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Aug. 15, 2019 - The Delingpod - James Delingpole
51:51
Delingpod 32: Dr. Ruth Lea
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Welcome to the Delling Pod with me, James Dellingpah, and I am so excited about this week's guest.
I've known her for many years and I've been itching to get her on the podcast for some time.
Her name is Dr Ruth Lee.
You are now Head of Economics at Abuthnot Bank?
Well, I'm officially the Economic Advisor at the Abuthnot Banking Group.
Right.
And I have been for 10 years since I left the Centre for Policy Studies.
So you were at the Centre for Policy Studies.
And before that, weren't you at the Institute of Directors?
Yes, I was there for eight years ago.
I was the policy head there.
Before that I was at ITN. Oh, that would never happen now.
I'm not sure, because they particularly wanted an economic expert to talk about economics.
I was the economics editor, and it was just after the collapse of the ERM. And prior to that, I was at Lehman Brothers for six months.
Were you?
But that was not just before the collapse?
No, this is 1994.
I imagine you thought it was going to last forever.
Well, it was very extraordinary.
I had an instinct that I thought things were very flaky at Lehman's.
They seemed to be taking really quite big risks, because they were obviously an American investment bank, but they weren't one of the big two or three, and I thought they taught risks.
Proud of that, I was with Mitsubishi Bank, which was a Japanese bank.
I was the chief economist there.
And proud of that, I was in the civil service.
That's right.
So, you're an unlikely character to have fulfilled most of these roles, because...
Your politics are pretty free-market, classical liberal, and we live in a world where pretty much the neo-Keynesians have won.
Well, in my youth, which is quite some years ago, it was all neo-Keynesian, but Mrs Thatcher, of course, changed all that.
I started my career in the 1970s, believe it or not, in the Treasury, prior to when we joined the EEC, if I remember correctly.
But in the 1980s, the Thatcher government, along with Tebbit and Lawson and Geoffrey Howe, they changed the way that people thought about the economy.
And it was very interesting to see, because by then I'd moved into the Department of Trade and Industry, and it was very interesting to see how Tebbit was actually changing the debate on how the economy was run.
And of course there was privatisation, monetarism, all these things.
It was a revolution.
Mrs Thatcher changed the country.
She changed the way of thinking.
To some extent there's been a clawback on that, but it's never nothing like it was in the 1970s when neo-Keynesians seemed to be the solution to everything.
Except, let me present the counter-argument.
We've got the tax levels at the highest they've been in 50 years under, allegedly, a Conservative government.
Now, if even the Conservatives are pushing the high tax, big spending agenda, That seems to me a sign that perhaps we're not winning at the moment.
I totally agree with you.
I mean, there's not been the clawback to where we were in the 1970s.
I think that's what I've just said.
But of course, it wasn't just about tax and spend.
It was about the way you run the economy.
It was the mixed economy.
It used to be called busculism.
You know, in other words, both the Labour Party and the Conservative bought into this idea of a mixed economy.
That changed in the 1980s.
And I suggest that a lot of the competitiveness boost that we had in the 1980s from the Thatcher industry,...era actually still permeates our economy.
But I totally agree with you about tax and spend, I think.
But I don't think that's so much Keynesism.
It's just that things have just sort of grown like topsy.
And this is the aftereffects to some extent still of the big, big spending boom that we had in the 2000s with Gordon Brown, which to some extent, bless him, I do think George Osborne tried very hard to restrain it, but even he couldn't restrain it altogether.
The trouble was...
Gordon Brown raised spending so aggressively that it was actually very difficult to claw it back without even more, quotes, austerity and pain that we've actually seen.
So do you think that's really where it all went wrong, that Gordon Brown, he sort of had gold reserves as well?
Yes, he did.
How significant was that, would you say?
Well, I remember being very critical of Gordon Brown in the early 2000s when I was in the Institute of Directors, so much so, in fact, that I got the sack.
On his orders?
Pretty well.
I mean, I speculate, but I think there were quite a lot of rumours flying around at the time.
Not all of them put around by me, but it was quite clear that Gordon Brown vastly disapproved of my comments.
I said, he said, tax and spend, he's profligate.
And he's actually wrecking the fiscal legacy that he had inherited from a very, very well-run economy and a government of the late 1990s, which was, of course, Ken Clarke and Norman LeMond.
I imagine that you were pretty much a lone voice at that time, because I remember the mood in the country.
It was like...
We've got everything.
I think I was very much a lone voice, or there were just very few of us who kept pointing out that the way the public spending was being increased was extremely foolish.
While the economy was growing well, and it grew well in the 2000s, I don't think there's any doubt about that, the rest of the world was growing.
So you know, they were good times.
But to see the way the public spending was rising, I knew, and a few of us knew, that this was highly responsible.
Because you knew that once the economy hit the buffers, as indeed it did in 2008, 2009, when we hit the Great Recession.
You knew that your revenues would fall away and the spending would still be going.
