Transcript: Danny Blanchflower


The transcript from this week’s MIB: Danny Blanchflower, is below.

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VOICEOVER: This is Masters in Business with Barry Ritholtz Bloomberg Radio.

BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, I have an extra special guest. His name is Danny Blanchflower and if you are at all interested in all manner of economic wonkery, well then, this is the podcast for you.

We talk about everything from unhappiness to unemployment to what really constitutes full employment, to the rise of pain complaints in the United States and how it’s related to the stresses caused by the financial crisis as well as the ongoing flat wages that the United States have seen over the past 30 years.

We get into all manner of fascinating discussion of Beveridge, of Keynes, of Skidelsky, of why the United States is fairly unique both in terms of our housing market and our employment market, and why the US is now exporting stress and discomfort and economic anxiety to the rest of the world.

It’s really an absolutely fascinating conversation, I enjoyed it and I think you will also.

With no further ado, my conversation with Danny Blanchflower,

VOICEOVER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

RITHOLTZ: My special guest this week is Danny Blanchflower, he has a storied history in the world of monetary policy and labor economics, he is currently a professor at Dartmouth where he teaches economics.

He is a former member of the Monetary Policy Committee at the Bank of England, currently he is a research associate at the National Bureau of Economic Research and he is the author of a new book called “Not Working, Where Have All The Good Jobs Gone?” Danny Blanchflower, welcome to Bloomberg.

DANNY BLANCHFLOWER, PROFESSOR, DARTMOUTH: Great to see you, Barry. Good to be here.

RITHOLTZ: Yes, good to see you again. So let’s get into your background a little bit before we start getting to the specifics of the book. You’re a labor economist, what exactly is that and how did you find your way into that specialty?

BLANCHFLOWER: Well, labor economics is the study of work, it’s the study of jobs, it’s about people — why people have got jobs, why they haven’t, and it is about the price of labor, it is about wages, it’s about compensation.

I actually got into it, started to think about kids, starting to think about unemployment of the young in the 1980s in the UK, it was a really big deal.

And so I started to think about that and it just grew from there and then in the end, I became a momentary policymaker and the labor market turned out to be central to everything.

So it’s not about being a labor economist, did some micro but it turns out now the big issues around the world in macroeconomics are about labor economics. So it’s been a long journey but it’s been kind of a good one.

RITHOLTZ: So let’s talk a little bit about your time at the monetary policy committee at the Bank of England, we’re recording this on a day when Mario Monti basically is announcing that they’ll do anything to support the economy, which President Trump here in the United States declared unfair.

For listeners who may not be familiar with you, you joined the Bank of England in 2006 just as the financial crisis was starting to blossom…


RITHOLTZ: For the lack of a better word, what was that experience like?

BLANCHFLOWER: Well, I was told at the beginning, I remember Gordon Brown told me the hope is for you the central bank is going to be boring.


BLANCHFLOWER: That’s not exactly how it turned out. And I think the big deal for me was I was going back and forth every three weeks between the US and the UK and I think the big insight for me was that the things I saw in the US, only to occur in the UK a few months later, and the first big deal for me was the failure of Northern Rock.

There were thousands of people in the street standing outside the branches of the bank for the first time in 100 years, so that was also the start.

RITHOLTZ: We had Bear Stearns here.


RITHOLTZ: Not a depository bank.


RITHOLTZ: The closest thing was probably Washington Mutual or there were some other banks …

BLANCHFLOWER: Countrywide perhaps…

RITHOLTZ: Right, where there was a run on the banks, what is the guarantee from the UK equivalent of the Federal Deposit Insurance Company?

BLANCHFLOWER: Essentially, that was the issue, there really wasn’t one. And so by the by the end of the week and essentially the money at the Northern Rock ran out, the website failed on the Wednesday, there was no guarantee essentially from the government and the only way to stop it was to actually introduce one and that’s what stopped the — that was a year before the market collapsed.

I started to think that we were really disappearing into a hole so I studied on my own to start the vote for rate cuts, and I voted for rate cuts for a really long time on my own, and I kept saying there is a horrible recession coming, nobody else on the committee was really along with me and then we got to September 2008 and…

RITHOLTZ: All hell broke loose.

BLANCHFLOWER: All hell broke loose and I remember thinking I did not expect to be in a position where three successive months my committee including me voted for 50, 150, and 100 basis point cuts in three months and then we can going and we did Q.E., I mean this was literally like the world was just dropping off a cliff.

So it was certainly was not boring, it was scary and in a sense the story I think was that you economics told us very little about what to do there, how low can we go, could we got to zero, could be go below zero. When you do quantitative easing, how much, what sort of easing, when you do it, how many auctions a week do you have?

So we didn’t know any of that stuff. So I think it was really scary and exhausting.

RITHOLTZ: So I have a pet theory which I will come back to again later that economists always use the normal cyclical expansion contraction cycle as a frame of reference and so when you see something much more substantial coming along, a credit driven crisis, a financial crisis, unless you’re looking at it from the correct perspective, to a regular economic analyst, they’re not seeing it.

BLANCHFLOWER: Barry, I think that is a hundred percent right and what’s happened, economists said to me should never expect Central Banks or economist to see turning points, I think that is complete nonsense, I think what you have to have is you can’t just look at the mechanical things, you have to look at what I call the economics of walking about it…


BLANCHFLOWER: Exactly as you said, think about what happened at the last great financial crisis, the great crash, and think about what happened and there were lots of indicators, the best indicators actually that the bank, what’s called the banks agent scores and the agents would go around the country and report, and when you look at that, the world had dropped off a cliff by around May ’08 and nobody was listening to it, the economists weren’t listening to it.

So in fact, those big turning points, you have to look around you, look at different measures and it was quite clear across Europe and in the United States, all these countries were going down together, and that was a really big deal.

So I agree with you completely.

RITHOLTZ: Let’s talk about a quote right in the beginning of the book. “What the whole world wants is a good job.” Discuss.

BLANCHFLOWER: Yes, I started working on this book I was reading some results from Gallup and summaries I went to the front of their of a page and they literally and I started out with this, they literally say, here is one of Gallup’s most important discoveries, they have been doing this since the 1930s, what the whole world wants is a good job.

So that’s the theme of the book and I think what we’ve seen in the last decade is the loss of those good jobs and the result of it has been populist movements around the world, people hurting and the connection I make in the book is that central banks and other policymakers in the US especially say we’re a full employment, the theme of the book is “If we were at full employment, people wouldn’t be hurting this way.”

And so I document that I’m a good example of the UK use we are 11 years in now from the start of that great recession, real wages today in the UK are six percent below what they were in February 2008. And this, in the UK anyway, it is the third slowest recovery ever, the last one 300 years ago was the South Sea bubble and the one before that 600 years ago was the Black Death which is good for productivity.

RITHOLTZ: Right, bubonic plague is excellent for productivity, of course.

BLANCHFLOWER: Anyway, so the logic is that we have had very slow recoveries and I think driven by macro areas, and now we see economies slowing but after 10 years of recovery, still people are hurting. So the big question is what’s going on and why is it that people are hurting and I think the story is lack of good jobs if you like, an expectation that things are going to be better in the future.

And Deaton and Case have documented that essentially the driving force behind the depths of despair they talk about is a failure in the labor market.

RITHOLTZ: So let’s talk about some of those mistakes and I will start with the UK before we moved to the US. The UK had a policy of — a misguided policy I would call it, of austerity, we’ve learn the lesson from Keynes in the midst of a financial crisis, you cut taxes, increased government spending, let the public sector step in for the private sector, that didn’t happen in the UK.

BLANCHFLOWER: Well it happened, we saw the crash, the downturn and then The Bank of England threw everything it had at it.

RITHOLTZ: Monetary policies ….


RITHOLTZ: Not fiscal.

BLANCHFLOWER: No, but then fiscal policy, Gordon Brown threw all sorts of things at it, reduced taxes, increased spending, and then…

RITHOLTZ: But it was not like a hey this is a depression coming, take out the…


BLANCHFLOWER: It was sort of, sort of…



BLANCHFLOWER: Modest recovery came, a pretty reasonable recovery, and then austerity came in 2010 and every data series you can show in the UK just turned flat.


BLANCHFLOWER: So output was growing and then austerity, which I call reckless, failed, turned downwards. Keynes precisely warned, there’s an article I talked about in the book, in 1931, Keynes, one about the long dragging conditions of semi-slump that follow the crash.


BLANCHFLOWER: And unless you come in there and put public spending in, then you’ll see slowing. The argument that George Osborne, who was chancellor, made was that if you cut public spending, the private sector will step into the fold completely contrary to Keynes…

RITHOLTZ: Yes, it’s also…


BLANCHFLOWER: And it also failed.

RITHOLTZ: It’s also not how it works.

BLANCHFLOWER: Not how it works at all.

RITHOLTZ: Or you have to look at history. So didn’t anybody say, dude what are you doing? This is not reality, you’re making this up.

