WEBVTT - Surveillance: Powell Is A Consensus Builder, Ryding Says 0:00:00.080 --> 0:00:13.040 Yeah. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Leye. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:33.960 Bloomberg dot Com, and of course, on the Bloomberg Yeah. So, 0:00:34.040 --> 0:00:36.720 President Donald Trump said he expected your own power to 0:00:36.720 --> 0:00:39.680 be a cheap money FED chairman and lamented to wealthy 0:00:39.720 --> 0:00:43.040 Republican donors at a Hampton's fundraiser this past week that 0:00:43.200 --> 0:00:46.400 his nominee instead has raised interest rates. This according to 0:00:46.479 --> 0:00:50.159 three people who were present in the Hampton's listening to 0:00:50.200 --> 0:00:52.040 the President of the United States. Joining us here in 0:00:52.040 --> 0:00:54.680 New York City. Present with us is John Riding, Anti 0:00:54.760 --> 0:00:57.600 que Economics chief economist and founding partner. Good morning to 0:00:57.600 --> 0:01:00.640 your John, John. I guess the big important is whether 0:01:00.680 --> 0:01:04.640 any of this influences the Federal Reserve. Does it. If 0:01:04.680 --> 0:01:08.200 it does, it's only to be more resolved in getting 0:01:08.200 --> 0:01:11.480 on with the job of renormalizing interest rates. But to 0:01:11.520 --> 0:01:13.200 be honest, the Fed is going to be guided by 0:01:13.200 --> 0:01:17.000 the fact the unemployment rates at three the inflation rate 0:01:17.640 --> 0:01:22.000 is pushing above two uh and that's going to keep 0:01:22.000 --> 0:01:25.399 the Fed on task raising interest rates in September and 0:01:25.880 --> 0:01:29.760 December this year, and I was like spoke with Tom 0:01:29.880 --> 0:01:34.120 and the tv UH in the last hour four more 0:01:34.160 --> 0:01:38.600 times in two thousand nineteen, regardless of what the president said. 0:01:38.640 --> 0:01:41.480 And by the way, there is nothing in h J. 0:01:41.640 --> 0:01:44.560 Pal's background to have led one to believe that he 0:01:44.640 --> 0:01:49.120 was going to be an easy money UM central bank 0:01:49.200 --> 0:01:53.880 head uh and UM. So I don't know. I wasn't 0:01:53.920 --> 0:01:57.080 president in Hampton's. I don't vacation in Hamptons, so I 0:01:57.120 --> 0:01:59.720 can't say what was It wasn't said behind He might 0:01:59.760 --> 0:02:02.680 have been there because Tom King was away Friday and yesterday, 0:02:02.720 --> 0:02:04.280 so maybe Tom, did you make it to the Hampton's? 0:02:04.280 --> 0:02:07.320 Did the temperature went down? Could handle it? Did you? 0:02:07.520 --> 0:02:09.640 Did you get a position in the FX marketing time? 0:02:09.760 --> 0:02:12.600 But no story came out. I mean, that's what's crazy 0:02:12.600 --> 0:02:14.760 about this, right. There were people who were privy to 0:02:14.840 --> 0:02:17.280 some pretty important comments from the President the United States 0:02:17.280 --> 0:02:21.600 and a private setting job, but it doesn't affect policy. 0:02:21.919 --> 0:02:27.320 Mark market moves on headlines, and we have a president 0:02:27.360 --> 0:02:30.160 who can give us more headlines than others from his 0:02:30.360 --> 0:02:35.800 own cell phone. Um. But in the end, as a comeback, 0:02:36.120 --> 0:02:41.800 it's what the FED does uh? And I think ahead, 0:02:41.800 --> 0:02:44.800 please no. I I think that the FED is the 0:02:44.800 --> 0:02:48.760 FED is on task here and will be more truly 0:02:48.880 --> 0:02:51.280 data driven than it comes three or four years ago. 0:02:51.360 --> 0:02:54.240 Then push against the good economists who you agree to 0:02:54.320 --> 0:02:57.440 disagree with on this point, who say it will be 0:02:57.560 --> 0:03:01.080 damaging to raise rates. How do you respond to those 0:03:01.160 --> 0:03:08.079 good and qualified economists. I don't see what the damage. Look, 0:03:08.160 --> 0:03:11.799 we we there's nothing more damaging. Again, you're talking tenurees 0:03:11.840 --> 0:03:15.040 on for the financial crisis and less financial crisis and 0:03:15.080 --> 0:03:17.200 the great recession we went through. And what were the 0:03:17.240 --> 0:03:20.679 origins of that. It wasn't that monetary policy