The world is in crisis by why the economy should have a moral purpose
In this podcast, journalist Boni Sones interviews Professor Ashoka Modi during his recent visit to the University of Cambridge. As a former senior IMF official, Professor Modi is the author of the excellent study on the euro. In this podcast, he drills down on a number of false claims about the negative impact of Brexit.
Ashoka Mody is Visiting Professor of International Economic Policy at Princeton University and author of Euro Tragedy: a drama in nine acts (Oxford University Press). His book was voted best economics book of the year in 2018 by the American Association of Book Publishers. His new book “India is Broken” is due out in spring 2023.
In this exclusive podcast recorded during his visit to Cambridge on the same day as new UK Chancellor Jeremy Hunt canceled much of Prime Minister Liz Truss’ controversial mini-budget, Mody updates our listeners on the state of the economy Britain after Brexit. He was in Cambridge to deliver his article on: “Viewing Economics Through a Moral Lens”.
Mody previously told us that while he thought leaving the EU would lead to a “short-term” loss of trade with the UK and lower GDP growth, he didn’t think it would last long.
He said he believed the EU had failed to keep up with growth in other parts of the developed and developing world, and that this had led to protest and anti-establishment movements and fragmentation political systems across Europe.
A few turbulent years ahead
In this new podcast, he thoughtfully tells us why he thinks the injection of liquidity into financial systems in response to the Covid and Ukraine crisis, and the associated escalating energy costs, will lead to “a few years bumpy rides” and longer-term problems for the EU and UK economies.
It suggests what can be done in the longer term to create a moral society where governments take joint action and show empathy to solve the problems that climate change poses to the world. He also gives us a glimpse of what his new book ‘India is Broken’ will say about the growing Indian economy and the serious social problems it faces. He praises the Biden administration in America for pursuing moral purpose and addressing climate change.
- On the UK economy and Liz Truss’ original mini-budget, he says it was ‘madness’ and trickle-down economics has: ‘tortured the data but she didn’t confess’. He says it was done “in a sloppy way”.
- On liquidity, he says: “Policymakers are quick to inject liquidity, but private actors have withdrawn it.
- The current economic turmoil: ‘is a commentary on the misguided policies of the West and has nothing to do with Brexit’.
- On Leveling up in the UK, he says: “my main regret is that it never happened”.
- The idea that Brexit was the root of Britain’s economic ills: ‘just isn’t there in the data’.
- He says it’s ‘bullshit’ and ‘it’s not true to say that’ statistics show the UK economy is 70% the size of Germany, but 90%. If that had happened, we would have witnessed “complete chaos”.
- “I looked at the IMF data and in fact the UK economy has done better than Germany since Brexit.” UK GDP per capita fell to 85% of the German level in 2020, but outside the EU it has recovered to 90%.
- The world is going through a period of extraordinary turbulence, with Covid and Ukraine and high inflation and which “will continue for the next two or four or five years”.
- The energy shock has greatly amplified the pre-existing fragility of the German growth model. Germany will have to “go through a painful transition”. Germany’s role as the driving economy of the euro zone “is in doubt”.
- The euro’s fault line has “always run through Italy”. The ECB financed the Italian government. If Germany were to withdraw this cash from the Eurozone, it would highlight the financial fragility of the Italian government. “The euro zone is at a turning point”.
- “We need to think about where we are, and I think the world needs to pay a lot more attention to the climate crisis than it did at COP 26 last year.” We need to create a better world for ourselves and “prepare for it”.
- “I think we’ll have to hold on but I don’t know how bumpy it will be. A great depression like the 1930s, I think, will not happen. But “small mistakes will lead to big consequences”, although this is still very unlikely.
- “It will be bumpy and people will feel the pain in terms of higher inflation for a while. Job prospects will be precarious and there will be a general feeling of anxiety.
- It will be dealt with by ad hoc measures but “the cash injection, I hope, will not happen”. It “only adds cost for the future”, so I’d rather we deal with that than that.
- “I think we lived in a world of fools where we thought we could have whatever we wanted and needed to deal with the fact that we can’t.”
- “We have ignored for half a century the notion of public good and equity. And that’s what’s missing. »
- Tax cuts break social cohesion and the rich get richer. It is a policy based on “slogans” rather than on facts.
- “In my new book ‘India is Broken’ it shows that India is not focusing its politics on people’s lives and livelihoods. A moral economy is desperately needed.
- “The climate crisis is the deepest symptom of our moral crisis.” “It says I don’t care about you or future generations.”
- “There is a centralization of power that moves away from the people. People need to have a say and be able to act with confidence and not be deceived.
- The magazine The Economist risks being wrong in its prognosis. India’s health and education systems are very poor, as is the environment. The justice system “breaks my heart” when we hear about the Under-Trials.
- “Joe Biden in the United States is the world leader that I look up to. I didn’t always think that. People need to have space to breathe. I think Biden really believes in that sentiment. He’s invested in l money in climate investments, health and education and .to see that someone openly espouses this morality is admiral.
- If Biden fails: “the world will have lost a moral leader. I’m putting my money on Biden at this point.
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