WEBVTT - Former Treasury Secretary Robert Rubin Talks Tariffs

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>I'm not saying that's the case. Now. These markets may

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<v Speaker 2>go on forever. Maybe we finally found Arouna. But I'll

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<v Speaker 2>tell you my view of whatever it's worth. I think

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<v Speaker 2>one has to think very carefully about what you think

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<v Speaker 2>the risks, quire what do you think the rewards are,

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<v Speaker 2>and try to make reasonable judgments. And I'm not protecting

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<v Speaker 2>it in any way what the markets are going to do.

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<v Speaker 2>I'm just going to say that I think that the

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<v Speaker 2>risks are enormous, and I think, I guess I do

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<v Speaker 2>think I do think that's not I guess I do

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<v Speaker 2>think that the markets don't properly wait.

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<v Speaker 1>Those So let's talk about some of the specific risks people.

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<v Speaker 1>When the tariffs were announced on Liberation Day, April second,

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<v Speaker 1>there was this feeling that business would collapse.

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<v Speaker 2>It wasn't my view, but go ahead.

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<v Speaker 1>Well, why has the market been so surprised? Why have

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<v Speaker 1>companies been so surprised themselves? CEOs I talk to say,

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<v Speaker 1>we've been shocked that things kind of keep going.

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<v Speaker 2>I mean, lista, they may keep I think the tariffs

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<v Speaker 2>are extremely unwise. I think open trade has served our

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<v Speaker 2>country extremely well over many many, many, many decades. I

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<v Speaker 2>do think that some caveats to that. I do think

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<v Speaker 2>you need to protect supply change when they have their

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<v Speaker 2>security or economic security dimensions through subsidies or trade restrictions.

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<v Speaker 2>But having said that, beyond that, I think open trade

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<v Speaker 2>has served us extremely well. I think tariffs will hurt

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<v Speaker 2>us in terms of growth, and I think it's a

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<v Speaker 2>one time increasing in costs. It's not it's not in

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<v Speaker 2>that sense, it's not inflation, but it is a one

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<v Speaker 2>time increasing costs. Costs to our producers will go up.

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<v Speaker 2>That decreases their efficiency and competitiveness. It could lead I've

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<v Speaker 2>never forgotten something poor Boker said to me. You said

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<v Speaker 2>that inflation can take on a life of its own,

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<v Speaker 2>and of course that was a reference inflation expectations. Maybe

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<v Speaker 2>and maybe not. The tariffs could create a set of

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<v Speaker 2>inflation expectations and it could lead to inflation. But whether

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<v Speaker 2>it does or it doesn't, it almost surely will adverse

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<v Speaker 2>the effect growth. But I for one, never thought it

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<v Speaker 2>was gonna have an immediate impact. But I thought that

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<v Speaker 2>the risk was over time. And I think that's the risk.

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<v Speaker 2>And if you speak to CEOs, and you know in

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<v Speaker 2>our firm, we do a lot of that. We have

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<v Speaker 2>an immense business dealing with basically large corporate America. I

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<v Speaker 2>think most CEOs, virtual CEOs. I think they're going to

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<v Speaker 2>be passing on a lot of this in terms of prices,

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<v Speaker 2>So cost to consumers will go up, and cost to

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<v Speaker 2>producers who we're importing excuse me, and components will be

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<v Speaker 2>going up.

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<v Speaker 1>What's fascinating is when the tariffs were announced, people thought

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<v Speaker 1>that it would be really bond negative because inflation would

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<v Speaker 1>go up and you would see sort of this sagflation

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<v Speaker 1>like kind of environment, and so bonds would be in

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<v Speaker 1>a sort of quagmire, as would the FED, as would

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<v Speaker 1>the rest of policymakers. Instead, tariffs are now treated as

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<v Speaker 1>a positive because they are a revenue boost that will

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<v Speaker 1>offset any deficit spend day. I could tell you agree

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<v Speaker 1>with that.

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<v Speaker 2>So I only disagreement because it's wrong, but go ahead.

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<v Speaker 1>Well, so I'm just curious you know where this is

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<v Speaker 1>getting miss understood?