was too 0:03:20.720 --> 0:03:24.160 tight too quickly. It was that monastry policy was far 0:03:24.200 --> 0:03:27.960 too easy for far long in a too likely regulated 0:03:28.720 --> 0:03:34.160 capital market environment. So the thing is that, you know, 0:03:34.200 --> 0:03:38.240 going going back to another famous ahead of the vet, 0:03:39.240 --> 0:03:41.520 the vet's job is to take the punch bowl away 0:03:41.520 --> 0:03:43.760 when just when the party is getting good. And this 0:03:43.840 --> 0:03:46.000 party has been pretty good for a good while, and 0:03:46.040 --> 0:03:49.600 they've only been sort of closing the bar in very 0:03:49.640 --> 0:03:52.640 small stages. And I think that that's what they have 0:03:52.840 --> 0:03:55.960 to continue to do. I think that's what history, doesn't it. 0:03:56.200 --> 0:04:00.400 And when you hear unconventional central banking guide years like 0:04:00.440 --> 0:04:02.760 low interest rates are good, high interest rates caused inflation. 0:04:03.040 --> 0:04:05.960 You're talking about Turkey, you're talking about Venezuela, you're talking 0:04:05.960 --> 0:04:10.080 about Argentina, talking about a very different economics textbook. Um, John, 0:04:10.160 --> 0:04:11.920 I think it's also quite easy to point out and 0:04:11.960 --> 0:04:16.640 maybe the Federal Reserve is still quite accommodative. Absolutely, as 0:04:16.680 --> 0:04:21.200 I said again with Tom before, the short term interest 0:04:21.279 --> 0:04:24.960 rates who below the inflation rate. We have negative real 0:04:25.120 --> 0:04:29.520 interest rates and that is an historical anomaly and one 0:04:29.560 --> 0:04:32.760 that if persisted, would lead to misallocation of capital. And 0:04:32.760 --> 0:04:35.800 it's that misallocation of capital as we had the capital 0:04:35.920 --> 0:04:42.280 misallocated in the in the in the last decade um 0:04:42.320 --> 0:04:45.839 that led to the housing bubble and led to the 0:04:45.960 --> 0:04:48.760 mortgage crisis in the financial Now, this line probably doesn't 0:04:48.800 --> 0:04:51.000 work on the campaign trail, but the yield curve is 0:04:51.040 --> 0:04:54.400 something the FED might respond to. The Atlanta FED President 0:04:54.440 --> 0:04:57.840 Raphael Bostock yesterday claimed that he will not vote for 0:04:57.880 --> 0:05:00.560 anything but that will knowingly invert the curve, and he's 0:05:00.600 --> 0:05:03.800 hopeful that as we move forward he won't be faced 0:05:04.040 --> 0:05:07.640 with that. We seriously face in the prospect that over 0:05:07.640 --> 0:05:09.719 the next couple of meetings, we might see some descent 0:05:09.760 --> 0:05:12.160 at the FED because of whether yield cove is right now, 0:05:12.240 --> 0:05:16.279 yield curve is right now? Look, I suppose that's possible. 0:05:16.400 --> 0:05:22.040 We've had the center at the FED before um in 0:05:22.040 --> 0:05:25.360 in rate hikes last year. But the FED is not 0:05:25.680 --> 0:05:29.240 an innocent actor on the long end of the curve. 0:05:29.360 --> 0:05:34.599 The FED has a massive balance sheet in long term bonds, 0:05:34.600 --> 0:05:38.560 both mortgage bonds and treasury securities that are holding down 0:05:38.640 --> 0:05:43.279 long rates. So I will put the question back, would 0:05:43.320 --> 0:05:48.320 President Bostick want to see a faster wind down of 0:05:48.360 --> 0:05:51.800 the balance sheet or even active sales of long end 0:05:51.920 --> 0:05:55.320 rates which would push interest rates up? As by the way, 0:05:55.360 --> 0:05:59.200 I think will the supply of treasury is that need 0:05:59.279 --> 0:06:02.760 to be issued in order to fund the growing federal deficit? 0:06:02.800 --> 0:06:04.719 And John, let me ask you a slightly technical question 0:06:04.720 --> 0:06:06.479 as well. When the curves should they be looking? Tim 0:06:06.520 --> 0:06:08.560 Dowey of the University of Oregon race this, Does it 0:06:08.600 --> 0:06:10.839 FED funds right out to tends? Is it twos tends? 