Young, Poor and Totally Screwed with Stuart Trow
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Summary
In this episode of The No Nonsense Sustainability Podcast, host Ildiko Almasi Simsic is joined by Stuart Trow, a Bloomberg columnist and author of the book "Young, Poor and Totally Screwed." The discussion centers around the financial struggles faced by millennials and the intergenerational inequalities exacerbated by current economic policies.
The conversation delves into topics such as the gig economy, housing market challenges, and the framing of sustainability as a cost rather than an investment. Stuart Trow shares insights from his career in financial markets, highlighting how economic systems have disadvantaged younger generations and the impact of these systems on sustainable finance.
Ultimately, the episode explores the need for investment in sustainable practices and the role of government in setting effective economic policies. Trow emphasizes the importance of understanding human behavior in economic models and the potential for younger economists to innovate and address these systemic issues.
Highlights
Stuart Trow discusses the financial challenges millennials face today.
The gig economy and housing market are major hurdles for asset ownership.
Sustainability is often framed as a cost rather than an investment.
Economic policies have created deep intergenerational inequalities.
The role of government is crucial in setting effective economic policies.
Investment in sustainable practices is essential for future growth.
Understanding human behavior is key to improving economic models.
Key takeaways
1. Millennials face significant financial challenges due to systemic economic inequalities.
2. Current economic policies often disadvantage younger generations, impacting their financial security.
3. Sustainability should be viewed as an investment opportunity rather than a cost.
4. Government policies play a critical role in shaping economic outcomes and sustainability efforts.
5. Innovative thinking from younger economists could address systemic economic issues.
Timestamped breakdown
0:08 — Introduction to the Episode: Ildiko Almasi Simsic introduces Stuart Trow and the episode's focus on economics and inequality.
0:31 — Stuart Trow's Background: Stuart Trow discusses his career in financial markets and his book addressing millennial challenges.
1:12 — Intergenerational Inequality: Discussion on how economic systems disadvantage younger generations, using Japan as an example.
4:02 — Trade and Investment: Stuart highlights the role of trade and investment in creating quality jobs and economic growth.
5:28 — Impact of Economic Setbacks: Exploration of how economic hardships affect climate change engagement and policy.
9:04 — Climate Change and Economic Policy: Analysis of how economic policies influence climate change mitigation efforts.
12:13 — Human Behavior and Economic Models: Discussion on the role of human behavior in economic fairness and policy outcomes.
14:16 — Economic Policy and Asset Ownership: Examination of how low interest rates benefit asset owners and widen economic disparities.
19:33 — Net Zero and Investment: Stuart argues for viewing net zero as an investment opportunity rather than a cost.
23:51 — Role of Development Banks: Discussion on how development banks can foster growth and support sustainable projects.
31:17 — Positive Takeaways: Stuart concludes with positive insights on trade, investment, and economic innovation.
Edited transcript
Welcome back to the non nonsense sustainability podcast. I'm ILico Amashi Sims and today we're talking about economics and inequality. My guest today is Stuart Trow, a columnist for Bloomberg and the Washington Post with a long career in economics, market, financial advice. He was a senior market strategist at EBRD and held senior positions in National Australia Bank. We're talking about his latest book, Young, Poor, and Totally Screwed, that talks to my generation, the Millennials. Welcome to the show, Stuart. Thank you.
So, in the book, you talk about being a boomer yourself. What was that moment of self-reflection that made you think that maybe those avocado toast and matcha lattes were not the reason why my generation cannot buy houses? Right. Well, it was several things over my career, but there was one particular episode if you like. I used to work for a Japanese bank and Japan, you know, when I was at university and shortly afterwards had an asset bubble to be all asset bubbles and younger workers there, you know, often had quite strong career aspirations, but they could never aspire to owning property because they had a housing boom which dwarfed anything we've seen in Europe. But what it meant was that no matter how well they did in their careers, they were never able to aspire to asset ownership. So they expressed that by being more consumer oriented. So if you've got the disposable income, you can consume your avocado toast, which is to be fair quite a modest aspiration, but you could never aspire to owning assets and building wealth. And you're seeing a similar story play out for the generations that followed, the baby boomers.