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<v Speaker 2>Well, the l Budget Lab, which is terrifically reliable and

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<v Speaker 2>sensible about budget about the fiscal matters. I asked her

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<v Speaker 2>the other day that one runs at Taja Sarenders, who's

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<v Speaker 2>tended Professor Yale and terrific. Was it a PhD in economics?

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<v Speaker 2>She told me that she suspects, she thinks that revenues

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<v Speaker 2>will be about two point maybe twoing eighty billion a

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<v Speaker 2>year or some number like that, which is and then

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<v Speaker 2>and that's before the adverse effects on growth and retaliation.

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<v Speaker 2>We take it all into account, maybe two hundred it's

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<v Speaker 2>a very small fraction of our deficits. This is not

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<v Speaker 2>going to be a fiscal response, and you're paying a

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<v Speaker 2>price for it. In terms of I said, a moment

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<v Speaker 2>ago risks to growth and at least I think the

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<v Speaker 2>possible will certainly higher costs to consumers and the producers

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<v Speaker 2>and possibly triggering inflationary expectations. What is it? The terriff

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<v Speaker 2>is assuming that it gets passed on, which I if

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<v Speaker 2>you talk to our clients, I think we're all this

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<v Speaker 2>is going to get passed on over time. It's a

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<v Speaker 2>regressive tax, and it's a regressive tax which has adverse

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<v Speaker 2>effects on growth and as I say, a moment ago

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<v Speaker 2>on inflation.

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<v Speaker 1>So I'm trying to pair this with the idea that

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<v Speaker 1>we're seeing mergers and acquisitions accelerate. We hear a growing

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<v Speaker 1>number of companies talk about in corporate executives, a reacceleration

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<v Speaker 1>in the consumer. How do these two things go together.

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<v Speaker 2>I don't think it's complicated. When I was at Gobenzachs,

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<v Speaker 2>we had the economists that we had terrific people strategies.

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<v Speaker 2>They were always tell me what they thought was going

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<v Speaker 2>to happen in the short term, and I would always say,

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<v Speaker 2>you're very nice people, and I think that's nice for

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<v Speaker 2>you to do, and our clients are interested, so you

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<v Speaker 2>should do that. But I myself wouldn't raise my decisions

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<v Speaker 2>on them things short terms and short term effects. Least

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<v Speaker 2>it could be whatever they're going to be. The question

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<v Speaker 2>is what's going to happen over time? And I think

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<v Speaker 2>over time for the reasons I've said, I think tariffs

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<v Speaker 2>are very substantial negative and I think the open traders

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<v Speaker 2>serve with the caveats that I mentioned, I think open

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<v Speaker 2>traders served us very well.

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<v Speaker 1>How much are companies rethinking their US footprint in a

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<v Speaker 1>new kind of way.

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<v Speaker 2>Well my impression, and I get this largely speaking, I

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<v Speaker 2>don't speak to many companies myself. Our people are just

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<v Speaker 2>enormously plugged into corporate America. And I also have three

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<v Speaker 2>advisory relationships with pretty substantial investment. I guess you call

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<v Speaker 2>them funds. I think a lot of people are rethinking

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<v Speaker 2>how much they want to be allocated in the United States.

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<v Speaker 2>And you see it a little bit by the way

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<v Speaker 2>the dollar. The dollar has after all suffered through this thing.

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<v Speaker 2>I don't think too much of it has happened so far,

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<v Speaker 2>but I think at the risks that we're taking, and

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<v Speaker 2>I think, what's so sad to me? At least if

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<v Speaker 2>we have such tremendous strengths, that so many advantages, and

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<v Speaker 2>I think the damage we're doing is very substantial. Attacking

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<v Speaker 2>our research, attacking science and basic research, attacking our universities.

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<v Speaker 2>Immigration policy that makes no sense whatsoever. We should have

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<v Speaker 2>an economic We should have economic particularly, we should have

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<v Speaker 2>immigration that serves our economic needs. And then we should

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<v Speaker 2>have at least, in my opinion, measures to deal with

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<v Speaker 2>the currently undocumented people so they can become a are

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<v Speaker 2>part of our economy. And if they're obviously doing adverse

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<v Speaker 2>things or criminal, I think that's a different matter. They

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<v Speaker 2>can we continue to prosper in our economy eventually becomes citizens.

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<v Speaker 2>There's so much that we can do, but we're doing

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<v Speaker 2>the opposite of all these things.

