Comparing financialization in Germany and Britain

Hello, welcome back to the Conoclass, the podcast from one heard that it bunks false or photographs. On the week when Donald Trump has been trying to bait the Iranians to shoot at US naval vessels escorting friendly tankers across the Strait of Epstein. Oh, I'm sorry, uh the State of Hormuz. We are going to be debunking our uh orthodoxies with Gusto. Hello, welcome. Hello, good morning, Janis . What's keeping you up at night? Well I'm not sure it's keeping me up at night, but uh it certainly occupies me during the day, which is the Trump threats uh against Europe, the latest ones, the threat to reduce troops. He announced 5,000 troop withdrawals from Germany. And especially the tariffs on cars, the 25% tariff on cars. And I want to say that this is quite serious, and I think that the Europeans are probably not going to stand up to him as they at the moment seem to be you know inclined to. What about yours? Well I'm going to be talking about the city of London and I'm going to annoy lots of our audience by arguing that uh rather than being the crown jewel of the British political economy, the engine of prosperity, a magic wand that turns capital into growth, the city is a poison chalice, it's a parasite, and it's the reason why the United Kingdom economy is under the On this one, actually, we agree. Uh. And I'm looking forward to the discussion. Before we get going, an exciting announcement. Following the success of Econoclasts Live. Wolfgang and I are headed back to London for our second live recording. Our guest, the king of Twitch, Hassan Pika. On Friday, June the 5th, we're taking over the brand new Town H venallue in London's King's Cross. But space is tight. Don't wait. Tickets are available right now. Go to unheard.com forward slash iconoclasts live I'm going to talk about Trump for now again. What happened last week is when that Friedrich Merz, the German Chancellor, he went to a school in his constituency and gave a very frank talk to the students. And you know, as as Mass kind of does it, and he you know he thought he'd probably be safe from the media or safe from Trump. He hyperventilated about Trump and about the Iran war. He didn't say anything, we didn't agree with. You would have heard all of it in the econom ists, you know, that Trump miscalculated, that he may not win the war, and you know, there's nothing nothing fundamentally controversial in sort of factual terms. But it makes a difference when the German Chancellor makes this point as opposed to, you know , people like Janis and me. So what happened is that Trump reacted immediately with sort of insulting tweets and he said he should fix his own broken country, he doesn't know anything what he's talking about, and he should look after the Ukraine war and rather than Iran . And then he imposed a uh you know a tariff on Europe, it's essentially a tariff on Germany, which is a twenty five percent car tariff. That's in the context of what happened in the United States, because Trump's tariff were viewers will probably remember this, the U S Supreme Court declared them, struck them out, declared them illegal. So he needs sort of a new legal basis for his tariffs. And if he doesn't find one, and it may be actually difficult to get sort of, you know, to re-sort of recreate the entire European the kind of trade deal he had with the Europeans. He will revert to the system he had before, and that's a 25% car tariff on everybody, including now the EU. Whereas in the EU trade deal, it was only 15%. So that was a reasonable deal, and now it goes up to 25%. It actually goes up to 27.5% due to some other small technical detail that is too complicated to discuss here. So the German car industry is gonna be clogged. Absolutely in and they're already in and difficult because they're not competing with China and all the electric cars that they haven't invested in. So this is a real disaster for them. Slightly better for people who sell champagne and you know, handbags and stuff that isn't sort of on the critical raw materials list for the United States or that isn't, you know, um, you know, a s an an i an issue of national security. But entirely sure why cars are an issue of national security, but for some reason they are. I don't think Merz , you know, really triggered this. I think all of this would have happened anyway, but the f Trump kind of you know created this act that it was like a response to the Germans, a sort of a to this insurrection. Merz apologised, kind of apologized. He wrote back and said, Look, we still need you, we'll still love you. But I don't think it makes any difference. I think that the the relationship is very bad and I think the Europeans when they now want to hit back at Trump. And there is now a mood in Brussels. I can sense this, a mood amongst the other EU member states who might say, look, this trade deal we signed with you, you remember when Ursula von der Leyen travelled to Scotland, she signed this horrendous trade deal for Europe. That was only good for the German car industry. It was pretty much not good for anybody else. Everybody was really upset about this. It's quite possible that the Europeans strike back and that there is a majority in the Council against the Germans almost surely to actually, you know, enter into a trade war with the US US. And I would expect that the Europeans, if they, you know, they might start this, but they will not proceed with this. It is ultimately they're not ready for this. And this is sort of the pattern we see this in Europe. We, you know we always have we always occupy the moral high ground and you know this is right. You know, we celebrate people, you know, have kids candlelit, you know, vigils