The World is in crisis by why economics should have a moral purpose

Ashoka Mody is Visiting Professor of International Economic Policy, Princeton University and author of Euro Tragedy: A Drama in Nine Acts (Oxford University Press). His book was judged the best economics book of the year in 2018 by the American Association of Book publishers. His new book “India is Broken” is to be published in Spring 2023.

In this exclusive podcast recorded when he visited Cambridge, on the same day as the new UK Chancellor Jeremy Hunt reversed much of the Prime Minister Liz Truss’s controversial mini-budget Mody updates our listeners on the state of the UK economy post Brexit. He was in Cambridge to deliver his paper on: “Viewing Economics Through a Moral Lens”.

Mody previously told us that while he thinks leaving the EU will result in a “short-term” loss of trade to the UK and a drop in its GDP growth he did not think this will be long-lasting.

He said he believed that the EU has failed to keep up with growth in other parts of the developed and developing world, and that this has led to protest and anti-establishment movements and the fragmentation of political systems throughout Europe.

A bumpy few years ahead

In this new podcast he thoughtfully tells us why he believes pumping liquidity into financial systems as a crisis response to Covid and Ukraine, and the associated escalating energy costs, is going to lead to a “bumpy few years’” and longer terms problems for the EU and UK economies.

He suggests what can be done in the longer term to create a moral society where governments take joint actions and show empathy to solve the problems that climate change presents to the World. He also gives us a preview of what his new book “India is Broken” will say on the growth of the Indian economy and the dire social problems it faces. He praises the Biden administration in America for pursuing a moral purpose and reaching out on climate change.

Quick quotes:

• On the UK economy and the original Liz Truss mini budget he says it was “madness” and that trickle-down economics has: “tortured the data but it has not confessed”. He says it was done “in a shoddy manner”.
• On liquidity he says: “Policy makers are quick to inject liquidity, but private actors withdrew it.”
• The economic turbulence at the present time: “is a commentary on the misguided policies of the West and nothing to do with Brexit.”
• On Levelling up in the UK, he says: “my main regret is that it never happened”.
• The idea that Brexit has been a source of Britain’s economic ills: “is simply not there in the data.”
• He says it is “bullshit” and “cannot be true to say that” statistics show Britain’s economy is 70 per cent the size of Germany but was 90 per cent. If that had happened, we would have seen “complete chaos.”
• “I looked at the IMF data and if anything, the British economy performed better than Germany since Brexit.” The British GDP per capita fell to 85 per cent of the German level in 2020 but outside the EU has recovered to 90%.
• The World is going through a period of extraordinary turbulence, with Covid and Ukraine and high inflation and that “will continue for the next couple or four or five years”.
• The energy shock has greatly amplified the pre-existing fragility of the German growth model. Germany is going to have to “go through a painful transition”. Germany’s role as the motor economy of the eurozone “is in doubt”.
• The fault line of the Euro has “always run through Italy”. The ECB has been financing the Italian government. If Germany has to withdraw that liquidity from the Eurozone it is going to highlight the Italian government’s financial fragility. “The Eurozone stands at a juncture”.
• “We need to think where we are, and I think the World has to pay vastly 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 will have to hold tight but I am not sure how bumpy it will be. A great depression like 1930s I think will not happen.” But “small mistakes will lead to large consequences” although it is still very unlikely.
• “It will be bumpy, and people will feel the pain in terms of higher inflation for a while. Employment prospects will be insecure and there will be a general sense of anxiety.”
• It will be dealt with by ad-hoc measures but “injecting liquidity I hope will not happen”. It “only builds up costs for the future” so I prefer we deal with it rather than this.
• “I think we have lived in a fools world where we thought we could have everything we wanted and need to face up to the fact that we can’t.”
• “We have ignored for half a century the notion of public goods and fairness. And that is what is missing.”
• Tax cuts break the social cohesion, and the rich get richer. It is a policy by “slogans” rather than on facts.
• “In my new book “India is Broken” it shows India does not focus policy on the lives and livelihoods of people. 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 centralisation of power that distances itself from people. People need to have a say and be enabled to act with trust not be cheated.”
• The Economist magazine is liable to get its prognosis exactly wrong. India’s health and education systems are very poor and so is the environment. The Justice system “breaks my heart” when we hear about the Under-Trials.
• “Joe Biden in the USA is the world leader who I look up to. I have not always thought that. People should have room to breathe. I believe Biden truly believes in that sentiment. He is putting money into climate investments and health and education and .to see that someone openly espouses that 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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