YT YouTube2Text

YouTube2Text → Transcripts → America is spiralling towards a debt crisis - Varoufakis & Munchau | The Econoclasts

America is spiralling towards a debt crisis - Varoufakis & Munchau | The Econoclasts — Transcript

by UnHerd · 5,941 words · 945 segments · language en · Watch on YouTube

Open in transcriber Summarize with AI Download SRT/VTT

Full transcript

0:00The private sector in America is loading
0:02up with debt like never before. I am
0:04predicting that the US will have a debt
0:05crisis.
0:06>> Default when you are in a debt crisis is
0:09happening. The question is who is going
0:11to pay the price of the default?
0:13>> There's always an American economist who
0:14will tell me, "Don't worry, we are the
0:15anchor currency, the dollar is the
0:17global reserve currency, the US cannot
0:19default, full stop." And that's just
0:21nonsense.
0:21>> If this breaks, then you have every
0:24reason to be fearful.
0:25>> We're heading into a broader base crisis
0:27of the global financial system as a
0:29whole.
0:30>> If our global financial sector is not
0:32going to hold, that will be a
0:34singularity in our modern history.
0:36>> China could be writing a new chapter in
0:38history. And that opportunity will
0:40require the Chinese to ensure that the
0:44benefits from this production-focused AI
0:47tech are spread across the population.
0:50>> The idea that we have to work longer
0:52hours forever, I never accepted this.
0:54Certainly what I can say from from my
0:56end is that the approach to start off
0:58with open-source models seems to me the
1:00right one.
1:03>> Welcome back to The Iconoclasts. It is
1:05my great pleasure to welcome back to the
1:07program
1:08>> [gasps]
1:09>> Wolfgang Münchau, who has been away on
1:12a very much
1:14deserved holiday. And I have to say that
1:17currently I speak to you from the
1:20Mediterranean Sea. This is a boat
1:22floating. So I'm having my own holiday,
1:24but how could I miss the opportunity to
1:27welcome Wolfgang back? Hello Wolfgang.
1:30Tell us where you've been.
1:31>> I've been in cooler waters. I've been in
1:33the north of Europe. My family and I, we
1:36we took a trip around the Baltic Sea,
1:38spent quite a bit of time in the Baltic
1:40Republics, and then in Finland and
1:41Sweden. There's something we we should
1:43probably discuss at some point,
1:44something I noted this time. I've been
1:46visiting the Baltic Republics before,
1:48but something I I noted for the first
1:49time for another podcast, not for today,
1:53but I noticed that prices in those
1:54countries have risen enormously. In in
1:56some respects, you know, it was a relief
1:58to go to Finland because things were
2:00cheaper.
2:01And you know, that was like an almost
2:03absurd experience. Tells us something
2:05about a monetary union that the
2:06one-size-fits-all
2:08policy of of a monetary union that
2:11doesn't fit those small countries
2:12anymore. And and that's something quite
2:14an interesting development that I didn't
2:16quite have on my radar screen. Today, I
2:18would like to talk about something that
2:19happened last week, the rise in US
2:22interest rates, the intervention by the
2:24US Treasury Secretary, and the fact that
2:26it didn't work really as well as
2:28intended. And I think this is sort of a
2:31reminder of the kind of times we're
2:33living in, of the kind of debt-ridden
2:35times we are living in. The private
2:37sector in America is loading up with
2:38debt like never before.
2:40So is the public sector. Donald Trump's
2:42budget, I thought it was one of the most
2:44irresponsible fiscal plans in in in US
2:47history, is exploding the deficit. The
2:49Congressional Budget Office has revised
2:51the
2:52deficit projections. And I think we're
2:55sort of in a debt trap situation where
2:58you pile on debt, the markets push up
3:00the interest rates, it increases your
3:03debt servicing costs, so your debt goes
3:05up higher by what it was originally
3:07projected. And as a result, the markets
3:10keep on pushing up the interest rates.
3:12This can easily get out of control. Now,
3:14it hasn't gotten out of control. We're
3:15talking about interest rates of 5.
3:183% around that level in the United
3:20States for 30-year bonds. That's not a
3:23debt crisis. Uh but it's it's it's it's
3:26an uncomfortable level. Uh it's we're no
3:29longer living in the zero interest rate
3:31environment. It is sort of also a
3:33reminder that the United States is not
3:37immune to debt issues, to debt problems.
