The Global Financial Crisis and COVID... What Next?

- In April 2009, the leaders of the world's major economies, the group of 20, met in London under the chairmanship of the British Prime Minister, Gordon Brown. It was a critical time, a year after the global financial crisis. And Gordon Brown turned to the past as inspiration and warning. As he said, there was a world economic conference in 1933 and it took place in Britain. People came to London to get agreement, partly on trade, partly on other aspects of the economy, it failed. And partly as a result of that failure, the rest of the thirties was blighted by protectionism. I started the first of my three lectures with that failed meeting in London in 1933. And the question was, whether the meeting in 2009 would be any more successful. The G20 faced demonstrations and the world was again, teetering on the brink of a second great depression. It seemed as if trade and industrial production was falling as rapidly as it had after the onset of the great depression. But then, just as the meetings were being held in London in April 2009, matters started to improve. Trade and industrial production increased. And there was not a turn to protectionism as in the 1930s. Many economists heaved the sigh of relief that the multi natural institutions created after the second world war had stopped a slide into trade warfare. Some even envisaged, a new world, an end of great power conflict, the growth of economic independence, the incorporation of Russia and China, and a willingness of other countries to allow the United States to operate as what they called a Liberal Leviathan. Well, today in 2022, these predictions appear rather naive. What I want to argue in this lecture is that the seeming success in stopping this slide into depression, masked rather than solved deeper problems. The result was new difficulties of populous politics and a lack of resilience in the face of the pandemic. The failure to reform capitalism in a decade after the global financial crisis, meant that neoliberalism continued. I defined neoliberalism as a set of policies defined by fiscal and monetary discipline, tax reform to reduce marginal rates, financial liberalization, and free flows of capital and privatization and deregulation of business with a belief in the efficiency of the market. The question now is whether the pandemic will mark the point at which a new global economic order emerges as it did after the second world war and again in the 1970s, as I argued in my previous two lectures. And if a new form does emerge, what would it look like? Will the result be a decline of globalization and a turn to self sufficiency and regional blocks as happened after 1933, or a more balanced relationship between global and national economies as happened after 1945? Well let me start by asking how governments, did respond to the global financial crisis. Shortly before the G20 met in London in April 2009, the G20 had met in November 2008, when it pledged to use fiscal measures to stimulate domestic demand to rapid effect. And that commitment was renewed in April 2009. Gordon Brown proclaimed, I quote,"this is the day that the world came together to fight for session, not with words, but with a plan for global recovery and reform." There was talk of a return to keynesianism. Well, the German government was not sympathetic. The German finance minister criticized Gordon Brown's class keynesianism as he called it for tossing around billions, that would burden future generations. Closer to home Gordon Brown's approach was rejected by Mervyn King governor of the Bank of England, who worried that a fiscal stimulus would increase the size of the government's deficit, boost consumption and hinder, the long term need as he saw it for the British and American economies to save and invest. This intervention was condemned by one slightly overheated lib dem MP as a very British couped attack. The story of the response to global financial crisis is the defeat of this fiscal stimulus, both in the United States and in Britain, after a short experiment,. Instead, there was a turn to austerity or what was euphemistically called, expansionary fiscal contraction. That is the belief that the impact of cuts in public spending on consumption would be outweighed by gains in economic confidence. In June 2010, the G20, now announced a commitment to what it called, growth friendly fiscal consolidation. So the question to ask is, why was fiscal stimulus rejected between acceptance in 2009 and rejection in 2010. In a recent BBC documentary Nick Clegg who was Deputy Prime Minister in 2010, said that one of the greatest myths about economic policy is that there ever was a dispute about whether fiscal savings were needed. Well, he's wrong. Fiscal cuts, austerity was contested. And the real question is why critics were marginalized. The belief that cuts were necessary was constructed by various rhetorical devices and ideological assumptions. Let me explain what these were. The first relates to economists. They argued, the fiscal stimulus would be harmful. One such economist was Alberto Alesina, who argued that cuttings who argue that cut spending to reduce the budget deficit would remove economic uncertainty, would restore confidence, would encourage investment and avoid an unfair distribution between present and future generations. He believed that