Live from Kilkenomics: anger and economics

0:10Hello and welcome to the Unhedged podcast.

0:15if you're listening at home you'll be able to tell that i'm not in the dreary ft audio studio i am live in kilkenny in ireland at the kilkenomics festival um and uh i'm katie martin from the ft i didn't mention that but um we are around the back of a pub um in in kilkenny at the kilkenomics festival and we've got a live studio audience which is great so one cliche that we have as journalists, whether we're writing stuff or we're doing podcasts is imagine you are doing this for your mum so that even your mum can understand it. Now, I don't have to imagine because my mum is there.

0:57So when I said to her that we were going to be recording my podcast today, she said two things. She said, first of all, you didn't say you had a podcast. I did. And secondly, she said, what's a podcast? So it's been a great start. And it brings me on to my topic for the next discussion, which is anger. So I've got two furious people with me today. Furious people who are going to talk about anger and economics and where they kind of meet in the middle. I've got Eric Lonergan, who literally wrote the book on this. He wrote Angrenomics even. He's in economist. He's a hedge fund manager. And we have Leah Downey, who is a fellow at Cambridge University, focusing on, get this, the democratic politics of monetary policy.

1:44Makes you feel angry, doesn't it? It makes you sound so clever. You are so clever. So, so anger. I mean, let's start off with how about those Americans? Hey, I mean, Leah, you're American, please answer for their actions. How much has economic anger fed into politics? I think it is hugely about anger. I don't know if it's all economic anger. I think there's almost nothing more dangerous than anger, especially the anger of a majority of a very large country that has no outlet. And I think that there are a lot of people in America who are really angry and have been for a long time about how their lives are going.

2:29And they don't feel that they have an outlet to change that. And I think democratic politics has failed them. And that's partly because of how we've constructed the state and the policymaking apparatus over the last 30 years in that citizens and their elected officials don't have as much power and therefore as much responsibility for actual policy. And as a result, people are pissed off. And if they don't feel that there's an outlet for them to actually initiate change through the system, what's the point of maintaining it? And so I think a lot of this is a sort of screw this, smash the system.

3:05Yeah, there's a kind of burn it all down kind of feeling, right? I mean, Eric, this is something that keeps popping up at this festival this year, which is around inflation and how much voters hate inflation. How significant do you think that is? significant but i think probably the migration dimension may be more significant in terms of right generalizing about the role of anger in politics so when mark blad and i wrote a book on angrionomics in 2020 one of the things we looked at is there's a big difference first of between private anger anger in the private sphere which usually if if people are angry in their private lives there's something going it's stress or something something's going wrong in your life if you're typically, if you're being very angry.

3:50But if you look at it in the public sphere, it's very interesting. We did a big search of news stories. And the two most frequent forms of public anger are, funnily enough, sports fans, which is a very interesting question. Why do typically men go to watch sports to get really angry? But that is literally like if you do screen stories, it's angry sports fans. And then the other one is actually ethical. It's moral. It's Moral outrage is not about taking sides here on who's right or who's wrong, but not being listened to is a form of ethical. You know, if we're in a democratic process, I want my politicians to represent me.

4:29Nobody's listening to me or worse than that. They say they're going to do something for me, then they don't do it. And actually, I think migration, if you look at it, is both the tribal dimension, which I think is undeniable. Then what we ended up concluding is, is that this becomes an electoral strategy. Angry people are more likely to vote. And politicians are trying to win elections. That's what their game is. They're winning even small margins. Like, yes, Trump won conclusively, but it's still small percentage points of the population in terms of what you're actually swinging. And so if you can target those angry people, get them to vote, it becomes a very effective electoral strategy.

5:09Which would be fine if there weren't elections all over the place, right? Yeah. So, you know, there's a lot of potential for people to exploit this in a number of different countries. We've possibly got elections coming up in Germany. We've got some coming up in Ireland. You know, there was certainly an angry tinge to the UK elections back in July. I think definitively, like, the real story in the UK was reform. Like, Labour's got in by default, right? So, and the Reform Party was all about tribal, you know, it was about not being heard and it was about migration. And so it's exactly the same electoral strategy and extraordinarily effective.

5:43You know, Labour got a smaller share of the vote. The reality is I think Labour's victory is much more like Macron. Macron won when he was elected president because people didn't turn out to vote. I mean, you know, the centre only wins when people give up. When people are motivated, it's tending to be the neo-nationalists. Yeah. I mean, the other thing, too, about the inflation story that I think is it's all over the news in the US, right? It's like NPR constantly, pocketbook election. It was all about inflation, inflation, inflation. And I think that the important thing to say there is, in my view, the average person doesn't care about inflation.

