Martin Wolf on Trump's Shakeup of the Global Order

Martin Wolf has been called one of the world's most important economics commentators, and has for decades written in columns and his own books about the evolution of the global economy, chronicling the rise of globalization and the subsequent pushback to liberal trade. And he's had a lot to write about in recent weeks. President Trump's unveiling of sweeping tariffs against pretty much every single US trading partner has not only roiled global markets, but is shaking up international politics as well. Countries around the world are now struggling to understand exactly what the Trump administration is trying to achieve, how far it will go in terms of its political and economic isolationism, and how they should we respond. On this episode we speak with Wolf, the chief economics commentator for the Financial Times, about what Trump's reordering of global trade means for the world, how Europe and China might respond, and the origins of the US administration's economic discontent.

Read More: 
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Episode Transcript

Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News.

Speaker 2 (00:18):
Hello and welcome to another episode of the Odd Lots podcast.
I'm Tracy Allaway.

Speaker 3 (00:22):
And I'm Joe. Wasn't thal Joe.

Speaker 2 (00:23):
We're here in London, Dyll in London, Still in London.
It's been interesting. I think I've mentioned so. I obviously
I went to university here, got my first job here,
first at Bloomberg. I left very quickly and joined the
Ft and I was here for like ten years and
met my husband here. So I've just been walking around
the city this week, just feeling very nostalgic about everything.

Speaker 3 (00:44):
This is a very weird time to be in London.
For one thing, I have to say, like the whole
time zone thing really messes me up. But like I'm like,
you know, v the concept of time zone still blows
my mind a little bit.

Speaker 2 (00:57):
As an American, and I'm not surprised to hear you obvious.

Speaker 3 (01:00):
It's like I can't believe the market's still open. But also,
you know, we're at a time where changing perceptions towards
the US are a big story. And normally, if I'm
being honest, if I could be a sort of rude
American for a moment.

Speaker 2 (01:16):
Always to global.

Speaker 3 (01:17):
Perceptions of the US are not typically a very big
deal to me. They're not something that I think about
very often, except in so far as we're in a
period where our president claims to want to be doing
trade deals with the rest of the world, at which
point these elected leaders around the world have domestic constituencies
that they have to be accountable to, and as such,

(01:39):
perhaps we're in a period where perceptions of the US
actually substantively matter.

Speaker 2 (01:44):
Well, here's the other thing I was thinking about. I
was walking past my old university, and I was thinking,
both you and I did international relations, yeah, And I
was thinking how amazingly irrelevant that degree has become. And
I was thinking back to the reading list we had
in the early two thousands about like implementing globalization and
globalization colin the Way Forward and things like that. So

(02:08):
much of that just feels completely off the table at
this moment.

Speaker 3 (02:12):
We all these like these hopes for like various multilateral
agreements and we're going to sign and now the plan
is to sign you know, bilateral agreements with seventy different
nations in ninety.

Speaker 2 (02:23):
Dews while insulting them on a daily basis.

Speaker 3 (02:25):
While insulting them.

Speaker 2 (02:26):
I mean, come on, okay, So I'm trying to unify
all these different themes. My former employer, the future of globalization,
the fact that we're here in London at a time
when Europe US relationships really seem to be in the
gutter in many ways. So we have the perfect guest.
We do have, truly the perfect guest we're going to
be speaking with. Martin Wolfe is, of course, the chief

(02:47):
economics commentator over at the FT, sometimes described as the
most important economics commentator in Britain, which, given that the
UK exports a lot of commentators, is really saying something.
Also the author of book on globalization, of course, although
as I understand it, your feelings have evolved over the years.
So Martin, welcome to the show. Thanks so much for

(03:08):
coming on.

Speaker 4 (03:08):
It's a pleasure to be here in beautiful London, which
feels very pleasingly away from the US.

Speaker 3 (03:14):
Yes, yes, we're setting the tone for the contry.

Speaker 2 (03:16):
Yeah, there we go. Is it amazing to be an
economics commentator in the current environment or is it incredibly
depressing in the sense that you know, we're seeing a
lot of new and interesting ideas. I'm doing air quotes.
Although I'm on a podcast new and interesting ideas coming
out of certain administrations about how economics works and how
it could theoretically work, and at the same time you're

(03:38):
seeing the tearing down of a lot of established norms
and principles from traditional economics. There's a lot to write about.

Speaker 4 (03:46):
Yes, this is a question that a lot of people
ask me during the financial crisis when it was really
at its worst and look very very frightening, which is
in a very different way that closest to what in
my professional crea to what we're experiencing now. My answer
used to be, I divide myself into two people as
an economist and commentator. It was the best spirit of

(04:06):
my life as a father and a grandparent. Grandfather terrified
the wits out of me, and I would say the
same now, but probably even more so.

Speaker 3 (04:15):
By the way, this is kind of like me and Tracy,
except Tracy is the side of.

Speaker 2 (04:19):
You I totally embody the anxiousness, and Joe is basically
the exhilaration that things are happening.

Speaker 3 (04:25):
But I said this in a recent review, You're like, Oh,
I just get so excited. I just love seeing the
lung and I feel like I wanted to wish. I'm
taking a moment to hedge that I actually do have
a person side. I have not just someone who stares
at a screen all day, and I do genuinely care
about the actual sort of health of the world.

Speaker 2 (04:42):
You feel you have to announce that publicly. Slightly worrying, Joe,
but good. It's good to know, you know.

Speaker 3 (04:49):
There's a part of me that thinks this is a
bigger story in many respects than the Great Financial Crisis,
because in retrospect, although the Great Financial Crisis or the
global I forget what we call it, global fundinancial crisis
was enormous and maybe once in a century it was
a very big bank run. In bank runs happened from
time to time. They're not that unusual, and there's a playbook,

(05:10):
and you backed up the banks and you do some
Kinsian fiscal policies. This feels like to me right now
is something that could metastasize into a truly bigger story
in terms of the lasting imprint it has on the world.

