Angrynomics: Twilight of the Technocrats

Published on
July 13th, 2020
Duration
52 minutes


Angrynomics: Twilight of the Technocrats

The Interview ·
Featuring Mark Blyth and Eric Lonergan

Published on: July 13th, 2020 • Duration: 52 minutes

The neoliberal model of free trade, open borders, and liberalized capital flows is under assault. Traditional economic models with rational agents and efficient markets don't accord with reality, and people are starting to notice. Even recent advances in behavioral economics have failed to capture this disconnect. Mark Blyth, William R. Rhodes Professor of International Economics at Brown University, and Eric Lonergan, macro hedge fund manager at M&G Investments, explore and seek to resolve these conflicts in their new book, "Angrynomics." Blyth and Lonergan examine how the outsourcing of economic management to grey-suited bureaucrats is fomenting a populist backlash that is redrawing political battle lines and molding the destiny of different asset classes in ways few fully grasp. They analyze the recent largesse of central banks as a sort of asymmetric put-option which rewards those who hold assets and punishes those who don't. Blyth and Lonergan also explore potential solutions, which include dual interest rates, citizens' wealth fund, and - yes - even helicopter money. Filmed on July 8, 2020.

Comments

Transcript

  • SR
    Sam R.
    21 July 2020 @ 13:48
    Interesting piece, but the solutions offered seem a bit half-baked. The idea that because we can borrow cheaply, we should take out a massive loan and put it in equities is suspect. It's perhaps a straw man to ask why I don't just re-mortgage my house and put the proceeds in an index fund, but the analogue is at least partially valid. It's the same sort of thinking that leads 80 year olds to be fully invested in equities; a myopic strategy that works in the model and backtests well over the last ten years, but fails to take account of factors such as systemic risk, valuations, and path dependency. Suppose we have a country whose equity markets have a total market cap of 20tn. Ownership is exclusively in the hands of the 'Haves', while the 'Have Nots' have nothing. The Citizen's wealth fund borrows 5tn over a period of time and buys equities. We can't say what the market cap will rise to, but it's sure to be considerably more than 25tn. Most likely over 40tn. The end result is the 'Haves' still own over 80% of the equities, so over 32tn in market cap. They have also profited handsomely from selling some of their equity stake to the CWF at inflated prices. The CWF owns less than 8tn of equities and owes 5tn. So with this program, the 'Haves' increase their collective net worth from 20tn to over 32tn, while the CWF - which is owned by both 'Haves' and Have Nots' - has increased it's net worth to, at most, 3tn, which can never be realised as the CWF is so big. And don't expect much from distributed profits; at these valuations the yield will barely cover the interest payments. And are dual interest rates really that innovative? Synthetically, giving certain industries subsidies, contingent on their taking a loan as well would be identical.
  • AC
    Alvaro C.
    16 July 2020 @ 00:53
    Conclusion: The solution to "too much government" and "too much debt" is even more government and even more debt. Specifically: - A Sovereign Wealth Fund "funded" with no wealth (!?): More debt managed by an even larger government, and a few crony asset managers. Norway's SWF was funded with true wealth (oil). - Dual Interest Rates: Further central bank distortion of interest rates. Did they ever think about true price discovery in the most important price in the economy (the price of money)? - Helicopter money: What about the impact on incentives? - Data Trust, or something like it, may be worth exploring They did not mention, even once, the fact that one of inequality's big (biggest?) driver is the Cantillon Effect i.e. those closest to the source of money - Central Banks and Governments - benefit the most via influence peddling and regulatory capture.
  • ar
    andrew r.
    14 July 2020 @ 15:36
    Stephanie Kelton and these guys in the same month? Ed, if you're listening, now you owe us two Austrian rebuttal interviews. ;) Problem: intervention-caused boom/bust cycles. Solution: more intervention (helicopter money). Problem: too much debt. Solution: more debt. Problem: inequality and malinvestment caused by manipulating interest rates. Solution: more interest rate tinkering. It's like FDR, looking at the mistakes of Hoover, and instead of applying the Costanza Principle (do the opposite), he decides to do the exact same thing ... only bigger. Homer: "There's three ways to do things: the right way, the wrong way, and the Max Power way." Bart: "Isn't that the wrong way?" Homer: "Yeah. But faster!"
    • DS
      David S.
