Marian Tupy: Hello and welcome to this edition of Human Progress Podcast. And with me today, I have Jon Moynihan, Baron Moynihan of Chelsea, who is a British businessman, venture capitalist, life peer, which means that he’s a member of the House of Lords, and perhaps most importantly, an author of a brand new book called Return to Growth, How to Fix the Economy. Jon, welcome to the podcast.
Jon Moynihan: Thank you, Marian. It’s great to be here.
Marian Tupy: So I suppose we should start by asking growth. Why is growth important? What does it mean and why is it important?
Jon Moynihan: Yes, great question. And in fact, it was… That book started out as just a small pamphlet about why growth is important. And when I submitted it to the think tank that I had agreed to do it for, they said, yes, but you’ve missed this and that in the art. And gradually it grew to be a 450-page book that went way beyond why it was important. But where I started was, I said, there are practical reasons why growth is crucial. But there are also moral reasons why growth is crucial. The practical ones are that the world stagnates if you don’t have growth. And there are a couple of billion people for whom a great deal of economic growth is needed to bring them out of poverty around the world. Now, the moral reasons are, for example, that if there’s no growth, and you Marian are thinking, okay, for whatever reason, you wanna earn more money next year, or you want a bigger house, or you want to give some money to somebody, so you need to earn some more, you wanna give some money to some charity or whatever, if you’re gonna get more, and there’s no growth, then somebody else has got less.
Jon Moynihan: So a desire, which is very natural in the human condition to want to better yourself, to strive to achieve, to accomplish, to have lived a life that did things, that desire is in a no growth world, always gonna be at the expense of somebody else. And of course, you can extend that to saying, in a no growth world, even if we in the United States or United Kingdom, don’t grow, but that also means that nobody’s growing anywhere in those poor parts of the world. So, that’s the moral basis for why. Now, the example I like to give about the importance of growth is, I based it on Alexander Fleming.
Jon Moynihan: Now, these numbers are sort of very rough. So, I don’t want anybody writing to me saying that I got the decimal place wrong, or whatever. But 112 billion human beings have lived since the beginning of human existence, 6 million years ago, whenever it was. And that’s the estimate. 104 billion of them have died, and there are 8 billion of us left. By the way every human being has the opportunity and the right to happiness, so that the more you grow, the more happiness you create around the world. But let’s just look at those 104 billion who died. 80 billion or so they say died of infection. That was what killed human beings in the past.
Jon Moynihan: And those 80 billion had an average lifespan of about 30 years. So, I always invite audiences to think, well, what would your life have been like if you had died at 30? How much would you have accomplished? How happy are you at the thought of only living to 30 as opposed to whatever life you are now? And at a talk I gave a couple of days ago, some chap in the audience said, “Well, these two sons of mine on either side, they wouldn’t have been born.” But in general, okay, let’s just flip to Alexander Fleming before we get back to being age 30, but when you die. He discovered how to cultivate penicillin. And there was this whole process that led up to what then happened. What then happened was that capital and capitalism figured out how to manufacture that process in bulk, and spread rapidly around the world, giving an enormous change in transformation of the human existence. So, now you or I can expect to live till we’re about 93. When we were born, looking back, we had a chance of living till about 82. But we survived our potential of childhood mortality. So, now we’ll live to about 93.
Jon Moynihan: And that was all because infection has fundamentally been conquered as that prime cause of human death. People still get sepsis, lots of problems with that, but it’s way, way below being a major cause of death. And that’s economic growth, people think of economic growth as some dry set of numbers. Well, it’s not. It’s Alexander Fleming discovering how to cultivate penicillin and the capitalist process learning how to spread that out around the world and having the capital to do so.
Jon Moynihan: And there’s a whole backstory to that, which Matt Ridley, I think is writing a book about right now, or at least it’ll be part of his book, which is you’ve got the Renaissance in Italy that moves to the Enlightenment in Scotland where they start questioning everything. And that leads to the scientific revolution in London where they start changing that questioning into understanding scientific laws. And that leads to the industrial revolution, basically in the Midlands and the north of England, places like Manchester and Birmingham which then starts transferring over to the United States, who then really put some turbo charges under that whole process. And so, we in Britain as we called it then are the most powerful and rich nation in the world. And gradually that transfers to the US over the 19th Century.
Jon Moynihan: And there’s a whole backstory behind that, which is that the bottom of all of that is a bunch of inventions regarding power. So, Arkwright invented the water frame, if you’ve even heard of that. I’m sure you have. But so he’s using water power from windmills to power his frame to make cloth with, and then that moves to the spinning jenny that starts using steam power. And that moves on. Bit by bit you’re getting better and better at creating cheap energy, and you move to coal and then to oil and somewhere along that road, you learn how to turn that into electricity and it’s getting cheaper and cheaper to power this industrial evolution that leads to all sorts of economic growth that leads to a massive transformation of the human existence over 200 years, the life extension being a classic and key component of that.