Yeah. So we talk a lot about intergenerational equity and inequalities. In the show, we have the buzzer when we slip into the buzzword or the jargon and if I gave you 60 seconds to explain what intergenerational equity is without using a buzz word, how would you go about it? Um well, I suppose it's understanding what creates intergenerational disadvantage which then feeds through to the inappropriate use of the planet's resources for boosting wealth for certain generations but not for others. So you know one of the things for example that created the good quality jobs when I first started making my way in the world if you like and bearing in mind we also thought things were tough for us but they've got tougher I think that's the narrative but you know it was the realization that trade and investment work and such investment as we've seen hasn't been directed towards improving productivity in the economy. to create good jobs for you know for millennials and to be fair all the generations that have followed the baby boomers. So recognizing that it that trade and investment work would be a big start to preserving the planet and its resources for future generations so we're not misallocating capital along the way. So, so one of the things I'm intently conscious of in terms of this intergenerational legacy if you like is that you know China lifted itself out of extreme poverty precisely by inviting trade in on very prescribed in a very prescribed manner and also investing and it lifted close to a billion people out of poverty. So that's where I'm coming from. It's the trade and investment that work that create the good quality jobs create engagement the things like climate change so that when you know when it comes to actually exploiting the planet's resources in a good way rather than a negative way that they're not too bound up in intergenerational disadvantage to not be bothered about the climate impact of what they're doing.
Yeah. Because you know the inequalities in society and between these generations is just one aspect but the other aspect is the climate change. When everything was set up with a different perspective that we will have climate stability, we will have cheap energy and all the policies and the economic incentives were designed with that in mind and then life changed. Yes. Yeah. No, exactly. I mean and one of the things I guess that I found quite frustrating is that I finished the first draft of the book just before the pandemic and at that point we could only speculate about the impact of a major economic setback how that would affect engagement with climate change and you know mitigation efforts and stuff like that. Um but what co made clear was that initially everybody was really excited because there were fewer planes flying around the skies were clearer and they thought oh well this dolphins were back in Venice right that was the news exactly it and you know people were sort of quite excited about that and it appeared to vindicate the sort of well economic progress is is perhaps bad for the climate but what very quickly happened after that was you know a lot of countries didn't have the social safety nets that um western countries had and climate change engagement just went through the floor. So you know we ended up in a situation where say India to take one example was uh was making huge progress in solar farms you know it was nicely placed in terms of climate for large parts the country to do that yet it still granted private licenses for mining which it hadn't done either ever or certainly not for a long time. uh not because it needed the energy from coal but that it needed the jobs had been displaced by the economy collapsing by more than a quarter and you know you had a similar thing in in in China where uh the national government had made big statements about moving towards net zero and beautiful China but on a local municipality level they see building and development as vital to maintain maintaining the the region's prosperity. Uh so again you were getting coal fire power stations being developed because it created jobs and wealth in the short term and you so the economic imperative sort of crowded out climate change mitigation in the sort of if you like the finite pool of worry. But is that just a lag between policy directives trickling down to implementation or is that really driven by the need for jobs? Um I think it I think it's less a lag and more a cause because it's it's taken time to feed through. So if you look at um say fossil fuel subsidies um both direct and indirect, they've never been higher. And it's the same with fossil fossil fuel consumption. It's never been higher. So it and in some senses they're getting worse in the worst possible way because coal is very much a feature of um of the increase in fossil fuel consumption. So I think that kind of indicates that when you create economic hardship either by external events that you can't control like or you know tightening uh monetary policy to make investment more expensive or um austerity and big tax increases stuff like that. When you slow the economy and give people more immediate concerns than climate change mitigation to deal with, then you're storing up a problem and it's and that is the transmission mechanism from economic hardship and intergenerational disadvantage to sort of kind of backsliding on climate change.
