WEBVTT - Lots More on the Coming 20-Year Storm with Viktor Shvets 0:00:02.400 --> 0:00:09.000 Bloomberg Audio Studios, podcasts, radio news. Joe, it's started. 0:00:09.240 --> 0:00:09.840 It started. 0:00:10.000 --> 0:00:12.160 It's what like two three weeks later. 0:00:12.760 --> 0:00:15.840 Yeah, so we had yeah, three weeks basically since the 0:00:15.880 --> 0:00:19.160 election and the trade war at least to some extent, 0:00:19.320 --> 0:00:21.280 maybe a trade skirmish. We don't really know what's going 0:00:21.320 --> 0:00:23.360 to happen. It's kind of begun started last night. 0:00:23.680 --> 0:00:28.680 Yeah, so Trump he didn't tweet. He said on truth social. 0:00:28.960 --> 0:00:29.640 Is that what it's called. 0:00:29.680 --> 0:00:31.479 And by the way, I respect Eddie still hears his 0:00:31.520 --> 0:00:32.160 truth social. 0:00:32.280 --> 0:00:32.480 Yeah. 0:00:32.479 --> 0:00:34.400 It kind of a slap in the face to Elon Musk. 0:00:34.440 --> 0:00:35.120 I guess. 0:00:37.560 --> 0:00:44.879 I did a deadlift one two, Jimmy Okay, barges. This 0:00:44.960 --> 0:00:46.839 isn't after school special, except. 0:00:46.520 --> 0:00:49.040 I've decided I'm going to base my entire personality going 0:00:49.080 --> 0:00:52.320 forward on campaigning for a strategic pork reserve in the US. 0:00:52.400 --> 0:00:54.160 Where's the best with imposta? 0:00:54.320 --> 0:00:56.880 These are the important question? Is that robots taking over 0:00:56.920 --> 0:00:57.280 the world. 0:00:57.360 --> 0:00:59.960 No. I think that like in a couple of years, 0:01:00.000 --> 0:01:02.680 the AI will do a really good job of making 0:01:02.720 --> 0:01:06.000 the Odd Lots podcast and people today. I don't really 0:01:06.080 --> 0:01:08.479 need to listen to Joe and Tracy anymore. We do 0:01:08.600 --> 0:01:13.920 have touching the perfect welcome to lots More, where we 0:01:13.959 --> 0:01:16.319 catch up with friends about what's going on right. 0:01:16.200 --> 0:01:19.640 Now, because even when odd Lots is over, there's always 0:01:19.720 --> 0:01:21.199 lots more And. 0:01:21.120 --> 0:01:23.800 We really do have the perfect guest. 0:01:25.080 --> 0:01:28.080 But he said he's thinking about or he's going to 0:01:28.440 --> 0:01:33.280 impose ten percent tariffs on goods from China and twenty 0:01:33.319 --> 0:01:38.880 five percent tariffs on goods from Mexico and Canada for 0:01:38.959 --> 0:01:39.479 some reason. 0:01:39.640 --> 0:01:42.800 By the way, we're recording this November twenty sixth, Tuesday, 0:01:43.080 --> 0:01:47.200 And he specifically tied those tariff threats to Mexico in 0:01:47.280 --> 0:01:51.559 Canada to which various conditions that theoretically can be met 0:01:51.920 --> 0:01:56.520 related to immigration crackdowns and the flow of drugs across 0:01:56.560 --> 0:01:57.000 the border. 0:01:57.200 --> 0:01:59.280 Yeah, so this is the thing that's being debated in 0:01:59.320 --> 0:02:03.160 markets right now. To what extent is this a negotiating tactic? 