Jon Moynihan: But, so I say to people, “Well, you say you don’t want economic growth. Well, how would you like to only live to 30 instead of your expectation of 93?” And by the way, the cheap cause of death nowadays is inflammation or it’s the over inflammation mostly, that the inflammatory response goes slightly crazy and you get cancer or heart disease or Alzheimer’s or all sorts of inflammatory diseases are now at the top of what kills people. And they’re working on that. And it is possible that the generation after me, let’s say you Marian, will live to 130. And that…
Marian Tupy: Oh, God willing, you’ll be with us still 130 at least. But…
[laughter]
Marian Tupy: I think the key of what you said there with which I completely agree, is that of course growth prevents those kind of zero sum thinking and zero sum game. Growth allows all of us to move forward. A perfect example of that, taking it back to Fleming, is that Fleming allows us to have a population of eight billion people who are every year getting richer. So that ipso facto tells you that there isn’t such a thing as a fixed pie of wealth.
Jon Moynihan: Or a limit to growth.
Marian Tupy: Or limited limits to growth. So we are getting richer and that of course provides… And growth is not just providing medicines, those terrific pharma companies all around the world producing stuff that we all need but also more and better food available at cheap prices housing, et cetera.
Jon Moynihan: IPhones? An iPhone all of that stuff.
Marian Tupy: Yeah.
Jon Moynihan: Again, Matt Ridley, he talks about the iPhone and he says, “Look at what you’ve got on there. You’ve got your entire music collection, you’ve got a compass. You’ve got… ” Just on and on and on. And that’s economic growth and human happiness.
Marian Tupy: Yeah, precisely. But I also think that in addition to… People sometimes say we had all of this growth in technology and science, but we didn’t have enough more growth. But I disagree with that because I think that in addition to having all those additional years of life, which in itself is a moral thing. The fact that you no longer have to bury your child before the age of one, that’s a moral component, not to mention.
Jon Moynihan: Absolutely. Absolutely. Yes. One of the key ones.
Marian Tupy: Yeah. And not to mention, I wonder what you think about is also rich countries, meaning countries with a lot of economic growth tend to be very good on such moral issues such as position of women in society, treating gays and lesbians with respect, being good to their ethnic minorities, being religiously tolerant. But all those things are very highly correlated with growth. Wouldn’t you agree?
Jon Moynihan: Well, they’re probably very highly correlated with wealth in as much as when you’ve got a basic standard of wealth. They say that human happiness doesn’t increase after you earn $10,000 a year. But it increases rapidly up to that stage. So, let’s say everybody could earn $10,000 a year, then there’ll be very much less need for prejudice in the world to blame anybody ’cause you’re not so unhappy and you’re not looking around to somebody to blame for your unhappiness.
Marian Tupy: Jon, there is a new research on this that shows that happiness keeps on increasing with income, even into millions, which is something that people have been only researching for the last 10 years or so. But that’s very encouraging.
Jon Moynihan: Well, I was going on a 20-year-old book, that Stumbling On Happiness book by the Harvard guy. So, I’m probably out of date. I have to say the richer I get the happier I am.
[laughter]
Marian Tupy: Well, that’s really good. You have already mentioned, you have taken us through that process of enrichment, moving from, I don’t know, whole strong carriages to steam power, to electricity, etcetera, but tell me more about the sort of institutional underpinnings of growth. Why does growth happen in terms of what else do you need as a system?
Jon Moynihan: Well, I’ve written this book that you’ve kindly been nice about in two volumes. And the first volume is out already, and the second volume is out in January. And the first volume talks about the three big things that you’ve got to have for growth. And the second volume, I’ll mention briefly in a minute. But the three big things are small government, low level of taxes, and a low level of regulation. And if you look over and over again, there’s study after study. I just went into this saying, well, okay, what creates growth? I didn’t have a particular point of view. Then I discovered that everything everybody said is three things, small government, low level of taxes, low level of regulation.
Jon Moynihan: And I looked through all these academic studies, and they’re absolutely dispositive. There’s no doubt that that’s what you need. The problem is that you’ve got a nasty little thing called Wagner’s Law. This Wagner was Adolf Wagner in about 1865 in a small German university said, “In a democracy, the size of government inexorably increases.” And what he really meant was that in order to get elected, politicians promised the world to the electorate, and they sometimes even deliver that. And delivering it is expensive. I think it was Mencken who said that a democracy is where you vote for what you want and you get it good and hard.
Jon Moynihan: But politicians have to promise new things to get elected and when they get elected, it costs more so the size of government goes up. Because the size of government goes up, they have to tax more. And that leads to big state, big tax, social democracy. This is what the European Union is testing the limits of right now. France is up to a government that’s about 55% of GDP and taxes of about 50% of GDP, which of course creates a significant deficit. Germany the same. And they’re not growing at all. They don’t have any economic growth. 20 years ago, our government was about one-third of GDP, and now it’s at 45%. So, you can come up with theoretical, but very valid reasons as to why that’s gonna cut growth into ribbons. But in any event, in the last two decades, our growth was more or less told. Real wages in our country are about 5% lower than they were 17 years ago.
