• Jonny Ainslie

Martin Wolf - The economy is a story... a very partial and limited one.

I talk to the Financial Times' Chief Economics Commentator Martin Wolf about changing peoples' minds, the fraught relationship between money and power, and how to write about it.

The influence and impact of Central Banks on the global financial recovery is an indicator of how closely tied they now are to our world’s political leadership. Has Western policy-making become the domain of finance rather than the people?

Our economic system has a very, very large financial component. It’s not new, but in the last 40-50 years the financial component has become much bigger in relation to individual economies, and it’s become global. It was global in the late 19th and early 20th centuries too; but in some important respects it’s more global, and bigger than ever before. So if you have a financial crisis, a breakdown of this system, then any attempt to deal with the consequences must pay attention to the financial sector. How to deal with it, how to stabilise it, how to get round it, in order to get a recovery.

And the dominant aim of governments and central banks is to secure an economic recovery, one way or the other. In 2008 the largest part of that effort was mounted by central banks because the financial and monetary system had broken down. You could say that governments knew their people would be very unhappy if they didn’t secure recoveries – and this was the instrument to hand. I don't think it's reasonable (to divide) the financial sector and the people, they operate on very different levels; politics is driven to satisfy the people in some sense, but how this turns into policy, that’s something else.


Is your objective to inform your readers with the latest data, or change their minds?

Absolutely both. A column is a piece of opinion; opinion consists of analysis - explaining what’s going on, and recommendation. Now the balance between analysis and recommendation varies over time and over subject but in my columns there’s always a mixture of both. And I think that’s basically true of all columnists. In a period of extreme crisis, such as experienced in 2008 and early 2009, or again in the Eurozone crisis, the recommendation part becomes more urgent, more pressing – the language tends to change.

I think if you’re very eloquent and emotional, you will motivate your side – but you will put off everyone who disagrees with you.

You’ve been uniquely placed to personally engage the world’s policy makers, do you feel as if they listen to your recommendation?

Probably the truth is sometimes yes, and sometimes no. They usually listen if what I’m telling them is sort of what they want to do anyway. Changing people’s mind is very rare. But you might get to add a bit of urgency. A more plausible view of what I’m doing, is that I’m not changing the minds of the people making the policy – but I’m providing a story, or an analysis, that makes it easier for people to understand what’s happening. Quite often I’m also addressing the people whose opinions matter to the policy makers, the people in markets, the people in business, the intellectuals and academics etc. It has to be remembered that my readership inevitably is a small one by global standards, and it has very specific characteristics associated with the readership of this particular paper. They are the people, if you like, through whom the policies will work.


This relates back to the first question, because you don’t talk directly to the average UK citizen.

Well crucially, the majority of our readers are non-UK readers. The UK is probably our single biggest market, but we really do have a global readership. That’s why I’m as involved in writing about the Eurozone crisis, Japan, the Americas, as I am here. So in some sense we’re a bit of an outsider everywhere, as well as a bit of an insider. We know who our readers are. The readership of the FT is very different from the Guardian or the Telegraph, let alone the Mail or the Sun. It would be ridiculous for me to pretend that I’m addressing the public at large, because the public including a large part of the educated public – have no idea what the FT is.


Do you think that the public do need to be engaging with financial journalism to some extent?

It would be desirable. This is part of a broader problem about the sort of world we now live in; it’s not reasonable to expect people to be expert in everything that affects them. I’m not, and nobody is. So we all specialise for our professional activities. And in other areas we try and have an understanding as a citizen, and even that inevitably varies by virtue of your background. Now finance is very important, it affects everybody; it would therefore be desirable if everybody understood how it works. The truth is though – even the world’s experts don’t really understand how it works, and I would include me in this. Expecting the vast part of the population to understand what causes a financial crisis, what the options are in dealing with one, what can be expected of a government in this situation, what are the costs… I just don’t think it’s reasonable to expect most people to have an informed view, most of our readers find it pretty difficult. Often I find it pretty difficult, and I’ve spent most of my life thinking about these things.


I do think this is a general problem with democracy, and I believe in democracy very passionately. We want the people to be engaged in the decision-making process, but we are running spectacularly complex systems of many kinds that no one can possibly understand. Finance is one of them, by no means the only one, and to some degree you have to rely on professionals. My debate is a debate amongst professionals; that’s who reads us, and that’s inevitably the level I write at.

To inform, educate, and entertain - that's what we're doing

You’ve written powerfully, that “(our) aim must now be to manage capitalism so that it supports democracy and to manage democracy so that it makes global capitalism work better for all. Today, we are making a mess of this marriage.” Does this come close to the ideology driving your work?

