We fought the pandemic and the war won

[00:00:00] The largest fall in output for more than 300 years, not expected to return to pre-crisis levels

[00:00:08] until the fourth quarter of 2022. Underlying debt is forecast to continue rising in every year.

[00:00:16] This is the Debunking Economics podcast with Steve Keen and Phil Dobbie.

[00:00:22] Well that was for my UK Prime Minister Rishi Sunak talking about the devastation caused to

[00:00:27] the economy by Covid, but we have been through tougher times. How did the economy go with the

[00:00:33] Second World War for example? Was there anything we could have learned from that experience? Because

[00:00:38] it does feel like we're going to be paying for Covid for a long time yet to come. That is this week

[00:00:43] on the Debunking Economics podcast me and Steve Keen welcome along.

[00:00:55] So some numbers to start with Steve which I'm getting from our world in data.org which has

[00:01:00] got a lot of numbers on that website. UK GDP in pounds adjusted for inflation so in value terms

[00:01:07] the equivalent to 2013 British pounds GDP in 1945 at the end of the war was £301.6

[00:01:15] billion. The next year it was £292.8 billion so in real terms almost a 3% fall in GDP. It fell a

[00:01:24] bit more in 1947 to £288.9 billion so over those two years basically we saw a 4.2% drop in GDP

[00:01:31] in the UK. That was it the consequence of the end of the war. I mean it's quite a fall but

[00:01:36] as you can imagine we haven't actually seen anything like that despite the ravages of

[00:01:40] the pandemic have we. So even though 4.2% sounds like well you know given it was a war not bad

[00:01:46] but we had a pandemic and we didn't even see that you know over the over the two years that

[00:01:51] followed so have we have we got off scot-free? Well in one sense in the economic sense what we

[00:01:57] did was and this is the point that people just can't get their heads around after an event

[00:02:02] which they're saved by by this very factor. The government dramatically increased spending at

[00:02:07] the time and it had to if it hadn't decreased the spending then there would have been everybody who

[00:02:12] couldn't go to work would have been and it'll pay their rent or their mortgage their lender or

[00:02:17] their landlord would have been in the same situation with their finances we would have

[00:02:21] had the biggest financial crash in history. We didn't and then the real reason was

[00:02:27] suddenly governments discovering they can create money which is a sort of thing you know

[00:02:31] myself and my hearty band of not orthodox economists they're arguing for going on a century now not

[00:02:38] being listened to when it comes to a crisis that can be put into effect and in some ways the same

[00:02:43] thing applies for the world. Although they haven't they haven't totally accepted that that because

[00:02:46] they've gone back to the same old bullshit again I mean the stuff that Reeves is coming out with

[00:02:50] you know I'm pretty certain she actually has deliberately taken Keynes's old statement

[00:02:55] if we can do it we can afford it and turn it around if we can't afford it we can't do it.

[00:03:01] That has taken us back we're now in a pre-Keynesian world and we look back to the 19th century we had

[00:03:08] a major financial crisis every 10 to 15 years and these people think they're stabilizing the

[00:03:14] economy and they're putting us back to the chaos and instability of the 19th century.

[00:03:19] So people are suffering obviously I mean you know we talked a week or two back about my own

[00:03:26] family and how they're suffering as a consequence of all of this which is definitely the result of

[00:03:30] the slowdown that's resulted from the pandemic but generally compared to the end of the war

[00:03:36] I mean the OBR you know which is a bit of a right-wing forecasting think tank.

[00:03:42] No no no it's not a bit of a right-wing it's a right-wing forecaster.

[00:03:45] They are saying that real tax income per person is going to return to pre-pandemic levels

[00:03:52] so the levels as they were in the final quarter of 2019 will be back there by 2025.

[00:03:59] So even though we've had you know the policy of almost like austerity almost back at austerity now

[00:04:05] really aren't we yeah as we try and recoup those losses that from government spending that's the

[00:04:11] way they see it even given all of that we're you know the impact is going to be like a five-year

[00:04:18] impact and we're back where we were. Yeah yeah and it shows the effect of it shows

[00:04:23] the effectiveness of what they're now shutting down which is government spending as a counter-cyclical

[00:04:29] input to an unstable market system and the crazy thing is this is the pandemic is the first time

[00:04:37] that a downturn has been caused by the only method that neoclassical economics allows for

[00:04:43] downturns which is exogenous shocks. So he got an exogenous shock you know from you know maybe it's

[00:04:49] not entirely exogenous that the fact that we've got a pandemic spreading has got a lot to do with

