Transcription
Welcome to the Andrew Neil Report, with me, Andrew Neil. For decades, I've spent my career holding the powerful to account, armed with the facts they'd rather ignore. From Westminster to Washington, the political world has never been more complex, or more in need of proper scrutiny. Now, every Thursday, this podcast will be the place to do that. So, let me tell you a little more of what it's about.
There's a lot of politics going on these days, at home and abroad. And our aim is to try and bring a global perspective to events, and to stand back from the day-to-day events and put them into context, not just here in the United Kingdom, but all over the world, especially in America, which is so important to the rest of the world, and to Europe as well, our closest neighbor.
Now, the reason I want to step back and get away from the day-to-day who's up, who's down. And by the way, if you want to know that about Westminster or Washington or the Elysée in Paris or the Chancellery in Berlin, this is probably not the podcast for you. There are plenty of really good podcasts that will give you the minutiae of that kind of politics. We want to stand back and look and see what are the major trends taking place. Why is this happening? What's going on, uh, in the United Kingdom, in America, in Europe, and the Far East that is, uh, promoting these changes in our politics and our economics? And there will be a lot of geopolitics in this, and a lot of economics as well, uh, as we view things through the political, the geopolitical, and the economic lens.
Now, this is a very good time indeed. I would say there's never been a better time to stand back a bit and look at the geopolitics, the broader picture of what is happening to us. The world as we've known it on both sides of the Atlantic, uh, since the end of the Second World War is coming, some would say has come to an end. Everything that we've taken for granted for almost eight decades now, the pre-peace and prosperity of Europe, the reliability of the United States, uh, as a partner in NATO, the importance of the Atlantic alliance, free trade, and with free trade, the idea that although there may be some years when there's a setback, by and large people, everybody can look forward to rising living standards, rising productivity, a better quality of life, a better quality of life, uh, for your children than the one that you had. All of these givens, all of these things that maybe we took too much for granted are now going in this new geopolitical world, uh, that we're in, and it's just begun. We can already divine some of the changes in it, but we've only started out on this journey. We do not know where it will end.
So, we can no longer take American guarantees of our security. Our most important ally seems to have fish to fry elsewhere. Under Donald Trump, he's not a great fan of NATO. NATO's beginning to unravel, and Mr. Trump, in his geopolitics, seems to want to concentrate more on the Western Hemisphere. That's the reason why he's in all this emphasis on Greenland, Canada, Panama, Venezuela, Colombia, and so on. It's his backyard. It's a revival of what in the early 19th century was known as the Monroe Doctrine, under a previous early 20th, 19th century president. He's calling it the Dunwoody Doctrine. This, of course, creates major problems for Europe. Western Europe, and then, of course, as Eastern Europe joined the NATO alliance as well, has always been dependent on the United States for its security. Some would say, I would say, over dependent. It's not done enough for its own security.
And we've lived through a period where Donald Trump, he wasn't the first president to say so, but he was, he's, he put it in characteristically blunt Trump way was to say, "Look, Europe, you've been rich and prosperous for a long time. Time you did a lot more for your defense. You can't depend on America as much as, uh, uh, you do." And he won that argument. But we've moved on from that. We've moved on from a recognition that Europe has to do a lot more for its own defense to a situation where it may have to do all that without even having America by its side. Not just a diminished America in terms of its NATO commitment, but an America that may be not there at all. Now, that's a sea change in the geopolitical position of Europe. And we want to follow this and see where it's going to go and what it means for Europe and for the domestic politics and economies of the major European countries.
Because it comes at a time when Europe is being forced to realize that not only does it have to do more for its own security than it has in the past, but it may have to do so without America, which is another big step up from just doing it alongside America. At a time when the European economies are not in great shape to fend for themselves. They're being forced into a major rearmament program to make up for the gap that is America's leaving. At a time when the European economies, the European Union, the Eurozone, along with Britain, too, although we're not a member anymore of any of that, has been pretty much stagnant. Uh, the German economy is no bigger, uh, than it was at the start of the pandemic, way back at the end of 2019. The French economy is now teetering on recession. The Italian economy is not growing very quickly. The British economy struggles to hit 1% growth. These are not the economic circumstances that provide the kind of resources required, uh, to rearm, to, uh, rebuild a military that has been hollowed out on both sides of the channel, as America looks elsewhere and rearranges its priorities in the Western Hemisphere, and of course in the Pacific, where it sees the major geopolitical threat of the 21st century to be the rise of China.
So, that's a real problem for Europe. It's a real difficulty for the European countries, both individually and as members of NATO and as members of the European, uh, Union. And I mentioned China because, of course, China is a great part of this redrawing of the geopolitical map. It has, uh, risen to become the only other superpower of the 21st century, uh, and it is a major threat to Europe economically, indeed to the whole industrial, uh, base of Europe as it floods, uh, Europe with cheap imports. It started with solar panels a long while ago. It's now electric cars, like BYD batteries, software, all manner of manufactured goods are now pouring in, undercutting European manufacturers, particularly since Donald Trump put up a lot of tariffs. And this is a difficulty, uh, for Europe as well.