6:18They really hate high prices. Right. And that's that's different. Right. And I think it's important to to like hold on to that because for two reasons. I mean, one is just the fundamental difference where, you know, inflation that I experience is different to the inflation that you experience because the basket of goods that we buy is different. So you get poor people's inflation, you get renters inflation, you get old people's inflation. And that all looks different, right, depending on what people buy. But the way that we think as economists or central bankers about inflation is in the aggregate, right?

6:49So it's like trying to control the temperature of the entire United States and thinking that that's going to improve people's individual lives, which, of course, that's completely different to their experience. And if we focus on the aggregate in that way, the tools that we think we have to change it look very different than if what we're concerned about is what the individual's experiences are and the politics that comes out of that is different. So should and can we move to a model where we do have different measures of inflation that affect different people? And if you do, how on earth do policymakers deal with that?

7:23I think absolutely you should. I don't necessarily think we should have it like demographically like, oh, poor people's inflation is up today and, you know, women's inflation is down. But I do think we should look at individual prices more and sectors. And there's a lot of interesting research in sort of cutting edge economics that is saying, talking about systemically important prices, right? So not just systemically important banks, but like oils, obviously one that filters through hugely to other things. So we should focus on that. Food is one that really matters a lot to people because that's what we spend our money on.

7:53Right. And of course, ironically, energy and food are the two things that central bankers often strip out of an inflation measure when they think about making policy. Yeah. So I think what you care about drives what you measure, which drives what you think you can do. Is that one of the things you think that has really pissed people off, actually, is that when people say I'm cross about inflation and policymakers come back and say, well, if you strip out, you know, if you strip out like rent and petrol and food. Then the economy looks great, actually. Yeah, exactly. You know, that is annoying.

8:29Yeah, it's very annoying. Yes. Yes. And I mean, it's annoying, but it's also, on the other hand, if you're the central banker and those are the tools you have, it's kind of understandable because it's like, here's what I can do. Yeah. Right. Here's what I can do for you because I'm limited in my mandate. I'm limited in my tools. I'm limited in my understanding of the economy. And so I'm trying to do my best. Right. But instead of reconsidering how we define the problem and therefore the tools we actually have to address it, we just sort of say like, I hate inflation and you're doing a bad job.

8:59And they're saying, no, actually, inflation is not that bad and you're just dumb. And it's not a useful conversation to be having. Eric, if you're sitting on your side of the fence and you're trying to trade stuff for a living, you're trying to make money out of financial markets, how the hell would you cope with having multiple different inflation measures? How would this world fit into what you do? you're allowed to say you don't know because you look like you don't know I mean I'm trying to think what would I say to my mother my mother is so much more intelligent than me my mum's just there I think actually we do because I think one of the things we should do more and I think both as a general public but also in terms of the political class is pay attention to what sectors are doing within the stock market because you get a huge amount of information And I would still I would push back a lot on this kind of emerging consensus about inflation being a problem.

9:53The oil price has gone up a lot since the Ukraine and since COVID. But, you know, if you think about energy prices in the long term, there's a huge amount of investment going into energy production. If you look at where China, look at what's happening to electric vehicles, wind, solar, nuclear, there is vast investment going into batteries. Overinvestment, a signal of that, is usually falling stock prices. And if you look at the share prices of all of the sort of green sectors, they've actually been doing very poorly, largely because of excess capacity. So that, I think, is very important. I think everybody building semiconductors means semiconductor prices are going to fall.

10:29I think it's very difficult not to view AI as deflationary. Look at what's happening in China. The Chinese are struggling to generate inflation. Look at what's happening in continental Europe. You've already got inflation pretty much back to target. Interest rates are coming down. So I'm not so convinced. There have been battles at the margin on this, but I think, yeah, that the overall inflation argument is not at all clear. And if anything, it's still a world that struggles to generate demand. Yeah. It's kind of guesswork here, but I think the consensus is, like, inflation is here to stay. It's going to be much stickier than it has been over the past few decades.

11:06But you would take the other side of that to some extent? Certainly if it starts to become a consensus. It's not obvious to me that that's really fact-based. I mean, I still think as well, despite I'm not going to, you know, underestimate the conditions of, say, the lowest quintile or decile of American income earners. Life has been very, very tough and pretty miserable for them. And, you know, they can point to the fact or Trump can point to the fact that I think if you look at the real incomes of the lowest decile, they actually went up at least in the first two years of his previous term as president.

