The Intelligence Squared Economic Outlook with Martin Wolf (Part 2)
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Welcome to Intelligence Squared, where great minds meet. I'm Head of Programming Conor Boyle. Today's episode is part two of our recent live event in London's Smith Square Hall with Martin Wolf as part of our Intelligence Squared Economic Outlook series in partnership with Guinness Global Investors.

Wolf was joined in conversation by journalist and broadcaster Johnny Diamond to discuss issues ranging from Trump's tariff threats to the great AI race and of course answering all of your audience questions about the economy in the year ahead. So without further ado, let's rejoin the conversation now. Now the one lever, the one lever. I think the problem is

We've got to the situation that I'm not completely convinced there is one lever because we are in a, what I think of as a structural slump and it's not clear what... Let me put it this way, it's clear there are things we could do but they would take really quite a long time to work. They are going to be really quite unpopular.

But I suppose that if I were going to be really pushed, what is the one thing they could do which would be relatively easy and might be relatively quick? I'm inclined to agree with the government, which I find always a terrible situation with any government, which is if we can't build things, much more things, houses,

factories, all sorts of... we just can't build infrastructure and so forth, we just can't develop the economy. So they are right to think that the complete ossification of our planning system and the difficulty associated with that in actually building things in places which are close to anybody else, which in England is everywhere, is

the single greatest obstacle to growth. I use the statistic which is, of course, in a way, cheating, but it's only sort of cheating. Since 2008, I think it was 2008, I think, the Chinese have built in, basically they built in 12 years, two-thirds of the entire high-speed railway in the world from scratch.

Now, they stole the intellectual property, I won't go into all that, but they built it all, and my god it works. Well, we have HS2. The Chinese have decided that in order to become richer, they had to build stuff.

They were right and they did and it works now create some problems for sure But if you can't build stuff you can't modernize so I would think that is the single most important Structural thing and the other thing is is much more difficult I just mentioned it in passing is we have the lowest savings rate in in the in the developed world and

We think we're very miserable, but we don't save if we don't save more. We're not going to grow what why why?

do we have such a low savings rate? That's a very good question. And I'm not fully because one obvious answer might be and it's particularly surprising because, you know, we have the most miserable state pensions. So you would expect British households which are saved more for that reason. But actually, the Germans and French say more, even though they have much better state pensions. It's so that's

puzzle we are a relatively unequal country in Europe so that again means that most of more of our income accrues to relatively well-off people and there's a general theory that if that happens you would tend to say more there isn't I think a completely plausible explanation it

The housing prices are probably part of it because so much more what people think of savings are just transfers to former property owners, as it were. But I think that's a pretty big...

feature of the British economy and that means we are overwhelmingly dependent, not overwhelmingly, very heavily dependent on foreign savings for investment. And that then also affects fiscal sustainability.

But anyway, I would say being able to build stuff is probably a necessary condition. But of course, it's also politically dynamite and we'll see how this goes. Thank you. I'm going to take a question that's coming online from Carrie Supple. Is there any nation in the world whose economy the UK might try and emulate where young people have more opportunities, rework and housing and which offer some hope? I'm not sure you're offering very much hope, Martin, but do your best.

I tend to think, and I won't go into detail, but the most interesting economy with some really smart ideas, and I know who put this together, is close to the richest economy in Europe, and that's Denmark.

And they and it has a generally flexible labor market superlative education it innovates crazily just look at these Remarkable anti-obesity drugs which came out of it. It is Relatively dynamic and it still provides absolutely superlative public services and has higher taxes than we do so

And the other one, which is bewilderingly successful, and it's not even more anymore as far as I can see, mostly because they look so well after the money of tin pot dictators around the world, namely Switzerland. And I think...

The Scandinavians, well, Danes, and we spend far too much of our time looking at France and Germany. I think one should look at the really clever small countries and ask them whether we can learn something. And in both cases, so from Denmark, I think we can learn a lot about labor markets, educating, training. And Switzerland is a miracle of decentralization.

You know, they have actually done decentralization because they've always had it. But if you go to Switzerland, you ask, well, why does everything have to be decided in London, in a country vastly bigger? The Swiss decided a lot of stuff at the cantonal level, and the cantonals are tiny. And by the way, it's the only country in Europe that's richer than America. One more question online, and then we'll come to the audience.