But, China has its own problems. And I want to look at that as the weeks and months and years, uh, go on. Chinese growth, uh, is not what it was. The Chinese economy has many, many problems. It has, ironically, as what was once the most populous country in the world, a real demographic time bomb. The labor force is shrinking. And yet a huge chunk of the labor force in the countryside is barely educated at all. The Chinese that we see are all from the cities, they're well-educated, they're dynamic, they're a force to be reckoned with. 60% of the Chinese population, particularly young Chinese, don't fit into that at all. And it's been interesting to see now as this world reconfigures that I, you probably remember all the talk in years gone by about China will overtake the United States as the world's largest economy. Well, let me tell you, that ain't going to happen. Not for the foreseeable future now. The American economy is still a far bigger economy than the Chinese one. And although we tend to regard China as 10 ft tall, I think as this decade goes on into the next decade, you'll see a lot of Chinese problems beginning to play out.
Now, this is not to say that China isn't going to matter, of course it is. And there is the running sore of Taiwan, and we never know what it's quite going to do there. But the idea which has been pretty much steeped in Western media that China just kind of sweeps all before it. No, no, no. That's not really what's going to happen. And so we need to have a better understanding of these major geopolitical forces at play. What happens to America as it goes its own way? What happens to Europe as America goes its own way? What happens to the world with a China that can't just take everything for granted and assume the Chinese trees grow to the sky.
So, these are big changes. These are big changes in the, the power balance in the world of, of who matters and who doesn't, of the direction in which global politics is going. And of course, it's happening at a time when there are two major wars underway: the one in Ukraine, which has become a grinding machine for those involved, and which is, uh, now longer than the First World War, and yet isn't yet near to resolution. And, of course, Trump's war in Iran, which he thought he could get in quickly and get out quickly, but he seems to be stuck in there without an idea of how to get out. And that, of course, has caused major problems for the global economy, which we all feel with the price of petrol at the pump, with the shortage of some essential things like fertilizer and naphtha and helium and so on. These are all products of these geopolitical developments I've been talking about. Uh, and that's what I would like to concentrate on in The Andrew Neil Report.
Now, all of this is taking place at a time when we're still suffering from the long dark tail of the great crash of 2008. And by that, what I mean is that although we managed to avoid a great depression after 2008, unlike 1929, when there was a great depression, which lasted throughout the 1930s, and really only came to an end, particularly in America, when America entered the war in 1941 after Pearl Harbor, uh, we avoided that. And that was a success story. We learned some lessons of 2009, particularly on monetary policy. But the chosen way we avoided a great depression was to pump money into the economy. You remember quantitative easing. And of course, interest rates were pretty much zero, which with inflation 2, 3% meant they were negative. Now, although that was the right thing to do, this long dark tail is that that money had to go somewhere. And it went into assets. It went into stocks and shares and properties and bonds. Which means those who already had the assets did very well. But it didn't produce a ton of growth in the Western economies. So those who were living simply on a wage, usually week to week on a wage or month to month, they didn't do so well. And yet they hadn't caused the crash. And as a result of that, you began to see a populist backlash. Started with Brexit. Moved on to Donald Trump. And of course, we have seen in the rise of the populist parties of the right and the left, uh, playing, getting the support of, uh, working-class and lower-middle-class people who rightly feel hard done by. And the collapse of the mainstream parties that have governed most of the European democracies and North America since the end of the Second World War.
So, there, there you have a major financial event playing in and having a major impact on, on our party politics. And that's another theme that I'm going to be coming back to again and again. We're now living through a period where because of geopolitical and major financial developments, we're witnessing the collapse of the mainstream center-left and center-right right parties, and the rise of populist parties to the left and the right, particularly to the right. And this is still ongoing. And that's what I mean by we need to look more closely at this long dark tail. Because the financial crash is almost two decades ago now in 2008, and yet the mainstream parties are still in decline. And the parties of the populist left, and as I say, particularly of the right, are continuing to grow. We see that in Britain with Reform now regularly ahead in the polls at around 30%, way ahead of the Conservative or Labour parties, which languish around 20%. And we've seen, we'll see what comes up in the South Manchester by-election or the by-election just north of Manchester as to how Reform does there.
Across the channel in France, the two main parties, the Socialist Party of the center-left, the Gaullist Party of the center-right, they're almost no more. Indeed, the latest polling in France suggests that next year's presidential election will be between the hard-left Mr. Mélenchon, a kind of Jeremy Corbyn of France, and either Marine Le Pen or her protégé Mr. Bardella, uh, depending whether the courts let Marine Le Pen rise again, uh, on the hard right. So, the mainstream parties will be entirely squeezed out. This is a major development, and it's not just in Britain, it's not just in France. In Germany, the AFD, which is very much a very hard-right party, probably the most extreme of all the populist right parties in continental Europe, it's now ahead in the polls. Now, it's not going to form a government, others will coalesce together to stop that, but it now outpolls the Christian Democrats on the center-right and the Social Democrats on the center-left as well. And of course, Mrs. Meloni, who comes from this populist right, is already prime minister of Italy. So, there's a lot going on.