0:02:03.320 --> 0:02:05.080 You know, you come in with a big threat and 0:02:05.120 --> 0:02:07.320 you start from there and you sort of whittle it down, 0:02:07.720 --> 0:02:11.200 or again, how serious is Trump actually about this? 0:02:11.320 --> 0:02:14.760 Well? I think it's both domestic and international in a 0:02:14.840 --> 0:02:18.120 sense that if you're saying what drives it and why 0:02:18.160 --> 0:02:21.400 the likes of Bernie Sanders and the likes of Donald 0:02:21.440 --> 0:02:25.919 Trump read the mood of American people much more than 0:02:26.120 --> 0:02:30.520 institutionalized people like Biden or Herris. It is really to 0:02:30.600 --> 0:02:34.520 do what I describe, actually Donnie Roderick of Harvard University 0:02:34.560 --> 0:02:38.600 described as a political traleum of global economy. You cannot 0:02:38.680 --> 0:02:44.600 have globalization and economic integration, nation states, and democracy all 0:02:44.639 --> 0:02:46.440 at the same time. You can pick up two of 0:02:46.480 --> 0:02:48.960 the three, but you can't have all three, and you 0:02:49.040 --> 0:02:51.560 can't have all at the same time. So if you 0:02:51.680 --> 0:02:55.640 think of domestic and international pressures, I think Trump is 0:02:55.720 --> 0:02:58.720 reflecting both of them. If you go back in time, 0:02:59.000 --> 0:03:03.959 it's really Paul war deregulating global financial system followed by 0:03:04.120 --> 0:03:07.959 Bill Clinton in nineteen ninety four, and NAFTA followed by 0:03:08.520 --> 0:03:12.960 China entering WTO in two thousand and one, have created 0:03:13.160 --> 0:03:17.919 environment where people feel, justifiably or not, but they feel 0:03:18.040 --> 0:03:22.360 that their jobs, their livelihoods somehow were stalled by other people. 0:03:22.760 --> 0:03:25.360 And so this is a response to that to say 0:03:25.360 --> 0:03:29.040 to people, I am looking after you, I am trying 0:03:29.080 --> 0:03:31.600 to protect it. But at the same time, there is 0:03:31.680 --> 0:03:36.320 also inflationary element that I think Trump fully understand or 0:03:36.360 --> 0:03:40.320 he must fully understand that the principal reason why Biden 0:03:40.720 --> 0:03:44.560 lost was the inflation. And so the question is when 0:03:44.600 --> 0:03:47.960 you start imposing those terrors, you have to remember that 0:03:48.080 --> 0:03:51.960 up to half of all US imports are intermediate goods. 0:03:52.480 --> 0:03:55.680 So if you actually impose terrorts, you're taxing your own 0:03:55.680 --> 0:03:58.520 manufacturers and your exporters. So there is an element of 0:03:58.600 --> 0:03:59.920 domestic and international. 0:04:00.640 --> 0:04:03.720 We are here with Victor Schwetz. He is, of course 0:04:03.760 --> 0:04:06.600 a global strategist and author of the new book The 0:04:06.720 --> 0:04:09.960 Twilight Before the Storm. How do you avoid a world 0:04:10.080 --> 0:04:15.240 on fire? World on fire sounds kind of great ominous? Yeah, Well, 0:04:15.440 --> 0:04:19.520 since you mentioned the tensions in the neoliberal order or 0:04:19.520 --> 0:04:22.680 what remains of it, what do you see on the horizon, 0:04:22.800 --> 0:04:26.240 like what political system are we actually on course for? 0:04:27.040 --> 0:04:29.680 Well, that's a great question. One of the things my 0:04:29.760 --> 0:04:32.880 new book explores is that the last time we had 0:04:32.880 --> 0:04:37.640 the same degree of our disequilibrium or apolarization was really 0:04:37.680 --> 0:04:40.719 in nineteen thirties. And back then there was three system 0:04:40.839 --> 0:04:44.680 on the menu. You could choose communism, you could choose fascism, 0:04:44.920 --> 0:04:48.400 or you could choose constrained democracy. It wasn't a choice 0:04:48.400 --> 0:04:51.240 between freedom and liberty. It was just a question how 0:04:51.320 --> 0:04:54.359 much freedom do we need to sacrifice in order to 0:04:54.440 --> 0:04:58.280 lower the tensions