Speaker 4 (05:24):
I think that's very plausible now. During the Financial crisis,
I didn't view it quite this way, partly because I
know a lot of economic history and not least because
my parents were from continental Europe and escape from the
most obvious consequence of the Great financial crash, which was
the Great Depression and Hitler. In history, we have mostly

(05:45):
survived huge financial crises, but sometimes people don't deal with
the bank rum. And the most famous case obviously in
history was what happened in the thirties, and it led
the Federal Reserve completely failed to deal with it in
any sensible way, and it led to the Great Depression,
which was the biggest economic downturn in sort of modern

(06:07):
history of the last two centuries. And that led absolutely clearly,
it's a theme of one of my books, or part
of the theme with one of my books, to the
election of Adolf Hitler, and that led to certain other
events like World War two and the death of sixty
million people and so forth. So during the financial crisis,
I was really frightened now that they did do the
sensible things, all the things I wrote at the time

(06:29):
they should do. So I feel very happy about that.
They went back to Walter Badghocks, who knew how to
deal with these things, and that's in fine now. Right now,
I would agree with you, certainly, this is a bigger event,
because it's a fundamental undoing of the world economic order
as created after the Second World War. It is I

(06:49):
think also in the backdrop, a fundamental remaking of the
American Republic. And right now, of course it involves a
because it's both of these, and because of the extraordinary
role the US has played in the world since the
Second World War, since forty one. Really, with Paul Harbor,
it really means a remaking of the entire world order.

(07:12):
So we right now, I think the most important thing
that I say when anybody asks me what's going to
happen next, is I really don't know, because nobody can.

Speaker 2 (07:21):
Since you brought up the economic policy of the nineteen thirties,
and since Joe is currently reading Adam Twos's Wages of Destruction,
and everyone who has interacted with Joe over the past
two weeks that you are reading about it.

Speaker 3 (07:35):
So what I do I tell everyone reading Adam Owes.

Speaker 2 (07:38):
You a commission at this point, because you are literally like, Hi,
I'm Joseph Eisenthaal. Have you read the Good Book of
Wages of Destruction? Like this is Joe right now? Talk
to us a little bit more about any parallels you're
seeing between the current economic environment, or I guess the
grievances felt by American policy makers versus what we saw
in the nineteen thirties.

Speaker 4 (07:58):
I think that what is striking to me is the differences.
I do argue in the book I wrote, the Crisis
of Democratic Capitalism, which you certainly should read.

Speaker 2 (08:07):
Well it's on the list, is.

Speaker 4 (08:10):
This idea that the global financial crisis was a very
big shock. It had quite long lasting effects, notably so
in the US, and I argue in that book that
one of the reasons, probably the main reasons that the
Republicans Party, when they start realizing what had happened, shifted
from Mitt Romney to Donald Trump as the candidate, which

(08:32):
was an enormous revolutionary change, is that shock had, as
it percolated through, helped a very large number of relatively conservative,
middle class Americans feel that this Reaganite stuff about free
markets and so forth was, to put it bluntly, crap,
because these people are led them down the path and

(08:53):
they wanted somebody to embody their ideology. Their attitudes very
reactioning ones, in my view, but not with that economic baggage,
and Trump was the perfect person. So in that sense,
I do think the global financial crisis, it's a theme
of my book. It's not the only reason. The industrialization
and other themes which Trump plays with are also important,

(09:14):
and I have a long discussion that going back to
the seventies. But that big shock I think played a
very big part in shifting the Republican Party in the
populist nationalist direction, and that's of course why we are
where we are now. So in that sense, I think
there is a link. But of course, and this is
the contrast for the reasons we've discussed in the end,

(09:36):
the policy makers involved basically under the Obama administration, many
of whom might of course know, some of them are
quite good friends. They did manage it in the way
it wasn't managed in the thirties, So there was a
fairly quick recovery. The financial sector was put back on
its feet, though within the immense amount of federal support,

(09:56):
and the economy is recovered. And what is striking about
this revolutionary moment in economic policy we're seeing It is
I think sort of unique, and I don't fully understand it.
It depresses me because but I have to admit it,
the American economy has done better than any other developed
country since the pandemic. The pandemic was a shot, but

(10:18):
it's motoring. Real incomes have been rising rapidly. The job's
performance was exceptional. Now that's about as far as Germany
in the thirty three Is you going to imagine when
unemployed was twenty five percent and it was not much
of a welfare state. So the economic explanation in the
classic sense doesn't really work.

Speaker 3 (10:39):
I've been thinking about exactly this because I have been
reading out of Jesus wag of Wages of Destruction, which
is the.

Speaker 2 (10:46):
Martin sent him a copy of your book already he
will do the same.

Speaker 3 (10:49):
Yeah, yeah, I'll plug it for two or three straight weeks.
But the only time that I you know, I have
very mixed feelings about all of this, because look, I'm
in these wonderful Bloomberg offices and I'm staying in a
nice hotel, and i have a job where I get
to type for a living. But like, America is an
incredibly rich country, and I was like, you know, the
distribution of financial assets in the United States is, as

(11:13):
everyone knows, extremely skewed to say, like the top one
percent or whatever. But the actual distribution of real resources
when you look at the size of American houses, when
you look at the number of people of cars, when
you look at the size of American refrigerators with ice
machines that typically work. America is an extraordinarily wealthy country
for a wide swath of the population. And so when

(11:35):
I read history in that respect, it doesn't read at
all to me like the actual real economic conditions that
I would say associated with the nineteen thirties.

Speaker 4 (11:46):
I think that's absolutely right. Of course, it isn't, and
that's created a puzzle. Nonetheless, it seemed pretty clear, and
I referred to quite a bit of literature on that
in my book, that it's not surprising. People are very, very,
very concerned about their relative positions. People are very very
concerned about their security, that's their sense of security in

(12:08):
their positions. And those anxieties often related not just with
their economic positions, but also more broadly with their cultural positions.
And Americas are countries that's gone through some big revolutionary changes.
The industrialization PUTAVL is real. That's a transformation of many
many communities. The push for gender and racial equality is real,

(12:33):
and it clearly runs up against anxieties and hostility that
was also very very real the new economy. Well, you're
absolutely right, clearly right. But it's still true when I
go through America, and on many occasions I've Pardikhar and
gone across the country to place it like Erie, northern California,

(12:54):
way far north. There are lots of poor people in America,
and most Americans that I know and see them because
they fly over them, but I've actually driven across It's
there are lots of poor people, and people are frightened
of ending up there. In my view, they have a sense.
You know, I'm one real hospital medical problem away from bankruptcy.