[00:04:54] how we're putting pressure on the planet from the economy itself but you know it was almost

[00:04:59] like a medial strike in that sense hitting everywhere bang the economy goes down bang

[00:05:03] it's right up again and why because of government spending which the slot think is dangerous it is

[00:05:09] you know the capacity of people to forget that's one thing I'm going to say that Reeves is more

[00:05:13] exceptional than her 1945 counterpart she's forgotten even faster than they did. Well we spent of

[00:05:20] course our way out of the war didn't we well we spent our way into the war spent our way

[00:05:23] through the war and spent our way out of the war because because we had to yeah you can't outsource

[00:05:28] a war to the private sector the private sector does very nicely thanks very much out of

[00:05:32] making the arms but they you know they're not the ones who finance the purchases so yeah it's it's

[00:05:38] just this and then this it is so tedious to be someone who's been part of a tradition that goes

[00:05:46] back to the 1910s actually with Sean Paterson you can even drag it back earlier earlier to the

[00:05:52] fights people had against Adam Smith and David Riccardo with their attitude about money way

[00:05:55] back in the 1800s and late 1700s for that matter but the practicality the reality is that

[00:06:01] governments create money they don't borrow it that money is not a commodity money is a

[00:06:06] promise to pay the government's one of the two sets of institutions that create that promise to pay

[00:06:11] the other being the private banks that it does it without creating debt for the private sector

[00:06:15] unlike the private banks all this stuff has been known for you know from my entire

[00:06:20] intellectual career and five times as long back in time and we continue going back to

[00:06:25] the same ludicrous religion that believing the government is borrowing and that's really

[00:06:29] dangerous we can't have it happen right and and that didn't happen in 2008 so we had a bigger dip

[00:06:34] in GDP in 2008 so in 2007 UK GDP was 1.54 trillion two years later it was 1.46 trillion so that was

[00:06:43] actually a five percent drop in two years way bigger than the four we've seen well after the

[00:06:48] war and after the pandemic and that again showed that that stage you had basically this is what

[00:06:53] happens when you have a neoclassical economist in charge and this is the frustrating thing

[00:06:58] they don't know anything about the real economy there are experts and a model of the economy which

[00:07:02] is fundamentally wrong and then what that means is when the crisis like the global financial

[00:07:07] crisis hit which as you know is one of the people you know that's on one large way we

[00:07:10] met I was warning about it so much you couldn't help but hear me on the on the Australian

[00:07:15] radio waves and news programs um but they had no idea it was coming and then when it hit them

[00:07:21] they reached their textbook and the textbook said oh give money to the banks and the banks

[00:07:25] will lend it out when again the brooch to economics that I'm part of has known for over a century

[00:07:30] that banks can't lend out reserves so the whole idea that that could create so therefore

[00:07:35] we because they were completely caught by surprise and they weren't aware of the severity of the

[00:07:40] the level of private debt that caused the whole thing they flummoxed and and they put

[00:07:45] their own textbook stuff into uh effect and what we got was the slowest recovery from a downturn

[00:07:50] in basically in the history of american capitalism is not even you know just a haul in the stupid

[00:07:56] two fallacious arguments there one was you know the whole thing about lending out reserves the other

[00:08:00] one was people actually wanting to borrow when the chips are down I mean you know if the economy

[00:08:05] is not growing why borrow exactly and then it says you know straight ordinary common sense

[00:08:10] in that sense is better than doing a bhd and economics and swallowing the the bullshit

[00:08:16] you consume from your lecturers which you then reproduce and dump on top of the society so what's

[00:08:21] changed in terms of jobs then so the unemployment rate was low after the war for obvious reasons I

[00:08:25] mean there were fewer people to start with there was the survivors there was a lot of work for them

[00:08:29] to do a year later in 1946 a year after the war unemployment peaked at 2 percent

[00:08:36] there is a long way from the 10 percent that we saw in the late 80s and early 90s all the 15

[00:08:42] percent that we saw before the war but of course now again the unemployment rate is very low so is

[00:08:48] that a similar situation to after the war there's you know people who have been made ill because

[00:08:54] of the pandemic and there's still a lot of work to be done yeah well I mean there's certainly

[00:08:57] a number of people who've made all because of the pandemic is far larger than most people realize

[00:09:01] they there are some people who've been able to retire uh because they you know they were

[00:09:06] you know I mentioned a lot of finance sector people have been in this situation

[00:09:10] cushy job cushy pension if they can't manage to work anymore they can afford to retire

[00:09:15] but the impact on the number of people who are looking for jobs has fallen quite radically