0:06:11.080 --> 0:06:13.400 What are the FED looking at? Well? When I joined 0:06:13.440 --> 0:06:16.560 the New York Fed in the Fed's expert in that 0:06:16.640 --> 0:06:19.920 area was an economist called Arturo. Yesterday, I worked with him. 0:06:21.120 --> 0:06:25.760 His work was three month te bills to UH ten 0:06:25.839 --> 0:06:31.239 year rates, and that curve is a lot less flat 0:06:31.839 --> 0:06:37.080 than the market popularized two years to ten year curve, 0:06:37.160 --> 0:06:40.640 which is where you know people people tend to look 0:06:41.000 --> 0:06:44.279 but but I think FED fund not FED fund, but 0:06:44.279 --> 0:06:46.479 it's pretty much same thing. Three month bills to ten 0:06:46.560 --> 0:06:51.920 years is where the FEDS research points within within this 0:06:52.200 --> 0:06:56.560 is I guess the people behind German Powell, as you mentioned, 0:06:56.600 --> 0:06:59.240 he's a pragmatist, but at the same time he's not 0:06:59.360 --> 0:07:02.400 an account This line up the governors right now and 0:07:02.400 --> 0:07:06.760 now they will defend this chairman. Well, I I think 0:07:07.480 --> 0:07:11.520 you know j. Pau By by training, you know, is 0:07:11.560 --> 0:07:14.320 a lawyer, is a capital markets guy. I have to 0:07:14.360 --> 0:07:20.560 say that he assimilates and understands research in a way 0:07:21.160 --> 0:07:25.400 um that you know might surprise economists and say, well 0:07:25.440 --> 0:07:27.120 if you don't have a page, so you don't have this, 0:07:27.600 --> 0:07:29.480 you know, how can you get it? He? I mean 0:07:29.520 --> 0:07:32.920 he gets it um uh. And I think he is 0:07:32.960 --> 0:07:38.080 a consensus builder. And I don't think that in terms 0:07:38.080 --> 0:07:41.120 of the governors of the FED, who are all too 0:07:41.280 --> 0:07:45.080 few compared to the seven governors that the FED is 0:07:45.120 --> 0:07:50.960 supposed to have. Uh, they there's no um that that 0:07:51.120 --> 0:07:54.640 all of them would be back. John Bran j Pa 0:07:54.920 --> 0:07:57.880 Good to see It, Q Economics, Chief Economists and found 0:07:57.920 --> 0:08:16.160 in Karna. He is the author of Securities Regulation Cases 0:08:16.160 --> 0:08:20.440 of Materials Edition. John Ferrell read that cover to cover. 0:08:21.400 --> 0:08:26.920 He is the most cited lawyer on entrepreneurial and corporate affairs. 0:08:27.320 --> 0:08:30.120 Of course he is John Coffee. There is only one 0:08:31.040 --> 0:08:34.120 of Columbia Law School, and we are honored. The Professor 0:08:34.160 --> 0:08:38.880 Coffee joins us this morning on Professor Musk. John Coffee, 0:08:38.920 --> 0:08:41.920 if you were advising Elon Musk this morning, what would 0:08:41.920 --> 0:08:45.120 you say to him? Well, he needs to reach an 0:08:45.120 --> 0:08:47.480 agreement with his board, and he needs to reach an 0:08:47.520 --> 0:08:51.480 agreement with the SEC, and he needs very much to 0:08:51.600 --> 0:08:56.160 shrink his shareholder base. To do a going private transaction. 0:08:56.440 --> 0:08:59.360 He has to get the number of shareholders a record 0:08:59.360 --> 0:09:04.640 of Tesla below three. Currently they're around one thousand, one 0:09:04.679 --> 0:09:08.760 hundred and fifties. So it's a shrink that's gonna be 0:09:08.880 --> 0:09:13.559 hard to do. Uh. Simultaneously, he can't do this transaction 0:09:13.679 --> 0:09:16.280 if the SEC is suing him, and I think with 0:09:16.400 --> 0:09:19.680 the SEC really watching him, which he probably should give 0:09:19.720 --> 0:09:23.320 without a fight, is some kind of an agreement about 0:09:23.320 --> 0:09:26.600 how he will make future statements about the company and 0:09:26.720 --> 0:09:30.280 this proposed transaction. Thus, I think the SEC is going 0:09:30.280 --> 0:09:33.400 to insist that you enter an agreement that you won't 0:09:33.480 --> 0:09:37.040 make further statements on Twitter without at least first clearing 0:09:37.120 --> 0:09:41.240 them with your general counsel on the board. Okay, John, 0:09:41.320 --> 0:09:44.080 and you're in your classroom and you mentioned Netflix and 0:09:44.080 --> 0:09:47.800 the re Hastings rule. We're gonna make original law here 0:09:47.840 --> 0:09:50.439 to come out. Are we going to make an original 0:09:50.520 --> 0:09:55.360 law that treats technology companies like industrial companies? Or is 0:09:55.440 --> 0:09:58.480 technology gonna have an asterisk where they have a different 0:09:59.000 --> 0:10:03.559 securities and regulation process. I think investors are the same 0:10:03.679 --> 0:10:07.680 investors invest in both kinds of companies, and investors want 0:10:08.040 --> 0:10:12.319 full information. Twitter statement, limited as it is to something 0:10:12.360 --> 0:10:16.000 like a hundred and fourteen letters, really can't explain the complexity. 