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Transcript: Digital assets and inflation issues

Podcast

Published: 01 Mar 2022 Update History

Read the transcript for the 'Digital assets and inflation issues' podcast, recorded in February 2022. Hosted by Philippa Kelly, with guests Jamie Bartlett, journalist, presenter and author, and David Smith, Economics Editor, The Sunday Times.

Read the transcript

Welcome and discussion with James Bartlett

Speaker 1

Philippa Kelly

0:15

Hello and welcome to the ICAEW Insights podcast, where we analyse the latest news from the world of accountancy, business and finance. I’m your host, Philippa Kelly, Director of Financial Services at ICAEW. This episode, we’re looking at why you should be thinking about your digital assets and the issues with inflation. I’m joined by author and presenter Jamie Bartlett, and Sunday Times Economics Editor and author David Smith. First, we tend to digital assets. Welcome back to ICAEW Insights, Jamie.

Speaker 2

Jamie Bartlett

0:46

Oh, thanks very much for having me back.

1

Philippa Kelly

0:48

As well as the nature of our music and book collections changing, we might start to count NFTs, cryptocurrency, carefully curated playlists, and apprised ‘your.name@’ email address amongst our personal digital assets and contributions to our digital shadow. But what happens to such assets when we die? Firstly, for our listeners, what do we mean by digital assets in this context? And, Jamie, what is a digital shadow?

2

Jamie Bartlett

1:17

Well, it’s simple really. You’ve mentioned some of them. Things that we own, that either mean something to us, sort of financially, or just because we come to value them in other ways, are increasingly digital. I have a huge book collection online, I have a huge music collection online, carefully curated – I spent a lot of time and money building that up. But also, especially younger people increasingly investing what money they have in these sort of things like non-fungible tokens or cryptocurrencies – things that are, I think, increasingly valuable to people. But we haven’t really worked out how we value them or what we do with them when we pass away, because often it belongs just to us and there’s a bit of lack of clarity over what happens to those things when we pass away. For example, Philippa, I don’t know about you, but I’ve spent a lot of time and effort trying to build up my Twitter followership. I think that’s worth something, but I’ve never given any thought to what I might do with that ­– probably give it to my daughter or something when I die. So, this is the sort of increasingly important world of your digital assets and what we do with them. And connected to that, I call it a digital shadow, it’s a kind of a version of you that’s online. All those data points that are collected about your Google searches and YouTube video plays and, increasingly, your use of smart devices – that’s creating a version of you that is somewhere out there in the world, held on servers all over the place, that is valuable, and is maybe really important, as well, for you to know what it is. And again, we don’t really know what to do with any of this, especially when we pass away. So, to me, this is one of the most difficult, but one of the most interesting, things about the digital world at the moment, and we still don’t really know how to answer it.

1

Philippa Kelly

3:11

And, for many of us, it’s probably been a slow but quite obvious evolution in some ways. So, I remember buying my first iPod and being so excited that every piece of music that I wanted to listen to could be on this iPod and not in a big stack of CDs. And now, as a parent, I’m thinking: “Oh, should I be getting an email address for my daughter?”, so that by the time she is ready for that, she doesn’t have to be ‘her name 5, 6, 7, 8, 9, 10’, she can have something that’s more unique. And this all happens without us really thinking about it. So, I’m quite curious as to when did you first start thinking about this and why?