In fact, it would increase because of the stabilizers.
And what would happen to borrowing?
It would explode.
And I'd seen it before.
I'd seen it before in the early 90s.
But this time, of course, it went up to 10% of GDP. And I sort of sat back and thought, well...
I don't like having to say I'm right, but I think I was right.
And so perhaps my sacking from the IOD was a sacking well worth doing.
But when I got up to the CPS, of course, I just kept up the criticism of Gordon Brown.
And it was quite amusing because I knew his brother, Andrew Brown.
Who's in the city, isn't he?
I'm not sure.
I think there's another...
Oh, he's Balls.
He's Andrew Balls.
Never mind.
It was Ed Balls' brother.
Andrew Brown I knew when he was in Channel 4 and I was in ITN. And I happened to go into one of the studios, I think ITN studio, and this would be the early 2000s.
And he came up to me, and he was a nice chap, and he said, Ruth, why are you so critical of my brother's policies?
I said, because they will end in tears.
I've seen it before, and I have little doubt I shall see it again.
Yeah, and you were right.
What was the thing in the early 90s that had pre-figured this?
That was a recession.
Of course Lawson had been the Chancellor that was checked in the late 80s and then the economy overheated and interest rates went up very aggressively.
We joined the ERM We joined the ERM in October 1990, and of course what happened was it was at the same time as German unification, and the East German economy collapsed, West German economy overheated, Bundesbank slams up interest rates.
We're in the ERM. In order to stay within our bands, the Bank of England had to slam up our interest rates, and they were running at 10% plus for a lot of the early 1990s.
It absolutely decimated.
It was the housing market.
That was a housing market recession.
Right, yes, I remember that.
But in the meantime, what happens to your public borrowing, it expands.
But if my memory serves me correctly, it was something like 40 or 50 billion deficit, whereas...
Which sounds like nothing today.
In 2010, it was more like 170.
It was absolutely extraordinary.
But, you know, some of us, we'd been around for quite a long time.
You could see the dangers.
But very few people seem to be prepared to accept it.
And in the meantime, in the 2000s, until we really hit problems, the economy did well.
Well, isn't this the question that the Queen asked after the...
Did nobody see it coming?
And hardly anyone did, did they?
I think that's right.
I think the problem was it was because it was a financial recession.
Unless you knew a lot of what was happening in the financial markets, and I wasn't in the financial markets at that time...
It was very difficult to know quite what was happening, especially in the States with asset-backed mortgages, etc.
And collateralised debt obligations and all these complicated packages which probably only people in these firms really knew about.
I totally agree with you.
I certainly didn't because I wasn't in the markets at the time.
And also I think you can say, well, what are the regulatory authorities doing here?
Never mind the regulatory authority in the States.
But of course, another of Gordon Brown's brilliant decisions, and I'm being a little bit sarcastic here, was that he actually took the banking, the regulation of the banking sector away from the Bank of England and gave it to the, I think it was then called the FSA. And okay, it was light touch regulation, which sounds all very brilliant.
But the truth is, I don't really think anybody really knew what was going on in the banks.
More to the point, the Bank of England, I don't think, really knew what was going on in the banks.
I thought that was a great mistake.
So that when the regulation was put back into the Bank of England, I think some of us thought that was exactly right.
We haven't got on to the main event yet, which is Brexit, but I've suddenly realised I've got you and captive.
I'm going home now.
All sorts of...
The cats need feeding.
All sorts of other things.
But presumably, one of your jobs here is to notice the warning signs of the next recession, crash even?
Obviously, it's just to keep track, particularly on the British economy.
At the moment, I'm not desperately worried.
The British economy is actually remarkably resilient, considering all the uncertainties over Brexit.
But clearly we're heading for full employment now.
And so when people talk about all this sort of Brexit fiscal boost, I say, hang on, hang on, hang on, you know.
When you're talking about an economy, basically at full employment, do you really want to slam your foot on the accelerator?
Not a good idea.
And I'm old enough to remember what happened in the early 1970s when it was called the Barber Boom.
Well, it ended in tears.
So I would really say to anybody like Sajid Javid, I said, just be careful about a major fiscal boost added to which the public finances do appear to be deteriorating.
So care.
Ah, so let me try and work out what your angle is here.
You're saying if we're near full employment, when you pump money into the economy with sort of grand projet or whatever, all you're doing is driving up wages and creating inflation, is that right?
Yes, that's right, because you've got full employment.
And I'd say this was very much what happened in the early 70s.
In any case, if you've got basically full employment, what are you doing trying to boost the economy?
I'm not saying the economy is working optimally.
I'm not saying that our productivity record is particularly brilliant.
But when you're actually at full employment, you just need to be very, very careful about putting any more impetus into the economy.
And it's quite clear now, as the labour market tightens, as it deniably is, that Annual earnings growth is beginning to pick up quite a lot, which is a sort of a signal, an early signal of potential inflationary pressures.
