June 5, 2023 • 45 mins
We discuss a number of toping relating to markets and society.
- German Energy Subsidies
- Factions in the European Union
- European government credibility and vision
- Trump capacity to become president again
- And why it does not really matter to the success of the US
- No AI for Europe
- Is the Dollar really at risk of losing reserve status?
The Biden Administration Just Declared the Death of Neoliberalism
https://nymag.com/intelligencer/2023/05/biden-just-declared-the-death-of-neoliberalism.html
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Transcript
Episode Transcript
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Two, three.
(00:03):
Hi.
Good afternoon.
Good morning.
Welcome to Off the Fence, theTransatlantic podcast, where
three guys try to sort outwhat's going on in the world in
a given week or month.
Today we're gonna start bylooking at the proposal that has
come from Germany, from theGreens, and the coalition led by
Robert Koch, the economyminister who has proposed
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subsidizing energy for Germanindustry.
For the next several years tothe tune of 6 cents a kilowatt
which is seen as a game changerfor many reasons.
One it would subsidize greenenergy more than other.
But so that's one way.
But more importantly, it's asubsidy, it's state aid that's
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being given out in Germany.
It would be given out inGermany.
And which other EU countriescan't match.
So it was boost Germancompetitiveness at the expense
of its neighbors and this strikeat the very heart of what Europe
and the its single market areall about.
He is opposed by the financeministry led by Christian
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Linner, but it's really notclear what's gonna happen here
because they're in a governmentcoalition, government not always
a happy one.
And and it's just not clear theway it will play out.
Luis who's here with us, canexplain what he thinks it might
mean for the European Union andwhy don't we take it from there,
Luis?
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It's seems that since Covid,it's been a period of enormous
flexibility around the rulesand.
Set forth by the treaties of theEuropean Union that, we're very
explicit in trying to avoid anystate aid to particular
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businesses, and also trying tokeep government spending within
a very narrow band of deficitsand total debt to government,
debt to gdp.
As a result of covid the ruleswere loosen very quickly and
there was like a jumbo forgovernments, especially those of
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the more affluent Europeancountries with more fiscal slack
to come in with big programs tosupport industry.
Of course, if you have a singlemarket with no internal trade
barriers Initially subsidies theone to company A in country a
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make life for a company Z inCountry Z if that company is not
getting the same kind ofsubsidies for tradeable goods.
And this is what's beenhappening now for three or four
years.
Nobody's made a huge think aboutit.
But it tells you that we don'thave, or we haven't had a single
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market.
Or the rules of a single marketin place for a while.
And that's gonna createdistortions for sure if it's
maintained.
I also observed that fiscaldeficits in some of the European
Union countries that are membersof the Eurozone and that have to
abide by strict fiscal rulesuntil covid were loosened at the
same time.
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So this has allowed somecountries or all countries to
overspend.
To try to stimulate the economyto recover from the big drop in
activity that resulted from theresponse to the covid epidemic.
Next year, the EuropeanCommission, which is one of the
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four.
Arms of governance in theEuropean Union would, has stated
very clearly, they would like tosee member countries return to
the target set forth in thegrowth and st in the stability
and growth back.
And at the same time that wehave distortions from subsidies
dis and distortions from largerthan normal state aid the
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central bank has been.
Hiking rates, maybe at a, maybefor some people at a too rapid
pace for other people at notsufficiently as efficient,
continues to rage on.
And I think we're facing anotherone of those existential moments
for the European Union wheremember countries governments
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need to decide how to moveforward.
So I think going.
Into next year.
We're also gonna have someelections in some of the
countries.
That may change a little bit thepolitical landscape.
I think all of that makes for aninteresting question on a why
are investors still so sand wineon the Europe, which is to some
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degree surprising to us.
And more so why investors alsosaw sang about European markets
and in particular financialinstitutions in the European
markets.
Those are all good questions,Alex, anything?
Yeah.
Let me ask you this questionstepping back to, three steps
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from there.
I'm trying to understand theEuropean project in the concept
of, in the context of the last.
Five years, right now.
What's fascinating about what'shappening in Ukraine, what,
which means that some playershave had to understand their
military spending and re-uppingwhatever they gave or planning
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for whatever they need with thestimulus that it went with
Covid.
With the energy compensation,and this is, Germany is acting
in its own way, but you sawsimilar policies in smaller ways
to subsidize the consumer or totry to do this.
The issue I remains to me andparticularly in the context of
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the retirement age.
Rising by two years in, inFrance and the whole mayhem
that's that's created.
Where do regulators maintaincredibility and what are they
optimizing for at this level?
Are they optimizing for nationalsuccess?
Are they optimizing for, isthere any common policy that
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actually has some Someeffectiveness is, of course we
can talk about how well they'veresponded to Ukraine and all
that kind of stuff.
I'm not talking about that.
I'm talking about how do youachieve economic, fiscal policy
design as a European as a, let'ssay a large country, European
government.
I'm talking about the, themajors in this, in, in this kind
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of environment.
Everybody seems to be a littlebit.
Towing the common line on veryfew subjects like Ukraine again,
and perhaps a couple others, andthen everybody seems to be
playing personal ball on, on, oneverything else.
I'm I'm thoroughly confusedabout how industry and the
consumer looks at, whether youcall it the administration or
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the regulator in Europe.
As navigating or participatingin navigation of the ship, since
Europe is so much more, has somuch larger role in the state
and the economy, I'm justconfused just and you're right
to be.
I, I am a for I was acorrespondent in Brussels for
many years as a journalist, andthis has been part of the push
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and pull of the European Unionsince it was founded.
Where do national interests end?
Where do where does it makesense that.
We work more together.
And the whole, the singlemarket, the 1992 project of all
those years ago and even theEuropean currency, we're all
based on the notion that therewas more in it for us to pool
our sovereignty to and toeliminate barriers and com
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compete on a level playing fieldas much as possible.
With measures to level theplaying field that included
regional funds and subsidies tothe poorer states.
If and the premise was acceptedand it's what was what modern
Europe was built on, it's whatthe Brits, to some extent
couldn't couldn't abide bybecause it was getting leading
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to ever closer political union.
And now we have a situationwhere one of the motors of that.
Of that model one of thebuilders of it, Germany is,
seems to be turning around andsaying, no, we'll just take care
of ourselves now.
Yeah.
But I, I think it's not just theEuropean Union.
And with all the centcentrifugal force that this
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exerts on the European Union,which is considerable, I think
this is a national this is aglobal issue as well.
Martin Wolf, the Ft columnistrecently began columns in which
he said we're allinterventionist now.
And he pointed out that thereseems to be no appetite
whatsoever among governments ofany political stripe to abide by
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some of the hardships or cycl,cyclical adversity that, that a
market economy will throw at us,whether it's covid or whether
it's.
Or whether it's a monetarytightening to, to damp down
inflation.
Everything seems to be met withmeasures and that includes the
us.
Agreed.
Agreed.
The thing he and it makes trademore difficult.
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It will have its cost ininflation.
If you haven't read it, JakeSullivan, the US National
Security Advisor, gave a bigspeech two weeks ago at the
Brooking Institution.
I, it was called somethinginnocuous, like Thoughts on The
Economy by Jake Sullivan.
But it was really actually a, itspelled out the Biden
administration's vision in amuch more coherent way than Joe
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Biden ever has.
That brings together all the,the under, if it were Donald
Trump, you'd be calling it anAmerica first banner, bringing
together energy security andindependence.
As well as sustainability, butthe bringing all of the trade
policies, technological securitynational security under the same
umbrella, and and basicallyproposing that the US was gonna
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do this, but only go so far.
Not abandoning in the marketeconomy, but retweaking it,
readjusting it because the last40 years had hollowed out the.
The middle and and we wannarebuild it.
Was his argument was JakeSullivan's argument.
It's but it's a vision thatincludes intervention.
It justifies the ira, the, thatis the Inflation reduction Act,
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which doesn't have a lot to dowith reducing inflation.
And it's a, it's a blueprint forthe new interventionism.
Sorry, Alex.
No I agree.
Again, My worldview is that thenext, decade is gonna see a
significant amount of disruptionacross all industries, right?
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For all the reasons we've talkedabout many times.
And the issue always remainswhat is the role of government
in trying to facilitate or,nullies the changes there
thereof.
And there too, right?
European, and again, I come fromFrance, so I look at everything
through a little bit of a, thatcharismatic bias.
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The idea of trying to control orenact policies that have an
impact on it is important, but,When you have a knee-jerk
reaction or when you have anexogenous factor like covid,
like the war in Ukraine, you canargue for a lot of exceptions to
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certain particular, fiscaldiscipline rules or reinvestment
projects, or how do you actuallymanage a budget, for your.
For your industry, for youreconomy.
The changes that are coming aregonna be slow.
They're not gonna be rapid,they're not gonna be exogenous.
They are the very definition ofendogenous.
The, all these jobs are going tochange, all these livelihood
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hoods are gonna change.