when Victor Auburn was was was was elected out of office and they, you know, people celebrated the return of democracy to Hungary, only to realize that the successor is pretty much the same kind of character. And we're doing the same here again. So rather than actually thinking strategically, thinking this through, you know, what do we need to do to be independent of the United States militarily, industrially, and take the steps, you know, prepare ourselves for this? Because it's not something we do over we can do overnight. It's bit like introducing the Euro that took them ten years. They're not doing this. They're not doing this when it comes to foreign policy, they're not doing this when it comes to defense. So this telling me that that it is just m posturing, you know, moral virtue signalling, but it isn't for real and when the Americans really put the pressure on the European President of the European Commission Commission essentially kneeling in front of the Great Donald, making promises that uh she had neither the mandate to make nor the capacity to fulfill. And you know what I would like love to get to to to to to ask uh Friedrich Merz is hang on a second. Uh you know, you are making these criticisms, uh which are as you said, the criticisms that we here in the Econoclasts keep um mulling over . Uh but nevertheless, you know , Ursula von der Leyen has promised Trump seven hundred billion worth of investments into the United States coming from Europe. This is the promise that she had no mandate to make and no capacity to fulfill her own. But she made it. It's a promise. It was written down. It was official. Now, what did she actually mean? Since the European Commission can't put 700 million, let alone 700 billion together, what did she mean? She meant German investment, essentially. The bulk of that 700 billion was meant to be, you know, Mercedes Bands and Siemens and Basf and so on investing in the United States. Now, the European Commission, or indeed Friedrich Merz as the Chancellor, cannot order these companies to make these investments in the United States. So either these investments would have been made anyway , on the behest of those companies, for their own profit maximizing reasons, or they wouldn't, in which case, you know, a big fat promise will be hang ing like a Damokles sword over Mrs. Fon der Leyen because you know Donald Trump is not going to take kindly to the violation of that promise. So as you say, Wolfgang, our leaders firstly, it seems that they are not even communicating with one another. If they want sovereignty, if they want to decouple from the United States, they've got to decide are they going to send uh seven hundred billion to the United States to invest along the lines of Donald Trump's wishes. Are they going to invest in Europe in order to decouple from Europe? What exactly is the plan? There is no plan. We keep returning to this and maybe some of our viewers, listeners will be sick and tired of us reminding them and each other that Europe has no strateg y on this. Now, another small comment. I could see the hyperventilation of many German commentators regarding the withdrawal of 5,000 troops from American troops from Germany. Now, why? Why is it so important for Germany to be hosting tens of thousands of American soldiers? I mean the obvious answer that I'm gonna get to this question is oh, because you know, they are there in order to create a defensive shield around Germany and around the heart of Europe. But the question's from whom? From Russia? I mean Vladimir Putin's troops are struggling to win, you know, five meters every month in Ukraine. It is not as if we need American soldiers to be stationed in Germany. So the to the extent that we are serious about decoupling from the United States, there are two dimensions. One is the economic dimension that you and I talk about a lot. The main question is: you know , how can you persuade Mercedes-Benz and BASF and so on that they don't need to invest in the United States despite the tariffs? The answer is by increasing aggregate demand in Europe so they can sell their wares here. But there's no discussion about how this can happen. How can investment take place in Europe simultaneously with incre increases in productivity, in order to be able to create the circumstances for continued investments so that incomes can go up, so that there is aggregate demand for the stuff that these production lines can produce. This is the one question that they are not talking about. And the second question is : you know, how do you expect to be defensively sovereign from the United States when you keep hanging on to a few tens of thousands of American soldiers in Germany? Oh, absolutely. This is a complete contradiction. The US soldiers are interlinked with the German, with the German army, so that you know they're part of the US NATO contingent, which is in the 70,000s, and you know the majority of them are in Germany. And you know, the the US troop presence has allowed the Ger mans not to increase their troop size to the extent they would otherwise have to do. So that was basically sort of the reinsurance policy. And you know, now that the US, I mean the 5,000 are not going to make any difference. They still have a lot a lot, a lot, there. It's not gonna be something the Germans I I actually believe them when they say we expected the five thousand. To do more will be actually quite difficult for Trump because he has got this act, this this act of Congress passed actually by you know it was actually introduced by by Rubio by the current Secretary of State, Marco Rubio, when he was uh a senator. And that was to prevent the president from quitting NATO. And so Trump struggles to actually, you