagey about where Tesla's can go on its soil.
13:52
Speaker 3: So you do think it could be an election issue
13:55
Speaker 3: in Washington.
13:56
Speaker 5: I absolutely seeing it being the case. I think Biden
13:59
Speaker 5: absolutely made EV's a big part of his Inflation Reduction Act,
14:04
Speaker 5: his signature of climate law, and the fact that Trump,
14:07
Speaker 5: on the other hand, very notably recently referred to the
14:11
Speaker 5: idea that for the auto industry, if he doesn't get elected,
14:14
Speaker 5: there will be a quote bloodbath. We've absolutely heard a
14:17
Speaker 5: lot of back and forth, including late last year with
14:20
Speaker 5: the UAW strike and Biden going on the picket line,
14:23
Speaker 5: the first US president to do so here in the UK.
14:25
Speaker 5: I don't necessarily see it breaking through, but it is
14:29
Speaker 5: fascinating to me that as an American reading the papers
14:33
Speaker 5: here day to day, the sort of alarmism of whether
14:37
Speaker 5: this whole ev transition makes sense or as worthwhile or
14:41
Speaker 5: is bogus, it is relentless. I just find that there
14:45
Speaker 5: is quite a bit of negativity about whether these evs
14:49
Speaker 5: make any sense, despite the fact that they have been
14:52
Speaker 5: making really remarkable progress the last half decade.
14:55
Speaker 1: So a comparison in contrast of the UK and US
14:58
Speaker 1: election seems like a pretty good place to leave that
15:00
Speaker 1: chat in this latest edition of Photonomics.
15:03
Speaker 3: Thank you very much, Craig, Thank you, Greg.
15:05
Speaker 5: That was great, Thank you that was fun.
15:07
Speaker 1: Yeah, you'll be back you so much.
15:15
Speaker 2: So.
15:16
Speaker 1: Last week with the first edition of Photonomics, you guys
15:18
Speaker 1: talked to Neil Ferguson about his reflections on how economics
15:22
Speaker 1: and politics are colliding in America. It was a punchy chat.
15:29
Speaker 4: Adrian, absolutely I learned to iard a great deal. Some
15:32
Speaker 4: of it I agreed with, some of them I didn't
15:34
Speaker 4: agree with. But Neil is always informative and provocative.
15:38
Speaker 3: I also noticed that the comparison we were a little
15:43
Speaker 3: bit ahead of the game. We were thinking of the
15:45
Speaker 3: potential comparisons with sixty eight and politics. I became increasingly
15:50
Speaker 3: glad over the course of the last week discussion because
15:53
Speaker 3: I read an awful lot of people just deciding that
15:56
Speaker 3: we were potentially even with the Chicago conveyed in August,
16:01
Speaker 3: that we wereating a rerun of sixty eight.
16:03
Speaker 4: We're with the first people to throw Richard Nixon into
16:05
Speaker 4: the mix.
16:06
Speaker 3: I think so if that would say that, regardless of
16:09
Speaker 3: whether it's true, I'm convinced it's true.
16:12
Speaker 1: So if that was Neil Ferguson last week. This week,
16:14
Speaker 1: to help us chew over these issues, we've invited JP Morgan,
16:17
Speaker 1: Asset Management Chief Market Strategists for Europe Karen Ward to
16:22
Speaker 1: join us in this week's conversation. Karen was a former
16:25
Speaker 1: Bank of England economist and also a former advisor to
16:27
Speaker 1: the UK Chancellor dix Chequer Jeremy Hunt. We started by
16:31
Speaker 1: asking her if she's seeing the theme of this podcast photonomics,
16:35
Speaker 1: so economics and politics colliding cropping up in her day
16:38
Speaker 1: job all the time.