And the European model feelslike it tries to find an answer
or to regulate the markets aheadof change, or as things change.
The American market, Icompletely would agree, is the
far west.
It's a complete, free for allwith, ebbs and flow in the
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regulatory landscape dependingon who's in power.
But ultimately, most actors justdo what they need to do in
Europe.
It still feels that you need tohave somewhat of a trust in the
regulator, in theadministration, or you need to.
Go with or somehow be associatedwith whatever their policy is,
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which is something that I don'tsee in the us.
The US you just do, eitherthrough lobbying or through in,
break the rules and then, pay afine perhaps the movement is
somewhat in inexorable.
I just don't see, we talkedabout I share the.
This week there's a beautifulmap of where Google released its
Bard ai tools a across theworld.
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And if you look at Europe, youbasically see the uk.
That's it.
Because of all this, regulatory,it's not available in Spain.
I can confirm exactly notavailable anywhere in the EU
because it just, Self-regulatingthemselves away from a headache.
And that's, that's gonna be thenorm on some of these going
forward.
I don't wanna be the, theAmerican of the bunch.
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I get that.
I just, I'll do that.
Yeah.
I just I just wish there was alittle bit more rationality in
some of these things.
It's worrisome.
For all the faults that the.
Whatever you wanna call it.
The Washington consensus of thelast 30 years, or the post World
War II structures of BrettonWoods and what grew up after it.
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The wt O Yep.
Et cetera.
For all their faults.
They also brought us 40 years ofgrowth reduced global poverty
to, to the lowest levels ever.
And and have been the formulafor prosperity that is unmatched
in human history.
So undoing them and we seem tobe undoing them at an
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accelerating pace.
I don't see how it's going tolead to better outcomes.
Yeah.
Yeah.
Particularly from the middleclass, in my sense of, yeah.
You and particularly even forthe middle, or especially for
the middle class, it's supposedto be protecting.
It's supposed to be happeningfor.
Yeah.
Which is the engine of, manysocieties.
Did you watch or did you see theexcerpt of the the CNN Town Hall
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with with Donald Trump 45thpresident?
I did not, I've read about itquite a bit.
Did you watch it?
Yeah, I did.
I watched most of it.
I think the, in the US you areat a point where the.
It's very difficult to be acentrist, let's put it this way,
right?
Oh yeah.
It is practically impossible notto get offended by something.
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And it is fair to say that, thesides are unrecognizable when it
comes to trying to dispatchtheir own view viewpoint.
This was a, again, an attempt atC N that tries to shake.
Its.
Bias or it's perception that itis biased as, quote unquote
mainstream media by inviting anddoing this in New Hampshire and
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doing this with registeredRepublican voters and e
everything that would just makeit a non c n type of event.
And I think, it is good for thembecause obviously people talk
about it and a lot of people sawit.
I'm guessing the ratings aregood and all kinda nonsense.
He was unapologetic.
He was exactly who he is.
And I think that, there were alot of reactions, but what was
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most interesting is, I think atleast the polling after this
kind of indicated that nobodychanged their mind on the guy.
Like the left seems to becompletely obsessed in trying to
say, just look at this.
This is insane.
Why would anybody vote for the,for this guy?
And the right has.
Literally not cared about any ofthat since an elevator in 2015?
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I would say that, the left may,may say that, but any, a person
who would consider him as him orherself, a centrist as I do
Yeah.
Also says it.
And this is what, I don't thinkthat there are equivalent,
similar, how do you say it,diametrically opposed trends
happening on the right and theleft.
On the right, the Trump wingcontrols the Republican Party.
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He's in charge.
The extremists on the left, theprogressives the the people who
identify even as socialists, whoaren't even, all that socialists
are few.
They're not in positions ofpower.
It's a broad coalition and thecenter seems to be governing.
Yeah.
So I think that's an importantthing to keep in mind.
Now the problem is, that'sboring.
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It's not as exciting as a DonaldTrump Town Hall.
But it's it's, it's recognizablegovernance.
No for sure.
The thing which is hilarious insome ways is, and look, you know
how I feel about about the man,but what I think is very
interesting to me is that hewill not change who he is.
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And we know that, and I thinkthat.
It'll be the beginning.
The 80% of the election will allbe about the somewhat extremes
because I think it's now clearwho the two nominees are likely
to be.
And as a result of that, what'sgonna happen is you're gonna
have a lot of red meat beingthrown to both sides.
And in the last, in, in the lastmonth or two months or three
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months, what usually happens,which is that everyone tries to
go for the center at that pointbecause I realize they need the
center to win.
And I just think that, he's notgoing to, he's just gonna be who
he is.
And I think that Biden usuallydoes a better job at doing that.
And while a lot, I don't know alot of people who are excited to
vote for him, but I think thatyou'll probably You'll probably
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see some of the more extremepeople on his cabinet leave
around that time.
You'll start seeing them rereplaced by people who are more
centrist.
And it'll be just another one ofthose small pivots that'll say,
okay, it's okay.
You're fine.
You're who are the extremists inBiden's cabinet.
So you have some.
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I would argue to me like the,where it gets personal is the AI
are, I think was a nonsense.
Or at least what comes outta theWhite House in terms of what,
how they think about technologyis a little bit nonsensical.
I think that the student loanadvocates I don't even want to
get to the, to Some of thespeeches and some discussions
about, diversity and otherthings that have come out of the
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White House.
But on the policy front, youhave a few people who have tried
to push some of the historicalmain important points.
And I think that those are theones that give the most
heartburn to the center.
I think I think the student loanthing was something that that,
that took a lot of.
Middle of the rotor and madethem it was probably one of the
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bigger.
Actual bread and butter issues.
There's a lot of people who paidoff their loans, who we are
Democrats and who don't like theidea.
On the other hand, the wholeindu industry and sector needs
reform.
We get that.
But I think just a blanketblanket eraser was something
that, that they got a lot ofpeople pissed off.
It's not extreme, but there issome, and I think the problem is
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that it's everything is beingexploited.
On both sides to try to make theother side look more extreme.
So Biden looks like adaughtering old man surrounded
by woke people, which is not thetruth.
And Trump is largely irrelevantto most of what happens around,
but he's got a big mouth and hegets a lot of press.
Again, what's nice about the USis it doesn't really matter.
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At the end of the day, the, likethe stuff that's going to change
and is going to create jobs orcreate economic opportunity or
cultural opportunity over thenext.
10, 15 years is so far removedfrom Washington.
We can talk about the, the deadceiling if you want.
These are things that happenedin Washington that, can I get in
the way more than help anything?
I may I make a little inroadinto the conversation?
(19:30):
Sure.
Please do.
So on the Google.
Issue.
They're not making their AItools available in the European
Union but they're making themavailable in the uk.
For the people who really wantto use that, I think most of
them would know how to use A V PN and therefore most of them are
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gonna use it, right?
So at the end of the day, it is.
Highly politicizedconsideration.
I think Italy was the firstcountry Yeah.
That said that they wouldprevent chat g p t from being
offered in Italy because ofconcerns about the privacy of
the data.
Yeah.
And the privacy of the data isan overriding concern of the
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European Union.
Not so much.
The politicians.
Remember that European Union hasa fourth power, which is the
bureaucracy, which is theEuropean Commission itself is a
branch of government, andthey've been very active in
making sure that Europe standsout as the regulator to the
world.
I don't know how long that'sgonna hold, because, if the
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European Union's economycontinues to perform as poorly
relative to the economies of therest of the world, it will
become irrelevant sometime inthe next 25 years.
But I think it's it'sinteresting that everything is
just about the politics andnothing is about the substance.
If they were really concernedabout something, They would try
to fix it because, and not justsay, okay, we're gonna not allow
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this in Italy, where when theyknow very well that anybody in
Italy who wants to use chat G BT just gets a V VPN and uses it
through a server in neighboringFrance, for instance.
So we are living in a worldwhere I think the intellectual
and level of the politicaldiscussions has dropped beneath.
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Anything that could beinteresting to most people who
are actively engaging, doingsomething with their lives.
And I think that there's thedanger because as most, as, most
people have become disengagedfrom politics as they did in
arguably in the US a long timeago as evidenced by how.
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Few people actually participatein elections.
It's easy for certainorganizations to gain
significantly more power thanthey deserve from their
representation in thepopulation.
And that's my sense of wherewe're going.
And I'm, I feel that, that couldbe a threat.
I dunno if you've shared thatview or not.
(22:10):
Yeah, I do share a view thatthings like Italy's ban of chat,
g p t, which was, which wasnever gonna work is posturing.
And we're seeing a lot ofposturing in politics now.
It has to do with the merging ofpolitics and entertainment
that's been going on for a longtime.
It has to do with social mediaand the quest to Dr to, for the
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competition for attention thatpoliticians.
Feel they have to engage in.
I totally disagree with thenotion that it doesn't matter
and that what's the future'sgonna be decided apart from
this, whatever happens is withthe debt ceiling, for example,
doesn't matter.