11:36But actually, if you stand back and say we were hit by a global pandemic and we've come out, yes, with a terrible price shock. But actually, it's been an extraordinary achievement for a system that said we're going to tell everybody to stay at home, put checks in the post. Then we're going to reopen and then we're going to be back to full employment. OK, the, you know, an oil price shock of sorts, but nothing actually compared to the 70s. That's actually quite an extraordinary achievement. That's the genius of the Trump campaign, right? To convince people that they're living in a terrible economy when actually in the round, I get that there are differences in people's experiences.

12:13You have got full employment. But this is the thing. You get great GDP growth. Exactly. I mean, I agree with you on inflation, actually. Like, it's very unfashionable to say, but I'm still team transitory. And I actually think that, like, we're headed back to the world we were living in before where it's hard to stimulate inflation rather than to keep it down. But I think we might land at a slightly higher level than we were at before. for a longer period of time. But the thing is, is Trump has just lucked out big time, right? Because he wasn't in office during the price hike. So he got to blame higher prices, which everyone's calling inflation, but he blamed higher prices on Biden.

12:47But now, even if inflation stays around 4%, that's not that high of inflation, like relatively, right? So it's not going to feel as miserable. Higher prices aren't going to feel as miserable as they did before. So I don't think that we're going to have the same sort of anger as a result of that. It's like the big jump was the painful bit. You see what I mean? I don't think people are going to be pissed off if the price of eggs doesn't go back down now, right, of course. I don't know, though, because that's the common understanding of what inflation is. People think inflation comes down, prices come down.

13:18Yeah, but people get pissed off and then they move on, right? And as you said, unless it happens again and again and again. And I don't think that's I don't I think Trump is pretty lucky in that he kind of timed things, unfortunately, well. Leah, I want to move on to your chosen specialized subjects. So one of the things that the new Trump administration might do, and honestly, God knows. But one of the things it might do is seek a greater role in monetary policy and seek greater influence at the Federal Reserve, which means a greater hand for Donald Trump in setting interest rates. So if you are a slightly sad nerd like me, then you will have seen clips of the Federal Reserve's press conference the other day.

14:02The Fed chair, Jay Powell, they cut interest rates by a quarter of a percentage point like they were expected to. And some plucky journalist in the audience asked him, you know, what happens if Trump tries to fire you? And he just said, can't do it. Like, absolutely deadpan. Like, he can't do it. Oh, he prepped for that question. Yeah, totally right. So he said it is not permissible under the law. So if he can't fire Jay Powell, and he did appoint Jay Powell, so this is all kind of upside down land. But if he can't fire Jay Powell, then what can he do? Oh, well, what can he do is Jay Powell is out in May 2026, so he can put in somebody, and he has the Senate, so he can put in somebody that he likes better.

14:47But I think it's really important, I think, to distinguish between forms of political influence on monetary policy. Because I am an advocate of more legislative input in when we create money and how we allocate money. And that's how I conceive of monetary policy sort of writ large. What I'm not an advocate for is both purely more partisan monetary policy, which I distinguish from political monetary policy, and also more policy power for the president. So in the United States, constitutionally, it is explicit that the legislature, that Congress has the power to coin and regulate the value of money.

15:24So we call it the power of the purse, right? And that lies with Congress. And it was explicitly not given to the president because they thought that would make the president too much like a king, which we were trying to get away from at the time. So, you know, and I think there's good reason for that. So I taking pure control of it, not a great idea. Secondly, as you say, he's not proposing legislation to like change the way monetary policy is made, which he could, right? He could, if Congress passed a law tomorrow with just pure, simple majority, they could change the Fed, they could eliminate the Fed, they could completely, it's not constitutionally, you know, protected.

16:03But what instead he's thinking about doing is not making it more political, but making it more partisan by just putting someone in charge who will do what he says. And that is a completely different way forward than the one I would personally advocate. And I and also like, I'm not sure if he'll do it. I think it'll depend a lot on how the economy looks in the moment in which he has that decision making power over whether to reappoint Powell or not. So Eric, again, from your side of the fence, say you're managing money, you know, for yourself. Just to be clear, I have no money to manage. That's what she keeps meaning on your side of the fence.

16:42But, you know, like asset managers, hedge fund managers, you have it like baked into you at hedge fund school that like the Fed is independent. The ECB is independent. The European Central Bank is independent. The Bank of England is independent. This is just kind of taken as read. How would it alter your world if we did enter a space where Trump or one of his acolytes had a bit more influence? Well, I think much like in all other areas when you're thinking about Donald Trump. I mean, I think Trump is both underestimated and overestimated consistently. consistently. Underestimated because he's proving to be more consistent, more persistent, and in many ways, more like if you look, if you look at his first term, it's actually very consequential in economic terms, because kind of the two main things he did, which was a trade war, and a huge change in disposition towards China, and then a kind of industrial policy of sorts, or at least a sort of reshoring economic nationalism, have broadly gone global.