16:41
Speaker 2: Yes, absolutely, and there's always a question as to when
16:43
Speaker 2: it becomes the dominant force that's impacting markets. One thing
16:47
Speaker 2: I've always found amazing in twenty years of doing this
16:50
Speaker 2: is ignored until a single day and then it's the
16:53
Speaker 2: only thing that we talk about. We haven't quite turned
16:55
Speaker 2: back corner just yet, but I think certainly trying to
16:59
Speaker 2: think through what are the policy ramifications of different electoral
17:03
Speaker 2: outcomes is starting to come on to the radar for sure, and.
17:07
Speaker 1: What in that context, what are the sort of pieces
17:10
Speaker 1: of advice you're getting ready for people.
17:12
Speaker 2: I think in the US it's really through three lenses.
17:17
Speaker 2: The first is the obvious one, fiscal policy, what's the
17:20
Speaker 2: outlook for tax and spend? And I think our starting
17:23
Speaker 2: point in the US is what's concerning because the US
17:28
Speaker 2: has an incredibly strong economy, but it also has a
17:31
Speaker 2: six percent fiscal deficit, which is rather an odd point
17:36
Speaker 2: to be at when you have record low unemployment. You
17:38
Speaker 2: really shouldn't be running a six percent deficit at that time.
17:41
Speaker 2: So what are how does that evolve and what do
17:45
Speaker 2: the different parties mean for how that will evolve? Are
17:49
Speaker 2: any parties credibly talking about how they will reduce spending
17:53
Speaker 2: or how they will raise taxes? Doesn't really seem to
17:56
Speaker 2: be a big part of the dialogue. If anything, the
17:59
Speaker 2: discussion is more about whether there's any prospect for further
18:02
Speaker 2: tax cuts, So fiscal policy always the most critical edge.
18:07
Speaker 2: I think the other two aspects that are particularly key
18:10
Speaker 2: for me when looking at the US are how some
18:13
Speaker 2: of the policies might feed into inflation, because certainly for
18:18
Speaker 2: markets for bond yields. The question of whether those inflation
18:22
Speaker 2: problems are really behind us or not is still absolutely critical,
18:28
Speaker 2: and the two policy pieces that fit into that puzzle
18:31
Speaker 2: are migration and tariffs. The US has had this enormous
18:37
Speaker 2: flow of migration into the economy over the last couple
18:40
Speaker 2: of years, and that's really helped ease the pressures of
18:45
Speaker 2: demand on supply. It helped that economy cope with record
18:49
Speaker 2: low unemployment and still bring down wage growth and eased
18:53
Speaker 2: some of the inflationary pressures. So migration's actually acted economically
18:58
Speaker 2: like a real safety valve. Now, when you look at
19:01
Speaker 2: what voters are saying about what's concerning them, they are
19:05
Speaker 2: clearly less convinced about the economic benefits, and it's one
19:08
Speaker 2: of the key points of concern amongst the electorates. So
19:11
Speaker 2: how the different parties tackle migration is the other. What
19:17
Speaker 2: they might do, how quickly they might turn off any
19:19
Speaker 2: migration taps is really key. And then taris, who taris
19:24
Speaker 2: will be placed on, What are the scope for those tariffs?
19:28
Speaker 2: How that is part of the geopolitical tensions that are
19:33
Speaker 2: another central feature. But then how the tariffs play into
19:36
Speaker 2: the inflation story.
19:37
Speaker 4: Also, is it possible to look at the United States
19:42
Speaker 4: presidential election through this very rational economic framework that you've
19:45
Speaker 4: just laid out. When you have such a bizarre and
19:49
Speaker 4: intemperate figure as Donald Trump as the sort of one
19:51
Speaker 4: of the two main players.
