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0:01:45 Today’s number? 60. That is the age by which most people lose half of their taste buds. Now we know
0:02:04 why Scott has such bad taste. Welcome to Prof G Markets. We’re starting with a Scott roast because
0:02:10 Scott is not here today. He’s at a speaking event, so I’m sorry, Scott, you’re going to get a roast today.
0:02:15 I will be handling this interview solo, but I’m very excited because we are speaking with
0:02:20 Jagjit Chadha, who is a professor of economics in the Faculty of Economics at the University of Cambridge,
0:02:25 and he is going to talk to us today about the state of the U.K., their economic situation,
0:02:32 their monetary policy, and also their relationship with the U.S. So without further ado, let’s get into
0:02:38 it. Here is our interview with Jagjit. Thank you so much for joining me on Prof G Markets.
0:02:45 Ed, it’s an absolute pleasure to be here. I’ve watched your show a number of times,
0:02:51 and I was a bit worried about coming on, but I’m here, so let’s get on with the interview. Thanks
0:02:57 for asking me on, Ed. We wanted to bring you on because, you know, we spend a lot of time on this
0:03:03 podcast thinking about what is happening in the U.S. We are very U.S.-centric. We’re obsessed with
0:03:08 what’s happening in America. We don’t really spend enough time thinking about what’s happening
0:03:16 elsewhere, including where I grew up, and that is the U.K. And so I wanted to talk to you today to
0:03:21 learn about what is actually happening in the U.K. It’s been in the headlines a lot in business and
0:03:27 politics and in economics. So I’m just going to start with a very broad question. You can take it
0:03:34 wherever you’d like. What are the biggest issues ailing the U.K. right now from an economic perspective?
0:03:40 If we just put the victory at the Emmys on one side, which was pretty stunning, I think the problem
0:03:46 we’ve had in the U.K. since the global financial crisis, of course, we’re a country who hitched its
0:03:54 ride very much to global finance. And the extent to which finance has been crimped or reformed or
0:04:00 subject to all kinds of reforms and constraints since the financial crisis, I think, has affected in
0:04:06 quite a deep way the U.K. economy, which we can come back to a little bit later. But that process of
0:04:17 slowing down has been exacerbated by Brexit. That is, the vote in 2016 to leave the European Union. Of course,
0:04:24 we didn’t leave for a few years afterwards. But the uncertainty that ensued as a result of that vote, as we
0:04:29 worked out how we were going to leave, whether we were going to leave, and under what terms we were going to
0:04:35 leave, I’d only introduced the one word that all scoundrels in economics use all the time, which is
0:04:42 uncertainty. Nobody really knew what was going to happen to our trading links with arguably our most
0:04:50 important partners in Europe. And that is clearly shown to have reduced business investment, which, of
0:04:57 course, you’ll know is a driver of economic growth, also led to some stalling in FDI as countries outside
0:05:02 the euro area, had to decide whether to continue to invest in the U.K., which was very much seen
0:05:08 as an entrepot. You invest in the U.K. and then you get access to European markets. So that was also
0:05:13 lost. And of course, foreign investors anyway who want to invest in the U.K. are wondering what the heck
0:05:18 is going on in this country, because the political turmoil led to several changes in Prime Minister.
0:05:27 Lord knows how many chancellors. And ultimately, with what I can only call the comedy event of the mini-budget of
0:05:34 2022 under Liz Truss’s prime ministership, which led to a persistent escalation in bond yields, which some
0:05:42 argue are still there, suggesting some risk in the U.K. economy that wasn’t around. And so what you have is the original
0:05:50 shock of the global financial crisis, an exacerbation of economic divergences across the country. A lot of it was
0:05:56 blamed on the European Union. A lot of it was blamed on foreigners, particularly from Europe. And a lot of it was
0:06:04 kind of blamed on the government for not being in control of economic growth. That then gets exacerbated
0:06:15 by subsequent events, Covid, which we had very high death rates from in the U.K., but particularly in social
0:06:20 care. So we didn’t manage that particularly well after the period of political uncertainty I’ve talked
0:06:25 about. And then you’ve got the kind of cost of living crisis. And let me sort of go through this very
0:06:33 briefly. Because the supply side of the economy had been so badly damaged by the global financial crisis,
0:06:42 Brexit, underinvestment in public goods, infrastructure. That meant the supply side had become much less
0:06:48 flexible than you would have wanted it to be. So you’ve got this kind of supply side that’s not
0:06:53 responding to shocks in the way that you want. And as a result, when there is a large shock to food and
0:06:58 energy prices, it works its way through to a very high rate of inflation, a double-digit inflation
0:07:03 for the first time in a couple of generations. And I had a situation where the Bank of England had to
0:07:08 work very hard to bring it back down to sensible levels. And you note, of course, we’re still hovering
0:07:15 around 4%, which is twice the target. And I think the bank rightly decided to do this in a gradual
0:07:20 manner rather than an abrupt manner, because it didn’t want to take a risk with increasing or stoking higher
0:07:30 levels of unemployment. So what you’ve got is a very sad tale of an economy that’s performed badly
0:07:37 as a result of a sequence of global and domestic shocks that has led people feeling pretty sore.
0:07:42 A few things strike me there. One is that you paint the picture of a country
0:07:49 and a trajectory that is sad. And I really think that is the right word. I mean, this once great
0:07:56 economic superpower that has really fallen into this state of stagnation. And that’s not hyperbole. I mean,
0:08:03 you just look at GDP growth as an example, which is literally stagnant, you know, zero growth
0:08:09 last month. But the thing that’s so interesting about the UK, it’s got all of the problems that
0:08:13 everyone else seems to have, or at least everyone else seems to have in the Western world. You know,
0:08:17 you’ve got these issues with inflation, you’ve got these issues with polarization.
0:08:24 You know, all of those things that you mentioned that made problems worse in the UK, the great financial
0:08:33 crisis, COVID, these are all global problems. Except in the UK, it’s almost more intense than
0:08:39 anywhere else. I mean, you look at inflation just as an example. We’re over here in the US complaining about
0:08:50 2.7%, 2.9% inflation. You’re over there in the UK with 3.8%. And one thing I think about is, you know,
0:08:55 what makes the UK different? The UK has been faced with a lot of the same challenges that everyone else
0:09:02 has. It’s got similar debt problems. It’s dealt with the similar supply chain issues of COVID.
0:09:06 But I try to think, okay, what is the difference? The one thing that really stands out to me
0:09:17 is Brexit. And I wonder, from your view, as an economist, to what extent did Brexit play
0:09:22 in this stagnation and this decline in the UK?
0:09:28 I think the way to think about this is that we were in a form of decline through poor political
0:09:34 leadership, institutions that weren’t working at the regional level, a failure to get to grips with
0:09:39 globalisation. We can talk about that in a minute. It all came a bit too easy to the UK.
0:09:44 The UK is an incredibly open economy. And to go back to your earlier point, it’s just as open to
0:09:50 global shocks as anyone else. But I would argue even more so in the sense in which labour migration,
0:09:57 the ease with which people can enter the financial sector, the ease with which you can buy housing
0:10:01 property here. Have you ever tried to buy a house in France compared to London? I can tell you which one is
0:10:07 easier. We are just naturally much more open and a trading nation, which then means that when global
0:10:13 shocks come along, we’re more sensitive to them. And I think you were hinting at this point, how is it we
0:10:18 were able to deal with them in the past when we can’t deal with them now? Well, of course, for a large
0:10:26 part of that past, Britain was itself in charge. It had its own ability to deal with shocks because it was
0:10:31 on top of an empire. Now, we can talk about the pros and cons of empire. You can clearly tell from my
0:10:38 background as well that that affected my family’s life. But I don’t think, you know, I’m not sure we got to grips
0:10:44 with the post-imperial problems particularly well. But even more so, I’m not sure we got to grips with the
0:10:49 globalisation. It all came too easily. In the 1990s, it looked like a free good. We were going to get
0:10:55 cheaper goods from China, we were going to get cheaper workforce from Europe, and everyone would
0:11:01 be better off. But what we don’t understand or didn’t understand well enough is that when you open
0:11:07 up trade, there are domestic winners and losers. People who are working in high-income areas, I pointed
0:11:13 them out earlier on, will certainly gain from cheaper manufactured goods and the ability to
0:11:19 hire labour, whether it’s to do your patio or look after your children as an au pair, much more easily
0:11:25 than they would if they’re just relying on the domestic labour force. Now, that’s all well and good for people
0:11:30 on good salaries who’ve had very good educations. All those initial conditions that mean you have a good
0:11:38 life, which I don’t begrudge anyone, but they’ve got that. But then as a result, you’ve got local labour,
0:11:42 call it semi-skilled, call it blue-collar in the States, whatever you want to call it, that is
0:11:48 suddenly not able to have those jobs that have been taken by other people. And to the extent to which
0:11:55 we’re buying manufactured or finished goods from the Far East, that reduces the demand for domestically
0:12:01 produced goods, something that the US is subject to as well. But the correct policy response was not to
0:12:08 leave these people who lost their livelihoods alone and let them fester. It was to divert money to retrain
0:12:16 them, give them opportunities, build up local connections and infrastructure, offer them forms of finance so
0:12:21 they could develop their own businesses and build up their income to compensate for what those communities
0:12:28 lost from the jobs that essentially were either taken from people abroad because we were importing
0:12:34 goods that they used to make, or were taken from people abroad who’d migrated here. And that was the
0:12:40 missing part of our response to globalisation. We just thought automatically everyone would be better
0:12:46 off not understanding the heterogeneity of the working population well enough. And I think there’s another
0:12:52 problem in there as well. The UK is far too London oriented. If things are all right in London,
0:12:59 policy makers, the elites don’t notice. So there are some severe regional imbalances in this country.
0:13:05 And I think that’s driven by centralisation of policy making, a centralisation of elites.