BLANCHFLOWER: Me, a lot. I called him Slasher Osborne, Rob Skidelsky and I wrote, he was Keynes biographer…


BLANCHFLOWER: We wrote a series of articles together saying “This is an absolute disaster.” so what you basically see is very weak recovery, no growth in real wages and I think that austerity almost exactly leads to the vote for Brexit, precisely in the places that hurt the most, the coal towns, the towns that have not seen much growth over the years, Brexit is directly attributable to the failures what about by reckless, failed austerity.

RITHOLTZ: Austerity leads to Brexit. Let’s bring this to the United States. There was a whole bunch of government interventions both on the monetary and on the fiscal side designed to free up the frozen credit market and then when we moved to fiscal stimulus, some people have called it an $800 billion stimulus when it should’ve been 3 trillion or 4 trillion and it was temporary tax cuts and temporary…


RITHOLTZ: Extension of unemployment benefits, but wasn’t the sort of large post-depression policies, we saw it and into that void step the Fed. I have made the argument that the Fed should have let it all crash and burn, let everybody in Congress get fired and bring in a new batch, had they done that, we would’ve had the tea party, we would’ve had the rise of populism, it would’ve hurt more at the time but the recovery would’ve been faster or tell me I’m wrong.

BLANCHFLOWER: Well hindsight, perhaps.

RITHOLTZ: I said it then so it’s not hindsight.

BLANCHFLOWER: Well that’s fine, but I think the answer is all the things you say about, the was not enough fiscal stimulus. Think about in a sense, the impact on growth of the $2 trillion tax cut, not that great, perhaps would’ve been better early.

The big thing that Keynes talked…


RITHOLTZ: You mean the 2017 tax cut…


RITHOLTZ: Yes, that should have happened in…

BLANCHFLOWER: I agree with that.

RITHOLTZ: In 2009 and 2010.

BLANCHFLOWER: And the big deal would have been an infrastructure spend, which would have put …


RITHOLTZ: Boots on the ground.

BLANCHFLOWER: Construction workers, this was a housing market crash, all these construction workers, you would have put those folks back to work, so what’s happened and I think the best indicator, forget the unemployment rate, we will get to talk about the on underemployment rate for now in a sec, but the employment rate, that’s just the proportion of people who are working today that’s 2 1/2 percentage points below what it was in 2008 and about three below what it was in 2003, 2004.

So that says the economy hasn’t recovered, it says the labor market hasn’t recovered, and that’s a result of not doing what you said but I think you’ll completely right, the lack of public spending was actually the big – so in the book I talk about, now what has happened is central banks say oh we’re at full employment, we clearly are not, and now you put the brakes on and basically what you’ve done is you slow the economy down at a time when there is essentially a global slowing, you’ve generated a trade war, and as I said, the Fed raises rates and now we’ve got another era, slowing coming, looks much like what happened earlier perhaps to a lesser degree but it looks to me like the economies turned.

RITHOLTZ: So in the book, you talk about the rise of something fairly specific to America, not only stress and unhappiness, but physical pain, pain is rising in America?

BLANCHFLOWER: It is shocking, the evidence is actually that is exactly right, we’ve done a survey, we’ve looked at in the papers that accompanies the book out this month where we asked people around the world for their levels of pain and essentially Americans are twice as likely to say they are in pain than other places.

RITHOLTZ: That’s astonishing.

BLANCHFLOWER: I know, and so there’s evidence from doctor visits, a quarter of all visits to a primary care physician, people report they are in chronic pain, and the other thing to say about it of course is that at the same time as that is the huge rise in opioid prescriptions…

RITHOLTZ: No doubt about that.

BLANCHFLOWER: To deal with the pain, so what you see is – I mean, what you’re seeing is a rise in the opioid prescriptions to deal with the pain and the pain keeps on rising but the reality is we are not exactly sure whether people really are in pain, well they say they’re in pain, I mean they say they are in pain, maybe they are in pain.

RITHOLTZ: Very often when people are stressed out what looks like a minor ailment or pain becomes magnified.


RITHOLTZ: So how significant and I have to share a quick anecdote, in the middle of the financial crisis, I had a trip to London and Amsterdam and I was shocked that, looks unemployment’s over 10 percent United States, you can walk down the streets of New York and in admittedly New York is a finance town and the crisis it finance really intensely but you can just feel the stress levels in Manhattan much higher, Amsterdam was like people having a beer in the middle of the afternoon, the stress levels even in the midst of the storm.


RITHOLTZ: They were moderate compared to here.

BLANCHFLOWER: Well, you’re starting to see a big rise in the UK so we have another paper where we actually tracked something, which is pretty interesting which is in the UK and since 2013, happiness on various measures has been rising steadily but worryingly so is depression and anxiety, so you have the two things rise.

Some people are doing just fine, others aren’t doing and obviously the problem is that the ones who aren’t doing just fine see the others who are and so that’s a big part of the story, but around the world we see a rise in sort of isolation, loneliness, anxiety, depression.

In the US which is a really big deal, happiness measures have been basically flat for college educated and for the least educated, they’ve been plummeting for the last 30 years, so is the big worry.

So measures of unhappiness, disconnection from society, all of those things are a worry particularly for prime age less educated folks, mostly whites, but there is some evidence of other groups but essentially amongst white less educated, there is a disaster and it relates to as well to opioid deaths, deaths from cirrhosis of the liver and suicides, so this is all going on at the same time, we have seen recovery but lots of folks around what especially in the United States are hurting.

RITHOLTZ: So let’s see if we can find the cause for this. Some people are blaming social networks and that when you go on Instagram, everybody else’s life looks great and it makes you feel terrible, there’s a ton of the new studies on that, I don’t know if that’s the cause, we’re at levels of income inequality that we haven’t seen for a long, long time and if you look at the middle class or the paid — people paid less than middle-class, there’s essentially have not seen a raise in three decades.


RITHOLTZ: So is it all of these or are some of these factors more important than others?

BLANCHFLOWER: Well, we don’t exactly know I mean it’s all of those.

But I think I’ve been working on happiness, behavior economics for a really long time and I think if I would choose one thing we’ve learned from it, it’s that relative things matter. People compare themselves to others.

I mean a funny statistic, not funny, a sad statistic, the three countries in the world that are the happiest up in Denmark, Norway, Sweden, they are the happiest countries in the world, they are also the countries in the world that have the highest suicide rates.


BLANCHFLOWER: Yes, so exactly what you say is true but I think what’s happened.

RITHOLTZ: And a decent amount of alcoholism, if I recall, right?

BLANCHFLOWER: Yes, absolutely. I mean obviously part of it, as you said, it’s because of the hours of daylight but why would you have so many people happy…


BLANCHFLOWER: You can explain the suicide that way.

So I think what we’re seeing is people compare themselves to others perhaps with social media, it’s easier to compare yourself to others. So that really matters and as the income inequality is risen, wealth inequality is risen, the contrast becomes greater so I think that’s what’s going on.

And we will – I mean I think – why has happiness not risen in the United States? Perhaps it’s that people compare themselves to others. So Barry buys a new BMW, is it going to make you happy? Well, it’s going to make you happy as long as Danny doesn’t buy one, that’s what evidence looks like. So it’s a surprise in a puzzle.

RITHOLTZ: That is interesting.

BLANCHFLOWER: That happiness is that people clearly compare themselves to others.

RITHOLTZ: Let’s talk about some of the really interesting things you discovered.


RITHOLTZ: While doing your research for this book.


RITHOLTZ: Let’s talk about productivity. Do we have a productivity problem or do we have a measurement issue?

BLANCHFLOWER: Well, a bit of both. Clearly the forecasts for productivity have been wrong, I mean, especially the greatest error was made at back to what we were talking about. In 2010, austerity was imposed and the government was forecasted — this would have no effect on productivity, and they continue to forecast that productivity would rise.

And we have to think what a productivity puzzle, which is that we don’t actually seem to have had much productivity at all, and in fact, at the UK for the last three quarters have been falling.

RITHOLTZ: Which is shocking to me, and the reason I always ask that question of folks like you…


RITHOLTZ: Is that in my office we run an asset management firm and what we do with the 10 people in the Manhattan office, 20 years ago would have taken a staff of 100, and so the ability to deploy software and technology and really crank out an enormous amount of work and content and the ability to reach …


RITHOLTZ: Both clients and so whenever I see this — these productivity figures, I’m like I don’t know where they’re looking, but they’re not looking at the service business.


BLANCHFLOWER: Well, let’s go with two bits to it.

So productivity is just output divided by people or hours or something…


BLANCHFLOWER: So you kind of argued about output measured on the top but I probably should argue about how — what you divide through by.


BLANCHFLOWER: I mean what’s your hours, what’s my hours.

I have no idea.

RITHOLTZ: I start around noon and by 2 o’clock, I’m heading home.