      14 July 2020 @ 18:21
      I agree with much of the Austria School - “the concept that social phenomena result exclusively from the motivations and actions of individuals.” (Wikipedia) It does, however, need to be updated to deal with a more complex and divergent economies. I am sure that there are modern Austrian School scholars. Maybe Mr. Neville in his new capacity as Editorial Director could help also. DLS
    • LF
      Liam F.
      15 July 2020 @ 00:44
      Guillotines might be fastest of all. Just saying.
    • DS
      David S.
      15 July 2020 @ 16:14
      Andrew. Well said and funny as hell!
    • AC
      Alvaro C.
      16 July 2020 @ 00:51
      Conclusion: The solution to "too much government" and "too much debt" is even more government and even more debt. Specifically: - A Sovereign Wealth Fund "funded" with no wealth (!?): More debt managed by an even larger government, and a few crony asset managers. Norway's SWF was funded with true wealth (oil). - Dual Interest Rates: Further central bank distortion of interest rates. Did they ever think about true price discovery in the most important price in the economy (the price of money)? - Helicopter money: What about the impact on incentives? - Data Trust, or something like it, may be worth exploring They did not mention, even once, the fact that one of inequality's big (biggest?) driver is the Cantillon Effect i.e. those closest to the source of money - Central Banks and Governments - benefit the most via influence peddling and regulatory capture.
  • JD
    Jeffrey D.
    15 July 2020 @ 23:33
    I enjoyed this. We need simple interesting ideas like this.
  • RR
    Ramon R.
    15 July 2020 @ 16:30
    Great conversation. The digital dividend and citizen wealth fund reminded me of the digital US currency idea by Sam Altman https://blog.samaltman.com/us-digital-currency
  • DS
    David S.
    13 July 2020 @ 23:30
    Frankly, I am baffled that a legitimate professor from Brown University and a legitimate hedge fund manager could go so far down a rabbit hole. Unlike Plato and Hume this dialog, as discussed, was not written to inform. I started to believe it was a satire on how to use superficial thinking and events to draw conclusions within the absurd. Just to start the ball rolling on better definition of anger - I cannot find the quote, but I think it was from Dr. Robert Solomon’s lecture on Jean-Paul Sartre. From an old memory, it went something like this: “Anger is the emotion that shows you are unhappy with the world as you experience it. If you can change the world do it. If you cannot change the world, let it go.” (Existentialism) Only a “superficial” Google search would come up with a much better Aristotle quote than viewing anger as “an appropriate response to injustice.” This is wrong on so many levels. Aristotle did not spend 20 years with Plato because he was a slow student. A better quote from Aristotle is: “Anger is always concerned with individuals, ... whereas hatred is directed also against classes: we all hate any thief and any informer. Moreover, anger can be cured by time; but hatred cannot. The one aims at giving pain to its object, the other at doing him harm; the angry man wants his victim to feel; the hater does not mind whether they feel or not.” These authors started with shallow vignettes and end up with a system that will destroy personal motivation and self-respect – We already have enough of that. Even Karl Marx got a lot closer to the problems of capitalism. He failed with his solutions. If the US economy is to survive our current debt and pandemic crises, we must be a lot smarter than this. Otherwise we will end up with the rule by the few or rule by one – Montesquieu, The Persian Letters. I wonder who we can find to be a benevolent dictator these days. (There I feel a lot better.) DLS
    • DS
      David S.
      15 July 2020 @ 16:17
      Right on!
  • SC
    Sebastian C.