19:54
Speaker 2: I think you have to sit back. Certainly in my
19:57
Speaker 2: job as a sort of medium term investor, you really
20:00
Speaker 2: have to do that exercise. And actually, this isn't really
20:04
Speaker 2: just with regards to the US. It's with every part
20:06
Speaker 2: of the world and every potential politician. And you sit
20:10
Speaker 2: back and you think, Okay, this is what they're saying,
20:13
Speaker 2: but let's just think through the economic reality of them
20:17
Speaker 2: delivering what they're saying. And I think quite often when
20:21
Speaker 2: you do that rational exercise of thinking, that's what they're saying,
20:25
Speaker 2: but if they do that in practice, the domestic economic
20:29
Speaker 2: cost of doing so might be really quite grave, and
20:33
Speaker 2: so actually, when they are in office, they may choose
20:37
Speaker 2: to take a different route. I think it's really important
20:41
Speaker 2: whenever you're hearing particularly very strong political figures making big statements,
20:45
Speaker 2: to think that might sound good to the electorate now,
20:49
Speaker 2: but what are the realities of delivering that, and therefore,
20:51
Speaker 2: when in office, is it really going to happen?
20:53
Speaker 4: Sure? But for the last thirty years or so, we've
20:56
Speaker 4: had economics as the master science, and everybody's really deferred
21:00
Speaker 4: to economics. Now we're in a different world in which
21:02
Speaker 4: politics is much more important and politicians do sorts of
21:06
Speaker 4: things that economists would never have thought that they would.
21:09
Speaker 4: I mean the Trump tariffs being in the last Trump
21:12
Speaker 4: presidency classic example of that. Isn't it just the case
21:14
Speaker 4: that we don't live in a predictable, rational world anymore
21:19
Speaker 4: and politics is just much much more volatile and much
21:21
Speaker 4: more of an independent variable.
21:24
Speaker 2: I think we do have to our professional economics profession
21:28
Speaker 2: really has to think about what is the lens of
21:32
Speaker 2: different cohorts or different members of society, what is their economics,
21:39
Speaker 2: and how might that influence the politics. So what I
21:43
Speaker 2: mean by that is, for years you've heard the IMF,
21:48
Speaker 2: these big international groups acknowledging and understanding the fact that globalization,
21:54
Speaker 2: for example, has seemingly done tremendous economic good what the
22:00
Speaker 2: economists would all have predicted should have happened for everybody's benefit.
22:06
Speaker 2: But we know the benefits weren't spread equally amongst society,
22:10
Speaker 2: and we were left with a segment of the population
22:14
Speaker 2: that was termed the left behind. And I think for
22:16
Speaker 2: those individuals, they are still operating I'd argue on economics,
22:20
Speaker 2: but it's their own personal economics. They're not seeing their
22:25
Speaker 2: income levels rise, they're not seeing their wealth rise like
22:29
Speaker 2: certain other segments of the population. They're not feeling confident
22:33
Speaker 2: their children are going to have better living standards. And
22:36
Speaker 2: I think that's where our profession has to be a
22:38
Speaker 2: little bit careful about assuming the aggregate economists is right
22:45
Speaker 2: or that's the way things are going to flow.
22:47
Speaker 3: And that was that somewhat related to that. I was
22:49
Speaker 3: going to pick you up on one of the things
22:50
Speaker 3: you were noting about the US, and the classic economics
22:53
Speaker 3: approach to this is to welcome immigration as a source
22:57
Speaker 3: of labor force growth because what's often driving the growth
23:01
Speaker 3: in overall output. But it is also one of the
23:04
Speaker 3: things that when you look across quite a lot of
23:06
Speaker 3: elections this year, some of the common features are great
23:11
Speaker 3: concern around immigration and whether well founded or not, and
23:15
Speaker 3: great concern around housing. And if you look at somewhere
23:17
Speaker 3: like Australia or Canada, the two are combined. They've had
23:20
Speaker 3: massive immigration, and actually that has caused enormous pressure on
23:24
Speaker 3: housing market because they haven't built enough houses, and we've
23:27
Speaker 3: actually looked at how that can also mean that a
23:29
Speaker 3: country that looks like it's had decent growth from your
23:32
Speaker 3: perspective for ordinary people, actually the per capita growth, if
23:36
Speaker 3: you like, per head has not gone up. I think
23:39
Speaker 3: there's thirteen countries that we estimate across the developed world
23:43
Speaker 3: have had per capita recession. So if you're just looking
23:45
Speaker 3: at growth per head and not growth overall, which doesn't
23:48
Speaker 3: necessarily affect individual people, if it's accompanied by increased population,
23:53
Speaker 3: pretty that's a very politically salient aspect of the economic
24:00
Speaker 3: model that we've had in many of these countries.