BLANCHFLOWER: Exactly. I mean the problem…


RITHOLTZ: No, I start very early. I start at 4:30 in the morning…



RITHOLTZ: And the last thing I do before I go to bed is log on to Slack and look at what’s going on in the office.


BLANCHFLOWER: But the problem of course is that if you — if you’re not, I mean the days where people went to a factory they logged on at 8 o’clock and they went home — you’ve got eight hours.


RITHOLTZ: Right, right.

That doesn’t happen.

BLANCHFLOWER: So not only is there a problem measuring the output, there is a problem of measuring the labor inputs, that’s a really big deal and I mean I think however that it is clear that there is a problem the problem is that wages haven’t been rising. I mean the sort of connection everybody makes is if productivity was rising, wages ought to be rising, so they infer back the lack of…


RITHOLTZ: Therefore it’s not.

BLANCHFLOWER: Therefore it must be a productivity puzzle, some of it, of course, has to do with distribution. I mean workers understand that if they get gains from productivity, they get higher wages but perhaps not these days, perhaps they think okay, there is a big rise in productivity and the bosses are going to take all the gains and there is an issue of that with the rising inequality issue. Do the workers actually think that if productivity was to rise, they would actually get a share of the spoils and perhaps that is something that has changed.

RITHOLTZ: So that’s kind of interesting. The — are you surprised at how quickly the blush has come off the rose for the gig economy, like between AirBNB and Uber and even selling crap on e-Bay, there was an expectation that hey there’s a way for a lot of people to pick up some money on the side hasn’t worked out the way people expected.

BLANCHFLOWER: It hasn’t worked out and there’s a big question about how big that gig economy is, I mean there’s a set of studies which was suggesting it’s really, really big and then a couple of years later, have new data and they had to sort of pull it back.

RITHOLTZ: But it’s still…


RITHOLTZ: It’s substantial however you look at it.

BLANCHFLOWER: It’s substantial, but it depends how you define it, but I mean there is an issue saying the UK gets to go to there, there has been a huge rise in the UK in the self-employment rate.


BLANCHFLOWER: Great, you said, this is fantastic. It turns out that the earnings of the self-employed over the last five years have fallen in real terms by 20 percent.

RITHOLTZ: That doesn’t surprise me at all.


RITHOLTZ: Because when people get laid off…


RITHOLTZ: Especially in a service or resulting world, you call yourself self-employed.

BLANCHFLOWER: Right so I think in a sense, the gig economy the self-employed stuff this is about fragile work. Many of these people can’t get enough hours, that’s a big story in my book.

RITHOLTZ: So this – I’m going to interrupt you right here.


RITHOLTZ: Because there’s two really interesting things. I want to talk about underemployment generally but let’s start with the specific. So I’m going to — two completely different companies and you and I have discussed this previously.


RITHOLTZ: Wal-Mart on the low end and then Starbucks on the high end, they are both somewhat notorious for telling people in the beginning of the week, “Hey here are your hours.”


RITHOLTZ: And for a while, Wal-Mart store managers were incentivized to save money by slashing hours.


RITHOLTZ: Which is why the stores looked like junk for a couple of years because they…


BLANCHFLOWER: And workers don’t have any connection to the firms and I think what you’ve talked about is an inherent instability of work, an inherent insecurity of workers and that’s the sense that they have.

In some sense, that explains the lack of wage growth, they are more concerned about keeping their jobs. Just before 2000 — let me tell you a story, just before 2008, I had a big discussion argument with the Governor of the Bank of England, he thought there was a huge wage rise coming.


So I knew, wait for this, I knew the chairman — the head of the British Trade Union Movement, I went to TUC House, Penthouse suite, TUC House and I said, his name is Brendan Barber, and I said “Brendan, you have to be the (abbot) here, I won’t tell anybody, tell me to you about to be at a go and get a huge wage increase? And he said “not for love nor money” he said just exactly what you and I have just talked about.

Workers and many of the workers represents women, he said they care about security, they care about being the flexibility, being able to keep the job, they can drop the kids off at school and if they need to take two hours off to go to the doctor with the kids, they can, and he said there is no chance under god’s green earth, and that was in pre-2008 that this big wage increase is coming.

And I think that’s where the world is. The point of the story is that balance probably wouldn’t be existing if we were at full employment.

As you would move towards full employment, workers would be able to say I’m not taking that kind of job, thank you very much, Wal-Mart, there’s lots of better jobs out there and I’ll go there.

So I think the fact that this continues to exist says we’re a long way from full employment.

RITHOLTZ: So how underemployed is the labor force in the United States?

BLANCHFLOWER: Well, it seems…


RITHOLTZ: And let me get more specific, how many people working multiple part-time jobs and they wish there were working one full-time permanent position?

BLANCHFLOWER: We don’t exactly know that. We do have pretty bad measures of that in the United States…


BLANCHFLOWER: And I have worked on a lot…


RITHOLTZ: We have used six, it’s not bad.


BLANCHFLOWER: Well, use seven, I talked about is better, I mean we are talking about I’m just looking at the latest numbers. In terms of the unemployment numbers, it is about 6 million, but if you simply want to look at this group which is a particularly important group which is part-time for economic reasons…


BLANCHFLOWER: It’s about 4.5 million so it’s about three quarters of the size or two thirds the three quarters of the size of the unemployed. But what really matters with those…

RITHOLTZ: Meaning those people want a full-time job but they can’t find one.


BLANCHFLOWER: And of course, the big story in the United States which we don’t have for other countries is with lots of other people it turns out that want more hours, to give an example, we will call those folks involuntary part-timers but we know from around the world we don’t have a measure this in the US, you say I’m part-time, I’ve got 12 hours a week but I’d like 20. And that turns out to be a really big phenomenon around the world.


BLANCHFLOWER: Yes, yes, that seems to drive wage growth around the world so we have a whole series of papers on this.

RITHOLTZ: You referenced a phenomenon called zero our jobs.


RITHOLTZ: Explain what that is.

BLANCHFLOWER: So this is much like your — much like the story of Wal-Mart. So in the UK, there is a thing called a zero hours contract and most people absolutely hate it, but they can’t get anything better.

It is the following. You can only have a contract with me. On a Sunday night I will tell you how many hours this week you’re going to have. I’m going to tell you which days are on and what time they are. Si I can tell you on Sunday not to work from 4 PM to midnight on Thursday, that’s it.

And so obviously these workers say, A, this stinks mostly. And B, I would like more house than I can get. And essentially, as we move towards full employment a little bit, those numbers have fallen but a huge numbers of these workers, we are talking in the UK, about a million workers in these contracts.

RITHOLTZ: And this is an exclusive contract, they can’t work with anybody else.


BLANCHFLOWER: No, exclusive contract.

RITHOLTZ: So they are waiting to know what it is, they can fill in other hours elsewhere.

BLANCHFLOWER: They can’t fill other hours elsewhere.

So and it’s not just the number of hours, it is the timing of the…


RITHOLTZ: How do you do childcare or how do you organize your life around it?

BLANCHFLOWER: That’s the point, how do you do that and that’s a really big deal and I think if you just look at those — if you were at full employment, workers would be able to say, I’m not taking that. The definition of full – I always like from Beveridge, he says a full employment, workers are standing by waiting for — I mean, good, the word good is in it, waited for good offers of jobs that come in. We’re a very long way from that.

So if those contracts exist, how can the Fed or the Bank of England say we are close to full employment makes no sense.

RITHOLTZ: So the standard description or the standard explanation for why the labor market is where it is a combination of lots of people are undereducated, or under credentialed which are two distinct issues and you add that to the rise of globalization where good factory jobs leave and the rise of technology and automation, you know just routine repetitive jobs are easily replaced by robot or software, changes the skill sets that are needed in the modern economy.


RITHOLTZ: How much is our those issues to blame and how much is it something else?

BLANCHFLOWER: Well, I think those issues are clearly to blame. So the globalization phenomena was going on prior to 2008, but I think we should think of 2008 as a structural break and a structural break in the sense that employers are aware that their bargaining position is stronger. But workers were scared, workers were scared of the phrase safe as houses, well, that is no longer true.

The houses went, the assets went and that’s a really big — I would just go back and try to get people to think about the capital, how capital displaces labor. In some sense, the reason it’s doing it so strongly now is the relative prices, you can change the capital labor mix by changing relative prices.

RITHOLTZ: Price of capital you mean?

BLANCHFLOWER: Yes, I mean you could.


RITHOLTZ: Capital is practically free these days.

BLANCHFLOWER: Well, exactly, so though in a sense what you can do is to say well maybe what we should do is lower to firms the relative price of labor.

RITHOLTZ: We have been speaking with Danny Blanchflower. He is the author of “Not Working, Where Have All The Good Jobs Gone?”

If you enjoy this conversation, well be sure and come back for the podcast extras where we keep the digital technology rolling and continue recording our conversation about all things employment, financial crisis, and underemployment related. You can find that at iTunes, Overcast, Stitcher, Spotify, Bloomberg wherever finer podcasts are sold.