Marian Tupy: That’s shocking.
Jon Moynihan: And If you looked at the European Union, the European… The Wagner’s Law says, it’s like whatever that story is about how you get poor. You get poor slowly for a long time and then suddenly. The European Union is getting poor rather suddenly at the moment. But around the turn of the century, GDP per capita was about the same as the US. You’ve got to do purchasing power parity and all that. So, you can have different arguments. But let’s say about the same. Now it’s what, 25% lower? Because America has kept on growing and the European Union has kept on not growing.
Jon Moynihan: And the whole battle, as I see, if you get rid of the ideological culture wars or whatever, the big battle I see as between the Conservatives and Labor in the UK and the Republicans and Democrats in the US is whether you want to become like the European Union or not. And I think the Obama-Biden project, bless them, was to turn the United States into the European Union, with a whole dash of all sorts of other problems like culture wars and immigration and so forth. But that was the basic problem. And the battle in the UK has been whether we managed to become more like America, which would lead to a lot more economic growth, a lot more like the EU, which would lead to much less economic growth. And so far, even though Brexit has meant that we’ve left the… Even though we’ve left the EU, we’re still becoming more and more like them. We’re growing, that this latest government we’ve just had has massively increased the size of government and also they’re attempting to increase the size of taxes.
Jon Moynihan: My book says actually that won’t happen. Arthur Laffer’s been very nice about this book and I admire him tremendously and in a rather cheeky way I’ve gone beyond the Laffer curve to something I have egocentrically called the Moyni curve. Laffer curve says it goes up and it goes down.
Marian Tupy: This tax revenue, tax revenue taken by the government, meaning you reach a percentage at which you actually take less tax revenue.
Jon Moynihan: Right. I say that actually the amount of tax that a country can take from its people is invariant. However much it tries, it can’t go up a certain flat level. And that level in the UK is about 36%. And…
Marian Tupy: Now Jon, just forgive me let me interrupt here. So, but the level is different. The level is different at different countries. How much taxes you can take?
Jon Moynihan: Correct.
Marian Tupy: Okay, keep going, please.
Jon Moynihan: And I’ll get to that in a minute. But in the UK it’s 36% and Labor has published its economic plan last week that says we’re gonna raise tax rates and that will increase tax revenues to 38% of GDP. And I’ve been writing about this for the last dozen years or so, and every year I say, “There’s another government that comes along seeking to raise more taxes.” And I say, “No, it’s 36%. And if by the way, GDP isn’t growing then than tax revenues won’t grow.” And I said this last year, when the Conservatives raised taxes, I said, “You can raise tax rates, but you won’t raise more tax revenues, it’ll stay at 36%.” And it did. And as a result, of course they spent more because of Wagner’s law, but they didn’t raise more. So the deficit in the UK now is 4.5%, even before Labor come in. And Labor actually, I mean, in boring numbers, which will not mean a lot to your to your listeners. Labor said, “We’re gonna spend 70 billion pounds more.” Although actually they’re gonna spend even more than that, ’cause there’s various things they say, “It’s not spend it’s investment.”
Marian Tupy: Sure, of course, of course. Yeah. Yeah.
[laughter]
Jon Moynihan: But anyway, they say 70 billion pounds and they say they’re gonna raise another 30 billion pound of taxes. So, they’ve increased the deficit by 40 billion pounds. I can’t remember what the hell that is. That’s about I think 1.75% of GDP. So, it goes from 4.5% and you add that bit, but I’m saying, well, you won’t raise that 32 billion pounds of taxes ’cause you are assuming you are gonna get 38% out. But the Moyni Curve says it’s flat. Now let me explain why the Moyni Curve works and of course I owe all this to Arthur Laffer, who’s a genius. And I just lift off him. But you look at all the different countries. Interestingly, the Scandinavian countries have quite a high level. They can raise 48%, 49%, 50% of GDP in taxes from their people.
Jon Moynihan: So, can France. Singapore can only raise, oh, I’d know 16%, 18%. Now, Singapore believes in low taxes. So, you can always raise less by cutting tax rates like mad. Everybody will greatly accept that. But Singapore is that low. The UK is very low. I’m trying to think of somebody who’s at about 40%. Damn it, I was just looking at somebody the other day, It was about 40%. But there’ll be countries around the world, about 40%. The US is significantly lower. Why would they be different? Well you may have heard about this psychologist called Hofstadter, and he spent all his life trying to distinguish national characteristics. And he came up with descriptions of what you were on this measure, what you are on that measure.