3:39For pretty much the last 20-30 years,
3:42I've you know, whenever I raised the
3:44issue of the US deficit, there was
3:45always an American economist who would
3:47tell me, "Don't worry, we are the anchor
3:49currency. We are the the dollar is the
3:51global reserve currency. The US cannot
3:53default, full stop.
3:56And that's just nonsense. It It really
3:58is nonsense. And I think it conflates a
4:00number of issue. Of course, the US can
4:01default. Anybody can default. The fact
4:03that the Fed can print money
4:06that doesn't mean that the US cannot
4:08default. This is a Every central bank
4:10can print money. The ECB can print money
4:12for every, you know, every member state.
4:14It doesn't do that, but it can. The Bank
4:16of England can print money, but look at
4:18what's happening here in the UK. It's
4:19not like the fact that the Bank can
4:21print money makes the UK immune to debt
4:24crisis.
4:25Uh very much on the contrary.
4:27>> Well, you your story is about debts and
4:29deficits. My story for today
4:32will [snorts] be about surpluses and
4:33will be about China. And the orthodoxy
4:35that I want to debunk is, you know, the
4:37standard argument that for China to
4:40escape what I call it's rent trap at the
4:43moment,
4:44the Chinese, both the private sector and
4:46the public sector, need to go on a
4:47spending spree. The radical solution
4:50solution I see on the horizon
4:52because this is no solution. Consumerism
4:54galore is not a solution. The radical
4:56solution I see on the horizon, I'm going
4:58to be talking about that later on,
5:00concerns the smart use of Chinese AI.
5:03And that I'm sure this is going to be a
5:04controversial point and I'm looking
5:07forward to your response to it. But
5:08let's go back to your orthodoxy of the
5:11day
5:12about debt, American debt mattering or
5:15not mattering.
5:18>> Mentality doesn't just happen in
5:19politics or in markets. It happens in
5:21the news you consume every single day.
5:23Half the country is being told one story
5:25is the whole story, while the other half
5:27never even hears it exists. That's not
5:29journalism. That's a herd being led. And
5:32that's exactly why Ground News Matters.
5:34Ground News was built because you can't
5:37just read or watch the news anymore and
5:39trust what you're getting. Your
5:40perception is being actively shaped.
5:42Some stories get amplified while other
5:44stories get buried. Framing gets twisted
5:46and the entire narrative gets
5:47constructed by which half of the country
5:49decides to cover something and which
5:51half ignores it. Ground News gathers and
5:53compares news from over 50,000 outlets
5:56and it shows you everything. Who's
5:58covering what, how they're spinning it,
5:59who's gone conspicuously silent, bias
6:02ratings, headline comparisons,
6:03reliability scores, and ownership
6:05transparency. The feature I keep coming
6:07back to is blind spot. It exposes
6:10stories getting wall-to-wall coverage on
6:12one side while being completely ignored
6:14on the other. This story about the US
6:15threatening to scrap EU visa waivers
6:17over data sharing demands, it was
6:19covered completely on the left while
6:21this one about how the ringleader of a
6:23notorious Rochdale grooming gang can't
6:25be deported back to Pakistan and is soon
6:27to be released from prison was only
6:29covered on the right. This is what
6:30happens when you follow the herd instead
6:32of thinking for yourself. With my link,
6:34you can get 40% off the Vantage plan,
6:36the one I'm using at ground.news/unheard
6:40or scan the QR code. Use code unheard26
6:42for 40% off.
6:47>> That is not a problem in itself if you
6:49can service it. So, there isn't such a
6:51thing as a correct level of debt or a
6:54maximum level of debt. The maximum level
6:56of debt is the one that you can service.
6:58It's as very simple as that. And and
7:00governments have instruments available
7:02to themselves that private companies
7:03don't. They can tax. Uh that's that's is
7:06why sovereign debt uh enjoys a special
7:08status in the bond markets. A government
7:11must not default. It can It can always
7:13raise the money if it wants to. It can
7:15choose to default. So, this is another
7:17another matter. But, a private sector
7:19borrower, you know, can
7:21be in a position where the private
7:22sector, you know, where where they want
7:24to service the debt but can't physically
7:26can't. Governments are rarely in that
7:28possibility in that in that situation.
7:30Governments usually have more options
7:32available to them than the private the
7:33private sector. And the the reserve
7:36currency of the world, the government of
7:38the reserve currency of the world, the
7:39United States, has more options
7:40available than others. That's for sure.
7:42It has a lot of investments locked up.
7:44It can tax investments as Donald Trump
7:46even tried to do at one point. It can
7:48impose a tax on all the deposits,
7:49foreign deposits in the United States.
