Tim Congdon is a British economist and a supporter of Brexit. We talked with him about migrations, Covid-19 pandemic and the consequences of Brexit.
Mr. Congdon, You are a founder of the Institute of International Monetary Research. Could you please give us a brief introduction of this Institute and tell us a bit about its main goals?
I have been an economist in England since the 1970s. And one of my main contributions to the public debate has been to follow the growth of money, and to draw implications for the economy; inflation output, unemployment and so on. I am now almost 70, and I think my work has been important. One of the purposes of the institute is to maintain a tradition of monetary analysis in which the quantity theory of money is crucial. Monetarism if you wish. The Institute is a charity and therefore has to fulfill a charitable purpose. It helps the University of Buckingham in its educational tasks. But it also has importance for the world as a whole, for all countries, because monetary analysis is relevant across the world.
You supported Brexit. What would be your criticism of EU, both its policies and economics?
The EU wants to evolve into a super state. That’s very clear. Let’s just think about that for a little bit. That means that in the end there is to be one government for Europe, one federal government. And in fact, for example, the leaders of Germany and France, and some other countries, are being relatively open about it, that that is the eventual aim. I am British. The British generally – Scotland has some problems in terms of identity – but the British who consider themselves being British do not want their country to disappear. They are proud of their country. That’s the first point to make. It is a very important point to make in understanding why Britain is different from other European countries, and obviously that comes from history and so on.
But then, if we just think about what the EU is doing, it’s to be in the end one government. But in the period before then, from the Treaty of Rome and back even to the founding of the European Coal and Steel Community in the early 1950s, there are still to be national governments. So you have this entity with two governments, and these two governments are actually in conflict. What we see, for example, is the national governments who will not give up the power to tax. They won’t do that. So, how does this other government – the government from the Commission in Brussels – interact with them? What it does is it regulates, and in fact it over-regulates. And so what happens in the EU is that nations are subject to massive regulations, which depress living standards and make people poorer. And the elite also finds excuses for imposing regulations. Much of the popular cause in the UK against EU was actually to express resentments about these regulations. There’s much more to say, but these remarks give you something to think about.
On the economic front they have created a single currency. There is no previous example anywhere in the world of a successful union with several different significant sovereign nations sharing the same currency. This is a quite unique experiment. The different nations have got different motives. Italy has a tradition of people expecting the government to do things that it can’t do and it has traditions, I am afraid, of large budget deficits and to some extend of currency debasement and of inflation debauchery. One of the reasons the Italian elite wanted to join the common currency was somehow to overcome this problem. The Germans, having had the terrible experience of the hyperinflation of 1923, have a quite different attitude. They believe in strong public finances, they believe in sound money, and – before the single currency – they had a central bank, the Bundesbank, which was protected by statute, by German national law, against monetary abuse. And it was very successful. The Germans hoped that with a common European currency they would be in control. They are not in control anymore. And what’s happening at the moment is that you have excessive monetary growth in the euro zone effectively organized by Italy and France with Spanish support, and the Germans are in trouble. They are outflanked and outvoted. This a recipe for future instability.
I want my neighbors in Europe to be stable and prosperous. I am afraid the EU and European currency are not delivering those things at the moment. I will just finish by saying that what’s happened with Covid vaccination in the EU as opposed to the UK is a pitiful illustration of my point. EU countries have two governments, which do not work together very well. The governments are not clear what their respective responsibilities are, and with the result that the vaccination delays have been a very serious failure. In the UK we have the first year of true independence and, on this front, we succeeded.
What were in your opinion the main reasons that the ordinary British people voted for Brexit?
It is interesting that the British people totally despised the forecasts from the economists. I disagreed with those forecasts too, for example, that there would be a recession after Britain leaves the EU and even after a referendum vote to leave. Those forecasts were rubbish. The economics was important, but the British people ignored the forecasts produced by the economists in their country, and quite rightly so.
I haven’t given you the answer to the question. Remember that the British decided by a relatively narrow margin, it was 52% to 48 %, to leave EU. I would say that for most of the 52% the key issue was very largely national identity. They did not want to lose their country and their history. These things are very difficult, but clearly they matter to the British people.
One of the aspects of all this, undoubtedly, was immigration. I am not going to question the point that the majority of 52 % was dependent very heavily on the votes from the working class, the less educated, the less well off, who did not like the large numbers of foreign people, foreign born people, who were living in their country. They wanted that to be stopped. I actually sympathize with those working-class people. And one of the aspects of this in particular was the opening up of our labor market to immigration from Eastern Europe, including Slovenia, in 2004. The results of this were felt across England and all over UK. But the UK Independence Party was very strong in areas with a high proportion of immigrants in the workforce.
In your opinion, what will be, in the near future, the biggest economic and also political consequences of Brexit, both for the UK and for the EU?
There has been a fall in a trade between UK and EU in the first few months of full Brexit, in other words since we left the single market at the end of December. To what extend this is due to such influences as the global supply chain with the very high freight rates isn’t clear. But there does seem to be quite a reduction in trade in the first months. This effect may fade, but there is going to be some reduction in the extent of trade, both exports from the UK to the EU, and imports from the EU to the UK, because of Brexit. I am very disappointed that is so…and that is not what Britain wants.
We have a large trade deficit with the EU. We benefit from the high quality and globally competitive prices provided by imports from the EU, and we should try to continue that. We don’t want to be hostile towards the EU. I hope that in the next few years we will have further discussions about trade relations between ourselves and the European Union, and of course the European Commission, and we will carry out as much trade between us as possible. We will not in any sense cut ourselves from free trade with European Union. Some Brexit-related changes have disappointed and surprised me. But I think that in some cases the results for the EU will be much worse than for us…particularly in the financial sector where what we are seeing are openly protectionist, inward-looking, retrograde steps by the EU Commission to try and punish Britain. This is not a good idea. We will, I am sure, maintain traditions of openness and transparency, looking to the wider world, and the European Commission will find that EU financial centers lose market shares to London.