0:13:10 And to be clear, I’ve got nothing wrong, nothing against elites, you know, or nothing against anyone who’s
0:13:15 lived their life in London. Myself, I was born in Yorkshire, so I have a good sense of what it’s
0:13:20 like in other parts of the country. But I think that’s part of the problem as well. There’s not
0:13:27 enough people who understand or are willing to spend time thinking about how other parts of the country
0:13:31 are adjusting to the kind of shocks we had or are continuing to have.
0:13:37 on this point of the linkage between what we’re seeing in London, the economic growth that we’ve
0:13:43 seen in London over the past several decades and how that relates to policy making. And you said earlier
0:13:52 that you think that Brexit was really a symptom of bad policy and continued centralisation of policy in
0:14:01 London. If I were to sort of illustrate a cartoon of what’s happening, it would be public school boys
0:14:11 who go to Eton and then they go to Oxford and they go to Cambridge and then they work their way into
0:14:18 Parliament where they are basically figuring out and designing policies with no real understanding of how
0:14:25 the country actually works. They’ve grown up in a very, very privileged bubble. The bubble has sort of
0:14:29 pushed them on into power. You’ve got people like Boris Johnson would probably be your prime
0:14:39 cartoonish example. And as a result of that, you’re seeing these issues where the economy seems to only
0:14:49 really be serving a very small subset of people who have a very unique set of characteristics. And generally
0:14:57 speaking, it’s rich people living in London. I’m creating a cartoonish picture of what’s happening,
0:15:03 but I’m wondering if you think that that has any validity. Is that really the story here of what’s happened in the UK?
0:15:12 I think our political leaders are poor at the moment. The leaders of our main two parties have
0:15:16 currently got huge negative readings. You look at the balance of people who are in favour of them and
0:15:20 the balance of people who are against them. It’s something like minus 55 for the prime minister and
0:15:26 minus 20 something for the leader of the opposition. These are huge negative numbers which suggest that
0:15:34 trust in politics is very poor. And we live in a democracy. Being a politician is not easy. It’s a
0:15:39 thankless task. It’s not something I’d ever want to do. Knocking on doors, dealing with party members,
0:15:48 trying to get people to vote for you. And it takes a particular kind of person to do that.
0:15:57 Um, so we haven’t got a system, perhaps with the caricature that you’ve painted,
0:16:04 that’s delivering sufficiently competent people to deliver policy. Policy is not easy. It’s very hard
0:16:10 to sit down and work out what’s robust, what’s going to work and what brings about the outcomes that the
0:16:15 people really need. It cannot be a partisan matter. It cannot be a question of something you’ve believed
0:16:19 when you were 15 and you’re going to carry it through now. Certainly the answers are not in
0:16:25 books written by a dead economist from a hundred years ago. It’s, it’s, uh, it’s really is a difficult
0:16:31 process of choosing. When we say to govern is to choose, it really is, but it’s to choose across
0:16:38 alternate things. So going back to your point, you need time. You need people with experience. They just
0:16:45 tend not to impress. Um, and what we get as a result is policymaking made in a crisis.
0:16:50 So it’s not being deeply thought through. It’s kind of, Oh, what do we do now? Bond deals have
0:16:56 suddenly shot up. What’s the right answer? Um, to get elected next week. You know what I’ll do? I’ll
0:17:01 promise not to raise taxes. Well, hang on a minute. Debt to GDP is a hundred percent. Uh,
0:17:06 we’re not growing. So how are you going to bring it down if you don’t raise taxes? Now I’m not
0:17:11 a big guy for raising taxes. I think they’re disincentives to work. Uh, but there could be a
0:17:17 case after something as profound as COVID to have some temporary taxes brought in to try and correct
0:17:22 the fiscal position. Now it’s not the answer, but it’s also not rocket science to think about that.
0:17:27 But we don’t have people who are taking a step back in thinking about things. We just get announcements
0:17:34 on, on the hooth. And we also want politicians take ownership of their choices. You know, I
0:17:40 did this and I will be judged against this. And we don’t get enough of that in this country. They’ve
0:17:46 often moved, moved on, or they’ll change their mind, uh, or decide to do something else. We,
0:17:53 for example, our current government was elected on the promise of bringing about growth and, uh,
0:17:58 that there will be no new taxes on working people, whatever that means. I don’t know anyone who doesn’t
0:18:03 work, but fine. Let’s use the phrase working people. We’ll probably find that second pledge
0:18:09 will be broken in the budget in November, 26. As I’ve said, you’ve got very high levels of debt to
0:18:15 GDP by peacetime standards. We don’t have a hundred percent of debt to GDP. We don’t have the United
0:18:21 States exorbitant privilege where everyone wants to hold some, uh, dollar T notes. Um,
0:18:28 um, 35% of our debt is index linked, which means it’s been very expensive in the last four or five
0:18:37 years because of inflation. We’re now paying nearly 4% of GDP in, in debt service costs on that debt,
0:18:42 which is higher than comparable partners are paying because of the structure of our, of our debt.
0:18:50 So, and if you’ve got no growth on top, there’s a solution there. We should think about income taxes
0:18:56 and not at the top. That’s not going to raise very much. It’s going to be income taxes for people in
0:19:03 the middle who, uh, maybe will determine the fate of elections, but politicians have to persuade people
0:19:08 that this has to be done. Otherwise we’ll be facing a fiscal crisis where we can’t sell our debt.
0:19:13 And all of a sudden we don’t have any money to do anything. And, and they’re not, they’re not grabbing
0:19:18 that nettle. They’re not saying this needs to be done. There’s, there’s lots of cheap talk about
0:19:23 the whole thing. And as a result, I think markets are getting quite febrile about the UK’s, uh,
0:19:28 uh, fundamental position. You’ve got lots of debt, you need money to pay for it. So what are you going
0:19:33 to do? You have to be brave at this point. Uh, it’s not clear we’ve got politicians prepared to take
0:19:45 devil of ownership. We’ll be right back.
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0:22:39 We’re back with ProfG Markets. These issues of the UK’s public finances are, they seem to be what really
0:22:44 dominate the economic conversation in the UK. And I think there is a crucial point in there that you
0:22:50 mentioned, which is, you know, the UK has very similar debt problems to the US. Um, you know,
0:23:00 debt to GDP, nearly a hundred percent, uh, you know, five percent of GDP in deficits, which is lower than the
0:23:05 US. But again, as you mentioned, the big difference for the UK is that the pound isn’t the reserve currency
0:23:13 for the world. So the UK doesn’t have that, that level of leeway. We don’t get the, the UK doesn’t
0:23:19 get to play the card that the US gets to play. And that’s why this issue of balancing the books
0:23:28 is such an important issue for the UK. And, you know, you mentioned earlier the mini budget of 2022,
0:23:32 which by the way, I think is probably worth explaining. I don’t think people in the US,
0:23:38 uh, probably necessarily know about that. This was this issue with the, the previous prime minister,
0:23:47 Liz Truss. Um, but this issue of, of budgeting in government is huge in the UK. And it appears that
0:23:55 what has happened, if I were to just look at it from a very simple point of view is they’ve taken on too
0:24:04 much debt. They’ve gotten complacent and they have forgotten the fact it seems that they cannot play
0:24:09 the same playbook that the US place. They don’t, they don’t have that exorbitant privilege. They
0:24:15 don’t have the global reserve currency card. So I guess my question to you would be, how did the UK
0:24:22 get to this point? How did the UK put itself in this hole where it is struggling with debt issues?
0:24:28 We are seeing long-term, uh, guilt yields. It’s the UK equivalent of a treasury,
0:24:32 long-term yields spiking right now. Why are they in this position right now?
0:24:37 We have this fiscal framework and the fiscal framework, uh, is run by an organization called
0:24:43 the Office of Budget Responsibility. And what that does, it, it, it forecasts where debt to GDP will
0:24:51 be in three to five years time. And the fiscal rule is that by the final year, debt to GDP should be
0:25:00 falling. So you have a, you have a sort of charade where the chancellor, who’s the head of the treasury,
0:25:07 the finance ministry in other countries works with the OBR in the run up to a budget, uh, producing
0:25:14 different fiscal plans. And the OBR does then projects forward, given what it thinks is going to happen to
0:25:21 GDP, employment, exchange rates, and, and forecast what’s going to happen to GDP in years ahead.
0:25:27 Uh, providing that in the final year, they forecast debt to GDP is going to fall.
0:25:34 The chancellor can stand up on budget day or autumn statement day and say, ah, the OBR has said our
0:25:40 fiscal rules will be met. This fiscal rules are nonsense because you could have three years in which
0:25:46 debt to GDP is rising, providing it falls in the final year by some small epsilon amount.
0:25:51 The chancellor could stand up and it has indeed stood up and said, we hit our fiscal rule.
0:25:56 But it’s not a fiscal rule that ensures that debt to GDP is falling in any meaningful sense,
0:26:03 or a stationary in the sense in which it’s going back to some normal peacetime level, which I would
0:26:08 gauge it around 60% to 80% of GDP, which is, you know, where we are in Germany, for example,
0:26:14 80% of GDP. You can have growth for four years, providing someone forecasts a fall in the fifth
0:26:21 year. And what you’ve had at the same time, uh, contemporaneously is extremely cheap debt issuance,
0:26:29 QE, low interest rates over this period. So it’s been very easy for governments to issue debt and pay
0:26:35 very low levels of interest on it. So really the government’s just gobbled up a free lunch. The
0:26:39 level of debt is really tracing out the demand curve for debt at very low interest rate, the more debt
0:26:45 the government has issued. And what you’ve found is that, okay, as you say, as with many other Western
0:26:51 economies, the crises that we’ve had, let’s just put Brexit on one side, huge shock for the UK economy,
0:26:55 there was an increase in QE there as well. But whether it’s COVID or the cost of living crisis,
0:27:02 we see most Western economies provided correctly support for people who couldn’t work at that time,
0:27:08 so the economy could keep going. But our support was generally larger and more generous than we saw
0:27:12 in other economies. You know, our governments, possibly because they were worried about the
0:27:18 electoral business cycle, were giving out huge amounts of money over this period, which led to a
0:27:24 sharp increase in debt. And what we’ve had since the end of COVID is governments that either hue,
0:27:32 blue or red, have promised to reduce expenditures and increase taxes, but have reversed those statements
0:27:39 in advance of any decisions being made. So what you have is really nothing to tie down those promises
0:27:44 of the government that are made in the early part of the year and then reverse later in the year.