7:51There's a lot of what they can do to
7:53avoid default. And I'm not, you know,
7:54I'm not predicting that the US will
7:56default. I am predicting that the US
7:58will have a debt crisis.
8:00And that it will need to act fairly
8:02forcefully to counter it, either through
8:05accepting higher inflation, which is I
8:06think what they will do, or through
8:07taxing foreign investors, or through a
8:10combination, or maybe even of defaulting
8:13on obligations to their citizens, on
8:14health care, on pensions. And we can
8:16always default, you know, not only on
8:18the on on markets, we can default
8:20default on our own citizens. This is
8:21another form of default. And I I would
8:24actually call it that, because if you
8:25promise people that they have a safe
8:27pension, and then you don't, you know,
8:28and then you you you raid the pension
8:30fund, that's a form of default. It is
8:32very unlikely that this is this is uh
8:35sustainable. Now, I'm not a pessimist of
8:36the US. I'm not one of these people who
8:38say that Trump will fail because he's
8:40Trump. And, you know, I I've been sort
8:42of as as, you know, listeners and
8:45viewers will know, I've been I wouldn't
8:46say pro-Trump, but I've been sort of
8:48open-minded about some of the things,
8:49especially some of the tariff policies
8:51and some of his economic policies.
8:53I you know, I didn't see them in the
8:54same light as sort of traditional
8:56commentators in in in Europe would do. I
8:59also think that some of his policies
9:01have actually worked better than people
9:03predicted, like his tariffs. They
9:05certainly raised a lot of money, and
9:06they didn't produce the kind of
9:08inflation that people predicted. So, so
9:10I'm, you know, I'm not like really
9:11dissing dissing him here, or dissing his
9:13administration. The issue is very much
9:15that can the US maintain this level of
9:18growth? If If they can,
9:20if they can grow at 3% every year, you
9:23know, I think it will probably be all
9:26right. But, we have also an an issue in
9:29the in the tech sector. If there is a
9:31bubble, if if the AI investments that
9:34are currently being made and that are
9:35competing, you know, the bond issuance
9:39of AI companies are competing with the
9:41bond issuance of the US administration.
9:43Now, if some of this these investments
9:45go bad
9:47and I'm sure some will, then we might be
9:50ending up in a
9:52in a sort of combined public private
9:53sector debt crisis.
9:55And should this result in the US
9:56recession and the Fed will be prevented
9:59from
10:00supporting the economy because of high
10:01inflation, we might well be in a
10:03situation where uh interest rates rise
10:06fairly dramatically. And you know, it
10:09it's like with all debt crisis, they
10:10follow the the old, you know, Hemingway
10:13format of, you know,
10:14gradually then suddenly. That's the case
10:17here and the there's an actual sort of,
10:19you know, economic or even mathematical
10:20reason for that. It is the fact that
10:23debt levels raise relatively slowly even
10:26with high deficits.
10:27But once the interest rates once the
10:29market response to this, then it's sort
10:32of we create sort of this creates a
10:34toxic dynamics between you know,
10:36interest rates, debt levels, deficits
10:38and you can easily end up like Greece
10:40did, you know, end up, you know,
10:41starting with 100% debt to GDP it was a
10:44bit more
10:45ending up at 200 in no time. I remember
10:48the early austerity programs in Greece
10:50actually drove up the debt level because
10:52people completely misjudged the you
10:54know, the Europeans that kind of forced
10:56Greece into this completely misjudged
10:57the the economic dynamics of this and
11:00you could see similar things happening
11:02in the United States. We you know, it's
11:04it's it's genuinely difficult for a
11:06country to be in the situation to
11:08extricate themselves through you know,
11:10domestic policy changes. So, default is
11:13always an option. It was an option in
11:15Greece. It is not it's going to be an
11:17option in the United States should they
11:19come into the scenario. This is not an
11:21an outright default on bond holders. It
11:24could take different different different
11:25ways. One could you know, I've been
11:27hearing in France Jean-Luc Mélenchon's
11:29party the the party of the far left in
11:31France. They're now openly discussing
11:34turning the French bonds at the Bank of
11:36France and the ECB
11:38into, you know, zero coupon perpetuals.