We love your comments, feedback, and suggestions, write to us at MIBPodcast@ Be sure to check out my daily column, you can find that at Follow me on Twitter @Ritholtz.

I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio.

Welcome to the podcast. So l let’s get to some of the questions that that we didn’t get to during the broadcast portion because so much of this is quite fascinating.

So first, let’s talk about optimism. The least optimistic people in America are poor whites, not poor Blacks or Hispanics, how does this play into populism? Which came first.

BLANCHFLOWER: Well, hard to know which came first. On almost every measure you see the least educated, particularly prime age least educated, I can say it in a number of ways, least optimistic, most anxious, most unhappy, I have a pretty interesting measure which is in one of the big surveys, they asked people about how many bad mental health days did you have in the last 30 …

RITHOLTZ: Meaning clinical and mental health days or just — just the popular – I had taken a mental health day.

BLANCHFLOWER: Yes, just straight asking that, that really defined…



BLANCHFLOWER: Sort of done in a consistent way for everybody and the number of bad mental health days for this group is – and we are talking 10 12 a month.


BLANCHFLOWER: 10 12 a month…


BLANCHFLOWER: And I can just draw you a picture by age which is just a huge hill shape.


BLANCHFLOWER: So these folks have a high level anyway and it rises maximizing out at around 43, 44, so this is …

RITHOLTZ: So it starts low, it peaks – so that’s the opposite chart of what Scott Galloway showed in his book “The Algebra of Happiness.”


RITHOLTZ: Where you’re very happy when you’re young, and it bottoms middle age.

BLANCHFLOWER: I have written lots of stuff on what I call the U shape in happiness…


BLANCHFLOWER: Just flip it over.

RITHOLTZ: Exactly.

BLANCHFLOWER: Flip this thing over.

And what it turns out is that on all these measures that I can use words like anxious, depressed, lonely, not optimistic, all the isolated, so all of these things appear to be central to what’s going on. These are entirely consistent with these depths of despair, these same folks are disproportionately the ones that are committing suicide.

So this is a new phenomenon in America and what are we doing about it? I mean these ….

RITHOLTZ: Nothing.



RITHOLTZ: Nothing.

BLANCHFLOWER: People talk about depths of despair, I talk about cries of helplessness, cries for help.

So in a sense, the stories, these are cries for help that are remaining unanswered.

RITHOLTZ: S I’m curious as to the role that healthcare plays in this on two sides of this. First I referenced when I was in the UK in Amsterdam during the crisis, people are pretty blasé, I think the United States especially if you have family, you have kids and you lose your job, you lose your healthcare.


RITHOLTZ: That’s got to be an enormous source of stress for people who are not working full time or in danger of losing their jobs versus the European model.

BLANCHFLOWER: Well I think that’s absolute right and I think …

RITHOLTZ: And by the way, PS on the other side, when they do have a mental health issue, they can afford to get the treatment.

BLANCHFLOWER: Exactly. I think a good example is the state that I live in which is New Hampshire. New Hampshire is I think rank second third in opioid deaths.


BLANCHFLOWER: Absolutely, so New Hampshire is a very stressful — why?

RITHOLTZ: Live free or die?

BLANCHFLOWER: Live free or die. There is no basically no provisions there…


BLANCHFLOWER: For drug rehabilitation.

RITHOLTZ: Live free from taxes for the safety net is that we are you are implying?


BLANCHFLOWER: Yes, live free from the safety net. I mean why is New Hampshire a place where we are having all low unemployment rates, I mean…




BLANCHFLOWER: Low unemployment…

RITHOLTZ: Beautiful state …

BLANCHFLOWER: So opposite …

RITHOLTZ: And really nice people there, they are almost Canadians.

BLANCHFLOWER: Almost Canadians, me.


RITHOLTZ: So I didn’t realize New Hampshire was …


RITHOLTZ: Like West Virginia you can understand …

BLANCHFLOWER: You get West Virginia, you get …



BLANCHFLOWER: But New Hampshire so I think the provision of healthcare is a really big deal.

The other big deal actually if you go back to opioid overdoses, I have a friend of mine who is a psychiatrist in the UK he says what happens in America is that patients can doctor shop, they can go to Barry and say give me opioids and you say no, and they will find …

RITHOLTZ: Keeping them all for myself …


BLANCHFLOWER: That’s right, and they will find some other doctor. This is not a phenomenon is true in any other country.


BLANCHFLOWER: Not true, and my friend says what happens is they come to him as a psychiatrist and he writes down in the national health record, Barry’s records …


RITHOLTZ: Requested …

BLANCHFLOWER: Requested and I said this guy is not — in no way I’m going to give it to you, so the next doctor he goes to…

RITHOLTZ: He sees that.

BLANCHFLOWER: He sees it, Dr. White says, no, I’m not giving it.

RITHOLTZ: So there is actually a national record.

BLANCHFLOWER: A national record.

RITHOLTZ: We don’t have that here.

BLANCHFLOWER: So what is interesting is that presumably the doctors around the world, I mean Barry, think of this, the doctors in Germany and France and Australia and Canada read the same academic journals your doctors here do, and they don’t prescribe opioids, they don’t have an opioid crisis.

RITHOLTZ: They don’t have an entire middle layer group of salesman pitching these things on a regular basis.

BLANCHFLOWER: Right, right. They have a national health service which just of the by the records we talked about, prevents people going around doctor shopping, can’t happen, can’t do it, doesn’t happen.

So this is an American phenomenon which we have not dealt with and people have talked about it and the president’s talked about how we have we have to worry about – done nothing.

RITHOLTZ: Didn’t he have a plan? I was told he had a plan.

BLANCHFLOWER: Chris Christie said all sorts of really sensible things, I read the plan, Christie came out with a sensible…


BLANCHFLOWER: Very, it’s worth reading.

RITHOLTZ: (Folks) everything.

BLANCHFLOWER: No, it’s a great plan about what to do about, done nothing, so this is a terrible American phenomenon that we need to fix and it is within out powers and ability to fix to help these people who were dying from despair.

RITHOLTZ: That is just shocking.

So the other thing in the book that really was a little bit surprising of the bright side to an otherwise dark story, the happiness of Black Americans has risen strongly since the 1970s, it is today almost equal to that of White Americans.


RITHOLTZ: So here’s the question, is black happiness rising? Is white unhappiness falling? Or a little bit of both?

BLANCHFLOWER: A bit of both, I mean one of the things which is interesting, as I say, the phenomenon you and I have just been talking about was not actually a phenomena and in any racial group other than whites.

So the depths of despair have not really been happening for Asians, Hispanics, or African-American, so that’s an obvious thing that the in a way the you — in a way you get happiness to rise because they haven’t had the big burst of unhappiness but by construction means that that’s happened.

So yes. We’ve seen some evidence of that. In some ways, the labor economist in me learns this and I remember my old teacher told me this many moons ago. The people who do worst in the slump are the people who do best in the boom.

RITHOLTZ: Is that true?

BLANCHFLOWER: That’s true.

RITHOLTZ: Because I don’t think we’ve seen that here in the cycle.

BLANCHFLOWER: Well in general, that is true but if — and that sort of explains the question you just asked me about Blacks. I mean I always thought the good example always was the young African-Americans. The unemployment rate of young African-Americans …

RITHOLTZ: Used to be horrific.

BLANCHFLOWER: Used to be horrific.


RITHOLTZ: Like 35 percent or worse.

BLANCHFLOWER: That has fallen more than any of — I mean it’s not great now, it’s…


RITHOLTZ: But it’s half of what it was.

BLANCHFLOWER: Well it’s a third of what it was actually.


BLANCHFLOWER: Yes, yes, so those numbers tend to fall.

So we have seen some improvement of the of the least of the ones who do worse. I mean in essence what you are likely to see in the downturn is those that turn comes quickest for those groups. I suspect as we get into this downturn, the story we have just been talking about will change quickly, right?

So the unemployment rate of college-educated middle-aged white men is not going to rise that much if we go into a slump. All those groups will so is the cyclicality that’s a big deal.

But we have seen some improvements over time.

RITHOLTZ: So in your research for the book what else popped out as really counterintuitive?

BLANCHFLOWER: Well, lots of things, and just the more recent one which I’ve actually been working on. So the one thing in the happiness results that I was always puzzled by was that it appears in the data that children make you unhappy.

RITHOLTZ: I have heard that said…


BLANCHFLOWER: I have an explanation in a new paper, I worked really hard on this.

And the story was with me was well, if children made you unhappy, I mean I have three kids, wouldn’t you think after the first one you go off, I had enough of this.

RITHOLTZ: Well by the time you figure out what a pain in the butt they are, you are three deep.

BLANCHFLOWER: Right, well maybe.

RITHOLTZ: It’s not until they are teenagers.


BLANCHFLOWER: So we have been working when it turns out that we have a date on a million Europeans, and it turns out that once you control for the fact that having kids is really expensive and my so we have this data on how much problems do you have paying your bills?