(13:15):
So I think there is in an insecurity and anxiety
which comes up with these cultural and economic things mixed
up to which Trump addresses his appeal perfectly. He's the
perfect populist for America. And one of the things I've learned,
which is new because I've never lived through it with

(13:35):
a political demogogue like this, how incredibly good a brilliant
demogogue is at exploiting those resentments and offering himself up
as the solution to all this. And that's the way
I would now see this.

Speaker 2 (13:50):
Speaking of resentments, I mean, it does seem if we
zoom out on an international scale, so away from the
domestic US economy. It does seem like the Trump administration's
major grievance is this idea that the US hasn't been
compensated enough for its role in the international financial system
and the fact that the dollar is a reserve currency
and all of that. And it's very difficult for me

(14:12):
to wrap my head around that particular position. Like, I
understand there are downsides and upsides to that special status,
but the Trump administration seems really committed to the idea
that this is a giant burden being carried by the
United States. What are your thoughts on that particular argument,
Like how true is that or like what are the

(14:34):
actual downsides? And then secondly, what do you think of
some of their policy proposals where they're trying to attend
to this issue and I guess alleviate some of their complaints.

Speaker 4 (14:44):
Well, what's particularly puzzling about the position they've adopted is
that while they do think it's a terrible burden, they
want to cling on to it with all possible might.
I mean, the people who made the most sophisticated analysis
of this, and that's obviously not Donald Trump Stephen Mirran,
he's a chairman of the Council of Economic Advisors, sort

(15:06):
of make it clear we want to get rid of
all the costs or come to that in a moment,
but we definitely want to make the keep the dollar
as the world's dominant currency. They really want to have
their cake and eat it. Well, this is really quite
complicated with the right answer is half an hour, which
we don't have. So the summary of it, the argument

(15:27):
about whether the dollar is a burden or a privilege
has really been going on since the sixties, and it's
when I started studying economics, so I'm very familiar with it,
and it led to the first attempt to readjust the
cost of this, which is the closest parallels to what
we are seeing now, which is Nixon under Nixon, the

(15:47):
Nixon Shock of seventy one when he basically tried to
get the dollar devalued to sounds familiar, right, I Mean,
that's what one of the things they're trying to do
is to get everybody to appreciate their currencies against the dollar.
And the reason they needed to get the dollar devalued
is then is they had a fixture change rate system.
Obviously not the situation. Now the dollar was tied to gold.

(16:11):
The monetary policy of view as in no way represented
what you should do if you're on the gold standard.
One of my constant points is that lots of people
say going off gold in seventy one was the worst
thing that ever happened. But my argument is that US
was never really on gold. We can discuss that if
you want, rather remote from this, but the key point

(16:34):
is he imposed imputs charges. Sounds familiar, and he told
them those will remain until you revalue your currencies, and
indeed they did get them revalued. John Connolly, the Treasury
sectually famously said the dollar is our currency and your problem.
And so he sorted this out as it were, and

(16:55):
that ended up in the regime of generalized floating. So
got its way, But after that no real effort was
made to readjust it. What is true for reasons that
are linked to the Asian financial crisis of the late nineties.
After a lot, I won't go through the plaza to

(17:16):
the louver simply because well it's part of the story.
Of course, another period of similar problem arose. There to
two other periods when this problem re arose. The excessive
appreciation of the dollar from the American sense and the
sense that was leading to uncompetitiveness and that affected important
parts of the economy and something had to be done

(17:38):
about it. And so that was Nixon was the first one.
The second one was the Reagan era, and he introduced
has some similarities with subsequent developments, more recent developments. He
had Paul Volca running the FED, so hypertite monetary policy
and a floating exchange rate and a big fiscal expansion,

(17:58):
right tax cuts. The combination of very aggressive fiscal expansion
tite monetary policy is a classic combination in economics to
lead to an appreciation of the real exchange rate. And
it did. The trade deficit exploded, Japanese cars wiped out
American cars. There was hysteria about this. The Americans introduced

(18:20):
voluntary export restraint on pose them. Bob Leittheiser, interestingly was
a negotiator at that time and has echoes, doesn't it,
and finally got so this created so much protectionist pressure
in the United States that the Americans decided that they
needed to get the dollar dey valued, and that was
what the Plaza Cord was about. And then two three

(18:43):
years later, I think two years later the Louver Agreement,
they decided to stabilize it. So that was another example
of this concern about people want the dollar too much.
Want we want it to be the global currency, but
we don't want too much demand for dollar. The third episode,
the more recent one, is really very interesting. It's the
theme of my previous book, The Chips and the Shops,

(19:04):
which is about the financial crisis, is after the Asian
financial crisis, two things which came together happened. First with
the explosion of China onto the world markets and China's
massive accumulation of reserves as a byproduct with termination to
keep the remnant be fixed against the dollar, and that

(19:25):
led to the explosion of the Chinese current account surplus.
It reached a peak of ten percent of GDP in
two thousand and eight. And the other thing that happened,
which went parallels after the Asian financial crisis, every trading
power in Asia decided we could never let that happen again.
And what they thought had happened to them was running
a current account deficit, a big trade deficit, and borrowing

(19:48):
lots of dollars because they discovered well most of the
dollars they borrowed was from Western banks and mostly American bankers.
They ran and they didn't have a central bank. They
got print dollars. So when it they had a run,
their economies crashed. And so their conclusion us, we must
accumulate dollars without limit more or less and run chrent
account surpluses to accumulate these dollars. Those two things came

(20:11):
together and that led to an enormous expansion of the
US external deficit, and that in my view, directly led
to the global financial crisis. So these are the three
episodes all around this same problem of the dollar's role,
and that's not wrong. Now, the question is how you
manage it. It's not fundamentally a trade policy problem, pretty obviously,