0:27:50 And as a result, debt to GDP is not falling. It’s just staying very high. There’s nothing,
0:27:56 there’s no sense of responsibility or ownership of the fiscal position, because the level of ownership
0:28:01 is simply that the OBR is going to project a fall in debt to GDP in three or four years’ time.
0:28:05 That leads to bankruptcy in the end, because it doesn’t lead to a fall in debt to GDP.
0:28:12 This whole debate that we’ve had in the UK about how much space is there between how much the
0:28:18 Chancellor wants to spend and where the OBR will say debt is falling, the so-called fiscal space,
0:28:25 is a number that has dominated fiscal discussions for over a decade. But what we haven’t had is a
0:28:31 proper public debate about what fiscal policy is for. What’s the return on building up the education
0:28:37 sector? What’s the return on building better roads, infrastructure, broadband? What’s the return on
0:28:43 public investment in the health service? All of these things are huge, large, and positive. And a
0:28:48 grown-up debate would sort of say to ourselves, how much do we have to put in there? Okay, we’ve had a
0:28:55 shortfall of investment, public investment, since about 1980. You can’t reverse that in one parliament.
0:29:02 So again, you need maturity to say, look, this is going to take me 10 or 15 years to nurture
0:29:07 the capital stock in the public sector to where it’s going to be. I can’t do it in one parliament.
0:29:12 I’m going to do it very gradually. I’m going to do it with the approval of the financial markets,
0:29:17 because I’m going to explain exactly where we’re going to spend the money, what the social return
0:29:22 is, and how that’s going to lead to an increase in revenue in the future. That’s not what’s going on.
0:29:31 As you say, there is this debt issue in the UK. And the argument has been, from the current
0:29:39 administration in the UK, I remember a year ago, the now-transfer of the Exchequer, that’s the UK’s
0:29:45 equivalent of the Treasury Secretary, Rachel Reeves, was really emphasizing the importance of growth.
0:29:54 What we have to do is we have to spark growth in the economy. And we are going to figure out a way
0:29:59 to sort of grow ourselves out of this. And by the way, this is the same argument we hear
0:30:06 in the US as well. That’s the argument we hear when we see these massive deficits and this massive debt
0:30:12 load. They say, don’t worry, we’re going to grow. And that’s going to pay for it. The economy is going
0:30:17 to roar. We’re going to see technology and AI and it’s going to grow the economy and then we’re going
0:30:25 to be okay. So we’re looking now at GDP growth of zero in July. That was the most recent reading.
0:30:36 What has gone wrong? How is it that this parliament, which said this was our number one thing that we
0:30:41 want to get done is we want to spark growth in the economy. How is it that the economy is not growing?
0:30:48 The economy has hardly grown since Brexit. I’ve described it as we’ve been in the doldrums
0:30:57 for quite some time. It’s been varied. It took us longer to get back to the pre-COVID level of GDP
0:31:03 than most of our trading partners. So we’ve just had sluggish growth in the doldrums since Brexit.
0:31:15 While I laud the long-term aim for growth, and actually the US has done pretty well on that front,
0:31:20 and it should be congratulated for the level of growth we’ve seen in the UK and in the US. It’s
0:31:30 remarkably impressive. A lot of that, of course, is hitched on modern tech and frontier R&D and research.
0:31:33 Not sure how much of it is policy versus AI.
0:31:44 It’s a good outcome. But the problem we have in the UK is that even if there was a silver bullet for
0:31:51 growth, it wouldn’t bring it about quickly. You can’t change the trend rate of growth from most
0:31:56 estimates. The National Institute where I was at before, Bank of England, the OBR, basically put the
0:32:02 trend rate of growth at somewhere between one and a quarter to one percent a year. You can’t move that
0:32:09 up quickly. History is littered with the mistakes of politicians arguing that they could raise the rate
0:32:15 of growth quickly, the permanent or the supply-side rate of growth. In every case, that’s just led to an
0:32:22 inflation. Whether we look at Latin America, whether we look at the UK or Europe or Italy, it just leads to an
0:32:31 inflation. Given that the party was elected for one parliament, the growth objective makes sense
0:32:39 over the longer run. But I do think that that was a mistake to not seek out a mandate for fiscal
0:32:45 consolidation in the run-up to the election. The Labour Party in the UK is often thought of as the
0:32:51 the profligate party that leads to fiscal problems. And I think had they sought a mandate for fiscal
0:32:56 consolidation, that they could have done the things that are required that we’ve been talking about
0:33:05 today. Thinking about appropriate changes in taxes, creating, I hate the phrase, fiscal space that would
0:33:12 have by itself driven down bond yields, hopefully led to more investment because the interest rates would have
0:33:17 been lower. It would have reduced the pressure on the Bank of England. One of the reasons inflation is
0:33:21 higher is because of the fiscal impetus that we’re seeing at the moment in the UK. That would have
0:33:26 allowed bank rate, which is what we call the policy rate here, rather than the federal funds rate,
0:33:33 to have come down more quickly than we’ve seen. That would, arguably, have led to faster growth
0:33:37 than we’ve seen. Instead, what we’ve had is continuing commitments on growth which,
0:33:44 essentially, governments can’t control. Uncertainty at the policy-making level, where expenditure plans
0:33:51 to cut have been reversed. Had we made fiscal consolidation the focus of policy, I think this
0:33:55 government would have been a lot better off, rather than focus on something that they ultimately can’t
0:34:03 control. And I think that failure has not helped the growth rate in the UK economy.
0:34:09 It sounds like one of the solutions that you believe would get the UK on the right track again is
0:34:15 public investment, which, as you say, has massively declined. Public investment in infrastructure,
0:34:22 public investment in schools, sort of the long-term investments that are made at the governmental level.
0:34:31 Talk more about why you believe that is the route forward and perhaps any other solutions that
0:34:33 you think could get the UK back on the right track.
0:34:38 Well, I think all forms of investment are helpful. It’s not just public investment. Private business
0:34:45 investment by firms who feel sufficiently confident in the future of their firm to produce revenues and
0:34:50 employment and grow would also want to invest. So I’m not sort of just wedded to public investment,
0:34:56 but I do think we’re in a space where it’s not necessarily the case that public investment crowds
0:35:01 out private investment. You look much younger than me, but the whole debate in the past used to be,
0:35:05 you don’t do too much public investment because it will crowd out private investment. But of course,
0:35:11 a lot of public investment is complementary to the private sector. The private sector cannot work
0:35:16 without a well-educated workforce. The workforce cannot get to work without a good transport system.
0:35:21 There are things that come together there. We can’t expect people to work if the health service
0:35:28 doesn’t keep them fit. There are interactions here that the simple-minded approach on crowding out
0:35:34 was often missing. And of course, we’re probably in a country where its potential right now is much higher
0:35:40 than what we’re observing. So potential output may well be something we can stoke with appropriate
0:35:46 interventions in the public sector. But that said, I would like to think of a world in which there’s more
0:35:52 private investment and too much private investment is centered in the Southeast. It’s not clear to me
0:35:58 that the financial sector evens out its investments. It’s itself looking mostly at its own naval and
0:36:03 Southeast rather than other parts of the country. I think it can be phenomenally hard for SMEs
0:36:11 in the North to gain the kind of finance that they need to grow. So it’s got to be thinking about public,
0:36:17 private and FDI. How do we replace the FDI that we’ve lost foreign direct investment that is not coming
0:36:23 here now because the UK doesn’t provide access to the European Union? We’d had some bad news last week with
0:36:30 AstraZeneca deciding to not invest in the UK and rather invest its new plants in the States.
0:36:36 And we think about why that was and how we can prevent those kinds of things happening.
0:36:43 Skills training is not only at the schools level. It’s vocational training. We have to think about
0:36:52 language, programming, training, things that aren’t necessarily taught at traditional universities.
0:36:57 How do we get more vocational training, which may be more useful? We might be taking a step back there,
0:37:01 but there are certain people for whom, you know, reading economics or reading history,
0:37:07 Paris has thought may not be the right thing to do. It could very well be the right thing for them to do
0:37:11 is something vocational and practical. And of course, the country is crying out for these skills.
0:37:16 So we could think hard about how we develop that system. I mean, there was a moment,
0:37:24 I think after Brexit, where those who went on nursing degrees had their fees paid because we needed more
0:37:30 nurses. I think more imaginative thought there at higher levels would be very helpful to our labour force
0:37:36 and potentially reduce the demand for immigration. That would help some of the issues that were discussed
0:37:37 at the weekend.
0:37:42 I just wanted to touch on immigration, because you mentioned immigration there. And
0:37:45 it seems that immigration has become
0:37:53 more of an important conversation in the past couple of years or so. And the reason I bring this up is
0:37:56 these images and these videos that I saw this this week of this
0:38:02 nationalist rally, you know, hundreds of thousands of people debating how many people actually showed up,
0:38:07 but certainly thousands of people outside of Big Ben, reading about it and hearing about it,
0:38:14 they’re really protesting immigration. I mean, there is a growing feeling among Brits today
0:38:26 that immigrants and asylum seekers have come into the UK and are taking the country. And I’m being a
0:38:32 little bit simplistic, but more or less that is what is being said. This is sort of the great
0:38:36 replacement theory on steroids. This is what is happening in the UK right now.
0:38:45 What is the truth on the issue of immigration in the UK? I think everyone would agree it’s had a real
0:38:56 impact on the economy, but then it also veers into just flat-out racism. That’s something I’ve certainly seen in the UK.
0:39:03 I mean, what is the word on immigration in the UK and how it has affected the UK?