I think it matters hugely and Ithink I, in the case of the
United States, I think peopleare aware of that.
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I've never seen the country aspoliticized.
Voting participation was at arecord high in 2020 after
falling to somewhere near the50% level or less in
presidential elections.
It, I think it was somewhere uparound 70 something percent in
2020.
Yes and no.
Part of political polarizationincludes mobilization and people
(23:13):
are mobilized.
Unfortunately, I think a lot ofwhat's mobilizing them is.
Is emotions and feelings asopposed to anything resembling
analysis.
And it's part of what drivesnationalism.
It's part of what's drivingnationalism and policy and part
of what you know, enables a guylike Habe and Germany to propose
a completely basically anti EUsubsidy.
(23:37):
Yeah, it's happening, but I'mnot very sanguine about it.
I think somebody asked early inthis why is the dollar doing, or
why is the euro doing so wellagainst the dollar when Europe
is doing so poorly?
The debt ceiling standoff musthave something to do with that.
Just bringing this back to theimmediate, impact.
I I think we're, I think we'reat a really worrisome moment
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history and we're the directionof travel is there this anti
this, we're all interventionistsnow as Martin Wolf said.
And, but you unleash that andit's very difficult to put it
back in the bottle.
I think in this respect, I thinkI would agree with Larry
Summers's view.
It's very, been very popular totalk about digitalization and a
(24:23):
lot of people who arespecialists in shifting their
opinions to the flavor of theday are.
Bring their arms up in the airand saying, oh my God, it's the
end of the dollar era.
And, look at what's going onwith China in, and the, Latin
(24:43):
American countries that haveagreed to do some of their
trading in China, in Remin, andmaybe some of the oil producing
countries that have agreed tothat as well.
I think that the, that what mostpeople need to understand is
that a yes, there is, like withanything else where there's
posturing and people who are notvery reasonable, potentially
(25:04):
some problem with the ceilingthe US that ceiling, I think the
markets would not take it wellif there was a default of the US
government, even if it was atechnical default.
There's no disputing that.
If you look at the way that theUS bond market is trading, it's
not reflecting a significantpanic in, in, in my opinion,
(25:25):
the, so it would be a majorsurprise if it did happen.
That would be a major blow tofinancial stability around the
world.
I think it would be the end ofthe Euro, for instance, if that
happened, not the end of thedollar.
Now I agree.
And when I say why is the dollardoing well against the Euro or
the Euro doing?
No.
The Euro, I'm not predicting theDollarization.
Yeah, what's happening in themonth of May 23?
(25:48):
But let me finish the statement,is that when people talk about
that digitalization, which isone of the hot topics today, I
think they seem to all ignorethat China's foreign exchange
Reserve peaked.
A few years ago, B China hasbeen posting a current account
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surplus since.
Which bes the question, what'sgoing on and the, and what's
going on is massive capitalflight, which you can only see
if you look at a small itembelow the line in the capital
account.
Which is called errors andemissions, and you will see that
every year there's somewherebetween 600 and 800 billion that
are unaccounted for the leaveChina, which is the capital
(26:29):
flight.
So I think I would be moreconcerned about the renminbi
stability than about the dollarstability.
That's my biggest concern today.
The other thing that I find,interesting is that, we started
a conversation with thesepotential.
Disruption of the EuropeansUnion single market.
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I believe that is the, problemthat has little to do with us
politics but something to dowith us politics.
At the end of the day it wasPresident Trump who.
Some people would say was veryantagonistic to the European
Union, I think.
I think he was the person whotried to open the eyes of the
(27:16):
European Union politicians tothe realities of the 21st
century world.
And ever since the EuropeanUnion has been trying to avoid
seeing what the issues are, andthat's the problem that.
Living here is my biggestconcern.
Can you summarize the Trumpianview that was being transmitted?
(27:37):
Because all I remember isinsults and, incoherence, but
I'm sure I'm, I was missingsomething.
I think you were missing theforce for the trees.
It's all the European Union,they needed to spend more on
their defense, and then he toldthem that they could not rely on
gas imports from Russia.
So two for two batting 100%.
So that, and those were theimportant things.
(27:57):
And he said also, don'tnecessarily come to the United
States bailing you out everytime you need to pull some of
your weight.
I think those were very clearstatements that he made.
I remember vividly a lot ofGerman people sitting in the
conference laughing when he saidthat you should not rely on your
energy.
Needs on oil gas imports fromRussia.
(28:20):
As a matter of fact, it has beenthe that's not when they
laughed.
But they laughed at the UNspeech that he made where he
made claims about Yeah.
US policy that I don't evenremember what it is, but, the
Obama administration also madethe same warnings to Europe.
This has been an issue in nato,not with the eu, but within
nato.
(28:40):
Since the early 1990s or eveneven better.
There's broad consensus in theus I wouldn't, this is part of,
what's inherent in therelationships is the Russian gas
thing.
He never he was only callingGermany's bluff or giving
Germany a hard time because, heloves to shout hypocrite.
But I don't think he he wasn'tthe first one to make warnings
(29:02):
about Nord Stream and Nord.
Yeah, I think we're all aware ofthat and what I'm trying to say,
it doesn't matter who said it,it matters what's going on.
We have that reliance we're in avery bad situation.
Some people are pattingthemselves on the back because
they seem to have navigated thefirst winter without anybody
freezing to death.
(29:23):
It's all nonsense.
What's really happening is thatcompanies are signing 10 year
electricity contracts at 50euros megawatt hour, which is,
which in, sets a distinctdifferential in costs to other
industrial companies in otherparts of the world.
And that is the problem.
(29:43):
And again, what I'm trying tosay is that we are not in a
society where people discuss thereal issues they discuss.
Other things.
The real problem today is that,the European industrial
companies have becomeuncompetitive because of the
cost of energy.
The German government or part ofthe German government are facing
(30:08):
that pressure from theirindustrial.
Companies are saying, oh, wehave the resources to subsidize
that.
We know it doesn't confirm withthe treaties that we have
signed, but we are going to tryto do it anyways.
So going back to the rules-basedworld that came, that you
mentioned before, that was verysuccessful, this is one more
blow to that rules-based world.
(30:30):
It is.
And it's coming and that's whatI'm worried about.
And I think we're all, I thinkto be honest, we're all saying
the same thing in differentways.
I do too.
Problem the trusted institutionsis at an all time low.
The ability of institutions toactually hold the line is.
An all time low.
There are exogenous shocks.
One of which has probably passedis covid, one of which is
(30:52):
thoroughly unresolved, which isa security situation first in
Ukraine.
And more generally the Amer, thefree market umbrella is shaky.
Security umbrella is shaky orpotentially shaky.
It all depends, which philosophywins out in international
relations.
(31:12):
How would you grade let me askyou this.
How would you both grade theBiden administration, not the
man on Foreign policyinternational relations?
The last thir two and a halfyears.
I, I would I'd give them a,probably an 80 a b minus on the
grade scale, which is a lot.
(31:34):
Okay.
Better than the than the f Iwould give.
Trump.
Yes.
And somewhere around where Ithink Obama was doing as well,
here's what, here's, and thenlet me say what I, what, why,
why I give them a, why they'rein the 80 range.
They have restored America'snormal relationships with allies
and friends.
They understand the need forcooperation, collaboration
(31:55):
around the world.
And our, and our, in terms oftone and I think substance are
at least behaving in a in aresponsible manner.
What they're getting wrong isit's this trend of fragmentation
that we've been discussing andinterventionism, and this isn't
just foreign policy.
This is economic policy as well.
(32:16):
And they're playing into it.
They're going with that trendwith a notion of, we'll only we
don't want to.
We don't want it to go too far,but we're going in this
direction.
And I think it's a it's adifficult one because it's
prompting the reactions thatyou're seeing in Europe.
Like the German sub subsidy.
And and France wants to reindustrialize with industrial
policy.
(32:36):
The it's that's why I'd givethem a lower mark.
Sorry.
And you.
As a, I think I would I don'thave a strong I don't have a
very view on this particularsubject.
I have, I think the, I thinkfrom the perspective of the rest
(33:01):
of.
The things that the Obamaadministration, sorry, the Biden
administration is the, forpolicies doesn't stand out one
way or another.
I, there's seems to be very, avery mute reaction to some of
(33:23):
the challenges that.
They are receiving from formerallies in terms of their rep,
their closeness to China.
In some ways, maybe it'scalculated, maybe they realize
it's an empty threat.
We, such as these agreementsbetween the, the Gulf States and
(33:46):
China, or the agreements betweenthe Latino American countries
that have traditionally been.
Close to the United States,getting closer to China.
I don't know.
The European certainly areplaying a very ambivalent role
in the confrontation with China.
On the one hand, they want tohave the, the strength of NATO
(34:06):
to behind, but on the otherhand, they don't want to lose
the business opportunities ofand trading opportunities that
China has been affording them.