It’s not what I would have thought thirty years ago. To be precise, I joined the paper in ’87, and I didn’t think then that the relationship between our political and economic systems would become as fraught as it has. Maybe I should have, but I didn’t. So I was tending to focus on things that I thought would make the world economy better for more people, and I think on average, I was right. But some rather significant problems emerged in the process which actually affect the operation of our political system. Certainly since the financial crisis, the quote of mine you’ve given me does describe fairly well what I’m most concerned about. But it would be wrong to say that it’s been the dominant concern throughout my journalistic career. I basically assumed that the political system was more stable than it turned out to be.


Following the Oxfam scandal, Theresa May has been under pressure to cut foreign aid from our 0.7% of GDP pledge. Last year, you supported her resolve to maintain this pledge in her manifesto, writing that “The UK can afford this. It would redound to the country’s credit. Above all, it would be the right thing to do”. On your balance sheet, how do you formulate your highest priority?

If you’re asking me: ‘what is my social welfare function?’ as we used to call it when I did economics way back when… I think of welfare as having two levels, crudely. The first level is that of the individual; individuals matter, they have rights. Below that there are collectivities called nations, the fundamental political structures of our current world, and people in nation states have claims upon one another that, I think, are more important than on people in general. That’s quite important, most liberals aren’t very clear on this. That is what justifies, for example, having a welfare state in a wealthy country which provides benefits to fellow citizens that are completely unavailable to 90% of humanity. It is quite hard to justify. If all human beings are equally valuable, the British welfare state is indefensible. Obviously indefensible. Most people on the left don’t accept or understand the obvious point, but it is clear. So, for this reason it is inevitable, and I think, right, that the bulk of money spent by this country’s government raised by this country’s taxpayers goes to benefit the people of this country. I think it’s very legitimate to ask whether that’s completely justified – but I accept it.


There is a third level, which is humanity at large. I think the welfare of people at large matters, and that our government being a government of a rich country has an obligation to help poor people around the world. There are many ways we can do that, one of the most important through economic development driven through trade. But, I personally believe that aid, mostly development assistance but also humanitarian assistance, is a part of that picture. Providing 0.7% of our GDP, about a 50th of our total public spending, to support development programs seems to me to be the minimum we can do. So multiple levels.


What do you see as your greatest responsibility as a financial commentator?

We are a business, I am supplying a service people pay for. I have to entertain people. I hope I do so by telling people things that are interesting, and so far as I can guarantee it, true. My arguments should be logical, the evidence that I use should be at least authoritative, not made up, and based on the best sources. There’s this wonderful Reithian BBC motto (to inform, educate, and entertain), I suppose that’s basically what we’re doing.


Do you preference eloquence or clarity when composing your work?

I don’t think these are substitutes, but I would say I’m probably better at clarity than eloquence. Since I’m arguing about economics, if my arguments aren’t clear they’re sort of worthless. I think of eloquence not in the sense of trying to reach people’s emotions, I think of eloquence as choosing the right words, the right expressions, to convey one’s idea in the clearest possible way. They’re complimentary. I’m not trying to work up people’s emotions, even in this narrow world I’m not trying to be a rabble-rouser.


There have been times I’ve tried to make people emotional. During the very worst of the financial crisis in September and October 2008, I really did try to frighten people. I thought this was a fantastically dangerous period with a real chance of a 1930’s style meltdown, and I wanted to convince people that it was that frightening. There was a certain degree of emotion in the writing, similar to eloquence; but that’s not normally how I write. I try to have a certain distance, to be cool. But that’s an important matter of style. I think if you’re very eloquent and emotional you will motivate your side – but you will put off everyone who disagrees with you. And I think the best chance you have of persuading people who disagree with you is being as reasonable as possible.

A willingness to change one’s mind is simply a reflection of thinking about what’s going on.

You have remained steadfast in your opposition to Brexit.

I’ve tried to be rational in the way I approach it. Though I’ve not always succeeded…


What’s it been like as a journalist writing in the face of public opinion?

No problem at all. The FT is read by people who overwhelmingly agree with us. I don’t pay any attention to criticism of me, I don’t read it and I don’t care about it. In this sort of job you have to decide this is what you’re going to do. And I’m not engaged in any other aspects of contemporary debate. I don’t tweet, I don’t read an infinite number of other writers – I don’t think that’s terribly useful. The fact that I have a strong, clear view on Brexit and lots of people disagree with me means nothing to me at all. But that is an exceptional issue because it’s about my own country. And it’s quite existential. I found knowing how to deal with the Trump phenomenon much more difficult. It’s been a big part of my writing over the past two, three years – he’s probably much more important than Brexit, it’s very important to more of my readers, and I have very strong views – but it’s not my country. And as a global paper, how we engage with really significant debates that are not British debates is actually a bigger problem to me than Brexit.


