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Fareed Zakaria GPS

Interview With Lloyd Blankfein; A Thoroughly Modern Bank Run; Silicon Valley Culture And The Fall Of Silicon Valley Bank; Fury In France Over Retirement Reform. Aired 10-11a ET

Aired March 19, 2023 - 10:00   ET



FAREED ZAKARIA, CNN ANCHOR: This is GPS, the GLOBAL PUBLIC SQUARE. Welcome to all of you in the United States and around the world. I'm Fareed Zakaria coming to you from New York.


ZAKARIA (voice-over): Today on the program, panic in the markets as the banks need rescuing again. I'll ask one of the people who was at the center of the storm the last time around, the former CEO of Goldman Sachs, Lloyd Blankfein, about whether the system is stable. And is your bank account safe?

Also, how did it come to this? Did we learn the wrong lessons the last time? I'll talk to Gillian Tett of the "Financial Times."

Then, don't mess with the French people's retirement plans. That is the lesson from weeks of strikes and protests then chaos in parliament as the government pushed through their policy anyway, which brought the outrage right back to the streets.

We'll tell you what you need to know.


ZAKARIA: But first, here's my take. On his trip to Saudi Arabia last year, President Biden made an emphatic declaration about U.S. policy in the Middle East. He said, "We will not walk away and leave a vacuum to be filled by China, Russia or Iran."

Last week's rapprochement between Saudi Arabia and Iran brokered by China suggested this is precisely what has happened. The reestablishment of relations between Iran and Saudi Arabia is not in itself a seismic event. They broke off relations only seven years ago. But last week's revelation exposes a deep-seeded flaw in American foreign policy. One that has gotten worse in recent years.

In 1995, the journalist and scholar Joseph Joffe wrote an essay that described two paths for American grand strategy after the Cold War. He called them "Bismarck or Britain." The first was to emulate Britain in its traditional approach toward geopolitics by building alliances against any rising powers that seem hegemonic but otherwise to stay uninvolved. Joffe argued that this balance of power strategy would be impossible for America as a pre-eminent power and linchpin of the international order.

Instead he advocated a strategy as the broker, drawing on Bismarck, the great Prussian stateman who unified German and made it Europe's leading great power in the late 19th century. Bismarck famously depicted the ideal situation for Germany as not that of the acquisition of territory, but a total political situation in which all powers except France need us and are kept from coalitions against us as much as possible by their relations with each other.

The associated doctrine is called the "Kissinger Diktat," named not for Henry Kissinger but for the spa town of Bad Kissingen where Bismarck codified it. In a remarkable case of historical resonance, however, Henry Kissinger's greatest diplomatic triumph a century later, was animated by the same idea.

In making the opening to China, while simultaneously pursuing detente with the Soviet Union, Kissinger ensured that Washington ended up with better relations with Beijing and Moscow than they each had with each other. In fact, many of the more notable successes of American foreign policy centered around this Bismarck-an idea.

For decades during the Cold War, America had better relationships with Israel and the Arab states than they had with each other. It weaned communist countries like Yugoslavia and Romania away from Moscow's grip. And for decades of course before the Iranian Revolution, it had better relations with Iran and Saudi Arabia than they had with each other.

Today, however, Washington has lost the flexibility and suppleness that would inform just this sort of strategy. Our foreign policy today usually consists of grand moral declarations that divide the world into black and white, friends and foes. Those statements quickly get locked in place with sanctions and legislation making policies even more rigid.


The political atmosphere becomes so charged that merely talking with a foe becomes risky. There is now a whole slew of countries with which the United States either has no relations or only limited hostile contact. Russia, China, Iran, Cuba, Venezuela, Syria, Myanmar, North Korea. You can make the case where opposing any one of these countries individually.

Collectively, though, the effect is to create a rigid foreign policy, one in which we are unwilling to talk to everyone in the room and unable to show flexibility, presumably based on the idea that it's best simply to hope for the overthrow of these regimes.