Well it turns out, once you control for that, children make you happy, it’s actually about – and I use stories of my kids, I’ve two daughters with babies and one of them says we buy hundred bucks a week in diapers and a bottle of — a gallon of milk every day and the cost of childcare is so high and is it’s just the cost, and the book I talk about well we need to somehow rather help these folks, help the kids, help parents deal with that but the high cost of children.

But that’s — once you do that, it turns out the sign flips, it’s a very nice result. Because I figured it never made any sense, right? It didn’t make sense to say that kids didn’t make you happy.

RITHOLTZ: You need to meet more …


BLANCHFLOWER: Meet more people…

RITHOLTZ: Right, you meet more people’s children.

BLANCHFLOWER: That’s your kids that make you sad…


BLANCHFLOWER: …make me happy.

RITHOLTZ: So that’s pretty counterintuitive but it makes sense once you explain it. Give me one more that really jumped out.

BLANCHFLOWER: Gosh, well, I got another one, here is another puzzling one in the happiness literature. Women are always happier than men.


BLANCHFLOWER: But when you go to unhappiness equations women also more unhappy than men?

RITHOLTZ: Is that just a confirmation bias? If you are looking for it, you find it?

BLANCHFLOWER: No, I don’t think so. I don’t think so.

I mean the great thing about being the data person, you do this all the time, you look at the data and there are puzzles that jump out to you.


BLANCHFLOWER: I mean I think the obviously big puzzle in economics is actually why at the given levels of unemployment that we have, why is wage growth so weak? And that’s the big puzzle of — for labor economist today, that’s the great puzzle and unemployment rates of 4 percent and lower in the past around the world, wage growth — to 5 percent than anything else and in this cycle, that is something we haven’t seen and policymakers have not been able to grapple with it and the book explains it basically.

RITHOLTZ: So are you and Reinhart and Rogoff’s camp that says following the financial crisis, we tend to get subpar GDP, subpar wage growth, slow gradual recovery, but not like the traditional regular cyclical recession slash recovery, that it’s a much more drawn-out and much more modest recovery look at Japan, look at Sweden, look at Mexico.

BLANCHFLOWER: Couldn’t have said it better, I completely agree.

But I think in a sense that’s a really big problem because I don’t think policymakers got that.

RITHOLTZ: Clearly.

BLANCHFLOWER: They just didn’t see it.

And they sort of all the forecast they made, think about the feds says, we are going to be able to raise rates because everything is going to be back to normal and fine, the Bank of England says, within 18 months, we will be back and everything so they — absolutely what you said is true, it’s the biggest error the policy makers have made, they didn’t get it and that’s exactly where we are now, that was a structural break.

And what it means is actually 4 percent unemployment. The book spends a lot of time thinking about 4 percent unemployment is nowhere near full employment.

Mark Carney asked me the other day said, I was at a meeting, he said “Danny how low do you think the narrow is in the UK that means that the full employment rate right about?” And I said around 2 1/2.

RITHOLTZ: I was going to say 2 percent.


BLANCHFLOWER: Yes, two, two and a half, some number like that. And I think the reality …

RITHOLTZ: He’s aghast when you said that, right?

BLANCHFLOWER: Yes, aghast.

RITHOLTZ: Shocked.

BLANCHFLOWER: And I said and now what you think is okay so now we see unemployment rate is at three-point six, the big deal actually in the last six months or so, unemployment continue to fall and the wage growth which looked like it was picking up has reversed itself, it has actually slowed back down again.


BLANCHFLOWER: Around the world.

RITHOLTZ: And when you look at that – I can explain that with because I saw this coming because of being chunk of that wage growth came from new minimum wage laws at the state and municipality level.


BLANCHFLOWER: And in the UK actually this month we’ve seen a little bit of a pickup and the reason was exactly that, you saw a big rise in the public sector pay which have not for long time one of the big deals around the world, I mean the UK is a good example.

In 2010, the government imposed a one percent pay freeze in the public sector which feeds through the rest of the economy. So you push down wages …

RITHOLTZ: They spend less money.

BLANCHFLOWER: They spend less, but what it means is the full employment rate of unemployment has got lower.

RITHOLTZ: Goes lower, right.

BLANCHFLOWER: And the Fed made – I mean the fed has been saying all along old of the Narrows is four and half, five percent, and because unemployment is at three and a half, we have to raise rates, turns out they got it wrong, raising rates was an error as I said as you probably know I have said every month for the last 25 that that was a complete error and it looks to be right.

RITHOLTZ: So let me let me push back on the Fed in the United States, where are we like around two percent, that range?

BLANCHFLOWER: Yes, 2.25, 2.50.

RITHOLTZ: So here’s the question that I think people like President Trump and people who are very dovish on rates, here’s the pushback to them. We took rates to an extraordinarily low level that we were at zero for how many years plus QE and that now that were a decade past the financial crisis, these ultralow rates have rewarded capital but they haven’t rewarded labor and what we need to do is normalize rate so that they are at a more reasonable level that will force people back into a traditional economic environment.

I’m not saying I buy into that, but that’s the pushback.

BLANCHFLOWER: No, that’s the push back. Well, the first thing I think policymakers like me central bankers like me who sat in 2008 and saw what was going on, I mean remember we watched RBS fail.


BLANCHFLOWER: The largest bank in the world by assets, we watched Lloyds Bank fail, so the scale of this shock was — has been underestimated by many, I think.

RITHOLTZ: Clearly.

BLANCHFLOWER: And that goes back your well said statement about why the recovery has taken so long was the scale of that shock was so huge. And I think the argument to say we need to normalize, well, maybe that’s true, that doesn’t tell you when to normalize.


BLANCHFLOWER: I mean you probably need to wait and look and see. The problem about a normalization if this shock is greater than you think and you are further from the narrow than you think, you say we need to raise rates so when the recession comes but by raising rates, you cause the recession.

RITHOLTZ: Certainly, you make it worse.


BLANCHFLOWER: An obvious twist in a place like the UK, and I was on an airplane once and what happens, I will tell you the story, so what happens in the UK is people are on variable rate mortgages…


BLANCHFLOWER: At the start of the crisis…

RITHOLTZ: Which by the way the US fixed rate is kind of unique to the US.

BLANCHFLOWER: Kind of unique. So let’s go with the story. Five and a half percent, most people pay are paying 150 overbank rates so 5 1/2 percent interest rate, that gives you seven, I said rates get cut one, I’m on an airplane the captain of the British Airways plane is standing in front of me with a bottle champagne and I said aren’t you supposed to be flying the plane and he said no but the guys in the front sent me back to say thank you very much for getting their mortgages down.



RITHOLTZ: That’s hilarious.

BLANCHFLOWER: And the captain hands me this bottle of champagne and they all — people applaud me.

RITHOLTZ: Because you lowered their monthly payments.


BLANCHFLOWER: So now in the UK, think of this, so the mortgage price in the UK, bank rates 0.75 so let us make it easy, people are paying two and a quarter, the second you start to raise rates, those mortgages are going to go up and the people who are hurt — remember the people the 6 percent in real terms less than they were have had a pickup because of the mortgage.


BLANCHFLOWER: As soon as you do that…

RITHOLTZ: You take it away.

BLANCHFLOWER: So the answer is that clearly looks like it was a mistake to raise rates and I mean who knows by how much and the market has now essentially priced in what I say in the book, this was a huge error, the markets are pricing and I think I haven’t looked in the last 20 minutes but the last time I looked at the pricing, three cuts by Christmas.

RITHOLTZ: Three cuts, that is amazing.

BLANCHFLOWER: Three cuts in the market by Christmas.

RITHOLTZ: Is it safe to say the Bank of England has a greater — so let me back up a sec the argument in the US is the Fed only affects the fed funds rate and the bond market determines the long bond rate and through that, mortgages.

However, the UK what you’re saying is…


RITHOLTZ: The Fed — the Bank of England has much greater impact…

BLANCHFLOWER: Barry, you’re correct.

RITHOLTZ: … on people’s pocketbooks than in the US, it’s a little — has to work its way through a system.

BLANCHFLOWER: Barry, I got to tell you a story, I was in UK last week I’m going — doing the rounds in the financial papers was a guy in Denmark, so I think we’re talking this morning about Draghi, we are talking about rate cuts, they showed someone’s new mortgage contract in Denmark with a negative interest rate.

RITHOLTZ: That’s amazing, right?


RITHOLTZ: I will take two houses.

BLANCHFLOWER: I will take two houses, right?

RITHOLTZ: Hey, I’ll let you in a little secret, I’m in my house September is five years, my expectation for interest rates were such that I did the 270 — 2.75 mortgage that was variable thinking I get seven years before this goes up and seven years from now I don’t think rates are going to be much higher and so far so far I’ve been right.

We’ll see what — we’ll see how accurate that ends up being, my wife was not happy with that but it’s worked out okay.