0:39:08 When the accession countries, the Eastern European countries joined the European Union
0:39:12 in the early noughties, we had analysis that suggests that
0:39:18 not that many would migrate from Eastern Europe into the UK. In fact, those numbers were out by a very large factor.
0:39:27 We had huge levels of migration. That was by and large immigration of white Eastern Europeans
0:39:32 who are less, let me just put it this way, less visibly foreign
0:39:36 and arguably were able to integrate
0:39:44 racism in the UK relatively easily. Now, that may be wrong. No doubt, all kinds of examples of racism to all the Eastern Europeans,
0:39:52 but my own sense, watching the thing over the last 20 years, it’s been a little bit easier for the assimilation of those people.
0:40:01 Now, our labor markets were still short of people willing to do low-skilled jobs, whether it’s in the NHS, the National Health Service,
0:40:03 or in hospitality.
0:40:05 And so after Brexit,
0:40:10 we changed some of the visa regulations and a lot of those jobs were not taken by Europeans anymore.
0:40:13 They were taken from people from the other parts of the world, other parts of the world,
0:40:22 who generally had a different hue about them. Let me just put it that way. And this was then noticed that people were coming in in large numbers.
0:40:32 Now, the actual facts are that if we separate illegal immigration or asylum-seeking, don’t forget asylum-seekers can’t work.
0:40:38 Many of them could work and are able to work, but they’re not allowed to work. But let’s just put them on one side.
0:40:43 Immigrants who are coming are actually coming and working here, and they’re paying taxes.
0:40:54 And the analysis I’ve seen suggests that the taxes that they pay more than offset any social costs that the immigrants themselves are imposing on the country.
0:41:00 And indeed, a wise government, when we talked earlier on about the impact of trade, how there are winners and losers,
0:41:07 a wise government could have taken some of those tax receipts and provided compensation for the areas.
0:41:13 And this conversation in this case would have been building more schools, building more hospitals, building more resources,
0:41:22 so that what’s inverted commas come to be known as the native population wouldn’t feel they were being squeezed out in public services by recently arrived migrants.
0:41:26 So it’s another, yet another example of poor policy.
0:41:36 You could have taken the money raised by migrant taxes and ease some of the pressures in the social sectors and the health sectors, but that wasn’t done.
0:41:38 It was spent elsewhere.
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0:43:09 We’re back with Prof G Markets.
0:43:15 One other thing that is increasingly important is the relationship between the US and the UK.
0:43:21 And I’d like to get your read on where things stand on the special relationship.
0:43:25 From what I’ve seen, the Prime Minister Keir Starmer has been
0:43:30 somewhat deferential to the President compared to other leaders.
0:43:35 I’m wondering if you agree, and how is this relationship playing out right now?
0:43:37 I wouldn’t use the word deferential.
0:43:44 I’ve got to say the US is the largest, most important country in the world, economically speaking.
0:43:48 It’s a close friend of ours, has been throughout my lifetime.
0:44:02 We fought world wars together, World War I, World War II, the deep ties in the military, in the financial sector, in the service sectors, in the media.
0:44:07 We talked about that earlier on, are so very deep, I can’t imagine them reversing.
0:44:17 So it’s very important, it seems to me that whoever is the Prime Minister of the UK has good and strong relationships with the US President.
0:44:24 And we can see that whether we go back to John F. Kennedy, Harold and Harold Macmillan, Mrs. Thatcher and Ronald Reagan,
0:44:34 Tony Blair and George W. Bush, or Gordon Brown and Obama, and also David Cameron.
0:44:43 It’s one of the priorities of any UK leader, is to continue to foster good and strong links with the US.
0:44:51 Now, President Trump is a particular character, a very interesting character, and we can talk about that if we need to.
0:45:02 But I think it was very important for us as a country to maintain those strong links, because of all the trading, cultural connections that we have.
0:45:13 And for the Prime Minister, our Prime Minister to do that, I think was very much the right thing for him to do, to establish early and close ties with him.
0:45:27 And to that extent, one can only welcome his state visit this week to the country, because we’re really paying respect to the post, not necessarily the man, the US President.
0:45:35 You know, it’s incredibly important that we have a relationship with him, maybe in the future with her, all their advisors and the people that come with them.
0:45:43 There’ll be a lot of connections being built this very week, mostly in Windsor, that’s mostly where the action is happening.
0:45:45 It’s not happening in London, which I think was very wise.
0:45:50 And I hope from it, both the US and the UK will benefit.
0:46:05 The UK will benefit from further exposure to the US, and hopefully President Trump and his entourage will understand better why it’s so important that they continue to build good relationships with Europe,
0:46:14 with the UK inside it, in the sense in which, maybe to some extent, we’re learning that you can’t trust President Putin, to the extent to which we thought we could.
0:46:24 And that both, and as well, China is another place we’re going to have to work on developing relations, but it’s going to be a lot easier,
0:46:30 if the US and Europe can go into those battles together, rather than excluding the US and Europe from each other.
0:46:42 So hopefully, it will lead to closer ties, not only between the US and the UK, but the US, the UK and the rest of Europe, which I think of as the democratic free world.
0:46:48 And I think we have to show leadership and ownership of the right way to do things.
0:46:55 And I hope that somehow these relationships that are being built this week will foster those right way of doing things.
0:47:04 I would rather be living in a democratic country in Europe than anywhere else I could imagine, or the States, of course, than anywhere else I could imagine in the world.
0:47:07 And I think it’s important that we recognize that commonality.
0:47:21 I’m slightly surprised to hear your comments there, because, you know, what I would describe your characterization of the relationship is quite cordial, respectful, and polite.
0:47:32 And those are all words that I would use to describe the US’s relationship with the UK and with Europe for many years before 2025.
0:47:44 But, you know, from our vantage point, the way it appears is that Trump is essentially bullying his allies into giving him what he wants.
0:47:58 And in some cases, it’s not actually even clear what he wants, and in my view and in our view on this podcast, at least, mostly what he wants is to be seen as the winner, to come out on top in some way.
0:48:18 Even if it doesn’t actually result in a tangible benefit for the American people, what matters most is for a news outlet to say, Trump wins big, Trump crushes opponent, Europe concedes on tariffs, whatever the headline is, to make Trump appear as the winner.
0:48:33 And so I’m slightly surprised to hear your read on the relationship, which sounds like, you know, he’s an interesting character, but mostly what we care about is having a respectful relationship.
0:48:39 And maybe that is the case. Maybe that is how people feel about it. But your reactions to my reaction.
0:48:46 I was much more of that line earlier in the year when we had Liberation Day, and that seemed to me to be ill-conceived.
0:48:55 Maybe I’m too much of an optimist, but I think the administration has learned something from that, in how not to do things.
0:48:59 Liberation Day reminded me a little bit of the mini-budget in the UK.
0:49:01 I’m just going to go out and do this.
0:49:02 A hundred percent.
0:49:09 And realizing that it doesn’t really work in terms of what happened to the dollar, and what happened to the standing of the US internationally.
0:49:13 I think, I would hope that parts of the administration have learned lessons from that.
0:49:29 And also, if I could say, at the same time, there’s been a sense in which, I think I’d use my words carefully here, a sense in which thinking that you could bring about a peace by negotiating with Putin has turned out to be misconceived.
0:49:36 And I’m hoping that the administration has learned from that as well, in a sense in which Putin is playing a long game here.
0:49:39 He doesn’t really want to give up bits of Ukraine.
0:49:46 And to imagine that you could very quickly get him to move away has proven to be wrong.
0:49:50 And I’m hoping there’ll be some learning going on there as well.
0:49:55 And that’s where I was going back to what the Trump administration may learn from the UK.
0:50:03 Diplomacy and understanding international relations is very much in the blood of European policymakers, particularly in the UK.
0:50:11 It’s all those years of empire that led to quite a bit of expertise in how to deal with overseas countries.
0:50:14 And a lot of knowledge about the Soviets and Russia in general.
0:50:27 And I’m hoping that the special relationship can impart some knowledge as well back in terms of how to deal with countries such as Russia and how ultimately to bolster Ukraine rather than leaving it stranded.
0:50:36 Because there was a world in which we might have wanted to give Putin everything he wanted and then declare a peace in Ukraine.
0:50:44 But you will know, having grown up to some extent in Britain, that we don’t think appeasement is the way ahead in any of this.
0:50:48 Where’s the next stop for Ukraine?
0:51:04 Would they, I mean, I realize that Latvia is a member of NATO, but you worry when you hear about skirmishes over Poland, skirmishes over Latvia, the Finnish border as well, being exposed to Russian troops.
0:51:09 You know, there comes a point where you have to say, no, we’re not going to appease this guy.
0:51:11 We’re going to hold firm.
0:51:16 And even if it means having to commit troops and money, I think it’s worth it.
0:51:20 And I’m hoping that the U.S. administration will start to come to that point of view.
0:51:24 Jagjit Chadha is a professor of economics at the University of Cambridge.
0:51:29 He served as director of the National Institute of Economic and Social Research from 2016 to 2024.
0:51:38 He has acted as specialist advisor to the House of Commons Treasury Committee and academic advisor to both the Bank of England and HM Treasury.
0:51:46 He is now on the advisory board of the Bennett Institute of Public Policy, the executive board of the Productivity Institute, and the Health Foundation’s Productivity Commission.
0:51:50 He is also a founding fellow of the Royal Economic Society.
0:51:52 Jagjit, this was a pleasure.
0:51:54 Thank you so much for joining us.
0:51:55 It’s been an absolute pleasure.
0:51:56 Lovely talking to you.
0:51:58 And I’ll certainly continue to watch the show.
0:52:23 Thank you for listening to Prof G Markets from Prof G Media.
0:52:28 If you liked what you heard, give us a follow and join us for a fresh take on markets on Monday.
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0:01:45 Today’s number? 60. That is the age by which most people lose half of their taste buds. Now we know
0:02:04 why Scott has such bad taste. Welcome to Prof G Markets. We’re starting with a Scott roast because
0:02:10 Scott is not here today. He’s at a speaking event, so I’m sorry, Scott, you’re going to get a roast today.