And even on the other side of the world, in Australia, the One Nation Party, very much a party of the nativist populist right, but largely for a long it was located in Queensland. It, lo and behold, is now outpolling not just the center-right parties of what's called the coalition, it's outpolling the center-left party of the Labor government in Australia. So, these are global trends. What is happening in your country is probably happening in other democracies around the world. And one of the purposes of this podcast will be to bring all that together.
Now, as I say, these changes take place at a difficult time for Europe. Europe is essentially stagnating. Uh, the economies are not growing, or if they are, they're not growing, uh, by very much. And there's a problem and a lack of dynamism here that Europe doesn't seem to be able to overcome. Now, most major US companies didn't exist 30 years ago. Most major US companies didn't exist 30 years ago. Every major French company did. Just about every major German company did. No European Union company set up in the past 50 years has a market cap of over 100 billion euros. But the US has produced six with a market cap of a trillion euros. I think now you see the problem. And this could get worse with AI, not better, which is why we're going to have a long look at the implications week after week of the AI revolution.
Now, there are huge, uh, advantages, huge opportunities that AI brings. All transformative technology does that. But there's also, uh, huge problems that'd have to be handled. And there's a great danger that just as the original digital revolution largely passed Europe by, and the dot-com revolution certainly passed Europe by, that AI also passes Europe by. And we're looking at a continent now which is a becoming, or at least in danger of becoming, a kind of mid-tech backwater. And I say that because as I look at where AI is flourishing and prospering and having the biggest impact on existing industries and businesses and ways of doing things, America and China are clearly in a league of their own. But interestingly, Britain is the clear number three. And that's important for a service economy like Britain. Britain's a services superpower. We export more services than any other country bar America. And it is in services that AI will probably bring the biggest productivity gains.
Now, I'm well aware that huge unemployment issues could loom with that as well. But just looking at the impact of that on the British service industry, it is an opportunity to produce huge increases in productivity and therefore huge growth. But in Europe, AI is barely happening at all. Companies are leaving Europe, some to come to Britain, a lot of course to go to the United States. And as I say, this is happening at a time when Europe is going to have to fend for itself. So again, what is being done? What are the political forces at play that will make Europe wake up and face that? Will make Britain wake up and face the problems that it, it has too? Because Britain's a pretty good case study of some of the major political developments that are taking place.
I mean, England, and I say England, not the United Kingdom. England has now, in the past 12 months, maybe a little bit more, gone from being basically a two-party system to a multi-party system. This is a sea change in our politics. Now, you could say that simply England catching up with Scotland, Wales, Northern Ireland, which have had multi-party systems for quite some time. But England is 85% of the United Kingdom. And when England goes multi-party, it means major changes. It means it's now going to be very hard for any political party to get an overall majority, cuz the vote is going to be spread between five major parties. It makes it very hard, um, to form a government because you're going to need to create a coalition, not of two parties as happened in 2010, but maybe three, four parties to get the majority, uh, that's needed. And this will make, at a time of instability geopolitically, this will probably make our politics maybe even more unstable. And we have become a multi-party system with a voting system which was designed for two parties. So, in our voting system, in our system now with multi-parties, you could get very strange results. Reform gets over 30% of the vote, well, it could certainly be a, certainly be the biggest party. It may even, a 35 squeak an overall majority. But if it's down around 25 and Tories and Labour are around 20, 21, Tories and Labour could end up with more seats than Reform. How's that going to go down with the people who voted for Reform?
So, at a time of geopolitical change, of economic uncertainty, of technological change, we have a political system that is fractured and not equipped to cope with the challenges that I'm talking about. And that is why I want to stand back a bit and look at the events that are taking place in the UK, in Europe, elsewhere in the world, including Australia and Japan, the ongoing wars in the Ukraine and in the Gulf, and of course, the politics of the United States. See what we can learn, to see what that tells us about politics in our own country. So, it's a political podcast, but it's going to have a global perspective, and it's going to call on global data, call on global trends, call on global developments to try to explain to you what is happening in your backyard.
And of course, there will be a ton of coverage on the United States because what happens in America invariably happens elsewhere. It used to be within years, these days it's sometimes within months. And we have a United States now which is very different from the one I've grown up with, probably you've grown up with too. And we don't quite know where it's going. We know that the Republican Party is now a wholly owned subsidiary of Donald Trump, but we don't know what happens after Mr. Trump goes. Mr. Trump goes. We know that the Democrats are doing better, but we still don't know who could be a credible Democratic candidate come 2028. And we don't know what the Democrats are going to stand for. Will they go the way of the populist left, the way of the Republicans have gone to the populist right? And what will be the consequences for the Western Hemisphere and for Europe and for the competition with China in the Pacific if that was to happen.