cut in spending would lead to increased output, because gains to private consumption investment were larger than cuts in government spending. So the ideologic assumption here was, that public spending is always less efficient and drives out private investment. But even more important was the so-called, 90% rule of Carmen Reinhart and Ken Rogoff. They claimed in this historical data, that debt level debt to GDP level above 90% led to a fall in the median growth rate by 1% and even more in the average rate. Now, these arguments were taken up by politicians. Paul Ryan, the Republican chairman of the house committee on the budget, drew a stark choice between two paths to the future, two paths to prosperity. One was to cut, and that would lead to prosperity on the green part of the slide. But if you went on as now exponentially, it would go up and there would be disaster. This view was powerfully expressed by the Tea Party, but also in Britain in 2010, George Osborne, who was shorted become Chancellor Exchequer, referred to Reinhart and Rogoff as the most significant contribution to understanding the crisis. The next point to make is a change in the structure of the economy and whose voice was heard. Financial interests have been much more important since the 1970s, and arguably captured the state. In the United States, there was a revolving door between government and Goldman Sachs. In May 2009, Simon Johnson, who had recently been the chief economist at the International Monetary Fund, saw a quiet coup as he called it, by leading banks. He had been involved with the IMF in Russia and South Korea where business oligarchs formed a close relationship with government. And Johnson saw similarities with the United States. He said, financiers played a central role in creating the crisis, making ever larger gambles with the implicit backing of the government, until the inevitable collapse. More alarming he went on, they are now using their influence to prevent precisely the sorts of reforms that are needed and fast, but the government seem helpless or unwilling to act against them. What Johnson argued was rather than bribes and corruption, such as in Russia, there was a more insidious process. As he said, the American financial industry, gained political power, by amassing a kind of cultural capital, a belief system. It benefited from the fact that Washington insiders, already believed that large financial institutions and free flowing capital markets were crucial to America's position in the world. And this captured the state by financial interest. It could be argued, was possible because more people were implicated in financial services, through loans, pensions, equity, purchase, insurance, credit cards and so on. The result was a larger, what has been called bailout constituency. Middle class voters, who were aligned with the financial elites to protect their assets and their access to credit. And alongside this, we have what is, can be called a process of bait and switch. That is to say, you transfer the blame from where it really does reside to somebody else. The right ignored private debt and debt were bailing out banks and blamed high levels of public debt although in fact, it was the private debt and the bailing out to the banks with the real cause of the crisis. They then passed the blame to the impovitet behavior of the state and to generous welfare, which is easy to explain to electors. Mark Blyth, the author of a very important book on austerity, put it this way."Austerity is the penance, the virtuous pain after the immoral party, except it is not going to be a diet of pain that we shall all share. Few of us who were invited the party, but we are all being asked to pay the bill." So by these means there was a shift in the rhetoric, in the argument away from fiscal stimulus to austerity. What I would like to suggest is there were flaws in this argument against fiscal stimulus. Critics at the time, contrary to what Nick Cregg said, existed and they were marginalized. After the pandemic, there has indeed been some bias remorse. In Duncan Smith, former leader of the Conservative Party, and a government minister recently commented and I quote,"George Osborne needs to stop drinking the Kool-Aid, he got it wrong." Now, how did the argument go wrong? I would say, first of all, that the economic case was flawed. Alesina looked at the distributional consequences between present and future generations, but he did not look at the consequences of austerity in provoking discontent, in harming the prospects of the current generation, of increasing mortality for the elderly of encouraging economic nationalism. Indeed it could be argued, was argued by many that fiscal stimulus might have assisted recovery by bringing forward investment at the time of weak demand and idle resources that would've increased the level of GDP and that itself would've reduced a debt to GDP ratio. Instead cuts and spending led to recession and an increase in the debt to GDP ratio. And then there's the 90% rule. And I think that this misread misused history. It's aggregated countries and peers without attention to context. So let's take the case of Britain where we have on the screen, the debt GDP ratio. We see three periods when the level of debt was very high. The Napoleonic wars, the first world war and the second world war. And those levels of debt exceeding 