0:10:16.400 --> 0:10:21.440 And his statement that funding was secured was extreme overstatement, 0:10:21.760 --> 0:10:24.520 and it's partly the product of having to compress what 0:10:24.600 --> 0:10:28.120 he was saying to a tiny number of letters. Thus, 0:10:28.160 --> 0:10:30.920 I think you need to make a fuller statement and 0:10:30.960 --> 0:10:34.960 then add your social media statements afterwards, but start out 0:10:35.040 --> 0:10:38.040 with something that you disclosed to the SEC, to the 0:10:38.040 --> 0:10:41.520 market generally and in a corporate press release. So, Professor, 0:10:41.559 --> 0:10:43.880 there is a difference, of course between best practice, which 0:10:43.920 --> 0:10:46.680 is something you've just described, and something that is legally 0:10:46.720 --> 0:10:50.640 required and something that would be against SEC roles. You've 0:10:50.640 --> 0:10:53.160 served as a member on the SEC Advisory Committee, and 0:10:53.200 --> 0:10:55.680 I'm interested, Professor, as to whether you would be telling 0:10:55.720 --> 0:11:00.760 them that actually they need to rethink disclosures on social media. Well, 0:11:00.800 --> 0:11:04.120 I think social media is useful. No one wants to 0:11:04.200 --> 0:11:07.520 keep it off of social media, but that's not inconsistent 0:11:07.600 --> 0:11:11.640 with having simultaneous statements. Make your statement on social media 0:11:11.679 --> 0:11:13.960 to that audience, but the rest of the market, not 0:11:14.080 --> 0:11:16.959 all of which goes to social media, is entitled to 0:11:17.080 --> 0:11:19.959 some disclosure that's filed with the SEC and a formate 0:11:20.040 --> 0:11:23.200 K or something that's put on the corporation's website where 0:11:23.200 --> 0:11:27.160 everyone knows they can go. A selective disclosure is problematic. 0:11:28.080 --> 0:11:30.280 What should the board do? And the board is made 0:11:30.320 --> 0:11:32.600 up of different principles. Let me start with the most 0:11:32.640 --> 0:11:35.400 visible member to the audience, and that is Mr Murdoch. 0:11:35.880 --> 0:11:40.160 James Murdoch, of course affiliated with Fox and perhaps Disney. 0:11:40.200 --> 0:11:44.240 How should a board member like James Murdoch act and 0:11:44.280 --> 0:11:47.080 react to all of this? Well, of course, there is 0:11:47.120 --> 0:11:50.199 a committee that doesn't include him. They've appointed a committee 0:11:50.200 --> 0:11:53.559 to engage in valuing the company, and I think everyone 0:11:53.600 --> 0:11:56.200 should be focused on the need to come up with 0:11:56.240 --> 0:11:59.839 an independent investment banker and an independent law firm that 0:12:00.040 --> 0:12:03.360 helps this committee decide with the fair value the company is. 0:12:03.800 --> 0:12:08.000 The price cannot be four dollars just because Mr Musk 0:12:08.080 --> 0:12:11.240 said that. The company has got to sit down and 0:12:11.320 --> 0:12:15.000 evaluate their current value, looking at all the current factors 0:12:15.080 --> 0:12:19.360 and looking at professional help and investment vanking firm. Once 0:12:19.400 --> 0:12:22.160 they do that, they might well decide they're worth more 0:12:22.640 --> 0:12:26.880 because the premium that Musk was offering was only and frankly, 0:12:27.040 --> 0:12:31.400 most going private transactions see something like a thirty premium. John, 0:12:31.440 --> 0:12:34.080 what's the Bard's duty to investors right now after the 0:12:34.120 --> 0:12:37.520 interview of The New York Times, Well, I think right 0:12:37.559 --> 0:12:40.360 now the company has so many problems with their burn 0:12:40.480 --> 0:12:43.280 rate on cash flow that they've got to make sure 0:12:43.400 --> 0:12:47.160 they can