Should we have confidence in Rachel Reeves? Will she have her job by the next election? Well, it's very, very brave to be an economic forecaster and one makes one fool of oneself all the time. But I'm very, very happy not to be a political forecaster. So my answer to that is I have absolutely no idea whether Rachel Reeves will still have a job by the next election. But my general view is

Chancellors don't last. The exception was one who was truly unsackable. I was going back, Gordon Brown and George Osborne very sick. I mean, it was the inverse. The prime minister and the chancellor were codependent for different reasons. So the answer to my mind,

Given the majority they have in Parliament, one has to assume that Keir Starmer will last. I may be wrong. Labour isn't as ruthless as the Conservatives about getting rid of Dudley. So I think he will last. And as far as I can see, and this is based not on personal observation, but everything I'm told, Keir Starmer and Rachel Reeves are codependent.

So my inclination is to think that unless there's a catastrophe or she's just had enough, she's going to be here at the next election. There was another part of the question. Should we have confidence in Rachel Reeves? Do you? Well, I think I see nobody around on either party, I'm afraid, who is obviously better.

Okay, let's go to the audience. I'm going to go right to the back. There's a gentleman at the side, at the sort of back there. So we'll start with you, sir. What sort of difference would it make if this country entered into a customs union with the EU? Do you think that's possible? Here at the front as well. I don't want to ignore the front. I'm a town planner, but don't hold back.

Currently, we build about 200 homes a day across the country. 1.5 million homes by the end of the parliament. That's 800 homes a day. It's possible to do it with AI and streamlining of the planning process. But what it'll do, it'll push the country to vote for Farage at the next election. Which do you choose?

Okay, and I've got, if you could just race the microphone here, we'll take a third question. Yes, I go to Dublin quite often, and I notice that it's absolutely booming and flourishing, and they have a 15% corporation tax rate. Question number one, I've got two questions. What would you think about us reducing the corporation tax rate to that, to actually raise more revenue? Second thing, we've gummed up our property transaction rate

world by having very high stamp duty rates. Again, what do you think about getting rid of stamp duty? And again, the rate of transaction goes up and tax goes up from all the activity. Any comments? Thank you very much. First of all, on the customs union, Martin. I think that's fairly straightforward. I think I've already heard that we should rejoin the customs union. I think if there's a trade war in which the only issue here is

I think there's going to be a trade war between the US and the EU for sure. It is possible that Mr. Trump, being who he is, will say, "I don't want a trade war with the UK. After all, that's where my mother came from. Who knows?" And if we are in the customs union, we'll be part of the trade war because we have the same external tariff.

And if we aren't, we won't. But other than that, short of rejoining the single market, makes sense. I think rejoining the customs union makes pretty good sense. But right now, there are risks out there, which I just mentioned, the Trump risk, which might make it sensible for the government to wait and see. Okay. There's a question about housing and Nigel Farage.

Well, I understand the question. I think I understood it. To say if the government succeeded in building, was it 1.5 million houses? Yeah.

which it won't. But if it does, then it will be so unpopular that Nigel Farage will win. There are so many reasons why the government will be so unpopular that Nigel Farage will win that I'm not sure where that fits in this. And my own view is any country that thinks Nigel Farage is an appropriate prime minister deserves what's going to come to it. But you are saying something important

which is the core of politics, which is we have decided as a country to increase our population very substantially, mostly through immigration over a long period. We also have young people who want households of their own and because we are an older society there are more households per number of people than there used to be.

We are a relatively small country though. There's actually plenty of land and the result is that if we want to build housing for all these people to live the way they sort of want to live Then it's going to involve building a lot of houses in places where people would rather there weren't any houses so we have to make a choice about who gets miserable and

there will be the one group of miserable will be youngish people don't have any real hope of getting on the housing ladder living cramped quarters and all the rest of it and but

Middle-aged and older people will have continued to have their beautiful views and they won't be ruined and the other way around Which of these will have more vote produce more votes from Nigel Farage? I really don't know Because I think it's perfectly possible that the young people who won't get all these house get housing Might also do this in fact pretty obvious they won't but I have a general view that

Perhaps this is because I'm in a fairly comfortable position, which is any country that prefers the old to the young is doomed.