And of course, there'll be particularly a lot this year from America because we've got the midterms coming up. And Mr. Trump is in danger of losing the House. In fact, he almost certainly will lose the House if things go the way they're going from the fallout from his war in Iran. He may even lose the Senate. And then what happens to the Trump presidency? So, as you can see, I think I've explained that we have a lot to talk about. We have a lot to explain. We have a lot to interrogate. We have a lot to analyze at both a national level and an international level and a geopolitical level. At a political level, at an economic, uh, level, and at a financial level, and at a time, as I say, of this incredibly transformative technology that is now gathering pace called artificial intelligence.
So, we'll do our best to keep you up-to-date on all of that and more. We're open to what you would like to hear us about about from us as well. Uh, we've got a broad agenda and a global perspective. And we're going to build on that week after week. So, let me just remind you, The Andrew Neil Report will be with you every Thursday in your podcast apps. And you'll also find the full show alongside clips on YouTube. The Andrew Neil Report, we hope, will be the definitive political and geopolitical podcast. A place for bold analysis, original opinion, big-name interviews, and a global sweep, a global perspective. If you like the sound of that, all you have to do is join me. I promise you, it's going to be quite a ride, a ride you ain't going to get in any other podcast.
>> [music]
>> Some years are forever synonymous with great historic events. 1066, of course, which changed England forever. 1776, whose anniversary Americans celebrate this year, not yet dawning on them after 250 years what a wrong turn they took. 1789, the start of the French Revolution, which changed Europe, not just France, forever. 1914, the start of World War I. 1939, the start of World War II. And, of course, 1929, the most famous financial crash in history. Though, the more recent crash of 2008, well, give it a, a run for its money. Andrew Ross Sorkin, journalist for The New York Times, has written books about both these crashes. Too Big to Fail, about 2008. Now comes 1929, Inside the Crash. His history of a financial crash with enormous political and geopolitical consequences. He joins me now. Andrew, welcome to The Andrew Neil Report.
>> Thanks for having me, Andrew. Great name.
>> Let's start. Let's start. It is a great name. You can't have too many Andrews in one podcast. Let, let's start with your book, 1929. It's a gripping read. I really enjoyed it. I've recommended it. But, do you accept it's more storytelling than economic, financial, or political analysis?
>> Oh, absolutely. But, I think the goal of this book, more than anything else, was to try to bring the crisis alive in the form of story, in the form of characters. And, not just characters for characters' sake, but to really try to understand the incentives and the motives of the individuals at the heart of this, this period of time because I, I'm somebody who ultimately believes we often talk about economic systems and economic cycles and, uh, political, uh, cycles and and whatnot, but it's ultimately people, individuals who make decisions that I think drive those cycles. And that's what this story and this book is ultimately about.
>> Now, there, there's a, a ton of literature on the Great Crash of '29. Did this approach that you took, did it give you any new insights into the causes of the crash or its terrible aftermath?
>> Oh, goodness. It, it was, um, it was lesson upon lesson upon lesson, but it was really lessons about people and their confidence, um, their overconfidence, uh, their own insecurities, um, that drove so much of the things that they would do, of both, uh, moral and immoral. Uh, the gray of all of it, whether they be Wall Street bankers or they be the presidents of countries. I mean, that's to me what, what this story was all about. And the surprise for me wasn't in knowing that there was a crash. Of course, there was a crash. It was in knowing the nuances of the sort of psyche of the people, uh, that were in charge that led to it, and their psyche as they were trying to grapple with it on the other end.
>> I want to put this to you because momentous, I mean, cataclysmic even as the crash of '29 was, 90% of the stock market, uh, was eventually wiped out of its value. Do you accept, cuz it's not clear to me from the book, do you accept that the crash on its own was not the cause of the Great Depression of the 1930s that followed? That that was a result of egregious policy errors, especially by the US Central Bank, the Federal Reserve.
>> I think we're in violent agreement for the most part, but I would push back on the idea that it wasn't one of the proximate causes. I don't believe that the crash unto itself, um, preordained that we were going to have a Great Depression that led to 25% unemployment in the United States, for example, by 1932. So, in that regard, I think we agree completely. I do think the crash was the first domino in a series of dominoes, with the successive dominoes being the policy choices that I think you're referring to, that ultimately led to what turned out to be a cataclysmic situation, which did not have to happen ultimately because of the crash, but I do believe the crash itself was the, the first domino, and most importantly sucked a sense of confidence out of the system, and that's why I think the psychology of the individuals in this story are so important to understand, uh, because I think it therefore infected a lot of what took place later.
>> Well, let's see just how much agreement there is here between us, because I, I, as I went through the book, uh, it did seem to echo, uh, the great, uh, economist J.K. Galbraith's approach. I mean, he really thought that the, the depression that followed was fundamentally because of the scale of the crash, rather than the failure of the Fed's with monetary policy to act as lender of last resort to banks in trouble, allowing thousands of these banks, 9,000 I think, to go bust, it contracted the money supply by 30% in '30, '31, and didn't pump any money into the US economy. And it's at times it seems that you go along with the scale of the crash theory of the depression rather than the inadequacy of the Federal Reserve.