communicate clearly that they are viable, that they 0:12:47.160 --> 0:12:50.720 are not burning money at such a negative cash flow 0:12:50.960 --> 0:12:53.480 that they can't afford to issue new debt. They already 0:12:53.520 --> 0:12:56.520 have ten billion of dead outstandings, and the idea that 0:12:56.559 --> 0:12:59.600 you can triple that um is something of a fantasy 0:13:00.040 --> 0:13:02.599 us joining us or without question or interview of the 0:13:02.679 --> 0:13:05.319 day on equities and Tesla and corporate governance. He is 0:13:05.400 --> 0:13:09.480 John Coffee of Columbia Law School. They're bro Professor of Law, 0:13:09.800 --> 0:13:14.800 director of their Center on Corporate Governance. Within the board, 0:13:15.520 --> 0:13:17.960 I guess it's a it's a smaller, more focused board, 0:13:18.000 --> 0:13:21.000 and I guess it's friends of Elon is a board? 0:13:21.080 --> 0:13:23.719 Are they getting enough advice now? And how does the 0:13:23.840 --> 0:13:28.680 board interact with their independent law firm? Well, they need 0:13:28.679 --> 0:13:32.160 to choose the independent law firm. They apparently have one. 0:13:32.320 --> 0:13:34.520 They really got two law firms because they got one 0:13:34.559 --> 0:13:38.800 handling the possible litigation and another dealing with the valuing 0:13:38.840 --> 0:13:42.840 the company. But the committee needs both an independent investsel 0:13:42.880 --> 0:13:46.240 banker and independent law firm that will be there focused 0:13:46.240 --> 0:13:49.280 on what is the fair value of this company today? 0:13:49.360 --> 0:13:51.480 What do we need to know and how do we 0:13:51.559 --> 0:13:54.840 negotiate with Mr Musk? Because it is not their job 0:13:55.000 --> 0:13:57.240 to sit down and say yes to Mr Musk. It 0:13:57.360 --> 0:14:00.439 is their job to say the fair value of this company, 0:14:00.480 --> 0:14:02.839 given all the different range of options in front of us, 0:14:03.160 --> 0:14:05.600 is at least X, and therefore we want you to 0:14:05.640 --> 0:14:10.400 improve your offer is this board independent of Elon Musk? John? Again, 0:14:10.640 --> 0:14:13.320 is this board independent of Elon Musk? Well, I must 0:14:13.360 --> 0:14:16.600 say that they have more relationships with him over a 0:14:16.640 --> 0:14:18.760 twenty year career than any other board I can think 0:14:18.800 --> 0:14:22.680 of right away. It's kind of an incestuous relationship because 0:14:23.320 --> 0:14:26.800 people even on the committee have previously been employees and 0:14:26.920 --> 0:14:30.520 Mr Musk and other firms. What would you do that? 0:14:30.680 --> 0:14:33.760 I mean, what what would be the John Coffee action 0:14:33.880 --> 0:14:35.440 for this board? I mean, they're going through all the 0:14:35.520 --> 0:14:38.480 right things, I get that, but what is the next 0:14:38.520 --> 0:14:42.520 creative step for a board to get control of an 0:14:42.640 --> 0:14:47.400 uncontrollable founder slash ceo? Well, I think the first thing 0:14:47.440 --> 0:14:50.520 would be to establish a protocol. You will make no 0:14:50.880 --> 0:14:55.120 more statements about the company or this transaction without first 0:14:55.160 --> 0:14:58.360 having them cleared by our general Council and by the 0:14:58.480 --> 0:15:01.320 law firm representing the in the committee. We want to 0:15:01.320 --> 0:15:04.880 make sure we don't get an obligation to fight off 0:15:05.040 --> 0:15:08.520 sec and private losses because you are too impulsive and 0:15:08.600 --> 0:15:13.680 saying things too quickly and too glibly. What will be 0:15:13.760 --> 0:15:17.240 the lasting impact on this and Silicon Valley? I mean, 0:15:17.280 --> 0:15:19.880 I know Tessa is unique, but we've had a few 0:15:19.880 --> 0:15:24.000 other entrepreneurial tech types feeling like they play with their 0:15:24.000 --> 0:15:27.920 own record. Bug. I'm afraid that that all depends on 0:15:27.960 --> 0:15:30.360 whether this is a success or a failure. This is 0:15:30.400 --> 0:15:34.840 still to be resolved. Drama every day Like a kaleidoscope. 