This is not really a criticism of the Biden administration but of American foreign policy as it has developed over the last decades. America's unipolar status has corrupted the country's foreign policy elite. Foreign policy is all too often an exercise in making demands and issuing threats and condemnations. There is very little effort made to understand the other side's views or actually to negotiate. The Obama administration tried to take a different path. It negotiated

the nuclear deal with Iran which seemed to bolster the moderates within the regime and could have led to a more workable relationship with that country. It engaged China while pushing back on issues like economic espionage with some success. It began a process of normalizing relations with Cuba. It even tried to maintain a working relationship with Russia.

But the political climate in Washington was largely hostile to this kind of Kissingerian diplomacy and once Donald Trump entered the White House, he pulled out of the nuclear deal, slapped tariffs on China, tightened sanctions on Cuba, and tried to overthrow the Venezuelan government.

None of these efforts succeeded of course but they are now so firmly established that they are extremely hard to change. Biden campaigned on undoing many of these policies. But once he took office, he found it politically easier to just go along with the tough line.

All this evokes the inertia of an aging empire. Today our foreign policy is run by an insular elite that operates mouthing rhetoric that pleases domestic constituencies and seems unable to sense that the world out there is changing, and fast.

Go to for a link to my "Washington Post" column this week. And let's get started.

A little over a week ago, the 16th largest bank in the United States, Silicon Valley Bank, collapsed. Customers panicked after the bank announced it would be selling several billion dollars in shares to cover huge financial losses precipitating a classic bank run. The bank's failure threatened to wipe out many tech start-ups, venture capital firms and other American businesses large and small that kept deposits there.

Something in the neighborhood of $150 billion held at the bank was not backed by the federal government because it was in accounts larger than the FDIC's $250,000 limit. The panic looked like it was spreading to other banks and could pose a risk to the broader financial system. So last Sunday, the federal government stepped in to rescue Silicon Valley Bank and another failed institution, Signature Bank.

All depositors will be able to get their money, even big accounts. The Biden administration insists this is not a bailout because the depositors, not the shareholders and executives, are the ones being rescued.

Did the government do the right thing and is the banking system secure?

My next guest used to run Goldman Sachs, one of the country's largest and more influential banks.

Lloyd Blankfein, good to have you back.


ZAKARIA: Now, I don't want to give you PTSD, Lloyd, but you remember 2008. You were in the middle of that. How is this crisis different from 2008?

BLANKFEIN: Well, a crisis is a crisis. But it has different roots, totally different characteristics, very different. We'll see if it gets to the same dimension. For one thing, in 2008, the banks had bad assets on their books or at least in many cases investors, shareholders, the government couldn't assess what the value of those assets were. You member subprime mortgages, were they worth anything at all, what were they worth.

Here you have the asset side of a bank's balance sheet is pretty good. Most of it is government debt, and the government prints the money, so that's money good. The problem is that they took duration risk, that is they insisted in long-term bonds and when interest rates went up, the piddling interest rate that they got on their bonds and their inventories went down in value.


So in this case, and so that sparked a bit of a concern among creditors and depositors and so deposits left the bank. So in 2008, there were asset problems, and the current market, it's really a liability, it's really people pulling out their deposits but the assets are probably in the long run money good, but they suffered a loss of valuation in between.

Also the context is different. Banks today, financial institutions in general, are much better capitalized. I think the regulators in Congress in their actions post-2008 could take credit for that, and so we're starting in a much, much different place for the financial system as a whole. Doesn't mean there won't be esoteric issues in one institution or another as was the case with Silicon Valley Bank.

ZAKARIA: And Lloyd, when you look at the situations right now, what -- and it's a moving situation but what the government has done right now, can most Americans, most depositors, all depositors feel our money is safe, we don't need to go not bank to withdraw?

BLANKFEIN: I think the answer is kind of yes, with an ellipsis because the government partly as a result of the reforms can query whether it was a good reform or a poor reform, took away the power of the Fed to just give -- issue a blanket guarantee of all deposits in the system, which they did in 2008. Instead, it left them with the power acting in concert with the FDIC and the Treasury to -- if they find a systemic emergency, to guarantee the deposits of entity by entity, bank by bank.