[00:09:19] and that therefore means the unemployment rate is artificially lowered by that

[00:09:23] medical phenomenon not buying economic funds and then productivity so productivity increased a lot

[00:09:30] after the second world war so between 1945 and 1964 output per hour worked increased by

[00:09:37] 3.7 percent each year from 2008 to 2020 that had fallen to half a percent and of course since the

[00:09:44] pandemic we've even lost that haven't we I mean so that is the the the big question mark isn't it

[00:09:48] where's how do you get an economy back on its feet if you haven't got any productivity growth well

[00:09:53] productivity growth is one of these again one of these misnomers from the mainstream they believe

[00:09:57] that productivity means people workers working harder no it doesn't it means workers working

[00:10:02] with better capital equipment and uh and that's what we saw dramatically after the second world

[00:10:06] war because one thing that happened during the war was an enormous amount of technological innovation

[00:10:11] to be able to fight and fight the wars successfully radar being one of the very first cases

[00:10:16] microwaves I think came out not much much later there's a dramatic amount of technology which

[00:10:20] was developed in the world war two which was then converted across to to you know

[00:10:24] consider civilian purposes in in the 1940s to 50s we have because again we have a bunch

[00:10:30] of neoclassical economists in charge and I read this stuff and I you know I wish I was reading

[00:10:36] kindergarten essay they'd show more intelligence they attribute productivity to how hard workers

[00:10:42] work and it's not it's how good the machines are that workers are working with which needs

[00:10:46] any capital investment for it and that's what's not happening at the moment yeah I guess it's a

[00:10:51] you know at the top level it's a difference in attitude isn't it between after the war

[00:10:54] well we've got to get back on our feet versus since the pandemic it's well we've got to

[00:10:59] repay our debt it's exactly a complete or in yeah that's right that's taken over and

[00:11:03] and that's one reason why you know you're not seeing I mean the financial sector

[00:11:08] in shumpa it is I must say fantasy of how this how the financial sector operates these are banks

[00:11:14] is providing working is providing seed money to entrepreneurs of course they don't do that

[00:11:20] they're what they did what they have provided is working capital than ordinary corporations

[00:11:24] and to the extent of those corporations are innovating you can get growth coming out of that

[00:11:30] they don't necessarily give money to people in startups but what they've got now they're

[00:11:33] giving money to people who want to buy and sell houses with a large mortgage so there's no way

[00:11:38] that that monetary creation capability of the private sector is boosting the capacity of firms

[00:11:44] to improve their manufacturing techniques so we've yeah we've just got the worst of all worlds

[00:11:50] yeah and of course what is very different is monetary policy so interest rates from 1932 I find

[00:11:58] this interesting from 1932 to 1951 interest rates in the UK were pretty much stuck at 2% they did

[00:12:05] rise briefly to 4% at the outbreak of the war but then came back down again to 2% and stayed there

[00:12:12] so all of this coping with the emergency interest rates stuck at 2% as though that wasn't a tool

[00:12:18] that needed to be used and it isn't a tool that needs to be used this is the frustrating thing again

[00:12:23] neoclassical theory has this fantasy that inflation is caused by what they call inflationary

[00:12:29] expectations so prices go up because you expect prices to go up and in that fantasy world of

[00:12:35] theirs putting up their interest rate is actually a pretty much people discount the value of future

[00:12:40] returns and therefore consume less I forgot which way the magic works basically I'm sick and tired

[00:12:49] of reading this stuff but fundamentally it's saying we can reduce the expectations by increasing

[00:12:54] interest rates now there's got bugger all to do with to do with that the inflation comes out of

[00:12:59] the extra monetary demand pumped into the economy by government spending which then enable firms

[00:13:04] to put up their markups which is the major cause of inflation while it happened during the

[00:13:09] pandemic along with the disruption to supply chains so I've got people playing with the who

[00:13:14] understand a toy model that have got the right to play with the real world and one of those one

[00:13:19] little factoid I quite enjoy there's a great book on statistics decades old by a guy called

[00:13:25] erinberg titled as data reduction I gave it away to a student which is the piece of generosity

[00:13:29] I regret never came back but in that book he was written back in the 1930s or 1940s I think

[00:13:35] and his example of a constant was the rate of interest yeah well and that's the way it was from

[00:13:42] 1932 to 1951 it was it should be yeah the whole idea you make it a variable to control the economy

[00:13:48] is nonsense yeah and even though inflation did shoot up just straight after the war so it reached