    13 July 2020 @ 07:48
    I grew up in a country with a Gini coefficient of over 60. This was caused by a political system which intentionally benefited a few at the cost of the many. This system was Apartheid. Studies have shown that as you increase in Gini coefficient in a population the more violent, particularly men, become. If you are not able go up the social order at a reasonable rate you become resentful and bitter and this anger manifests itself in your society. Hence my country has one highest rape and murder cases in world. Apartheid is now over and 26 years old - but I left my country because the repercussion the system had on me now. In order to live a good life and be promoted and have a valuable job, I would need to be exceptional: - My university entrance requirements need to A- - I need a good networking circle - I would need to prove why it would be better to promote me to a position of management instead of a person of colour etc. - I want avoid TLDR The mistakes of the past were haunting me although I had nothing to do with it (I was born as the retched system had ended). You allow these system at your or your children's own peril! The US now has a Gini coefficient of +40 which I expect it will increase. The more it increases, the more violent your society becomes. Trust me, you will or someone you know will be affected. I miss my country South Africa but I can't bring up children there. ---------TLDR Here is an analogy I use We have a plant in South Africa called Fynbos (Fine bush) which grows in the Cape and one type of fynbos is called Rooibos (Redbush) which you may have had in your tea before. Fynbos needs to burn in its life cycle in order grow healthfully. However, unintended bad ecological practices of the past like preventing bush fires from happening allowed the dead wood to accumulate. We stopped the fires to "keep everything safe". Today we have wild fires that are fuelled by excessive dead wood. The fynbos is now dying and sometimes the fire burns the top soil right off, making it infertile. Instead of having small safe fire, we have one massive and destructive fire. Have we avoided the small fires since the 1980s? What could a destructive fire look like? Are we getting closer to a Phoenix moment? These are the things that are on my mind.
    • IZ
      Ileana Z.
      15 July 2020 @ 15:47
      Thanks Sebastian! I too came to this country from a paradise that imploded in the early 60's. Growing up hearing about how things can turn ugly fast I fear for what can come to the US if we don't address the many systemic issues that grow unabated. Most of my born and raised American friends really don't believe how quickly things can get ugly in a country that is so polarized! Most of my upper middle class friends and especially the invesment/developer/finance crowd are oblivious to the inequalities in this country! I am sick of hearing about our 'low inflation'! Sure, if you eat poison food that gives you chronic debilitating disease and you dont end up interacting with the medical industrial complex that will leave you bankrupt things are "cheap"! Oh and dont even think of trying to pay for a better education for your children or ending up in the middle class tax bracket getting drained from both sides. Low inflation is a farce and it is always "assumed" in all these economists brilliant ideas!
  • LF
    Liam F.
    14 July 2020 @ 23:38
    Never a dull moment with Mark Blyth. Dude is whip-smart.
  • SS
    Stephen S.
    14 July 2020 @ 13:06
    Left out the need for a National Identity. People need a home. They shouldn’t be subject to never ending waves of immigration in the name of increasing GDP.
  • ER
    Eric R.
    14 July 2020 @ 11:42
    Proposing to solve the crises of dirigism with even more dirigism. Academic arrogance!
  • GF
    Gordon F.
    14 July 2020 @ 00:23
    As an engineer, I listen to this and think, "It would be great if it could work, but I have a pretty strong intuition that buried in it somewhere are one or more fatal flaws." My guess is that one or more of the assumptions will turn out to be incorrect. I have not read the book or delved deeply into the theory, but I am essentially 100% confident that TANSTAAFL (There Ain't No Such Thing As A Free Lunch - courtesy of Robert Heinlein). I hope you will have further discussions on this here on RV, involving people who can really dig in and analyze it. I do feel that their initial segment on anger was quite insightful.
    • JI
      JWD I.
      14 July 2020 @ 05:50
      I second this suggestion!!!
  • KR
    Kevin R.
    14 July 2020 @ 01:45
    Excellent ideas -good luck getting the m in place.
  • JL
    Jonathan L.
    14 July 2020 @ 01:23
    Why do they feel more interference in the free market is the solution when it is this very interference which has hindered the free market? Why is it so hard to accept the simple answer of financial anarchy.
  • JL
    Jonathan L.
    14 July 2020 @ 01:17
    Let the free market determine interest rates not a government entity. This will create hard times in the short term as interest rates spike but in the long run hard times create strong men who intern will create good times.
  • JA
    John A.
    13 July 2020 @ 21:57
    One of the problems that will fail to address the "angry" you see today is this idea that only those who have nothing should benefit from these sorts of programs. One of the main reasons why I liked Andrew Yang's platform (the arguments again UBI notwithstanding) is that he didn't try to set an arbitrary limit in his policies that would see the (shrinking) middle class get caught between taxes for social welfare on one side and global competition for our income on the other side. His plans were inclusive. Good or bad, we were in this together and no one was excluded from benefits because they committed the crime of being a productive member of society by earning a wage instead of owning assets. If we are supposed to be in this together as a country, then set a floor that gets everyone's head above water enough so that they aren't at the point that they want to turn to populist ideas out of frustration. I resent people who don't have to work a fraction as hard as I do while having the state provide for them while my property taxes increase to pay for it. And I also resent the ruling class investor who pays less taxes as a percentage of their income than I do and doesn't have to actually risk anything because our government makes sure to use my future tax dollars to backstop their assets no matter what. I'm tired of being ignored while the rich help themselves while avoiding their percentage of taxes and the poor have their hand out while my wage stagnates, my taxes increase, and my workload gets larger because of layoffs.