17:45And actually, America hasn't reversed either. So he's consequential, whether you agree with those policies or not. Now, I think what you've got, and true of that and true going forward, is the set of outcomes is just much wider. That's what I take away. He's very unpredictable. I think when people say this is good for the stock market, or it's going to be inflationary, or it's good or bad for the Ukraine, we just don't know. Let's wait and see what happens. But what we do know is this can happen before this could happen, which is very clear for a podcast. People can't see you.

18:20So big things can happen or small things can happen. That's right. The hand gesture that you're making. I mean, for the podcast, you'll get a lot of people will be talking about volatility. They'll your FT podcast. But it's a more volatile, extreme sets of outcomes. Yeah. But so does that mean that the US government bonds should be lower in price? they should yield more to compensate people for taking that sort of risk? I think you've got to – I mean, actually, the interesting thing is the bond market hasn't really moved very much. So initially, there was a sell-off, and then it's recovered. If you looked at it on a chart, you wouldn't even know there'd been a U.S.

18:53election. You would on the stock market. The initial reaction, I wouldn't read very much into it. Again, people say, yeah, the stock market did really well under Trump first time. It didn't in the second year. When he introduced tariffs, the stock market went down. The U.S. stock market actually most of the time goes up, right? It doesn't really matter who's in the White House. This is the thing. And the market didn't like tariffs. So I think it's going to be very, very unpredictable. So, you know, from a professional investor standpoint, I absolutely wait and see. And I'm expecting very big moves, you know.

19:23And so if you were to professionally, I would want to be long of volatility. I think that's one interesting thing about Trump, right, is that setting aside sort of what he has done in terms of what policy choices he's made. One thing that I think is a sort of benefit from having him participate in politics in the last 10 years is he has demonstrated the power of the state, usually because he's used it in ways that are awful. But he has demonstrated that power. And that's pretty much what you're saying with your hands on the podcast, is that the wide range of things that you can actually do through politics has become very palpable and evident.

20:02And I hope that we take that as an instructive piece of information, right? Even if you don't agree with what he's done with it, rather than let's all run straight back into the arms of very limited political action. That's so true. But I guess the danger then is that he's seen as being able to have very direct influence on things that really do affect people's lives. Like, this man's going to get me a high-paying job and bring down the price of eggs, right? And in real life, when it doesn't really work like that, then where does this anger go? Exactly. I mean, that's the thing about democratic politics.

20:36I think that's so that we're coming to this point of explosion. Right. Because on the one hand, that is what politics should feel like. It should feel like it has an impact on your life. Right. Right. On the other hand, we have created this world over the last 30 years where we get politicians saying things like, I'm going to get you a high paying job and bring down the price of eggs and build a wall and Mexico is going to pay for it because they haven't been actually responsible for doing the stuff and making the hard choices. Right. And so it's a kind of performative form. So what's going to come out of this moment?

21:06Like, are we going to reenter a world in which politics is consequential and people understand that you have to make hard choices for those consequences? Or are people just going to get more pissed off when Trump inevitably doesn't deliver everything at the lowest price possible and chaos ensues? Yeah, yeah. Eric, how close is Europe to an explosion of anger or are we already in one? I mean, you look at the German economy. Hoo boy. Having a really tough time. I mean, the car sector in Germany. There is no German economy without the German car industry, right? Like this is a really ugly situation that's building up over there.

21:48Do we get a similar spasm? I mean, you are. And it's really interesting if you look at the populist far right in Germany, which is particularly concentrated on Eastern Germany. And this is legacy emotions and feelings and sentiments that are going to be very difficult to deal with. The thing that I find most concerning about Germany is nowhere is there any semblance of a response. So I spend quite a bit of time going to Germany. It's very interesting. You speak to politicians. You speak to think tanks. Nobody seems to have an answer. They have got their heads in the sand. They just recognize that something rather awful is happening politically.

22:30But there's just literally a deafening silence. And you look – it's extraordinary in Germany as well. Because, again, we're very – the sort of – the high inflation rising bond yields, this is a very US-centric view, really, because German bond yields are back at 2%. Well, that's the thing. The first rule of European markets has been, for as long as I've covered European markets, never, ever sell the bond. German government bonds, they are good for the money. They never, ever fall in price. Well, guess what? Like, those yields have really kicked up recently. You know, the prices have fallen, like, really quite significantly.