[00:13:53] in 1940 it reached 16.8 percent felt a 10.8 percent in 1941 7.1 percent in 1942 then it was sort

[00:14:01] back down to 3.4 percent in 1943 and all that time interest rates 2 percent just didn't touch them

[00:14:08] wasn't seen as a way of dealing with inflation yeah this again again is neoclassical theory again

[00:14:12] though the Keynesian approach and argued that the fiscal policy is more powerful because it

[00:14:18] is a direct injection of money into the economy which is true okay but the neoclassical law

[00:14:23] know they make this mythical idea that if the government runs as deficit now uh that

[00:14:28] rational agents this is very important you know rational agents like nostrodomus and jesus

[00:14:34] they can predict that that future means they're going to have to tax more in the future

[00:14:38] so they save money which counteracts the impact of government spending that's the bullshit that

[00:14:44] that that is lies behind behind the but we haven't but we don't have that tool now do we because

[00:14:50] we've got that mindset by the way by comparison you know so the inflation in 1940 got up to

[00:14:54] 16.8 percent we got up to 9.1 percent in 2022 7.3 percent in 2023 it's expected to fall to 2.2

[00:15:01] percent this year which is sort of like a comparison to it falling to 3.4 percent in 1943 having been

[00:15:07] much higher but of course you know we had a pandemic could still buy stuff we went

[00:15:11] blockaded by the Germans so you know the impact on supply wasn't quite so big

[00:15:16] but look it came down then just as it's coming down now it came down then without

[00:15:21] monetary policy but we have to rely on monetary policy now because we've told ourselves that we

[00:15:26] can't inject more public sector money into the economy because we've already done that and now

[00:15:31] we've got to reap it back so money should policies the only thing we've got so over to you central bank

[00:15:38] that's always I mean that's why that's why we are where we're at my favorite like my

[00:15:41] count example is actually not historical or geographical look at Japan Japan over the

[00:15:46] whole pandemic interest rates rose from minus I think it was minus point two per

[00:15:50] five a percent to zero that's all they did across the you bring up for the last 10 or 15 years they've

[00:15:55] been in negative interest rates on on the government bonds and then they went to zero and that's all

[00:16:01] they did and they had a lower rate of inflation lower increase in rate of inflation and the

[00:16:05] faster recovery than America or the USA or the UK that both thought they were manipulating

[00:16:10] the inflation rate using interest rate it has bugger all effects yeah but they've had a pretty

[00:16:14] stagnant economy for quite a long time as well as a result of all of them they but I mean

[00:16:18] that you know so they actually wanted inflation and they've quite happy to have it now as we've

[00:16:22] discussed in the past so look when we come back we I want to talk about

[00:16:27] unemployment rates and and where to from here and you know the whole issue of the supply chain

[00:16:33] as well you know how how we're coping with that how how we cope with that after the war

[00:16:38] how we're dealing with that now so many interesting comparisons on there we'll do

[00:16:42] that when we come back on the debunking economics podcast this means Steve Keane back in a second

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[00:17:51] this is the debunking economics podcast with Steve Keane and Phil Dobby

[00:18:03] okay so Steve the other big difference of course during the the war and during the pandemic was

[00:18:10] I mean both dealt with supply chain disruptions obviously it was bigger during the war because

[00:18:15] the Germans were trying to blockade UK food supplies so the response was to introduce rationing of

[00:18:23] course and I remember the tail end well maybe not the tail I remember seeing ration books I think

[00:18:28] rationing was over by the time I was born it did drag on for quite a while they went into the

[00:18:32] into the mid 50s didn't it in the UK and to buy stuff you had to most items or many

[00:18:38] items were rationed each person had to register at a shop they were provided with a ration

[00:18:44] book containing coupons the shopkeeper was given just enough food for their registered customers

[00:18:50] registered rationed items had to be purchased and paid for the normal way but their price

[00:18:56] was strictly controlled by the government and even other essential food stuffs that were

[00:19:01] enraged were also subsidized so basically we had price controls back then I guess that's what

[00:19:08] helped keep inflation well inflation still shut up but at least it you know it helped deal with that

[00:19:14] demand supply difference yeah I like it it's actually interesting making the same comparison

[00:19:19] in the United States because the inflation during World War one was much higher than the

[00:19:23] inflation during World War two yet this you look at the level of government money creation

[00:19:28] for World War one was about half that for World War two and the reason that you had lower

[00:19:33] inflation despite higher money creation in the second World War versus the first

[00:19:37] was that the Americans at this stage learnt from the practical experience of World War one

[00:19:41] and set up price commission with John Kenneth Galbraith as one of the most important people