24:04
Speaker 2: Absolutely, it's a very contentious topic, whether it's about how
24:09
Speaker 2: people are integrated socially, how they're integrated economically. The Pew
24:13
Speaker 2: Institute says that migration is the top concern that the
24:17
Speaker 2: US citizens want their new government to tackle.
24:21
Speaker 3: And we as economists are saying, oh, great, there's no
24:23
Speaker 3: recession in Canada, Australia, But actually the people have had
24:27
Speaker 3: recessions and they've noticed even before you start thinking about inflation,
24:31
Speaker 3: because their income has not gone up.
24:34
Speaker 4: You have a very peculiar situation in the United States
24:36
Speaker 4: at the moment, don't you whereby we should have an
24:39
Speaker 4: incumbent president sailing towards reelection because the economy is doing
24:44
Speaker 4: very well, and for the first time in sometimes people
24:46
Speaker 4: at the bottom of the income scale are beginning to
24:49
Speaker 4: share in some of the prosperity. But you have a
24:51
Speaker 4: lot of angst in the country, and there are many
24:54
Speaker 4: reasons for that, but one of them, surely is the
24:56
Speaker 4: angst about uncontrolled immigration or a fe of uncontrolled immigration,
25:02
Speaker 4: Isn't it?
25:03
Speaker 2: Absolutely that's what all the surveys point to of the
25:06
Speaker 2: electra What is the chief concern that they want tackled,
25:09
Speaker 2: and yes, whether it is alleviating labor market pressures. And
25:13
Speaker 2: again it comes back to my point about individual economics
25:16
Speaker 2: that versus aggregate economic it's an individual will say, well, okay,
25:21
Speaker 2: you may think that, isn't that wonderful that wage growth
25:24
Speaker 2: has eased because migration has eased some of the pressures
25:28
Speaker 2: in the labor market. Hang on a second, wage growth easing,
25:31
Speaker 2: that's not good for me at all. I want my
25:33
Speaker 2: wage growth to continue accelerating. So I think that's the
25:37
Speaker 2: real challenge is the individual economics presses agrigate.
25:41
Speaker 1: One of the things that's doing the rounds as we say,
25:44
Speaker 1: is that somebody has told Andrew Marre at The New
25:47
Speaker 1: Statesman that a Labor government wouldn't necessarily reverse Rwanda the
25:51
Speaker 1: Rwanda Plan immediately, and that's going to cause all sorts
25:54
Speaker 1: of trouble for kised Arma because he's either got to
25:57
Speaker 1: come out and say yes I will, which point that's
26:01
Speaker 1: quite tricky for him, because there is a swathe of
26:03
Speaker 1: the constituency's now trying to win in the Red Wall
26:06
Speaker 1: who want to see him having that tough line on
26:08
Speaker 1: immigration for the reasons you're discussing. And then there's also
26:12
Speaker 1: another constituency and it's being pointed out on Twitter a
26:15
Speaker 1: lot today, which is if Labour's about to do incredibly
26:17
Speaker 1: well in Scotland, that's a place where actually this harder
26:20
Speaker 1: line on migration doesn't go down so well, that's not
26:22
Speaker 1: what they're looking for. And because some has this coalition
26:24
Speaker 1: which is not dissimilar to the Boris Johnson coalition that
26:27
Speaker 1: he's trying to assemble, which is on the one hand,
26:29
Speaker 1: those Red Wall voters as was became conservative, some is
26:33
Speaker 1: now trying to win them back who want that toughness
26:36
Speaker 1: on immigration, and then on the other hand that's softer
26:39
Speaker 1: left politics that really don't and it sends a kind
26:42
Speaker 1: of a smell test for them is not good. So
26:45
Speaker 1: we'll read today we're seeing the politics of this in
26:48
Speaker 1: the UK being quite uncomfortable.