What I find.
More worrisome is that thesefragmentation of Europe that you
refer to and these variouspolicies that have been
announced in the past couple ofweeks, including Macon's article
(34:30):
today on the, in the, I think itwas on the Financial Times about
re industrializing France are, Ithink it may be in a previous.
And era of American soft powerprevalence, it would have been
(34:51):
more difficult to have theseEuropean countries that are at
the core of the European Unionshow how they're distancing
themselves almost inevitably bydiscussing.
The breakup of the institutionthat was created in many ways to
(35:13):
make sure that there were nofurther conflicts in the
European continent.
But that's why I'm veryconcerned about what's being
said this week, both in from theGerman minister and also from
the French president, and thefact that doesn't seem to be.
An American statement on that isfor the moment is perhaps what,
(35:36):
deserve a des sell the B minus.
Because at the end of the day,whenever there's been conflict
in Europe, it's ended up beingdestabilizing also to in other
places including the UnitedStates.
So to answer my own question, Ithink that I would give him a b
plus.
I think as opposed to you, Iactually am.
(35:56):
Surprised at how important ithas been in the last three years
to have the United Statesarguing its place and its
theories across the world.
I, the problem with Trump to mewas, to, to cite somebody I
know.
Even a broken clock could beright.
(36:17):
Twice a day.
I think he was right on manythings, but there were just so
much that I don't think that theamount of chaos that was there
from an international pointrelations point of view, I think
is was untenable and notconducive to, to progress on
international relations andpossibly gave people the wrong
impression about.
How the US would react tocertain actions.
(36:38):
But what is my biggest surpriseis how I look less fondly at
Obama's international policy andhow almost optimistic it was.
And I guess my point here isthat my grade coming out in 2016
versus my grade today, lookingback I would be harsher on the
(36:59):
accomplishment on inter, on theinternational stage that the
Obama administration had, if I'monly looking, outside of the
Trump years yeah, no, and Iagree about Obama.
He was at heart a veryconservative.
President in many ways who didnot have a very forceful foreign
policy, and he was not and hegot some big things wrong, like
(37:19):
the Arab Spring speech.
Yeah.
On Biden, B minus.
I know.
Yeah.
It's probably a bit harsh, but Ithink it's I'm also thinking
about while the response toUkraine has been an A or an A
minus I, there was thewithdrawal from Afghanistan.
There's the fact that China'sbrokering piece between Iran and
Saudi Arabia.
(37:40):
And and then I think just weneed to rethink on the, we're
not getting it right in China.
We're too much of what we'redoing is reflexive, fueled by
domestic politics.
And I don't know how I don'tsee, I don't see a great outcome
there.
So that's, those are myconcerns.
But glad to hear you're a, yousee it as a b plus.
(38:03):
Maybe I'm being too harsh.
Harsh.
When it comes time to grade mystudents.
I give them all better thanthat.
But anyway.
But that's funny cuz they wereyour students exactly.
They tell me what I want tohear, which is what I just told
them to say.
Exactly.
Strategy BT works the same.
(38:24):
Okay.
Should we wrap it up?
Yeah, I guess I'll make I'llmake a generalized pitch to
something at Something that Luissaid.
Obviously, we work with a lot ofcompanies and we try to help
them out on, on, on AI stuff, orat least these days, this where
the conversation has gone.
But it's always been there interms of what you do with your
data and how do you present itand all that kinda good stuff.
(38:44):
But what I find fascinating isthat, yeah the right now, the
tools haven't really been built,and I think that tragedy PT is
obviously what's taking all theoxygen out of the room because
it's the one that everybody'sexperience and everybody's
personal experience and colorshow they see the product.
But let's not forget, and Ithink this is the point that the
(39:08):
open AI and then now Bard and alittle bit Microsoft or.
Or providing you these services,either through the website or
through the APIs.
And that's not the mature adequilibrium solution for
companies.
And so I think, and forinstitutions and for governments
and whatever, it is.
Somewhat idiotic that everysingle request out there will go
(39:31):
to, the servers and the, and a,and the trainer model that
exists in, in, in one singleplace from all over the world.
Which is more or less thesolution that both Google and
Open AI have now.
What are the biggest problems?
Is that, You haven't had eitherthe tools or you haven't
democratized enough the idea oftraining your own model inside
companies, but that's reallywhat it is at maturity.
(39:51):
To, to your point, Peter, thequestion we always ask is, how
much of your.
Proprietary data or client datais being fed directly,
indirectly into tragic PTbecause somebody in the
organization is asking aquestion.
And I think that points, I thinkPeter, as you mentioned, many
corporates to go out and putjust a wholesale ban on, on it
(40:12):
until they can figure it out.
The ban itself is messy becausethere probably is not a better
predictor over the next fiveyears of what a middle
management.
Effectiveness is going to have,but their ability to use some of
these tools, whether they bebuilt inside or outside the
organization.
But one of the more importantthings that that everybody has
(40:34):
to get ready for is when you cantalk to your own corporate data
and institutional data andpresent essentially these
solutions inside theorganization, outside the
organization, and how muchthat's going to tear into.
A lot of processes that you seeinside organizations.
Review policy security policiescom, committees.
(40:58):
A lot of decision making hasbeen done in a in a way, which
is, so when we look back at it,10, 15 years from now will look
so antiquated.
And.
My fear to go to circle back tothe thing about Europe is that I
can't figure out whether theregulator or the institutions
(41:19):
are banning it or wanting to banit, simply because it's a
little, it's a little worrisome,which is fun.
Fascinating.
In contrast to all the carboncontrol policies they've put in.
It's hilarious in thatparticular respect how
futuristic you can be on onepoint, but not on another.
I would hope that theyunderstand and that they get
good counsel in how to try touse this just revolutionary way
(41:47):
of looking at all your systems,your governmental systems, your
ministry systems, your businessoperation systems and then the
idea of just banning people andthen putting your head in the
sand I think is gonna be amassive productivity.
Dis destroyer for those whodon't adopt it?
To the extent, yeah.
Just to be clear I did refer, Ithink before this podcast
(42:09):
started to a company that I knowthat banned employees from
using, just banned access tochat G P t.
But the Bard case isn't a ban,it's an unintended consequence
of gdpr, if I understand that.
Agreed, agreed.
Agree.
Yeah.
To me I throw them both in thesame bucket, which is that Yeah,
I know that Google did not want,Google has a strategic problem,
(42:31):
which is that AI takes away alot of what was an extremely
defendable moat for their searchbusiness.
Sure.
And so for them, they need topivot and they need to just hold
onto customers one way oranother.
And the last thing that theywanna do in the middle of trying
to fight that battle is to haveto fight another regulatory
battle.
So they, for them it's justeasier to say, Hey, just throw a
(42:51):
v p N and if you're reallyinterested, going into it that
way and the self regulation, Ithink is even worse to me
because I think that when youthink of these companies, you
want them.
Some of the best and brightestminds are in Europe, or being
trained in Europe or in Europeanclassrooms.
And I think it would behoove theEuropean administration
(43:13):
institutions to think about thata little bit more.
Again, it's, and it's all in thecontext of fragmentation, isn't
it?
One set of re regulations inEurope that's been imposed that
they expected to become a globalstandard.
It has, but now Google's takinga step just to avoid that, and
this is, so we get the splinternet.
Yeah.
Yeah.
We didn't want and if you go andask end users, what do they care
(43:40):
about in their privacy you'd besurprised at the answers.
Yeah.
Yep.
This has been a happy podcast.
Thank you.
Thank you Alex and Luis.
Thank you guys.
Just one question before I go.
25 years ago there was asoftware program that had some
(44:04):
elements of artificialintelligence in it was launched
called Mathematica.
I don't know if you guys everused it.
Yes.
The creator of that program, warfirm, yes.
Has been very active indeveloping artificial
intelligence.
Yes.
Since he became verysignificantly well funded as a
(44:28):
result of the success ofMathematica.
I wonder what makes everybodythink that this time around
we're gonna have any.
Much more significant impact onproductivity than programs like
that had at the, in the past 25years, which is, I think, is
very difficult to measure butdoesn't seem to come up in the
(44:50):
general productivity numbers forthe economy anyways.
So if you don't mind, let's tryto have a conversation the next
time, because it just takes alittle bit more time.
But no, it's a question that Iwould like to 30 seconds for
next time.
Yes, agreed.
Wolfrem was actually one of thevery first plug-ins on chat, g p
t, and he's been quite active.
An interesting guy.
(45:11):
It's a fan.
There's a very good podcast withLex Friedman with Wolfram from a
week ago or two weeks ago, whichis Which I'd encourage you to
listen to.
So I, let's talk about it nexttime.
That's a very interestingsubject, which I'd be happy to
pretend I know something about.
Great, thanks.
Let's talk about it.
Two, three.
(00:03):
Hi.
Good afternoon.
Good morning.
Welcome to Off the Fence, theTransatlantic podcast, where
three guys try to sort outwhat's going on in the world in
a given week or month.