[00:19:47] involved if not the head and their role was to encourage firms not to put up markups and workers

[00:19:55] not to make wage demands and what you've got got as a result here and rationing also I don't

[00:20:00] think America began to ration or they got needed to but but nonetheless you there was agreements

[00:20:05] from both sides of the fence both the workers and and the capitalists not to try to get more money out

[00:20:11] of the actually huge level of demand that was created by a war economy so the war economy

[00:20:16] drove America's unemployment rate from it peaked at 20 percent in 19 or 25 percent in 1932-33

[00:20:22] it hit 20 percent again in 1937 when they made the mistake of following the advice of

[00:20:28] conventional economists and trying to reduce government debt but then when World War one

[00:20:32] hill felt as zero and stayed there pretty much through the whole war period including when

[00:20:37] women were suddenly regained into the workforce having been kept out of it beforehand you know

[00:20:42] Rosie the Riveter and all that sort of stuff so you had a huge level of increased monetary demand

[00:20:51] but agreement not to have that translated to consumer price increases than it would

[00:20:57] but not not during the pandemic because we didn't have rationing but although

[00:21:02] it's into and we didn't subsidize foodstuffs etc but interestingly we did subsidize energy

[00:21:09] but we didn't ration energy and if you subsidize and you don't ration then you really are just

[00:21:16] giving money to the provider of that service yeah well you you you you wanted the energy to

[00:21:22] keep flowing that's that's for sure so there were you know there were we suddenly realized what was

[00:21:28] important what was vital during that crisis of course we've forgotten that immediately afterwards so

[00:21:32] you know for example nurses and doctors and college garbage men were essential and now the crisis

[00:21:38] has gone they're not essential anymore and we're treating them just as badly as we did

[00:21:41] before the pandemic but yeah it's a crisis human seem to need a crisis to to throw their

[00:21:48] nonsense away and really focus them on what the hill but the reason why energy prices went up

[00:21:52] obviously is because there was a shortage of supply that would do you know we so we couldn't

[00:21:56] need the demand so the moment you start saying well okay tell you what because prices have gone up

[00:22:01] so much the government is going to subsidize those those prices we're going to give you a

[00:22:06] a slug of money or actually we're going to give the energy companies this money direct which is

[00:22:10] which is worse so that your your price is subsidized so prices come down well the reason

[00:22:16] why prices were high was because demand was greater than supply so if you put government money in the

[00:22:21] situation you're not solving the problem are you if you're not changing behavior then there's still

[00:22:26] this big discrepancy we turn demand and supply the government money surely then is just going

[00:22:31] to the power companies who are saying thanks we'll add that to our profit line well i mean

[00:22:38] the whole problem is privatizing power to begin with of course you know that this that should

[00:22:43] never have been done again this is following neoclassical theory believing first of all believing

[00:22:47] marginal cost rises so we have marginal cost pricing being imposed on what is actually a

[00:22:52] demand driven spiky wholesale energy system but that causes chaos in the wholesale markets

[00:22:59] but yeah they you know you're getting exactly the same electrons regardless of who's supplying them

[00:23:04] and the infrastructure costs are the major factor by far in establishing a power network

[00:23:09] and the rate of return on that is so low that corporations into a poor job of it

[00:23:14] they're focusing upon short term rather than long term so there's all these we've we've

[00:23:18] stuffed the system up and we're now paying the price for it but the but the reason was because

[00:23:23] wholesale prices gone up because of you know because of the actually perhaps more to do with

[00:23:27] the war in ukraine than it was to to do with the pandemic but add all those circumstances together

[00:23:33] that was the cost wasn't it wholesale costs had gone up we had to import gas we had to

[00:23:39] import oil and you know became a big argument for ramping up the renewables and so becoming more

[00:23:46] self-sufficient for energy but at the state at that stage and we're still there now we

[00:23:50] hit rely a great deal on imports so we had to so the price of those imports

[00:23:55] that at the wholesale level was very high yeah i mean and and so we subsidize it

[00:24:01] but we but it's not going to change demand so what happened during the pandemic if you look at

[00:24:06] it more broadly is very different to what happened after the second world war during the second

[00:24:10] world war what we saw with energy after the pandemic was applying to food and a whole load

[00:24:16] of services so the government subsidized but they rationed i mean if in that situation

[00:24:22] if they'd said well we're not going to ration but we are going to help you with your food

[00:24:26] bill then food demand would obviously rise and the whole situation would you know they'd have to

[00:24:31] provide more support and it would just get out of kilter and you would have inflation so the question