(20:35):
it's an exchange rate compativeness and macroeconomic policy problem. Interacted
and reasonably sophisticated policy makers who handled the previous episodes.
In the end, the presidents all of listened largely to
relatively competent economists manage these episodes, including most notably the

(20:57):
global financial crisis, which is the biggest of these episodes.
The basic point here is yes management of a global
system in which the money in the system, which is
the dollar is produced by one country does lead to
very significant instabilities, which is why intelligent people have thought

(21:19):
about this, have quite logically said, we'd have a better
economy if we had a world currency, but we don't
know how to produce a world currency. The Europeans created
the Europe for this reason. Within Europe. I won't go
into the question of whether it worked, but the point
is there is a problem here. Now. The problem is
how you manage it without blowing up the system. A

(21:41):
trade war with everybody at the same time won't solve
the problem because underneath it, it's a currency and macroeconomic policy problem.
And I think this mainly nowadays relates to the role
of China in the system. They're not wrong about that.
I've written quite a lot about this, but unfortunately, the
way the US is going about it, I don't see

(22:02):
how they're going to get to a resolution. But in
the end, the US has to decide do we really
like having the dollars the global currency pulse.

Speaker 2 (22:10):
They do.

Speaker 4 (22:10):
It gives an enormous power, It makes borrowing much cheaper.
It allows the biggest economy in the world to run
ridiculously large fiscal deficits six percent of GDP at full
employment with an explosive debt because everybody is invested in
holding dollars, and that gives the American policy makers spectacular

(22:33):
room for maneuver. They can have guns and butter and
they've done it many times, and periodically they get very
upset about it, but it's a choice they made after
the war. They could stop it, but they would lose
an awful lot in the process of the idea that
it's an unambiguous loss to the US. As has just
been pointed out, the US is despite this terrible burden

(22:55):
that they are whining about, an immensely rich and powerful
country which can spend more than its income indefinitely and
it's not going to go bankrupt. So from our point
of view, particularly speaking is a British person who knows
what happened when we lost this all those Sterling crisis
when I was growing up in the fifties and sixties.

(23:15):
Obviously we're all about losing that very very undesirable because
people ran from sterling and we couldn't run fiscal deficits
of six percent of GDP. We would blow up let's
trust ride, So we would say, stop complaining, guys, you're rich,
you're fat, and your currency is basically safe unless you

(23:36):
screw up monstrously, So why are you screwing up monstrously?
That's where we are now.

Speaker 2 (23:41):
Joe, Can I just say that was such a treat
Martin Wolf on the three defining moments of the development
of the global dollar reserve system, absolutely amazing, fantastic.

Speaker 3 (23:51):
I just have one question. Could you give us, like
the thirty second version of why we weren't on the
gold standard prior to nineteen seventy one, because I think
listeners be curious about that.

Speaker 4 (24:00):
Well, okay, well that's a very one kitchen. I'll just start.
The gold standard required a very strong relationship. I'll go back, really,
let's go back how the gold standard operated was defined
by all people, not an economist, but David Hume, the

(24:23):
great Scottish philosopher, one of the great geniuses in the
middle of the eighteenth century, when he explained very simply,
imagine gold is your currency. In that stage, gold pretty
well was the currency, though there was and so if
you ran a balance of payments deficit, you finance your
deficit with exports of gold. And what that did is

(24:44):
as the goal was disappearing from you you were being
demonetized and the money in the economy was shrinking, and
so what you had to do is lower your prices go.
He was a moneitorist, as all economists were, and I
still am in some ways. And so prices are just downward.
That makes you more competitive, and that will adjust the

(25:04):
balance of payments and will move into surplus. That's how
it's supposed to work. So if you're on the gold
standard properly, and you have a currency linked to gold
with a fixed price, which Sterling had the four nineteen
thirty one, well we'll go into the history of Sterling
and gold, and the US was supposed to have until
seventy one. Then if there's a gold drain, you're exporting

(25:27):
gold to satisfy creditors who accumulating claims upon you. Your
monetary based shrinks. So your monetary policy should tighten automatically,
and that will introduce deflationary pressure in your economy, and
your price level will fall, and that will equibrilate equilibrate it.

(25:48):
So in the late sixties and early seventies, let's take
this episode, the US ran a huge current account deficit
and the main reason was they decided to finance the
Vietnam War by increasing the fiscal deficit, so they created
access demand in the US. That created inflationary pressure in
the US that went on for quite a long time
and a huge current account deficit. But they didn't want

(26:09):
to allow the FED to start tightening monetary policy and
deflating the American economy to reduce the prize level. They
were very happy running these huge current account deficits, and
that made, of course, the rest of the world was
accumulating dollar claims at a very rapid base, particularly the Germans,
the Japanese and so forth. And after a while while

(26:31):
they started on France and they started saying, we don't
want all these dollars, we want our real stuff, and
they started converting their dollars for gold, and that's when
the drain on Fort Nosk happened. And then the US
had a very simple choice. It was pretty obvious. We
were discussing it when I was a student in the
late sixties. They could ignore this and the goal would disappear,

(26:53):
and then they would have to go off gold. They
could reprice gold, which they didn't want to do because
it was a recognition of failure, or they could go
off the gold standard, and the one thing they didn't
want to do was deflate the economy. That meant they
were ignoring the rules of the gold standard. The rules
of the gold standard were, if you were losing gold,
you had to deflate your economy to make it competitive

(27:16):
again by lowering your dollar prices in a fixed rate regime.
And at these crucial moments, this crucial moment, they chose
not to do that. So the regime collapsed and in
the Great Depression, by the way, even more important, they
failed to do the reverse. At that stage, they had
a huge current account surplus. America was very very competitive,

(27:39):
and the US was of course price level was collapsing,
so it was becoming even more competitive, and that was
exporting the depression to the whole world through the gold
standard system. And so what the US should have been
doing instead of allowing the money supply to collapse. Friedman
of course wrote classically about this his book with Anna Schwartz.