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<v Speaker 1>There is this feeling and we're seeing this in the

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<v Speaker 1>political sphere, And as someone who is in the Clinton

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<v Speaker 1>administration when globalization was really taking off, I'm wondering what

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<v Speaker 1>your perspective is on how the story of globalization is

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<v Speaker 1>being told now and that a lot of people are

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<v Speaker 1>saying there were a lot of people left behind and

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<v Speaker 1>that there are some things that need to be done

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<v Speaker 1>to remedy that.

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<v Speaker 2>I totally agree with that. When President Clinton announced NAFTA

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<v Speaker 2>in the East Room, I totally agree with that, Lisa,

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<v Speaker 2>one of the things he's but I think the wrong

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<v Speaker 2>conclusion is therefore, let's not open trading markets. I think

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<v Speaker 2>the right conclusion is, let's do at President Clinton talked

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<v Speaker 2>about when he announced NAFTA, but that we never were

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<v Speaker 2>able to do politically. We lost control of the Congress

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<v Speaker 2>and we lost the ability to do it, and that

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<v Speaker 2>is have in place retraining, social safety nets, are greatly increased,

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<v Speaker 2>earn income tax credit so that people with low incomes

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<v Speaker 2>will have higher incomes and have all that to deal

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<v Speaker 2>with job losses. And as much as that is a

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<v Speaker 2>fun a problem with spector trade AI in my opinion,

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<v Speaker 2>and you all have your own views, so we probably

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<v Speaker 2>know ick a lot more about and I do, but

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<v Speaker 2>I say I'm thinking horror for the last two years

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<v Speaker 2>twice a week, so I kind of know something about it.

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<v Speaker 2>I think that the potential for job loss is very substantial.

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<v Speaker 2>And so as much as we needed that kind of

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<v Speaker 2>an adjustment set of programs to deal with trade, and

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<v Speaker 2>we did need that at least absolutely, and we don't

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<v Speaker 2>have it, I think we're going to need even more

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<v Speaker 2>to deal with AI, which.

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<v Speaker 1>Is something that we're not hearing as much about as

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<v Speaker 1>a lot of people think.

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<v Speaker 2>There's no it's not part of the political dialogue, and

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<v Speaker 2>it should be. Look, our political system is in terrible shape.

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<v Speaker 2>And that's not a partisan comment, though I do think

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<v Speaker 2>Trump is doing just immense damage to our country. It

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<v Speaker 2>was econopologies and actions, but in neither party we talk

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<v Speaker 2>about a lot of what we need to talk about,

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<v Speaker 2>and one of the things we need to do is

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<v Speaker 2>to do exactly what I just said, But there's no

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<v Speaker 2>political ability to get not a lot of political focus

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<v Speaker 2>on it, and really no political ability to get it done.

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<v Speaker 1>Given the footprint that you have and the access to companies,

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<v Speaker 1>do you have a of how much they plan to

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<v Speaker 1>reduce their staff or whether they are not necessarily hiring

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<v Speaker 1>recent college graduates as a result of their using Yeah, yeah.

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<v Speaker 2>I get the question. I don't have much wisdom on that.

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<v Speaker 2>I've asked our people that too. I mean, clearly the

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<v Speaker 2>labor market is softened, there's no question about that. I'll

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<v Speaker 2>give you my personal opinion whatever it's worth, but really

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<v Speaker 2>mostly based on just what I think about AI. I

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<v Speaker 2>think AI has the potential for tremendous positives in terms

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<v Speaker 2>of productivity, which by the way, could be partially responsive,

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<v Speaker 2>albeit not fully responsive to our fiscal trajectory and our

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<v Speaker 2>trad fiscal trajectory. On multiple basis. It seems to me

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<v Speaker 2>as a tremendous risk to our economy over time. So

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<v Speaker 2>this can be partly respond partly responses to that productivity,

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<v Speaker 2>increased growth, increased revenues and so forth. But I think

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<v Speaker 2>a lot of Yeah, I do think it's going to

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<v Speaker 2>have very substantial dub replacement fix. A lot of things

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<v Speaker 2>that are being done now by people are going to

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<v Speaker 2>be done by AI and AI. As you know, what

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<v Speaker 2>is the human mind human by neural systems? Right, what

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<v Speaker 2>is AI? AI is neural systems. And if you take

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<v Speaker 2>AI and you pursue it, and some of you know

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<v Speaker 2>much more badas than I do. But you pursue. You

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<v Speaker 2>build bigger and bigger data centers and more and more capacity.