>> Uh, there, oh, we we can get into a big debate here. I, I'm of the view. No, no. I'm of the view that the scale of the crash was enormous. However, and this is something I think most people have never focused on. By the end of the year, the end of 1929, the stock market was only down by 17%. I don't think most people will appreciate that. Yeah, yeah. Had you closed your eyes between the beginning of the year and the end of the year, you would have practically nothing had happened. The problem was that so many people, ordinary Americans, and frankly, you could even say when I say so many people, you could push back on me and say, "Actually, there's probably only, you know, 5% or less of the entire country." But it was 5% or less of the
>> It was about 3%, about 3, 3 million Americans out of 120.
>> But, but if you look at that 2 or 3%, it was, it were, it was a group of people at the peak. And, uh, those people were in charge of, in large part. They lost a fortune. And then, you know, you had big cities, but it, it sucked this sort of sense of confidence out of the leaders, I think, of a lot of businesses around the country. And I think that then infected, uh, the way Hoover thought, uh, about all sorts of policies later. Obviously, you can get into Smoot-Hawley and the tariffs, which was a terrible, terrible decision. The Fed, which effectively had its hands tied when they should have been trying to pump money into the system. You had the gold standard, which made this all the more complicated. And then you had the politics of the moment, which was Hoover effectively losing the election, um, to Roosevelt and the polarization of the political polarization, which I think prevented, uh, really Roosevelt from trying to actually help Hoover fix the problem before it got as bad as it ultimately did.
>> I mean, you say that after a year or so the market was only down about 17%, but it was then the actions of the Fed in failing to put liquidity into the economy that caused all these bank failures, which meant basically credit dried up.
>> Mhm.
>> And so the stock market plunged even more. And the, the reason I'm, I'm kind of zooming in on this is that people say we don't learn the lessons of history. But when it came to the Great Crash of 2008, of which you've also written another splendid book, I would suggest you we had. Or at least Ben Bernanke, then chairman of the Fed, had.
>> Because he, he made sure that he did not make the mistakes in 2008 that the Fed had made in the aftermath of '29.
>> Well, I would go even farther. I would say we learned the lesson in part because Ben Bernanke did his thesis at Princeton on the Great Depression, saw what the mistakes were, and then tried to rectify them in the context of the 2008 crisis, and did so splendidly, despite the fact of being horribly politically unpopular. Having said that, we then did it again, by the way. So, during the pandemic, what was the lesson? The lesson was we write the check, throw money at the problem. And now we've done it again. So, yes, and, and yes, it's worked. The one thing I would raise, cuz I often worry about the next crisis, I do worry at some level that now that we think we have a playbook, we've seen how it works in the past. If you write the check, everything seems to simmer down. We did in 2008, we did it during the pandemic. You tell me, but the next time that we have to write another big check, and the next time it would be trillions of dollars, I imagine, the kind of check you'd have to write. Does the bond market, do investors around the world at some point say, "Enough. We can't do this anymore." And that I don't know, but that, if that happens, that could be a whole new lesson for us all over again.
>> No, I agree, and you can't keep on doing it all the time, particularly in quick succession. And, uh, the combination of the great crash in 2008, the pandemic, uh, the war in Ukraine, which meant lots of energy subsidies, uh, and now, of course, Mr. Trump's war in Iran, too. It's, it's not a trick you can just repeat without a cost. And even in 2008, I would suggest to you that it wasn't free of political consequence. It hasn't been free. Now, of course, not as dramatic as what happened after '29, cuz I think you can say the Great Depression led to mass unemployment, uh, including 6 million without jobs in Germany, and [snorts] we all know where that led to. But post-2008, as we flooded the system, not saying it's the wrong thing to do. We flooded the system with money. It pushed up the wealth of those who already had assets. The money had to go somewhere. And left those who were simply on a wage with stagnant living standards. So, even though it was a success, I, I would suggest to you it's had political consequences, too, which have not been benign.
>> Oh, goodness. I, I, not benign, I think it's worse than that. I think it's a straight line to everything that we've seen today. The political polarization that's taken place in the United States, and frankly in other parts of the world as well. I think it gets to the inequality, which I think is what you're speaking about. But even more, um, dangerous, I think, is actually the distrust that it created. The distrust of experts, of institutions, the, the, sort of deep-seated shift in culture that I think happened as a function of 2008. You're absolutely right. Ben Bernanke, I would argue on a very technocratic basis, did all the right things. And yet politically, you could argue was an abject failure.
>> You see, I wonder if you agree with me. I think you could argue that it led to Brexit.
>> Mhm.
>> It led to Donald Trump.
>> Mhm.
>> It led to the rise, still ongoing, of the populist right in Europe and to the collapse of the mainstream center-left and center-right parties.
>> Amen.
>> And of course, including the, the hostile takeover of the Republican Party in America.
>> I, I could not agree more with you. I, I genuinely believe it is a straight line. I look at 2008 as a breaking point, a tipping point that has changed the globe in so many different ways. Uh, but I do think it, it's what's led to the populism, but I think it comes from this sense of, of trust, or broken trust, or distrust that happened as a result of, uh, people believing in a system that ultimately didn't work for them, and then led them, uh, to feel that that the system, uh, had no, took no effort to save them, but ultimately took every effort to save everybody else.