23:03And this is kind of, I guess, European convergence, but coming from the other direction. So the kind of big idea has always been, well, Italy will manage to get its finances in shape to the point where its yields fall down towards Germany's. What if it's actually the other way around and German yields rise up to where Italy is? And then the whole game changes, right? Yeah, but I mean, you know, Germany, it's extraordinary. I was over there recently and you look at their infrastructure. They will say our infrastructure is crumbling. It's a huge economic cost, but we can't afford it. And you say, what do you mean you can't afford it?

23:36You've got a zero real interest rate in your government bond for 10 years. Just issue some debt. There's a shortage of bunds in the world. There's something very, very strange. They've literally – I don't understand it because that's just arithmetic. I mean, the Germans seem to have forgotten how arithmetic works at a huge cost to themselves. And they've suddenly forgotten how trains work. People are really angry about train delays, which they're not particularly used to. And now, as you say, the infrastructure is falling apart. So, yeah, I guess I'm just wondering how that fits into economic policy and into politics.

24:12I mean, this would, yeah, I sort of hope that this would be a positive note, is that Trump is a shock to Europe. Because Europe really needs a wake-up call. I mean, it's just mad economic policy. You can borrow it. You know, we all go, why on earth when COVID happened and interest rates were at zero? Why didn't we do a huge amount of infrastructure spending? Germany's pretty much still like that, you know, in real terms. You've got a zero real cost of debt. So do something with it, you know, and why aren't they? They need a shock. That austerity mindset is like... Ordo-liberalism living on. I mean, yeah, does this ever change, Leah?

24:47How deeply cultural is it? So, you know, like, when do we get to the point where Germany's like, cool, we can borrow for the best part of nothing. Let's just do it. Yeah, I mean, I don't know. I mean, I think this is kind of the point I was making about Trump is that he's done things that he was told he couldn't do. And then, you know, the world didn't come crashing down. Well, it did in some cases. But, you know, like some of it wasn't as bad as we thought. Right. Like the tariffs or, you know, the thing it's become evident that it was a tradeoff. Like it's not a cliff. Right. It's a you can do something and there will be consequences.

25:21Sometimes they're not great. But it's a choice. It's a political choice to make. And I think Germany in particular has this history of very strong particular type of economic thought and of ordo liberalism. And it's been living in this extremely tight strictures of we can't do that. We can't do that. It has to look like this. Nine. Exactly. Nine, nine. And it's suffering from it. Right. And it needs a shock of creative policymaking and the sort of feeling of breaking those strictures. But I don't know. I don't know if Trump's going to do that in Germany. Maybe some combination of China eating its car production and Trump slapping tariffs on and maybe that's it.

25:59Maybe. But like the thing I worry about is that I think a lot of places need that around the world. But only people that are offering it also happen to be like, you know, white nationalists. And, you know, not always, but like sometimes. And like that's that's a mistake, I think. And that's a mistake of the center, in my view. on that cheerful note we have to wrap it up there but we do have to do that thing that the Unhedged podcast always does which is long short

26:44we do have to do that thing that the Unhedged podcast always does, which is long shorts, which is where we go long, a thing we love, or short, a thing we hate. You have no excuse for not having prepared something. Eric, what have you got? I'm going to go short. I think Trump could be influential and other people could copy him, but I'm still going to go short, orange politicians. OK, strong. Leah? OK, I, as a political theorist, my job is to think about how we should do things, It's not predict how things will come out. So I'm very allergic to a sort of long, short prediction. Like I'm more of the like summer camp style, like hoopsicle popsicle, you know, like what was your best moment of the day and your worst moment of the day.

27:29But I'm going to try. Okay, so I'm going to go, I'm going to go long turkeys for sort of a sad reason, which is that I think America is going to be an emotional recovery over Thanksgiving. And people might not gather as much. so they're going to need more turkeys because there's going to be more independent Thanksgiving celebrations this is the sort of this is the out of the box thinking no one saw that coming the Kilkenomics Festival I am going to go long either a nice cup of tea or a pint of Guinness because we've recorded podcasts live in the wild for the first time ever

28:11audience you've been fantastic thank you so much for your support Eric and Leah thank you enjoy the rest of your day thank you

28:23Unhedged is produced by Jake Harper and edited by Brian Erstad our executive producer is Jacob Goldstein we had additional help from Topher Forges Cheryl Brumley is the FT's global head of audio Special thanks to Laura Clark, Alastair Mackey, Greta Cohn and Natalie Sadler. FT Premium subscribers can get the Unhedged newsletter for free. A 30-day free trial is available to everyone else. Just go to ft.com slash unhedged offer. I'm Katie Martin. Thanks for listening.