90% of GDP in some cases were associated with rapid growth and sometimes with low growth. After the Napoleonic wars ended in 1815, debt fell very rapidly. And that was because growth was rapid, prices were stable, that didn't have an impact. It was really that very rapid level of growth, which reduced the debt to GDPP ratio. By contrast, after the first world war after 1918, growth was slow. Interest rates were high, which increased the cost servicing the debt and prices fell, which increased the real level of the debt. It was very difficult to escape the burden of debt. After 1945, the level of debt to GDP, again fell very rapidly. And this is because of a combination of high growth, low interest rates, which reduce the cost of servicing the debt and modest inflation, which reduced the real burden of the debt. So the lesson that we could learn from this, is that it is not a one size fits all debt to GDP ratio of 90% is bad. It depends upon policy choices. It depends upon what happens to interest rates, inflation and growth. And the solution might have been investment in growth rather than harmful cuts in spending that weaken growth and increase the level of debt to GDP. Where debt is serviced by taxation, that shifts income towards poorer members of society and it increases their consumption where spending improves education and training, it might encourage growth. And this case for spending was made by progressives, but it was also made by the International Monetary Fund, which argued for fiscal policy as a tool for economic stabilization. And the IMF pointed out that if all countries reduced debt deficits at the same time, it would harm global economic growth. The IMF argued an approach, which it called not too fast, not too far. Countries, which had a surplus should boost global demand. They should postpone fiscal adjustments until the downturn was over. In 2013, Olivia Blanchard, the Chief Economist of the IMF accused and Osborn of I quote, "playing with fire by adopting harsh hostility." So we could argue then, that there was a strong case for more spending, at least some economists were skeptical about the 90% rule and about the a case for austerity. But fiscal stimulus was cut in the Western capitalist economies. There was a major exception to the rejection of fiscal stimulus, China, which embarked on a massive fiscal stimulus. And it was that fiscal stimulus in China, which is crucial in preventing the global financial crisis from becoming a second grade depression. In November, 2008, the Chinese government announced a huge spending package by local and regional governments, building houses, airports, ports, and so on. The risk of course is that this would create excess capacity, unnecessary infrastructure projects and corruption. Chinese government also boosted consumption in December 2008, by private consumers, giving them grants to buy large domestic appliances. This was the largest stimulus in the world economy. For China, continued growth was vital to the legitimacy of the party's rule and to political stability. And this huge boost to spending by China, marked in the words of Adam Tooze,"a fundamental change of world, historic proportions, dramatically accelerating the shift in the global balance of economic activity towards East Asia." As he said, in 2009, for the first time in the modern era, it was the movement of the Chinese economy that carried the entire world economy. So Britain, United States, Germany, did not have a large fiscal stimulus, China did. What the United States and Britain did and then reluctantly, the European Union was turned to monetary policy. This did mean that a repeat of the great depression was avoided, but it also meant that underlying problems were not fixed. Indeed trends that existed before the crisis were exacerbated. Monetary policy took two forms. The first and most visible and well known was quantitative easing. That is the federal reserve and the Bank of England, bought mortgage back securities and treasury bonds from the banks. Hence these bonds were in shorter supply, their price went up, which meant their yield fell. Interest rates dropped, and investors switched to equities, which rose in price. In theory, the purchase of bonds meant that the banks had more cash, and could provide easier credit to stimulate recovery. The feds and the Bank of England adopted this policy, the European central bank delayed until it reluctantly followed in 2015. It did help the, in the great depression, the monetary supply dropped during the period after the global financial crisis. it did not. So this did help avoid the great depression. But this policy of quantity easing was criticized from both ends of the political spectrum. On the right it was argued that it would lead to inflation, to currency basement and one Republican Congressman even called for the abolition of the fed, I quote"because it is immoral, unconstitutional, impractical, promotes bad economics and undermines Liberty." On the other hand, progressives claimed perhaps with more justice, that there was a rise in asset prices at a time when wages were stagnant. And we see here, the Dow Jones index. The outcome was inequitable, Wall Street was saved, hold of equity gained. In the words of one city of London Financia very recently,"owners of assets have all made out like bandits." Austerity harm welfare recipients, in