Jon Moynihan: One of the measures he takes is how risk loving is that nation? And the French are very risk averse. Interestingly, the Brits are very risk loving. So, are the Irish, by the way. And the Irish can’t raise much tax either, but they don’t care because they’ve got some wonderful tax fiddles where Apple passes all its revenues through Ireland and they get a lot of money that way. The Brits in the Irish are very risk loving but they are also very independent. They don’t… They’re not very collectivists. Whereas Nordic, Scandinavian countries are much more collectivists. The French were enormously collectivists. Remember Liberté, Égalité, solidarity, solidarity between us all. We all believe in the mother state, and so well I’m wondering how long that’s gonna last. But anyway, so if you take Hofstadter’s measures of each country, you get a brilliant correlation between what the level of their Moyni curve is. And it is a massive correlation. It’s in the book. And…
Marian Tupy: I think I’ve got it. I didn’t know we were going to go there, but that’s very interesting. This would be page 321. Culture drives the tax hike, right?
Jon Moynihan: There you are. There you are. And your viewers can see that there’s a line there, unbelievable. Just this guy, Hofstadter who I think he was Dutch, I’m not sure. And I just put a couple of his measures as against the Moyni curve number, and there it was.
Marian Tupy: Okay. But basically this says that this is revenue, government revenue going from high to low. And this is risk taking, being high at the one end and low at the other end. So, less taking equals more redistribution, more is taking equals less redistribution. So, that’s very interesting. So I think that economists are becoming much more interested in culture than they used to be before. It used to be all about institutions, but it’s more about the culture. But I want to sort of sum up what you were saying just a little bit before moving on to other questions. So, you talked about Wagner’s law. That’s a well-known law whereby the richer the country gets the more countries spend on social welfare and usually people on the economic left see that as a sign of progress. It means that wealthier you get the more socially conscious you get, the better care you take of poor people, et cetera.
Marian Tupy: But what you seem to be implying is that at some point the Wagner’s law has to reach some uppermost limit, mostly determined perhaps by culture about how much money you can take from people and redistribute. And right now what’s happening, I think I surmised from what you said, is that the Wagner’s law continues to demand from governments to produce more, but they can only raise so much taxes. So the rest comes from borrowing. Tell us about such thing.
Jon Moynihan: Yes, yes. Well that’s your deficit. And so, if Britain’s deficit was 4.5% in the last year then we’ll be 5.5% or 6% next year, that’s the percent of GDP that they have to borrow. And then you add that borrowing on top of the existing national debt. You’ve got the UK and indeed, I mean the US has gone absolutely mad both under Trump and under Biden in terms of the wasteful and squanderous way they are borrowing and spending. There’s, if you remember the US was chided for having what’s called the “exorbitant privilege” where they were the world’s reserve currency. So, they could just borrow as much as they like. But that won’t last forever. So, But the whole way that that borrowing comes about is a totally different story. Biden’s, extraordinarily named Inflation Reduction Act and so forth.
Jon Moynihan: Where was I going with that? Sooner or later, and of course my books about the UK, it’s not about the US. I’m sure somebody’s gonna write this book about the US. Sooner or later your debt to GDP gets to such a level that investors are not very keen on buying any more of your debt or even of holding it, because they worry about you going bust. Now everybody thinks Britain, Britain there, Britain can’t go bust. But Venezuela was the richest country in Latin America forever. And it was a wonderful, it was a brilliant economy and so forth. And now it’s…
Marian Tupy: In 1952, Venezuela’s GDP per Capita was higher than the United States, just FYI.
Jon Moynihan: Fantastic. Of course they did have a lot of oil, but it doesn’t matter why. What matters is they were tremendously rich. And I’m sure they’ve defaulted on their debt by now, haven’t they? I don’t actually know, but well, let’s take Argentina as another example. In 1910, I think it was the 10th richest nation in the world. It’s an extraordinarily blessed country with wonderful beef and agriculture and so forth. And weirdly, they have I think the highest IQs in South America, because they’ve got Italian genes and the Italians have one of the highest IQs in Europe.
Marian Tupy: I didn’t know that. Yeah.
Jon Moynihan: I just happened to bump into that. But anyway, 10th richest country in the world. And then they discovered Peronism, which is the Acme of Wagner’s law. And then by the turn of this century, they were regularly defaulting on their debts and constantly having to go to the IMF for debt restructuring and the like. So, there’s a couple of examples of rich, prosperous, well-run countries that went to hell and Britain could easily go to hell. France could easily go to hell. At some point, you can’t go on borrowing. Now you remember there was the Reinhart and Rogoff result. Do you remember that? That said that you cut your debt to GDP can’t go above 90% or you are on an inexorable path to doom. Now the embarrassment was that some graduate student checked their Excel spreadsheet and discovered a fundamental flaw in it, which was Q for slight embarrassment on these Harvard professors. But everybody thought that there was anyway, probably a lot of truth to that whole idea.