  • MH
    Michael H.
    13 July 2020 @ 21:34
    Happy to see Blythe on here. He is also a great lecturer. Would recommend searching youtube for his lectures or Brown University affiliated videos.
  • AP
    Adam P.
    13 July 2020 @ 20:31
    "Well that was a shit idea" :'-D
  • GH
    Guy H.
    13 July 2020 @ 19:19
    Equity bull markets are so mature that no-one believes they can ever end. Like post WW2 property markets. Armed with this belief, maximum leverage seems so obvious. But why would debt investors be prepared to accept zero nominal returns for 20 years when at the same time active portfolio managers can easily produce a statistical no-brainer 4-6%? I can easily make cases for and against climate change wrecking havoc in coastal and inland property markets over this period. Similarly there seems a myriad of risks like pandemic or climate that could savage shareholder and bondholder capital. The blind faith in some unwritten economic law that 4-6% returns are 100% certain over 20 years feels more likely to end in tears than not.
  • CC
    Casey C.
    13 July 2020 @ 17:45
    Really sharp discussion, but in the end, it seems solutions always come back to some form of solving a leverage problem with more leverage. I think it comes down to this...A sovereign wealth fund funded with debt, is a sovereign fund, but not a wealth fund. There is virtually no way this wouldn't have negative implications for free markets and price discovery. Let's brainstorm solutions that don't distort these two things and don't pile more debt onto our children's backs. If more debt is necessary to get people working productively such was the case with the CCC in the 30's, okay. It gets people working and earning and generates national wealth. That debt should stay miles from capital markets however. We're witnessing right now the consequences of capital markets being at the center of society. We've gotten distracted. They do not represent real or lasting wealth. If they did, everyone would be happy.
  • TP
    Timothy P.
    13 July 2020 @ 16:32
    Thanks for the laughs. I particularly thought the whole convo about Wealth Inequality was like listening to two people discussing a perpetual motion machine in front of a physicist. Let me get this straight - the gov gets perpetual growth somehow (or borrows at zero) and then pushes that money to people. POOF, no income inequality! Yes, and soon after you have POOF, a crap currency! (And no discussion about what happens when you don't get your magic % return, or if real rates rise, or both.) Then the two-tier interest rate idea. If you have a true and open market, that differential will get arbed to death. Flatter than a French Crepe. The only place where any tiered system survives is where govt regulations/intervention is so strict, very few can enter that market and therefore that market is an inefficient pile of garbage. (Reminds me of the yield curve.) And finally, you talk about how politicians tune their message to their audience and somehow imply that it shouldn't be so, and in the same breath talk about how you incorporated "Angry" into the title of your book because it would resonate with people. Well done, lads - a quality bit of showmanship.
  • HK
    H K.
    13 July 2020 @ 09:55
    I like it that the ideas put forth are a bit different from the standard fare, but I do see the following issues - The sov. wealth fund to distribute assets to those who don't have it currently: -- those who don't have assets are also likely to quickly convert those newly provided assets to cash because they need to spend now and not 10y in the future -- the assumption that a positive return can be generated over 10y is dangerous when doing it at this scale - what if it doesn't happen? - Dual interest rates? That creates a massive arb - if the c.bank provides a bank a loan at an int. rate lower than what it pays out on excess reserves - or through targeted assets. Maybe I'm missing something here. In a way that profit adds to the equity capital of the banks, which had been the intent of QE all along - recapitalizing without equity issuance. - A centralized 'data trust' ... just introduces a layer of centralization in ploughing through people's personal lives, locations, communications, etc. If it's voluntarily participated in, it may have some effect , or maybe not - haven't given it sufficient thought, but large centralized projects habitually step on slippery slopes - Eventually money is a store of labour, effort, thought and diligence. We need to expend one of those to get money which we use as tokens against other people's productivity. If nothing is expended to get money, eventually the effects will trickle through and it won't be pretty - debasement of money rarely is. The Keynsian monsters usually meet a miserable end Very engaging conversation nevertheless :)
    • JK
      Johan K.