(28:01):
They should have been expanding the money supply like crazy.
So this was the inverse that was the first Great crisis.
What I discussed earlier was the second crisis of the
gold standard in the twentieth century. So in the Great Depression.
The US failed to follow gold standard rules, which was
precisely when they had a huge garret account surplus and
they had this immensely strong position in the gold inflow,

(28:26):
they were not pursuing massively expansionary monetary policy. On the contrary,
they were pursuing massively contractiony monetary policy, making it all
worse and the price level was collapsing in the US.
So again they failed to follow the rules of the
gold standard. The US showed itself and like the UK
in the long period it ran the gold standard a
country incapable of allowing the foreign position basically the balance

(28:50):
of payments to force its monetary policy in directions either
expantory or contractionary. So my view is that the gold
standard under the US from the twenties onwards, that was
basically when it shifted from a sterling base to a
dollar based gold standard. The US never followed the rules
of the gold standards. In two colossal episodes, it ignored them.

(29:13):
So of course the gold stander collapsed, and all these
whining about this again is ridiculous because the US has
never had any intention and that's what we're seeing now
of allow any international rules of greed rules from actually
forcing it to do something it didn't really want to do.

Speaker 2 (29:46):
We could happily just keep asking you questions about, you know,
financial history, but since we are in London and there
is a lot going on, I feel like I have
to ask at least one UK specific question. So I
met with some friends of mine from universe. I've been
meeting with them like over the past few days. All
of them are professionals, seem to be doing pretty well
in their career, but the discussion always ended up centering

(30:10):
on salaries and real wages. I knew the UK had
a productivity problem and a real wage problem, but I
was surprised to hear the extent of it, at least
according to some of my friends. What's going on there?
Why has this happened?

Speaker 4 (30:25):
I think that I like what we've been discussing so far.
This is one of the great puzzles. Actually, I call
about this very very recently on based on recent work,
and it's not unique to the UK, though I will
describe one aspect which is an outlier up to two
thousand and eight, so from about nineteen ninety two thousand
and eight, so after the Thatcher Revolution two two thousand

(30:48):
and eight, British productivity growth was really pretty strong. So
between nineteen ninety and two thousand and eight, output ahead
in the British economy rose by I think it was
about thirty eight percent, which is pretty good over a
period of seventeen years. It was around two percent a year,
and that was much better than our European peers and

(31:12):
quite a notable improvement of what had happened in the
seventies and eighty so we felt pretty happy we were
catching up again. Since then, since two thousand and eight,
OURPA behead has gone up over the entire period by
a little over five percent. Just think of that contrast.
It's dramatic. Now. ALP behead in other European countries has

(31:33):
not been much better over that period, but they were
already doing relatively poorly before two thousand and eight. The
slowdown in the UK has been greater than anywhere else.
Up to two thousand and eight, we were doing about
as well as the US, and since then we've been
in a different class. So it should be saying if
you look at the whole period since two thousand and eight,
the US has actually been doing worse than in the

(31:55):
previous period the US looks so great because everybody else
has been doing so badly. So the question is why
has this collapse in the UK happened? And I honestly
think we can think of lots of possible explanations, but
we don't fully understand it. You can't identify it in
just one sector. Though there are some sectors which are

(32:18):
particularly important. It seems to have happened in most sectors.
Our investment rate is very low, but it's always been
relatively low, so it's difficult to say the change there
is decisive. There are some aspects of the public sector
which clearly are important. The weakening and decline of the
oil and gas sector is important. The fact that the

(32:39):
financial sector has never been as dynamic as it was
before two thousand and seven and eight is important. But
the extent of the decline and what is essentially the
loss of dynamism in British capitalism, if you just look
at the foot seat, look at the stock market, in
most of the companies there are old and dying. We
don't fully understand. It is no doubt that the complete

(33:01):
absence of a dynamic, technological, high tech sector is important.
When you start looking at the detail, though, and that
was very interesting in this column, and the work I
did in this column is it's pretty clear that an
even bigger difference is in the use of technology in
the rest of the economy compared with the US. So
I think that we can see what's happened. There's been

(33:23):
a general loss of dynamism in the private sector, but
it's very difficult to ascribe into specific policy changes because
there really haven't been dramatic once we very much the
tax regulatory system is much like it was before. What
looks like is that there's sort of just dying. And
this is sort of a European wide problem in too so.

(33:46):
And of course if productivity growth disappears, re waged growth stops,
because in the end, the real wages are incredibly highly correlated,
not perfectly with the rate of growth productivity in the economy.
The same is true for the US if you look
at long periods, distribution matters a little. But Paul Gruman
actually said this, well, a long time ago, productivity is

(34:09):
and everything, but it's almost everything. So the basic answer
to this question is we know, as it were, what
the proximate cause is, but we don't know why it's happened. Fully,
I have lots of theories, but we don't really know
why this has happened. And it's a general European problem
to some degree. Also in East Asia Japan is noticeable,

(34:32):
though actually in the recent past pandemic post pandemic period,
Japan has done relatively well.

Speaker 2 (34:39):
Since you mentioned Europe, one of the things people are
getting excited about now is the idea that maybe the
teriff w US isolationist policy is going to be this
big catalyst for Europe. And we've seen European mainland stocks
certainly go up recently. People are getting excited about finally
we're going to have, you know, maybe the prospect of
some real fiscal integration, or if not real physical integration,

(35:02):
at least a lot more fiscal spending on things like
defense and stuff like that. Is that a realistic possibility
in your view?