And so what was the major change between the precoid draft of the book and what was published? Um well in the pre-COVID draft there there was a study done by an organization called CNA which is a which is an amalgam of sort of retired diplomats sort of military politicians scientists all the rest of it and they they war gamed scenarios around climate change things like sort of scarcity of water resources stuff like that and every single time it came back to sort of developed countries pulling ing in their horns. Uh becoming much more isolationist, much more nationalistic, uh much more sort of friction and outright sort of hostility of wars around climate escalation, you know, but one of the big impacts will be sort of forced migration for example. And you know, you can see, look at the populist examples you've got now where people are complaining about relatively small migratory flows. Imagine 10 100 times that when people are fleeing genuinely unstable sort of environmental issues and and all all those sort of issues, they they were wargaming to to speculate about what might happen whereas CO actually showed us what does happen. And you know, we've only got to look at it's not just individuals being skeptical about things like net zero. It's actually governments acting in that way as well, backsliding on, you know, new airports and sort of even raising you trade tariffs against electric vehicles and batteries and you know, and windmills and stuff like that. It's it's just so much the opposite of what we need to do. And it a lot of it is driven by the imperative political and economic imperatives of slower growth. Yeah. So in a way we're pushing the problem forward to the next generation. Yes. Oh absolutely. Yeah.
So if we know through the studies, research, decades of data that this approach doesn't work, why can we do better? And I know one of the arguments everybody says is that it's actually the boomers in the decision-making seats. Very few younger people in um like seats that or seats at the right tables where these decisions are actually made. So that's how we recreate this cycle of inequality. But now we have so much more access through like social media to voice concerns to raise awareness to demand transparency and demand action and accountability. Why are we still making the same mistakes? Um well I think one of the one of the things we've sort of not taken account of is human behavior. And in my book I often make the distin you know often state or you know my belief is that often it's human behavior that's the difference between sort of models and reality and one one of the things I think makes it very difficult is is that humans have got a really strong attachment to fairness. So younger generations for example are intensely aware that they've been disadvantaged to an extent we haven't seen in many generations. Um but at the same time sometimes our reactions to perceived unfairness aren't very rational. So you know the uh there's an economist uh Branco Milanovich he he says basically the the losers of globalization have been placated with populism. So it's very easy to misdirect uh the feelings of unfairness and why that is important is because if you try and correct prior unfairness say with redistributive taxes or social policies stuff like that you get you then get some of the advantaged groups protesting against that saying that's unfair. So a classic example of that was the January 6th insurrections in in Washington in 2021. What um there was an economist called Robert Pap. He did a lot of work on that and he wanted to understand who exactly it was who was protesting and what he found was that you know they were twice as likely to be business owners as general right-wing extremist sort of protesters. Uh they were probably about twothirds less likely to be unemployed. So basically these and obviously white and male but basically these guys by any sort of conventional reading were the winners of you know the economic situation and uh way things have progressed yet they were protesting things being unfair and what what the one thread you could draw through all of them was that they came from non-Trump counties but counties that were experiencing rapid demographic change. So they were kind of pushing back against what they perceived to be unfair. Whereas you know if you sit back and take a more measured view of the whole thing, you know, that's absurd very well. But that what that underlines is the difficulty in unwinding unfairness and how important it is that economics doesn't embed unfairness in the first place.