0:15:34.880 --> 0:15:37.120 This changes in terms of whether people have losses or 0:15:37.160 --> 0:15:39.680 they have gains, whether the burn rate is so high 0:15:39.720 --> 0:15:42.480 nothing seems feasible, or whether the board should be seeking 0:15:42.520 --> 0:15:46.720 more than This has to play out, And I think 0:15:47.160 --> 0:15:49.920 settling with the sec so that you no longer have 0:15:50.080 --> 0:15:53.880 them over your shoulder and putting a cloud in transaction 0:15:54.240 --> 0:15:58.320 and then coming up with evaluation that you're comfortable with 0:15:58.720 --> 0:16:01.360 and that can't be just we're going to do with 0:16:01.520 --> 0:16:05.240 Mr musk Off. John Coffee, author of Entrepreneurial Litigation. It's 0:16:05.360 --> 0:16:08.760 Rise Fall in Future out a few years ago, of 0:16:08.800 --> 0:16:24.080 course at Columbia Law School, thrilled to bring you Professor Coffee, 0:16:25.840 --> 0:16:28.160 Foreign Affairs with a new issue out, and of course 0:16:28.200 --> 0:16:31.800 this September issue is always an important event, but never 0:16:31.920 --> 0:16:36.080 more important than their new issue. Why because you and 0:16:36.200 --> 0:16:39.680 me we are so dumb about the modern Internet. In 0:16:39.760 --> 0:16:43.240 the modern web, the book is the magazine rather is 0:16:43.240 --> 0:16:47.200 the World War Web. And it is absolutely brilliant cover 0:16:47.280 --> 0:16:51.240 to cover on stuff we don't know with this, Gideon Rose, 0:16:51.480 --> 0:16:54.720 he is, of course the editor in chief of Foreigners. Gideon, 0:16:54.840 --> 0:16:57.720 congratulations on this. Let me get right to it. The 0:16:57.760 --> 0:17:01.360 Internet has lost its promise to gus, so thank you 0:17:01.440 --> 0:17:04.840 very much for your kind words about the issue. UM. Basically, 0:17:05.280 --> 0:17:07.399 think of this as a four act play. In the 0:17:07.440 --> 0:17:11.159 first act, the United States Government creates the fundamentals of 0:17:11.200 --> 0:17:15.000 what will now call the Internet, UH, the communications networks, 0:17:15.000 --> 0:17:18.520 the Defense Department stuff, all that. In Act to the 0:17:18.560 --> 0:17:22.000 United States Government pairs with and partners with the private 0:17:22.040 --> 0:17:25.480 sector to develop. This makes it the infrastructure generally public 0:17:25.680 --> 0:17:28.800 and then allows private sector actors to develop all sort 0:17:28.840 --> 0:17:31.080 of applications so forth. This is the golden age of 0:17:31.119 --> 0:17:34.240 the Internet, the nineteen nineties. Things like that. Act three, 0:17:35.040 --> 0:17:38.200 this starts to pray because the system goes on autopilot. 0:17:38.560 --> 0:17:42.120 And what happens is the large private tech companies UH 0:17:42.359 --> 0:17:45.359 take over large course portions of the Internet and become 0:17:45.400 --> 0:17:48.040 a sort of oligopoly running things on their own. Government 0:17:48.080 --> 0:17:51.600 regulators really don't really get involved, and the Internet takes 0:17:51.600 --> 0:17:54.680 on its own life. And during chapter three, Act three, 0:17:55.400 --> 0:17:58.199 various people start to push back against the problems with 0:17:58.240 --> 0:18:01.280 the Internet. The Chinese try to succeed in a cyber 0:18:01.320 --> 0:18:03.840 sovereignty in their own sphere. The Europeans try to do 0:18:03.920 --> 0:18:07.800 regulation with gdp R, the Indians trying to build a 0:18:07.800 --> 0:18:11.080 new Internet from the ground up on more populist public 0:18:11.119 --> 0:18:15.000 good UH bases, and the Americans sit around wondering, g 0:18:15.240 --> 0:18:18.960 can we control the tech companies? But Americans are so 0:18:19.440 --> 0:18:23.080 embedded in an Anglo American view of liberal capitalism, in 0:18:23.119 --> 0:18:26.320 which the government lets the private sector do its stuff, 0:18:26.800 --> 0:18:31.440 that American policy has allowed the Internet to create problems, 0:18:31.680 --> 0:18:35.440 and now other people are stepping in to fix the problems. Explained, 0:18:35.520 --> 0:18:38.240 then who has the power here is? You go chapter 0:18:38.320 --> 0:18:41.919 by chapter brilliantly. Is it China or the power or 0:18:42.000 --> 0:18:45.800 is it a European regulatory