and define the extremes. So today, in 0:04:58.320 --> 0:05:01.720 a very similar position, the world as a whole does 0:05:01.760 --> 0:05:05.760 not agree on what is the right social policies, political system, 0:05:05.920 --> 0:05:10.000 economic systems, business systems. And if we don't agree, what 0:05:10.120 --> 0:05:14.080 is the right thing to do? Alternatives proliferate. So today 0:05:14.400 --> 0:05:18.440 there are various alternatives competing against the childther was China, 0:05:18.520 --> 0:05:21.840 Russia run Us trying to redefine what it is. Europe 0:05:21.880 --> 0:05:24.240 is trying to redefine what it is. And we in 0:05:24.320 --> 0:05:27.839 this period which might last up to a decade, where 0:05:28.040 --> 0:05:32.360 ultimately we will find a compromise. Ultimately there will be 0:05:32.400 --> 0:05:35.480 a consensus that will be established. And the only question 0:05:35.560 --> 0:05:37.839 the book asked, do we need to go through the 0:05:37.880 --> 0:05:40.479 world of five of nineteen forties? O? Can we just 0:05:40.520 --> 0:05:44.200 go straight into the nineteen fifties and forget the nineteen forties. 0:05:44.400 --> 0:05:46.280 I'd sign up for the nineteen fifty and I'd. 0:05:46.240 --> 0:05:50.000 Choose the latter path. When you presented your trilemma, so 0:05:50.160 --> 0:05:54.760 just globalization, the nation state as we know it, and democracy, 0:05:55.360 --> 0:06:00.080 and you mentioned that candidates like Bernie Sanders and Donald Trump, 0:06:00.200 --> 0:06:03.200 both to some extent, for better or worse, correctly or incorrectly, 0:06:03.800 --> 0:06:06.719 there is the economic vulnerability that perhaps people feel. But 0:06:06.760 --> 0:06:10.839 it also sounds when you say nation states specifically, and 0:06:10.880 --> 0:06:14.760 when you contrasting that against globalization, it sounds like there 0:06:14.839 --> 0:06:18.520 is Yes, there's an economic impulse, anxiety, security, et cetera, 0:06:18.800 --> 0:06:22.600 but also this notion of legitimate sovereignty of a nation. 0:06:22.839 --> 0:06:25.600 A nation has the right to control its borders to 0:06:25.640 --> 0:06:28.640 some degree and to modulate and turn the dial on 0:06:28.760 --> 0:06:31.120 who can get in or out. It has the right. 0:06:31.720 --> 0:06:34.520 We see this in the war in Ukraine, the legitimate 0:06:34.600 --> 0:06:37.360 right to have a military, and a precondition to having 0:06:37.360 --> 0:06:41.279 a military is some sort of domestic manufacturing capacity to 0:06:41.440 --> 0:06:45.120 build weapons. It feels like there's a big element of 0:06:45.360 --> 0:06:49.000 what's being debated now in the US specifically, is the 0:06:49.080 --> 0:06:53.040 re exercise of sovereignty across a number of different dimensions. 0:06:53.240 --> 0:06:56.760 Totally totally. I mean, if you think off I usually 0:06:56.760 --> 0:07:01.680 describe it as three eyes inflation, inequality, immigration. If you're 0:07:01.720 --> 0:07:04.720 think up those three elements, if you combine them, that 0:07:04.800 --> 0:07:08.640 pretty much explains almost everything you need to know. So, 0:07:08.839 --> 0:07:12.200 if inflation was much lower in the sense of absolute 0:07:12.240 --> 0:07:15.600 prices have come down to a level that people regard 0:07:15.640 --> 0:07:19.840 as acceptable. If inequalities, whether it's wells or income, were 0:07:19.920 --> 0:07:23.960 much better managed, if immigration was not a major