1. AFRGA1 A052
Lunch with The AFR
THE WORLD
ON MARTIN
WOLF’S PLATE
The Financial Times economics guru is staggered by how
little we have wanted to learn from the catastrophe of the
global financial crisis, writes Kevin Chinnery.
Martin Wolf says free-market winners need to pay to keep society civilised. PHOTOS: PETER BRAIG
He had thought of entering
politics but, ‘I tend to think
everybody is wrong’.
ARIA
1MacquarieStreet,
Sydney
Three-courseset
lunch@$89each
2sashimiof
yellowfintuna
2ConeBay
barramundiwith
grilledcabbageand
smokeddulse
1raspberrieswith
chantillycreamand
vanillameringue
1milkcurdpanna
cottawithgrapes
andmintsorbet
2Apanimineral
water,$24
Tea,$9.50
Coffee,$9.50
Totalwithtipand
charges,$193.97
(Nodessertcharge
duetolateservice)● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●
M
artin Wolf is the
doyen of global
economics
journalists. His
weekly Finan-
cial Times
column, which
also runs in The
Australian Financial Review, dissects the
performance of the world’s top economic
policymakers in prose of elegant and some-
timesmercilessclarity.Fewareletoffeasily.
Normally, he would be sitting on the
other side of this table, grilling a central
banker or a Nobel laureate. It is vaguely
unnerving to play the interviewer to him.
Don’t worry, he confides: ‘‘It’s easier asking
the questions than it is answering them.’’
We have come to Matt Moran’s Aria res-
taurant next to the Opera House, easy for a
visitor arrived from London that day to find.
Wolf might be lead columnist at the
house journal of the world’s financial elites,
but he has written a hefty book called The
Shifts and The Shocks, in which he says
these people have collectively screwed up.
They did so with ‘‘complete insouciance’’
before the global financial crisis in 2008, he
says, and have failed ever since to manage
the recovery as well as they could have.
He is keen to order. Sashimi to start, then
barramundi for both of us. I offer wine. He
willhaveaglassofwhite,butgladlychanges
his mind when I don’t join him.
TheGFChasbeenthecrisisofmylifetime
and his, I suggest, badly shaking the post-
1945 era of prosperity we were both lucky
enough to be born into. That makes it feel
personal. I go through some of his book’s
damning conclusions.
The banking sector has produced serial
crises since it was unchained in the 1970s
and 1980s, Wolf writes, and ‘‘no industry
should be able to inflict damage equivalent
to a world war’’ as it did in the GFC.
Globalising finance allowed the ‘‘transfer-
ring of excess savings of Chinese into the
wasteful consumption of Americans, which
made nosense. To generate ahuge financial
crisis as a result was worse than senseless’’.
The crisis was an intellectual and moral
failure of the elites that now threatens their
political legitimacy, he concluded.
‘‘It’s an angry book,’’ I say. ‘‘Yes,’’ he
replies, ‘‘surely angry with myself because it
ended up so much worse than I thought.
‘‘Here was a financial sector that had
enormous power and influence, that had
been fantastically mismanaged in a way
familiar from 19th-century writings but
which I assumed, in more modern times,
could not recur,’’ he says.
‘‘It was a huge shock.’’
But bad as the crisis at the banks was,
Wolf thinks the GFC has masked deeper,
more disturbing problems of declining
investment and productivity that were
already bedevilling Western economies.
He squints through the midday glare at
theHarbourBridgeinfrontofus.Thatwasa
massive Great Depression-era investment
project, he remarks. It’s his theme: growth
inthe worldeconomy isstagnant anddisap-
pointingnotbecauseitissinkingindebt,but
because it is awash in a glut of savings for
which there is nowhere to safely invest to
get things going again.
‘‘It is very clear to me that the engines of
the world economy have not been working
properly for quite a long time – that is, sup-
ply and demand,’’ he says.
Wolf tackles the beautifully sliced
sashimi with just a fork. He eats quickly and
keeps conversation going without missing a
beat – a valuable skill for a journalist –
which I admire as I struggle to keep up.
The private sector in the advanced coun-
tries is sitting on huge profits and savings,
he goes on. But there is nothing to unlock
them for better use. There are no great big
innovations which need enormous capital
investment. Workforces are ageing and
shrinking, and often now work in services.
‘‘There are real reasons why our corpor-
ate sector does not see any need to invest a
lot,’’ he says. And demand growth is even
weaker than investment growth, he says,
with one feeding off the other.
‘‘In the developed world we don’t have
much productive use for our savings. And
that has meant that in normal times with
normal interest rates, demand is insuffi-
cient. So what we do is create abnormal
times with abnormal credit growth, which
then blows up, and that seems to be the
cycle that we are in,’’ he says. ‘‘The only way
we get consumption to grow adequately is
all these bubbles.’’