I think what we heard from the Fed that in this moment, this fragile moment, they are implying that they will regard any event or any run on a bank as systemic and the implication is they will use that authority that they have but they can't announce that in advance and they can't declare it. But they've come as close as they possibly can to do it. But they in fact don't have the power to issue a blanket guarantee.

But I -- you know, I would be -- I think you're able to rely on it but there is a tail risk in that lack of absolute certainty.

ZAKARIA: Now there are a lot of people who feel that this is in some way a bailout and this is in some way one more example of capitalism for the poor and socialism for the rich. That is the whole bunch of these tech companies, where the CFOs should have been managing their accounts properly left huge amounts of money in uninsured deposits. Roku had $500 million sitting essentially in cash in an account.

Presumably there are other regional banks that made the same mistakes that SVB made that are now going to get backstopped by the Fed. Is it fair to say that the government has helped a lot of people who in the normal course of capitalism made mistakes and should have been wiped out?

BLANKFEIN: Well, clearly, people would have lost money, won't lose money so the answer is yes. I think they weren't aiming at this one or that one or this group or that group, they were aiming at all the depositors but with an eye to the systemic risk for the entire system. So the dragnet picks up everybody when you do it. But it opens up to really what you're asking, what I think, is really the policy question of guaranteeing deposits.

And that's something that's going to have to be worked through. We have a $250,000 cap with the government guarantee. How sensible is that? The word that gets tossed around, the expression that gets tossed around is moral hazard, that is if you protect these depositors, they and other depositors in the future won't be so careful where they leave their money, and if they're not so careful, this situation is likely to recur. And the implication, you know, the suggestion is that people should do their homework and do research on which are solvent institutions.

Now I won't deny that an institution capable of leaving $500 million in a single depository, in a single bank, probably has the wherewithal to do that, but really in our financial system, do we really expect, do we want to make it the duty of depositors to do that kind of forensic accounting analysis on banks?


We don't make people do analysis of airplanes when we board them. We rely on the FAA. If it's certified, we get on them. We do the same thing for drugs that get sold. If they are tested and approved, we rely on it. People aren't doing those forensics by themselves.

We might think of extending that to some extent, maybe to a great extent, to deposits and, you know, raise that limit but that's a policy decision that will take place.

ZAKARIA: Stay with us. When we come back I'm going to ask Lloyd Blankfein whether these bank crises are going to tip the economy into a recession, and if they do, what should the Federal Reserve do because it's been trying to raise interest rates all along. (COMMERCIAL BREAK)

ZAKARIA: And we are back with Lloyd Blankfein, former chairman and CEO of Goldman Sachs.

Lloyd, I want to understand what the future of banking looks like, what the business model as it were, if the federal government is going to insure all deposits, in a sense, the whole business of banking used to be that you've managed the fact that you're taking short-term money and you're loaning it out at long-term -- you know, you have long-term investments.


If the forward federal government is going to guarantee against any miscalculation, what is the model of banking? Has it become a kind of utility, a highly regulated utility for everyone?

BLANKFEIN: Well, I don't think there's anything on the table to guarantee banks per se and their income and their solvency. We're talking about -- we're talking about depositors here. But, look, there is going to be a lot of wide policy debates are going to flow from this. Clearly if we don't do this, look, the biggest banks, the few biggest banks have very, very high capital standards and liquidity standards and stress tests.

And the regional banks, even large regional banks like Silicon Valley Bank have a much lower level of regulatory scrutiny and therefore kind of safety. Let's be honest. And if you just left it like this, the lesson that people may walk away with is that their banks, their money is only safer, maybe only safer with the largest banks and so they're exercising their discretion in moving those things.

The end of this game might be more consolidation which was never an objective of the system. Big policy debates, you ask about the future of banking. Is it a virtue that America has well over 4,000 banks? Most big countries have a few big banks with branches that operate throughout the company. We have branches that are dedicated to regions, that focus on particular industries, Silicon Valley Bank is an example.