0:02:15 I will be handling this interview solo, but I’m very excited because we are speaking with
0:02:20 Jagjit Chadha, who is a professor of economics in the Faculty of Economics at the University of Cambridge,
0:02:25 and he is going to talk to us today about the state of the U.K., their economic situation,
0:02:32 their monetary policy, and also their relationship with the U.S. So without further ado, let’s get into
0:02:38 it. Here is our interview with Jagjit. Thank you so much for joining me on Prof G Markets.
0:02:45 Ed, it’s an absolute pleasure to be here. I’ve watched your show a number of times,
0:02:51 and I was a bit worried about coming on, but I’m here, so let’s get on with the interview. Thanks
0:02:57 for asking me on, Ed. We wanted to bring you on because, you know, we spend a lot of time on this
0:03:03 podcast thinking about what is happening in the U.S. We are very U.S.-centric. We’re obsessed with
0:03:08 what’s happening in America. We don’t really spend enough time thinking about what’s happening
0:03:16 elsewhere, including where I grew up, and that is the U.K. And so I wanted to talk to you today to
0:03:21 learn about what is actually happening in the U.K. It’s been in the headlines a lot in business and
0:03:27 politics and in economics. So I’m just going to start with a very broad question. You can take it
0:03:34 wherever you’d like. What are the biggest issues ailing the U.K. right now from an economic perspective?
0:03:40 If we just put the victory at the Emmys on one side, which was pretty stunning, I think the problem
0:03:46 we’ve had in the U.K. since the global financial crisis, of course, we’re a country who hitched its
0:03:54 ride very much to global finance. And the extent to which finance has been crimped or reformed or
0:04:00 subject to all kinds of reforms and constraints since the financial crisis, I think, has affected in
0:04:06 quite a deep way the U.K. economy, which we can come back to a little bit later. But that process of
0:04:17 slowing down has been exacerbated by Brexit. That is, the vote in 2016 to leave the European Union. Of course,
0:04:24 we didn’t leave for a few years afterwards. But the uncertainty that ensued as a result of that vote, as we
0:04:29 worked out how we were going to leave, whether we were going to leave, and under what terms we were going to
0:04:35 leave, I’d only introduced the one word that all scoundrels in economics use all the time, which is
0:04:42 uncertainty. Nobody really knew what was going to happen to our trading links with arguably our most
0:04:50 important partners in Europe. And that is clearly shown to have reduced business investment, which, of
0:04:57 course, you’ll know is a driver of economic growth, also led to some stalling in FDI as countries outside
0:05:02 the euro area, had to decide whether to continue to invest in the U.K., which was very much seen
0:05:08 as an entrepot. You invest in the U.K. and then you get access to European markets. So that was also
0:05:13 lost. And of course, foreign investors anyway who want to invest in the U.K. are wondering what the heck
0:05:18 is going on in this country, because the political turmoil led to several changes in Prime Minister.
0:05:27 Lord knows how many chancellors. And ultimately, with what I can only call the comedy event of the mini-budget of
0:05:34 2022 under Liz Truss’s prime ministership, which led to a persistent escalation in bond yields, which some
0:05:42 argue are still there, suggesting some risk in the U.K. economy that wasn’t around. And so what you have is the original
0:05:50 shock of the global financial crisis, an exacerbation of economic divergences across the country. A lot of it was
0:05:56 blamed on the European Union. A lot of it was blamed on foreigners, particularly from Europe. And a lot of it was
0:06:04 kind of blamed on the government for not being in control of economic growth. That then gets exacerbated
0:06:15 by subsequent events, Covid, which we had very high death rates from in the U.K., but particularly in social
0:06:20 care. So we didn’t manage that particularly well after the period of political uncertainty I’ve talked
0:06:25 about. And then you’ve got the kind of cost of living crisis. And let me sort of go through this very
0:06:33 briefly. Because the supply side of the economy had been so badly damaged by the global financial crisis,
0:06:42 Brexit, underinvestment in public goods, infrastructure. That meant the supply side had become much less
0:06:48 flexible than you would have wanted it to be. So you’ve got this kind of supply side that’s not
0:06:53 responding to shocks in the way that you want. And as a result, when there is a large shock to food and
0:06:58 energy prices, it works its way through to a very high rate of inflation, a double-digit inflation
0:07:03 for the first time in a couple of generations. And I had a situation where the Bank of England had to
0:07:08 work very hard to bring it back down to sensible levels. And you note, of course, we’re still hovering
0:07:15 around 4%, which is twice the target. And I think the bank rightly decided to do this in a gradual
0:07:20 manner rather than an abrupt manner, because it didn’t want to take a risk with increasing or stoking higher
0:07:30 levels of unemployment. So what you’ve got is a very sad tale of an economy that’s performed badly
0:07:37 as a result of a sequence of global and domestic shocks that has led people feeling pretty sore.
0:07:42 A few things strike me there. One is that you paint the picture of a country
0:07:49 and a trajectory that is sad. And I really think that is the right word. I mean, this once great
0:07:56 economic superpower that has really fallen into this state of stagnation. And that’s not hyperbole. I mean,
0:08:03 you just look at GDP growth as an example, which is literally stagnant, you know, zero growth
0:08:09 last month. But the thing that’s so interesting about the UK, it’s got all of the problems that
0:08:13 everyone else seems to have, or at least everyone else seems to have in the Western world. You know,
0:08:17 you’ve got these issues with inflation, you’ve got these issues with polarization.
0:08:24 You know, all of those things that you mentioned that made problems worse in the UK, the great financial
0:08:33 crisis, COVID, these are all global problems. Except in the UK, it’s almost more intense than
0:08:39 anywhere else. I mean, you look at inflation just as an example. We’re over here in the US complaining about
0:08:50 2.7%, 2.9% inflation. You’re over there in the UK with 3.8%. And one thing I think about is, you know,
0:08:55 what makes the UK different? The UK has been faced with a lot of the same challenges that everyone else
0:09:02 has. It’s got similar debt problems. It’s dealt with the similar supply chain issues of COVID.
0:09:06 But I try to think, okay, what is the difference? The one thing that really stands out to me
0:09:17 is Brexit. And I wonder, from your view, as an economist, to what extent did Brexit play
0:09:22 in this stagnation and this decline in the UK?
0:09:28 I think the way to think about this is that we were in a form of decline through poor political
0:09:34 leadership, institutions that weren’t working at the regional level, a failure to get to grips with
0:09:39 globalisation. We can talk about that in a minute. It all came a bit too easy to the UK.
0:09:44 The UK is an incredibly open economy. And to go back to your earlier point, it’s just as open to
0:09:50 global shocks as anyone else. But I would argue even more so in the sense in which labour migration,
0:09:57 the ease with which people can enter the financial sector, the ease with which you can buy housing
0:10:01 property here. Have you ever tried to buy a house in France compared to London? I can tell you which one is
0:10:07 easier. We are just naturally much more open and a trading nation, which then means that when global
0:10:13 shocks come along, we’re more sensitive to them. And I think you were hinting at this point, how is it we
0:10:18 were able to deal with them in the past when we can’t deal with them now? Well, of course, for a large
0:10:26 part of that past, Britain was itself in charge. It had its own ability to deal with shocks because it was
0:10:31 on top of an empire. Now, we can talk about the pros and cons of empire. You can clearly tell from my
0:10:38 background as well that that affected my family’s life. But I don’t think, you know, I’m not sure we got to grips
0:10:44 with the post-imperial problems particularly well. But even more so, I’m not sure we got to grips with the
0:10:49 globalisation. It all came too easily. In the 1990s, it looked like a free good. We were going to get
0:10:55 cheaper goods from China, we were going to get cheaper workforce from Europe, and everyone would
0:11:01 be better off. But what we don’t understand or didn’t understand well enough is that when you open
0:11:07 up trade, there are domestic winners and losers. People who are working in high-income areas, I pointed
0:11:13 them out earlier on, will certainly gain from cheaper manufactured goods and the ability to
0:11:19 hire labour, whether it’s to do your patio or look after your children as an au pair, much more easily
0:11:25 than they would if they’re just relying on the domestic labour force. Now, that’s all well and good for people
0:11:30 on good salaries who’ve had very good educations. All those initial conditions that mean you have a good
0:11:38 life, which I don’t begrudge anyone, but they’ve got that. But then as a result, you’ve got local labour,
0:11:42 call it semi-skilled, call it blue-collar in the States, whatever you want to call it, that is
0:11:48 suddenly not able to have those jobs that have been taken by other people. And to the extent to which
0:11:55 we’re buying manufactured or finished goods from the Far East, that reduces the demand for domestically
0:12:01 produced goods, something that the US is subject to as well. But the correct policy response was not to
0:12:08 leave these people who lost their livelihoods alone and let them fester. It was to divert money to retrain
0:12:16 them, give them opportunities, build up local connections and infrastructure, offer them forms of finance so
0:12:21 they could develop their own businesses and build up their income to compensate for what those communities
0:12:28 lost from the jobs that essentially were either taken from people abroad because we were importing
0:12:34 goods that they used to make, or were taken from people abroad who’d migrated here. And that was the
0:12:40 missing part of our response to globalisation. We just thought automatically everyone would be better
0:12:46 off not understanding the heterogeneity of the working population well enough. And I think there’s another
0:12:52 problem in there as well. The UK is far too London oriented. If things are all right in London,
0:12:59 policy makers, the elites don’t notice. So there are some severe regional imbalances in this country.
0:13:05 And I think that’s driven by centralisation of policy making, a centralisation of elites.
0:13:10 And to be clear, I’ve got nothing wrong, nothing against elites, you know, or nothing against anyone who’s
0:13:15 lived their life in London. Myself, I was born in Yorkshire, so I have a good sense of what it’s
0:13:20 like in other parts of the country. But I think that’s part of the problem as well. There’s not
0:13:27 enough people who understand or are willing to spend time thinking about how other parts of the country
0:13:31 are adjusting to the kind of shocks we had or are continuing to have.