11:41That sounds like an interesting
11:42technical thing, but it all it means is
11:44a default. It's basically the the bond
11:46will never be repaid and it never pays
11:48any interest. That's basically the same
11:49thing as like, you know, you no longer
11:52have it. This is the kind of debate that
11:53we're now starting to get. And you know,
11:55this is you know, I I don't think
11:57Jean-Luc Mélenchon will be the next
11:58president of France, but you know, he is
12:00in there with a chance. There is a
12:01certainly a scenario in which he might
12:03be a here or he might be a second round
12:04candidate. And it's not just some, you
12:06know, people on the fringes. These are
12:08main I would call him a mainstream
12:10politician. He's certainly polling
12:11higher than the vast majority of the
12:13centrist candidates in France. So, yeah,
12:15we should take this seriously. And you
12:17know, we should take Trump seriously
12:18because he is clearly not interested in
12:20balancing the budget. That was never
12:22going to happen. The US private sector
12:24is
12:25going, [snorts] you know, into an
12:26investment spree that is unprecedented
12:29and that relies on extremely optimistic
12:32assumptions about the economy. And you
12:34know, I'm optimistic about AI. Now,
12:36don't you know, I'm not one of these,
12:37you know, European pessimists who always
12:39think see the problems but never see the
12:41opportunities. I think AI is going to be
12:44a sort of a
12:45a life and, you know, society-changing
12:47event. That doesn't mean that the
12:49investments we're making today are all
12:51sensible. It's a bit like the dot-com
12:52bubble. You know, dot-com wasn't a
12:54bubble, but a lot of the investments
12:56people made at the time were a bubble.
12:57AI may well follow the same pattern that
13:00it will be a successful technology in
13:03the long run, but not not in the way
13:05people envisage it today. And that a lot
13:07of the investments people are making
13:09will not come good. And the same, you
13:11know, if if these private sector crisis
13:13sort of and the public sector debt
13:15crisis come together, because that's
13:17that's the that crisis of a state is the
13:18private and the public sector taking
13:20taking together. Because ultimately, the
13:23government is responsible for the debt
13:25of the nation, not just of the public
13:27sector of the nation. If both come
13:29together, we could see a serious turmoil
13:32in in the financial markets to the
13:34extent that the dollar may no longer be
13:36the the global anchor currency that that
13:38we've known it to be. And this is now I
13:42I think a a scenario that's no longer
13:45outlandishly small probability, but it
13:47is a a mainstream scenario for me. I'm
13:50not saying the most probable scenario,
13:52but I think it is a scenario that we
13:55should take sufficiently seriously.
13:57>> When you were
13:58discussing the possibility of government
14:01defaulting on its people, given that of
14:03course
14:04here in Greece in our
14:06>> [laughter]
14:07>> the in the heights of our debt crisis,
14:09this default did take place. You
14:11reminded me of something that happened
14:13when I was Minister of Finance during
14:15that crisis. Klaus Regling, a gentleman
14:17who was heading the European Stability
14:20Mechanism, he said at some point to me,
14:22"Well, you know, you have to make a
14:23payment to the International Monetary
14:25Fund, Yiannis, tomorrow. The thing to do
14:28is
14:29default on your pensioners. Cancel all
14:32pensions for 6 months."
14:33So, you know, default when you are in a
14:37debt crisis is happening.
14:39The question is who is going to pay the
14:41price of the default. Will it be the
14:45lenders? Will it be the public? Will be
14:47the pensioners? Will be the foreigners?
14:50Indeed, in 2011-2012,
14:52Greece had the greatest default in human
14:54history.
14:55A hundred billion euros was written off.
14:58But of course the bankers lost nothing
15:00because they were compensated,
15:02overcompensated for whatever losses they
15:04made. But you know, small bondholders of
15:07the Greek state were wiped out
15:08completely.
15:10Pension funds were wiped out. Anyway, I
15:13just wanted to
15:15I couldn't prevent myself from making
15:17this jab in response to your reminder
15:20after reminder that when the debt is
15:22unpayable, somebody suffers a default,
15:25but the question is who? And the answer
15:27to that question is always political.
15:29It's never economic, it's not
15:30microeconomics, it's not scientific.
15:32It's, you know, the people who suffer
15:34from the default, which is inevitable,
15:36are the weakest links, the people with
15:38the least political power.
15:40Now,
15:41when it comes to your worries, the
15:44worries that were spearheaded by the
15:46fact that 30-year bonds in the United
15:50States rose above 5%. There was this
15:52spike. Now,
15:54when we talk about the United States,
15:57we have to make sure that we talk
15:59specifically about the United States,
16:01because what applies to the United
16:02States doesn't apply to other countries.