know, implement this threat to uh destroy NATO or to make NATO redundant. There's still things they can do, and we should never underestimate what the executive can do, even when Congress has laws. Usually when it comes to rule of thumb, when it comes to national security in the United States, the president really calls the shots there. He has pretty much all the levers over the Supreme Court, over the over the Congress. If he cannot unilaterally quit NATO, he cannot do that. But if he wants to redeplo y troops from Europe to Asia or from Europe to the Middle East, yes, he can do that. There are ways for him to do this because he can always say this is in the national security interest. And I'm, you know, my job is to look after the the national security interest. I agree with you on these investments. The investments obviously m von der Leyen had no mandate to force anybody to make any investments. And the member states don't have those mandates either. You're absolutely right about that. In fact, you know the German car companies are more likely to make investments in the United States if the tariffs are high, rather than when they are low. There are two German car companies, Audi and Porsche , that do not in that do not build cars in America. They export their cars. If the tariff is 27% , uh then yeah they have an incentive to invest. And I think some many companies are doing this. I think the tariffs have you know contrary to what your macroeconomists predicted, the tariffs actually got people to invest. We have to remember in in all of this, and you know, everybody hates Trump, but the EU has a massive trade surplus with America. It's now larger than China. After, you know, America uh imposed tariffs on China last year, these terr the China trade to the United States actually reduced. And you know, the some of the trade figures I saw suggest they would would have gone down by a third. If you compare that with uh you know, this is now they're now be behind the European trade surplus against America. So that's that's that's a problem. And the Europeans and in you know all these sort of you know pro EU commentators never address that problem. It's always you know, always Trump's fold and you know he's he's he's he's he's anti-free trade. But these imbalances to which Europe and China have contributed massively over the last two decades are basically ignored in this. And you know, and on this point, you know, while I don't think that Trump has the right instruments and addressed it addressed the issue intelligently, but to address the issue of global imbalances is an important one and it needs to be addressed intelligently. And I would think that tariffs may be part of that. But I would probably, you know, I would use the dollar, I would use other instruments that would be far more effective. I'm going to be a bit more pedestrian. Uh the greatest source of value added these days, especially with elektric cars, but more generally, comes from the incorporation of cloud services into cars. And this is where you know the German car industry has fallen flat on its face. They produced very well-engineered uh uh cars as uh in terms of fossil fuel-driven ones in the combus internal combustion engine ones. But you know, as you know, you will you already said that in in the previous uh program of the Conoclass. The actual software has been pathetic. They tried to develop it in in house. They they didn't have the capacity to do that. They created very clunky software. They are already shifting the research and development of software to China, because the Chinese are extremely good at that, especially when they couple it with electrically powered vehicles. but from what I hear and from what I see, uh companies like Mercedes Benz and Volkswagen are eyeing the American market as one where they w can combine the combustion engine cars, which uh decreasingly well, actually increasingly are becoming unpopular in Europe, primarily because of the petrol price. And they can't sell those in China because of the electrification of the Chinese car industry. But in the United States, there is you know the MAGA movement is um demonizing electric vehicles, uh the administration is uh trying to reduce demand for electric vehicles. So Mercedes and Folks wagen and BMW are going to be trying to shift petrol engine cars, especially V eights that uh they can't sell in Europe or in China to the United States where the demand is increasing, at least for the m short or medium term, and to couple those with uh highly developed software, software that they are developing jointly with on the one hand the Chinese and on the other hand Google and well actually Google. So uh i th you know, the the tide is moving, as you said, in the direction of Trump. And now with the twenty five, twenty seven and a half percent tariffs, I can see that that you know BMW and recites Benz and so on are going to be going along with Trump's plan to shift uh their production capacities to the United States. I completely agree. It makes sense for them. They are you know they they really lost the the plot. They tried to pretend that they can do electric cars. When they they they were late in the game, but they said because you know we it's us, we are you know we're the kings, we can do this. And then they completely misjudged the the tech the the technical difficulties. They misjudge the software and I think what they misjudge is the product has changed. It's not uh the the mechanical car and the electrical car are actually two different beasts. And it also changes the kind of company. I mean, you know, technic electric cars, we said this before, they're kind of digital companies. They're more like you know, you know, m more sort