0:13:37 on this point of the linkage between what we’re seeing in London, the economic growth that we’ve
0:13:43 seen in London over the past several decades and how that relates to policy making. And you said earlier
0:13:52 that you think that Brexit was really a symptom of bad policy and continued centralisation of policy in
0:14:01 London. If I were to sort of illustrate a cartoon of what’s happening, it would be public school boys
0:14:11 who go to Eton and then they go to Oxford and they go to Cambridge and then they work their way into
0:14:18 Parliament where they are basically figuring out and designing policies with no real understanding of how
0:14:25 the country actually works. They’ve grown up in a very, very privileged bubble. The bubble has sort of
0:14:29 pushed them on into power. You’ve got people like Boris Johnson would probably be your prime
0:14:39 cartoonish example. And as a result of that, you’re seeing these issues where the economy seems to only
0:14:49 really be serving a very small subset of people who have a very unique set of characteristics. And generally
0:14:57 speaking, it’s rich people living in London. I’m creating a cartoonish picture of what’s happening,
0:15:03 but I’m wondering if you think that that has any validity. Is that really the story here of what’s happened in the UK?
0:15:12 I think our political leaders are poor at the moment. The leaders of our main two parties have
0:15:16 currently got huge negative readings. You look at the balance of people who are in favour of them and
0:15:20 the balance of people who are against them. It’s something like minus 55 for the prime minister and
0:15:26 minus 20 something for the leader of the opposition. These are huge negative numbers which suggest that
0:15:34 trust in politics is very poor. And we live in a democracy. Being a politician is not easy. It’s a
0:15:39 thankless task. It’s not something I’d ever want to do. Knocking on doors, dealing with party members,
0:15:48 trying to get people to vote for you. And it takes a particular kind of person to do that.
0:15:57 Um, so we haven’t got a system, perhaps with the caricature that you’ve painted,
0:16:04 that’s delivering sufficiently competent people to deliver policy. Policy is not easy. It’s very hard
0:16:10 to sit down and work out what’s robust, what’s going to work and what brings about the outcomes that the
0:16:15 people really need. It cannot be a partisan matter. It cannot be a question of something you’ve believed
0:16:19 when you were 15 and you’re going to carry it through now. Certainly the answers are not in
0:16:25 books written by a dead economist from a hundred years ago. It’s, it’s, uh, it’s really is a difficult
0:16:31 process of choosing. When we say to govern is to choose, it really is, but it’s to choose across
0:16:38 alternate things. So going back to your point, you need time. You need people with experience. They just
0:16:45 tend not to impress. Um, and what we get as a result is policymaking made in a crisis.
0:16:50 So it’s not being deeply thought through. It’s kind of, Oh, what do we do now? Bond deals have
0:16:56 suddenly shot up. What’s the right answer? Um, to get elected next week. You know what I’ll do? I’ll
0:17:01 promise not to raise taxes. Well, hang on a minute. Debt to GDP is a hundred percent. Uh,
0:17:06 we’re not growing. So how are you going to bring it down if you don’t raise taxes? Now I’m not
0:17:11 a big guy for raising taxes. I think they’re disincentives to work. Uh, but there could be a
0:17:17 case after something as profound as COVID to have some temporary taxes brought in to try and correct
0:17:22 the fiscal position. Now it’s not the answer, but it’s also not rocket science to think about that.
0:17:27 But we don’t have people who are taking a step back in thinking about things. We just get announcements
0:17:34 on, on the hooth. And we also want politicians take ownership of their choices. You know, I
0:17:40 did this and I will be judged against this. And we don’t get enough of that in this country. They’ve
0:17:46 often moved, moved on, or they’ll change their mind, uh, or decide to do something else. We,
0:17:53 for example, our current government was elected on the promise of bringing about growth and, uh,
0:17:58 that there will be no new taxes on working people, whatever that means. I don’t know anyone who doesn’t
0:18:03 work, but fine. Let’s use the phrase working people. We’ll probably find that second pledge
0:18:09 will be broken in the budget in November, 26. As I’ve said, you’ve got very high levels of debt to
0:18:15 GDP by peacetime standards. We don’t have a hundred percent of debt to GDP. We don’t have the United
0:18:21 States exorbitant privilege where everyone wants to hold some, uh, dollar T notes. Um,
0:18:28 um, 35% of our debt is index linked, which means it’s been very expensive in the last four or five
0:18:37 years because of inflation. We’re now paying nearly 4% of GDP in, in debt service costs on that debt,
0:18:42 which is higher than comparable partners are paying because of the structure of our, of our debt.
0:18:50 So, and if you’ve got no growth on top, there’s a solution there. We should think about income taxes
0:18:56 and not at the top. That’s not going to raise very much. It’s going to be income taxes for people in
0:19:03 the middle who, uh, maybe will determine the fate of elections, but politicians have to persuade people
0:19:08 that this has to be done. Otherwise we’ll be facing a fiscal crisis where we can’t sell our debt.
0:19:13 And all of a sudden we don’t have any money to do anything. And, and they’re not, they’re not grabbing
0:19:18 that nettle. They’re not saying this needs to be done. There’s, there’s lots of cheap talk about
0:19:23 the whole thing. And as a result, I think markets are getting quite febrile about the UK’s, uh,
0:19:28 uh, fundamental position. You’ve got lots of debt, you need money to pay for it. So what are you going
0:19:33 to do? You have to be brave at this point. Uh, it’s not clear we’ve got politicians prepared to take
0:19:45 devil of ownership. We’ll be right back.
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0:22:39 We’re back with ProfG Markets. These issues of the UK’s public finances are, they seem to be what really
0:22:44 dominate the economic conversation in the UK. And I think there is a crucial point in there that you
0:22:50 mentioned, which is, you know, the UK has very similar debt problems to the US. Um, you know,
0:23:00 debt to GDP, nearly a hundred percent, uh, you know, five percent of GDP in deficits, which is lower than the
0:23:05 US. But again, as you mentioned, the big difference for the UK is that the pound isn’t the reserve currency
0:23:13 for the world. So the UK doesn’t have that, that level of leeway. We don’t get the, the UK doesn’t
0:23:19 get to play the card that the US gets to play. And that’s why this issue of balancing the books
0:23:28 is such an important issue for the UK. And, you know, you mentioned earlier the mini budget of 2022,
0:23:32 which by the way, I think is probably worth explaining. I don’t think people in the US,
0:23:38 uh, probably necessarily know about that. This was this issue with the, the previous prime minister,
0:23:47 Liz Truss. Um, but this issue of, of budgeting in government is huge in the UK. And it appears that
0:23:55 what has happened, if I were to just look at it from a very simple point of view is they’ve taken on too
0:24:04 much debt. They’ve gotten complacent and they have forgotten the fact it seems that they cannot play
0:24:09 the same playbook that the US place. They don’t, they don’t have that exorbitant privilege. They
0:24:15 don’t have the global reserve currency card. So I guess my question to you would be, how did the UK
0:24:22 get to this point? How did the UK put itself in this hole where it is struggling with debt issues?
0:24:28 We are seeing long-term, uh, guilt yields. It’s the UK equivalent of a treasury,
0:24:32 long-term yields spiking right now. Why are they in this position right now?
0:24:37 We have this fiscal framework and the fiscal framework, uh, is run by an organization called
0:24:43 the Office of Budget Responsibility. And what that does, it, it, it forecasts where debt to GDP will
0:24:51 be in three to five years time. And the fiscal rule is that by the final year, debt to GDP should be
0:25:00 falling. So you have a, you have a sort of charade where the chancellor, who’s the head of the treasury,
0:25:07 the finance ministry in other countries works with the OBR in the run up to a budget, uh, producing
0:25:14 different fiscal plans. And the OBR does then projects forward, given what it thinks is going to happen to
0:25:21 GDP, employment, exchange rates, and, and forecast what’s going to happen to GDP in years ahead.
0:25:27 Uh, providing that in the final year, they forecast debt to GDP is going to fall.
0:25:34 The chancellor can stand up on budget day or autumn statement day and say, ah, the OBR has said our
0:25:40 fiscal rules will be met. This fiscal rules are nonsense because you could have three years in which
0:25:46 debt to GDP is rising, providing it falls in the final year by some small epsilon amount.
0:25:51 The chancellor could stand up and it has indeed stood up and said, we hit our fiscal rule.
0:25:56 But it’s not a fiscal rule that ensures that debt to GDP is falling in any meaningful sense,
0:26:03 or a stationary in the sense in which it’s going back to some normal peacetime level, which I would
0:26:08 gauge it around 60% to 80% of GDP, which is, you know, where we are in Germany, for example,
0:26:14 80% of GDP. You can have growth for four years, providing someone forecasts a fall in the fifth
0:26:21 year. And what you’ve had at the same time, uh, contemporaneously is extremely cheap debt issuance,
0:26:29 QE, low interest rates over this period. So it’s been very easy for governments to issue debt and pay
0:26:35 very low levels of interest on it. So really the government’s just gobbled up a free lunch. The
0:26:39 level of debt is really tracing out the demand curve for debt at very low interest rate, the more debt
0:26:45 the government has issued. And what you’ve found is that, okay, as you say, as with many other Western
0:26:51 economies, the crises that we’ve had, let’s just put Brexit on one side, huge shock for the UK economy,
0:26:55 there was an increase in QE there as well. But whether it’s COVID or the cost of living crisis,
0:27:02 we see most Western economies provided correctly support for people who couldn’t work at that time,
0:27:08 so the economy could keep going. But our support was generally larger and more generous than we saw
0:27:12 in other economies. You know, our governments, possibly because they were worried about the
0:27:18 electoral business cycle, were giving out huge amounts of money over this period, which led to a
0:27:24 sharp increase in debt. And what we’ve had since the end of COVID is governments that either hue,
0:27:32 blue or red, have promised to reduce expenditures and increase taxes, but have reversed those statements
0:27:39 in advance of any decisions being made. So what you have is really nothing to tie down those promises
0:27:44 of the government that are made in the early part of the year and then reverse later in the year.