Speaker 4 (35:10):
Well, and just to support this, even though it's partly
an economic shock which the Trump administration has given Europe
to big sharks, it's created a sort of security panic.
Is NATO over and that was particularly focused on the
issue of support for Ukraine and an economic shock, which

(35:30):
was the proposal now withdrawn for another eighty odd days
of penal tariffs twenty four percent. I can't remember what
exactly the figure for the EU was, somewhere in that range.
Do you have the two together. This is a crisis.
So if not now when, If you believe, as John Maney,

(35:51):
one of the great founding fathers of the EU said,
that Europe is born in crisis, this is a big crisis.
The world order is being transformed, and the crucial ally,
the country on which we're heavily dependent, has got absent,
as it were, possibly even hostile. So that's the plus side. Yes,
they really ought to respond. The obstacles to change are

(36:13):
also very very big. Europe is fragmented. It doesn't have
a genuine people. The brexitters were right when they always
said Europe doesn't have a demos, it doesn't have a people.
It has people's it's not surprising. Look, you know, the
Roman Empire disappeared fifteen hundred years ago and Europe has
effectively been dis divided ever since, except under the Catholic Church,

(36:36):
and we know where that ended up in the sixteenth century.
So the answer is that I don't know whether this
crisis is big enough to force the source of changes economically,
which Mario Dragi wrote about in his report or politically
to deal with the security questions. I tend to be

(36:57):
skeptical simply because I know how big these challenges will be,
in how much resistance there has been to every other
necessary change. I think the crisis may have to get bigger.
But I don't rule out the possibility that the crisis
will get bigger, because if you ask me what will
the American policy look like a year from now, I

(37:17):
have absolutely no idea, but it could be much more
hostile than it is now. It's quite thickly possible, in
which case maybe the Europeans really will be forced. At
the moment it looks like individual nation state response, not collective,
and they're the One really big change I think is
that the Germans are panicking, and Germany, in the center

(37:38):
of Europe, is always prone to feeling insecure. That's part
of its history. And I think it's pretty clear that
the new government coming in will be much more aggressive
on economic policy. It's forgotten the debt break nonsense. It
clearly will mount a pretty big defense build up. It
will become a much stronger motor of demand and all

(37:59):
on its ow. Though it can't carry the whole of Europe.
That will make a big difference. But I think in
the end, at least in the next few years, we
should trust more and what individual nations, above all Germany do.
It's much more difficult for France, which is also very
divided politically. Remember there's a very big what i' referred
to as fifth column, a Putinist fifth column in Europe,

(38:22):
and France is usually fiscally constrained, unlike Germany. So I'm
modestly optimistic about the near term, but a really big
leap into Union. I don't see the idea of.

Speaker 3 (38:51):
Ninety days and the US is going to sign all
of these by letter or trade deals with partners all
around the world strikes me absurd on its face. I mean, these,
you know, trade deals take years and years to negotiate,
and especially the limited constraints whatever I strike to me
as I'm certain, nonetheless I mentioned in the beginning. You know, normally,

(39:15):
I'm sorry, I would not typically care, how you know,
the approval ratings of the United States and Sweden or
Denmark do not typically particularly interest me. But in an
environment of attempting to do deals, it strikes me as
very relevant that the leaders of these countries have to
be accountable to the individuals who elected them. Talk to
us about the mood either among the elites who are

(39:38):
going to be involved in these theoretical negotiations which I
don't even know if they're existing, and the impulse to
try to rectify and to try to come with two
friendly relations with the new administration in the United States
right now, how bad is it and how much of
a hindrance is that to achieving something that resembles a

(39:59):
happy out come.

Speaker 4 (40:01):
So I think this has to be broken down also
to several elements. Countries will want to reach a deal
with you. The US is very important. It's a very important
partner in terms of both security and trade, and the
administration is correct that these are linked in people's perceptions,
and this is particularly true for the Asians broadly defined,

(40:25):
particularly East Asians and Europeans. So they will want to
reach a deal if they can. The second issue, which
is really important is they will need to feel that
this is a deal and this is about trust. Particularly
it's got politically painful aspects to it. I'll come to
the substance of the deal in the next is they

(40:47):
will need to feel that the US is going to
stick with it, and there's no doubt whether in a
way I think for policymakers who are reasonably professional, whether
you like the country or not is not that important.
Though obviously the people really ate the Yanks. It's going
to become more difficult. But the crucial question they have
is can we trust that we're not going to go

(41:08):
through this every week?

Speaker 3 (41:10):
Are we?

Speaker 4 (41:10):
And at the moment they're not sure if they won't
have to do it every week. And there's no doubt
in this regard that the treatment of Canada has been
quite a shock. Yeah, you know, that really came out
of the blue sky. I was always pretty pessimistic about
what the Trump adminissian would do, but this has been
really quite out of left field.

Speaker 2 (41:29):
And the.

Speaker 4 (41:31):
Well, Greenland, yes, but Greenland is less important than Canada's
a real long term ally friend. You Trump himself signed
the United States, Mexico and Canada agreement and then sort
of blew it up, So that makes do we trust them?
The third is obviously you can't do a detailed trade deal,

(41:51):
and they seem to have an ambition to somehow link
the currency with it. I have absolutely no idea what's
going on in these discussions. No nobody, i think, seems
to do and that seems to know in detail. But
there is something that somebody suggested to me and I've
been thinking about that the Americans might be saying, which

(42:13):
might fit into their general theme. Assume that all this
smoke and mirrors is basically a cover for the complete
decoupling of the world from China. China, that's all they're
trying to do.

Speaker 3 (42:26):
And this is as you're willing to be part of their.

Speaker 4 (42:29):
Deal and having frightened people and shaken them enough with
these absolutely ridiculous bilateral tariffs nonsense, which everybody can see
is an unworkable way of running world trade. Discuss that too,
but that's a different matter. So basically what the US,
let's suppose the US comes up is that we will
go back to the status quo anti if you follow

(42:51):
our tariffs on China, right, that's the deal, and we
promise again this come back to the trust if we're
going to comple completely burn our boats with China. And
it's particularly applies to some of the Europeans and Japan
in all the countries in the region, we really have
to trust America. So it's a very big ask. But

(43:15):
that's a deal that maybe quite a few countries would
be willing to sign, but I certainly wouldn't guarantee it because,
as I said, it's a tremendous cost. They all know
China is an immense and rising power for many countries.
It's their most important trading partner. For most countries they

(43:35):
trade with the US. Though important. Isn't that europe can
survive without it? Let's be clear. I mean, we are
real adjustment, but it's not. You know, the most important
trading partners are themselves, if I remember, they trade more
with the UK than the US, so they can survive.
But if the US is really after getting everybody else
to break with China and or agreeing that they're going

(43:59):
to go on the holding the dog they are getting to,
they're not going to crease their reserves. Europeans don't have
much anyway. But I could imagine a very simple deal
like this might work with quite a few countries, but
it won't work with everybody, and it will shatter the world.

Speaker 3 (44:15):
But it leads.