structure. So the great question 0:18:46.080 --> 0:18:48.960 is we don't know who's going to have the power 0:18:48.960 --> 0:18:51.639 and act for because what happened in Act one and 0:18:51.680 --> 0:18:54.399 two was the U. S Government created the infrastructure and 0:18:54.440 --> 0:18:56.520 turned it over to the private sector to help run. 0:18:56.760 --> 0:18:58.959 And in Act three we ended up getting a lot 0:18:58.960 --> 0:19:02.159 of pushback. And right now you have governments like China, 0:19:02.480 --> 0:19:06.119 you have regional regulators like those in Europe, you have 0:19:06.240 --> 0:19:09.480 private sector companies like big tech. You have the citizens 0:19:09.480 --> 0:19:12.359 in general and you and you. Nobody knows who is 0:19:12.400 --> 0:19:17.000 going to control the commanding heights of the digital economy, 0:19:17.160 --> 0:19:19.680 like for example, data regulation. Who is going to get 0:19:19.680 --> 0:19:22.960 to keep and control and monetize the data, the individuals, 0:19:23.000 --> 0:19:25.639 the companies, the government. You mentioned commanding heights, which is 0:19:25.680 --> 0:19:28.359 of course Daniel Jurgan in his classic book on the 0:19:28.440 --> 0:19:32.120 nineteenth to the twentieth century capitalism, there were two wars 0:19:32.200 --> 0:19:35.439 in the middle of Dan Jurgen's commanding heights. What's going 0:19:35.520 --> 0:19:40.480 to be the warfare equivalent of this technology in our society? 0:19:40.560 --> 0:19:42.439 So it's not going to be warfare in terms of 0:19:42.480 --> 0:19:48.280 geopolitical conflict between uh the major powers. What's going to 0:19:48.400 --> 0:19:54.080 happen is there was a common American sponsored liberal open 0:19:54.240 --> 0:19:58.120 order of the Internet, somewhat parallel to the globalization order, 0:19:58.400 --> 0:20:02.119 and American officials moved that forward to get all the benefits. 0:20:02.240 --> 0:20:05.440 But they forgot that the destruction. Part of creative destruction 0:20:05.720 --> 0:20:09.200 creates pushback and people resist. And what you're seeing now 0:20:09.240 --> 0:20:12.320 in China, in Europe, in India, even in the US, 0:20:12.720 --> 0:20:17.240 is people reacting against an unfettered private tech or dominated internet. 0:20:17.520 --> 0:20:20.200 But no one knows how to re establish control because 0:20:20.200 --> 0:20:22.320 you don't want to kill the goose that's laying the 0:20:22.320 --> 0:20:24.919 golden eggs. So what's happening right now is a question 0:20:25.000 --> 0:20:28.760 over the future control of the Internet. It's not necessarily 0:20:28.840 --> 0:20:30.920 just gonna be what it was in the last couple 0:20:31.000 --> 0:20:34.320 of decades, which is the United States debating whether or 0:20:34.320 --> 0:20:36.840 not to allow tech companies to have control over things. 0:20:37.040 --> 0:20:40.119 Now other global players are in fact going to be 0:20:41.160 --> 0:20:43.720 the news. Just in the last twenty four hours, Apple 0:20:43.960 --> 0:20:46.720 limit x number of apps to China. I mean within 0:20:46.800 --> 0:20:50.720 your chapter on China. They're making the rules were not 0:20:50.880 --> 0:20:55.160 and even Tim Cook, chief operating officer of Tesla Bound 0:20:55.359 --> 0:20:57.879 Tim Cook asked to bow to China. So what I 0:20:57.880 --> 0:20:59.560 feel about this is it's a little bit like the 0:20:59.600 --> 0:21:03.800 econom nationalism in other areas that we're seeing right. Globalization 0:21:03.920 --> 0:21:06.639 races forward, it produces lots of wonderful things, lots of 0:21:06.640 --> 0:21:10.159 creative destruction and turmoil, but it also produces pushback and 0:21:10.359 --> 0:21:14.000 problems for people inside major developed Western countries, which causes 0:21:14.040 --> 0:21:16.359 them to want to put breaks in the process. Okay, 0:21:16.480 --> 0:21:19.360 the fact is the Chinese are doing the same thing 0:21:19.640 --> 0:21:24.440 with the Internet, and just like American economic nationalists and 0:21:24.520 --> 0:21:28.720 populists and British ones and places elsewhere want to hive 0:21:28.800 --> 0:21:32.560 off their economies from the globe and establish sovereignty. So 0:21:32.840 --> 0:21:34.680 the Chinese are trying to do the same thing for 0:21:34.720 --> 0:21:38.919 the Internet, right, But we're talking about two different different things, right. 