Jon Moynihan: If it’s not 90%, I mean we are at 101% now I think, and we’re gonna keep going up. Although, so I was gonna say that Labour just redefined our debt. They said we’re going to be paid student loans back in the future, so that’s money we’re going to get. So let’s lower our debt by that amount. Of course, they didn’t add in the future liabilities, which would actually more than double our national debt to over 200%.
Marian Tupy: I think I’m aware of the Rogoff-Reinhart controversy. My understanding is that the flaw which was found in the paper did not hugely affect the findings. But I want to explore with you, what are the mechanics by which such high debt has an impact on economic prospect? Is it because it’s crowding out private investment because interest rates have to be so high in order to make people buy more debt that businesses basically cannot afford that interest rate?
Jon Moynihan: The crowding out, I think more of refers to the size of government. So, when governments, half the economy is crowding out human enterprise, private enterprise. But there’s some very straightforward masses to why a high level of debt doesn’t work. Right now the UK economy is coming up to three trillion pounds. That’s, nearly $4 trillion. The debt is about 100% of that. So, you have to pay interest on that. Let’s say you pay four… Well, I can tell you what the interest cost was last year. I think it was 116 billion pounds. I don’t know what it turns that is in percent, because we managed to get some nice long-term debt at low rates over the past couple of decades. That’s one thing Britain did do well. But all of that, now that rates have gone back to more normal levels, that’ll all become bigger in the future as the cheap debt matures and has to be replaced by more expensive debt. But 116 billion pounds our whole government expenditure is about, sorry, I momentarily forgotten, but it’s north of one trillion pounds, a little bit north of one trillion pounds, and 116 billion of that is 10% of the state budget.
Jon Moynihan: So, if you had no debt at all, you’d have another 116 billion pounds, like $150 billion to spend on things on your population of 70 million people. And a lot of your troubles would go away or the thing, you’d be able to build new hospitals and all that sort of thing, but you can’t, you’ve gotta pay that money to people who hold your debt. And then as you add more debt, you’ve gotta pay more of it. So, bit by bit, your entire national budget is getting to be more and more debt repayment rather than doing things for your population. And at the same time, your population wants more and more. So, you are in the most terrible shape. And then at some point as your economy fails to grow, you are not able to afford that money. And then if you can’t afford it, people start worrying about you are paying back that debt. And so, the rates that you are paying go up and you are in this doom loop. And sooner or later you have to call in the IMF to bail you out.
Marian Tupy: That’s right. But for our listeners, what I want them to walk away with is to understand why if government spends more money, you have less growth. And I want to show them what I think is one of the, in fact, this is why I got in touch with you originally, because this is the chart that everybody should be aware of and everybody should see. Basically on this axis, you have increased government spending as a percentage of GDP. And here you have different growth rates. Basically, the…
Jon Moynihan: The vertical axis is the growth rate and the bars are different categories of government. On the left, you’ve got government, and I’m just making this number up, say government spends less than 25% of GDP. And over on the right, you’ve got government that spends 50 and 60% of GDP. So, you can see on the right that those high spending governments have very low growth. And it’s absolutely dispositive. And I first produced that chart in 2012. I stole it from somebody else. Nothing that I say in the book is original. And I’ve been redoing that calculation year after year with new data and all sorts of different data, and you always get the same result. Yeah.
Marian Tupy: So, it’s super impressive. So what it says is that if the government spends less than 25% of GDP, it grows on average by 6.6% a year, which is amazing. It’s almost 7%. So, if you double your GDP per capita every 10 years, but countries which spend over 60% of GDP on the… The government spends over 60% of GDP grow only at 1.6%. That’s 5% percentage points less.
Jon Moynihan: But don’t forget that if you’re only growing at 1.6% and your population is growing at 1%, then your GDP per capita is hardly growing at all.
Marian Tupy: Right.
Jon Moynihan: And it’s GDP per capita. That’s actually the really important measure now. But that, now you see that is, that you’ve just shown the facts that if you have small government, you grow a lot. And if you have a large government you don’t. And that’s why the richest countries in the world right now are Switzerland and Singapore, who are now considerably wealthier even than the United States because they keep their government really small. Now, of course, if Elon Musk succeeds with his DOGE, the Department of Government Expenditure.
Marian Tupy: Efficiency. And government efficiency.
Jon Moynihan: Efficiency, sorry then America will be back into growth again too. So that will be interesting. But it doesn’t say why. Why does that happen? And I give a number of different reasons, and one of them is this crowding out thing. Another is, I appeal to people’s common sense. Let’s say you’ve got three governments, one of which has the size of government is 20% of GDP. Second, the size of government is 33% of GDP. And the second the size of government is 50% of GDP. And all these governments exist, massive lots of examples throughout the world of each. Now, if you are growing at 20%, if the size of government is 20% of GDP, then for every one government worker or beneficiary, somebody either being paid by the government or being given benefits by the government, there are four private sector people paying for that one person ’cause that’s the four of the 80. And the one is the 20%. Right?