Today we're gonna start bylooking at the proposal that has
come from Germany, from theGreens, and the coalition led by
Robert Koch, the economyminister who has proposed
(00:25):
subsidizing energy for Germanindustry.
For the next several years tothe tune of 6 cents a kilowatt
which is seen as a game changerfor many reasons.
One it would subsidize greenenergy more than other.
But so that's one way.
But more importantly, it's asubsidy, it's state aid that's
(00:48):
being given out in Germany.
It would be given out inGermany.
And which other EU countriescan't match.
So it was boost Germancompetitiveness at the expense
of its neighbors and this strikeat the very heart of what Europe
and the its single market areall about.
He is opposed by the financeministry led by Christian
(01:08):
Linner, but it's really notclear what's gonna happen here
because they're in a governmentcoalition, government not always
a happy one.
And and it's just not clear theway it will play out.
Luis who's here with us, canexplain what he thinks it might
mean for the European Union andwhy don't we take it from there,
Luis?
(01:30):
It's seems that since Covid,it's been a period of enormous
flexibility around the rulesand.
Set forth by the treaties of theEuropean Union that, we're very
explicit in trying to avoid anystate aid to particular
(01:51):
businesses, and also trying tokeep government spending within
a very narrow band of deficitsand total debt to government,
debt to gdp.
As a result of covid the ruleswere loosen very quickly and
there was like a jumbo forgovernments, especially those of
(02:12):
the more affluent Europeancountries with more fiscal slack
to come in with big programs tosupport industry.
Of course, if you have a singlemarket with no internal trade
barriers Initially subsidies theone to company A in country a
(02:33):
make life for a company Z inCountry Z if that company is not
getting the same kind ofsubsidies for tradeable goods.
And this is what's beenhappening now for three or four
years.
Nobody's made a huge think aboutit.
But it tells you that we don'thave, or we haven't had a single
(02:54):
market.
Or the rules of a single marketin place for a while.
And that's gonna createdistortions for sure if it's
maintained.
I also observed that fiscaldeficits in some of the European
Union countries that are membersof the Eurozone and that have to
abide by strict fiscal rulesuntil covid were loosened at the
same time.
(03:15):
So this has allowed somecountries or all countries to
overspend.
To try to stimulate the economyto recover from the big drop in
activity that resulted from theresponse to the covid epidemic.
Next year, the EuropeanCommission, which is one of the
(03:38):
four.
Arms of governance in theEuropean Union would, has stated
very clearly, they would like tosee member countries return to
the target set forth in thegrowth and st in the stability
and growth back.
And at the same time that wehave distortions from subsidies
dis and distortions from largerthan normal state aid the
(04:02):
central bank has been.
Hiking rates, maybe at a, maybefor some people at a too rapid
pace for other people at notsufficiently as efficient,
continues to rage on.
And I think we're facing anotherone of those existential moments
for the European Union wheremember countries governments
(04:25):
need to decide how to moveforward.
So I think going.
Into next year.
We're also gonna have someelections in some of the
countries.
That may change a little bit thepolitical landscape.
I think all of that makes for aninteresting question on a why
are investors still so sand wineon the Europe, which is to some
(04:46):
degree surprising to us.
And more so why investors alsosaw sang about European markets
and in particular financialinstitutions in the European
markets.
Those are all good questions,Alex, anything?
Yeah.
Let me ask you this questionstepping back to, three steps
(05:06):
from there.
I'm trying to understand theEuropean project in the concept
of, in the context of the last.
Five years, right now.
What's fascinating about what'shappening in Ukraine, what,
which means that some playershave had to understand their
military spending and re-uppingwhatever they gave or planning
(05:28):
for whatever they need with thestimulus that it went with
Covid.
With the energy compensation,and this is, Germany is acting
in its own way, but you sawsimilar policies in smaller ways
to subsidize the consumer or totry to do this.
The issue I remains to me andparticularly in the context of
(05:53):
the retirement age.
Rising by two years in, inFrance and the whole mayhem
that's that's created.
Where do regulators maintaincredibility and what are they
optimizing for at this level?
Are they optimizing for nationalsuccess?
Are they optimizing for, isthere any common policy that
(06:13):
actually has some Someeffectiveness is, of course we
can talk about how well they'veresponded to Ukraine and all
that kind of stuff.
I'm not talking about that.
I'm talking about how do youachieve economic, fiscal policy
design as a European as a, let'ssay a large country, European
government.
I'm talking about the, themajors in this, in, in this kind
(06:35):
of environment.
Everybody seems to be a littlebit.
Towing the common line on veryfew subjects like Ukraine again,
and perhaps a couple others, andthen everybody seems to be
playing personal ball on, on, oneverything else.
I'm I'm thoroughly confusedabout how industry and the
consumer looks at, whether youcall it the administration or
(06:59):
the regulator in Europe.
As navigating or participatingin navigation of the ship, since
Europe is so much more, has somuch larger role in the state
and the economy, I'm justconfused just and you're right
to be.
I, I am a for I was acorrespondent in Brussels for
many years as a journalist, andthis has been part of the push
(07:19):
and pull of the European Unionsince it was founded.
Where do national interests end?
Where do where does it makesense that.
We work more together.
And the whole, the singlemarket, the 1992 project of all
those years ago and even theEuropean currency, we're all
based on the notion that therewas more in it for us to pool
our sovereignty to and toeliminate barriers and com
(07:44):
compete on a level playing fieldas much as possible.
With measures to level theplaying field that included
regional funds and subsidies tothe poorer states.
If and the premise was acceptedand it's what was what modern
Europe was built on, it's whatthe Brits, to some extent
couldn't couldn't abide bybecause it was getting leading
(08:04):
to ever closer political union.
And now we have a situationwhere one of the motors of that.
Of that model one of thebuilders of it, Germany is,
seems to be turning around andsaying, no, we'll just take care
of ourselves now.
Yeah.
But I, I think it's not just theEuropean Union.
And with all the centcentrifugal force that this
(08:25):
exerts on the European Union,which is considerable, I think
this is a national this is aglobal issue as well.
Martin Wolf, the Ft columnistrecently began columns in which
he said we're allinterventionist now.
And he pointed out that thereseems to be no appetite
whatsoever among governments ofany political stripe to abide by
(08:49):
some of the hardships or cycl,cyclical adversity that, that a
market economy will throw at us,whether it's covid or whether
it's.
Or whether it's a monetarytightening to, to damp down
inflation.
Everything seems to be met withmeasures and that includes the
us.
Agreed.
Agreed.
The thing he and it makes trademore difficult.
(09:09):
It will have its cost ininflation.
If you haven't read it, JakeSullivan, the US National
Security Advisor, gave a bigspeech two weeks ago at the
Brooking Institution.
I, it was called somethinginnocuous, like Thoughts on The
Economy by Jake Sullivan.
But it was really actually a, itspelled out the Biden
administration's vision in amuch more coherent way than Joe
(09:33):
Biden ever has.
That brings together all the,the under, if it were Donald
Trump, you'd be calling it anAmerica first banner, bringing
together energy security andindependence.
As well as sustainability, butthe bringing all of the trade
policies, technological securitynational security under the same
umbrella, and and basicallyproposing that the US was gonna
(09:56):
do this, but only go so far.
Not abandoning in the marketeconomy, but retweaking it,
readjusting it because the last40 years had hollowed out the.
The middle and and we wannarebuild it.
Was his argument was JakeSullivan's argument.
It's but it's a vision thatincludes intervention.
It justifies the ira, the, thatis the Inflation reduction Act,
(10:16):
which doesn't have a lot to dowith reducing inflation.
And it's a, it's a blueprint forthe new interventionism.
Sorry, Alex.
No I agree.
Again, My worldview is that thenext, decade is gonna see a
significant amount of disruptionacross all industries, right?
(10:37):
For all the reasons we've talkedabout many times.
And the issue always remainswhat is the role of government
in trying to facilitate or,nullies the changes there
thereof.
And there too, right?
European, and again, I come fromFrance, so I look at everything
through a little bit of a, thatcharismatic bias.
(10:59):
The idea of trying to control orenact policies that have an
impact on it is important, but,When you have a knee-jerk
reaction or when you have anexogenous factor like covid,
like the war in Ukraine, you canargue for a lot of exceptions to
(11:20):
certain particular, fiscaldiscipline rules or reinvestment
projects, or how do you actuallymanage a budget, for your.
For your industry, for youreconomy.
The changes that are coming aregonna be slow.
They're not gonna be rapid,they're not gonna be exogenous.
They are the very definition ofendogenous.
The, all these jobs are going tochange, all these livelihood
(11:43):
hoods are gonna change.
And the European model feelslike it tries to find an answer
or to regulate the markets aheadof change, or as things change.
The American market, Icompletely would agree, is the
far west.
It's a complete, free for allwith, ebbs and flow in the
(12:05):
regulatory landscape dependingon who's in power.