It may be the oil patch. Particular groups like some community banks and loan associations and connected to unions. We also have the fastest growing large economy in the world and I'm not sure that that is not a reason. Our credit system for the largest economy is in the communities and in the industries and in the, you know, various sectors and that is probably a good thing. I wouldn't necessarily want to experiment and withdraw that.

But if we give -- if we incentivize people to only go to the biggest banks, then the sector will consolidate beyond what people think is an attractive thing.

ZAKARIA: So, Lloyd, the Federal Reserve has been raising interest rates and while it won't explicitly say this, what it's been trying to do is engineer a soft recession, right, by making money more difficult to borrow, it's been trying to slow the economy down. It's highly likely it seems to me that this -- all these bank crises are going to do some version of that. So should the Fed stop raising interest rates?

BLANKFEIN: You know, the market -- as we speak here, the market is projecting better than a 70 percent chance that the Fed raises 25 basis points. I personally -- I personally think it would be OK to stop here. To your direct question about with respect to the current situation and the effect on the economy, it is a certainty that this situation will cause -- will act in a way that's similar to a rate rise in some ways.

Banks will have to -- you know, because of the tension, because of the pressure an uncertainty, banks will husband their equity. They'll do less lending on the deposits they have and so already there's going to be less credit, less credit means less growth. So some of the mission of the Fed in trying to slow the economy will be done here.

ZAKARIA: Lloyd Blankfein, always good to have you on. Thank you.

BLANKFEIN: Thank you very much, Fareed.

ZAKARIA: Next on GPS we are going to zero in on the collapse of Silicon Valley Bank. Did regulators miss obvious signs of trouble? What about the culture of Silicon Valley? Was that to blame? My next guest will explain.



ZAKARIA: Back now with the bank crisis that has rippled across the world. Silicon Valley Bank's fall was one of the fastest in history. The reason, some argue social media caused some of the panic that resulted in history's largest bank run.

My next guest has written about the curse of virality that has underpinned this modern crisis. Gillian Tett is U.S. editor-at-large for the "Financial Times."

Gillian, welcome. And I want to ask you to put your hat on as an anthropologist not just a financial wizard because you are PhD in anthropology and you've written about the, you know, the sort of, the way this stuff works sometimes culturally because so much of what happened here was triggered by social media and by the kind of virality or the speed with which a communication happens today.

Is that at the heart -- at particularly the speed of this bank run?

GILLIAN TETT, CHAIR OF THE EDITORIAL BOARD, FINANCIAL TIMES: Well, the roots of the word credit come from the Latin meaning to believe, and finance without trust is worth nothing. And one of the problems that bankers and regulators are grappling with is that we live in an age of cyber flash mobs. Because of this, news can flash around the world and you get these explosions of passion that flare up and then die down. Now we saw the political implications of that with the Arab Spring. We

see the implications of this in the fashion and music world where suddenly things become wildly trendy and then disappear from sight.


We've seen it in social interactions. I mean, last summer a teenager I know had a pizza party for about a dozen kids. Someone mentioned it on social media and within minutes there were hundreds of teenagers there and the party was ruined.

But more seriously in the banking world, banking runs are not new. Panics are always at the heart of any bank collapse. But the difference between now and the 20th century was that in the 20th century they took a long time. Because people had to go to a bank branch, queue up, we used to see photograph of people on streets, get bits of paper and it would take days if not weeks. Now it is so fast, that it has almost happened before you even know it started.

Forty-three billion dollars fled out of Silicon Valley Bank in a matter of hours because people were posting panicky tweets, panicky messages on social media and it spiraled. And the problem for regulators is, what do you do in this hyper accelerated world where cyber flash mobs can suddenly explode and can be very hard to quench?

ZAKARIA: So, that raises a fascinating question. Do we need -- you know, do we need a kind of different model of banking for the future?

TETT: Well, there are things you could potentially do to stop these cyber flash mobs from escalating. So, for example, you could make it difficult for people to pull out money quickly in digital means. You could have a cooling off period. You could basically say that people who post, you know, scary messages on the internet as many people did beginning of last week, you could say that could be prosecuted for, you know, creating panic.