Jon Moynihan: Now, increase the size of government to 33%. For every one government employee or beneficiary, there are two, ’cause there’s 66% over here and 33% over here. Now go to the government where there is government, 50% of GDP. For every one employee or beneficiary, that has to be carried on the back of one private sector worker and it becomes a crushing burden.
Marian Tupy: But that’s a different way of saying that it’s the private sector which creates the wealth that can be spent by the government. So, if the government is spending 50% of GDP, that means that only 50% of the economic activity in the country are being conducted on the principles of free market economics, profit incentives, et cetera. So, whereas 50% is basically government, what the left would call investment, but we would basically call taxation and spending. So yes, based on what you said, it basically means that in a 50% government spending economy, you have one government worker being dependent on one private sector worker to create the wealth which the government worker has to spend. Yeah.
Jon Moynihan: And you touched upon the fact that the public sector is gonna be way less productive. Productivity in the public sector in the UK is way below what it was 15 years ago. In other words, what each employee produces, and yet we’ve massively grown our public sector. The number of civil servants goes up every week, week after week for the past 20 years. And amazingly, this new Labour government has said, we’re looking at letting every public sector worker go to four days a week. Now, if you like me, ran, private sector companies for years, you would’ve gone bust if you’d done that.
Marian Tupy: It seems to me that the Labour Party, the top echelons of the Labour Party don’t know how wealth is created. Am I wrong?
Jon Moynihan: Not a single member of the Labour cabinet ever worked in the private sector.
Marian Tupy: That’s an extraordinary statistic.
Jon Moynihan: Absolutely astounding. But I’m an equal opportunity critic because the Conservative government that preceded them was no better really. And arguably it’s the civil servants who are running the economy now, sitting in the House of Lords, I see the same bills coming through now from the Labour government that were coming through before the election from the Conservative government. No, well, the Labour government making them even worse, but they were pretty bad before. And it’s the same bill. So yeah, there’s so many angles to why a large public sector makes it impossible to grow. Now, I’ll give you another example.
Jon Moynihan: If you can bear with me for me to go back the Moyni curve, because again, that’s just a theoretical idea, right? 36% can’t raise more taxes than that. Well, why not? Well, you look at the UK because we’re more risk taking. Now, income tax, 30% of all income tax in the UK is paid for by the top 1% of taxpayers, 60% of all income taxes paid by the top 10% of taxpayers going down to the bottom. The bottom 54% of citizens get more money from the government than they pay in income tax. So, they don’t care. They actually quite like a large government, because if you have a smaller government, some of them may drop out of that. But what matters is that that top 10% who produce all the taxes are the entrepreneurial types. They’re not necessarily rich people, but they’re the people who will bust a gut to build a business.
Jon Moynihan: They’re young, high achievers. They are millionaires and billionaires and rich people who want to have an environment where they can invest their money and not have it confiscated. And it’s the risk-taking behaviour of that top 10% that determines what the level of your Moyni curve is. It’s not the risk-taking behaviour of the entire population. And right now we have an absolute flood of millionaires leaving the country. We have an absolute flood of young high achievers in their 20s and high earners leaving the country. And we are the only country in Europe with a net outflow of millionaires.
Jon Moynihan: And it’s not just a few of them. It is an awful lot of them. And it’s the richer ones. I know plenty, I can tell you a couple of funny anecdote. Well, one anecdote is a friend of mine runs a very high end club and he’s lost 700 members this year. Now those members, they have four houses around the world. They’re all very rich and moving their domicile or resident tax residents, whatever, it’s just a matter of just getting up and going off and living in their house in Italy or whatever, or in Dubai or whatever.
Marian Tupy: Or the United States will take them.
Jon Moynihan: A lot of our millionaires and a lot of our young high achievers are moving to America. I moved to America when I was 26 and lived in America for 20 years ’cause I was fed up with the whole environment here in terms of the economy. But the point is that we are the only country in Europe that’s losing millionaires right now. Every other one they’re going up each year. And that’s how raising taxes, having a larger state that requires you to raise taxes results in people leaving, which means that you don’t raise the tax anyway.
Marian Tupy: Yeah. I wanted to make a couple of points. One is you talked about Labor and Conservatives, and we are a completely non-partisan podcast. So like you, we are equal opportunity critics. And as you quickly pointed out, what’s happening with Labour was really, partly it’s a result of the fact that for 14 years, Conservatives had done really very little in order to adjust the economy. The second thing which I wanted to point out, which I think is very important, is that it’s part of that risk-taking mindset that allows you to build an economy. It’s part of that risk-taking mindset that you are willing to pack your bags and leave to another country. And this is something that politicians very often don’t understand. The same kind of person who is able to create a big successful company is also the kinds of person who is not going to be kept behind by sentimental links in a country which is bleeding them dry and they are going to try their luck somewhere else. And that’s where you end up where you did.