[00:24:36] i'm asking is can you actually have price controls if you're not rationing the item that

[00:24:40] you're trying to control the price on quite possibly not i mean this is um you would have

[00:24:44] seen my good my good my tyrone canes is doing a brilliant work taking my approaches to economics

[00:24:50] and energy and climate and so on and money and putting all into a integrated model argued that

[00:24:56] with price controls reducing prices during a downturn which you know you whatever you got inflationary

[00:25:04] period you will put the price controls or top markups going up that feeds through to the

[00:25:08] rate at which firms invest on the other side and if they don't invest you don't get the same

[00:25:12] rate of technological improvements so you get you reduce inflation during the period that where

[00:25:17] you're imposing the control but it rises afterwards because of the the impact your policies also have

[00:25:21] on productivity so unless you look at the entire system yes you are going to cause perverse results

[00:25:26] like that so what you so okay and the other the other big difference between the you know the

[00:25:31] impact of the war and the pandemic has been inequality so after the war the uk actually

[00:25:36] became more equal the the share of income going to the top 10 percent of the population

[00:25:41] fell from 34.6 percent in 1938 to 21 percent in 1979 so started gliding down all the way through to the

[00:25:50] end of the 70s inequality fell during the pandemic as well just during the year the pandemic as high

[00:25:56] income earners couldn't work like the rest of us and their investments were looking pretty sick

[00:26:00] as well but since then of course well you know they've done really well the resolution

[00:26:07] foundation reckon this year 2024 to 2025 there's going to be a 1% fall in income real income for

[00:26:13] households in the bottom half of incomes and a 1% rise for the top half that is quite a big difference

[00:26:19] isn't and we can see that it's it's obvious that the rich are getting richer you know we talked

[00:26:23] about this case-shaped recovery and we're definitely seeing that again one of the most influential

[00:26:29] documents in my education about history as well as about economics was the white paper and

[00:26:34] employment written by nugget cumes in australia in 1945-46 and that just to quote the it's pretty

[00:26:41] much the exact words from that document what the policy was for the government going after the

[00:26:45] second world war so the aim of government policy is to maintain such pressure upon the economy as

[00:26:51] to guarantee a shortage of men rather than a shortage of jobs and that was in response to

[00:26:56] the experience of the great depression and the second world war where you know the working

[00:27:01] class suffered dramatically of course when the great depression itself they were the ones who got

[00:27:05] gash killed during world war two the level of military not there's not so much militarism but

[00:27:10] solidarity amongst workers that that generated and the realization that if we don't keep the

[00:27:15] working class on side we're going to have our society fall apart that changed the whole

[00:27:19] philosophy of government government behavior towards saying we have to provide for the majority

[00:27:23] of people rather than for the wealthy whereas what gave us in 1920s and 19 to boomer the

[00:27:28] 1920s and the bust of the 1930s was letting the private sector rip and we've gone back to that same

[00:27:34] mentality and we're getting the same effects and one final little point with my own modeling of

[00:27:40] the dynamics of the economy when you include private debt one of the weird but emergent

[00:27:46] properties of my model which turns up in the real data is that a rising level of private

[00:27:51] debt regardless of who borrows it ends up reducing the weight of share of GDP so by

[00:27:56] letting the finance sector rip it's not the capitalist to pay for that it's the workers they

[00:28:00] end up with a slower share of weight wages or a lower share of GDP we've done everything in

[00:28:05] fact an increase in equality in this system and we're wondering why people are complaining

[00:28:09] and of course you know with higher interest rates those with their investments and savings

[00:28:14] benefit yeah uh you know so this so really that you know this higher interest rates so

[00:28:19] it's high interest rates are benefiting some and disadvantageing others and the ones that they

[00:28:25] are disadvantageing are not the ones causing inflation that's the that's the issue isn't it

[00:28:30] they will go as a problem that is being solved supposedly by something which is actually improving

[00:28:37] the lot of those people who are actually causing the problem and again this is another piece of

[00:28:41] neoclassical blindness under this particular point i've got my fights with warren mosler

[00:28:44] on a range of issues he's right on this one he said that the higher interest rates

[00:28:48] actually end up being an income burst to the economy because when you're in interest

[00:28:53] rates from pretty much zero to interest of five and six percent on government bonds

[00:28:57] on the new bonds at least that was injecting money into the economy so people you're buying

[00:29:02] used to buy a bond for a thousand dollars and get you know want and get ten dollars

[00:29:07] per year income out of it now you're getting fifty and it's a safe a safe return there's been

