Gerard Lyons on what drives the world economy

On Monday 20^th October, Gerard Lyons, Chief Economic Advisor to the Mayor of London visited University of Warwick to speak about his new book ‘Consolations of Economics’. The event was inaugural of PPE Society’s Speaker Series. The Boar presents to you excerpts from an exclusive interview with Gerard Lyons.

On Returning To Warwick…

AJ: How does it feel to be back at Warwick, after speaking at the Warwick Economics Summit in February?

GL: Yeah, it’s awesome. I was a student here many years ago but retained a relatively close relationship with Warwick in the sense that I was on the council for six years. Then after six years you’re sent out of the council, so in a sense I’ve rejoined, or joined the advisory board of the business school.  I joined that early this year. So I still have an interest in Warwick, and of course, one of my three children is here at Warwick.

About ‘Consolations of Economics”…

AJ: If you could sum up the message you wished to convey with your book in one sentence, what would you say?

GL: Well, the Consolations of Economics is aimed at both the economist and the non-economist and explains the drivers of the world economy, which are both economic and non-economic factors and points to what’s going to lie ahead.

The underlying message is a positive one but really, the book is aimed at explaining where we are now, what the key drivers are- geopolitics, soft power, policy, institutions, and economic and financial power and the implications of them; and who will do well and what does it mean for everyone.

For students here at Warwick, I think the idea is to try and look at the world from 36,000ft not 5 or 6ft; so like being on a plane on the window seat and if you’re coming in to land- you look out the window, and even if you know the city, you often see it from a very different perspective.

Before the financial crisis, I was very pessimistic, I thought a crisis was inevitable; a month before the crisis I thought we would have a deep imminent recession. At that time the consensus was very positive. I think there’s a tendency in economics towards what I call the status quo- the status quo bias.

So before the crisis a lot of smart people were very upbeat and positive, and some of the same smart people are now very pessimistic. And while I am cautious about the near term outlook of the economy, the book was aimed at sort of explaining what I think are the key global drivers and why, despite the near term uncertainty, we shouldn’t be too pessimistic and in fact, in my view relatively optimistic about what lies ahead.

AJ: My next question leads on from what you’ve already said. Critics have said that the book is overly optimistic…

GL: The key thing about the book is that it’s really explaining the drivers of the world economy. I think it’s important for people to understand those drivers and then it’s up to individuals themselves to draw conclusions. It’s not overly optimistic; I think it’s just slightly different from the consensus. But, in terms of near term outlook it does talk about a divided, disconnected world economy.

To answer your question, it’s positive about what lies ahead. I think there’s sometimes a tendency in economics to not differentiate between relative and absolute.  In relative terms, Britain and the West will not do as well as in the past, but in absolute terms, it will do better. To put it another way, the global economic cake, in my view, will get bigger, the slice of cake that comes to us in the West will be smaller, but I think there will be a lot more cake.

Countries like the one you come from, India, should do relatively well, although it’s not a clear path. India is sort of a dynamic future force in the global economy. Ho we embrace change is the important element In terms of how an economy like Britain, India and indeed everyone else will perform.

On economic forecasting….

AJ: You are a widely respected economic forecaster, so my next question is, what would you say are the key skills or qualities that one should develop for the same?

GL: I think I’m going to answer your question indirectly. If one looks at an economy, I think the outcome depends on the interaction between economic fundamentals, policy and confidence.  So from a forecasting perspective, I think one needs to try and understand and anticipate each of those, and it’s not always easy to do so.

So sometimes you have a gut feel about an economy, also you need to have an understanding of how the economy is performing. And it’s trying to get the balance right between what the numbers are saying and what you feel is happening on the ground. And it’s just trying to put all those different pieces together.

So yeah, understanding, anticipating, and a bit of luck as well, to be frank.

About the interdependence between the East and the West and globalization…

AJ: You are obviously a big advocate, as you said, of the interdependence between the east and west. So, do you want to tell us a bit more about that?

GL: Well, it’s an interesting question; all your questions have been interesting. But that’s an interesting question because before the financial crisis, back in 2007-2008, one of the big issues was ‘are the economies in the east and the west coupled- are they interdependent?’

And different people had different views at that time. My view was that they were coupled, but that the eastern economies or the rest of the world, outside the West were more resilient, in terms of being able to cope with shocks.  And it always seemed strange then, to think that economies that were selling their goods to consumers in America were not in some way, shape or form impacted by what was likely to happen in those economies. So they were interconnected, but more resilient.

Now they are sort of more dependent on domestic demand, but they are still very interlinked with the rest of the world.

We are impacted by global factors, whether they are economic or non-economic. In terms of the last few weeks, Ebola, shows that in a globalized economy, things can spread very quickly. Even If they don’t spread, we are aware of the potential for them to spread and have to take effective mechanisms.

In some respects it’s the same in economics: good news travels. The old phrase used to be ‘When America sneezes, the rest of the world catches a cold.’. Maybe in the future we’ll say when Africa and India smile, we’ll also benefit, or do well out of that.

So I think there’s a lot of interconnection now. What it means is that globally, things are interconnected. It doesn’t mean that everything that happens globally impacts everyone in the same way. In terms if looking at different economies, whether it’s Britain, America, Continental Europe, India or China, it’s trying to get the interaction between the global, regional and domestic factors and see how they interplay and impact one each other.

And lastly, some advice for University students…

AJ: Last question, if you had one piece of advice for University students, in general, what would that be?

GL: Basically, just enjoy yourselves at University, in the sense of having a very balanced perspective. It would be a shame to leave University thinking you shouldn’t have done something, within reason of course.

Enjoy the experience. I think Warwick University is a fabulous University, people and students here are very privileged at Warwick. It’s not a University for privileged people, but it is a privilege to be at the University. So the message would be to really embrace as much as you can about Warwick, and feel that you’ve left having done as much as you wanted to do.

It would be a shame to leave Warwick and think ‘Gosh I didn’t do that when I should’ve done!’. But we all know there are tradeoffs, there’s little time to do everything.

But beyond that, I think people should embrace change, think global, and play to your strengths. There’s always a tendency to think you must go off and get a safe job somewhere. But I think there’s a lot of opportunity out there, globally.

Think positively about how you can position yourself. The key message really is, coming back to your question, think of yourself as a brand, and globally, brands do well.

The brands that do well globally are the ones that play to their strengths, position themselves and also invest in themselves as a brand. Don’t try and do everything. Good brands don’t try and match everything. They don’t lower themselves to the common denominator. They go to where they think they can have maximum impact.

So think of yourself as a brand, and what that brand is, some people will already know, some will identify it here at Warwick, indeed I’ve known people who’ve shone after they’ve left University, who you wouldn’t think would’ve shone at all.

Different people develop at different times and good brands are resilient to knock downs. Too many people keep trying to knock you back and too many people might try to put you down. So, believe in the brand.