2

Jamie Bartlett

3:58

Probably just as I’ve got older – got closer to death myself somehow. But, I suppose, increasingly realising that so many of the things – and I keep trying to remember to write a will and then I think: “I’m not sure I would put in it!”. I’ve thought: ”Oh, I better make sure that the passwords to my various accounts are somewhere that my next of kin would be able to access”, because I increasingly read with horror stories of people who haven’t given anyone the passcodes to their cryptocurrency accounts, but also just to be able to close down accounts, for example. It’s a really difficult time of course, when you’re going through this, and you need to be prepared and ready for it. I think one thing that really jumped out at me, and the minute I read this I thought: “This is a big thing”, was that by some estimates, by about 2065 I think, there’ll be more dead people on Facebook than living ones. So, Facebook will actually be some kind of strange sort of digital zombie world, where the living are wandering around trying to find other living people. And I suppose it’s that – it’s a combination of these stories and getting older myself that has made me realise that I think this is going to become one of the most important things for people and companies to start to sort of grapple with in the next 10 years, and with increasing sort of speed, because as we head towards the turn of the century, if you can believe it, this is going to become a bigger and bigger problem.

1

Philippa Kelly

5:33

And it’s perhaps a bit morbid, as you say, but fascinating as well, in that, I suppose, as a geriatric millennial myself, as I would be classed, I’m someone who collects experiences, apparently, over things. So, this will become more and more of a way of being for people. And perhaps what we haven’t yet thought about is yes, there’s a personal aspect to this, in terms of our own digital footprints and assets and shadows. But then, actually, what we expect from our members as professionals – you talked about writing a will, and the need to do that – and actually, as an accountant dealing with an estate, wills, probate, valuations, we need to be thinking about how we equip our members in the profession with the skills to start thinking about these things and asking these questions, because, as you say, it’s going to become increasingly more prevalent. So, what sort of things are we going to get into in the next In Focus episode that looks at this topic of digital assets and death?

2

Jamie Bartlett

6:40

I’m really excited about this one, because I feel like I really want to speak to people from your side, if you like, who think about questions like why we value what we value, and how we value them, and what we do with them, and what questions of ownership arise. I think these are questions that your profession’s dealt with for a long time. But increasingly, I think, what those assets are and how we value them, are increasingly going to change. So, that’s where we’re going to be focusing on – what sort of digital assets have a value? And I don’t think we’ve really worked that out yet. You mentioned an apprised email address – I think that’s something that’s incredibly valuable, financially valuable as well. But we’ve never really given much thought to how we’d value that. And then, of course, we have to talk about legal protection, and so how you insure certain things and how you make sure they’re passed on safely and correctly, and who really owns certain types of digital assets? Is it going to be the company that you’ve licenced it from? Or is it going to be you? I think, of course, we’ve just got to get used to talking about death when it comes to this kind of thing, because I get messaged a lot from people who say to me: “A loved one’s passed away, I can’t get into their accounts, I’m getting notifications and updates, I can’t update the hardware on the devices around my house because the account was in my partner’s name or whatever – what do I do? Who do I go to?” And I don’t have an answer for them. So, when we’re not answering those questions, we’re often causing some quite difficult hardships for people. So, I hope we can also get to how we talk about this a bit more openly and honestly and work out what we need to do to make it as easy as possible for anyone who has to deal with our digital assets when we pass away.

1

Philippa Kelly

8:41

Thanks, Jamie. I think that’s going to be a really fascinating episode, and I’m looking forward to hearing more about it.

Jamie Bartlett

8:47

Can’t wait.

Philippa Kelly

8:48

You can look forward to that episode of ICAEW Insights In Focus in March. Thank you very much, Jamie.

Jamie Bartlett

8:55

Thank you, looking forward to it.

Discussion with David Smith

1

Philippa Kelly

9:03

Inflation and its relationship, or lack of, to the loosening of COVID restrictions, supply-chain challenges, the great resignation and energy price fluctuations have dominated the headlines in recent months. To consider the issues around inflation, I’m joined by David Smith, Economics Editor of The Sunday Times since 1989, and author of several books, including Free Lunch: Easily Digestible Economics and Something Will Turn Up: Britain’s Economy, Past, Present and Future. He also writes a monthly column for the ICAEW Financial Services Faculty. David, welcome to ICAEW Insights.

Speaker 3

David Smith

9.39

Hello, Philippa.