So my general view, no, doesn't mean we don't kill it, we look after old people, but allowing old people to determine whether, old people in nice houses to determine whether we build more is suicide. So of course it might be sensible to control immigration, that's another subject which I'm not going to go into. So my general view is we're

damned one way or the other, but if we're going to have to choose it, I vote for housing people. Not every square foot of land in this country is something of glorious beauty. I'm particularly unpersuaded that the Greenbelt round London is full of absolutely glorious beauty. But anyway, probably my most controversial remark. So as far as I'm concerned, the government has to choose development, but I understand

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And then we've got corporation tax. We have an avid tax cutter here with corporation tax and stamp duty on the block. My view is we have a corporation tax in which, unless they've changed it, I don't think they have, investment is fully expensed. And that's a pretty big incentive for investment at least.

But the key part of what the Irish did, and I admire them for it, is they made Ireland the offshore center within the EU for a very sizable group of crucial foreign investors, namely American companies, particularly in the tech business and in the pharmaceuticals business. And good for them.

But Ireland is a very, very small country. And basically, what is the population of the Irish public? Four and a half million? Somebody will take that straight. And the population of Britain is getting towards 70.

Generalising from Ireland, which is where the crucial thing is the attraction to foreign investment to Britain, is I think extremely unwise. It's not going to have the same effect. And the problem is if we lower our tax rate to that level, then we are, I

I think it's very implausible that revenue unless we because we're almost halving the tax rate is going to compensate for that and So they're gonna have to find some other tax or cuts cut spending and that they're not going to cut spending Maybe they should but they can't and I don't it's not completely obvious what the other tax revenue is but I of course being a Henry Georges would go for raising land taxes and

which are the most neutral taxes, and it's not inheritance tax. It's something different. So in any way, what I'm basically saying, I don't think if we had Irish corporation tax, we can reasonably expect Britain to boom in the way that Ireland had.

But it's certainly debatable. And what was the... Stamped duty as well. Oh yes, stamped duty. There's a general principle, it seems to me, in economics which is unambiguous, that is transaction taxes are really bad taxes. So, because we want transactions to happen, we don't want them to stop them, because that's what makes markets reasonably liquid. So...

We've gone for stamp duty because we aren't prepared to raise land value taxes, and one of the symptoms of that is a council tax system which hasn't been updated since 1991.

which is insane and also grotesquely inegalitarian because basically land value is less taxed the more valuable the property. So I would get rid of all stamp duties and transaction taxes on land and replace them with land value taxes. Good luck getting elected afterwards. Yes. Well, I'm not convinced of that because actually the number of people who would pay much more tax as a result are actually a minority like me.

I am a staggering beneficiary of the ludicrous land value taxes in our country. I worked out that my tax on property is, I think, 0.1%. I think that's right. Yeah, 0.1%. I think that's pretty difficult to defend. Let us go back. Right, we'll get a microphone to you.

Thank you. Ann Cormack. Martin, you've used the words unwise, you've talked about advice, and my question to you is the degree to which your voice and the other voices of well-known or lesser well-known but really competent economists around the world actually get listened to and heard by those who make the decisions you've just been talking about.

I think we all would love to see a greater impact from you and others who think deeply and know well what needs to be done. Thank you, madam. And there was a, sorry, forgive me, a hand up over here. I've lost it now. Yes, sir. Very simple question. Do you think that Trump's policies might bring an alternative to the US dollar economy?

And we've got a I'm gonna bring you back here if I could bring the microphone back here and there's a lady over here Good evening. Could you forecast when you think base rate will be 2% or lower? Easy one there, right? Um, why don't more people listen to you Martin?