26:51
Speaker 2: And honestly, that also takes us right back to some
26:54
Speaker 2: of the divisions that we saw in the ultimate result
26:57
Speaker 2: within Brexit also in how for such Obviously, when you
27:01
Speaker 2: ask lots of different people why they voted for Brexit,
27:04
Speaker 2: there were different reasons amongst different cohorts, but certainly amongst
27:08
Speaker 2: a specific cohort, migration and the free flow of workers
27:13
Speaker 2: was the major reason for voting for the sentiments from
27:15
Speaker 2: the EU. So I think how the topic of migration
27:21
Speaker 2: enters UK politics as well as the politics of each
27:24
Speaker 2: party is something we've been contending with for years now.
27:28
Speaker 1: There's been tenny billion of personal tax cuts announced and
27:31
Speaker 1: it doesn't seem to have shifted the dial in the
27:34
Speaker 1: polling in the United Kingdom. What are your reflections on that.
27:39
Speaker 2: Yeah, it's a good question, and actually I think there's
27:42
Speaker 2: commonalities behind the question that we spoke about earlier with
27:46
Speaker 2: regards to why Biden it's polling better in the US,
27:49
Speaker 2: and I think it's the role of inflation within the
27:55
Speaker 2: general experience of households, because by some metrics, households things
28:02
Speaker 2: look great. We've got almost record low unemployment in the West,
28:06
Speaker 2: pretty very low unemployment by historical standards here also, and
28:11
Speaker 2: we've had these tax cuts. But I can't think of
28:16
Speaker 2: any of my friends or any of my circles, and
28:19
Speaker 2: certainly not in the wider society that feels they've been
28:22
Speaker 2: an awful lot better off over the last year, because
28:25
Speaker 2: watching your energy bill rise six dayfold was utterly terrifying,
28:29
Speaker 2: and not knowing if food prices were ever going to
28:31
Speaker 2: come down. So I think inflation has been terribly damaging
28:35
Speaker 2: to real incomes across the West, but very much so here,
28:39
Speaker 2: And I just think that has completely dwarfed any tinkering
28:42
Speaker 2: that we've had on the tax front. Now as we
28:46
Speaker 2: go through the course of the year, change because headline
28:50
Speaker 2: inflation is now coming down quite quickly, those pressures are
28:53
Speaker 2: easy while wage grade is still relatively elevated, so it
28:57
Speaker 2: might be and we're seeing consumer confidence, right, so you
28:59
Speaker 2: might see some of those more feel good effects, and
29:03
Speaker 2: then people start to think, well, actually, with that tax cart,
29:06
Speaker 2: I'm starting to feel a bit better about life, But
29:08
Speaker 2: I'm not really surprised that so far nobody is feeling
29:11
Speaker 2: particularly perky about their monthly cash flow.
29:14
Speaker 3: It's funny because I wanted to take things onto inflation
29:17
Speaker 3: because I was conscious. I was smiling to myself when
29:19
Speaker 3: Adrian was suggesting that it was a new thing to
29:21
Speaker 3: have politics so volatile, and of course you, Karen, were
29:25
Speaker 3: advising the Chancellor, just the then Chancellor Philip Hammond in
29:28
Speaker 3: the wake of the Brexit result, and obviously facing quite
29:31
Speaker 3: a lot of political volatility at that point while you're
29:33
Speaker 3: sitting in the Treasury. But one thing that you weren't
29:35
Speaker 3: facing then was inflation. And it does feel to me
29:39
Speaker 3: that it's something that economists have underestimated and certainly politicians,
29:42
Speaker 3: I think initially underestimated how much it gets under people's skin.