So I'm really saying caution.
But isn't what all central banks want and all Western economies want, probably all world economies want, they want inflation in order to bankroll their unaffordable spending?
Well, that is the theory, but it's amazing because I think all the major central banks, they have inflation as part of their target.
And speaking as somebody who saw the damage that high inflation can do in the 1970s...
No.
Right.
I think in the longer term, I have no doubt that governments would like to see all their debts disappear because you've got 100% inflation or whatever, but I think the idea of having inflation targeting and controlling inflation is the way to sustainability within economic growth, so I'm all in favour of it.
And they'll just have to learn to live with their debts.
You talk tremendous sense about things, which is why you would be my go-to economist, but do you get any sense that any government in the Western world right now is remotely interested in living within its means, or rather is capable of selling to the public, to the electorate, the necessity of living within its means?
It depends which sort of countries you're looking at.
I think it's true to say that obviously Donald Trump is quite clean on...
Well, he had his major fiscal boost with his tax cuts, and that has obviously put extra debt into the American economy.
And I think their debt now is about 100% of GDP. But ironically, because people will always buy U.S. Treasuries, it's actually very affordable because it's very fundable.
I think here, I would like to say to the British government, as I've already said, caution, caution, caution, because our debt-to-GDP ratio is over 8%, which is not trivial.
80%?
80%.
It's over 80%.
That's the debt-to-GDP ratio.
Right.
Because the GDP is about 2 trillion, and our debt is about 1.7.
This is public sector debt.
How does this compare with other GDP? What are the G7, G8? Well, comparing with the States, I think it's about 100.
France, I think, probably 80 to 100.
Germany is much lower.
Germany is actually very, very careful about its fiscal stance, and it's been running surpluses, which is pretty unusual in the developed world.
Italy, 140% GDP. Greece, it's 160-170% of you need it.
So there's not much chance of Greece ever paying it.
It's unsustainable.
If you were Greece, what would you be doing?
Would you be getting the Drakma back?
Well, personally, I said this back in 2011 and 2012, I think when people were beginning to talk about Grexit, which of course was Greece leaving the Euro, and it struck me at the time, this is an economy that struggles to be in the Euro, as Italy struggles to be in the Euro, because basically they are at a competitive disadvantage against countries like Germany, which now have a competitive advantage.
And I always thought this, this is why I was so very, very opposed to the United Kingdom joining the Euro, that unless you have very close economic convergence, it doesn't work.
Or at least it works by the immiseration of quite a lot of your...
Indeed.
And that essentially is what has happened to Greece and Italy.
What would happen if the Italians got the lira back, if the Ital-exit and Grexit, if they happened?
What would be the effects?
Well, I think the first thing would be that their currencies would fall quite dramatically.
And that would give a competitiveness boost to those economies.
And then you could see, probably after quite a lot of disruption on one thing or another, Greece in particular would probably have to renege on its debt.
Yes.
Because, well, it's done it before.
And who would take the haircut there?
The people who own Greece's debt.
Who are?
French banks, German banks, no doubt some Greeks in the street.
Would that cause contagion?
Well, not with Greece it wouldn't, but Italy it might.
I don't know how much Greek debt the Italians have, but when it comes to Italy, would they renege all their debts?
That's a bigger question.
Surely they would, wouldn't they?
But okay, so obviously our Greek holidays and Italian holidays have become much, much cheaper.
Yes.
But how much...
Obviously this is impossible to know for certain, but how much suffering and chaos would there be before sort of equilibrium was...
It is impossible to say.
To be honest with you, I don't know.
And I don't know whether there would be much debt forgiveness.
You just don't know.
Or whether actually some other countries might decide that they would need some help.
I can't even start to guess what would happen.
But you know, they would actually be in a situation where they were on a sustainable path...
And you would expect growth.
Whereas at the moment, I suspect both of them are subject to endless constriction on their growth.
I think Greek GDP now is, what, 25% lower than it was 10 years ago?
Italian GDP is 5% lower than it was 10 years ago.
The Italian economy is now in recession.
It's so sad.
I've been round Italian towns and seen all these...
Once thriving businesses, no doubt, high street businesses just boarded up.
And you kind of think, well...
It's mad.
It's sad as well.
It's mad, and I think high unemployment.
And there's high unemployment in Spain as well.
And there's still relatively high unemployment in France.
Not Germany, because the German economy has functioned extremely well.
But isn't that the reason...
That's partly the reason for the unemployment elsewhere, that the German economy has been...
Let's be honest about this.
Greece and Italy volunteer to join it.
People must have warned them that if you get into trouble, you can't get out as you usually get out by just depreciation of the currency.
You are going to be locked in.
Did they realise that?
Surely they realised that.
I don't think they...
Because, don't forget, the governments would have lied to them.
Surely, surely.
The governments would not have told...
They would have sold them a false prospectus, basically.
And yet, even now, when you look at Eurobarometer surveys, there's still quite a lot of popularity for the Eurozone, even in a country like Italy.