>> And now, of course, given that this long tail of the 2008 crash, what I would call a long dark tail of that crash. It's still with us today and still working its way through. If you've got assets, you're pretty well off.
>> Mhm.
>> If you haven't, if you're living week to week on a wage, past 10, 15, more years have not been that kind to you. And yet, there is now growing concern of another crash to be coming along. Now, as an expert, someone who's written two excellent books on '29 and 2008, looking at these two previous crashes, if we are moving perhaps to the possibility of a third, which of the two previous ones do you think has the most relevance to try and understand what might be going on?
>> The truth is actually 1929, and I'll tell you why.
>> Mhm.
>> I, what I fear about right now is we are going through what is clearly a boom around artificial intelligence, and clearly it's a, it's a technology which is going to transform our society. Obviously, back in the 1920s, it was automobiles, it was radio, and those were technologies which did transform our society. So, I don't want to take anything away from that. The question about AI to me, though, is on one end, we could sit here and debate whether we're in an AI bubble that's going to burst because there's not going to be enough demand for the product itself and the economics of creating all these data centers and spending all this money for whatever reason isn't going to work out, and all these companies are overvalued on one end. But, there's another end, which is if in fact AI succeeds, and that the prices of these companies are justified, it is likely because these companies are effectively going to do people out of jobs. That's how they are going to make the efficiencies. They're going to create the productivity that's needed to justify these sky-high prices, which in which case, you know, if you talk to the CEO of Anthropic, he'll talk about, you know, 20, 30% unemployment in America, for example. Well, we had 20, 30% 25% unemployment in 1932 in the United States.
>> Sure, but that wasn't technology.
>> That was not a techno, that was not a technological, but I, but
>> That was bad microeconomic management.
>> 100%, but it's, it feels to me that that the AI wh-, whatever you think is happening with AI, I could see it go wrong on one end because it really is a bubble, and go wrong on the other end because it works too well. So, there's a very slim line in between that we have to land the plane on if this is all going to work out.
>> Let me just drill down on this a bit. As you say, we're in the middle of an AI boom. I see that, uh, expected investments in America this year is going to be about 750 billion dollars into AI. Uh, much of that money for the AI boom is coming from unregulated private credit markets, not from the banks, not from the equity markets, but from these private credit markets, which have grown up pretty fast over the past decades. They're opaque. We don't know very much about them. So, if I take this boom in this technology and the manner in which it's being financed, am I wrong to think that's, that's potentially a pretty toxic combination?
>> You would not be wrong, and I think it's something that I deeply worry about. The question is about two things. One is the transparency of the private credit markets, and there is none. I think if you were to ask J. Powell, or now Kevin Warsh, the new head of the Fed, if there was one piece of data that he would want to be able to see that he doesn't have access to, it is in fact the layers upon layers of debt and the interconnectedness of that private credit market. I don't think that even the Federal Reserve in the US has a full picture of it. And how connected it is effectively back to the banking system. And so, if you have, if you lack the transparency on that end, the question is, if in fact things go bust, is that a, is it okay, meaning is it safer that it's in the private credit market as opposed to being in the banking system? Private credit today potentially is 10, maybe 15% of the total corporate debt market right now. And that, and the question is, is it, or is it really more? And I don't think we really know the answer. And that is, by the way, the fact that we don't know the answer is part of the problem.
>> I mean, I guess you could have an AI-induced crash because of the private credit arrangements that you're referring to. There's a suddenly a lack of confidence in this private credit, loans are called in. We don't know really know who's behind them. But AI would still survive that. I mean, after all, uh, we had the dot-com crash in 2000, but it wasn't the end of the internet or of dot-com companies.
>> Well, look at.
>> You know, when I look at the history of the railways, of electricity, um, of, of airlines, they all had their crashes in the early years. They were all transformative technologies. We had the crashes, huge setbacks, but the technology continued.
>> There is an argument, and I think it's a valid argument, that for there to be progress, technological progress, that in some cases you may ultimately need some form of a bubble. In fact, I had a conversation just two weeks ago with Jeff Bezos, the founder of Amazon, about this. And I was asking him about whether there was a bubble, uh, and whether it was going to burst. And he said, "It may very well burst, but it's a necessary component of innovation." We were talking in fact about, uh, the biotech bubble. We just had a biotech bubble, um, what, 10, 10, 15, 15 years ago? And it, it popped, uh, and yet we now have all sorts of new therapies that have emerged. So, you know, if you can hold, if you, on an individual level, can hold on through the popping of a bubble, it's fine. Uh, but the problem, of course, is there are a lot of individuals who can't.
>> I guess the, the upside of AI is that, and the early evidence coming in from the United States is quite positive. And of course, it's happening there more than anywhere else. Is, as you know, productivity overall in the West has not been great for the past 20, 25 years. It's one of the reasons why living standards have been so weak. You can't really have rising living standards without rising productivity. Certainly not, uh, without a lot of inflation as, as well. And AI does bring the promise of major breakthroughs in productivity, which in turn would allow you to grow the economy more quickly, to have more, rise living standards rise more quickly without inflation being baked in.