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<v Speaker 2>You create neural systems that are able to do not

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<v Speaker 2>only the more mundane task Lisa, but all the kinds

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<v Speaker 2>of many of the kinds of complex thinking that were

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<v Speaker 2>accustomed to associating with human beings. And that's that, as

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<v Speaker 2>you know, is sort of the question of AGI in admittle.

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<v Speaker 2>You can you can, You can define AGI a lot

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<v Speaker 2>of different ways. I get that, But whatever you want

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<v Speaker 2>toever you want to define it, I don't need any

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<v Speaker 2>question that AI is moving, at least in my opinion.

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<v Speaker 2>I may be wrong, but I don't think I'm wrong,

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<v Speaker 2>moving very quickly toward ever more sophisticated capabilities that can

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<v Speaker 2>more and more replicate the neural processes to the human mind.

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<v Speaker 1>Which is the reason why when you talk to some

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<v Speaker 1>FED officials on and off the record, more off the record,

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<v Speaker 1>they will talk about running the economy hot or prioritizing

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<v Speaker 1>the labor market as a way to ameliorate some of

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<v Speaker 1>the potential job losses from AI, because it encourages companies

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<v Speaker 1>to invest more in their workers and keeps people employed

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<v Speaker 1>so people won't be left behind as much. I mean,

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<v Speaker 1>do you buy into that kind of idea and sort

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<v Speaker 1>of endorse the idea of having a more accommodative monetary

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<v Speaker 1>policy at a time like this.

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<v Speaker 2>Yeah, I get the point, And this is good debate.

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<v Speaker 2>This is kind of things that if you have sensible

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<v Speaker 2>people sitting in a room, you can really discuss in

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<v Speaker 2>very interesting ways. No, I actually don't agree with Lisa.

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<v Speaker 2>I'm much more concerned about the possiblity of inflation. And

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<v Speaker 2>if you run the economy too hot and you get

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<v Speaker 2>higher rate of inflation, and that in turn has a

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<v Speaker 2>weaker dollar and it has higher interest rates, I think

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<v Speaker 2>that can have a lot more adverse effect than the

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<v Speaker 2>benefits you're getting from FED funds rates being lower than

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<v Speaker 2>whatever you think my contrue. So you might actually accomplish

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<v Speaker 2>the opposite of what you wish. So I know, if

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<v Speaker 2>I were at the look, nobody's going to ask me

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<v Speaker 2>what I think at the FED. I promise you. If

0:11:00.440 --> 0:11:02.520
<v Speaker 2>anybody did, I think I would say to them, you've

0:11:02.520 --> 0:11:04.800
<v Speaker 2>got a duel mandate under Humphrey Hawkins, as we all know,

0:11:05.920 --> 0:11:08.719
<v Speaker 2>and I would worry more about the inflationary side of that,

0:11:10.200 --> 0:11:14.120
<v Speaker 2>than I would. I'd worry about both, but I'd be

0:11:14.280 --> 0:11:15.640
<v Speaker 2>quite concerned about inflation.

0:11:16.200 --> 0:11:19.520
<v Speaker 1>One thing, Ray Dalio is speaking earlier, and he drew

0:11:19.520 --> 0:11:21.640
<v Speaker 1>the parallel to the nineteen seventies as well as the

0:11:21.679 --> 0:11:23.880
<v Speaker 1>nineteen thirties, which is a little bit even more alarming.

0:11:24.160 --> 0:11:27.440
<v Speaker 1>I'm just wondering, from your perspective, do you think that

0:11:27.480 --> 0:11:31.040
<v Speaker 1>the nineteen seventies style inflation is the correct analog.

0:11:31.320 --> 0:11:34.480
<v Speaker 2>Well, nineteen seventy is an interesting time, and that's actually

0:11:34.520 --> 0:11:37.200
<v Speaker 2>what Paul Boker was talking about and I were talking

0:11:37.200 --> 0:11:40.560
<v Speaker 2>about this. I don't know, probably not many of you here,

0:11:40.559 --> 0:11:43.360
<v Speaker 2>well maybe none of you actually lived through the nineteen seventies.