Speaker 4 (44:16):
It sort of makes if you think that really what
the US is about is breaking China, which I don't
think they can achieve by the way, I don't think.
I think China will survive perfectly well, but the it's
another matter. But then I can see something might come
out of it. But if they're really trying to negotia
to a real trade deal with every single country and

(44:37):
it's all going to be different, that's completely impossible.

Speaker 3 (44:41):
Tracy. There's a good article yesterday on the Bloomberg Trump
putting pressure on the Hungarians say, because there's a hunger
is a huge destination for like real capital influence from China.
Like Nick Denton, we'll talk about it. There's uid factor,
is there, so like the pressure there and you know
Orbit is like a Trump guy, et cetera. So these
are really interesting tensions.

Speaker 4 (45:02):
Well, Auburn has a very bad economy. He runs his
system as a crony capitalist system. It surprise and Brides
doesn't work very well. He's desperate and the Chinese know
he's desperate, and the Chinese are very clever. So he's
playing both sides. My feelings, it couldn't happen to a
nicer man to be squeezed by the too, the totalitarian
system and the authoritarian system. At the same time, Victor

(45:24):
Oben deserves it.

Speaker 2 (45:26):
So I'm just going to ask one more question, the
most important one. You know, we started this discussion talking
about the development of our current bout of political populism
in the States on behalf of my dad, who believes
that the Bank for International Settlements is secretly ruling the world.
Can you please tell him what actually happens at Builderberg.

(45:47):
You've been there right.

Speaker 4 (45:48):
Well, there are two very different themes.

Speaker 2 (45:51):
Yes, I realized, but it sounds.

Speaker 4 (45:53):
As though your dad, I am shocked to know, is
one of these American conspiracy theorists. Yes, to put it wildly,
Bildeberg and the BIS are two completely separate institutions to
do completely separate things. And all I can say, having
followed the BIS pretty closely for a very long time,
they might wish to be bavel, but they surely are not.

(46:17):
And one of the best examples of this I will
give you of their failure. I like evidence, right, strange thing.
Up to two thousand and seven, the chief economists of
the BIS was a very dear friend of mine whom
I much admired, Bill White, a Canadian, and he was
arguing against all the central banks, particularly Green Spans fed

(46:38):
that monitor and then Ben Bernanke's fed the monetary policy
was far too loose, that as a result, the financial
sector was going completely crazy, and that if they didn't
do something about this, they were going to end up
with a whacking great financial crisis. And the BIS did
a wonderful job of warning people and nobody listened, which

(47:04):
would suggest to me it's probably the clearest evidence that
they don't run the world. And also quite possibly if
they had run the world, and I wrote a bit
about that in the time, I think it was a
bit more complicated even than that, linked to the balance
of payments and so forth. If they had, we were
might be in great much greater shape, better shape now
and Trump would now be president. And so if only

(47:26):
the BIS run the world is my answer. Builderberg was
just a very meeting of business people, politicians and so forth,
created by the Dutch of all people, heartily the world's
greatest enemy of freedom and so forth, I might say,
even the inventors of modern capitalism at a national level,

(47:47):
and because they thought after the Second World War we
needed it informal meetings among elites. Yes, there are elites,
to keep the Transatlantique relationship it working. That was what
it was for and it was set up by the
Dutch royal family to make this work. And I was many,

(48:10):
many of meetings in Builderberg. I'm very proud of that.
They were fascinating discussions in which people said things that
would never, I think have been said in public, and
from which I learned hugely. The greatest example to me,
which is unbelievable, was the relationships between the Americans and
the Europeans, particularly the French, in the lead up to
the Iraq War, when it became perfectly obvious that the

(48:32):
US was crazy. Another example alas again, if Bilderberg meeting
had been as powerful as everybody thinks it would, Trump
would never have happened, because that's exactly precisely what Berg
was trying to prevent.

Speaker 2 (48:48):
I will communicate this to my dad. I'm not sure.

Speaker 4 (48:53):
All I can say is Builderberg and the BIS have
been astoundingly unsuccessful what they wanted to achieve.

Speaker 3 (49:00):
I just have one last question. It kind of goes
back to Tracy when we were talking about the dollar,
and you know, and you talked about the mechanics of
the old gold system in which you deflate your economy
and your experts become more competitive One of the things
that is a recurring theme on this podcast is that
when it comes you talked about the industrialization, when it
comes to industrial capacity or even construction capacity, sometimes talk

(49:24):
about nuclear the US is out of practice that setting
aside exchange rates, et cetera, That that institutional muscle to
build a new nuclear plant or to build a very
you know, productive new Carl ev line, a T shirt factory,
given a T shirt factory, we're out of practice. And
it makes me wonder like our exchangery is really even

(49:46):
an important lever in the modern economy when we think
about it, and you know, there's so much about network
effects at San Francisco, there's only one San Francisco, and
there's only one Shenzend et cetera. Just putting on your
purely economics commentary, hat do you see exchange rates as
being particularly important in the modern economy to think about

(50:08):
the distribution of production?

Speaker 4 (50:10):
The short answer is no, they're not completely unimportant. I mean,
if you want to have the capacity to build infrastructure, yeah,
it's a good idea to build infrastructure. And anyone who
wanders around the US a lot realizes you haven't been
If you've been wandering around China and wondering around the
US as I have in the last No, it's because

(50:30):
you decided to waste your money on tax cuts instead
of build things. When did you last build a nuclear
power station?

Speaker 3 (50:39):
You know, there was the vote, the voter, but yeah,
other than the one in Georgia, Yes, so it's a
long time.

Speaker 4 (50:45):
When did you last build major roads? What happened to
your fist high speed trains, your subways?

Speaker 3 (50:50):
I mean, that's not a doult.

Speaker 4 (50:52):
That's because the Chinese invests forty percent of GDP, you
invest about twenty difference, Yes, and they invested in infrastructure
to make them a modern economy, so they have stupendous
capacity to build infrastruture. Do you want to invest forty
percent of GDP?

Speaker 3 (51:08):
You can.