>> That, that.
>> That's a plus.
>> Yes, but I want to push back because of this. The concentration of wealth that could very well come as a result of that productivity. It's not, it's not preordained that there was going to be a even distribution of wealth that's going to come as a function of this AI productivity. In fact, I would argue to you that one of the reasons that we're going to have greater productivity is because they're going to be people who may not have jobs. It's going to be less jobs ultimately. That's what this is going to do. And so if, if the wealth gets concentrated in the arms of, uh, the employees at OpenAI and Anthropic and SpaceX and Amazon and Microsoft and the like, but it does not trickle down through the system. I actually think it could create greater polarization of the country.
>> Well, you said there'll be fewer jobs and there will be fewer jobs in certain job sectors that we now know of.
>> Right.
>> What neither you nor I know, and the politicians certainly don't know, is what jobs would be created if higher productivity allows you to run the economy at a higher rate and therefore create jobs that we don't even know exist at the moment.
>> Andrew, that's the dream. That's the dream. And I hope, I hope for all of us that that is, that is right and that we get there. I just think that the, at a minimum, there's going to be a painful transition period along the way.
>> Oh, I, I agree. Oh, no, the, the transition is painful, and how you manage it is a big test. But we don't know what the jobs of tomorrow are, by definition. The politicians and some journalists often claim to do so. What I do know is that if you can run an economy at a decent rate of growth and get increased productivity, it will generate jobs that you or I have never heard of. I mean, I, I once ran a Sunday newspaper. We had a massive job section in the days when vacancies were still advertised in print. These were the days. A lot of money in that. It used to, to, I remember going through about about 16-20 pages every Sunday. About 80% of the job titles hadn't existed 20 years before. We just didn't know.
>> Right. Look, I imagine it's going to create all sorts of new jobs that we don't know about, I hope. But I also imagine again, because of what the promise of AI is, that I do worry that there's going to be a even greater concentration of wealth. And it goes back to how we treat capital and how we treat labor and how increasingly capital, uh, is being advantaged. And I think when you think about everything that happened post-2008, and maybe we go back to 2000, 1929, too, but post-2008, people who had capital were advantaged over labor. And I can only imagine that that situation gets exacerbated over time. It doesn't get better.
>> And that has, has produced the kind of political fallout we've been talking about. I can, uh, well see that. You write, uh, in 1929 of some of the colorful characters in the run-up to that crash. Thomas, uh, La-mont, acting boss of J.P. Morgan. Sunshine Charlie Mitchell, I guess because he was always looking on the bright side. He was boss of what is now, uh, eventually became Citibank. Many ended up before congressional hearings. Some ended up in court, including Mitchell. Are today's tech bros their modern equivalents?
>> Oh, absolutely. And as I was writing the book, I was thinking about each of my characters back in 1929 as their modern-day equivalents. You know, when I think about a Charlie Mitchell who ran National City, which becomes Citigroup, he was really the largest bank in the country, on his way to being the largest bank in the world. You could compare him to some degree. I was thinking about Dick Fuld who ran Lehman Brothers. Of course, at certain points I thought about Michael Milken who changed the entire world of, of, of debt and junk bonds and high-yield debt.
>> So, he, he invented junk bonds pretty much.
>> He did. And, and, and Charlie Mitchell effectively invented the idea or popularized the idea that you could walk into a brokerage house and they would lend you money so you could go buy stock. I used to think about John Raskob who ran General Motors in 1919 and started lending people money so they could buy cars and then ends up building the Empire State Building. He was really the Elon Musk in many ways of his time. So, there were so many different characters that, that to me were reflective of today. By the way, my favorite character is Evangeline Adams. I don't know if you remember Evangeline, but Evangeline was an astrologer in New York City in 1929. And every
>> That bit in the book.
>> Every banker and trader would go visit with her. They
would give her $50 an hour and she would tell you about whether you should buy stocks or not based on what she saw in the stars. And of course, she told you everything was going to you know, go up and up and up and up and up and she was um ultimately wrong.
Well, I don't. Do we know if Jeff Bezos is seeing an astrologer or not? Maybe just consults his wife.
[laughter]
I don't know if Jeff is.
I'll leave that to you.
I don't know if Jeff is seeing. I I will ask him if I get an opportunity to interview him again.
I'll bet you Elon Musk consults an astrologer. He That's why he's building rockets.
Um You you talk about the concentration of wealth in such few hands and that you can see that, but you also write about the dangers of the what you call the democratization of finance. Which you would have thought would have been a counterpoint to the concentration of wealth. And I think what you mean is that Americans on quite modest incomes in the 1920s were borrowing to the hilt to get their share of the stock market action. In 2008, we we saw 100% mortgages being handed out to people who really had no ability to repay. And of course, they all have their wealth wiped out come the crash.
Um is that such a danger this time? I mean, if we don't democratize finance, how can you stop the accumulation of wealth in the hands of the few?