But is it possible to create an economic policy that's fair to everyone? Um it's I I guess there are always going to be winners and losers. But the most obvious thing is that you know at the moment if the economy slows the response is to lower interest rates and the slower the economy gets the lower the interest rates go so free money. Um but when you get a situation where the economy is almost flatlining but asset markets, the stock market, house price and everything like that's going up, it very clearly demonstrates that the only benefit of extreme monetary policy is to make existing asset owners even richer. You know, if you're working a minimum wage job in the gig economy, zero interest rates or zero mortgage rates is of no conceivable benefit. In fact, if anything, it'll it'll move assets even further out of your reach. Yeah, I guess that that's uh that's what we have seen because through my work with these development banks during COVID, they had special funds um really easy money to fund projects that were not necessarily like pandemic response. I feel like we would have done it anyway, but they were packaged as a pandemic response, whether that was like hospital renovation or financial intermediary projects supporting businesses so they can maintain their employees like through through that um through that economic downturn. But this is not the first economic crisis in my lifetime, right? Yeah. How how is uh this one differs from like the last one 2008? Uh I I think it differs in as much that there's far more awareness of the climate issue on uh more recently. So it's more it's it's easier to see the extent to which we've stepped back in terms of our climate change engagement. you know, sort of, you know, I mean, the phrase net zero madness, it's sort of bandied about quite easily. And, you know, when when you dis when you distort the investment process with policies aimed at reducing emissions, but do it in a economically dysfunctional way. It's easy to criticize, but you then got but the the point that gets lost in all of this is that the reason that the criticism is quite so intense is because people are experiencing economic hardship and they've got they feel they have bigger concerns putting food on the table than worrying about climate change decades hence which you know that's not a very helpful narrative but that's actually what's happening. You know, you can see it in terms of government policies right the way around the world. You know, Trump is perhaps the most extreme manifestation of that, but he's not the only one. You know, sort of development of Heathrow airport and taxes on electric vehicles that we, you know, very recently and stuff like that. and uh the the infrastructure for for the green transition if you like that's that's attracted some of the highest tariffs um in the world which is just absurd you know we need to be investing and China predominantly can produce the very goods we need you know batteries wind farms sort of electric vehicles very competitively and yet we're slapping tariffs on Yeah. No, exactly. And it all trickers down, right? Because through our work with like uh EBRD, Development Finance Institution, you are funding the renewable projects, you are funding the companies that have these Chinese manufacturers in their supply chain that are actually like implementing the projects that these policies uh prescribe.
Yeah. But then how is it that it's more of a development finance and not part of the mainstream finance because sustainable finance as such the argument for that was that we can be green and we can be profitable at the same time. Yeah. Yeah. No, I mean I think a large part of it is incentives. Um you get the incentives right and the money will come because to an extent it doesn't matter who's spending or who's investing the money. you know, if if government's not necessarily producing the money to invest because they're on a tight fiscal reign, um they can nonetheless set the rules, set the rules of the game and the private sector sort of plays around those rules. But, you know, it's almost like a game of football. If if the referee's not in charge, the game descends into chaos. And that's what we've got at the moment. You know, there's no clear direction from government whether it's spending taxpayers money effectively or directing the private sector's investment effectively. None of that's happening. Is that why net zero is more of an aspiration and not not a reality? Um I think so. Yeah. Yeah. because I mean you know one of one of the issues is is that we we're even the proponents of net zero are sort of kind of presenting it as a cost that has to be borne but you know if we go back to what I was saying about how China addressed poverty and lifted the living standards of you know basically most ordinary Chinese it was by investing and you know we've got this situation where you know we've got the issue of climate change existent potential issue for the planet uh which requires investment and and jobs for the generations that followed the baby boomers requires investment. Well, you know, it should be a massive opportunity, you know, because I mean, in the past, people have built infrastructure, you know, roads to nowhere in in Japan was a classic one when I when I was younger. We've got a chance to build meaningful assets to create wealth and good jobs but also mitigate climate change. Yeah. No, I think it's uh it's very interesting to talk about how this whole idea that we can be net zero is also accompanied by an unprecedented awareness of sustainability. We have more stringent reporting requirements than ever before. We have updated regulation. We're trying to come up with EU taxonomy, global taxonomy. Companies value responsible business conduct, whether that's human rights or environment or combination.