of like the sort of Silicon Valley type companies, uh Huawei and Xiaomi in China, and obviously the uh this uh Tesla. Very different cul culture uh compared to Volkswagen, the more hierarchical German companies. So if the Germans you know went to America, they would do better. And there would always be demand for these cars in the Middle East, in the United States, probably not in China, Europe is will be phasing it out. The the sales in Europe are of these type of cars are is falling. We don't know what happens after two thousand thirty five. That was supposed to be the deadline when they expire. This has now been changed a little. But it's not completely abolished. We're not you know, this is not gonna be there's not as a as of now, there isn't gonna be a golden future for for you know petrol driven cars in Europe. There will be some, you know, exemptions for certain types of cars and for certain uses of cars, uh but not in general. It's not like that you can just, you know, after 2035 keep on driving, you know, fuel driven cars the way you did before. You will also find there will be fewer petrol stations, the infrastructure will change and the you know this is all you know, this is all part of it. Once it changes, it changes. And then and then if you have the wrong technology, then uh or if you're no longer competitive on the technology, then that changes. And that is something the Europeans should be thinking about. The Europeans should be discuss ing what are the strategic thing the strategic decisions we need to take to become independent of the of the United States. I think robustness, resilience is a t is a totally underrated factor and the you know resilience from supply chains. We saw this during the pandemic when you know supply chain res uh vulnerabilities opened up in respect of Russia and China, now in respect of the United States. So th there needs to be a broader base, not becoming independent. There's no way the European Union doesn't have everything it needs. It's a it's a very small part of the world geographically. It doesn't have oil, it doesn't have gas. It can make deals with different people so that if one of these people you know stops supplying for some reason, they still have alternatives. And I think it's the diversification that is the absolute critical element. I also believe that diversification will be sort of a subject of of your discussion uh uh later on or the lack of it. And I think that's sort of a general European weakness that we haven't diversified, that when we like something we we go full in, all in, when we had these gas deals with Russia. They were good. They were in terms of you know in terms of price they were good. But they made us dependent on Russia, the wrong country to be dependent on. So from a security, from a national security perspective , we should have probably said let's cap this at 20 or 30 percent. But instead what we had, we had it at like 60% of our gas supplies from Russia and now it's zero. So we we going sort of from one extreme to the other. And I think an intelligent strategy keeps us flexible so to ensure that at least sort of 80% of any flow are guaranteed most of the time. So that if if that if something happens in the world, then you know, this dec decade has been one of sho cks. You know, um pandemic shock, the China shock, the Russia, uh Ukraine shock, the Iran shock, uh probably forgotten a couple. This is unusual, uh, but we had shocks in the previous decade too, the Eurozone crisis was a shock and the shock of the global financial crisis in two thousand eight. So this has been a a a a century or a millennium of shocks so far. And this we should not treat them as exceptional. And that is to be expected in a world in which the old you know consensus globalization is falling apart. The multilateral institutions are weakening, uh both globally at European level, the consensus for for for For this sort of multilateral action amongst leaders is weakening, as we see in the United States. But also in Europe. We are in a different world, and I think in a world in which we're still hanging on to old patterns, old patterns of of you know production, of thinking. And you know, I believe that is also gonna be the theme of our next discussion. Well folks, um this ongoing struggle of Europe to achieve some measure of uh strategic uh independence, sovereignty is going to be a theme of the iconoclass until I think we drop dead. So keep watching this space for more of this. We are now going to shift to Britain and particularly the city of London. We'll be back after the break, so don't go away . Welcome back. In our second part we will be talking about the city of London. Janice, over to you. Thanks, Walken . For decades, the British public has been told a fairy tale. The city of London is presented as a crown jewel, an engine of prosperity , a magic wand that turns capital into growth. Well, folks, it's a lie. The city is not a jewel. It is a poisoned chalice, a parasite. And Britain is its h ost, drained pale . Now, before you freak out with this kind of um seriously heterodox uh position , let's begin at the beginning. In every economy , the central question is how does surplus, surplus, economic surplus, that's profit, savings, liquidity, how is surplus turned into productive investment in order to enhance productivity, to generate new incomes to complete the circle in a way that is virtuous. Now, Britain has been under the spell of the Nigel Lawson doctrine. Do you remember Nigel Lawson, the Chancellor of the Exchequer under Thatcher in the mid-8 0s? His view was that the city is an engine of growth, the medium that turns surpluses into investment. And indeed, speaking of the Lawson doctrine, well, Rachel