America homeowners faced foreclosure. So quantum easing was both good and short term, but also building up potential difficulties in the longer term. The second monetary policy was swap networks. These were less visible, but just as important. This means that the federal reserve, provided vast sums of money to other central banks. And those other central banks could support private banks. Result of this was contrary to what Nicholas Sarkozy said, which is that the global financial crisis marked a downfall of the dollar. On the contrary, the dollar became more important and the Federal Reserve bank acted as the central banker of the world. What did not happen was tighter regulation of banks. The action of the fed actually encouraged, what they called, systematically important financial institutions to become even bigger. And this increased the two big to fail problem. And here was a marked contrast for the period after the great depression. After the great depression regulation on banks was tightened up by the Glass-Steagall Act of 1933, that was appealed in 1999. With few exceptions, economists believed that financial crisis came from external shocks and not from within the financial system. Central bankers and the college of remarkably complacent that the risks could be minimized. At the fed in 2006 before the crisis, Ben Bernanke said banking organizations of all sizes have made substantial strides over the past two decades in their ability to measure and manage risks. Well, that was a very complacent view. After the crash, regulation still remained weaker than it did after the great depression. And that goes back to the point I was making earlier about capture by financial interests. As Simon Johnson complained, the response to the crisis was an unwillingness to upset the financial sector or to question the basic outlines of the system that got us here. The outcome was preservation of the existing system rather than fundamental reform. Still this did again, help the immediate crisis. In Europe, action was much slower. While China and the United States and Britain acted whether by fiscal stimulus or monetary action, the Euro zone dithered and adopted what has been called, extend and pretend. The Bundesbank and chancellor Merkel, limited action by the European central bank. Initially it seemed the Euro zone has escaped the financial crisis though that was a large part because of the support from the federal reserve. Then the Euro zone crisis hit. Before the global financial crisis, Portugal, Ireland, Italy, Greece, Spain had all been able to borrow at low interest rates because of an implicit guarantee provided by membership of the Euro zone. In 2010, a sovereign debt crisis started to hit those countries. Either because they had themselves been spending too much or because they were bailing out banks as in Ireland. The borrowers were in a difficult position. As members of the Euro, they could not, as they might have done in the past with their own currencies devalue, which would reduce interest payments on external debt and make their goods more competitive. There was also a refusal by the European union to mutualize debt. That is to say, make the debt of individual countries a responsibility of the European union. The Maastricht Treaty rested on inter-governmentalism with each state being for its own obligations. And at the European Central Bank, the president Jean-Claude Trichet, opposed quantitative easing. He actually increased interest rates to force countries to take responsibility for their actions, which Adam Tooze has called, one of the most misguided decisions in the history of monetary policy. It was only when Mario Draghi became the head of the ECB that's in July, 2012, he said he was ready to do whatever it takes to preserve the Euro. He offered to buy bonds from countries in difficulties, and then the ECB also adopted quantitative easing. Angela Merkel gave in and overruled the Bundesbank. Although there remained problems because of the German constitutional court questioning the legality of this bond buying program. Their doubts led to referral to the European Court of Justice. The result of these debates within the European union was resentment. Greece presented the imposition of austerity by the European commission and by the IMF. On the other hand, the Northern European states, blamed the Southern European states for imprudence. Rather tactlessly the Dutch president of the European finance ministers commented that the north had helped the south, but you cannot spend all the money on drinks and women and then ask for help. Well, the outcome of the policy was widening disparity between economic growth in the south. Degree stopping by 26% and growth in the Northern state in Germany growth by 14%. There's widening disparities. In 2007, German growth domestic product was 10.4 times that of Greece, in 2015, it was 15 times. The Euro remained floored. It was a monetary union without a banking union and without a fiscal union. So what were the consequences of this set of policies that I've been outlining? Well, the good thing was, that the action of the fed and the China prevented a second great depression. But there were also major shortcomings. Austerity hit those who were already losing from globalization and de-industrialization. There was a continued rise in what I called in a previous lecture precarious