I think the problem is they see it as a sign, a sort of a virility symbol.
For the Greeks, I always think this is a matter of being part of Europe, as opposed to not part of Europe, if you get my drift.
We're not a third world country.
We're not Turkey.
This is all political speculation on my behalf, but from an economist's perspective, it's crackers.
I think we should move on to the main event, which is, I have this theory.
And you can correct me if I'm wrong.
Actually, the best thing for the UK right now would be a no-deal Brexit.
Because any of the other versions that have tended to sell us, the withdrawal agreement, even if they got rid of the backstop, which I think was always a MacGuffin, it was only there to derail the process, it was never a serious issue...
Even if we got rid of that, you'd still be hampered with European Court of Justice regulations.
You've probably looked at the withdrawal agreement.
Tell me the other things that are wrong with it.
Well, I agree.
Of course, the thing is you pay £39 billion up front and you're still basically a vassal state.
You just mentioned the ECGA. You're a vassal state of the EU during the transition period.
You pay £39 billion.
Moreover, there is no guarantee at the end of that that you'd actually get a trade deal.
So, come on.
Is this a good deal or not?
No.
By the way, I agree with you, which is very disappointing.
I'm so sorry.
Yes, because I think just looking at the options, where are we now?
We either leave on the 31st of October, which is now the default date, with the withdrawal agreement, which we've just decided is not a very good idea.
Moreover, even if they change the backstop, and I really have my doubts that the Commission is in any mood to make any concessions on the withdrawal agreement, They've talked about something on the political declaration, but nothing on the withdrawal agreement.
So even if there were concessions on the withdrawal agreement, I still can't really see it getting through the Commons.
In other words, I think it is dead.
And Stephen Barclay, who is the DEXEU Secretary of State, I think he went to the Commission two or three weeks ago, before Boris Johnson actually became the Prime Minister, and apparently had some meeting with some of the Commission staff and told them in no uncertain terms that the withdrawal agreement was essentially dead.
So that's that.
Second option, we don't leave at all.
And for some reason we decide to revoke Article 50 or we extend the date indefinitely into the future.
Or thirdly, we leave on the 31st of October.
Without the withdrawal agreement.
But there are all sorts of little agreements with the European Union to keep the ship of state afloat, so to speak.
Obviously, we have made contingency plans.
The Commission has made contingency plans on things like transportation, travel, citizens' rights, all those things.
And they made these by the end of last year.
That's my understanding of it.
And they've said that we will agree to this, provided there's reciprocity from the British government.
In other words, you just agree the basics of actually leaving without too much disruption.
They might even get round to looking at GATT Article 24, which has been mooted, not least of all by Boris Johnson, if you remember, which suggests that you can continue with tariff-free trade as you negotiate a free trade agreement but that would require the EU to agree to it, which they may or they may not.
For economic reasons, I would suggest they'd absolutely jump at it, because they've got such a huge trade surplus with ours.
But for perhaps political reasons, they say, well, I'm sorry, we have struggled for three years trying to negotiate things with you guys, and you're just, we've had enough.
So, to cut a long story short, no deal.
I say there'll be all these sort of little reciprocity agreements, I think.
Moreover, we'll still be trading on the WTO rules.
It's not as if you go into some great abyss.
And the WTO rules are perfectly tried and tested.
People think this is sort of wild west of trading, but it's not, because even now, the best part of, well, at least over 50% of our trade now is with non-EU countries.
Some of the non-EU countries, there are free trade agreements like Switzerland and Korea, but still 45% of our trade is basically under WTO rules, not least of all with the states.
And yet, and yet, Ruth, I read...
On Twitter and elsewhere that if Britain leaves the EU with no deal it will be a combination of the apocalypse and Armageddon and every other bad thing you've ever heard of combined.
Why is there such a gap between your apparent complacency and what the Remainers are telling us?
I'd like to think I'm not being complacent because I do think there'll be disruption, if we leave, as I suggest.
Briefly, what is the disruption?
Because I think a lot of businesses will have to find they suddenly have to fill out forms that they've never had to fill out.
So tedious form-filling, yeah.
Yes, and I suspect there could be all sorts of other little problems.
Transportation, people don't get the right certificates.
You know what I'm talking about.
What level of financial hate are we talking about?
Well, I'm talking about disruption, perhaps a couple of quarters.
But nothing...
Sufficient to drive the economy into terminal decline, which is what you're implying by Project Fear Mark II. And we saw last November, I'm afraid to say I laughed when I saw this, but the government came out with yet another set of forecasts.
And then the bank came out with its scenarios suggesting GDP would fall by goodness no how much in 2019 or 2020.
It was a no deal, disorderly no deal.
It's always disorderly.
Yeah.
In other words, they've got these stock phrases, I think.
Yes, and there's disorderly, so there are rats on the streets, etc., etc., and people are brought out of cat food, you know, the sort of thing.