0:11:43.400 --> 0:11:46.760
<v Speaker 2>I did, and inflation took on a life of its own, Lisa.

0:11:47.400 --> 0:11:51.360
<v Speaker 2>And this was Paul's point. Inflation expectations built on themselves,

0:11:51.400 --> 0:11:53.520
<v Speaker 2>and once that happened, it's very very hard to deal with.

0:11:53.840 --> 0:11:56.480
<v Speaker 2>And Paul's point was, and I think he's right about this,

0:11:56.720 --> 0:11:59.400
<v Speaker 2>that once inflation gets going, inflation expectation just a very,

0:11:59.440 --> 0:12:01.280
<v Speaker 2>very difficult to deal with. That's why if I were

0:12:01.320 --> 0:12:04.040
<v Speaker 2>the FED, I'd be focused on both both aspects of

0:12:04.080 --> 0:12:07.400
<v Speaker 2>my dual mandate. Humphrey Hawkins but I would be quite

0:12:07.760 --> 0:12:13.000
<v Speaker 2>concerned with not allowing inflation to move in a way

0:12:13.000 --> 0:12:13.960
<v Speaker 2>that is threatening.

0:12:14.679 --> 0:12:16.600
<v Speaker 1>We spoke a bit ago and you said the US

0:12:16.679 --> 0:12:21.080
<v Speaker 1>is still the best place to invest. Do you still

0:12:21.080 --> 0:12:21.440
<v Speaker 1>feel that?

0:12:22.160 --> 0:12:25.920
<v Speaker 2>Yes, I do, But it's complicated. We have such a

0:12:26.840 --> 0:12:29.160
<v Speaker 2>everything a troubled about trouble is the wrong where. It

0:12:29.360 --> 0:12:31.840
<v Speaker 2>is tragic what we're doing ourselves and what this administration

0:12:31.920 --> 0:12:33.800
<v Speaker 2>is doing on so many dimensions in my opinion, in

0:12:33.920 --> 0:12:36.120
<v Speaker 2>terms of public policy. But I think we have enormous

0:12:36.120 --> 0:12:38.960
<v Speaker 2>strengths compared to others. I'm repeating myself when I know

0:12:38.960 --> 0:12:41.240
<v Speaker 2>that we have flexible labor and capital markets. We have

0:12:41.720 --> 0:12:46.679
<v Speaker 2>dynamic culture. We have the capital markets that are unrivaled

0:12:46.640 --> 0:12:48.400
<v Speaker 2>in any place else in the world. We have great

0:12:48.480 --> 0:12:50.800
<v Speaker 2>universities of now we're attacking them in the ways that

0:12:50.840 --> 0:12:53.760
<v Speaker 2>are usually counterproductive in my opinion, and so much else

0:12:53.800 --> 0:12:56.800
<v Speaker 2>to going up natural resources. We have so much else

0:12:56.840 --> 0:12:59.760
<v Speaker 2>going our way, but we are doing a lot of

0:12:59.800 --> 0:13:02.720
<v Speaker 2>damage on the Yes, I would still invest here because

0:13:02.720 --> 0:13:06.120
<v Speaker 2>I think I think, Look, I think all the waing

0:13:06.120 --> 0:13:08.520
<v Speaker 2>its going to depend what happens our political system, and

0:13:08.720 --> 0:13:11.280
<v Speaker 2>I think sooner or later we'll come back. I hope.

0:13:11.840 --> 0:13:14.000
<v Speaker 2>I hope it's a word. I think the odds are

0:13:14.040 --> 0:13:16.200
<v Speaker 2>we will come back at some point to the historical

0:13:16.200 --> 0:13:18.400
<v Speaker 2>system that we've had, where you have a conservative party

0:13:18.920 --> 0:13:21.240
<v Speaker 2>sort of a Rottal regular as a historical conservative. You

0:13:21.280 --> 0:13:23.800
<v Speaker 2>have a progressive or liberal democratic probably do you want

0:13:23.800 --> 0:13:25.800
<v Speaker 2>to call it center left? I don't care, And then

0:13:25.840 --> 0:13:27.439
<v Speaker 2>they have the debates and we're back where we used

0:13:27.440 --> 0:13:30.000
<v Speaker 2>to be. It won't be the same, it will not

0:13:30.040 --> 0:13:32.040
<v Speaker 2>be the same, but it'll be some analog to that.