But frankly speaking, I'm not sure that is going to work. Because in an age where we're free too order whatever pizza we want on our phones at any time, we don't want to have a situation where we can't take our money out of the bank because that is seen as a sort of curtailment of freedoms.

And it is very hard to say what is or is not, you know, fear-mongering messages because one could argue that some people felt they had a public interest to warn the public about the dangers in the banks by putting things on social media rather than just keeping that knowledge into the hands of a tiny elite. So, I would argue that the only way you're really going to counter this world of cyber flash mobs which can destroy credibility and credit, in the Latin sense meaning trust, is to make sure the banks are actually trustworthy.

ZAKARIA: You write a lot about culture and siloed cultures and tech culture in Silicon Valley is very siloed and they think of themselves as a real community. But what is striking to me is that all of these guys, the minute they got a whiff of a problem, they panicked, they -- as say they in game theory, they defected, they all pulled their money out precipitating a bank run that could easily have been avoided if they had all just stayed, you know, stayed calm and slowly worked it out. People like Peter Thiel, you know, led the charge. It feels like this is partly an indictment of the culture of Silicon Valley.

TETT: Well, there is two issues here. The first is, why did techies not see this coming? And it is partly because the people have been working in Silicon Valley are so dazzled by computer science and so addicted to the idea of being anti-establishment, moving fast and breaking things, to quote Mark Zuckerberg, trying to disrupt everything and essentially hating Washington and hating Wall Street, that they've been very, very scornful of things like old fashion banking.

In mean, they spent far more time, the founders of these start-ups, thinking about computer science and never bothering to look at that banking relationships or asking whether it was a good idea to be using Silicon Valley Bank so heavily and to essentially put so many eggs in one basket. And they didn't see what other people saw which was Silicon Valley's balance sheet was sitting on enormous and extremely dangerous losses which could be threatening. So, that is part of the problem.

But the other problem is that when the crisis started, essentially the Silicon Valley community, if you like, panicked and, yes, they tweeted and, yes, a number of them did pull their money out pretty fast. It is really important to understand that anyone running a venture capital fund or an equity fund had a fiduciary duty in many cases to act rather than to stick with the bank. Because the CEO of Silicon Valley himself had told them that there were problems at the bank and if they left their money in the bank and the bank had then failed, those heads of venture capital funds themselves could have faced legal liability for not being fiduciary responsible.

And I just have one more thing to say which I think illustrates the story really well. I spoke to Peter Thiel last week about what happened. And, yes, his venture capital group Founders Fund did pull their money out and advice portfolio companies it seems to pull their money out which others say is fiduciary the responsible thing to do. Peter Thiel himself though had $50 million sitting in Silicon Valley Bank of his own money which he did not pull out.


Not because he was trying to be noble but because he actually hadn't been tracking that closely what's happening to Silicon Valley Bank he wasn't that close to it and didn't act fast enough. So, the point is that many people who are supposedly some of the brightest people in America working in Silicon Valley turned out to be unbelievably stupid when it came to looking at basic finance and banking.

ZAKARIA: Wow, on that sobering note, Gillian Tett, always a pleasure to talk to you.

TETT: Thank you.

ZAKARIA: Next on GPS, Macron's government used a special constitutional provision to push through legislation to raise France's retirement age this week. Already heated protests have intensified. What will this mean for France and for Emmanuel Macron when we come back.


ZAKARIA: Upset has turned to outrage in France after President Macron's government used a special constitutional power to force a controversial bill through the legislature on Thursday.


At issue is something near and dear to the hearts of French men and women, their retirement. Now instead of retiring and receiving a government pension at 62, they will have to work an extra two years and get it at 64.

Macron says the reform is necessitated by rising life expectancies and the ever decreasing ratio of workers to retirees. In the 1960s France had four active workers per retiree paying into the pension funds. In 2020, that was only 1.7 workers per retiree. But two-thirds of French people say they are against these reforms.