0:27:50 And as a result, debt to GDP is not falling. It’s just staying very high. There’s nothing,
0:27:56 there’s no sense of responsibility or ownership of the fiscal position, because the level of ownership
0:28:01 is simply that the OBR is going to project a fall in debt to GDP in three or four years’ time.
0:28:05 That leads to bankruptcy in the end, because it doesn’t lead to a fall in debt to GDP.
0:28:12 This whole debate that we’ve had in the UK about how much space is there between how much the
0:28:18 Chancellor wants to spend and where the OBR will say debt is falling, the so-called fiscal space,
0:28:25 is a number that has dominated fiscal discussions for over a decade. But what we haven’t had is a
0:28:31 proper public debate about what fiscal policy is for. What’s the return on building up the education
0:28:37 sector? What’s the return on building better roads, infrastructure, broadband? What’s the return on
0:28:43 public investment in the health service? All of these things are huge, large, and positive. And a
0:28:48 grown-up debate would sort of say to ourselves, how much do we have to put in there? Okay, we’ve had a
0:28:55 shortfall of investment, public investment, since about 1980. You can’t reverse that in one parliament.
0:29:02 So again, you need maturity to say, look, this is going to take me 10 or 15 years to nurture
0:29:07 the capital stock in the public sector to where it’s going to be. I can’t do it in one parliament.
0:29:12 I’m going to do it very gradually. I’m going to do it with the approval of the financial markets,
0:29:17 because I’m going to explain exactly where we’re going to spend the money, what the social return
0:29:22 is, and how that’s going to lead to an increase in revenue in the future. That’s not what’s going on.
0:29:31 As you say, there is this debt issue in the UK. And the argument has been, from the current
0:29:39 administration in the UK, I remember a year ago, the now-transfer of the Exchequer, that’s the UK’s
0:29:45 equivalent of the Treasury Secretary, Rachel Reeves, was really emphasizing the importance of growth.
0:29:54 What we have to do is we have to spark growth in the economy. And we are going to figure out a way
0:29:59 to sort of grow ourselves out of this. And by the way, this is the same argument we hear
0:30:06 in the US as well. That’s the argument we hear when we see these massive deficits and this massive debt
0:30:12 load. They say, don’t worry, we’re going to grow. And that’s going to pay for it. The economy is going
0:30:17 to roar. We’re going to see technology and AI and it’s going to grow the economy and then we’re going
0:30:25 to be okay. So we’re looking now at GDP growth of zero in July. That was the most recent reading.
0:30:36 What has gone wrong? How is it that this parliament, which said this was our number one thing that we
0:30:41 want to get done is we want to spark growth in the economy. How is it that the economy is not growing?
0:30:48 The economy has hardly grown since Brexit. I’ve described it as we’ve been in the doldrums
0:30:57 for quite some time. It’s been varied. It took us longer to get back to the pre-COVID level of GDP
0:31:03 than most of our trading partners. So we’ve just had sluggish growth in the doldrums since Brexit.
0:31:15 While I laud the long-term aim for growth, and actually the US has done pretty well on that front,
0:31:20 and it should be congratulated for the level of growth we’ve seen in the UK and in the US. It’s
0:31:30 remarkably impressive. A lot of that, of course, is hitched on modern tech and frontier R&D and research.
0:31:33 Not sure how much of it is policy versus AI.
0:31:44 It’s a good outcome. But the problem we have in the UK is that even if there was a silver bullet for
0:31:51 growth, it wouldn’t bring it about quickly. You can’t change the trend rate of growth from most
0:31:56 estimates. The National Institute where I was at before, Bank of England, the OBR, basically put the
0:32:02 trend rate of growth at somewhere between one and a quarter to one percent a year. You can’t move that
0:32:09 up quickly. History is littered with the mistakes of politicians arguing that they could raise the rate
0:32:15 of growth quickly, the permanent or the supply-side rate of growth. In every case, that’s just led to an
0:32:22 inflation. Whether we look at Latin America, whether we look at the UK or Europe or Italy, it just leads to an
0:32:31 inflation. Given that the party was elected for one parliament, the growth objective makes sense
0:32:39 over the longer run. But I do think that that was a mistake to not seek out a mandate for fiscal
0:32:45 consolidation in the run-up to the election. The Labour Party in the UK is often thought of as the
0:32:51 the profligate party that leads to fiscal problems. And I think had they sought a mandate for fiscal
0:32:56 consolidation, that they could have done the things that are required that we’ve been talking about
0:33:05 today. Thinking about appropriate changes in taxes, creating, I hate the phrase, fiscal space that would
0:33:12 have by itself driven down bond yields, hopefully led to more investment because the interest rates would have
0:33:17 been lower. It would have reduced the pressure on the Bank of England. One of the reasons inflation is
0:33:21 higher is because of the fiscal impetus that we’re seeing at the moment in the UK. That would have
0:33:26 allowed bank rate, which is what we call the policy rate here, rather than the federal funds rate,
0:33:33 to have come down more quickly than we’ve seen. That would, arguably, have led to faster growth
0:33:37 than we’ve seen. Instead, what we’ve had is continuing commitments on growth which,
0:33:44 essentially, governments can’t control. Uncertainty at the policy-making level, where expenditure plans
0:33:51 to cut have been reversed. Had we made fiscal consolidation the focus of policy, I think this
0:33:55 government would have been a lot better off, rather than focus on something that they ultimately can’t
0:34:03 control. And I think that failure has not helped the growth rate in the UK economy.
0:34:09 It sounds like one of the solutions that you believe would get the UK on the right track again is
0:34:15 public investment, which, as you say, has massively declined. Public investment in infrastructure,
0:34:22 public investment in schools, sort of the long-term investments that are made at the governmental level.
0:34:31 Talk more about why you believe that is the route forward and perhaps any other solutions that
0:34:33 you think could get the UK back on the right track.
0:34:38 Well, I think all forms of investment are helpful. It’s not just public investment. Private business
0:34:45 investment by firms who feel sufficiently confident in the future of their firm to produce revenues and
0:34:50 employment and grow would also want to invest. So I’m not sort of just wedded to public investment,
0:34:56 but I do think we’re in a space where it’s not necessarily the case that public investment crowds
0:35:01 out private investment. You look much younger than me, but the whole debate in the past used to be,
0:35:05 you don’t do too much public investment because it will crowd out private investment. But of course,
0:35:11 a lot of public investment is complementary to the private sector. The private sector cannot work
0:35:16 without a well-educated workforce. The workforce cannot get to work without a good transport system.
0:35:21 There are things that come together there. We can’t expect people to work if the health service
0:35:28 doesn’t keep them fit. There are interactions here that the simple-minded approach on crowding out
0:35:34 was often missing. And of course, we’re probably in a country where its potential right now is much higher
0:35:40 than what we’re observing. So potential output may well be something we can stoke with appropriate
0:35:46 interventions in the public sector. But that said, I would like to think of a world in which there’s more
0:35:52 private investment and too much private investment is centered in the Southeast. It’s not clear to me
0:35:58 that the financial sector evens out its investments. It’s itself looking mostly at its own naval and
0:36:03 Southeast rather than other parts of the country. I think it can be phenomenally hard for SMEs
0:36:11 in the North to gain the kind of finance that they need to grow. So it’s got to be thinking about public,
0:36:17 private and FDI. How do we replace the FDI that we’ve lost foreign direct investment that is not coming
0:36:23 here now because the UK doesn’t provide access to the European Union? We’d had some bad news last week with
0:36:30 AstraZeneca deciding to not invest in the UK and rather invest its new plants in the States.
0:36:36 And we think about why that was and how we can prevent those kinds of things happening.
0:36:43 Skills training is not only at the schools level. It’s vocational training. We have to think about
0:36:52 language, programming, training, things that aren’t necessarily taught at traditional universities.
0:36:57 How do we get more vocational training, which may be more useful? We might be taking a step back there,
0:37:01 but there are certain people for whom, you know, reading economics or reading history,
0:37:07 Paris has thought may not be the right thing to do. It could very well be the right thing for them to do
0:37:11 is something vocational and practical. And of course, the country is crying out for these skills.
0:37:16 So we could think hard about how we develop that system. I mean, there was a moment,
0:37:24 I think after Brexit, where those who went on nursing degrees had their fees paid because we needed more
0:37:30 nurses. I think more imaginative thought there at higher levels would be very helpful to our labour force
0:37:36 and potentially reduce the demand for immigration. That would help some of the issues that were discussed
0:37:37 at the weekend.
0:37:42 I just wanted to touch on immigration, because you mentioned immigration there. And
0:37:45 it seems that immigration has become
0:37:53 more of an important conversation in the past couple of years or so. And the reason I bring this up is
0:37:56 these images and these videos that I saw this this week of this
0:38:02 nationalist rally, you know, hundreds of thousands of people debating how many people actually showed up,
0:38:07 but certainly thousands of people outside of Big Ben, reading about it and hearing about it,
0:38:14 they’re really protesting immigration. I mean, there is a growing feeling among Brits today
0:38:26 that immigrants and asylum seekers have come into the UK and are taking the country. And I’m being a
0:38:32 little bit simplistic, but more or less that is what is being said. This is sort of the great
0:38:36 replacement theory on steroids. This is what is happening in the UK right now.
0:38:45 What is the truth on the issue of immigration in the UK? I think everyone would agree it’s had a real
0:38:56 impact on the economy, but then it also veers into just flat-out racism. That’s something I’ve certainly seen in the UK.
0:39:03 I mean, what is the word on immigration in the UK and how it has affected the UK?
0:39:08 When the accession countries, the Eastern European countries joined the European Union
0:39:12 in the early noughties, we had analysis that suggests that
0:39:18 not that many would migrate from Eastern Europe into the UK. In fact, those numbers were out by a very large factor.