16:04So, you know, the United Kingdom, it may
16:07be also privileged enough to be printing
16:09the currency in which it borrows, but it
16:12doesn't have the privileges that come
16:15with the issuer of the world reserve
16:18currency.
16:20So, the question is,
16:22are these American economists that
16:23always remind you that, "Oh, we are the
16:26we have the exorbitant privilege of the
16:27reserve currency, so don't worry about
16:29our debt."
16:31Are they right or are they wrong?
16:33Is it possible? Essentially, the
16:36question is, is the exorbitant privilege
16:38under threat? As long as it isn't, then
16:41they're right. But, just because they
16:43have had the exorbitant privilege all
16:45these years, doesn't mean they will
16:46continue to have it tomorrow. The
16:47problem with empiricism,
16:50you remember, of course, the
16:52allegory where the chicken always
16:54assumes that it will live forever
16:56because the farmer keeps feeding it
16:57until one day the the farmer chops its
17:00head off.
17:01So, you know, is the exorbitant
17:02privilege's head going to be chopped off
17:04or not? Well, Vulcan, I don't think it's
17:07got anything to do really with interest
17:10rates, interest rate policies by the
17:12Fed,
17:13or, you know, what Scott Bessent is
17:15doing. By the way, I was amazed by the
17:18article he wrote in the Financial Times
17:20in which he is threatening Iran with an
17:22economic D-Day. It just goes to show
17:24that Scott Bessant is far lesser of a
17:27Treasury Secretary than I thought. He
17:28seems to be in a state of panic now. But
17:30anyway, the question about the
17:32exorbitant privilege of the dollar turns
17:35on another question which is more
17:37profound,
17:38deeper, and more meaningful. Is the
17:40United States economy
17:43going to continue to be able to recycle
17:46other people's surpluses?
17:49Cuz, you know, the reason why American
17:50hegemony has been growing since 1971,
17:53the end of Bretton Woods,
17:56in spite of the fact that it has been
17:58the United States has been sinking
18:01deeper and deeper into red ink both when
18:04it comes to its current account and its
18:06budget accounts. The reason why it has
18:09been
18:10increasing its hegemony
18:13analogously
18:14in proportion to how much in debt it
18:18went.
18:19Uh and in deficit it went. The reason is
18:22because it was recycling other people's
18:24money.
18:25Other people's profits. So, you know, I
18:28keep saying this, but it's important to
18:29remind this. You know, every time a
18:31Mercedes-Benz was sold to the United
18:33States or aluminum was sold by some
18:37factory in Shenzhen to California, a
18:40pile of dollars ended up in German or
18:42Chinese accounts and then it migrated
18:45back to Wall Street to be recycled in
18:48American government bonds, some
18:50equities, and real estate.
18:52And this is the manner in which other
18:54people's profits and surpluses have
18:58maintained and financed American
19:00hegemony. Is this recycling scheme,
19:03which is pretty remarkable, it's never
19:05happened in human history before, that's
19:06not how the British Empire functions,
19:08not how the Dutch Empire function
19:10function, it's only how the American
19:12empire has functioned. Is this under
19:14threat? Will this break? If this breaks,
19:18then you have every reason to be
19:20fearful.
19:20>> I'm also not saying that the US is about
19:23to default. It's not my prediction. I
19:25am, however, saying that even the issuer
19:29of the global reserve currency and the
19:31country that enjoys the exorbitant
19:33privilege that the US undoubtedly does
19:37is not immune from financial crisis and
19:40it's not immune from financial crisis of
19:42a sort that might be very difficult to
19:44fix with a classic bailout mechanism.
19:46This is you know, a debt crisis of that
19:48proportion if it's based on a loss of
19:50trust by investors is not going to be
19:53fixed by a central bank that issues
19:56money and and and monetizes the debt.
19:59We're heading into a broader base crisis
20:01of the global financial system as a
20:03whole. It is indeed a distributional
20:05issue of who gets who gets to pay for a
20:08for this crisis and I I would agree for
20:10Yiannis, it's the people with the least
20:12amount of representation and this is the
20:14the poorest and those that are least
20:16organized. I think the bigger question
20:18is can you know, if the global financial
20:20system as we know it, which was the
20:22backdrop to our age of globalization, it
20:24was an age of financial globalization.
20:26This wasn't just you know, a feature of
20:28it. It was a it was a central pillar of
20:30it.