Marian Tupy: But as we close, we have about 10 more minutes so I don’t want to impress on your time. But I wanna ask you. You already mentioned, you lived in the United States, presumably you left Britain when Britain was doing very poorly in the 1970s. And now we are going back in that direction. What happened? Is it that there is a new generation and people forgot about Britain in 1970s? Is it that nobody had explained what happened in the 1970s to the British people and so they don’t remember it? Is it that intelligentsia has brainwashed the British people into believing that everything was hunky dory in the 1970s and Thatcher was really the problem? What happened that you are back to square one?
Jon Moynihan: It does look like you have to teach every generation the perils of socialism. We had a debate last night on a new law that they’re bringing in to have a regulator for football.
[laughter]
Jon Moynihan: Now, by football, I mean soccer rather than American football, but it is the most absurd thing. And by the way, this regulator will have a requirement on all football clubs to have an EDI strategy that’s equality, diversity and inclusion. And by equality, they mean equality of outcome. And we had the debate last night in the Lords, and I spoke. And anybody wanting to hear what I have to say can waste eight minutes looking at a tweet I’ll put out showing it quite soon.
Jon Moynihan: But what I said in there is, ’cause by the way, regulation is probably even worse. We haven’t really touched on it, even worse than large state and high taxes. And there is an attitude in the UK now of, well, here’s a problem. So, something must be done about this problem. A Prime Minister six years ago created a Minister for Loneliness.
Marian Tupy: Extraordinary.
Jon Moynihan: In your verbage that would be a department for loneliness. And as I say in my book, a Minister for Loneliness, why only one?
[laughter]
Jon Moynihan: But, so any problem, something must be done. The government must be involved. There ought to be a law. There should be a regulator. And so, bit by bit, the entire economy of the UK is gumming up. So that because a regulator has required this, that or the other requirement, thinking, “Well, I know best. I know best what should be done.” It’s the old high act, the fatal conceit, which the fatal conceit is that government knows best and that markets don’t know best.
Marian Tupy: I was laughing yesterday. I was listening to PMQs yesterday and Starmer kept talking about the economy of the future. And I was wondering, how does he know what the economy of the future is going to look like? If he knows then he should be a multi-billionaire.
Jon Moynihan: Yes. Yes, yes. Well, the economy future for them is green jobs, which is one of the most meretricious phrases ever invented ’cause there’s no such thing. It’s like the old Bastiat jobs, there are people digging holes and filling them up again. But this regulator, as I pointed out in my speech, you’re regulated for soccer, equality. Everybody got to have equality. Well, no, it’s not equality. I’m sorry, the E is equity, not equality. And equity means equality of outcome, right?
Jon Moynihan: Now, I pointed out, soccer is a game. It’s a competition. There’s a thing in that game called a winner and another one called a loser. That is not equality of outcome. And I said, is this regulator gonna require that every game end in a draw? Because the whole idea is lunacy. And yet we’ve got to that stage. We’ve got so many regulators. Now we’re gonna have a regulator for soccer.
Jon Moynihan: And for example, I was moving some money from one bank account of mine to another a couple of weeks ago, and I was told, “Well, you can’t transfer the money. You’ve got to write a check.” “Okay, fine here’s a check.” “No, no, you can’t send it by mail. You’ve got to walk it down to the bank, prove who you are and pay it in.” That’s only 45 minutes of my time. What could possibly wrong about just taking a little 45 minutes of my time to walk a check down to the bank?
Jon Moynihan: But when you consider that regulators are doing this sort of thing all over, right now, they’ve been trying to build a new railroad in the UK and there was a regulator who was worried about a colony of bats somewhere near this railroad. And they required that the builder build a sort of roof over 10 kilometres of this railroad, which became known as the bat tunnel, actually was to keep the bats out from flying in front of a speeding train.
Jon Moynihan: And that cost a 100 million pounds. That’s $130 million to build this. And that’s a regulator. And funny enough’s just come out this thing and everybody in the House Of Lords has been going, “This is dreadful, 100 million pounds to build this bat tunnel. How bat shit crazy is that?” And I said to them last night, “You’ve all been complaining about this bat tunnel, but you are putting in more and more regulators. Who do you think made you build that bat tunnel? It was a regulator you put in.” And more and more and more of life is regulated and more and more life is just congealing until I believe the whole economy is just gonna congeal into inactivity. I may be exaggerating slightly.
Marian Tupy: So, when you talked about the three reasons that underpin economic growth, one is rule of law, the other one is low taxes, and the third one is small government. But small government from your saying, it doesn’t just mean that you spend less money. It also means that you regulate less. This is the key takeaway that I take from what you just said.
Jon Moynihan: Yes. Yes.