or lousy jobs. As you've seen, monetary policy led to an increase in the value of assets, that helped the rich and that led to growing levels of inequality, which is captured by Thomas Piketty's graph, showing the top 1%, gaining at the expense of the rest. And that graph showing the growth by the top 1% and the squeeze on the other 99% has been called the graph that occupied wall street. Although my slide here actually shows St. Paul's Cathedral. And it was that sort of complaint, which led to populism. I've also pointed out that the support for the financial sector and large banks meant that they became still larger and made the too big to fail problem even greater. There was no action taken on financial regulation. And although there was some reform of Obamacare, the social safety net in the United States remained weak. I've also suggested that flaws in the Euro zone were not removed. There was a monetary union without a fiscal union without a neutralization of debt. And although the actions of the fed and of China helped they were not coordinated. They were both acting in their own self-interest. What would happen if their interest, did not coincide in a future crisis. Were there any coordinating mechanism? And the inequality that I've been referring to, did not only lead to tensions within countries, but also contributed to macroeconomic imbalances between countries. In China, domestic demand was weak, they relied upon exports. And similarly in Germany, high savings meant that they exported goods. And where did they export goods? To the United States. And the United States covered its deficit by producing dollars. It had the ability as a global currency to do that. How stable is that system with those macroeconomic imbalances? So I'm arguing that the response to global financial crisis did not resolve the fundamental problems that led to the crisis in the first place. Neoliberalism had survived the crisis that it had created. Then COVID hit. What would be done in response? What is the point at which a new order, a new form of capitalism could emerge as it did after the great depression and after the crisis of the 1970s? So this is what I want to talk about now is, can there be a building of a fairer form of capitalism? Or will there be a pushback and a return to the status quo? Now this is moving from history into prediction, and this is not easy. In 1933 Keynes commented that,"the decadent international, but individualistic capitalism in the hands of which we found ourselves after the first world, war was not a success. It is not intelligent, it is not beautiful, it is not just, it is not virtuous and it doesn't deliver the goods. In short, we dislike it and we are beginning to despise it. But when we wonder what to put in this place, we are extremely perplexed." Well, I think we're in much the same position now. Geopolitical tensions are becoming as serious as they were in 1933 when Hitler came to par and Starling embarked on collectivization of agriculture and rapid industrialization that led to famine, not least in Ukraine. When I proposed this lecture series a year ago, I thought it would be difficult to analyze the impact of the pandemic. And now we are in the midst of the worst geopolitical crisis since the second world war, which has profound consequences for global economy. So we're at a difficult stage, stage of perplexion. What might the future hold? So I would like to argue that I think that there should be change that just as embedded liberalism arose in response for great depression, and neoliberalism in response to the crisis of the 1970s. We might now be at a stage, where we could create a fairer, more inclusive capitalism. The shift did not occur after the global financial crisis, we just as vulnerable to the pandemic. Is it now the time for change, which will create greater resilience, political, economic, and social stability. Is a new social contract needed? Well, let me suggest what is needed and how some of the debates have now started, not just from the progressive left, but also from capitalists themselves who feel that there is a need for change. So, first of all, perhaps we should reform economics. John Kay, a leading British economist complained, I quote"university economists of the sort gathered at Bretton Woods are now under relentless pressure to conform to a narrow established paradigm." So he said that at Bretton Woods, there were a huge eclectic range of views now it's been narrowed down by a dominant, entrenched professional norm. There are some signs of change occurring, John Kay himself, perhaps we need to push that further. And many students at universities are demanding that. The next point, is that we need to tackle, unearned increments or rents. The high level of profits being obtained by like social structures, by the ability of large companies to exclude newcomers In the new deal, Corporate power was viewed as a threat to democracy and to economic dynamism. In the 1970s, it was assumed on the contrary that large firms benefited the consumer and that corporate success was best measured by shareholder value. Some people are now criticizing shareholder value as shortsighted and destructive, and instead call for stakeholder value to cover not only the owners of shares of equities, but workers, customers, suppliers, and the public interest. To Joseph Stiglitz a Nobel prize in