1

Philippa Kelly

9:40

My first question to you, David, is: do you think the current inflation that we’re seeing is a macroeconomic problem or a microeconomic problem?

3

David Smith

9:49

Well, Philippa, I think it’s a bit of both. I mean, some of the aspects of inflation that we’re seeing are quite unusual, in that they’re driven by supply-chain difficulties. And if you remember back to the start of the pandemic, when we were only really aware of this being a Chinese phenomenon, a lot of people were worried, a lot of businesses were worried, about the impact this would have on their supply chains, many of which originated in China. And then it evolved into, of course, we went through lockdowns, we went through, in many countries, the biggest drop in economic activity in 2020 for many decades, in the case of the UK for nearly 100 years. And then when economies were switched back on again, we saw the impact of that in terms of supply-chain difficulties – something we haven’t really had in the modern era. You know, usually we’ve relied on ‘always on, always available’ components and supplies. So, this has been unusual. Now it’s an interesting question about macroeconomic versus microeconomic. If you look, for example, at chip shortages, which are affecting the supply of new cars, and which have produced this extraordinary phenomenon in terms of second-hand car prices, which have risen by nearly 30% over the past 12 months, that is a sectoral problem for the motor industry. But I think the fact that many of these supply-chain difficulties, many of the shortages for raw materials and so on, make a series of microeconomic problems into a macroeconomic problem – if that makes sense.

1

Philippa Kelly

11:21

That does, and do you think we are starting to see the end of some of those supply-chain challenges? Or are we still in the middle of it all?

3

David Smith

11:30

The evidence from the surveys is that the shortages are beginning to ease. And I think one of the interesting things is that the extent to which, you know, consumers were protected from those supply-chain difficulties, we didn’t really see the empty shelves that people had warned about. But, as far as businesses are concerned, you know, in the construction industry materials are difficult to get hold of, I mentioned the car industry, but throughout, if you look at the surveys, most of them suggest that the difficulty of obtaining supplies is beginning to ease. It’s interesting how this has now evolved into not just shortages of components, shortage of materials, but also shortages of people, which again is not something we’d have expected before and during the pandemic. So, labour shortages have almost become a bigger feature and a bigger explainer, if you like, of inflation than supply-chain difficulties.

1

Philippa Kelly

12:31

So, do you think that we will see the much-talked-about risk of wage inflation crystallising, despite the recent unpopular comments from Andrew Bailey, and particularly, as the great resignation, as it’s been referred to, seems to continue?

3

David Smith

12:46

Yeah, I mean, that’s a very good question. I don’t think Andrew Bailey won many friends with those comments. But what he was trying to say, I think, was that if people try to chase the peak in inflation that we’re going to see in the UK of maybe between 7% and 8%, in the in the spring in April, then we’ll all end up worse off, and we’ll end up with higher unemployment and so on. The Bank of England has been quite famous for looking through episodes of high inflation in previous years, and I think he was essentially asking people to look through this spike in inflation and not try and chase it higher. What’s happening in the labour market is certainly not in any way a wage price spiral of the sort we used to have in the 60s and 70s. Even though wage growth has moved higher, and earnings growth has moved higher, and settlements have moved higher, they are still well below where inflation is and where it is expected to be. So, a typical picture for average earnings growth is around about 4% year on year at the moment, pay settlements aren’t as important as they used to be because, you know, most people negotiate individually rather than through trade unions, but pay settlements are of the order of 3% on average. So, again, well below that projected inflation rate that we’re going to see in the in the spring. So, I think it was a bit of a clumsy message. But I think it’s sort of what is happening, that people are going to have to take a fall in real wages on the chin for the next few months, and hope that the Bank of England and others are right, and inflation heads down as we as we move into the second half of the year.

1

Philippa Kelly

14:31

How consistent would you say that picture is in terms of taking it on the chin? So, if we think back to recent headlines and where you’ve written for us, for example, about the unequal impact of inflation and the headlines from this weekend of bankers’ bonuses returning, are those averages disguising very different pictures?