[00:29:13] it actually a booster people who own share own government bonds and that's not your every no

[00:29:18] that's not your grandmother down the street it's not your mother-in-law it's the it's the ultra

[00:29:22] wealthy you can afford that as a hedge against the volatility of the stock market right so yeah

[00:29:27] because if you buy bonds i mean if a government if if a if the private sector is to buy government

[00:29:33] bonds then that's not new money in effect because the government's issued those bonds but

[00:29:37] it's getting getting bought with money that's already it's actually reducing the money and

[00:29:40] it actually reduces the money in the economy of course to do that to buy the bonds you use

[00:29:44] your deposit accounts your deposit accounts fall your value of bonds go up it's actually reducing

[00:29:48] the money supply and this is something another thing of the issue control rather than letting

[00:29:52] banks sell as many bonds as they damn well like to the non-banked uh non-bank sectors right but you're

[00:29:57] but your point about the the interest but but the yield being paid is that that means more

[00:30:01] money has to be pushed into the economy because the government's having to pay that that

[00:30:04] interest rates the higher the interest rate the more the government has to pay in that

[00:30:07] interest and so that's all new money into the economy that's the point yeah that's

[00:30:11] and that's stimulating the economy rather than reducing demand is what the neoclassical

[00:30:14] thing again they don't understand the money system so when you when you know that you know

[00:30:18] government creates money then if you have a high rate of government interest being paid

[00:30:23] you're getting more money creation by the government going into the economy no but is it

[00:30:27] going into the real economy or is it just getting lost in the finance sector mainly

[00:30:30] the finance sector but they do buy the occasional suv and uh you know and i'm

[00:30:36] high class ice creams so it feeds across into consumption but much more slowly than if you

[00:30:41] gave them money to the poor because of that thing called trickled down yeah yeah no no

[00:30:45] you keep on telling me you're not pronouncing it but strickla down yeah or just or just strickla

[00:30:52] down because it's very slow so look what about said germany then during the second one because

[00:30:56] they had hyperinflation of course before the second world war uh that was kept down after the war

[00:31:02] and again hey listen mate i'm not going to let you get away with that mistake um the hyperinflation

[00:31:08] was back in 23 and 24 it's over very rapidly and in fact i've seen a very interesting post just

[00:31:14] recently that i intend exploring further saying it was actually a tactic by the german government

[00:31:18] at the sage so the time to drastically reduce the reparation payments they were required to pay

[00:31:23] by the treaty of the side the by the by the time the hyperinflation was ridiculously high you

[00:31:29] you can't even graph the numbers on on a on a chart it's so ridiculous it's everything else is

[00:31:34] a flat line versus german uh german price index in 23 24 but it was over 1925 and now what what

[00:31:41] goes to the rise of hitler wasn't inflation it was deflation because this having made a sensible

[00:31:47] ploy to reduce the outstanding debt that the germans owed particularly to the french

[00:31:51] courtesy of the side trading which is what hyperinflation did uh when they then followed

[00:31:58] the advice of the mainstream economist in the 1930s and repaid a large amount of money that the

[00:32:04] bonds that have been purchased by by americans german bonds purchased by americans and that

[00:32:09] meant that the unemployment rate in germany hit five percent higher than america's worst

[00:32:14] unemployment rate 30 versus 25 that's what led to the rise of hitler right and after the war

[00:32:20] after he'd lost and hila was dead um they still you know inflation was still kept down

[00:32:26] um they the interest rate was four and a half percent at the end of the war

[00:32:29] but they kept prices down but everybody's you know continued to fall actually basically

[00:32:34] when we know it continued to fall right through to the turn of this century when it was down

[00:32:38] around three quarters of a percent and now you know it's been a little below or above one percent

[00:32:44] pretty much since the early 80s uh but it was four and a half percent straight after the war

[00:32:48] but was coming down they kept their inflation down really again wage controls rationing price

[00:32:54] freezes the same stuff that we were doing on the other side of the english channel yeah it's but you

[00:33:00] know i mean it's actually quite melbourne germany recently as you know i think it's for the new

[00:33:05] brandenburg airport and oh my god talk about the example of the collapse of german these

[00:33:11] reputation for excellence and a high quality uh was a appalling experience now germany of course

[00:33:17] is suffering from the dramatic increase in their energy costs they've they've shot down

[00:33:22] their nuclear power stations i mean germany used to be example of how to do things well they're in a

[00:33:26] bad way yeah yeah so and why is why are they doing so badly i mean apart i mean they were an export