So, how is it that all this good good will is not leading to a more meaningful change? Yeah. No, it it is it's it's difficult and frustrating, but I think I think again it comes down to, you know, it's the economy stupid, you know, the Bill Clinton thing that if stuff that damages the economy ultimately damages engagement with climate change. So, so you can't you're not going to achieve meaningful mitigation of climate change by damaging the economy. I think that's what co showed very clearly because of the consequences of the slower growth there. Um but you've also got to recognize that uh that the investment has to be directed efficiently you know not just sort of drill baby drill or burn baby burn or whatever. Um it you the government government and you know more entities such as the EU and stuff like that have got a responsibility to be pragmatic about about um the climate and about the economy and realistic. So there are a lot of things that you think might work you think are fair sort of like redistri redistributive taxation. uh that sounds fair but you have to be intensely aware of the incentives it generates within the economy. So you know talking about national budgets and stuff like that if you say raise income tax on people by and large can't avoid that and most people pay it and what have you. But if you tax more niche groups, they have got more flexibility to you know stop hiring, stop investing and ultimately leave the country. And you've so when you get into a situation where the FK focuses more on redistri redistribution rather than investing to create opportunities, you kind of get distracted from what the real mission is here. No. Well, and that's interesting because at EBRD you worked primarily with like ex Soviet countries or Eastern Europe that was more sort of like socialist where there was a more developed system of this redistribution. As someone who grew up in that when I hear these developed countries talking about the systems that my parents said didn't work I do have some questions and concerns. So how did your work and involvement in posts Soviet Eastern Europe, Central Asia inform or change your perspective on this redistribution and effective ways of redistribution? Yeah, because I mean in some in some ways I mean it's it's sort of tangental to that slightly is that you know a lot of people in in the west policy makers and economists imagine that the collapse of the Berlin wall was you know what heralded in an era of low inflation and faster growth whereas actually you my argument was that it it didn't happen because of the fall of the Berlin wall. It happened despite Tinaman Square in in China. So that the the lesson from that was you know it was a autocratic definitely not a very democratic nation that nonetheless created the greatest economic miracle we've ever seen. Yeah. So no matter how imperfectly it happens, the trade and investment do help alleviate policy and promote development and I think you know the development banks can play a role in that in fostering growth and making sure there's the finance there because if the finance there isn't there nothing happens and that that was something we clearly saw after the financial crisis the as culpable as banks were for creating the financial crisis if they're not there money doesn't get created in the economy and growth is impossible. You know, you you want banks to be lending to improve productivity in in the economy. You don't want them lending to foster speculation. And you know, development banks can have that role because they're very specifically not looking to speculate. They're looking to generate productive assets in the economy.
Yeah. And they also have the flexibility to take on more risks, right? Yes. Yeah. Yes. I mean, you know, and and that to that extent having more innovative financial products as long as you understand the consequences of those can really help, you know, leverage the leverage the capital of a you a development bank. you know, EBRD is relatively small in in those in that sense, but if it can leverage its capital by bringing in other money from sort of more commercial enterprises and also, you know, by taking a a key stake in a project rather than funding the whole thing. It can provide confidence in a project that it's being properly managed and overseen without putting an undue amount of its capital at risk in a single sort of entity. But ultimately someone always pays the price, right? Yes. So whether it's the government putting in place incentives to go towards a more climate adaptation approach or to green the economy to to create jobs or if it's the private sector that sets up a net zero fund, someone is ultimately paying the price. Yes. Yeah. I mean, yeah, you could put it that way. I mean, but a lot of these things don't have to be that way, but you're exactly right. The way they're portrayed at the moment is there's always somebody, you know, it's those with the broader shoulders have to pay for this, that, and the other. And you know, if it's not the most effective and inefficient spending of the green pound, if you like, you're not getting as much economic benefit from the green transition as you might do. Yeah. And I guess some of these you know more site and project specific sort of like issues that we face is that you can't have both. You can't have high social impact and high climate change impact because if you have high climate adaptation that probably means that there's like less infrastructure built less jobs for people. Whereas if you have more jobs for people, more infrastructure for people, you score worse on the climate scale. Yeah. No, no, I mean it's difficult and that's why it's so vital that sort of government plays its role in in setting the rules of the game if you like to encourage the outcomes it it wants because you know there are ways of investing effectively and you what you're trying to avoid is a situation where you're creating regulatory arbitrage. So for example sort of it it tech companies are incentivized to sort of do their offsets in less developed countries and because you know there's an arbitrage there it's not actually helping the planet very much and it's not actually creating very much wealth outside the a small subsector of developed economies. So it's essential that you sort of not only set the rules with with that in mind with the objective in mind but also you regularly review them because very often things done with the best of intentions the outcome is not what you expected and you have to respond to that and economics is particularly bad at doing that because it doesn't doesn't take too much notice of when reality diverges from its models.