29:47
Speaker 3: If you just look at the numbers, the Prime Minister
29:50
Speaker 3: is probably going to go to the polls after prices
29:53
Speaker 3: will have risen by twenty percent over the Parliament and
29:57
Speaker 3: if that's actually all that voters care about, and it's
30:00
Speaker 3: certainly been a big factor in the sort of lowest
30:02
Speaker 3: house rise in real household dispposable income per head, then
30:06
Speaker 3: he's sunk. In theory, it's not his fault at all.
30:08
Speaker 3: It was all handed over to the Independent Bank of
30:10
Speaker 3: England and we thought that was a great decision, But
30:12
Speaker 3: now actually politicians around the world are potentially carrying the
30:15
Speaker 3: can for the decisions of entirely independent technocrats.
30:19
Speaker 2: I certainly think the whole community central banks economists had
30:25
Speaker 2: a little bit too much confidence that by merely making
30:28
Speaker 2: central banks independent rulers over the inflation process, that we
30:32
Speaker 2: had necessarily killed inflation. And I think what we've really
30:37
Speaker 2: learned over the last few years is two things. One,
30:41
Speaker 2: we get cost shocks, and they originate from parts of
30:46
Speaker 2: the world that you do not foresee where events are
30:49
Speaker 2: going to happen. So are clearly Russia invading Ukraine and
30:52
Speaker 2: the energy turmoil that created we had this almighty posh
30:55
Speaker 2: shock at the economy. But then I think the other
30:58
Speaker 2: degree of complacency is how the labor market would then
31:03
Speaker 2: behave And the fact and the reason I think a
31:07
Speaker 2: lot of the central banking community were perhaps slow to
31:10
Speaker 2: realize the scale of the problem was it was assumed
31:13
Speaker 2: that workers wouldn't ask for more money, they would merely
31:17
Speaker 2: accept the damage to their living standards accepted as a
31:20
Speaker 2: one off piece of bad luck, and carry on and
31:24
Speaker 2: quite understandably, workers didn't behave in that way because carry on.
31:29
Speaker 3: Being quite high is a problem.
31:30
Speaker 2: They didn't go down, no, exactly, and workers wanted to
31:35
Speaker 2: reinstate their real purchasing power. And we had very low unemployment,
31:39
Speaker 2: which again was an aspect of supply. It surprise perhaps
31:43
Speaker 2: in how things played out over the last couple of years,
31:45
Speaker 2: and so with that security of work, workers did go
31:49
Speaker 2: and ask for more money, and therefore that's when we
31:51
Speaker 2: got their second round. Effects is economists like to call it,
31:54
Speaker 2: where you know, workers ask for a bit more pay,
31:56
Speaker 2: that inflation shop broadens out through the economy, And honestly,
32:00
Speaker 2: it's still there, it's still persistent, and we aren't entirely
32:04
Speaker 2: clear whether it's behind us just yet. So yes, I
32:07
Speaker 2: think inflation is a huge part of the story, a
32:10
Speaker 2: huge headwind to politicians, and it's not going to be
32:14
Speaker 2: a meaningful tailwind anytime.
32:16
Speaker 4: See, Adrian, I just wanted to defend myself slightly by
32:20
Speaker 4: saying that when I was talking about sort of the
32:22
Speaker 4: golden age when economists were in charge, I meant two
32:26
Speaker 4: thousand and eight or up until the referendum, not certainly,
32:29
Speaker 4: But I need to go back to the theme of
32:31
Speaker 4: politics being slightly more important than it was before two
32:35
Speaker 4: thousand and eight or twenty sixteen. It seems that the
32:37
Speaker 4: biggest things that are going on now seem to be
32:40
Speaker 4: not economics but political events. The invasion of Ukraine, which
32:45
Speaker 4: had no possible sort of economic justification, the possibility of
32:50
Speaker 4: an invasion of Taiwan, which restructuring our whole semiconductor and
32:54
Speaker 4: so again that's something that has no possible economic justification.