Marian Tupy: No, that’s absolutely right. Now, let’s finish on this. I was struck by something that you said about every generation being just, we are always one generation away from socialism. Do I take it from that? Do you conjecture that the default setting of a human being is more or less socialist and that you need to educate them out of it? If we always come back to the same way of looking at the world, which is regulate more, tax more, give me more, zero sum, that would mean that there is a human nature that we are struggling to overcome and we have to do a better job at doing that.
Jon Moynihan: Fortunately, I don’t think that is the case. And I’ll explain that assertion in this way. The very last part of the book is Appendix D. I don’t know how it ended up in there, but it is because it would’ve been overweening to put it in the body of the book, but it’s a bit of an obsession of mine. And Appendix D talks about thinkers versus feelers. Now, Mother Nature or God or whoever you wish to believe ordered the way human beings are, so ordained it that half of the world, half of human beings would be feelers and half would be thinkers. And it was Carl Gustav Jung, we’re back into psychology now, who define thinkers from feelers. Feelers are… They act from the heart. It’s how they feel about something, what they think their principles are. It is how they are impelled to behave and judge. Thinkers use their head and use logic to get to their answers.
Jon Moynihan: And it just so happened that it turns out, if you think that natural selection will select the best mix, natural selection selected a mix of 50% feelers, 50% thinkers. Now the feelers’ primary thing is be kind and the thinkers’ is be logical. And feelers think that thinkers are pretty bad people by the way. You are a thinker. I’m a thinker. I come up on the test as an extreme thinker. Obviously as I get older, I get a few estrogenic hormones circulating around in me with your grandchildren and things like that. But I’m a thinker and I can’t understand how feelers don’t like me, but they don’t. And you ask feelers how they feel about thinkers. You ask, “Are you a mercy person or a justice person?” Mercy people are feelers, justice people are thinkers. And everybody knows what you mean when you ask that. And if you say, “What do you think I am?” People will say to you, “Oh, you are a justice person.” And you say, “Am I nice?” Now, a feeler will say, “No, not really. You are a bit fascistic. You are Ronald Reagan.” It’s awful. Now here’s the problem. Feeler-thinker is gender-differentiated. 40% of women are thinkers.
Jon Moynihan: And so, they hate to be thought of as… They don’t want anybody saying, “Oh, all women are feelers,” which they aren’t. But 60% of women are feelers. 60% of men are thinkers, 40% of men are feelers. The primary schools children up to the age of 11 are almost exclusively staffed with women across the country right now. And as a result, the be-kind philosophy is more inculcation into children than it was 30 years ago. And now children are coming out mostly rather woke. Now, when they leave school, when they’re 20, 21 or leave university, they say Conservative is a liberal mug by reality. When they first get a job or whatever, they start thinking a bit differently.
Jon Moynihan: But young people now are massively inculcated in the be-kind philosophy and are told over and again that they must be kinder, that boys are toxic, and boys should learn to behave like girl and so forth. I’m not into some massively anti woke statement here. I’m just saying factually what is happening. And so, everybody believes now that the default thing is to be kind, be nice, and that means be socialist. And I think that’s why we’ve got the problem that you just enunciated Marian.
Jon Moynihan: And I think that a reaction is starting now. And in the next lot of generations, we might see a little bit of an opposite. But it is a problem because right now, young people do not vote for capitalism. They think the capitalism is a horrible thing. They enjoy the fruits of capitalism every second of their ever loving life. But they don’t understand that, and they think that socialism should exist, except for them, of course. ‘Cause they all have the same aspirations as you and me and they want to do tremendously well. But in general, they think that socialism is the way to go.
Marian Tupy: Yeah. And of course, there can be such a thing as too much compassion. Or alternatively, if you want full compassion where you encourage maybe antisocial behaviours, or alternatively, you undermine your society like it’s economic growth by redistributing too much and then killing off the golden goose, or rather the goose that lay the golden eggs. So, I’m really glad that you included that in your book. And I must say, of course, I didn’t make it to Appendix D. I wouldn’t have…
[laughter]
Jon Moynihan: Well, you’ll enjoy it. It’s a bonne bouche at the end.
Marian Tupy: So once more, Jon, I am deeply grateful that you came on the podcast. The book is Return to Growth: How to Fix the Economy. It talks about why growth is important. It talks about what causes growth. It talks about what holds growth back, how you can restart it. And really, it’s a excellent guide to the overall structure of the British economy and way to make the kinds of savings that can reduce the size of the British government, and therefore, once again, launch Britain on a path to growth just as it did in the late 1970s and early 1980s.
Marian Tupy: So Jon, I’m deeply grateful for the hour that you’ve given us, and I hope to see you in London in February, 2025, when I’ll be coming to London for the Jordan Peterson ARC meeting.
Jon Moynihan: I look forward very much to seeing you there, Marian.
Marian Tupy: Thank you very much. All the best.
Jon Moynihan: All the best. Bye-bye.