Falling off a cliff edge.
Yeah.
Crashing out.
Crashing out, falling off a cliff, etc., etc., falling off your scooter, you know, the sorts of things you keep hearing.
When I saw the bank's scenarios I thought they were hilariously funny because they were absurd and nobody really believed it and it was as if this is just Project Fear Mark II all over again and it's the same people as it was prior to the referendum.
And then the IMF, I think, earlier this year, it was in April, they came out with a no-deal scenario as well, which meant that the economy would go into recession in 2020, and that was picked up by the Office for Budget Responsibility about a fortnight ago, when they took the IMF's April forecast and they decided this would have an impact on the public finances to the tune of £30 billion a year, and it would add, I don't know, 12% of debt-to-GDP ratio and all this palaver.
But the trouble is, these guys have got form.
They've been here before.
Okay, wolf-wolf from this time, it might be the wolf.
But the trouble is, wolf-wolf before, and it wasn't the wolf.
And of course, I'm talking to what these particular institutions were doing prior to the referendum.
And I'd still like the Treasury to explain to me what they thought they were playing at.
Because I remember in May 2016, they came out with, I think, a couple of assessments of Brexit.
Or, no, sorry, if we, the peasants, had the temerity to vote for Brexit, if you remember.
And the short-term impact, they actually said, I remember it so clearly...
A vote to leave would lead to recession.
And 500,000 extra unemployed, full stop.
And that was their good scenario.
Because there was a bad scenario, which meant even more unemployed.
What happened?
Okay, there was some disruption in the economy, mainly the currency fell quite considerably, which actually gave quite a competitiveness boost to the economy, and no doubt that did affect real earnings, and that probably had knock-on effects for consumption and growth.
So growth could be lower than it otherwise would have been, but we will never know, because we never know the counter-productive, you know, the counter-indicator.
We'll never know.
So, to cut a long story short, these guys have got form, and I don't know how they have the nerve Having been so wrong prior to the referendum, I don't know how they have the nerve to sort of think that we'll all be taken in by Project Fearmark 2.
And I don't think most people are.
Because when I get outside the Westminster bubble or the media bubble or whatever, and I just talk to people who are running businesses, they say, for goodness sake, let's just get on with Brexit.
We are fed up with the uncertainty.
No, it will be all right.
There will be perhaps a disruption that I've been mentioning.
But we'll be alright.
We'll get through it.
What's the problem?
I mean, this country's been through considerably worse.
What are all these people talking about?
Nobody believes them.
Nobody does, I agree, in the real world.
Or very few people.
Very few people.
The BBC, mind.
But the passion and the intensity, I mean, it really is as if...
If no deal happens, it will be the end of the world as we know it.
And I don't think...
The people who argue...
People like Femi, whatever his surname is, and Femi, sorry, and Jolly and Maugham, and James O'Brien, all the kind of really angry...
Gary Lineker, all the economic experts...
They invest their whole being, every fibre of their being is invested in this notion that no deal is the worst thing.
What is the worst thing that could happen?
For example, are sheep farmers going to be wiped out?
Presumably they're protected at the moment by the kind of friendly tariff relationship we have with the EU. As I said, I think there could be a disruption to business.
And when you actually look at times, assuming they don't invoke Article 24, GATT, which means the continuation of...
Which would be great.
Which would be wonderful.
And sensible as well.
Sensible as well.
So they won't do it.
Because...
The EU's got such a huge goods surplus with us, and after all, tariffs are only on goods.
They're not on services.
And I think it's true to say that the EU has got a surplus of around 90 to 95 billion.
Germany's surplus, goods surplus with us, is about 30 billion.
Is that mainly cars?
A lot of cars, but a lot of other manufactured goods as well.
And indeed, stuff for building materials.
I mean, across the board, this is where the German economy is so strong, as we know.
Money, that brings its own weaknesses as well, but we put that on one side.
But I do think there'd be some...
But when you actually look at the tariffs, the average tariff in the EU, the common external tariff, is what, 3 or 4%?
Yes.
And the currency's fallen 10%?
Yeah.
I agree that the currency fluctuations can be much bigger than the hit we get from tariffs, but is it not the case that there are certain areas that the whole of the EU tariff system was designed to kind of kill off Extra competition from outside the European Union.
Correct.
Absolutely.
I was just going to say that, actually.
You almost took the words out of my mouth.
The areas where the tariffs are relatively high, agriculture.
I mean, agriculture, I think, would be the sector that would be, at first glance, the most affected.
Yes.
Which is why it always crops up in...
But it's a tiny part of our economy.
It's less than 1%.
And if there can't be some sort of compensation for farmers under these circumstances...
Why not?
I mean, what else are agricultural exports?
There must be a tiny percentage of GDP. 39 billion would surely cover it, wouldn't it?
And the rest.
And the rest?
And the rest.
I think the other area is obviously cars, and that was to some extent to protect the German car industry, and the 10% tariffs.