But ultimately, most actors justdo what they need to do in
Europe.
It still feels that you need tohave somewhat of a trust in the
regulator, in theadministration, or you need to.
Go with or somehow be associatedwith whatever their policy is,
(12:29):
which is something that I don'tsee in the us.
The US you just do, eitherthrough lobbying or through in,
break the rules and then, pay afine perhaps the movement is
somewhat in inexorable.
I just don't see, we talkedabout I share the.
This week there's a beautifulmap of where Google released its
Bard ai tools a across theworld.
(12:51):
And if you look at Europe, youbasically see the uk.
That's it.
Because of all this, regulatory,it's not available in Spain.
I can confirm exactly notavailable anywhere in the EU
because it just, Self-regulatingthemselves away from a headache.
And that's, that's gonna be thenorm on some of these going
forward.
I don't wanna be the, theAmerican of the bunch.
(13:11):
I get that.
I just, I'll do that.
Yeah.
I just I just wish there was alittle bit more rationality in
some of these things.
It's worrisome.
For all the faults that the.
Whatever you wanna call it.
The Washington consensus of thelast 30 years, or the post World
War II structures of BrettonWoods and what grew up after it.
(13:32):
The wt O Yep.
Et cetera.
For all their faults.
They also brought us 40 years ofgrowth reduced global poverty
to, to the lowest levels ever.
And and have been the formulafor prosperity that is unmatched
in human history.
So undoing them and we seem tobe undoing them at an
(13:53):
accelerating pace.
I don't see how it's going tolead to better outcomes.
Yeah.
Yeah.
Particularly from the middleclass, in my sense of, yeah.
You and particularly even forthe middle, or especially for
the middle class, it's supposedto be protecting.
It's supposed to be happeningfor.
Yeah.
Which is the engine of, manysocieties.
Did you watch or did you see theexcerpt of the the CNN Town Hall
(14:14):
with with Donald Trump 45thpresident?
I did not, I've read about itquite a bit.
Did you watch it?
Yeah, I did.
I watched most of it.
I think the, in the US you areat a point where the.
It's very difficult to be acentrist, let's put it this way,
right?
Oh yeah.
It is practically impossible notto get offended by something.
(14:36):
And it is fair to say that, thesides are unrecognizable when it
comes to trying to dispatchtheir own view viewpoint.
This was a, again, an attempt atC N that tries to shake.
Its.
Bias or it's perception that itis biased as, quote unquote
mainstream media by inviting anddoing this in New Hampshire and
(14:58):
doing this with registeredRepublican voters and e
everything that would just makeit a non c n type of event.
And I think, it is good for thembecause obviously people talk
about it and a lot of people sawit.
I'm guessing the ratings aregood and all kinda nonsense.
He was unapologetic.
He was exactly who he is.
And I think that, there were alot of reactions, but what was
(15:19):
most interesting is, I think atleast the polling after this
kind of indicated that nobodychanged their mind on the guy.
Like the left seems to becompletely obsessed in trying to
say, just look at this.
This is insane.
Why would anybody vote for the,for this guy?
And the right has.
Literally not cared about any ofthat since an elevator in 2015?
(15:41):
I would say that, the left may,may say that, but any, a person
who would consider him as him orherself, a centrist as I do
Yeah.
Also says it.
And this is what, I don't thinkthat there are equivalent,
similar, how do you say it,diametrically opposed trends
happening on the right and theleft.
On the right, the Trump wingcontrols the Republican Party.
(16:03):
He's in charge.
The extremists on the left, theprogressives the the people who
identify even as socialists, whoaren't even, all that socialists
are few.
They're not in positions ofpower.
It's a broad coalition and thecenter seems to be governing.
Yeah.
So I think that's an importantthing to keep in mind.
Now the problem is, that'sboring.
(16:24):
It's not as exciting as a DonaldTrump Town Hall.
But it's it's, it's recognizablegovernance.
No for sure.
The thing which is hilarious insome ways is, and look, you know
how I feel about about the man,but what I think is very
interesting to me is that hewill not change who he is.
(16:44):
And we know that, and I thinkthat.
It'll be the beginning.
The 80% of the election will allbe about the somewhat extremes
because I think it's now clearwho the two nominees are likely
to be.
And as a result of that, what'sgonna happen is you're gonna
have a lot of red meat beingthrown to both sides.
And in the last, in, in the lastmonth or two months or three
(17:06):
months, what usually happens,which is that everyone tries to
go for the center at that pointbecause I realize they need the
center to win.
And I just think that, he's notgoing to, he's just gonna be who
he is.
And I think that Biden usuallydoes a better job at doing that.
And while a lot, I don't know alot of people who are excited to
vote for him, but I think thatyou'll probably You'll probably
(17:26):
see some of the more extremepeople on his cabinet leave
around that time.
You'll start seeing them rereplaced by people who are more
centrist.
And it'll be just another one ofthose small pivots that'll say,
okay, it's okay.
You're fine.
You're who are the extremists inBiden's cabinet.
So you have some.
(17:46):
I would argue to me like the,where it gets personal is the AI
are, I think was a nonsense.
Or at least what comes outta theWhite House in terms of what,
how they think about technologyis a little bit nonsensical.
I think that the student loanadvocates I don't even want to
get to the, to Some of thespeeches and some discussions
about, diversity and otherthings that have come out of the
(18:06):
White House.
But on the policy front, youhave a few people who have tried
to push some of the historicalmain important points.
And I think that those are theones that give the most
heartburn to the center.
I think I think the student loanthing was something that that,
that took a lot of.
Middle of the rotor and madethem it was probably one of the
(18:28):
bigger.
Actual bread and butter issues.
There's a lot of people who paidoff their loans, who we are
Democrats and who don't like theidea.
On the other hand, the wholeindu industry and sector needs
reform.
We get that.
But I think just a blanketblanket eraser was something
that, that they got a lot ofpeople pissed off.
It's not extreme, but there issome, and I think the problem is
(18:48):
that it's everything is beingexploited.
On both sides to try to make theother side look more extreme.
So Biden looks like adaughtering old man surrounded
by woke people, which is not thetruth.
And Trump is largely irrelevantto most of what happens around,
but he's got a big mouth and hegets a lot of press.
Again, what's nice about the USis it doesn't really matter.
(19:08):
At the end of the day, the, likethe stuff that's going to change
and is going to create jobs orcreate economic opportunity or
cultural opportunity over thenext.
10, 15 years is so far removedfrom Washington.
We can talk about the, the deadceiling if you want.
These are things that happenedin Washington that, can I get in
the way more than help anything?
I may I make a little inroadinto the conversation?
(19:30):
Sure.
Please do.
So on the Google.
Issue.
They're not making their AItools available in the European
Union but they're making themavailable in the uk.
For the people who really wantto use that, I think most of
them would know how to use A V PN and therefore most of them are
(19:53):
gonna use it, right?
So at the end of the day, it is.
Highly politicizedconsideration.
I think Italy was the firstcountry Yeah.
That said that they wouldprevent chat g p t from being
offered in Italy because ofconcerns about the privacy of
the data.
Yeah.
And the privacy of the data isan overriding concern of the
(20:15):
European Union.
Not so much.
The politicians.
Remember that European Union hasa fourth power, which is the
bureaucracy, which is theEuropean Commission itself is a
branch of government, andthey've been very active in
making sure that Europe standsout as the regulator to the
world.
I don't know how long that'sgonna hold, because, if the
(20:38):
European Union's economycontinues to perform as poorly
relative to the economies of therest of the world, it will
become irrelevant sometime inthe next 25 years.
But I think it's it'sinteresting that everything is
just about the politics andnothing is about the substance.
If they were really concernedabout something, They would try
to fix it because, and not justsay, okay, we're gonna not allow
(21:00):
this in Italy, where when theyknow very well that anybody in
Italy who wants to use chat G BT just gets a V VPN and uses it
through a server in neighboringFrance, for instance.
So we are living in a worldwhere I think the intellectual
and level of the politicaldiscussions has dropped beneath.
(21:29):
Anything that could beinteresting to most people who
are actively engaging, doingsomething with their lives.
And I think that there's thedanger because as most, as, most
people have become disengagedfrom politics as they did in
arguably in the US a long timeago as evidenced by how.
(21:49):
Few people actually participatein elections.
It's easy for certainorganizations to gain
significantly more power thanthey deserve from their
representation in thepopulation.
And that's my sense of wherewe're going.
And I'm, I feel that, that couldbe a threat.
I dunno if you've shared thatview or not.
(22:10):
Yeah, I do share a view thatthings like Italy's ban of chat,
g p t, which was, which wasnever gonna work is posturing.
And we're seeing a lot ofposturing in politics now.
It has to do with the merging ofpolitics and entertainment
that's been going on for a longtime.
It has to do with social mediaand the quest to Dr to, for the
(22:30):
competition for attention thatpoliticians.
Feel they have to engage in.