Speaker 4 (51:08):
All you have to do is cut consumption by twenty
percent of GDP. Good luck with that jumps So obviously
not the industrialization. Every developed world country is de industrializing
because why consumers aren't spending much as much as before
on manufacturers because it's a very rich country and every

(51:31):
American has every machine you can imagine, So it's just
replacement stuff. The replacement demand for iPhones is there.

Speaker 2 (51:40):
But it's small.

Speaker 4 (51:41):
So in the end, of course you're not. Now it
is true, you could be making more of your consumption
at home. That would possibly raise the share of manufacturing
USGDP by three percentage points at most of you eliminated
the deficit, maybe four maximum five. That's all going to
fundamental transform industrial capacity because unlike China, which is still

(52:04):
a very poor country where people are still buying their
first car, their first everything, the US doesn't have the deviton.
And of course Chinese wages are genuinely cheaper, much cheaper
because it's much poorer. Do you want to be that poor?
So no, of course these are real forces. Of course,
the trade service of China is I think a bit

(52:24):
of a disruptive factor, and I've argued for twenty years
something should be done about it. But the idea that's
the principal problem of the US and of de industrialization
in the US, it's just.

Speaker 3 (52:36):
Nonsense, Tracy. I just got a new fridge with a
working ice maker. I'm not signing up for a big
consumption decrease. I'm just putting it out there.

Speaker 2 (52:44):
Aren't you going to have to buy another fridge with
a working ice sensor? In like a month or ye.

Speaker 3 (52:49):
Sure does never work.

Speaker 4 (52:50):
Well, that works if you can scrap you buy a
fridge every year and scrap it and make sure it's
an America made fridge contribute sumpject. But obviously, if you
smash domestic consumption in the US, that's not going to
do much for domestic manufacturing. It will shift, however, to
the sort of products that go into investment. It is

(53:11):
perhaps important to remember the composition of demand is very
important in determining the sorts of stuff you make. But
as somebody you've said when you talked about T shirt,
does the US really want to go back to being
the T shirt hob of the world? And I mean,
it's just ridiculous, isn't it.

Speaker 2 (53:27):
This is the thing that I really don't get about
the push for the weaker dollar. It's like we're gonna
trade off slower growth for a few T shirt factories
potentially and a very slight, like I guess accounting effect
from the exchange rate. It doesn't seem like the best
deal to me, But here we are. Martin Wolf, thank

(53:48):
you so much for coming on all thoughts. Yeah, I
really enjoyed that.

Speaker 3 (53:52):
Really that was great.

Speaker 5 (53:53):
Thank you, Joe.

Speaker 2 (54:07):
That was so much fun.

Speaker 3 (54:08):
That made the whole trip to London basically. I mean,
I imagine if we had cajoled him, we could have
gotten him eventually to come out of zoom. But I
feel like that made the whole trip to worth it.

Speaker 2 (54:17):
It was definitely better in person. And I have to say,
when I used to work at the Ft, Martin was there.
I never spoke to him. I wasn't like important enough
to interact with one of our best columnists, but I
remember I used to see him like in the FT
cafeteria with like twelve different newspapers spread out in front
of him, and I was always like, oh, there's Martin

(54:39):
Wolf thinking deep thoughts about the woe, and.

Speaker 3 (54:41):
There was you know, I'll say two things, one macro
thought and one micro thought, which is Martin yet another
example of someone who is interesting because he knows specific details,
which I'm always trying to hammer home, like people who
know actual dates and figure et cetera. They're always smarter

(55:03):
and better thinkers than the people who don't commit those
things to memory. And then the micro thing is I'm
really just like interested in this idea that there used
to be a world economy in which things adjust right that. Okay,
you export your gold, you have deflation, your competitive your
domestic industry is more competitive, you get sales globally, and

(55:26):
then you know, you reflate your economy, et cetera. I
just do not right now believe the world works like
that in such a way that suddenly the US would
become a competitive manufacturer of goods simply by dint of
having a weaker dollars.

Speaker 2 (55:44):
Yeah, and certainly not as quickly as certain US policy
makers seem to think it could happen. Right Well, the
other thing I would just say is it's good to
talk to Martin for many many reasons, Yes, but also
I think he's sort of representative of the fairly like
baseline view among European policy about everything that's going on
right now. And his point about making trade deals yeah

(56:06):
with the US at the moment, I mean, I think
that's like the realistic position that a lot of people
are taking.

Speaker 3 (56:11):
It's interesting because one of the things that I've been
wondering about, so like that chart that Donald Trump showed
on April second, was complete nonsense. The board, Yeah, the
board that change the world, the Liberation Day board. So
it's like, what is the ask because it's obviously not
lower tariffs or lower non tariff trade bearers, because that's
all fabricated it is, and people are converging on the idea.

(56:34):
The only realistic ask is asking other countries to truly
break their relationship with China. And it's interesting that Martin
thinks that there could be a number of them who
actually would be willing to sign up for that, that
the price of free trade with the US is much
more restrictive trade with China.

Speaker 2 (56:55):
I'm glad you also brought up Hungary because I feel
like that's going to be a really interesting test case
to because you know, if anyone is going to walk
away from China because the US is telling them to effectively,
it seems like it might be Hunger, could.

Speaker 3 (57:07):
Be except that they're such a destination for Chinese capital investments.
There was so much in that conversation. There are other
things that I probably wanted to mention and pull out,
but all the listeners heard them. So those are the
things that said.

Speaker 2 (57:21):
Up, let's go to Nando's instead. Okay, shall we leave
it there?

Speaker 3 (57:24):
Let's leave it there.

Speaker 2 (57:25):
This has been another episode of the Odd Thoughts podcast.
I'm Tracy Alloway. You can follow me at Tracy Alloway and.

Speaker 3 (57:31):
I'm Joe Wisenthal. You can follow me at the Stalwart.
You can follow an automated feed of Martin's columns at
the Ft at Martin Wolf Underscore, follow our producers Carmen
Rodriguez at Carman Erman dash El Bennett at Dashbot and
kel Brooks and Kilbrooks. And thank you to our London
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(57:52):
Laws content go to Bloomberg dot com slash odd Lots,
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Speaker 2 (58:05):
And if you enjoy odd Lots, if you like it
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