But again, the currency's fallen 10%.
Of course, the automotive sector here will keep saying, oh, we'll have to pay more for our imports, which is true, so their costs will go up.
For the car parts, yes.
Yes, because a lot of them are just in time.
But again, keep the car industry in perspective.
It's less than 1% of GDP. I don't want the car industry to be wiped out.
I mean, some people just say, oh, forget them.
I don't take that attitude.
But again, it's a matter of keeping it in perspective.
And let's be frank about this, the car industry globally is going through major changes.
Yes, it certainly is.
So you've got to sort of extricate what is a Brexit effect and what is a global effect and changes to the car industry generally.
I read somewhere recently that the German car industry is in real trouble at mode, isn't it?
Well, I do look occasionally on the German car industry.
And the point about the German car industry is about 4.5% of their GDP. Ours is less than 1%.
And the truth is that the Chinese markets are slowing, and they're slowing for our cars as well.
But that really does hit Germany much more than it hits us.
And if Donald Trump, he's been threatening tariffs on EU exports, not least to all cars, and then if there were problems with Britain, you could see that three of Germany's major markets We're actually not quite as friendly as they were.
So economically, I keep using this word, economically, it makes sense for them to say, look, let's all calm down.
Let's have some sort of tariff-free arrangement, standstill, before we actually get a free trade agreement.
But of course, you and I know that it's not always the economics that drive the politics, because there's all sorts of other things that drive it as well.
Yes, indeed.
I often think that the European Union is now its own super-state, which exists in defiance of the wishes, not just of countries like us, but even...
Countries like Germany, which oughtn't to make sense, given that the EU is essentially a Franco-German project.
But yet, I see some of the policies, for example, the Energiewende, which has been imposed by essentially the European Union on German industry, which is really hitting German industry hard by driving up their energy costs.
But they don't seem to have done that much to rein it in.
Well, I'm not an expert on German energy policy, but I'd rather gather that was something the German government brought on itself, because it was some sort of sop to the Reds and the Greens and other people.
If you look at the renewables obligations these were put together in 2007 when the EU had its 2020 package of energy and climate change policies that's when they introduced 20% renewables target for energy because the Germans wanted that because they were concerned about the competitiveness impact on their industry You're probably one of the very few people,
Ruth, who can confirm my theory, which is that one of the reasons that the global warming scare has such legs is that the financial sector is heavily dependent on renewables and the global warming industry continuing.
You've got companies like BlackRock, I think, which is massively, massively pushing the global warming scare and wants actually to punish those companies which don't have a sustainability policy by delisting them and so on.
Have you seen any of that in your time in the city?
Again, I'm not an authority on what those particular companies can do, but I'm aware that as part of its regulatory business, the PRA is now saying to banks You've got to be careful when you lend money to fossil fuel companies.
Absolutely true.
But that's appalling, isn't it?
When it comes to global warming...
The trouble is that all sorts of vested interests in it, whether it's the financial services that you're talking about, which I don't really know about, but you know that a lot of the energy companies, not least of all on renewables, now have got huge vested interests in keeping this going.
But I think more to the point, it's just become a cult of the age.
Yes.
With Greta Thunberg.
Yes.
However you pronounce her name.
And Extinction Rebellion.
And climate collapse and runaway global warming.
I've heard all of these phrases and it's as if it's part of the zeitgeist.
If you're a sort of trendy, right-on person, you've now got to start talking about the panic of global warming.
Yes.
I find it absolutely bizarre.
So even CEOs who actually think it's a load of nonsense could never say such a thing.
They could never say it.
I mean, you see how oil companies have to be awfully careful in the way they play their cards these days.
Yes.
Is it Van Buren, the guy from Shell?
He's always banging on about green energy.
He has to do it.
He has to do it.
As somebody who believes in a kind of thriving free market economy, I don't like this rigged economy that we seem to be having to endure, range of the interests of vested interests.
Well, I'm afraid we are where we are.
When it comes to actually global warming or climate change policies, I just think they're bizarre.
And it does seem that it's especially unique in Britain, if I can use the phrase, especially unique.
Because here we are with just over 1% of global emissions.
Perhaps a little bit more because we export some of our emissions by importing goods that are made in China and all that palaver.
1%.
And it's falling.
China, its share now is 20%, 25%, 27%.
And India's, I think it's now the third biggest emitter, and their emissions are going up very quickly.
They're building hundreds of coal-fired power stations.
What are we doing?
What is this country doing?
Oh, we're being a leader in the fight against climate change.
Yes, but nobody's coming on behind.
We're leading the route over the cliff.
And strangely, it's almost as though the Chinese don't care what Greta Thunberg says.
Can you imagine?
Why should they?
Why should they?
And I thought it was very interesting over the Paris Agreement, which was, what, 2015, when countries had to submit their intended contributions.
Ha, ha, ha.
Yes.
INDCs.
Yes.
And we, actually, the EU, they've got some further potential cuts in emissions coming up.