BLANCHFLOWER: I mean I just have in my head and people listening to his (inaudible) in 2008 August in the UK, market — the interest rates are 5 1/2 and the markets are priced in 5 1/2 percent for the next three years.

RITHOLTZ: Right, totally wrong.

BLANCHFLOWER: Totally and completely wrong.

RITHOLTZ: Markets get it wrong all the time.

BLANCHFLOWER: So markets get it wrong.

But I think in the UK particular on the mortgage front, there has been an impact on the balance between savers and borrowers has really been impacted, but what it means is the ability of the Bank of England to do what you’ve told — we need to raise rates so we can normalize things, you wipe out the housing market if you do that.


BLANCHFLOWER: So the ability of the Bank of England, almost ever now to raise rates say above one is basically off the table.

RITHOLTZ: I don’t know if you know Torsten Slok of Deutsche Bank.

BLANCHFLOWER: Of course, from Deutsche Bank.

RITHOLTZ: He has this fabulous chart.

BLANCHFLOWER: I saw the chart where he talks about the markets got it wrong, I saw that last week.

RITHOLTZ: Always, the market always get fed actions wrong.


BLANCHFLOWER: I know, I know.

RITHOLTZ: You would think the market would have some insight, so much for the wisdom of crowds. Right?

BLANCHFLOWER: Well, it’s not just that. I mean remember that in a sense what they plotted was what the Fed said it was going to do, I mean the market …

RITHOLTZ: Does the fed know what it’s going to do honestly?

BLANCHFLOWER: Well, the (dark plots) are really interesting right now I’ve been given presentation recently, if you look at the (dark plots) from March it looks like half the people thing that we rate rise in 2019 and the majority think there will be at least two in 2020 …

RITHOLTZ: Increases.

BLANCHFLOWER: Increases, and if you look, and to say, I’m about three hours out of date here but over the last week by April of next year the market has been moving back and forth between four or five cuts by April. And the Fed says so this is a really big disconnect folks.


BLANCHFLOWER: So the question and Torsten’s chart is a good one, the question is whether the markets got it right this time, my suspicion is they do.

RITHOLTZ: So let’s talk a little about Jerome Powell and his relationship with President Trump. This is not the typical president and presidential appointee, you would think this is an Obama deep state holdover. This is his guy, so is Richard Clarida.


BLANCHFLOWER: And so are a number of others. I mean to put it…

RITHOLTZ: The chairman and the vice chairman have both been appointed.

BLANCHFLOWER: Right, right.

To be frank, and the book actually — actually of the view that Trump is right, I mean I think Trump is right in this case that interest rates are too high and they made a mistake. So let’s put that on the table for different reasons – for reasons I lay out, obviously the issue about the independence of the …

RITHOLTZ: Central bank.

BLANCHFLOWER: Is big deal, but I think the discussion is not quite right, I think the question is the assumption is you allow the central bank to be independent because disproportionately it gets things right, more right than any other way.

The problem is if the central banks gets it wrong.

RITHOLTZ: And it does occasionally.

BLANCHFLOWER: And it does occasionally, and it certainly going wrong in 2008 by September ’08, they still really didn’t know the US have been in recession since December ’07.

RITHOLTZ: Right, right.

BLANCHFLOWER: So obviously over the last decade, the fact that the Fed has got it wrong so many times does kind of bring the argument that — changes the argument a bit to say they should be independent. So the pressure on them obviously is really high, they are supposed to be independent. But in this case, it is hard to argue Trump isn’t right.

RITHOLTZ: But for the wrong reasons.


RITHOLTZ: He is right.


RITHOLTZ: He want, for the wrong reason, he’s concerned about reelection.

BLANCHFLOWER: Right, forget that reason, just as an economist…


RITHOLTZ: You are saying…

BLANCHFLOWER: Labor market.

RITHOLTZ: You are saying economically …

BLANCHFLOWER: Economically, it makes…

RITHOLTZ: It is clear every is slowing down and there’s a recession eventually out there.

BLANCHFLOWER: And I take the views as – a person who voted on interest rates, well, for goodness sake folks, what we did last time, we didn’t get it soon enough, we got there late, I think there’s very little downside risk to an early rate cut that might calm markets, it might …

RITHOLTZ: It could cause some inflation.

BLANCHFLOWER: Great, we will have a bit.


RITHOLTZ: So that let’s talk about two things that are both a little wonky. The first is Northern Rock which you mentioned.


RITHOLTZ: So in the US following the great depression, we set up federal deposit insurance company where all the banks pay a tiny, tiny fraction of their deposits and in the event of a collapse, their account holders are made whole and theoretically bank runs are a thing of the past. The UK doesn’t have that identical set up, does it.

BLANCHFLOWER: Well, it has something a little different, I actually learned something about Northern Rock last week…


BLANCHFLOWER: Which was actually why is Northern Rock in the North? Turns out – the reason it was there, apparently people tell me was that the other banks wouldn’t lend there.

And so Northern Rock went there and could start making loans to people who have no incomes and no real ability to pay, almost making pretty bad loans, so that was the reason it was there.

Okay something else that happened …

RITHOLTZ: They lose a little on each loan but they make it up in volume.

BLANCHFLOWER: make it up in volume, and they actually didn’t have many branches, it was only about 40 branches, so when the bank failed, many — there were two branches in London and base it, they were really tiny, so when you have two desks and a thousand people standing outside, you are in a little trouble.


RITHOLTZ: That’s funny.

BLANCHFLOWER: Here I think is something that people haven’t noticed and actually people try to hire me and I refuse to go so what happened was — here is a big deal, many of the people who worked at Northern Rock have their pensions and had shares in Northern Rock as part of their savings, so they were wiped out, the savers were protected but unlike in the US, the shareholders were wiped out.

RITHOLTZ: Meaning?

BLANCHFLOWER: The Bank of England value the shares of Northern Rock at zero.


BLANCHFLOWER: And they were entirely wiped …

RITHOLTZ: Well, in bankruptcy, listen, the bondholders suddenly have something.


RITHOLTZ: But the equity holders …



RITHOLTZ: That is the same as the US…

BLANCHFLOWER: But the other thing of course as I say, the employees really hurt because a lot of them had share options and all the rest of – and that …

RITHOLTZ: You know how many Enrons and Lehmans do we have to see before people…


RITHOLTZ: Look at General Electric.




RITHOLTZ: How many – this comes up over and over again and unfortunately, people don’t learn that lesson.

BLANCHFLOWER: Barry, here was the other big lesson, and I remember the time that I was I got into trouble because I said, well, obviously if you look at Northern Rock, there are other — there are other institutions who look very like it. It turns out in the UK, there was Bradford and Bingney and Alliance and Leicester who looked just like Northern Rock.

RITHOLTZ: And how did they do?


RITHOLTZ: There you go.

BLANCHFLOWER: The only issue Barry was when, if it was when they are going to fail.

RITHOLTZ: So who makes the account holders whole?

BLANCHFLOWER: Well I suspect we have to well unclear maybe these macro prudential instruments may be ways of ensuring that in the good times, coverage is made so that in the end, in the bad times, the public don’t have to come in and rescue those folks, it’s a it’s a big issue, I mean…

RITHOLTZ: But there is no FDIC type…

BLANCHFLOWER: Well, now there is.

Now, after Northern Rock, the government had to come and step in and say we will protect — it was actually a funny story, the government went in in the morning if I recall and said right, we are going to protect everybody who’s a saver in Northern Rock, then they had a little problem which is everybody have money in an Irish bank went, I can move all my money to Northern – so on the day that they did it, money poured into Northern Rock, and then the government had to say, hang on folks, we are not going to guarantee the world’s savings, it’s only going to relate to people who were here last week.


BLANCHFLOWER: So that was a big fundamental change and savers are now protected, but remember the big difference in the way in the UK — the big turn down in the world crisis which the world will didn’t know was the failure of RBS, much more important than …

RITHOLTZ: Royal Bank of Scotland.

BLANCHFLOWER: Much more important Lehman Brothers or anything else, and the reason…

RITHOLTZ: Why, why is that.


BLANCHFLOWER: So the story was and I have – Alistair Darling tells the story that he was at the financial meeting of European finance ministers on October 7, 2008 and he gets a call from RBS and the chairman says to him, I can’t make a payment today, chancellor, I can’t make a $50 billion payment tomorrow. And they told him that — told Alastair if you don’t rescue RBS, there is a very good prospect that every credit card and cash machine in the world will fail.


So six central banks together, that’s the best the biggest moment of the crisis, six central banks together cut rates and if anybody in the world sees six central banks together cutting rates and led by the UK, you should have been told, the global markets are collapsing and something happened in Britain so it was the fed, ECB, Bank of Japan, Bank Switzerland, the Riksbank and the Bank of England, that was the day that everything collapsed.

RITHOLTZ: Quite fascinating. All right.