32:57
Speaker 4: And just the figure of Trump. If Trump comes in
33:00
Speaker 4: and he could do a number of things, not least
33:02
Speaker 4: some Rapussure wants, some deal with Putin or some crazy
33:06
Speaker 4: actor in the Middle East, which could just completely reconfigure
33:10
Speaker 4: all of our calculations. Don't We live in a world
33:12
Speaker 4: in which the prognostic power of economists is diminishing.
33:17
Speaker 1: But it's they may be political events, but they become economical.
33:19
Speaker 4: No, I mean, where do they come from? They don't
33:21
Speaker 4: They're not driven by economic calculations.
33:24
Speaker 2: I'm going to defend I'm going to defend us here. Actually,
33:27
Speaker 2: so I'm going to say the economic still really matters.
33:30
Speaker 2: So Russia, with all the benefit of hindsight, we look
33:33
Speaker 2: back now and saw that Russia was getting itself into
33:37
Speaker 2: a situation of economic independence such that it could make
33:44
Speaker 2: a political decision to sever its relationship with the West
33:50
Speaker 2: in a way that would not decimate its economy. And
33:55
Speaker 2: it had Russia's GDP and Russian activity because it's still
34:00
Speaker 2: reducing oil, it's just sending it to other parts of
34:02
Speaker 2: the world, and it's still producing commodities and sending them
34:05
Speaker 2: to other parts of the world. So I still believe
34:08
Speaker 2: that decision made in Russia was founded a political decision
34:12
Speaker 2: founded in the knowledge that economically it would not be devastating,
34:18
Speaker 2: and then the ones that you highlight could happen. I
34:21
Speaker 2: still think it's the economics that mean the worst case
34:23
Speaker 2: scenario won't happen. So I think China is.
34:27
Speaker 4: Just going to say, do you think China could make
34:29
Speaker 4: the same calculation that Russia's made, because it is certainly
34:32
Speaker 4: desevering itself from a lot of the world economy.
34:34
Speaker 1: It says, no, why not, Karen.
34:37
Speaker 2: Whether it chooses to get itself into Russia's position over
34:40
Speaker 2: the next twenty years, I don't know. But today the
34:44
Speaker 2: US is still the biggest importer of Chinese goods, and
34:48
Speaker 2: China has a serious domestic demand problem right now, they
34:52
Speaker 2: are resorting back to export demand to fuel their growth. Therefore,
34:58
Speaker 2: they need anyone else in the world to be buying
35:00
Speaker 2: their goods until they can get their domestic engine going.
35:03
Speaker 2: And while that is still the case, they need to
35:06
Speaker 2: stay friends with their biggest consumers, which are in the West.
35:09
Speaker 2: So right now here in today, with the economics as
35:12
Speaker 2: they are, I think it's a small probability risk.
35:15
Speaker 1: So the not so dismal science from you, Karen, can
35:18
Speaker 1: you just do some forecasting perhaps, which is people are
35:21
Speaker 1: saying we'll have inflation at two percent possibly then over
35:25
Speaker 1: the summer some people are predicting it could go to
35:27
Speaker 1: one percent. Do you think it starts to come up
35:30
Speaker 1: in the autumn and what are the consequences of that
35:32
Speaker 1: if it does.