Reeves, the current Chancellor of the Exchequer, is utterly beholden to this lie. Now, exhibit A, that it is a lie. Since the big bang, which was effected in nineteen eighty six under Nigel Lawson, corporate profits have increased fivefold in the United Kingdom. But at the same time, business investment as a percentage of GDP, of British GDP, has fallen by fifty-one percent. And if you look at net investment figures, which includes financial corporations and nonprofit organizations, it was down by more than seventy percent. So what happened to these profits? Well, they were channeled into financial assets, into property . In other words, into the pockets of the very few who are not productive. Welcome to the finance curse . By finance curse, what I'm referring to is a the process by which the city captures the political economy. It redirects capital away from product investment and into speculation, asset inflation, share buybacks, and other forms of shareholder payout. So the point I'm making is a controversial point I'm making is that in Britain the city broke the nexus between profit and investment. And how did that happen? We begin in 1980, immediately after Thatcher's electoral success triumph in 1979, with the right to buy legislation. Essentially, the total stock of public housing, council homes, was financializ ed. And that was in the context of the so-called share owners' democracy, you know, Thatcher's campaign, a privatization drive, uh, which led uh to channeling public assets into not produ ctive investments, but financial speculation. So that's number one, 1980. Number two, the big bank that I mentioned before in 1986, turning the city into the dollar offshore capital of the world, which led to a massive capital inflow into mainly British real estate . So soon after that, with you know, this huge quantity of capital coming into British real estate from the public sector in Britain through privatization and from without, from outside the the United Kingdom. Soon after that, it was natural, property values went so high up that uh you know the most profitable course of action was to forget about productive investments in industry or in research and development and so on, and simply to sit on unproductive assets. So the city misallocated everything it touched, cap Citalap.ital flowed into mortgages, not manufacturing. Human talent flowed into trading floors, not engineering, not research and development, not in the public service. Enormous bubbles were thus built up that politicians and the and the Bank of England, the monetary authorities, were compelled to keep inflated . Because if these bubbles burst, as they did in 2008, all sorts of trouble could ensue. And they kept inflating them even before 2008 at the expense of investment, of wages, of the majority's life prospects. And when these bubbles burst in 2008, the combination of socialism for the city's bankers, bailouts, and quantity vision. We've talked a lot with Volker and I about quantity vision. So the combination of socialism for bankers, that's what I call it,, uh for the city. And wicked austerity for the vast majority of the population, that combination crashed what was left of product investment. Because why would businesses invest where the many are in pecunius? In addition, savage cuts on public investment, combined with the outsourcing of everything, hollowed out the British state, destroyed its capacity to do anything, to build anything, you know, a fast train from London to Birmingham is is taking uh you know decades. And then we had a pandemic. The pandemic's effect on supply chains was to turn deflation into inflation, and the Bank of England then goes from one disaster, quantitative easing, to another disaster, quantitative tightening, with the blessings of the current Chancellor of the Exchequer, Rachel Reeves , engineering a transfer of 1 10 billion pounds to the city's bankers. While this sorry excuse for a labor government was cutting fuel allowances for freezing pensioners. This is not the financial sector that adds value to Britain's social economy. This is not efficiency. This is a form of sophisticated cannibalism. It's what I call and others call the finance curse. Countries, in contrast to Britain, that kept financial the financial journey into the bottle, like China, for instance, prospered. Germany, your country, Wolfgang, is a very good example here because, like China, initially, for a while, Germany resisted the finance curse. It resisted financialization. But then, after nineteen eighty, nine nineteen ninety one, the Frankfurt banks were allowed or surreptitiously went berserk, supposedly to catch up with the city. The result was the deep bankruptcy of the French and German banks and a similar hijacking of the Eurozone's political economies. Again, socialism for the bankers and harsh austerity for everyone else. And that's why Germany, and more generally the Eurozone, is kaput today, because its bankers were allowed to emulate the toxic casino that is the city of London. Okay, so I'm finishing off. The roots of all Britain's and Europe's ills today. This is my uh thesis: austerity, low productivity growth, discontent, Brexit, the rise of the ultra-right. At the heart of these phenomena is the finance curse. I have a similar story to yours, not exactly the same. I certainly can arrive at the same conclusion that the city of London is it has been negative for the for the for the United Kingdom, very much in the way that the German car industry has been negative for Germany and any sort of over-specialisations. If you think about the United States, uh, which has a you know financial which has financialization on steroids. But if the United States wasn't as what it is, if