And then the last wonky thing I have to ask you before we start our speed round has to do with the Phillips curve, you do a lot of work with that. For the layperson, explain what the Phillips curve is and why it’s so wrong?

BLANCHFLOWER: Well it’s hard to do in simple…

RITHOLTZ: 30 seconds…


BLANCHFLOWER: The answer why it’s all wrong is that we used to think that the unemployment rate is what drove wages down, turns out that’s not true anymore.

RITHOLTZ: They are disconnected.

BLANCHFLOWER: They are disconnected so what happened in the past, firms pay was impacted by the unemployed outside the firm. Well what has happened today is underemployment is the story, two thirds of the workers over here got the hours that they want and they got temporary workers, all sorts of freelancers in there paid less and the workers on the one side of the room know that they can be replaced by the people on the other side of the room.

Turns out the Phillips curve has to be written in underemployment, underemployed is the story post 2008, all the stuff about the unemployment rate is wrong because it doesn’t do anything since 2000, and the big deal is the underemployment rate hasn’t returned to its prerecession level.

RITHOLTZ: Which makes me raise the final question which is we’ve seen union membership plummet in the US, plummet in the UK.

BLANCHFLOWER: Yes, around the world.

RITHOLTZ: How important is the failure of unions, the death of unions to driving both the underemployment and the economic insecurity of the employed?

BLANCHFLOWER: I mean that’s had a really big impact but in some sense you have to step back and say well, what caused the decline in unions and the answer is pretty much global forces? Globalization made it very much harder for a union to raise the price, so thinking the global market was 7 out of 10, union comes along, rate — gives benefits to workers, the price is 11 and the firm gets wiped out because there’s global forces.

So the problem for unions is that you know they been wiped out by global forces.

So that’s further made workers — jobs more insecure, more unstable, and less well-paid.

RITHOLTZ: Good answer.

All right, so let’s go to our speed round, these are a favorite questions we ask all our guests and I’ve tailored them specifically to you. So tell us what was the first car you ever owned, year, make, and model?

BLANCHFLOWER: I can’t even remember. I mean I’m an interesting person, I didn’t have a driving license until I was 27.


BLANCHFLOWER: I lived in London.

RITHOLTZ: So you didn’t get one.

BLANCHFLOWER: I didn’t need one.

I mean if you have a parking space in London, you could never leave the car — take the car away from it because you could never find one again, so I had a Mini as my first call.

RITHOLTZ: And a real Mini …


RITHOLTZ: Not the new BMW Mini.

BLANCHFLOWER: A real Mini with wooden panels on it and little doors that would breakdown all the time, they were great.

RITHOLTZ: What’s the most important thing people don’t know about Danny Blanchflower?

BLANCHFLOWER: It’s a really tough one. I used to be a schoolteacher.

RITHOLTZ: You are still a school teacher.

BLANCHFLOWER: That is the best – maybe right.

RITHOLTZ: There you go. So you used to teach grammar school, high school?

BLANCHFLOWER: Yes, I actually taught in the school that I got paid danger money to teach the school. I decided it was easier to go and talk to people like you, Barry, and get that kind of aggravation …


RITHOLTZ: Danger money.

BLANCHFLOWER: That kind of aggravation.

RITHOLTZ: Tell us who your early mentors were.

BLANCHFLOWER: Well the big deal actually was my dear friend Richard Freeman who is Dartmouth Class of 64, a famous man to always wear hats who famously wears hats to everything but he’s a great empirical economist and just taught me to go and look at the data.

And that was not something the economists did, they – for a very, very long time, the role of data was seen as …


RITHOLTZ: Secondary.

BLANCHFLOWER: Second to what other people do.

RITHOLTZ: So everybody’s favorite question tell us some of your favorite books, fiction, nonfiction, market related, economy related, whatever.

BLANCHFLOWER: I always liked him Gabriel Garcia Marquez’ “Hundred Years of Solitude” than just is something I have read so many times, the man was a genius and I didn’t really realize that every other people thought he was a genius too and gave him the Nobel Prize in literature. But I’ve been a nonfiction wonk forever, and my wife is so bored, I read economics books.


RITHOLTZ: So give us what you think is the most interesting unexpected economics book you read recently?

BLANCHFLOWER: Oh my goodness, well actually, I read this great book by Keynes, it’s a paper I have been reading endlessly that nobody knows about written in 1931 and the reason I really like it …

RITHOLTZ: What’s the name of the paper?

BLANCHFLOWER: Well, it’s about his theories on unemployment, but I think — I mean it’s on it’s I think is a great …

RITHOLTZ: Keynes on unemployment, I kind of remember reading something about that.

BLANCHFLOWER: No but you didn’t, what you read was Keynes talking about unemployment rise after it happened, this is a book, I mean it is exactly what you kind of have been talking about. He’s asked in 1930 what he thinks is coming, and he says it’s not really about the crash, so it’s not right out — it is actually Keynes who has it, and he talks about if you don’t do the things that we’ve told about that you need to do, and this is a phrase I’ve used many times, the long dragging conditions of semi-slump.

So I keep going back to that. But the other one I read and I think it’s a really important one is that I read a book Beveridge, and if you know Beveridge, it’s a great story when Churchill in 1943 said, what’s the world going to look like after I come — after we get over the war, tell us what full employment would look like?

And Beveridge writes this thing and he says I felt and he says I think unemployment — full employment rate of unemployment is three percent, but in a 1960 probably, he said Keynes wrote to me and said I think it could be much lower and the UK turns out, unemployment averaged one and a half percent for that whole period.

So this – that is about what full employment means for the work for people coming back from the war and I think that’s a great book to read, Beveridge on Full Employment.

So in 1943, they thought about these things and in 1931 the thought about, and the world repeats.

RITHOLTZ: And we today have the Beveridge curve …


BLANCHFLOWER: Directly from Beveridge but it’s a great and he talks — he talks about what the welfare state should look like, but I would encourage people to go and look at it, think about what full employment means and it’s — you could just cross out 1931 and you can write in 2020 …

RITHOLTZ: And it’s the same thing.

BLANCHFLOWER: It’s the same thing, and so what the policymakers do, they didn’t read that stuff.

RITHOLTZ: I have to ask you about a book that you referenced, the author of that is sitting at my shelf at home waiting to find its way into my queue which is Lord Skidelsky’s biography of Keynes.

BLANCHFLOWER: He’s a dear friend of mine, we’ve written things, I got to tell you a great story. He has a great book called “The Master” right” “Return of the Master” and he sent it to me and the whole time in my life this has never happened, he sent it to me, I got home, and my dog had eaten it. This is completely true, and I had to get another one. My dog had torn it to pieces.


RITHOLTZ: I literally had that happen.

BLANCHFLOWER: You had that happen…


RITHOLTZ: I literally…


RITHOLTZ: William Goldman’s book “Adventures in the Screen Trade.”


RITHOLTZ: I’m reading because Goldman’s position is nobody in Hollywood knows anything.


RITHOLTZ: They passed on Star Wars, they passed on Raiders, they are all terrible, I made the mistake of putting it down for two minutes, the puppy destroyed it.


RITHOLTZ: We have a Portuguese water dog.


RITHOLTZ: And I had order a new one and keep it at a high shelf.

BLANCHFLOWER: So that — and there is another story to tell you, so Skidelsky is not only the biographer of Keynes, there is a good story about — what is special about Skidelsky, he lives in Keynes house.

RITHOLTZ: Oh really, that’s fascinating.

BLANCHFLOWER: I don’t know if he still…


RITHOLTZ: Is it a coincidence or did he seek it out?

BLANCHFLOWER: Seeked it out. To seek it out. So there is a great — great story …


RITHOLTZ: Talk about inhabiting somebody’s persona…

BLANCHFLOWER: He writes in the back of my book as well, so (Robert) and I have written the Lord …


BLANCHFLOWER: I call him the Lord.


RITHOLTZ: He was, I think I briefly met him here at Bloomberg, he came through they do lunches for different authors and stuff and he is somebody else I have to …


BLANCHFLOWER: Yes, he is great, and he talks about “Return of the Master” but in the book he talks about sadly the “Return of the Master” was not as was not as big a return as it ought to have been.

RITHOLTZ: Right. It should have been more…


BLANCHFLOWER: It should have been a big drum roll, it should have been a big drum roll.

RITHOLTZ: So tell us about a time you failed and what you learned from the experience?

BLANCHFLOWER: Goodness. Well I think I failed — the biggest fail I made was in August 2008 and I’ve been calling a recession, we got the first call of what output in Q2 is going to be in it and it was plus point two.

RITHOLTZ: Point two.

BLANCHFLOWER: Plus point two.


BLANCHFLOWER: And I have been saying forever, and I didn’t believe…

RITHOLTZ: And I’m sure the revisions eventually took a negative.

BLANCHFLOWER: Minus point 7 right now.

RITHOLTZ: There you go.

BLANCHFLOWER: But that was – I mean, in the sense, it was the biggest fail because I doubted myself so seriously.