[00:33:31] nation and they're because the export customer is not doing well either in in the china they were

[00:33:35] too reliant on china as a as an export customer i mean i guess that's a large chunk of it isn't

[00:33:42] yeah well i mean china's so you're particularly all the way through has become self-sufficient

[00:33:45] and they're doing it brilliantly at the expense of stupid economic managers in the west

[00:33:50] and then now of course they can do you know china will get to the point where it doesn't

[00:33:54] need to import for example from the netherlands anymore they won't need to buy buy machines from

[00:33:59] amsl which is not allowed to do anyway courtesy of politically inspired bands because of next

[00:34:04] time in the next three or four years i'm pretty certain china will have the capacity to produce

[00:34:10] silicon cutting machines as accurate as amsl's and uh you know it's fun to watch sense some

[00:34:17] sensible policy on one side versus stupid neoclassical ideology on the other so how do we deal

[00:34:22] with the next pandemic differently so monkey pot the later strain of monkey pox in the congo

[00:34:28] it's got quite a high death rate and quite a hard long period where it lies dormant but

[00:34:37] is infectious bit like the you know we saw with co vid and imagine if we you know so it's

[00:34:44] going to happen at some point isn't there will be another pandemic so how do we cope with it

[00:34:49] differently so we were right though we splurged a load of cash i'm not sure we'd do that next

[00:34:54] time in terms of government spending it's hard to impose price controls without rationing we

[00:35:04] we will obviously drop interest rates which is exactly what we did it's interesting wasn't

[00:35:11] we actually pushed up interest rates at the very beginning of the pandemic for some peculiar reason

[00:35:15] but then realized that might have been a mistake so what do we do differently and you know how

[00:35:19] much of it is learnings from the uh from from our response to the war health i think it has to

[00:35:24] be learning from the war response rather than the covert response with the covert response

[00:35:27] is a bunch of lunatics like borris johnson you know let the bodies pile high what an

[00:35:32] inspiring speech that would have been if he made it in parliament rather than the how number 10

[00:35:38] so we know we haven't learned like one thing i mean you know one thing i'm noted for is coming

[00:35:42] around my crazy mask yeah we've all been embarrassed by it yeah in wholesale prices you can buy 100 for

[00:35:49] 11 dollars which means basically it's 10 dollars a pop if you want to double the cost to uh

[00:35:54] did include distribution it's 20 bucks a pop so for 20 dollars per person you could get everybody

[00:36:00] in the uk and indeed the planet if you're like so there's 20 20 you know 10 just so there's 10 billion

[00:36:06] people that's 200 billion dollars would get everybody a mask that they were to build them in the first

[00:36:12] place of course but it's the technology is quite straightforward so 200 billion dollars far less

[00:36:17] than we spent during the pandemic would have a system of energy we wouldn't we wouldn't when you

[00:36:20] met in public you would not be transmitting or receiving a disease from somebody else now i know

[00:36:26] we won't do it but i'm going to buy 100 of those for my friends right that's going to be your

[00:36:30] response do not but i mean that's my response i've got the level of stupidity the government

[00:36:35] shown itself capable of misled by neoclassical theory is a large part of why they're so damn stupid

[00:36:41] i just don't want to know what's going to happen within next pandemic but uh we but government

[00:36:46] but a government spending basically and nothing nothing and the monetary policy has got nothing

[00:36:52] to do with it on the way in or on the way out and you know i mean the odds the odds are

[00:36:57] there'll be there's got to be something else like that in the next 10 years and as you say the

[00:37:01] monkey pox is one the other is bird flu um and yeah one is we know is transmissible to humans

[00:37:09] i think also between uh the other one is not yet but it's getting there so we know this is coming

[00:37:15] and the the crazy thing is are there people in authority and government do anything to prepare

[00:37:19] for it i expect not and saying to the saying to the bank of england well what are we going to

[00:37:23] do about this is probably not the question to ask is it uh just just say yeah 2 you just keep it at

[00:37:28] 2 percent we'll do what we did during the war and for the decades after 2 sounds good let's just leave

[00:37:34] it there and you guys go and get a universal basic income and stop stuffing things up not that you're

[00:37:41] vitriolic of course not that i'm vitriolic now i'm not i'm not pissed off with them at all and i

[00:37:45] could i i don't have no evil thoughts about them when i go to bed nothing nothing of that

[00:37:49] how dare you aspire gives fast dispersions that i do sir all right we'll catch you next time thanks

[00:37:55] Steve yeah the debunking economics podcast if you've enjoyed listening to debunking economics

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