I totally disagree with thenotion that it doesn't matter
and that what's the future'sgonna be decided apart from
this, whatever happens is withthe debt ceiling, for example,
doesn't matter.
I think it matters hugely and Ithink I, in the case of the
United States, I think peopleare aware of that.
(22:51):
I've never seen the country aspoliticized.
Voting participation was at arecord high in 2020 after
falling to somewhere near the50% level or less in
presidential elections.
It, I think it was somewhere uparound 70 something percent in
2020.
Yes and no.
Part of political polarizationincludes mobilization and people
(23:13):
are mobilized.
Unfortunately, I think a lot ofwhat's mobilizing them is.
Is emotions and feelings asopposed to anything resembling
analysis.
And it's part of what drivesnationalism.
It's part of what's drivingnationalism and policy and part
of what you know, enables a guylike Habe and Germany to propose
a completely basically anti EUsubsidy.
(23:37):
Yeah, it's happening, but I'mnot very sanguine about it.
I think somebody asked early inthis why is the dollar doing, or
why is the euro doing so wellagainst the dollar when Europe
is doing so poorly?
The debt ceiling standoff musthave something to do with that.
Just bringing this back to theimmediate, impact.
I I think we're, I think we'reat a really worrisome moment
(23:59):
history and we're the directionof travel is there this anti
this, we're all interventionistsnow as Martin Wolf said.
And, but you unleash that andit's very difficult to put it
back in the bottle.
I think in this respect, I thinkI would agree with Larry
Summers's view.
It's very, been very popular totalk about digitalization and a
(24:23):
lot of people who arespecialists in shifting their
opinions to the flavor of theday are.
Bring their arms up in the airand saying, oh my God, it's the
end of the dollar era.
And, look at what's going onwith China in, and the, Latin
(24:43):
American countries that haveagreed to do some of their
trading in China, in Remin, andmaybe some of the oil producing
countries that have agreed tothat as well.
I think that the, that what mostpeople need to understand is
that a yes, there is, like withanything else where there's
posturing and people who are notvery reasonable, potentially
(25:04):
some problem with the ceilingthe US that ceiling, I think the
markets would not take it wellif there was a default of the US
government, even if it was atechnical default.
There's no disputing that.
If you look at the way that theUS bond market is trading, it's
not reflecting a significantpanic in, in, in my opinion,
(25:25):
the, so it would be a majorsurprise if it did happen.
That would be a major blow tofinancial stability around the
world.
I think it would be the end ofthe Euro, for instance, if that
happened, not the end of thedollar.
Now I agree.
And when I say why is the dollardoing well against the Euro or
the Euro doing?
No.
The Euro, I'm not predicting theDollarization.
Yeah, what's happening in themonth of May 23?
(25:48):
But let me finish the statement,is that when people talk about
that digitalization, which isone of the hot topics today, I
think they seem to all ignorethat China's foreign exchange
Reserve peaked.
A few years ago, B China hasbeen posting a current account
(26:09):
surplus since.
Which bes the question, what'sgoing on and the, and what's
going on is massive capitalflight, which you can only see
if you look at a small itembelow the line in the capital
account.
Which is called errors andemissions, and you will see that
every year there's somewherebetween 600 and 800 billion that
are unaccounted for the leaveChina, which is the capital
(26:29):
flight.
So I think I would be moreconcerned about the renminbi
stability than about the dollarstability.
That's my biggest concern today.
The other thing that I find,interesting is that, we started
a conversation with thesepotential.
Disruption of the EuropeansUnion single market.
(26:52):
I believe that is the, problemthat has little to do with us
politics but something to dowith us politics.
At the end of the day it wasPresident Trump who.
Some people would say was veryantagonistic to the European
Union, I think.
I think he was the person whotried to open the eyes of the
(27:16):
European Union politicians tothe realities of the 21st
century world.
And ever since the EuropeanUnion has been trying to avoid
seeing what the issues are, andthat's the problem that.
Living here is my biggestconcern.
Can you summarize the Trumpianview that was being transmitted?
(27:37):
Because all I remember isinsults and, incoherence, but
I'm sure I'm, I was missingsomething.
I think you were missing theforce for the trees.
It's all the European Union,they needed to spend more on
their defense, and then he toldthem that they could not rely on
gas imports from Russia.
So two for two batting 100%.
So that, and those were theimportant things.
(27:57):
And he said also, don'tnecessarily come to the United
States bailing you out everytime you need to pull some of
your weight.
I think those were very clearstatements that he made.
I remember vividly a lot ofGerman people sitting in the
conference laughing when he saidthat you should not rely on your
energy.
Needs on oil gas imports fromRussia.
(28:20):
As a matter of fact, it has beenthe that's not when they
laughed.
But they laughed at the UNspeech that he made where he
made claims about Yeah.
US policy that I don't evenremember what it is, but, the
Obama administration also madethe same warnings to Europe.
This has been an issue in nato,not with the eu, but within
nato.
(28:40):
Since the early 1990s or eveneven better.
There's broad consensus in theus I wouldn't, this is part of,
what's inherent in therelationships is the Russian gas
thing.
He never he was only callingGermany's bluff or giving
Germany a hard time because, heloves to shout hypocrite.
But I don't think he he wasn'tthe first one to make warnings
(29:02):
about Nord Stream and Nord.
Yeah, I think we're all aware ofthat and what I'm trying to say,
it doesn't matter who said it,it matters what's going on.
We have that reliance we're in avery bad situation.
Some people are pattingthemselves on the back because
they seem to have navigated thefirst winter without anybody
freezing to death.
(29:23):
It's all nonsense.
What's really happening is thatcompanies are signing 10 year
electricity contracts at 50euros megawatt hour, which is,
which in, sets a distinctdifferential in costs to other
industrial companies in otherparts of the world.
And that is the problem.
(29:43):
And again, what I'm trying tosay is that we are not in a
society where people discuss thereal issues they discuss.
Other things.
The real problem today is that,the European industrial
companies have becomeuncompetitive because of the
cost of energy.
The German government or part ofthe German government are facing
(30:08):
that pressure from theirindustrial.
Companies are saying, oh, wehave the resources to subsidize
that.
We know it doesn't confirm withthe treaties that we have
signed, but we are going to tryto do it anyways.
So going back to the rules-basedworld that came, that you
mentioned before, that was verysuccessful, this is one more
blow to that rules-based world.
(30:30):
It is.
And it's coming and that's whatI'm worried about.
And I think we're all, I thinkto be honest, we're all saying
the same thing in differentways.
I do too.
Problem the trusted institutionsis at an all time low.
The ability of institutions toactually hold the line is.
An all time low.
There are exogenous shocks.
One of which has probably passedis covid, one of which is
(30:52):
thoroughly unresolved, which isa security situation first in
Ukraine.
And more generally the Amer, thefree market umbrella is shaky.
Security umbrella is shaky orpotentially shaky.
It all depends, which philosophywins out in international
relations.
(31:12):
How would you grade let me askyou this.
How would you both grade theBiden administration, not the
man on Foreign policyinternational relations?
The last thir two and a halfyears.
I, I would I'd give them a,probably an 80 a b minus on the
grade scale, which is a lot.
(31:34):
Okay.
Better than the than the f Iwould give.
Trump.
Yes.
And somewhere around where Ithink Obama was doing as well,
here's what, here's, and thenlet me say what I, what, why,
why I give them a, why they'rein the 80 range.
They have restored America'snormal relationships with allies
and friends.
They understand the need forcooperation, collaboration
(31:55):
around the world.
And our, and our, in terms oftone and I think substance are
at least behaving in a in aresponsible manner.
What they're getting wrong isit's this trend of fragmentation
that we've been discussing andinterventionism, and this isn't
just foreign policy.
This is economic policy as well.
(32:16):
And they're playing into it.
They're going with that trendwith a notion of, we'll only we
don't want to.
We don't want it to go too far,but we're going in this
direction.
And I think it's a it's adifficult one because it's
prompting the reactions thatyou're seeing in Europe.
Like the German sub subsidy.
And and France wants to reindustrialize with industrial
policy.
(32:36):
The it's that's why I'd givethem a lower mark.
Sorry.
And you.
As a, I think I would I don'thave a strong I don't have a
very view on this particularsubject.
I have, I think the, I thinkfrom the perspective of the rest
(33:01):
of.
The things that the Obamaadministration, sorry, the Biden
administration is the, forpolicies doesn't stand out one
way or another.
I, there's seems to be very, avery mute reaction to some of
(33:23):
the challenges that.
They are receiving from formerallies in terms of their rep,
their closeness to China.
In some ways, maybe it'scalculated, maybe they realize
it's an empty threat.
We, such as these agreementsbetween the, the Gulf States and
(33:46):
China, or the agreements betweenthe Latino American countries
that have traditionally been.
Close to the United States,getting closer to China.
I don't know.
The European certainly areplaying a very ambivalent role
in the confrontation with China.