the economist, dominance by large firms, which we now see is what he calls a sachs capitalism. Genuine capitalism he says requires competition. The IMF found that then an increase in the market power of large firms in advanced economies, led to an increase in the markup of goods of prices over marginal costs. So profits were going up, but the share of labor income by value added, fell by five percentage points. The result of that they say, is the reduced incentive to invest in productivity growth. If your profits are already high, labor income is being squeezed, why bother to invest capital in productivity? This has led to what's been called in one recent report by United nations body crocodile capitalism. That is to say the increase in profits as against a decrease in labor income, an opening jaw between capital and labor. Now this is not some left wing view. This is the IMF that's talking. And also the Peterson Institute for International Economics, a free market think tank. It pointed out, that during the Bretton Woods era from 1948 to 1973, real median incomes in the United States rose by 3% a year. And there was a 96% chance that the next generation will be better off. Since 1973, median family income has only grown by 0.4% a year and 28% of children in the United States have lower income than their parents. Now, the argument that they're putting forward is that the survival of free market capitalism, requires a response to a growing disillusion, but whether it's delivering the goods as Keynes put it. And a need for a response, which is more creative than populism. So restoring competition through antitrust policy might be a start. But it's also necessary to transform corporate behavior from shareholder value to wider social purposes. And that point has been made in 2020 by 181 leading corporations, which issued a statement on the purpose of corporation. Jamie Dimon of JP Morgan called for action on what he called the fraying of the American dream. He called for spending on education and infrastructure even if it meant more taxes, Ray Dalio of Bridgewater Associates, the world's largest hedge fund, said that capitalism must evolve or die. As he put it I'm a capitalist, and even I think capitalism is broken. Another set of policies that is needed is to fix what I called lousy jobs. De-industrialization meant a loss of well paid secure jobs for workers who lacked formal qualifications. So workers in Dagenham or Detroit working in car plants and so on. Instead there was a growth of employment in precarious Lousy jobs. And that was very true during the COVID period with low pay stankin stark contrast with jobs for those with formal qualifications. So what we need of course is leveling up the policy of the British government to revitalize declining cities by place based policies. A firm is unlikely to relocate to a decaying city, unless there's a wider cluster of enterprise and physical and social infrastructures. It's vital to assist, to pioneers, moving into these towns with government support, from development banks or business zones, investment promotion agencies, better education and retraining, and these powerful local government, as well as central activity. Now this process is going to be difficult and will take time. But leveling up by itself is not enough. I would also suggest a need to regulate banks and finance. In 2015, the Bank of International Settlements that is the Central Banks bank worried and I quote,"that the level of financial development is a good only up to a point after which it becomes a drag on growth." Gita Gopinath the Chief Economist of the IMF agreed. She said there was a mismatch between global finance and national regulation. Countries she said, engage in a race to the bottom with lax regulations so as to win the favor of the financial services industry while imposing large costs on the rest of the world, through financial crises. The lessons you said of the financial crisis should highlight the cost of weak financial regulation and the virtues of international coordination of regulatory standards. Well, the question is whether the entrenched power of finance can be overcome to allow that to happen. Now, there is some sign of this in relationship to capital controls. The Bretton Woods agreement after 1945, assumed that capital flows could be controlled to protect domestic economies. In the 1970s, the IMF moved from that to encourage financial liberalization, to encourage capital flows. In 2020, there was sign that the IMF was moving back to it's earlier position. Its integrated policy framework accepted the cross border capsule flows to produce shocks as well as benefits. The policy makers should be able to draw upon an eclectic mix of tools that varied over time between countries. And what it tried to provide was a framework within which policy makers in different countries could look for the best solution. In other words, it was a turn from dogmatism to pragmatism. Now, nevertheless, there are still problems here about capital, about the level of debt. One is the growing power of China as a creditor. China as you see from the graph here is now the largest official lender to the developing world, but it is not a member of the Paris Club of governments, which tried to coordinate debt re-scheduling. Chinese loans are secured by assets, such as ports in Sri Lanka for example, which is seen