You are also unafraid to change your mind. After being one of financial journalism’s most energetic proponents of globalisation, you’ve returned to the Keynesian ideology of your youth, spurred by the consequences of the financial crash. How did this metamorphosis take shape?

I’ve always felt that I’ve held core values throughout my life that undoubtedly go back to my parents, and these are broadly about personal freedom, democratic governance, free markets, free-ish markets. That’s value system. Then there’s the question of what works in any particular time. So I grew up as a Keynesian economist, which seemed to work very well in the fifties and sixties, and seemed to produce a combination of freedom and prosperity. Then we had the series of crises in the late 60’s and 70’s which forced many of us to reconsider some assumptions about managing the economy. The sort of economics I had learnt clearly wasn’t workable once inflation got to 25% in Britain. So you change your ideas.


And then over time it began to become obvious – starting with the Asian financial crisis, that the new financial system was proving very dysfunctional. Then we were back in a true Keynesian situation – we were back not in the 70’s but in the 30’s. We had collapsing demand, a risk of deflation, private sector credit collapse, so it was a Keynesian world and we moved back to it. There aren’t any permanent truths about the structure of the economy, structures change extraordinarily profoundly. So I think a lot of the changes in my view are not changes in core value, they’re about changes in what is relevant now. If an economist is not prepared to accept what is relevant now is not what was relevant fifty years ago, then I think the economist is not actually thinking. A willingness to change one’s mind is simply a reflection of thinking about what’s going on.

In a fundamental, inescapable way – we never understand the economy. It’s not only a story, it’s a very partial and limited one.

You’re now a veteran chair of the World Economic Forum’s Global Outlook sessions at Davos; where you juggle the world’s most important central bankers, private executives, and financial ministers. In 2014 you introduced Germany’s Minister of Finance Wolfgang Schäuble as a “decisive figure in the Eurozone story”. Is this how you see geopolitics: both as a narrative, and with great figures with the power to influence it individually?

The first question is: ‘Do individuals matter?’, and unambiguously in economic policy-making the answer to that is yes. A limited number of people can achieve far more in economics than in politics; because, there aren’t that many levers to pull. So in any major economic upheaval in the last 80-90 years, whoever’s the chair of The Fed (Federal Reserve) has played a gigantic role. There are no exceptions. In Europe, since they created the Eurozone, Germany has emerged as the dominant player so the German Chancellor, the German Finance Minister are decisive figures. The power of such individuals usually emerges in crisis. It can also emerge in shaping the future of trade policy, the future of financial regulation, things decided by remarkably few people.


You might not like it – although it’s not the same thing as the economy being concentrated, the economy is everybody. But Economics concentrates policy levers, of which there aren’t that many: regulation, monetary policy, fiscal policy, in remarkably few hands. So Schäuble was decisive, for better or for worse. Paul Volcker was decisive. Ben Bernanke was decisive. Ben Bernanke was absolutely decisive – you could imagine The Fed Chair acting in completely different ways through 2008/2009 and the outcomes would have been entirely different.


How about the narrative?

Well, the way I think about the macroeconomy, is as a process working through time. Quite a disequilibrium process. You can think of a process as a story, a very complex story. In order to make sense of it, you have to tell yourself a story, if you like – that’s a narrative. So I have a sort of story about what’s been going on in the last thirty years. How did we get here, what happened to bring us here? I’m not saying my story’s complete – although I think it has some important elements in it. It’s clearly not a complete reality, because we will never have complete reality.


The economic system operating through time has two characteristics which make it impossible to understand: one is just inordinate complexity, unbelievable complexity, since it involves the interaction of literally billions of people through time, through essentially billions of markets – certainly many millions. And that’s the simple part. The complex part, is that everything is done as a result of decisions made by people in light of their view of what’s going on, and what the future holds. Nearly all the economic data that matters is what’s in peoples’ heads. And since we don’t know what’s in peoples’ heads, and they don’t even know what’s in their heads – we never really understand what’s gone on. If you look at September 2008, there was a panic. That’s clear. But that’s just an outside description. It doesn’t describe the interactions of all those people, whose views about what’s going on changed – which then changed what’s going on, which then fed back into what they were thinking about. So in a fundamental, inescapable way – we never understand the economy. It’s always not only a story, a narrative as you put it, it’s a very partial and limited one.

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