And, of course, we've got now this zero emissions policy, which is just crazy beyond belief.
But actually, and again, it was a paper from the Global Warming Policy Foundation by Christopher Booker on groupthink.
And he'd actually found a source which talked about what the implications were for carbon emissions up to 2030 of the Paris Agreement and all these intended contributions.
Yes.
And it seemed as though that because China and India were building hundreds of extra coal-fired power stations, by 2030, between 2013 and 2013, China's emissions would double, India's would treble.
And they were allowed to do so under the terms of the Paris Agreement because they'd arranged these get-out clauses because they're not stupid.
And they're developing countries.
And it was like Kyoto.
You had Annex 1 countries and you had developing countries.
So they were treated very separately.
And I think the calculation was that all in all, between 2013 and 2030, emissions would rise 50%.
And here we are, 1%.
And emissions rose by 2% last year.
So with our little 1% share, even if we completely decarbonised on the 1st of January 2018, by about the middle of July, what's the point?
Indeed.
So this is actually too depressing.
So I want to move back to a happy place.
Take me to a happy place where, paint me a...
A reasonably plausible scenario of what's going to happen under Boris on October 31st and beyond.
What does your gut tell you?
My central case scenario.
That's better.
Central case scenario, yes.
To which I attach a probability of...
You can tell I was a statistician.
I was a statistician for many years.
That's why I remember figures.
I'm littered with figures.
Um...
What, 75% probability?
That's pretty good, yeah.
I reckon that even if there's no confidence votes, even if the government loses them, because the time is running out and the default is the 31st of October, unless there's some legislation to actually revoke Article 50, or indeed the Prime Minister of the day goes back to the Commission to try and get some extension, I think we're out.
We're out.
And out with...
A version of the withdrawal agreement or out with a no deal?
The withdrawal agreement is kaput.
It is like the Norwegian blue parrot.
Right.
It is no longer alive.
It is dead.
Because the EU won't agree to it and because our Parliament won't vote for it?
I think that I'd be very, very surprised if the Commission was serious about renegotiating.
They've said it several times now.
Yeah.
And the incoming...
Commission President Ursula von der Leyen, I think she's said it as well now, and she'll be coming in on the 1st of November, but the rest of them, Tusk, obviously the President of the European Council, they've all said it, that we are not opening the European...
Suddenly, you know, Ruth, I'm loving these people.
I adore them all!
But seriously, I think...
They've all said that they're not going to open the withdrawal agreement.
And Barnier, I think, has said it as well.
By the way, I think Barnier has done his job.
I don't dislike him.
I have no hostility towards him.
He did his job.
He had a brief, didn't he?
And he followed the brief very well.
He did his job.
And they've all said that they're not going to open it.
And although they might return to the political declaration on the future relationship, But, as we've already suggested, even with the sort of fiddling and twiddling on the backstop, which I think is completely unnecessary, by the way, I couldn't see the Commons passing that.
OK, so we leave on 31st October without a deal.
What are the prospects, would you say, for the UK economy at that point?
And what do we need to do to keep ourselves...
To be happy about our Brexit.
They were stockpiling, and the cars actually, they had their pre-Brexit closed down, etc, etc.
So their post-Brexit, what would have been Brexit, the 29th of March, they had their post-Brexit closed down, which affected Q2. So the figures have got very distorted.
But I can't see why growth shouldn't continue.
As I've said, I think there'll be some disruption, because after all, for a lot of businesses, they will have to adjust.
But a lot of those businesses have already made continuity plans.
And ironically, it's actually the agents' reports from the Bank of England that show this.
They're ready.
And an awful lot of businesses don't trade.
Or if they trade, they don't trade with the EU. That's a good point as well, yeah.
I'm puzzled by why the pound, isn't it a bit oversold at the moment?
I think it is oversold.
I'm not surprised it's falling at the moment.
It's actually still higher than it was in, or at least as we speak, I think it's still higher than it was in the spring of 2017, and that's when Article 50 was invoked.
Okay.
And of course the pound fell very, very sharply after the referendum result.
These are the markets reacting to uncertainty, political and economic uncertainty.
But it was interesting that after the pound had fallen down 2017, it picked up quite a lot.
And markets behave like this.
What I'm really asking is, when's the buying point?
Well, I'm not a trader, but I suspect the pound is oversold.
Yes.
But when it turns round, or how much more we have of weakness of the pound, it's impossible.
I wouldn't like to hazard a guess.
Yeah.
My dad's on holiday at the moment and he's getting parity with the euro at the moment.
Is that right?
Well, it's parity if you go to Heathrow Bureau de Change.
I think it's about 1.10 or 1.9 at the moment.
Right.
But I remember when the euro was extremely weak.
Currencies fluctuate.
That's why we have a floating exchange rate.
But I think it is a bit oversold.
And against the dollar, I think we're just about 1.22 or something like that.
Right.