No. Are you heard? I think the answer to that is I'm so depressing. You know, it's not for nothing this is called the dismal profession. I want to talk about, well, that was, of course, because of Thomas Malthus. He was indeed dismal. I have a, I think it would be quite, I've always felt that it would be quite wrong to expect

great influence First because not that many people read the AFT let's be clear and some of them are relatively influential people But in the end governments have to get elected and my job is not to get elected So I think it's perfectly understandable that most of the time they ignore us. What is a little depressing is that

And I understand that somehow this is a serious question, is that it's very difficult to get the public debate on economic policy issues, which obviously have some degree of technicality, to frame the alternatives in a reasonably clear way. So we can't discuss them. And I don't know where... So in the debate we had before the last election,

we didn't actually, no politician got engaged in the question of, well, if you don't do what you now are going to say, what are the alternatives to achieve these desirable outcomes? And I think it's very, very difficult in democratic politics to get alternatives, like the discussion about building houses and so forth, debated in any reasonably rigorous way.

And I don't know any solution. There's a famous remark which all economists know from a former prime minister of Luxembourg who said that we all know what the right thing is to do, but we don't know how to get elected afterwards. And well, I have sympathy with him because I don't know how to get elected afterwards and I'm not brave enough to try.

So I'm afraid it's a bit depressing but one does one best and hope that some of this percolates to the debate a bit and Policy makers in these areas do think about this a bit and what the Alternative to the US dollar. Ah, well my I've repeated this so often you can't beat something with nothing and so

Of course the US can destroy the dollar if it really tries, but I don't think it's trying hard enough. The US, all the convertible currencies of any significance that aren't the US dollar are the currencies of US allies or maybe nowadays there are no US allies because the US doesn't think it has any, but that's the reality. China is not trying to create an alternative to the dollar.

because it doesn't want to run an economy which has the characteristics of the US. So the RMB, the Remlingby, is structurally, as it were, relatively illiquid. That means there are a lot of purposes for which an international currency is useful that the RMB simply cannot provide and won't. I've been arguing that for 20 years and it's not going to change.

It will be used as a vehicle currency for trade, not finance, with countries closely connected to and doing a lot of trade with China. And that role will increase, but it will remain relatively modest. There is no huge suite of liquid financial assets that can really serve as reserve assets, either for individuals and households or for governments.

And so I think the RMB won't be there. And if you look at the rest of the world, the only area that could credibly provide a reserve currency is the eurozone. It's a multi-currency zone. It doesn't have a single fiscal policy. Its security is ultimately still dependent on the US. And it sort of looks to most of the wealthy of the world somewhat fragile, and though there

some it's possible to imagine some shift to using the euro but replacing the dollar I mean that's

That's a really huge stretch, because the US is, after all, in the end, the world superpower. So it would take a revolution. And my own view is that if that revolution ends up with revulsion from the dollar, we won't have a replacement. It will be much more complicated than that. And by the way, it's not going to be Bitcoin.

And the last one, when is the base rate going to go to 2%? Or was that the question? I thought it was when is inflation going to go to 2%. I think it was the base rate. It was the base rate, wasn't it? Ah, now that's a nice question. Well, the economy really has to collapse to get there.

and I certainly would never rule that out because economies do from time to time and the turbulence in the world is now large enough for such effects to occur. Really big question, let's go back to the sort of basic economics here. What

And there's been a fascinating recent debate among economists, which is not just UK specific, which is what is the neutral rate of interest now? For a long time, it seemed to be zero, which was essentially a negative real rate. And that was the conditions after the financial crisis. But I think we probably got past that.

that the neutral rate is a positive real rate. And unless inflation falls well below 2%, a positive real rate is 2% plus. And that means maybe in a really big recession, we might get to 2%.

But we would have to well we would have to get There you know really big recession What would cause a really big recession in this country the most obvious thing is? explosion of inflation in the US leading to a massive tightening of monetary policy in the US and That would tend to create a global recession

that would affect us. So external factors will be crucial. But so let me put it this way. I would say 2% interest rates in the UK short-term central bank rate in the next three or four years is very much less than even. My guess would be, looking at the world and all the uncertainty, it may be

one in three one in four probabilities so i certainly wouldn't rule it out but it doesn't seem to me at the moment

But the world is so unstable at the moment, it's certainly not impossible. And it will mean we are in pretty serious trouble. I'm going to have to call a halt. I'm sorry, but our time is up. A few words of thanks. Thanks to you and thanks to your questions in particular. It was absolutely fabulous to have them. I'm sorry we couldn't get through all of them. Thanks to Guinness Global Investors for enabling this to happen. But most of all, thank you, Martin. It's been an absolute pleasure. Thank you so much.

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