0:39:27 We had huge levels of migration. That was by and large immigration of white Eastern Europeans
0:39:32 who are less, let me just put it this way, less visibly foreign
0:39:36 and arguably were able to integrate
0:39:44 racism in the UK relatively easily. Now, that may be wrong. No doubt, all kinds of examples of racism to all the Eastern Europeans,
0:39:52 but my own sense, watching the thing over the last 20 years, it’s been a little bit easier for the assimilation of those people.
0:40:01 Now, our labor markets were still short of people willing to do low-skilled jobs, whether it’s in the NHS, the National Health Service,
0:40:03 or in hospitality.
0:40:05 And so after Brexit,
0:40:10 we changed some of the visa regulations and a lot of those jobs were not taken by Europeans anymore.
0:40:13 They were taken from people from the other parts of the world, other parts of the world,
0:40:22 who generally had a different hue about them. Let me just put it that way. And this was then noticed that people were coming in in large numbers.
0:40:32 Now, the actual facts are that if we separate illegal immigration or asylum-seeking, don’t forget asylum-seekers can’t work.
0:40:38 Many of them could work and are able to work, but they’re not allowed to work. But let’s just put them on one side.
0:40:43 Immigrants who are coming are actually coming and working here, and they’re paying taxes.
0:40:54 And the analysis I’ve seen suggests that the taxes that they pay more than offset any social costs that the immigrants themselves are imposing on the country.
0:41:00 And indeed, a wise government, when we talked earlier on about the impact of trade, how there are winners and losers,
0:41:07 a wise government could have taken some of those tax receipts and provided compensation for the areas.
0:41:13 And this conversation in this case would have been building more schools, building more hospitals, building more resources,
0:41:22 so that what’s inverted commas come to be known as the native population wouldn’t feel they were being squeezed out in public services by recently arrived migrants.
0:41:26 So it’s another, yet another example of poor policy.
0:41:36 You could have taken the money raised by migrant taxes and ease some of the pressures in the social sectors and the health sectors, but that wasn’t done.
0:41:38 It was spent elsewhere.
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0:43:15 One other thing that is increasingly important is the relationship between the US and the UK.
0:43:21 And I’d like to get your read on where things stand on the special relationship.
0:43:25 From what I’ve seen, the Prime Minister Keir Starmer has been
0:43:30 somewhat deferential to the President compared to other leaders.
0:43:35 I’m wondering if you agree, and how is this relationship playing out right now?
0:43:37 I wouldn’t use the word deferential.
0:43:44 I’ve got to say the US is the largest, most important country in the world, economically speaking.
0:43:48 It’s a close friend of ours, has been throughout my lifetime.
0:44:02 We fought world wars together, World War I, World War II, the deep ties in the military, in the financial sector, in the service sectors, in the media.
0:44:07 We talked about that earlier on, are so very deep, I can’t imagine them reversing.
0:44:17 So it’s very important, it seems to me that whoever is the Prime Minister of the UK has good and strong relationships with the US President.
0:44:24 And we can see that whether we go back to John F. Kennedy, Harold and Harold Macmillan, Mrs. Thatcher and Ronald Reagan,
0:44:34 Tony Blair and George W. Bush, or Gordon Brown and Obama, and also David Cameron.
0:44:43 It’s one of the priorities of any UK leader, is to continue to foster good and strong links with the US.
0:44:51 Now, President Trump is a particular character, a very interesting character, and we can talk about that if we need to.
0:45:02 But I think it was very important for us as a country to maintain those strong links, because of all the trading, cultural connections that we have.
0:45:13 And for the Prime Minister, our Prime Minister to do that, I think was very much the right thing for him to do, to establish early and close ties with him.
0:45:27 And to that extent, one can only welcome his state visit this week to the country, because we’re really paying respect to the post, not necessarily the man, the US President.
0:45:35 You know, it’s incredibly important that we have a relationship with him, maybe in the future with her, all their advisors and the people that come with them.
0:45:43 There’ll be a lot of connections being built this very week, mostly in Windsor, that’s mostly where the action is happening.
0:45:45 It’s not happening in London, which I think was very wise.
0:45:50 And I hope from it, both the US and the UK will benefit.
0:46:05 The UK will benefit from further exposure to the US, and hopefully President Trump and his entourage will understand better why it’s so important that they continue to build good relationships with Europe,
0:46:14 with the UK inside it, in the sense in which, maybe to some extent, we’re learning that you can’t trust President Putin, to the extent to which we thought we could.
0:46:24 And that both, and as well, China is another place we’re going to have to work on developing relations, but it’s going to be a lot easier,
0:46:30 if the US and Europe can go into those battles together, rather than excluding the US and Europe from each other.
0:46:42 So hopefully, it will lead to closer ties, not only between the US and the UK, but the US, the UK and the rest of Europe, which I think of as the democratic free world.
0:46:48 And I think we have to show leadership and ownership of the right way to do things.
0:46:55 And I hope that somehow these relationships that are being built this week will foster those right way of doing things.
0:47:04 I would rather be living in a democratic country in Europe than anywhere else I could imagine, or the States, of course, than anywhere else I could imagine in the world.
0:47:07 And I think it’s important that we recognize that commonality.
0:47:21 I’m slightly surprised to hear your comments there, because, you know, what I would describe your characterization of the relationship is quite cordial, respectful, and polite.
0:47:32 And those are all words that I would use to describe the US’s relationship with the UK and with Europe for many years before 2025.
0:47:44 But, you know, from our vantage point, the way it appears is that Trump is essentially bullying his allies into giving him what he wants.
0:47:58 And in some cases, it’s not actually even clear what he wants, and in my view and in our view on this podcast, at least, mostly what he wants is to be seen as the winner, to come out on top in some way.
0:48:18 Even if it doesn’t actually result in a tangible benefit for the American people, what matters most is for a news outlet to say, Trump wins big, Trump crushes opponent, Europe concedes on tariffs, whatever the headline is, to make Trump appear as the winner.
0:48:33 And so I’m slightly surprised to hear your read on the relationship, which sounds like, you know, he’s an interesting character, but mostly what we care about is having a respectful relationship.
0:48:39 And maybe that is the case. Maybe that is how people feel about it. But your reactions to my reaction.
0:48:46 I was much more of that line earlier in the year when we had Liberation Day, and that seemed to me to be ill-conceived.
0:48:55 Maybe I’m too much of an optimist, but I think the administration has learned something from that, in how not to do things.
0:48:59 Liberation Day reminded me a little bit of the mini-budget in the UK.
0:49:01 I’m just going to go out and do this.
0:49:02 A hundred percent.
0:49:09 And realizing that it doesn’t really work in terms of what happened to the dollar, and what happened to the standing of the US internationally.
0:49:13 I think, I would hope that parts of the administration have learned lessons from that.
0:49:29 And also, if I could say, at the same time, there’s been a sense in which, I think I’d use my words carefully here, a sense in which thinking that you could bring about a peace by negotiating with Putin has turned out to be misconceived.
0:49:36 And I’m hoping that the administration has learned from that as well, in a sense in which Putin is playing a long game here.
0:49:39 He doesn’t really want to give up bits of Ukraine.
0:49:46 And to imagine that you could very quickly get him to move away has proven to be wrong.
0:49:50 And I’m hoping there’ll be some learning going on there as well.
0:49:55 And that’s where I was going back to what the Trump administration may learn from the UK.
0:50:03 Diplomacy and understanding international relations is very much in the blood of European policymakers, particularly in the UK.
0:50:11 It’s all those years of empire that led to quite a bit of expertise in how to deal with overseas countries.
0:50:14 And a lot of knowledge about the Soviets and Russia in general.
0:50:27 And I’m hoping that the special relationship can impart some knowledge as well back in terms of how to deal with countries such as Russia and how ultimately to bolster Ukraine rather than leaving it stranded.
0:50:36 Because there was a world in which we might have wanted to give Putin everything he wanted and then declare a peace in Ukraine.
0:50:44 But you will know, having grown up to some extent in Britain, that we don’t think appeasement is the way ahead in any of this.
0:50:48 Where’s the next stop for Ukraine?
0:51:04 Would they, I mean, I realize that Latvia is a member of NATO, but you worry when you hear about skirmishes over Poland, skirmishes over Latvia, the Finnish border as well, being exposed to Russian troops.
0:51:09 You know, there comes a point where you have to say, no, we’re not going to appease this guy.
0:51:11 We’re going to hold firm.
0:51:16 And even if it means having to commit troops and money, I think it’s worth it.
0:51:20 And I’m hoping that the U.S. administration will start to come to that point of view.
0:51:24 Jagjit Chadha is a professor of economics at the University of Cambridge.
0:51:29 He served as director of the National Institute of Economic and Social Research from 2016 to 2024.
0:51:38 He has acted as specialist advisor to the House of Commons Treasury Committee and academic advisor to both the Bank of England and HM Treasury.
0:51:46 He is now on the advisory board of the Bennett Institute of Public Policy, the executive board of the Productivity Institute, and the Health Foundation’s Productivity Commission.
0:51:50 He is also a founding fellow of the Royal Economic Society.
0:51:52 Jagjit, this was a pleasure.
0:51:54 Thank you so much for joining us.
0:51:55 It’s been an absolute pleasure.
0:51:56 Lovely talking to you.
0:51:58 And I’ll certainly continue to watch the show.
0:52:23 Thank you for listening to Prof G Markets from Prof G Media.
0:52:28 If you liked what you heard, give us a follow and join us for a fresh take on markets on Monday.
0:52:45 You held me in kind reunion
0:52:53 As the world turns
0:52:57 And the dark flies
0:52:59 In love
Ed is joined by Jagjit Chadha, Professor of Economics in the Faculty of Economics at the University of Cambridge, to discuss the major economic challenges facing the U.K. Professor Chadha also shares his insights on Brexit’s long economic shadow, how immigration has impacted the country, and where the U.S.-U.K. relationship stands today in light of President Trump’s state visit.
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