      13 July 2020 @ 13:10
      \Good points H.K. - I agree that the market will find a way to arb away the duel rates. I don't think this idea will work. - I think the data trust idea could work if the data is given voluntary and if it is secured on a public block-chain secured by proof of work where only the ones who pay for the data can get access. - I think the gentlemen proposes that the workers are exploited by the large corporates and therefore the workers have worked for their share of the wealth fund, but currently they are not being compensated adequately. I think this is true in some cases but not all. I also think the idea is that the funds can only be monetized at retirement and that the workers will not be able to sell their stake immediately.
  • JK
    Johan K.
    13 July 2020 @ 12:54
    These are great innovative ideas and we need more of these to debate the solutions for the future. My concerns are: 1) The sovereign wealth fund is a great idea as long as the “fund managers” that Eric refers to ensure that the funds are invested in new businesses in the real economy to generate real growth. Otherwise these fund managers will simply add a great deal more capital (wealth fund) into the system, chasing ever declining real growth/returns which will lead to more distorted asset prices, yet more leverage and ultimately a larger collapse. If the funds are used to create real growth based on new businesses, it could work. 2) Erick’s certainty of the success of his ideas probably means they will not work. Traders will know what I mean by this. 3) I would love to read the book, but I was disappointed to see that it is not yet available as an audiobook. I’m looking forward to seeing it on Audible. I am very interested in the data trust idea. Good interview. Thanks.
  • HD
    Hannelore D.
    13 July 2020 @ 12:19
    I've started listening and two minutes later I've started playing my folk guitar.. Great accents!!
  • ag
    andrew g.
    13 July 2020 @ 11:44
    Dear team Real Vision, as well as Mark and Eric Thank you! For a concise, coherent, forthright and intelligent debate and investigation into such a worthwhile topic. enlightening and very thought provoking. much appreciated, regards Andrew Gillespie
  • DD
    Dmitry D.
    13 July 2020 @ 09:47
    Interesting conversation and ideas worth pondering for sure. I like the "national wealth fund" concept and superficially it does make sense (i.e. math sort of checks out), however assumptions that underpin it (i.e. how easy the 4-6% returns are) do not really work in my mind. Such returns were made possible in a very large part by asset price inflation (i.e. P/E mean expansion that Mike Green is imho spot on about) and are from this point in time not plausible (in real terms at least). Interest rates are at zero, corporate profits have not grown for years (RUT is zombieland pretty much) dividends yields are ca 2%, leaving capital gains as the only way of generating returns. The issue with capital gains though is that realising them (which you will need unless this wealth is going to be just a number people can see on the screen and feel happy about) requires selling, which by construction makes high returns from current valuations not sustainable (unless economy somehow takes off suddenly).
    • DD
      Dmitry D.
      13 July 2020 @ 11:38
      A couple of further thoughts on this: 1) Very hard to see funds going anywhere but a passive-type structure (target-date funds?). Plenty of reasons for this, from lobbying power to not being seen as "enriching the rich" (i.e. fund managers) and perceived success of passive vs. active. In the end this only exacerbates the passive investing issues Mike Green talks about and only brings the ultimate reset of the system closer. 2) Such as asset pool (let alone multiple pools) due to its size would distort the markets immensely (even if we unreasonably assume no front-running or any sort of exploitation) affecting the possible returns even more.
  • SB
    Stewart B.
    13 July 2020 @ 09:06
    I love it when people cast the net wide and come up with new ideas. I liked the idea of the sovereign wealth fund owned by the people. However what wasn't addressed was the issue of when people would be allowed to cash out. I suspect those who cashed out early and spent the money would end up a lot poorer than those who didn't. And now we are back to square one. An alternative is that when central banks do QE, instead of keeping the assets for themselves (as they currently do), they package them up and give them to the people. The idea of highly negative loan rates (as part of a dual system) is long term deflationary and also encourages longer low term growth. The past 20 years has been evidence of that, as loan rates (usually cost of capital) are a hurdle. By placing this hurdle very low, or negative, you create economic activity in the short term but in the long term extreme misallocation of capital.
  • sS
    sille S.
    13 July 2020 @ 08:14
    Negative interest rates on mortgages? Just buy and build houses? The cornucopia that gives and gives?