it was just the state of New York, and if the entire financial sector was based in that state, this that state would have that country would have suffered exactly the same as the UK because you know the you saw an increase in you know more good in in house prices. New York doesn't have many productive industries, it doesn't have the IT industry, it doesn't have any innovation. It's all very old old school stuff. And that's basically what Britain is. If the UK had been in Europe and if the if the EU in particular is a second important condition had actually created a genuine single market, not just for some products, that would have been a very different one because the because the city could have indeed produced productive investments as the US capitalism did for the United States. Look, you know, Silicon Valley, you know, the boom in taxes today would not have been possible with the banking system. Well I totally disagree is the is your is your is your is your characterization of why Germany is in a mess. I would say actually say the opposite. I think Germany has been in MS because it it clung on to ol oldd banking systems which were not was not able to create uh to fund new industries because the German banking system is a banking system. They they lent to collateral. No upstart can ever get any money from a German bank. So a German bank would only lend to the same old companies. And if these same old companies, like we talked about the German car industry before, the same old companies do not make profits anymore, you know, Porsche's profits have fallen by 98%. If the game is over, you're entering a period of very protracted decline. Germany has a venture capital industry, a sort of a fledgling venture capital industry, and they sort of pick some some sort of startu ps, but they can't get them to the stock exchange. They Germany doesn't have the financial infrastructure to actually grow these companies. And when you have sectoral change, and that's you know something we you know what happened with the digital industries, this is quite unique. I mean you have a completely new economic sector that didn't exist 30 years ago. And that sector is now taking over other sectors. Look at your mobile phone. What functions, what kind of products it includes today that were separate products 30 years ago. For such an industry to develop, you really need a capital market. So I don't think the problem is the capital market, though I agree with the way it functioned in the UK. It really happened in the UK that the capital market allocated allocated the resources to non productive investment. And that I think is m mostly to with the with the stupidity in the UK that uh you uh you kept the housing supply you know f constant rather than expanding it. So if you opened up the m the housing supply market the there wouldn't have been a housing bubble and that's you know if if if supply can react to changes in demand, you don't create bubbles. The only reason why people invested in housing and in sort of city schemes, you remember there was a scheme by to let schemes back sort of like 10 years ago. It was very popular. These kind of scams only worked because housing supply was ultimately fixed. It's not the financializ ation that is the problem in the UK. It is the fact that the UK has indeed chosen this one industry and like the Germans have have realized that this one industry is no longer making the money and it the trickle-down effect is no longer working. And it it has failed to diversify. For me, this is a di failure to divide diversify story. Not a uh financialization story. Well we found something to disagree on. Let me mention a couple of things. The absence of a capital market, a proper liquid capital market in Germany compared to Britain. I know that you believe that this is the main reason why startups and new technologies and so on are not being funded, as well as a cultural uh aversion to the new to the less material in Germany, which I believe is is I agree with you on that . But you know, I mean where there is such a huge capital liquid market in London, I mean they never funded any startups really. I mean i i the presence of uh a liquid market doesn't on its own do the trick. I'll come back to what I think does the trick in the United States, which is absent both in Germany and in in in uh London. Secondly, the the German banks. Well, you know you remember what happened in two thousand eight, two thousand nine? Suddenly Aguilar Merkel received a phone call and she was told she needs to find five hundred, six hundred billion in order to bail out the German banks, the Frankfurt banks and the French banks, because the whole thing was coming down. They had invested behind the scenes mas,sively invested. They had bet the house many times over on you know dollar denominated subprime derivatives and instruments in the United States. And then, of course, you know , when Merkel had to find those hundreds of billions, then their gov the government, which was in cahoots of course with the SPD SPED as usual, they imposed a very severe austerity on Germany. So the bankers' crimes against logic in the end led to the diminution of investment demand in Germany. So they had a very detrimental effect, those bankers, the German bankers, on the capacity of the German economy to find investment. Now, the interesting question is you know, and that and you posed it, uh what happened in the United States? Why even though you have super financialationiz in Wall Street. Why is it that the United States did not decline the way that both Germany and the United Kingdom did? Well I think that the answer is the Pentagon. And by the Pentagon, I just don't mean, you know, Lockheed Martin and Palantir