by the United States as a strategic incursion. So this is an area of problem. Also COVID meant that indebted countries borrowed more with a risk of default. And the ability of the international community to resolve that has been rather weak. In Adam Tooze's view, the actions from the center from international bodies has been a mockery. And now of course we face a Russian default, which hasn't happened since August, 1998. And what will the fallout of that be? But also, we need to remember the large part of capital flows of foreign direct investment is actually what is called Phantom investment. That is a say it's about tax avoidance about moving profits to low tax regimes rather than actual investment in physical infrastructure. That creates unfairness between mobile and less mobile capital between companies that can and cannot shift profit. And this is another major change, which is needed of a form in the international tax regime. And this is as important as leveling up. There has been a race to the bottom in the global average of corporate tax, which has fallen from 40% in 1990 to around 25% in 2017. Companies avoid tax by booking profits in low tax jurisdictions. So we have the issue here of tax havens. We have the problem of falling levels of corporate tax. We have calls from the so-called patriotic millionaires for high levels of inheritance tax to break up passive wealth. And they've also called for wealth tax. The Institute for Fiscal Studies here in Britain has pointed to a large unjustified and problematic bias against employment and labor incomes in favor of business ownership and capital incomes. So the asset values that have gone up, if they realize pay a lower level of capital gains tax, than income from employment. And this has been exacerbated by the use of national insurance contributions to fund social and healthcare, which falls upon earned income and not upon income coming from capital gains or dividends and so on. And that is necessary. Change that is necessary in order to deal with that inequality that I was talking about in the way that quantity easing has affected of assets while austerity has hit poor families. And here we see a slide from the United States, which compares the increase in pandemic wealth for Jeff Bezos or the owners of Walmart against the hazard pay, as it's called the extra pay given to workers. And you see how inequal it is. And this has led the IMF to call for a solidarity tax in order to try and create more senses social cohesion. That is supported also by Morris Pearl, a former director of the financial house BlackRock. As he put it, given the choice between pitch forks and taxes, I'm choosing taxes. But it's been very difficult for the Democrats in the United States to tax the wealthiest households. An attempt to introduce a tax on households, earning more than 100 million a year or with assets of more than 1 billion failed. And I would argue the tax reform is a high priority for domestic stability, especially now with cost of living increases. Earnings are not rising in line with inflation, whereas pensions are index linked. There's a call for windfall tax upon energy companies. And I think that the shifting attitude on taxation should encourage a shift back to a more progressive tax regime, which will be fundamental to creating a more stable and cohesive sort of society. But it's not only changing the tax regime internally or the distribution of income and wealth internally, we also need to fix the macroeconomic global imbalance. And that would mean increasing the level of domestic consumption in China, so they're less dependent upon a high dependence on exports. It also means shifting the United States high level of domestic consumption by relying upon debt. And that would be helped by encouraging a redistribution from the top 1% to the bottom 99%. . Try and create again, a more balanced stable system. Is this going to be possible? Well, the United States has difficulties of a rather dysfunctional and polarized political system. It's been very difficult to push things forward. It was suggested that the response to COVID did mark a cultural shift. The financial Times saw it as being equivalent to the new deal. I think that is rather exaggerated. If the Republicans take control of Senate and the house in the midterm elections, will it be possible to shift the tax regime in the way I've been talking about? Might there be a return to austerity, a failure to redress inequality? If so, I think that would have alarming consequences. The issue with geopolitical tension with China is also a major problem. China was central to the recovery of the world economy in the global financial crisis. Since then geopolitical tensions risen, and the fiscal stimulus in China, of COVID has been less than it was during the global financial crisis. Indeed there is a potentiality for a crisis internally within China because of that high level of debt, high level of non-performing loans with local government controlled banks, pushing money into the sort of process of building houses and infrastructure which I talked about. Fewer profitable infrastructure projects. How easy will it be for China to restructure towards domestic consumption? That would mean a major change in its internal power dynamics away from powerful elites dependent upon exports. It would be increasing the power of unions, the