35:33
Speaker 2: Yes, I think it will dip. Oil is edging back
35:37
Speaker 2: up that gas prices, which are a bigger chunk in
35:40
Speaker 2: the CPI basket. They because of gas prices come down
35:45
Speaker 2: in April. That should take us just a little bit
35:48
Speaker 2: sub two. In the summer we should touch a load
35:52
Speaker 2: two number. However, that probably won't last terribly long. And
35:56
Speaker 2: I do think by the end of the year and
35:58
Speaker 2: the bank can also in thereforecast we are back on
36:02
Speaker 2: an up trend as long as it's modest and it's
36:06
Speaker 2: real wages that matter. So I think part of the
36:09
Speaker 2: reason it's not going to two and through two and
36:11
Speaker 2: back to the low inflation that we knew before is
36:14
Speaker 2: because wage growth is still running somewhere between four and
36:17
Speaker 2: six percent. Of data quality issues at the moment, but
36:20
Speaker 2: it's still in that kind of vicinity. I think we
36:24
Speaker 2: will still be in positive real wage territory through the
36:28
Speaker 2: remainder of the year. I think the consumer is going
36:30
Speaker 2: to be in pretty decent positive real wage territory, not
36:33
Speaker 2: compensating for the last two years, but at least that
36:37
Speaker 2: pressure feeling better throughout the course of the year.
36:40
Speaker 3: We cited recently some research, some academic research that finds
36:45
Speaker 3: part of the problem with inflation is even where wages
36:47
Speaker 3: have kept pace, people adamantly to believe that they have
36:51
Speaker 3: not kept pace, and there's a sort of as Karen's
36:54
Speaker 3: been saying, there's a kind of abiding hit. In fact,
36:57
Speaker 3: if we see wages going faster than inflation, that will
37:00
Speaker 3: potentially be an issue for the Bank of England, might
37:03
Speaker 3: slow the pace of rate cuts and yet still not
37:06
Speaker 3: actually deliver much benefit in terms of how people feel
37:10
Speaker 3: I can certainly say as a form of BBC Economics editor,
37:12
Speaker 3: who used to go to supermarkets on day where you
37:15
Speaker 3: know the price of something had plunged, and you're desperate
37:18
Speaker 3: to find one person who's willing to admit that anything's
37:20
Speaker 3: got cheaper, because everybody always feels that life's getting more
37:23
Speaker 3: expensive regardless of what the numbers say, And I would
37:26
Speaker 3: very quickly give up trying to find someone who would
37:28
Speaker 3: back up what the data appear to be saying. But
37:30
Speaker 3: I think that's particularly true when it comes to real wages.
37:33
Speaker 3: People don't necessarily feel better off.
37:35
Speaker 2: It's sort of it's the inflation of fun and the
37:38
Speaker 2: inflation of not fun, the inflation of everything that's not fun,
37:42
Speaker 2: energy and food and all of the stuff that we
37:45
Speaker 2: have to buy and not because we want to buy
37:47
Speaker 2: because it's fun. That is what's risen so much. It's
37:50
Speaker 2: eating into our income, so that eases our it still
37:55
Speaker 2: doesn't feel fun, because it's.
37:57
Speaker 3: A very good point, the amount that we're willing to
37:59
Speaker 3: spend on tailor swift tickets or god knows what it is.
38:02
Speaker 3: We know all non complains as much about soaring concert
38:06
Speaker 3: tickets because they're a bit more fun that is a
38:08
Speaker 3: very good way of looking at.
38:10
Speaker 1: So we'll end on. Taylor Swift, thank you very much
38:12
Speaker 1: for joining us.
38:13
Speaker 2: Karen Ward, thank you for having me.
38:19
Speaker 1: So thanks for listening to this week's Vota Nomics from Bloomberg.
38:22
Speaker 1: This episode was hosted by me Alecra Stratton, Adrian Wildridge,
38:26
Speaker 1: and Stephanie Flanders in Dubai. It was produced by Samasadi
38:30
Speaker 1: with help from Sarah Livesey, Chris Martlou and Julia Mann's.
38:34
Speaker 1: Editorial direction from Victoria Wakeley. Sound designed by Blake Maples.
38:39
Speaker 1: Brendan Francis Newmanham is our executive producer, Sage Bauman, Head
38:43
Speaker 1: of Podcasts, and special thanks to our guest Karen Ward.
38:47
Speaker 1: Please subscribe, rate, and review wherever you listen to your podcasts.