On the one hand, they want tohave the, the strength of NATO
(34:06):
to behind, but on the otherhand, they don't want to lose
the business opportunities ofand trading opportunities that
China has been affording them.
What I find.
More worrisome is that thesefragmentation of Europe that you
refer to and these variouspolicies that have been
announced in the past couple ofweeks, including Macon's article
(34:30):
today on the, in the, I think itwas on the Financial Times about
re industrializing France are, Ithink it may be in a previous.
And era of American soft powerprevalence, it would have been
(34:51):
more difficult to have theseEuropean countries that are at
the core of the European Unionshow how they're distancing
themselves almost inevitably bydiscussing.
The breakup of the institutionthat was created in many ways to
(35:13):
make sure that there were nofurther conflicts in the
European continent.
But that's why I'm veryconcerned about what's being
said this week, both in from theGerman minister and also from
the French president, and thefact that doesn't seem to be.
An American statement on that isfor the moment is perhaps what,
(35:36):
deserve a des sell the B minus.
Because at the end of the day,whenever there's been conflict
in Europe, it's ended up beingdestabilizing also to in other
places including the UnitedStates.
So to answer my own question, Ithink that I would give him a b
plus.
I think as opposed to you, Iactually am.
(35:56):
Surprised at how important ithas been in the last three years
to have the United Statesarguing its place and its
theories across the world.
I, the problem with Trump to mewas, to, to cite somebody I
know.
Even a broken clock could beright.
(36:17):
Twice a day.
I think he was right on manythings, but there were just so
much that I don't think that theamount of chaos that was there
from an international pointrelations point of view, I think
is was untenable and notconducive to, to progress on
international relations andpossibly gave people the wrong
impression about.
How the US would react tocertain actions.
(36:38):
But what is my biggest surpriseis how I look less fondly at
Obama's international policy andhow almost optimistic it was.
And I guess my point here isthat my grade coming out in 2016
versus my grade today, lookingback I would be harsher on the
(36:59):
accomplishment on inter, on theinternational stage that the
Obama administration had, if I'monly looking, outside of the
Trump years yeah, no, and Iagree about Obama.
He was at heart a veryconservative.
President in many ways who didnot have a very forceful foreign
policy, and he was not and hegot some big things wrong, like
(37:19):
the Arab Spring speech.
Yeah.
On Biden, B minus.
I know.
Yeah.
It's probably a bit harsh, but Ithink it's I'm also thinking
about while the response toUkraine has been an A or an A
minus I, there was thewithdrawal from Afghanistan.
There's the fact that China'sbrokering piece between Iran and
Saudi Arabia.
(37:40):
And and then I think just weneed to rethink on the, we're
not getting it right in China.
We're too much of what we'redoing is reflexive, fueled by
domestic politics.
And I don't know how I don'tsee, I don't see a great outcome
there.
So that's, those are myconcerns.
But glad to hear you're a, yousee it as a b plus.
(38:03):
Maybe I'm being too harsh.
Harsh.
When it comes time to grade mystudents.
I give them all better thanthat.
But anyway.
But that's funny cuz they wereyour students exactly.
They tell me what I want tohear, which is what I just told
them to say.
Exactly.
Strategy BT works the same.
(38:24):
Okay.
Should we wrap it up?
Yeah, I guess I'll make I'llmake a generalized pitch to
something at Something that Luissaid.
Obviously, we work with a lot ofcompanies and we try to help
them out on, on, on AI stuff, orat least these days, this where
the conversation has gone.
But it's always been there interms of what you do with your
data and how do you present itand all that kinda good stuff.
(38:44):
But what I find fascinating isthat, yeah the right now, the
tools haven't really been built,and I think that tragedy PT is
obviously what's taking all theoxygen out of the room because
it's the one that everybody'sexperience and everybody's
personal experience and colorshow they see the product.
But let's not forget, and Ithink this is the point that the
(39:08):
open AI and then now Bard and alittle bit Microsoft or.
Or providing you these services,either through the website or
through the APIs.
And that's not the mature adequilibrium solution for
companies.
And so I think, and forinstitutions and for governments
and whatever, it is.
Somewhat idiotic that everysingle request out there will go
(39:31):
to, the servers and the, and a,and the trainer model that
exists in, in, in one singleplace from all over the world.
Which is more or less thesolution that both Google and
Open AI have now.
What are the biggest problems?
Is that, You haven't had eitherthe tools or you haven't
democratized enough the idea oftraining your own model inside
companies, but that's reallywhat it is at maturity.
(39:51):
To, to your point, Peter, thequestion we always ask is, how
much of your.
Proprietary data or client datais being fed directly,
indirectly into tragic PTbecause somebody in the
organization is asking aquestion.
And I think that points, I thinkPeter, as you mentioned, many
corporates to go out and putjust a wholesale ban on, on it
(40:12):
until they can figure it out.
The ban itself is messy becausethere probably is not a better
predictor over the next fiveyears of what a middle
management.
Effectiveness is going to have,but their ability to use some of
these tools, whether they bebuilt inside or outside the
organization.
But one of the more importantthings that that everybody has
(40:34):
to get ready for is when you cantalk to your own corporate data
and institutional data andpresent essentially these
solutions inside theorganization, outside the
organization, and how muchthat's going to tear into.
A lot of processes that you seeinside organizations.
Review policy security policiescom, committees.
(40:58):
A lot of decision making hasbeen done in a in a way, which
is, so when we look back at it,10, 15 years from now will look
so antiquated.
And.
My fear to go to circle back tothe thing about Europe is that I
can't figure out whether theregulator or the institutions
(41:19):
are banning it or wanting to banit, simply because it's a
little, it's a little worrisome,which is fun.
Fascinating.
In contrast to all the carboncontrol policies they've put in.
It's hilarious in thatparticular respect how
futuristic you can be on onepoint, but not on another.
I would hope that theyunderstand and that they get
good counsel in how to try touse this just revolutionary way
(41:47):
of looking at all your systems,your governmental systems, your
ministry systems, your businessoperation systems and then the
idea of just banning people andthen putting your head in the
sand I think is gonna be amassive productivity.
Dis destroyer for those whodon't adopt it?
To the extent, yeah.
Just to be clear I did refer, Ithink before this podcast
(42:09):
started to a company that I knowthat banned employees from
using, just banned access tochat G P t.
But the Bard case isn't a ban,it's an unintended consequence
of gdpr, if I understand that.
Agreed, agreed.
Agree.
Yeah.
To me I throw them both in thesame bucket, which is that Yeah,
I know that Google did not want,Google has a strategic problem,
(42:31):
which is that AI takes away alot of what was an extremely
defendable moat for their searchbusiness.
Sure.
And so for them, they need topivot and they need to just hold
onto customers one way oranother.
And the last thing that theywanna do in the middle of trying
to fight that battle is to haveto fight another regulatory
battle.
So they, for them it's justeasier to say, Hey, just throw a
(42:51):
v p N and if you're reallyinterested, going into it that
way and the self regulation, Ithink is even worse to me
because I think that when youthink of these companies, you
want them.
Some of the best and brightestminds are in Europe, or being
trained in Europe or in Europeanclassrooms.
And I think it would behoove theEuropean administration
(43:13):
institutions to think about thata little bit more.
Again, it's, and it's all in thecontext of fragmentation, isn't
it?
One set of re regulations inEurope that's been imposed that
they expected to become a globalstandard.
It has, but now Google's takinga step just to avoid that, and
this is, so we get the splinternet.
Yeah.
Yeah.
We didn't want and if you go andask end users, what do they care
(43:40):
about in their privacy you'd besurprised at the answers.
Yeah.
Yep.
This has been a happy podcast.
Thank you.
Thank you Alex and Luis.
Thank you guys.
Just one question before I go.
25 years ago there was asoftware program that had some
(44:04):
elements of artificialintelligence in it was launched
called Mathematica.
I don't know if you guys everused it.
Yes.
The creator of that program, warfirm, yes.
Has been very active indeveloping artificial
intelligence.
Yes.
Since he became verysignificantly well funded as a
(44:28):
result of the success ofMathematica.
I wonder what makes everybodythink that this time around
we're gonna have any.
Much more significant impact onproductivity than programs like
that had at the, in the past 25years, which is, I think, is
very difficult to measure butdoesn't seem to come up in the
(44:50):
general productivity numbers forthe economy anyways.
So if you don't mind, let's tryto have a conversation the next
time, because it just takes alittle bit more time.
But no, it's a question that Iwould like to 30 seconds for
next time.
Yes, agreed.
Wolfrem was actually one of thevery first plug-ins on chat, g p
t, and he's been quite active.
An interesting guy.
(45:11):
It's a fan.
There's a very good podcast withLex Friedman with Wolfram from a
week ago or two weeks ago, whichis Which I'd encourage you to
listen to.
So I, let's talk about it nexttime.
That's a very interestingsubject, which I'd be happy to
pretend I know something about.
Great, thanks.
Let's talk about it.
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