I think I just need to redefine the phrase democratizing finance, because I think what happens often times is we create and the the industry creates new products and they they drape it in the flag of democratizing finance. More access, more people are going to have opportunity. And in in the best of ways, that is the goal. However, typically when these new products are being introduced to the market, they do not come with the proper guardrails. And that I think is the biggest issue. So, in the 1920s, you're right. The brokers were loaning people 10 to 1. Uh in 2008, there were these mortgages uh where there was, you know, no money down, nobody was looking at the books, all of that. Today, you know, by the way, Jamie Dimon of JP Morgan, who's under helping underwrite this the IPO of SpaceX, used the phrase just last week, democratizing finance, cuz more of these shares are going to be available to retail investors for the first time. But now we're creating new products in crypto and private credit and venture capital and private equity and putting those into the public markets. And by the way, there may be a valid and important reason to do so. Long-term, these may be good products, but at the moment they don't come with the the kinds of guardrails that I think you'd like to see, the kind of transparency that would be necessary so that we don't tip over the edge.
And I would suggest to you, certainly with the current administration, uh these guardrails aren't going to be provided, are they?
Not only are they not going to be provided, they they are being dismantled in front of our eyes. You know, the SpaceX IPO, interestingly, which is coming later this week, um Goldman Sachs and Morgan Stanley were the banks underwriting it among others, including JP Morgan. Um and their analysts just came out with sky-high projections about what the company could look like in 2030, 2040 even. That kind of thing, where the analysts were putting out reports like this, was banished back in uh you know, 2001-2, after the dot-com bust. There was a big settlement with all the Wall Street firms because they thought the analysts were using uh manipulating their their reports to try to get banking business. Well, the rules have since changed, and now we've forgotten the lessons of that period, and we're doing it again.
Well, I'm all in favor of a property-owning democracy and of people having their slice of the pie, uh but I think if you're Mrs. Jones of Peoria, Illinois, I wouldn't recommend you put any money into SpaceX. Put it in something a little safer than that. Now, we've been talking about the dangers of the AI boom, the way it's being financed, and of that being a potential catalyst for another crash. Of course, the other big borrowers of this age, and you alluded to it earlier, are governments. And that's another legacy of 2008, when governments had to borrow big to stop us going into another great depression. They struggled to reduce their debt since. Other debt increasing events have come along. The US deficit of this year before it's out will hit 40 trillion. 40 trillion. It's an You can't even get your mind round that. The British government borrows 650 million pounds a day. So, is it possible in your view that although there is a danger from the AI boom and the manner in which it's financed that there a sovereign debt crisis could be as big a danger, as big a potential cause of the next crash as AI?
Oh, I think it might be even bigger potentially. But I've I've long thought that there could be a a crisis, a sovereign debt crisis. I mean, for the last 20 years as the debt in the US and other countries has exploded, I thought that investors might just say, "We're not doing it like this anymore." And we're and refuse. And therefore, the interest rates that governments would pay would be even more, double, triple, who knows what. And that would then change the budgets of these countries. They would have to pull back. They would have to lay off people. It would create a downward spiral. I mean, there really is a If you really want to paint a true dour picture, that's the picture that you'd paint. What I don't know is it very well may be, and at least it's proven itself this way thus far, that all investments are somewhat relative. So, if if the United States, for example, if their bond If we're a You could be the What do they say? The the cleanest of the dirty shirts in the laundry. Um so, as as long as your shirt's a little bit cleaner than somebody else's, uh maybe the investors decide they're going to go with the the cleanest of the dirty shirts. I don't know.
Well, and to get their debt away, governments are having to pay higher interest rates. You see that in Britain. You see it in America, too. 10 years are about over 4.5% yield. Higher interest rates that could be they could be a negative feedback loop there because if the AI tech bros are high on debt and their debt becomes more expensive, there you've got the sovereign debt crisis and the AI boom beginning to co-mingle.
Sounds like you have the sequel to the book ready to go.
[laughter]
I'll pass it to you as long as you're nice to me on the in the forward. Let me just finish on this. We've both talked about how if you're simply an average income earner
Mhm.
dependent on a wage without many assets, it's not been a great time since 2008. It's probably even more true in Europe than in America. We've talked about the political fallout from this. I guess what scares me and I suspect it may scare you, too, is the political consequences given where we are and given that this is still unraveling.
Mhm.
The political consequences of another crash on top of this now. They almost don't bear thinking about, do they?
Oh, goodness. It it The idea of another true financial crisis right now given the politics of the moment around the world, given the crises, given the war in in Iran, the Middle East, given what's happening in Ukraine, given the polarization in Europe, given the polarization in the United States, I can't even imagine what it would take to actually bring people together. You know, that people say that you need a crisis to bring people together, but I I know. I don't know if crisis in this case would bring people together and would bring people together fast enough to come up with the right solution.
Andrew Ross Sorkin, author of 1929, Inside the Crash. Thank you for being with me on the Andrew Neil Report.
A true pleasure. Thank you for having me.
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