0:21:38.960 --> 0:21:41.560 Getting on the one side, it's like cybersecurity and and 0:21:41.640 --> 0:21:44.520 I guess you know, the cyber race on who will 0:21:44.560 --> 0:21:47.320 have supremacy between China and the US. The other one 0:21:47.920 --> 0:21:50.800 is simply who is in the third act? It could 0:21:50.800 --> 0:21:53.480 be regulators, right, and this is Europe. Europe as leading 0:21:53.480 --> 0:21:55.560 the forefront regulation. I know Tom in the past has 0:21:55.560 --> 0:21:58.040 pushed back against it, but when it comes to data protection, 0:21:58.520 --> 0:22:01.639 these are the new p full in town. Yes, but 0:22:01.880 --> 0:22:05.520 it's actually there are several competitors trying to do the 0:22:05.600 --> 0:22:08.720 same thing, and we don't know which way of controlling 0:22:08.920 --> 0:22:12.200 the problems is going to win out. The European approach 0:22:12.560 --> 0:22:16.520 is regulation for the whole system, Okay. The Chinese approaches 0:22:16.720 --> 0:22:20.919 secession from the system cyber sovereignty. Eventually, the goal of 0:22:20.920 --> 0:22:24.120 that is to create essentially a Splinternet in which there's 0:22:24.160 --> 0:22:26.600 a general public Internet. But the Chinese have built their 0:22:26.600 --> 0:22:30.280 own platforms, their own system and twenty years. In effect, 0:22:30.359 --> 0:22:32.680 it will be much more of a Chinese dominated Internet 0:22:32.800 --> 0:22:35.919 than UH than American dominated one. The Indians want to 0:22:35.920 --> 0:22:38.320 re engineer the whole thing from the ground up. Fascinating. 0:22:38.359 --> 0:22:43.000 Our article by Nanda Nilakani UH from Emphasis about what 0:22:43.080 --> 0:22:45.800 the Indians are doing in Internet policy maybe the most 0:22:45.880 --> 0:22:48.680 impressive and interesting of all of the different approaches, even 0:22:48.680 --> 0:22:50.760 though we don't hear much about it, and basically in 0:22:50.760 --> 0:22:53.320 the United States we're still wondering what to do because 0:22:53.320 --> 0:22:58.919 we don't basically have the conceptual ability to direct companies 0:22:58.960 --> 0:23:02.000 the way the government wants. And so for the public 0:23:02.040 --> 0:23:06.359 ones talking about regulation because there's a great, great, great 0:23:06.480 --> 0:23:10.680 article in the latest edition of Foreign Affairs written by 0:23:10.800 --> 0:23:16.280 Helen Dixon saying regulate to liberate? Can Europe save the Internet? Cannet? Well, 0:23:16.320 --> 0:23:18.439 so this is the great question. We tried to present 0:23:18.560 --> 0:23:22.040 a fair picture of this whole, big debate that's going 0:23:22.080 --> 0:23:24.080 forward on the future. So the lead piece in the 0:23:24.119 --> 0:23:27.280 packages by Adam Siegel talking about the transition of power 0:23:27.280 --> 0:23:30.360 from the United States to China. Helen Dixon's article expresses 0:23:30.359 --> 0:23:32.480 the European approach, which is, no, we doesn't have to 0:23:32.520 --> 0:23:34.760 be the U s approach or the Chinese separate one 0:23:34.920 --> 0:23:37.600 we can regulate it. Non Da Nilakani talks about the 0:23:37.600 --> 0:23:39.879 Indian one. We also have a number of different pieces 0:23:39.880 --> 0:23:42.679 on specific challenges of cybersecurity. You should look at the 0:23:42.720 --> 0:23:45.920 European approach, the Chinese approach, the Indian approach, and the 0:23:46.000 --> 0:23:49.600 American approach as variants of the same thing. Now that 0:23:49.680 --> 0:23:54.240 we've unleashed the wonderful creative destruction of digital technology, how 0:23:54.240 --> 0:23:56.560 do we keep it going forward in a positive way 0:23:56.560 --> 0:23:59.720 while controlling the social and political effects of all this 0:23:59.760 --> 0:24:04.000 creative destruction? But with these nations ever come together get 0:24:04.000 --> 0:24:05.800 in I don't know whether it's a plaza chord for 0:24:05.840 --> 0:24:08.000