20:31If our global financial sector is not
20:33going to hold, if it suffers a collapse
20:36that will be undoubtedly more serious
20:38than the one of after the Lehman
20:39Brothers collapse, that will be sort of
20:42a sing a singularity in our in our in
20:45our modern history. I think we'll end
20:47our discussion on the United States on
20:49this point. We'll be back after the
20:51break. Don't go away.
20:55Welcome back to the Econoclasts. In the
20:58second part of our series today, Yiannis
21:00wants to talk about China, spending and
21:04AI. Over to you, Yiannis.
21:06>> Well, thank you, Wolfgang. The orthodox
21:08concerning
21:09>> China, at least in the West, but not
21:11just in the West, is that to escape
21:13stagnation and to stop China exporting
21:16deflation to the rest of the world
21:17through its huge net exports, the going
21:20orthodoxy is that the Chinese need to go
21:22on a spending spree, both the private
21:24sector and the public sector. Now, I
21:26shall be arguing that this will not
21:27solve China's economic problems, at
21:29least it won't do those so sustainably
21:31or prevent China from impinging on other
21:33countries.
21:34But I think there is a radical solution
21:37to the problem, which is not part of the
21:38orthodoxy of the mainstream, and that
21:40depends on the smart use of Chinese AI,
21:42specifically Chinese AI, because the
21:44Chinese do AI very differently to the
21:47what the Americans do, and certainly
21:49more differently to what the Europeans
21:50do, if the Europeans are doing anything
21:52with AI that is worth mentioning. The
21:54United Kingdom, the European Union, and
21:57the United States, they advanced North
21:59Atlantic economies have fallen into a
22:01rent trap a long a long time ago. And
22:03the question is,
22:05can China escape it? What do I mean by a
22:07rent trap? A rent trap is what happens,
22:09the thing you fall into, when privateers
22:12decide how and where to channel
22:15accumulated wealth.
22:16Because as competition in the productive
22:19industrial sectors drives profit rates
22:21down,
22:22privateers buy assets,
22:25a rent-yielding property, in other
22:26words.
22:27And the more wealth chases rents, the
22:29higher the asset prices, and the faster
22:32the exodus from industry
22:34into the rentier sector.
22:36Now, unsurprisingly, rent traps hollow
22:39out industry and turn proud industrial
22:42powerhouses like the North of England,
22:45once upon a time, the American Midwest,
22:47they turn them into wastelands with
22:49momentous politically precautions of the
22:52sort that we are immersed in and we live
22:54through across the West.
22:57Now, China almost fell into this rent
22:59trap I
23:01with the real estate bubble who can
23:03forget Evergrande that huge real estate
23:07company that went bust. If I'm right,
23:09its managing director or chairman was
23:11imprisoned recently. The Chinese
23:13solution to this rent trap, which seems
23:15to have worked quite well in the short
23:17run, at least, is the fact that instead
23:20of leaving it to the private sector to
23:23channel investments, the state has
23:26played an activist role, has directed
23:28investment with great success in many
23:31cases. Ultra-fast railways are
23:34crisscrossing China.
23:36Critical minerals have been cornered the
23:39whole market globally. Green energy, I
23:42mean,
23:43batteries, electric vehicles, microchips
23:45now are taking advantage of Joe Biden's
23:48ill-conceived ban of exports of
23:53microchips to China. More recently, of
23:55course, AI.
23:56Now,
23:57this has helped China
24:00avoid or skirt or steer clear, at least
24:04temporarily, from the rent trap that I
24:06mentioned before.
24:07But, there is a side effect to this
24:09success story.
24:11And [snorts] it's the huge accumulated
24:13savings of China. There are 170, more
24:15than 170 trillion yuan. That's around 25
24:18trillion dollars of accumulated savings.
24:21Now, if these are channeled into asset
24:23purchases, you have a rent trap.
24:26If they're invested abroad, you have a
24:28kind of imperialism.
24:30And you also have the problem that the
24:32German investors uh
24:34uh faced. Who forgets the Eurozone
24:37crisis? And what is the problem that
24:39they faced? Well, they
24:40they realized that they were entrusting
24:42their savings to foreigners. Now, why am
24:45I saying that Chinese AI
24:48is uh
24:50offering the opportunity. It doesn't
24:51mean that the Chinese government or
24:54economy is going to take advantage of
24:55this opportunity. What I'm saying is
24:57that it is offering the opportunity of
24:59escaping the rent trap and actually
25:02having historic impact on the evolution
25:07of the political economy, not just of
25:09China, but of the world.
