All right, the markets are waiting to hear from the
Federal Reserve today wrapping up a two day meeting not
expected necessary to cut rates today,
even though there are some that who are actually advocating
that,
but to sort of lay the path toward a September
rate cut. Rishi Sharma joins us,
The New York Times bestselling author,
what went wrong with capitalism?
Part of a series of when he looks at nations
and of what defines them increasingly of what what
defines us right now is a lot of spending and
all of that stuff that kind of joins with our
European colleagues.
Having said that though is here,
it's always good to have you back.
Let me get your take,
first of all, on what difference it would make one
way or the other if the Federal Reserve were to
join other European central banks and start cutting rates.
Well, I think, Neil, I'm not sure it's going to
make such a big difference because I think that the
structure of the economy has changed.
One of the big mysteries that has still not been
fully solved is that why did so much of fit
tightening over the last couple of years not have a
bigger impact on the economy?
And that's because a lot of the borrowing and lending
that is done in America now is done
with much longer duration. So any changes in short term
interest rates take a lot longer to have a real
impact on the economy.
So yes, I think that the markets are getting a
bit excited because they always do
in terms of the moment they see
the prospect of easy money.
But in general, I think the structure of the American
economy has changed where it
on the upside of interest rates did not have much
of an impact on the economy because of a couple
of reasons.
One, as I mentioned that the
duration of lending and borrowing has become long term.
And two, because the Fed had pumped so much liquidity
into the economy post the pandemic that we are still
I think suffering from the liquidity hangover.
We are still mopping up that excess liquidity out there.
And so therefore, I think any short term changes in
interest rates is unlikely to have a bigger impact on
the economy.
Well, it it's really won't have a,
a, a big impact what we're on our spending.
And you recently wrote an interesting piece of the Financial
Times.
We address this sort of gluttony.
You didn't call it that,
but you did say that right now in the coming
years,
the US is on track to replace Europe as the
land of even bigger government and slower growth.
Now, did you say where you mean to say that's
going to happen regardless of whether it's Joe Biden in
the White House,
Kamala Harris in the White House,
Donald Trump in the White House,
that it is just this constant
giant force that has taken over?
Yeah. No. But I do feel that there are lots
of problems with American capitalism.
And what I've tried to do in my new book,
which you sort of spoke about,
is that what needs to be done for a new
administration to get American capitalism competitive again.
To compare it to Europe,
as I did in that piece,
to me is like, OK,
Europe's a lot worse because it has zero productivity growth.
But America's productivity growth has also been declining due to
a lack of dynamism.
And that lack of dynamism has been coming because the
role of government in our lives,
in the economy, has been growing steadily for the last
few decades.
It's not just spending, it's the suite of government habits,
the culture of bailouts, the amount of regulation.
And what I do sort of mention in the book
is that at least on regulation,
Trump's track record is not as good as he advertises
it to be by the,
you know, but is better than any
president that we have seen.
And under Biden, the kind of regulatory growth that we
saw,
I think it's been stifling for small and mid sized
businesses and explains why Trump remains much more popular with
that cohort.
Because remember, regulation by definition helps big business and hurts
small and mid sized business who are less able to
afford it.
And also regulation is something which can be captured
by the lobbyists in Washington,
by the big businesses to write regulation in their favor.
And it's a small and mid sized businesses who suffer
and get at the wrong end of it.
And it cuts costs for businesses,
as you, as you pointed out here.
So the two are sort of joined at the hip
real quickly. Then if Donald Trump does make it back
to the White House,
of course, that's what he's promised again,
to cut regulations, cut taxes,
keep the tax cut thing going and extend them.
Could that be inflationary though in this country?
Some fear would be one way or the other.
What do you think?
Well, I think cutting regulation is not inflationary.
But yes, at this point in time,
the number one priority for a new administration has to
be that how do you get this deficit under control
because we can't keep running deficits of 6 to 7%
of GDP and that too in peacetime.
What happens if we have a downturn,
recession or even a war?
You know, those kind of deficits have historically been seen
only in those environments.
So the number one thing to make sure that inflation
remains stable is to get government spending under control.
And I think the agenda for the new right,
something which I'd love to speak to you about at
some point,
but I've covered extensively in my book,
the agenda for the new right needs to be that
what can you do within a capitalist framework to break
from the past old style conservatism and yet
operate in a way which is popular.
So I think that more deregulation,
no bailouts and how do you make property prices affordable
again,
I think these are some of the top agendas of
a new administration and something that that are possible Trump
government needs to think about apart from the very hard
decision of to doing something about spending because that really
is out of control.
Yeah. The right or the left each make their own
mistakes.
So we'll see. How about they
would change under Donald Trump here and as we've been
seeing it play out in Europe,
for sure. Thank you very much.
Always good seeing you.
Thanks, Neil. Enjoyed that?