I am relaxed about where we are going, and I think on the whole that the first few months of Brexit have in many ways gone very well. I think one of the key things has been the contrast in the vaccination programs between Britain and the EU. And doesn’t that just demonstrate the relevance of the point I was making that all the nations in EU have got two governments, and the two governments don’t really know which is properly in control?
You were a member of UKIP. Can you tell us what the current situation with UKIP is?
I was a candidate for the UK Independence Party in the Forest of Dean constituency in the 2010 general election. Also in 2010 I also stood for the leadership of the party, and was runner up to Nigel Farage. I was then the economic spokesman for UKIP for four years, until 2014. I think I did a pretty good job, because those were the years of success for UKIP. That was the period in which got many of the key economic points into the wide public debate. Having said all that, I am not now a member, and UKIP effectively is dead. That’s a shame. I think that the contribution that we did make in the British public debate before the referendum is still in a way relevant even today. But UKIP is dead – so the idea of being a member has become delusional.
What are some of the social and economic consequences of mass migration to Britain?
One of the worst consequences of the immigration, heavy immigration, that occurred from 1997 and 1998, but particularly from 2004 – when the EU expanded with the inclusion of nine new members from mostly Eastern Europe – was that since then we have a labour market where some people, usually poor, have found it difficult to get a job. It was worse for the poor because often workers who came in from Eastern Europe were young, often very well qualified, prepared to take relatively low wages. This made life harder for the economically most vulnerable people in British society. The immigration was fine for the middle class, for the London metropolitan elite. They did not care. It just meant they could get staff and help for their homes more easily. But for the working class British people it was bad news. As I said, it was one reason why in 2016 working class British people voted very heavily to leave the European Union. Can I just say here that the UKIP membership and voter base was very working class, even more so than the Labour Party? This was ironic, as originally the UKIP image was of its members coming mostly from the Conservative-voting upper middles classes, Surrey golf clubs and the like.
What is your opinion about Boris Johnson and how would you assess the work of your current government?
First of all, Boris Johnson is a brilliant wordsmith. He has a range of words and phrases, and he is wonderful in that respect. And he also cracks jokes, and these things make him a very attractive political figure. Certainly that is so in the Conservative Party where it’s quite important to be able to give a good speech, with a lot of humour, at events or at dinners. He is very good at that, and also to give him his due he was the prime minister who took Britain out of the European Union. We could see that what Theresa May was doing was not enough. But he changed course, and he was prepared to defy his own Civil Service and also the European Commission. He insisted that Britain outside of EU must have its own laws, must not be subject to European court of justice. There was a whole range of things that he understood had to be done. The UK’s departure from of the EU was in this sense very much Boris Johnsons personal achievement, and one has to concede that to him.
Having said that, he is plainly a rather chaotic individual. His private life is chaotic and, although one could say his private life is his private life, it spills into his public life. He doesn’t have much sense of economics, of the constraints that the public finances impose on government expenditure.
And separately it’s clear that at the moment there are different factions within the government, within 10 Downing Street, which are basically at war. That is not the right way to be governing a country. We do not really know what’s going to happen in the next two or three years before the next general election. There are not many other talents in the ministerial team cabinet. But one has to say that Boris Johnson, for all of his good points, gives the impression as being rather disorganized.
How will Covid-19 affect future economics and do you believe we could be facing a great crisis due to this virus in the future?
I am not a medical expert, but it’s clear there has been a significant price of higher deaths than usual. In Britain it seems the total number of deaths is above normal, of so-called ‘excess deaths’, will be between 125 000 and 150 000. This is very low compared to the effects of the Spanish ’flu after the First World War. And of course it doesn’t compare with the devastation by plagues and pandemics in the past.
But it is still to be noticed, and it is obviously a significant loss of life. On the economic front there are two big points. One is the public debt that is being incurred by in dealing with this emergency. It looks as if the extra public debt in the UK because of Covid will be of the order of 600 billion pounds. That is something like 30% of the national income. And for some years ahead the question of servicing and managing that debt, and of paying interest on it, will be around.
The second point is very much a part of my particular interest in the topic as an economist. The trouble is that the epidemic, not just in Britain but in most countries, has led to large budget deficits, and the budged deficits are then to a degree being financed by central banks and the commercial banking systems. That creates new money. So the growth rates of the the quantity of money across the world have increased very sharply. That is being associated – strangely in many ways – in the last year with very buoyant stock markets. It’s also been associated in the last few months with big rises in commodity prices. So, what we have to expect in 2021 and 2022 is rising inflation. Now I don’t know exactly how this is going to evolve. I have to say however that the intellectual patterns in my subject of economics are very depressing, as – quite wrongly – in the early weeks of the crisis the great majority of economists expected it to have disinflationary effects over many years. I find it possible that inflation will be around for some time. By inflation I mean inflation of 5% or more, occasionally perhaps in double digits. I hope not. The answer is to return to low and stable growth of the quantity of money.
Biography: Tim Congdon is a British economist and the founder of the Institute of International Monetary Research. He was born on the 28th of April in 1951. He was educated at the University of Oxford. His main work is evolving around researching in the area of quantity theory of money, money growth and the monetary approach. He is supported Brexit and was a member of the UKIP. In the period of 2010-14 he was also the official economist of the party.