25:11Now, the point I'm going to make is that
25:13Chinese AI is not just a labor-saving
25:16technology. It is that, but it is a lot
25:18more than that. Unlike in the United
25:21States, Silicon Valley, which obsesses
25:23over building
25:26AGI, all-purpose general intelligence
25:29machines that essentially offer us
25:32services like, you know, creating lots
25:35of slop,
25:36bad poetry,
25:38plagiarizing stuff, and so on. A kind of
25:40process which enriches a tiny rentier
25:43class made of big tech technolords.
25:47In China, the focus of AI, of the
25:50technological AI revolution, is actually
25:55production of stuff.
25:56AI [snorts] is incorporated into
25:58machines that
25:59build stuff. And that is leading to what
26:02can usually be described as a
26:05productivity singularity. And by
26:07productivity singularity, I don't mean,
26:10you know, just
26:11labor-saving automation that replace
26:14replaces living labor. The important
26:17point to notice here is that
26:20at least from the economic political
26:22economy tradition where I come from,
26:23value
26:24>> value
26:25>> is the result of expending socially
26:28necessary labor to build something. Now,
26:30a robot does not create value. It
26:33transfers the value embedded in it by
26:36the workers who built it. Similarly
26:38with, you know, textile machinery. The
26:41point about AI replacing labor is that
26:44it does so not in a localized manner,
26:47but it does
26:49replace labor across the entire supply
26:51chain, including increasingly design and
26:55the theoretical aspects of the
26:57production process. So, this is where
27:00Chinese AI is proving to be quite
27:03revolutionary. It's not simply giving a
27:06competitive advantage to the companies
27:09that use it. It offers the possibility
27:11of the material basis for the abolition
27:14of value itself, because if you think
27:15about it, if dark factories, the way
27:18that they produce CATL
27:20batteries or the way that they produce
27:23electric vehicles without using almost
27:26any labor,
27:27uh you know, in the end, you're going to
27:29have a lot of output that has very
27:32little economic value. They'll have a
27:33lot of utility,
27:35but no economic value because the
27:39the labor costs will be absolutely
27:41infinitesimal. Now,
27:43the big question is,
27:46can Chinese society
27:48organize itself so that the benefits,
27:51this utility that can be produced with
27:54no value, be shared? Because if it can,
27:57then they don't need a consumer
27:59expenditure spree in order to stabilize
28:03aggregate demand, in order to stabilize
28:05society. Now, if they manage to pull
28:07this one off,
28:09>> [snorts]
28:09>> to use the revolutionary character of
28:12Chinese AI, which is also open source,
28:15so it means that it can be adopted by
28:17small businesses and medium-sized
28:18businesses at almost negligible cost in
28:22order to assist in the maximization of
28:25output and the minimization of prices.
28:28If they can make sure that the benefits
28:32of this AI, unlike in the United States,
28:34where the benefits are going to fall
28:37squarely in the bank accounts of a tiny,
28:41tiny number of tech lords, if those are
28:45spread, the benefits in China on the
28:48basis of the democratization if you want
28:51of the returns to AI
28:54revolutionary technologies, then then
28:57China could be writing a new chapter in
29:00history. I'm not saying it will.
29:02What I'm saying is that they have an
29:03opportunity.
29:04And that opportunity will require the
29:06Chinese state moving from simply
29:09directing investment into managing to
29:12ensure that the benefits from this
29:16production-focused AI tech
29:20are spread across the population.
29:22>> I'm
29:23moderately optimistic that they they
29:25might actually achieve this because
29:26China has a different strategy on AI
29:28than the United States and one that
29:30worries the United States and which is
29:31the open source strategy. Now, they also
29:33exist in the United States. There are
29:34open source companies that compete, but
29:37that's the smart way of doing this
29:38rather than having closed systems. The
29:40Europeans tried it with closed systems
29:42because they wanted to keep everything
29:44secret and they completely failed. When
29:46open source started for the first time,
29:48I myself I have to admit I I didn't
29:49understand it. I understood commercial
29:51models about when when I heard that sort
29:53of like operating system like Linux that
29:55was sort of distributed on an open
29:56source basis,
29:58I I thought this was a fad initially
29:59because you know, I didn't know anything
30:00about the stuff, but I but it it didn't
30:02make sense to me until I sort of
30:04realized that this is actually a very
30:05smart because what happened here is that
30:07an awful lot of business business
30:09opportunities were possible through it
30:12and it would actually leverage uh
30:14opportunities including for the founder
30:15of Linux who became sort of you know,
30:18very much high demand because people
30:19needed to repair it and people needed to
30:21service it and people needed to develop
30:23it.