Joining me is Sophie Pedder, "The Economist" Paris bureau chief and author of "Revolution Francaise: Emmanuel Macron and the Quest to Reinvent a Nation." Sophie, first, give us a sense of what it means that Macron used this constitutional mechanism, presumably he couldn't get a majority in the lower House. That has now provoked, as the French term goes, a vote of no confidence. Will it succeed? Could this government fall?

SOPHIE PEDDER, PARIS BUREAU CHIEF, THE ECONOMIST: Well, that is the question we're going to be looking at on Monday. Because there are, in fact, two votes of no confidence that have been tabled. And each of them will be voted on separately. They need to have a majority of seats in the lower house of parliament. So, it is not a majority of people present but an absolute majority of seats in parliament, in the national assembly.

That technically is perfectly possible. If all of the opposition parties were to combine and were to vote in favor. I think what we're likely to see, however, is that you will see the extremes, to see Marine Le Pen's party on a nationalist, populist hard right will vote in favor, and the left wing alliance will also vote in favor. But the key to this vote is the Republicans, the central right Republicans Party. They are being told by their leader not to vote in favor but some of them are rebelling and want to vote this government down.

So, it could come down to the votes of 20, 25 Republicans, whether or not they decide to try and bring the government down. I think that they won't. But I think no one is feeling confident about that right now.

ZAKARIA: What does this mean for Macron -- for the rest of his term? Because it seems as though he has had greater opposition than he expected and it must wound him, right? PEDDER: I think that is right. I mean, I think that even if technically his government survived these two votes of no confidence, politically the government and the president have been really badly wounded by this. It means that really, you know, looking for the rest of his second term, he hasn't even been in office for one of those five years. It is going to be extremely difficult.

There is a general debate here about whether or not, you know, it is democratic to use this constitutional provision. It is constitutional but is it politically legitimate? And that is going to make his time, I think, certainly in the next few months and probably longer than that, extremely difficult. I mean, there is even a question about whether this government itself and the prime minister can survive in the short run.

ZAKARIA: So help us explain, Sophie, how the French view this. Because at one level, you know, Mitterrand lowered the retirement age in France in 1980, I guess it was. Since then, life expectancy has gone up about 10 years. Meanwhile, as I said, the ratio of workers paying into this fund has gone down dramatically. I think about 30 percent.

So, the math clearly seems to suggest that you need some adjustment. Every other European country or at least every other major European country has made these adjustments. Germany's retirement age is 67, not even 64 which is what Macron is proposing. Are the French just sort of blind to this and feel France is unique?

PEDDER: You know, I think it has got to do with the sense in France that the rolling back of the time you spent in work is part of what makes France French, it is part of French civilization. And you mentioned Mitterrand having brought down retirement age from 65 to 60. It was then a socialist government 20 years ago that brought in the 35-hour week and all of this -- the working week -- and all of this I think are part of what the French feel is a civilized way of organizing society. These are social preferences and therefore I don't think that they buy this argument that it is about an accounting -- you know, there's an accounting need or a demographic need and they don't really buy the argument.


Just because other countries have done it, they have to do it too. So, I think it is culturally very complicated. Probably even more so post COVID where people are reevaluating their relationship to work more generally. And I think that that is why the French feel, you know, that this is not part of what makes them French and they really are resisting it. Public opinion has been consistently against this reform right from the beginning of the year when the government first presented it.

ZAKARIA: And what about finally, why has Macron been so unyielding on this? He, too, has stuck to his guns even though it was clear that he didn't have a majority of the people with him.

PEDDER: I think for the president -- Macron, I think that he sees this as a real test of whether he can continue to modernize and reform France which is what he tied to do during his first term in office. You know, reform I think is in his DNA. That is what makes him president really. He feels he can do things to try and change France, reform France in ways that haven't before.

But, you know, you only have to look back in history. You'll remember it was under Jacques Chirac in 1995 when they tried to reform pensions and at the end brought down that government and there were -- the parliament was dissolved. So, it is something that touches the very heart of what the French believe in. And it is I think Macron felt or feels still that he can do what past presidents haven't been able to. And it is a real gauge of whether he is still the reformist president that he certainly was in that first term in office.