Yeah. So I guess like translating it to the like real life of people like my generation. No permanent contract, no job security, no pension, limited opportunities to own property and assets and savings and investments. Everyone in the gig economy, freelancing, self-employment. How do we adapt? How do we is there is there any part of this system that we can exploit to our benefit? Well, I I think again it just comes back to investment, you know, having an investment culture because because you know, again, this you know, we were speaking about this earlier was that that you know, a test for how effective investment is in the economy is if you've got very low interest rates to foster investment and and all you're seeing is rising asset prices, well, it's not working. And at the same time, if you're investing in things that aid productivity in the economy, that's less likely to be inflationary. So if you're investing in a way that people can work more efficiently, say, you know, if people have, you know, a current topic in terms of economic activity in the UK is mental health. So if you have adequate resources for people to get help with their mental health, the as the sort of the stereotypical economist would look at that and say, well, that's actually improving their productivity. You know, you've got more workers out there in a fit state to work, so more economic engagement. And you can direct that towards more green stuff. So they're working sort of not down a coal mine, but perhaps working to sort of improve our transmission infrastructure for you know the national grid is a classic example of a lack of investment actually costing us money because we've got the most expensive fuel bills in the world.
Yeah. Yeah. And so in terms of positive takeaways from the book, because we need to like end on a on a high, we've been through a lot, but there there's always something to look forward to. So what are some of the the positive takeaways from the book and from the current situation for my generation and my daughter's generation? Yeah. Well, I I think you know we do know what works, trade and investment work, but also in terms of understanding that it's more difficult to fix something after it's gone wrong than it is to make sure you get it right in the first place. And that's where perhaps the younger generation of economists. speaking to econ and I appreciate not everybody's an e economist but there you know there's so much potential to think outside current sort of economic thinking looking at what works looking at what helps you achieve your goals even if it sounds slightly counterintuitive and then you you know one of the problems with economics is often they're very siloed they don't look at influences from outside the field nearly as much as any of the other social sciences is and you know you might find that the bright young things who win future economics Nobels have done precisely that they've been influenced by what's happening in other other areas. You know for example the economics was really really slow and still doesn't particularly get that the idea of cumulative advantage and disadvantage. You know if you if you have a fortunate start in life thing it doesn't mean revert as most economic models would suggest it actually gets better and better and better for you. And similarly, if you get off to a bad start, you know, perhaps don't manage to get that you graduate into a recession or something like that, it's meas it has a measurable impact right the way through your life. And recognizing that and acting on that a it will give economists sort of much more relevance than any economist has had for decades. But it will have a material impact on the economy and society in general and give us a fighting chance in terms of tackling climate change. Well, thank you for being here with me today, Stuart, and discussing intergenerational inequalities. I certainly have some takeaways from this discussion as a member of the millennial millennial generation. I hope you also found this discussion inspiring. Thank you for being here with us today and we'll be back some more next time.
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