3

David Smith

14:52

It’s a very fair point that averages can be misleading and, you know, if we look across the economy as a whole, some people are clearly doing pretty well in terms of pay at the moment. So, you know, some people whose skills in are in short supply, IT people and so on, are getting really big increases. And so, as you say, there’s been the return of City bonuses. I think the consistent picture that we see is that people who change jobs do better than people who stay in jobs. Now, this is not a rallying cry for everyone to change their job, but on average – and the Bank of England brought this out in its latest Monetary Policy Report – people who have changed jobs over the past year have received an increase in salary of around about 9%, compared with people who’ve stayed in the same job who’ve received an increase of maybe 3% to 4%. So, you know, it has always been the case that changing jobs is a great way to get a pay rise, and I think it’s even more true now. You mentioned the great resignation and, you know, a few months ago, we were all concerned about HGV driver shortages. And that was partly the result of the great resignation – older people leaving the labour market, leaving that particular job. And that is still a factor. We are still, compared with pre-pandemic levels, overall, the overall number of people in work is still down by half a million or so. But the size of the workforce is down by more than that, by nearly a million. And that is mainly because of older workers having left the workforce and essentially having dropped out. So, this is a drop in participation, which is helping to push up pay. I think the, you know, the one interesting one is also on this point about who suffers most from high inflation. Now, the ONS – the Office of National Statistics – did some work on this recently, and they found that, you know, people’s inflation experience doesn’t differ that much across different areas of the income distribution, but it hurts more at the lower end of the income distribution, because people are spending a higher proportion on necessities. And when you’re looking at things like energy prices and the energy price cap, those necessities are really biting at the moment, biting very hard. So, this is when you get the choice between eating and heating, and so on. And I suppose in that respect, you know, the fact that the minimum wage and national living wage is going up by 6.6% in April, is quite a good thing, because that will help most people at the lower end of the of the income scale. So that’s a positive, but I think everybody is going to be squeezed one way or another. And, you know, some people are better placed to do that, some people have the spare cash left over from the pandemic, you know, the so-called involuntary savings that people built up during the pandemic when they couldn’t spend on normal things. So, it’s going to be a different experience. And you know, it is always the poorest who suffer most, I think, from high inflation.

1

Philippa Kelly

18:06

So, as well as the short-term challenges that we’re seeing, inflation, whether connected to current circumstances or bigger issues like climate change, is not going to go away.

3

David Smith

18:18

It’s an interesting one, because the example I was thinking most of, about, you know, do governments want to inflict, you know, the actions to minimise the impact of climate change on voters, was the fact that duty, excise duty, on petrol and diesel has been frozen since 2011. And no chancellor has been willing to, in that time, has been willing to push it up to, you know, to risk the headlines that get in The Sun and so on the next morning for putting petrol up by a penny a litre or something like that. And of course, we’ve seen much bigger swings in petrol and diesel prices as a result of the current energy crisis. I think the interesting one here is going to be a question of political will. And, you know, we have to do it, we have to take action to limit climate change. The government has set itself its own net-zero target, we know all about, you know, the difficulties of switching from gas boilers to heat pumps and all those things. But, at the moment, you know, you’ve touched on what I think is going to be a new area. I mean, once we’ve moved beyond the – we’ll never move beyond the culture war of Brexit – we may be moving beyond the culture wars that the pandemic has thrown up, but the next one is going to be net zero.

1

Philippa Kelly

19:38

Thank you for that, David. You can read David’s columns at ICAEW.com/FSF. That’s all we have time for today. My thanks to our guests, Jamie Bartlett and David Smith. Thank you very much for listening. If you’ve enjoyed this episode, remember to subscribe to ICAEW Insights on Apple Podcasts, Spotify or wherever you get your podcasts

4

20:02

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