Wolf says that the genuinely strong peri-
ods of economic growth in the 19th and
early 20th centuries, and into the 1960s, all
had the same thing: ‘‘a tremendous invest-
mentdynamicintheprivatesector...ahuge
investment boom to get the motor going’’,
even if it is not clear what caused those
booms to happen.
It certainly isn’t there now. ‘‘What’s pecu-
liar is that there has been no investment
boom in the developed world for a very long
time. The only investment booms are in
housing, which is very nice but it doesn’t
make us any richer.’’
No longer needed or valued, our savings
have become flows of hot, cheap money
destabilising the economies they crash into,
from the West into Asia in the 1990s, then
from Asia into US houses, and more
recently into a bubble of everything.
As our plates are cleared, Wolf starts
quizzing the maitre d’ about the barra-
mundi. Excellent eating, but he has never
seen it anywhere else. Is it found in Indone-
sia, perhaps? These fish came from Broome
in WA, he is told; though he has guessed
right, it is also common in Asia.
Things might have been different if China
had absorbed our surplus savings.
‘‘You could perfectly imagine another
world history,’’ Wolf resumes. ‘‘China
invests 50 per cent of GDP, it saves another
40 per cent of GDP, and imports the rest in
foreign investment. All the other countries
run huge surpluses, and accumulate large
claimsontheChineseeconomy.Thatwould
be a perfectly normal economic relation-
ship,’’ and it’s how America and Australia
were financed.
But China is not normal. It would never
allow foreigners to own its development.
Instead, he fears, China has just copied the
West’s mistakes –a theme he wouldstress if
he were writing his book again.
‘‘Itreliedludicrouslyonexports,savedtoo
much. When the crisis hit, it had a tempor-
ary, distorting credit boom. It has slowed.’’
Greece’s long agony is now nearing a
head. ‘‘Greece is proof that the euro was a
very bad idea, at least when it was extended
to countries so profoundly different from
those of core Europe. It’s not obvious
whether it should seek to stay in or leave.’’
I have never met anyone who can speak
(and presumably think) in fully formed sen-
tences at this sustained pace. Wolf came to
journalism late, nudging over 40 in 1987,
after a decade at the World Bank, and then
at a London-based trade think tank.
He had thought of politics, but decided he
would be bad at partisanship: ‘‘I tend to
think everybody is wrong.’’
It made a fine qualification for chief
leader writer at the FT, and then chief eco-
nomics commentator.
The post-1945 prosperity was the first
time in history that the common person, at
leastintheWest,hasbeentreatedatallwell,
I venture. Now that idea seems threatened
by continual financial crises, and with the
spectre of technological unemployment to
come.
Even Marx’s prophecies have been
recently dug up again, I say: on the lines that
globalisation and digitisation means capital
may not need labour as it once did.
He says globalisation has benefited lots of
people in the developing world, and lots of
upper-middle-class and upper-class people
in the developed world. But not the middle
and lower classes in the developed world.
‘‘If you looked at the world economy in
1970, there had been tremendous growth, a
lot of which had gone to the Western work-
ing classes who lived in a few relatively rich
countries which shared income relatively
widely, and had developed welfare states.
‘‘Their incomes did not reflect any extra-
ordinary talent or knowledge. They were
just fortunate to live in countries that had
the know-how, and lived off the rent of
scarce know-how, as it were.’’
But that know-how has been globalised.
‘‘It is as easy to open a car plant in China as
in Detroit,’’ he says. ‘‘In a global sense,
inequality has fallen.’’ But there is more
inequality within Western societies. Those
with knowledge do very well, especially in
the financial sector. Others are left out.
‘‘Globalisation and technology have given
so many human beings opportunities they
would not have had.’’ But the downside is
‘‘enormous stresses on Western societies,
pulling them apart and making them less
functional, less pleasant in pretty obvious
ways’’. What should be happening, he says,
‘‘is that we go back to the beginning of eco-
nomics,thatthegainersshouldcompensate
the losers ... they should be prepared to pay
some of their winnings so that society
remains civilised’’.
It now surprises Wolf that we have ‘‘gone
through the catastrophe of the GFC with no
new questioning of economic models’’.
When stagflation in the 1970s blew up the
Keynesian world – which as he says, meant
hightaxesand,extraordinarily,amoreegal-
itariansociety runagainstthe directinterest
of elites – then the new model of monetar-
ism and free markets was ready to step up.
He did not see it at the time, he says, but
that intellectual change suited powerful
interests.
‘‘No comparable process has taken place
this time,’’ he says: the GFC has not changed
how we think about society because there is
no countering political force to push an
alternative view. That’s less to do with eco-
nomic thought, he thinks, than who is
powerful.
Giddy with that whiff of insurrection
from the top of the pink paper, I let Wolf
return through the sunshine to his hotel. W
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The Shifts and the Shocks: What We’ve
Learned – and Have Still to Learn – from the
Financial Crisis, Allen Lane, $49.99.
AFR4-5 July 2015
The Australian Financial Review | www.afr.com
52
Weekend Fin