Martin Wolf on Alphachatterbox: the transcript PART 1 [Cardiff Garcia] Our listeners might not know that you spend a couple of months in the Americas each year, in New York mostly but also you travel around quite a bit. How is your sojourn treating you this summer? [Martin Wolf] I've been slightly stunned and horrified by how hot it is in New York in September. But it's been very interesting and always gives me a different view of the world. I don't think it would be good to be here all the time, because I think being in America warps your view of the world very, very badly. But it's very nice to be here for a few weeks. So you’d advise Americans to get out of here as often as possible to get some perspective. Yes. I think of it as a reality distortion field, because of the weight and power of the United States and its distance from everywhere else. First, Americans have to realize that that their country is in many respects, both good and bad, abnormal. And it's good to realize what other places are like. And second, it's important for them to realize that actually what they do is not the only thing that matters in the world ­­ [to] have some sense of decisions being taken elsewhere, and how those decisions affect them. That cosmopolitan perspective is evident in your book [The Shifts and the Shocks] as ​ ​ well. And I think the book is, if not unique, certainly unusual (for a crisis book) for its emphasis on Europe and emerging economies. I think it's probably about a third of the book, if not forty percent or something like that. When you set out to write it, did you intend to make sure that the euro zone got more attention? Yes. In fact I think it must be almost half of it. I had two objectives in this regard. First, to make clear that I view it as a global crisis, or a crisis of the global system, in which of course the US is an enormously important player. Probably, or certainly, the single most important player, but it's not the only player. I argue that the US was profoundly influenced by what happened elsewhere and that drove it. And second, I also wanted to stress that the crisis didn't only happen in the United States; there were huge crises elsewhere with huge consequences. In China for example which we're now seeing it playing out. So I felt that's what I could add to what I look at normally. And I think far too many of the books – this is just a guess, but perhaps ninety percent of the books written on the crisis ­­ have been written almost as if it only happened in the US. And as if what the US did was the only thing that mattered. I think that was wrong. We're going to talk about some very dense themes from finance and economics. But before we do, I want to start with your introduction to the book, where you are personally revealing in a way that is rare for you, probably because your columns have space considerations. So there's a lovely passage where you talk about your own personal values, how they were informed by your family. And you mention your father Edmund Wolf, a Jewish refugee from Austria. You describe his values as anti­fanatical and pro­Enlightenment. Can you just share a little of that with our listeners ­­ how your own values and your own background have informed how you’ve come to think about economics and finance? Well, that's difficult to do briefly. But first, I've always tried in my columns ­­ I don't know whether this is right or wrong, but it's the way I think the job should be done ­­ not to make them about me. To make them about the analysis. Because if you're writing columns, over the years you don't want people to believe what you're saying just because it's you. Authority is, I think, worthless. You have to provide evidence and arguments. But a book is a different thing. If you're persuading someone to read a book of three hundred and fifty pages of text or so, you want to interest them in it ­­ and to some extent interest them in the author. Most of it is rather dense analysis, as you said. But I wanted to make clear why I got into economics in the first place, why I think it's important, why it's always interested me. And what the political values are that drive me. And as you noted there are two or three absolutely central elements. First, I am directly a child of the Depression and the Second World War and the disasters that went with that. And I see those disasters as very much rooted in economic catastrophe, the Great Depression and all the rest of it. Avoiding that sort of catastrophe is I think a prime function of economics, and that's why I was interested in it. I also inherited, partly because of those disasters and from my father's own values ­­ he was a writer, a journalist and a playwright ­­ a basic belief that there are civilized values. Those values are about the importance of individuals, of freedom and of democracy. But in a very un­fanatical way. So he perfectly well understood the role of the welfare state, and he was very much at that time a social democrat. But he was also very fiercely anti­Communist because he saw that as the fanaticism of our time, just as Nazism was the fanaticism of his youth and young adulthood. So those values have always driven me to try to pursue the median, the middle way. And to justify and defend it ­­ both more broadly but above all in economics ­­ which I see is sort of a necessary condition for social, economic, and political stability. You talk about how the threats to a widespread belief in a globalized economy, to those liberal democratic values ­­ those threats have changed in shape. They used to be collectivism, Communism. Now it's income inequality, sluggish growth. Was that the impetus for writing the book itself? Yes. It is clearly true ­­ as one gets older, one learns ­­ that for thirty years I didn't have this perspective: I had not really taken on board how cumulatively, from the 1980s onwards, the transformation of our economies ­­ which in some respects, I think particularly globalization, were good ones ­­ was also unleashing forces which were increasingly, obviously dangerous to the sort of democratic, peaceful, consensual societies I believe in. And here the main dangers were indeed rising inequality and the emergence quite clearly of something that looks more and more like plutocracy. Particularly here in the United States but also to some extent in Europe. The rise of economic insecurity, and with that, increasingly intolerant attitudes in the population, particularly the re­emergence of a sort of populist right, and the enormous economic instability triggered by financial liberalization done in a very bad way, in the context of a mismanaged global economy. And these things together brought our economy very close to collapse. I had never imagined ­­ it was a lack of imagination ­­ that we we would get so close to the 1930s. But that time, and I think for the succeeding six months, we really were there. All the evidence showed that. And so I really devoted all my writing then to trying to persuade people to take very decisive action. I don’t say that [my writing] was particularly important, but the action was taken. But then I was very disappointed by the aftermath. We are still very much in this post­crisis world. And that was the experience that persuaded me ­­ those values, those fears and that experience ­­ to write this book. The scope of The Shifts and the Shocks, for people who haven't read it yet, is immense. ​ ​ It's nothing short of your proposal for a comprehensive new intellectual framework for how to reconstruct the global monetary system. For how to structurally change the nature of economies in the developed world, but also in the emerging world. Did you set out to be so ambitious when you first started writing the book? Did you know that it would be this big a project? No. What is now in the first half, which is the account of the crisis and why it happened, was really where I started. In a way that was for me to explain to myself why I missed so much. There are one or two economists who got little bits of it. I don't think anyone got it all, though some people who I respect got quite close to it. I felt that I understood some of it, but there was a very important thing I hadn't understood. And the thing that I felt that I'd failed most to understand is how the macroeconomic forces – the big forces of savings, investment, trade, the balance of payments ­­ interact with money and finance. That's something that I think became missing in economics, so I had to study that. So that's what I planned to start with, to have an explanation of why this happened. But then as I read more and thought more, and talked to more people, I became more and more dissatisfied with the system we have.