power of labor and a reform of the social welfare system so that people can spend rather than be saved for their own future welfare. So I think there's a serious issue here wit China. And it's also a serious issue with the Euro zone. The response of the Euro zone to the global financial crisis was slow and modest. Design flaws of the Euro the main. Now there are some signs of action in response to the pandemic. And some commentators referred to what they call a Hamiltonian moment. They're referring there to 1790 when Alexander Hamilton in the United States, mutualized the debt of the 13 states, which went became the United States. But I think that is exaggerated. Hamilton had tax revenues from the federal custom service, which allowed him to support the mutualized debt. The European union does not. And the so-called Frugal four Austria, Denmark, Sweden, and the Netherlands oppose a larger European union budget. Now, I suppose, looking ahead, the question will be, does Ukraine mark the possibility of a real Hamiltonian moment? It's possible, but I wouldn't bank on. It might depend upon what happens in the French presidential election and whether Le Pen or Macron win. So beginning to become a bit gloomy here, reforming the United States, China and the European union, the three major economies and political systems will each be difficult. And a question which then arises is, are we facing the end of globalization? Much has happened in the early 20th century. The talk in the later 20th century was ever closer integration of supply chains, just in time delivery, global flows of finance. Now people are talking about national sales sufficiency, uncoupling of supply chains. So which way are we going to go here? My view is that the case for decoupling and the end of globalization is exaggerated. We are more likely to see a different form of globalization rather than a reversal. But that depends upon politicians and international organizations adopting sensible policies, which is admittedly a high bar. My argument would be this, uncoupling is not likely to happen to as large extent as some people believe because China cannot depend upon Russian markets. The economy of Russia is too small. China needs markets in the United States and in the European union, at least until it shifts its economy towards domestic consumption, which will take some time. So China United States economy are likely to remain closely tied also cause China owns a lot of US treasury bonds. Does not say there's going to be a lack of tension. I also think it's unlikely that there will be a, a very marked and sudden decline of the dollar. Some people are saying that this is going to happen like Sarkozy did back at the time, of global financial crisis. But in fact, this is not likely happen anytime soon. In 2018, the renminbi accounted for only 2.5% of non-Chinese reserves compared with 62% for the dollar. Even if Russia and China do look for currency, which is not linked to the United States, I think this is going to take a very long time and the outcome is more likely to be a multipolar system rather than a move towards an entirely new a system. I also think that we need to have a new social contract. The global economic order after 1945, rested upon lower inequality, social contract between labor and capital. And I think that is something that is vital to produce. And we also need finally to reform global institutions. In the later 19th century, multinational institutions embarked on a particular normative approach of global integration, encouraging the shift towards movement of capital around the world and supply chains around the world. I think what we now need is to move away from that as I've already suggested is happening, but also to build up other multilateral institutions. The World Health Organization is grossly underfunded and the Food and Agricultural Organization, which is set up at the end of the second world war should also be given more power to create food security, which is obviously going to be a major issue in the future. And then the World Trade Organization could be taking more action upon climate change through border taxes, upon carbon trading, for example. And the IMF to increase its monitoring across border financial flows. So my conclusion is that Keynes was perplexed in 1933 and there's no shame in admitting that I'm perplexed. We're all perplexed, what is going to happen? We also know what was to follow a few years after 1933, a world war. Well, let us certainly hope that that is not going to be the future, but we are in a period of radical uncertainty. My wish is that we can turn back from neoliberalism that led to the global financial crisis. The pandemic might be an opportunity for that change. I would like to see a fairer, more inclusive capitalism a view shared by many major capitalism. Capitalism survives because it's reformed. And rather than decoupling and de-globalization, I think the outcome is likely to be, or should be a rebalancing of national and international interests, which requires a change within the European union, China and the United States. And I think we need international agreements to deal with specific pragmatic issues on health or climate rather than to pursue an agenda of markets liberalization. Our hope must be that we can achieve all of this without as the Bretton Woods requiring a world war. Thank you.