#182 - Julian Jessop - Big Government Broke the Growth Model

**Julian Jessop** (0:00)
Then there was the global financial crisis in 2008
And since then, pretty much everything has gone horribly wrong. The state has simply got too big. The tax burden is close to a post-war record high again in the UK. We're importing oil and gas, including oil and gas that Norway has dug out from the opposite side of the North Sea from us, which makes no sense at all. There are lots of sort of vibe-based ideas that have no evidence behind them.

**Peter McCormack** (0:26)
So is this really a structural problem of democracy?

**Julian Jessop** (0:29)
As long as politicians are sort of chasing votes and listening to opinion polls, rather than doing proper evidence-based policy analysis, then I think this problem is just going to persist.

**Peter McCormack** (0:39)
The bigger the surface area of the state, the more chances to exploit it.

**Julian Jessop** (0:43)
We have a massive deadweight because of the complexity of our tax system.

**Peter McCormack** (0:46)
What is the appropriate size of a state?

**Julian Jessop** (0:49)
An awful lot smaller.

**Peter McCormack** (0:52)
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Hi, Julian. How are you?

**Julian Jessop** (1:18)
Very well and very hot. Thank you.

**Peter McCormack** (1:20)
Good. What's gone so wrong with our country?

**Julian Jessop** (1:22)
Gosh, where to start?
I think you have to start going back decades. Things look reasonably good in the early 2000s, but then there was the global financial crisis in 2008 Since then, pretty much everything has gone horribly wrong. In particular, we've had a very poor performance on productivity, which is probably one of the most important numbers that economists worry about.
It basically is the amount of output people produce for the hour that they work, and that might sound a bit technical. But getting productivity up is the best way to make people worth more to their employers. So it's a key driver of living standards and wages. But it's also the best way to grow the economy without doing things like damaging the planet, because if you can make more with less because the economy is more productive, then everybody can be better off without damaging loads of natural resources. So in the UK and in many other countries, productivity has been much weaker since the global financial crisis than before. Unfortunately, economists can't really agree on what the key drivers of that are. There are lots of different things have contributed, some of them structural, some of them to do with the fallout from the financial crisis itself. But some of them also some big policy mistakes that have been made here and in many other countries as well.

**Peter McCormack** (2:42)
Is any of it cultural?

**Julian Jessop** (2:44)
Part of it may well be cultural.
If we look at some of the sectors of the economy that were most productive before the global financial crisis, a lot of them have seen big increases in regulation. Some of which have covered things like environmental, social and governance regulations, which some people think is a good thing, others would see that as overly woke. The problem there is that companies have lost a lot of the focus on productivity and profits that they had before and the number of people regulating and managing these rules has significantly increased.

**Peter McCormack** (3:19)
When I talk to different economists, a lot of them say this is all essentially self-harm. The route out of this, fixing this is relatively easy, but only if you think in the mind of a free market economist, low regulation economist, is that really true?

**Julian Jessop** (3:36)
Yeah, I think there's a lot in that. There are some people who are more pessimistic in saying that this is a structural slowdown and they point, for example, to things like the diminishing benefits from the IT revolution of the 1990s and early 2000s. I think that's clearly now out of date because we've now got the AI revolution coming through. So we're probably in the fourth or the fifth industrial revolution already there. They also focus on things like demographics and possibly increases in inequality.
Again, I think those factors are overstated. If you get productivity led growth, you can make more from less. Also, inequality hasn't actually changed that much over the last several decades. That's not really a key driver of anything. I think it does make more sense to focus on the policy mistakes. I think there are a number of them, but they could be boiled down to the fact the state has simply got too big. So you can look at that in terms of the headline numbers. So government borrowing, public debt is far bigger across the developed world than it was 10 or 20 years ago.