30:24It gave rise to
30:25much more business than it would have
30:27been had it been a business. And that's
30:30the the idea of open source. It's a it's
30:32sort of a it's it's a it's a spread and
30:33it's actually also quite democratic
30:35because it it it it reduces barriers to
30:37entry. I mean, we've seen
30:38technologically
30:39the The are very much ahead. There's no
30:41question that the models by OpenAI and
30:44Anthropic are very, very good. I use
30:46them. I use the OpenAI models, the
30:48latest one, and I'm massively impressed
30:51by the speed, but also the change
30:54relative to to where they were even like
30:566 months ago. And there is no slowdown
30:58in sight. People that
31:00suspected that there will come a point
31:01it would would slow down. That may
31:02happen at some point, but right now
31:04we're still on a on something that looks
31:05like an exponential curve. So are the
31:07Chinese. They're basically, you know,
31:09they're not I wouldn't say at the top,
31:11but they're they're closing the gap.
31:13They're very close. But more importantly
31:14is the fact that they have this
31:15distributive model. When I learned about
31:18the economy, I thought, you know,
31:19everybody's assumption was that progress
31:22meant we had to work less. When I grew
31:24up and, you know, had my first jobs and
31:27saw people in other jobs, certainly in
31:29the financial sector, I never worked
31:30directly in the financial sector. I was
31:31as a journalist who,
31:33you know, observed it. But everybody in
31:35the financial sector seemed to work
31:36longer and longer hours. And that seemed
31:38to counter the trend of, you know, we're
31:40getting more productive and we we need
31:41to work less. In finance at least
31:43everyone worked longer hours. In
31:44industry there was a trend towards
31:47reduced working hours, but that trend
31:49was also, you know, also didn't go all
31:52the way and in some the German response
31:54right now, for example, is to actually
31:55increase working hours. Some companies
31:57want to go back to the 40-hour week
31:59having, you know, had the 35-hour week,
32:01so they get more competitive. I think
32:03this is this is not the way to go, but
32:05but the the the the general idea of if
32:08AI brought this about that we all work
32:11less, that would be a very good idea.
32:13Now, labor is not a lump, you know,
32:15there've been various lump of labor
32:17theories. You can't divide it, so we
32:19can't all work like 10 hours and, you
32:21know,
32:22this isn't the way it will work. But the
32:23idea that we have to work longer hours
32:25forever,
32:27which was sort of the mantra of the
32:28globalization philosophy, I never
32:30accepted this. And I think the idea that
32:32as you outlined that it will eventually
32:34be shared widely and it will actually
32:36produce benefits to broader broader it's
32:39it's really about distribution. It's
32:41about how will the the the massive
32:44proceeds and the proceeds I I believe
32:46will be absolutely massive. How will it
32:49be distributed? Certainly what I can say
32:51from from my end is that the approach to
32:53start off with open source models seems
32:56to me the right one.
32:59>> Well Wolfgang, I wish I had a crystal
33:01ball. I have no idea whether the Chinese
33:02will succeed in doing it. What I'm
33:04saying is that they have a chance
33:05[music] of doing it well unlike the
33:06Europeans and unlike the Americans
33:08because of the preponderance of the
33:10power of Big Tech. We'll have to wait
33:12and see. Maybe the the next generation
33:15will find out and we'll have to find
33:17some way of informing you and me in some
33:20really high-tech way.
33:22So folks, until next week, don't forget
33:26to rate, like and subscribe to the
33:28Econoclast.

About this transcript

This page contains the full transcript of America is spiralling towards a debt crisis - Varoufakis & Munchau | The Econoclasts by UnHerd, generated from the public captions YouTube serves with the video. The transcript has 5,941 words across 945 segments, with the original timestamps preserved so you can click any line to jump to that moment in the embedded player.

What you can do with it

Use the transcript to take notes, quote the speaker, build a study guide, generate a summary with ChatGPT or Claude via the YouTube Summary tool, or export it as a timed subtitle file with YouTube to SRT. You can also re-open it in the transcriber to translate the transcript into 100+ languages.

Free YouTube transcript tool

YouTube2Text is a free YouTube transcript generator — no signup, no daily limit. Paste any YouTube link and get the full transcript instantly, with timestamps, click-to-jump, translation to 100+ languages, AI prompts for ChatGPT, Claude, and Gemini, and exports to TXT, SRT, VTT, or Markdown.