ZAKARIA: Well, you're right that if he gets it done, he will do something that no French government has been able to do for 25 years. Sophie Pedder, thank you so much.

PEDDER: Pleasure.

ZAKARIA: Next on GPS, one piece of good news came in Britain's new budget. Pub-goers will save 11 pence on beer which is part of a new Brexit pub guarantee. How else is Britain doing on Brexit? Not so well. I'll explain in a moment.



ZAKARIA: And now for the last look. Finally, the British people are seeing the benefits of Brexit. This week Chancellor Jeremy Hunt presented a budget that contained a Brexit pub guarantee. From August, the tax on draft beer and cider in pubs will be up to 11 pence lower than the tax on beer and cider in supermarkets. This he was keen to claim, would have been impossible to enact when Britain was part of the European Union.

Hunt himself voted to remain but now obviously feels he must ban Tory hardliners. It is worth recalling that the benefits of Brexit were supposed to be a lot more than a bar beer subsidy. Boris Johnson and other Brexiters envisioned a post-Leave Britain as a lightly regulated, lightly taxed global behemoth, a Singapore-on-Thames that would break free of the meddling European Union and finally take back precedence on the global stage.

Of course, that didn't happen. Having broken away from its largest market, Britain is the only G7 country whose economy hasn't rebounded to its pre-pandemic size. In January, the IMF predicted it would be the only major economy to shrink this year. In that environment, Singapore-on-Thames, is a mirage.

As Janan Ganesh noted in the F.T. in November, Britain is actually starting to look more and more like a pale imitator of Europe. The Conservative Party post-Brexit has presided over significant tax hikes. The budget that Hunt unveiled on Wednesday included a rise in the corporate tax rate from 19 to 25 percent. By 2028, the country's tax burden, its tax revenue as a proportion of GDP, will have risen to nearly 38 percent, up five percentage points from 2016. According to the U.K.'s Office for Budget Responsibility, this will make the tax burden Britain's highest since World War II, spending will rise to its highest levels since the 1970s.

The other great mirage of Brexit was that it would dramatically lower immigration. In the years before Brexit, the U.K. Independence Party's Nigel Farage portrayed refugees as a continental scourge, and eastern Europeans as criminals. He spoke of preserving British jobs for the British born. So, it is curious that last year saw record high net migration in 2022, 500,000 more people came to Britain's shores than left it.

None of that increase comes from the European Union. In fact, last year more Europeans left the U.K. than migrated there. Much of it comes from one-off events like refugees from Ukraine and a visa program for people fleeing Hong Kong. But as a fascinating piece by the "Financial Times" makes clear, the increase is also due to policies put in place after Brexit that make it easier for companies to hire certain workers from outside of Europe.

Visas granted to chefs and butchers, home health aides and nurses have surged. That's because the government has classified those sectors as shortage industries, lacking the labor pool domestically to fill them.

And though Chancellor Hunt didn't mention this in his speech, his budget document also lays out a new shortage industry, construction. That means the ranks of foreign born bricklayers, roofers and carpenters in the U.K. are also likely to rise. This change in policy means not only a surge in visas for workers but also a shift in those workers' countries of origin.


As the F.T. reports, the U.K. saw seven times as many workers coming from Nigeria in 2022 compared to 2019. It is a 25 times as many from Zimbabwe. Hundreds of thousands more migrants from outside the E.U. came to Britain last year than the year before.

Now, immigration is a good thing for the economy. The Office for Budget Responsibility said migration to the U.K. could grow GDP by half a percentage point by 2027. But the rise in migration last year hardly matches the nativist-Brexiter rhetoric about preserving Britain's resources for the British born. It is fair to say then just a few years since Brexit has been implemented, things have turned out almost exactly the opposite of the predictions of Brexiters. No wonder most of Britain seem to want a do-over.

Thanks to all of you for being part of my program this week. I will see you next week.

Don't forget, if you miss a show, go to for a link to my iTunes podcast.