0:13:32.400 --> 0:13:35.000
<v Speaker 2>So I believe that's the most likely outcome. And China

0:13:35.080 --> 0:13:36.880
<v Speaker 2>has a normous look. China has some great strengths and

0:13:36.880 --> 0:13:39.320
<v Speaker 2>we all know that, but it also has enormous problems

0:13:39.320 --> 0:13:43.800
<v Speaker 2>we also all know. And you're you know, you're From

0:13:43.880 --> 0:13:47.839
<v Speaker 2>twenty nineteen to twenty twenty two, productivity in Europe group

0:13:47.920 --> 0:13:50.880
<v Speaker 2>point four percent. Producting in our states were six percent.

0:13:51.320 --> 0:13:54.200
<v Speaker 2>And the Mario Dragi Report, which was designed to deal

0:13:54.320 --> 0:13:55.960
<v Speaker 2>I was with Marria the other day, which man aarity.

0:13:56.000 --> 0:13:57.200
<v Speaker 2>I just told about this because he was in New

0:13:57.240 --> 0:14:01.560
<v Speaker 2>York and we got together. If it's designed to address

0:14:01.720 --> 0:14:04.319
<v Speaker 2>the productivity problems in Europe, they've done virtually nothing on it.

0:14:04.880 --> 0:14:07.080
<v Speaker 2>So yeah, I'd still bet on us but I think

0:14:07.120 --> 0:14:10.199
<v Speaker 2>we I've still bet on us. I'd still rather be here.

0:14:10.240 --> 0:14:14.000
<v Speaker 2>I am here to my own personal resources. But but

0:14:15.160 --> 0:14:18.360
<v Speaker 2>I think what we're doing to ourselves is is very

0:14:18.360 --> 0:14:19.200
<v Speaker 2>seriously troubling.

0:14:19.600 --> 0:14:22.680
<v Speaker 1>There's a lot of question around gold and the fact

0:14:22.680 --> 0:14:24.200
<v Speaker 1>that a lot of people are going into it, and

0:14:24.240 --> 0:14:27.640
<v Speaker 1>whether this is sort of a signal of something with

0:14:27.680 --> 0:14:31.480
<v Speaker 1>a debasement of the dollar or of people's state of mind.

0:14:31.840 --> 0:14:33.560
<v Speaker 1>What's the message, what's the signal?

0:14:33.600 --> 0:14:36.720
<v Speaker 2>From the figgist notion, Look, gold has always been this

0:14:36.800 --> 0:14:39.200
<v Speaker 2>sort of so called refuge from the dollar, I assume

0:14:39.560 --> 0:14:43.400
<v Speaker 2>I mean from uncertainty, and uh, you know it's that

0:14:43.520 --> 0:14:45.920
<v Speaker 2>thousands of years of history of that is it is

0:14:45.960 --> 0:14:48.600
<v Speaker 2>the current action of gold as a signal of something.

0:14:51.280 --> 0:14:54.440
<v Speaker 2>I have not the figgiest notion. I personally wouldn't own it,

0:14:54.560 --> 0:14:57.880
<v Speaker 2>but that's just because I've never gold has no use value.

0:14:57.920 --> 0:15:01.160
<v Speaker 2>It's only a psychological I'm not demeaning it. It's for

0:15:01.200 --> 0:15:04.720
<v Speaker 2>thousands of years it's been a psychological refuge from uncertainty.

0:15:06.200 --> 0:15:08.480
<v Speaker 2>But I don't know if it had I wouldn't call

0:15:08.520 --> 0:15:10.240
<v Speaker 2>it how I mean, I think one could think reactionally

0:15:10.240 --> 0:15:12.360
<v Speaker 2>and thoughtfully of all these things. I personally wouldn't weigh

0:15:12.400 --> 0:15:14.280
<v Speaker 2>the price of gold in my thinking about what the

0:15:14.280 --> 0:15:14.840
<v Speaker 2>odds are