And I haven't asked you, this is going to finish, but I ask you, where are you on Trump?
Are you a fan?
I don't dislike him.
I mean, he says things which I don't appreciate.
I think sometimes some of his tweets can be, if I may say so, be rather racist.
And there was one or two recently which I thought, oh, I wish he wouldn't do this.
But on the whole, the country's running perfectly well.
And the mere fact that he's not some lefty Democrat, actually, is to his advantage.
So I do have reservations on that, Mr Trump.
But let's be honest about this.
He's an important man and he's important to this country.
And I salute the office as well as the man, if you get my drift.
But just on your area of expertise, we were assured by all the experts.
I'll use that word, advisedly.
We were told by all the experts that Trump was an economic illiterate, that he wasn't really a good businessman, you know, he'd inherited this money and he was a fool and his tariffs were going to be a dangerous thing and he was going to wreck the global economy.
Do you think he's lived up to the doom-monger's expectations or do you think he's been rather good on that score?
Well, put it this way, I do have my reservations about the gentleman, and I'm not an expert on his business expertise, let's be honest about this, but he's no fool.
Let's be honest about this, he's no fool.
And when it comes to the tariffs, he has a case against China.
I really do think he has a case, because the Chinese do tend to play pretty fast and loose sometimes, not least with intellectual property rights.
Yes.
And he has said it's not just about slamming up tariffs to stop trade.
It's actually a matter of trying to get the Chinese to the table in order to have a more level playing field when it comes to trade between China and the States, or indeed with China and the rest of the world come to that.
And he does have a point that China does have a very large trade surplus with the States, partly because, arguably...
They don't give access to overseas exporters quite as people can export to Western markets.
Do you not think that China has the power at any point to collapse the world economy for political reasons rather than economic reasons?
Who has the power?
China.
Because it's so...
It's got so many investments in America and Australia.
I mean, it could use Australia.
I heard this from someone.
I can't remember.
I could be talking rubbish here, but I heard from somebody in Australia that Australia is now so in hock to Chinese investment, so vulnerable, that even if they start sort of a modest kind of removing themselves from the markets, that it have a drastic effect on the economy.
I wouldn't claim to know very much about Chinese, Australian economies, although presumably because Australia is a great exporter of raw materials and commodities and a lot of those do go to China.
It is not in China's interest to fall out with all its trading partners.
And I can't see them doing it.
Right.
I really can't see them doing it.
Well, I'm reassured there, Ruth.
Well, I wouldn't be too reassured because I'm not an expert, but it's not in their interest.
And if nothing else, they are pragmatic people.
That was my experience of dealing with the Japanese as well.
They were incredibly pragmatic people.
Right.
So I think the take-home from this discussion is October the 31st, we're going to get 75% 75%.
Oh, I'm not taking bets because I lost 20 quid over the 29th of month.
How would we, if we wanted to, say I was a big bank and you were my economics advisor, how would I benefit from your 75% scenario advice?
I wouldn't dare advise you as to what you wanted to do with your investments.
Oh, right, okay.
You're probably right.
There probably isn't an obvious play.
I'm guessing by Sterling is probably...
I think Sterling will come back at some point, but you never know when it is, and this is the problem about markets.
And in the meantime, there'll be so many other moving parts.
Sometimes I think people, they talk about UK as if it's a...
A sort of standalone country, far from it, and there are all sorts of other developments within the world economy which are going to impact on the economy.
It's not just Brexit, isn't it?
Which gets you off the hook as an economist, because you'd say, well, look, you know, the other factors that came into play...
Precisely so.
Guess what economists do?
It's called passing the buck.
Yeah.
And, you know, don't forget, what's the states going to do?
What's the Eurozone going to do?
It doesn't look very clever, does it?
No, it doesn't.
The Eurozone is in deep trouble, isn't it?
I think a lot of it is, and ironically, we've mentioned Italy, but Germany, I think, is flirting with very slow growth, if not recession.
Is it like going Japanese?
Maybe.
Maybe.
And the ECB has no firepower left.
This is trouble with all the central banks, basically.
They've blown it all, haven't they?
With the exception of the Fed.
With the exception of the Fed.
Well, with quantitative easing and having such incredibly low interest rates.
Yes.
I mean, the ECB has got virtually nothing to do.
What does it do?
Negative interest rates?
So the European Union is quite weak at the moment.
I think it's quite weak.
I think it's weak, and I think when you actually look at the prospects, even if you look five years ahead, ten years ahead, you know, or at least I think it's generally agreed, that the Eurozone is going to be a relatively slow-growing part of the world.
And this is another reason for getting out of the EU and We're calibrating our tradelings with the rest of the world.
And I've been saying this for decades.
Hurrah!
Hurrah!
Yeah.
Dr Ruthley, thank you very much for putting me right, for putting lead in my pencil and convincing me that we're on the right track.
Thanks very much.
And I've agreed with nearly every word you've said.
You have.
Another reason I love you.
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