getting all these big fat contracts. I also mean the internet. The internet was the creation of the Pentagon. Once uh the internet was established as the modern mode of communication . As a commons, it was a capitalist free zone initially, an area of gift exchanges. Once it was privatized by the fledgl ing big tech companies, those fledgling companies became big tech. They became gargantuan companies. And they managed to colonize and to monopolize using their first mover advantage the internet. And you know, that's how you have the Googles and the Metas and the Apples and so on. Apple in particular found a remarkable way of uh utilizing Chinese labor in order to keep its costs uh to you know, or price cost margins to seventy percent more or less, calling it IP rents, whatever. And at the same time created the App Store, which was the beginning of what I call technofeudalism, because essentially what Steve Jobs created with the App Store, using the internet and using the machinery that was built by Foxconn in Shenzhen and in China, they created a remarkable new terrain, FIFA call it, where you know thousands of uh startups or larger companies were competing against each other to provide apps to the owners of iPhones with Apple collecting 30% of rents. So, you know, that that's why you have the coexistence of financializ ation and growth in the United States because of the Internet, which is of course because of the Pentagon in the end. Whereas neither Germany nor the United Kingdom ever had an industrial policy. The American uh defense department was indeed very influential in the in the early phase of the digital world and the internet , the semiconductor in particular, were heavily subsidized by the by the Pentagon. I would disagree with the modern with the modern uh ve uh uh variety. They're obviously public sector orders, public procurement. The I AI revolution is is almost ninety percent or so, probably more private sector. The financial infrastructure the United States has that we lack, uh, even the UK lacks, is the you know, is private equity and private credit. These are the markets that fund these sort of you know middle middle ranking companies and make them big. And you know, it this is not fundamentally different to the way the China China funds modern industries by throwing capital at a sector and then letting the companies compete against one another. And of a thousand investments, only one may pay off in the end. But that one will actually, you know, produce the entire return for the investor in this case for the Chinese government or for the private equity investor. That's something we don't have in Europe. We have very tradition we have more traditional means of funding. The UK's financial sector never ventured out into this because uh the you know the UK's market isn't big enough for this. And I think we, you know, the UK lacks scale for to do to emulate this, which is why the you know the idea of a European single market makes sense or European capital markets union, all these things, you know, would have made sense had they actually existed. The single market is a very limited project. Subject of Sunday speeches of you know Brussels politicians, but it's not, you know, it really is not for real compared to what it is, you know, what a single market can be and should be, like, you know, including services, including financial services. We have really missed the boat here and we and went into reverse on this. Um so that's that's where this that's that's where this is coming from. But I agree that the city of London, when you have a c sort of a market like this, and you don't have the industrial infrastructure, and you don't have the sort of the innovation, you don't have the pipeline, and you're still doing the old the stuff that you did in the 1980s, as the Germans did and the British did. That the financial market at that point alone isn't gonna do this. It it requires infrastructure, it requires other other other things. And Europe it requires scale and I think that is a huge advantage of of the Americans. Something the Europeans, you know, the Europeans have sort of stopped their integration process with the Euro and it's been they're basically just doing this intergovernmental stuff and you know and wondering, you know, e year in and year out, wondering why they're not getting anywhere, why they have problems, why the UK has this problem with the city, why the Germans have this problem with the car industry, while while Italy has lost its industry completely. That's why. hand industry policy and on the other of uh capital market. We both think they are important. We put different emphasis on it. You put more emphasis, it seems to me, on uh the capital market and cap the the union. I put more emphasis on the importance of industry policy. But when it comes to Britain, I think we both agree that uh the Nigel Lawson and today Rachel Reeves dictum, according to which the City of London is the engine of growth, and you know the the the more resources the uh that that it gobbles up, the better In such dire straits politically, is a re a reflection of their being wedded to the idea that whatever is city is good for the city of London. Remember, in the United States, they used to say whatever is good for General Motors is good for America. Well, Rachel Reeves, like Nigel Lawson in the nineteen eighties, is totally convinced that whatever is good for the city of London is good for Britain's political economy. And that is a lie. That is utterly untrue, and it's exactly the opposite of the you know the fantasti And that's it for today. We'll be back next week with another edition of the Econoclasts. Don't forget to rate like and subscribe to the Econoclasts .