BLANCHFLOWER: I really thought I got it so wrong and we did this terrible report in August 2008 that I signed up to we said no recessions’ coming in the went home and I thought, I’ve either got to work this out, I got to work out, either I’m an idiot and I’m completely wrong and I have to quit or I’m right and I went away and I thought it is one of these and I talked to everybody, and eventually I decided that I was right.

But that was the – and a sense, the big fail was getting it wrong doubting what I had said before and just being tortured and then eventually deciding okay, I’m right, and then I did the big interview and then I went whole hog on it. But I just doubt — that number just made me think I got it so wrong.

RITHOLTZ: So heading into the financial crisis so I’m all about what do we really know?


RITHOLTZ: Metacognition, what do we think we know that we’re wrong about, what do we not know that we not know. But heading into the financial crisis, I had no doubt that my forecast for deep recession and a market crash was right and the reason …

BLANCHFLOWER: Did you have a moment of doubt though?

RITHOLTZ: No, never, the whole time, what was shocking to me was that nobody else saw it, I couldn’t understand.


RITHOLTZ: And the data points, the data points that made it wholly unambiguous was this chart, I want to say I first picked it up from Ned Davis in like ’03 or ’04, and then I started looking — so I should have been looking for disconfirming data which I could not find and I started looking for confirming data which was everywhere.

So it’s a historical relationship in the United States between median home price and median income.

BLANCHFLOWER: This is — I have the same in the UK, exactly the same series …

RITHOLTZ: So you look at that data series and for decades, decades, decades you know it bounces around …


BLANCHFLOWER: Quite serious.

RITHOLTZ: Two and three, two and three — and suddenly, it goes four, five, six, it’s like orders of magnitude, so based on that chart …


RITHOLTZ: I tried to find out other things, when you looked at the cost of home ownership versus the cost of renting, same things, you know a long-standing relationship and then it spikes.

And then the third one, the third chart.

BLANCHFLOWER: Right, absolutely.

RITHOLTZ: The third chart was the value of the housing stock in the United States relative to GDP and that was a little more volatile but like around 02, 03, 04, it just spiked so my takeaway was either everybody’s getting a giant raise or housing drops 20 percent, 30 percent, 40 percent.

BLANCHFLOWER: So the second one I didn’t really know about, the first I did and that’s …

RITHOLTZ: But it’s effectively the same chart …


BLANCHFLOWER: Of course, absolutely…


RITHOLTZ: Of course, rent is…


BLANCHFLOWER: I hadn’t thought of it that way.

RITHOLTZ: It basically is a different way to look at the same thing, rent is related to income and rent to ownership is ends up…


BLANCHFLOWER: Barry, if you got – in the UK, exactly the same, we call it house price to earnings ratios, and the UK averages about 3 to 3.5, by 2006, 2007, it got to 5.9 to 12 in London…



BLANCHFLOWER: 12, so then what was interesting if you look back a series of people on the MPC some before me coming to it, spent an awful lot of time arguing why this time is different and why the ratio had permanently changed.

It was something about demographics…

RITHOLTZ: Yes, yes.

BLANCHFLOWER: It was something about, I mean…


RITHOLTZ: There’s always an excuse.

BLANCHFLOWER: Exactly, let’s go with nonsense.

And they said you shouldn’t read anything into this because this is all permanently changed and I think they yeah, nonsense and so the justification for this rise was that literally the markets are so much more efficient than they would be and they read Lucas who said in his Nobel prize-winning speech, I’ve shown you that depressions can’t ever happen again, all is absolutely wonderful and Barry rightly laughs.

RITHOLTZ: That’s right.

You’re listening to confirmation bias radio with Danny and Barr.


So our last couple of questions.


So what you do outside of the office for fun? What you do to relax or sit back?

BLANCHFLOWER: Yes, well, I like to go cycling with my wife and I go cycling but I had trouble with my ankle some time ago and I used to play quite a lot of golf.

So you and I met I think the first time fishing.

RITHOLTZ: That is correct.


BLANCHFLOWER: And so I’ve taken up a lot of fishing with our old friend David Kotok…


BLANCHFLOWER: Who was here this morning and while — I’ve become an avid fisherman, I’m going next week back to Florida to go fishing again.

RITHOLTZ: A little bone fishing?

BLANCHFLOWER: No, actually, I’m a snook guy. I like…


RITHOLTZ: I have never gone snook fishing.

BLANCHFLOWER: You are invited, I have a house on the water, when are you coming?


RITHOLTZ: Let’s go, I actually like the West Coast of Florida better than the East Coast.



RITHOLTZ: Not just for fishing but …

BLANCHFLOWER: Well, you’re invited.


RITHOLTZ: It’s the Midwesterners as opposed to us New Yorkers, they are much nicer.

And you are a catch and release fisherman, right?

BLANCHFLOWER: Hash tag catch and release.

RITHOLTZ: What sort of advice would you give to a millennial or someone beginning their career who was interested in either economics or labor economics or monetary policy?

BLANCHFLOWER: I would go and read an article out yesterday by Nobel prize-winner Akerlof who talks about the importance of trying to understand problems, economics has become just math…


BLANCHFLOWER: People have tried…

RITHOLTZ: Very mathy…


BLANCHFLOWER: Very mathy. And I think the story is focus off the patterns in the data, try and think well what important question are you trying to answer? Focus on an important question, okay that’s sort of contrary to many of the things that have been in the economics, and yes, you have to publish in the top five credit journals and I think it’s a really good place to come and think, what do people in the world actually care about?

So focus on issues where you can answer questions.

RITHOLTZ: So your — I think that your approach is the right approach, is that overstating it?

BLANCHFLOWER: That’s exactly, no, sorry, it was George Akerlof, yes, and his paper is about hard economics which is go and do the math and lose sight of the …


BLANCHFLOWER: Lose sight of what the heck are we do — I was taught, the greatest I was taught by…

RITHOLTZ: That is the walk about, get out…


BLANCHFLOWER: The economics of – and walking about and my old supervisor said to me, Danny care about the well-being of the man or the woman on the Clapham Omnibus.

For American audience, Clapham was a part of London, and an omnibus is the bus before which was towed by the horse, but it’s about the think about the well-being of the ordinary person, perhaps the ordinary prim age, less educated person, living in Pennsylvania, West Virginia, don’t lose sight of that.

And I think if that’s what you do, I mean think of what Deaton and Case are doing, they are trying to understand how to improve the well-being of — that is an honorable estate.

RITHOLTZ: And hence your focus on unhappiness, stress, physical pain and underemployment.

BLANCHFLOWER: And I say to my students this is so much better than so much of economics that focuses on the trying to add a squiggle to a diddle, to put it technically.


RITHOLTZ: A squiggle to a diddle.

When I download and go to read an economics paper, I will go to the first five, 10, 12 pages and then I’ll hit the page that’s just a sheet of calculations and formulas and I tap out because I can’t follow that. And neither can most of the laypeople.

BLANCHFLOWER: And we don’t have to because I me go back to the greatest story of the maybe we can end on this great story. So the queen goes to the London School of Economics and opens the new department of economics and the chair says to her, there’s 150 economist here, and the Queen turns to him and says, well, if there are 150 economists here, how come they missed the great recession?

And they turned to her and they said they were working on something else.


RITHOLTZ: That’s great. Our final question what you know about the world of labor economics today that you wish you knew 30 years ago when you are first ramping up in this space?

BLANCHFLOWER: Wow, everything, everything, I mean I didn’t really understand that there were patterns in the data, I didn’t really understand how related things were and that you in the 30-odd years that I’ve been looking at the labor market, how little improvement that I’d seen for the average person…

RITHOLTZ: That is some era, that 30 year period.

BLANCHFLOWER: I think that’s a shocking story.

RITHOLTZ: You started just as the wages decided to freeze.

BLANCHFLOWER: Yes, right, right. I mean in a sense the story — the story is about the spread of global forces and it’s is about the spread of inequality, so we’ve done well, we’ve done very well, people around us have not done so well, we have family members, I mean I have three kids and they are all struggling, they are struggling to leave home, they are struggling to put the kids in charge – they are struggling to buy — they are struggling to pay off their huge student debts and I think that the word I use there was used advisedly, it’s a — life’s a struggle.

RITHOLTZ: Quite fascinating. We have been speaking with Danny Blanchflower, author of “Not Working Where Have All The Good Jobs Gone” and current economics professor at Dartmouth.

If you enjoy this conversation, well be sure look up an inch or down an inch on Apple iTunes where you could see any of the previous 250 such conversations that we’ve had over the past five years.

We love your comments feedback and suggestions, write to us at I would be remiss if I did not thank the crack staff that helps us put these conversations together each week. Michael Batnick is my head of research, Atika Valbrun is our project manager, Michael Boyle is my producer.

I’m Barry Ritholtz, you’ve been listening to Masters in Business on Bloomberg Radio.



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