issues, 0:07:24.080 --> 0:07:27.640 either in Europe or in the United States, most other issues, 0:07:27.680 --> 0:07:30.880 whether it's cultural wars or anything else, will just fade 0:07:31.000 --> 0:07:33.960 into oblivion. So, in other words, the cultural issues color 0:07:34.600 --> 0:07:37.840 how you look at those three eyes. And so if 0:07:37.920 --> 0:07:42.000 you do not fix inflation, if you do not fix inequalities, 0:07:42.160 --> 0:07:44.800 and if you do not fix immigration and control of 0:07:44.840 --> 0:07:49.480 your borders, then culture issues become even more dominant, driving 0:07:49.480 --> 0:07:50.680 it to a certain conclusion. 0:07:51.360 --> 0:07:53.720 Speaking of the culture wars, one thing I wanted to 0:07:53.760 --> 0:07:58.000 ask you from an investment perspective is we have also 0:07:58.080 --> 0:08:01.239 seen them kind of creep in to the corporate sector, 0:08:01.360 --> 0:08:06.240 where companies basically are forced into choosing a side. So, 0:08:06.480 --> 0:08:11.120 for instance, chacter supply rolled back its DEI initiatives. There 0:08:11.200 --> 0:08:14.120 was the bud Light boycott, and then Core's light. 0:08:14.200 --> 0:08:16.760 I think Walmart just last night, all really, yep, this 0:08:16.880 --> 0:08:19.000 was a big news. Just last night, Walmart becomes I'm 0:08:19.040 --> 0:08:21.760 reading an MPR headline, Walmart becomes latest and biggest company 0:08:21.760 --> 0:08:23.200 to roll back DEI policies. 0:08:23.280 --> 0:08:26.760 I think that's you, Yeah, that's massive. How do investors 0:08:26.920 --> 0:08:31.360 handle like the politicization of companies that at one point 0:08:31.400 --> 0:08:34.760 said they were just out to maximize shareholder returns and 0:08:34.800 --> 0:08:36.160 now seem to be doing something else. 0:08:36.400 --> 0:08:39.760 Yeah, that's exactly what my book discusses that the idea 0:08:39.960 --> 0:08:45.080 neoliberal philosophy that really become embedded in late nineteen seventies 0:08:45.120 --> 0:08:48.920 early in nineteen eighties really died around the global financial 0:08:48.960 --> 0:08:52.520 crisis around twenty ten. Over the last decade of fifteen years, 0:08:52.559 --> 0:08:54.560 we'll all be trying to find, as I said, what 0:08:54.720 --> 0:08:59.080 is a new societal consensus, How important a corporate's private 0:08:59.120 --> 0:09:02.640 sector public sect, what responsibilities do they have. So the 0:09:02.679 --> 0:09:06.200 idea of Milton Friedman that the primary objective of a 0:09:06.280 --> 0:09:10.640 corporate is to generate returns to shareholders actually died around 0:09:10.679 --> 0:09:15.920 twenty nineteen, when US Business Council already redefine objectives. But 0:09:16.200 --> 0:09:19.560 right now societies still don't agree what is right what 0:09:19.679 --> 0:09:22.840 is wrong, and so corporates are trying to be careful 0:09:22.880 --> 0:09:27.640 because corporates are nothing more than an outgross of societies. 0:09:27.720 --> 0:09:29.880 There in I think one of the things I mentioned 0:09:29.920 --> 0:09:32.840 in the book, if society has decided that burning witches 0:09:32.960 --> 0:09:35.120 is the right thing to do, we probably would have 0:09:35.160 --> 0:09:39.280 been burning witches. And so corporates have to reflect society. 0:09:39.600 --> 0:09:42.880 And so what you find corporates try to find the 0:09:42.920 --> 0:09:48.000 middle ground somewhere between extremes. However, as I said early on, 0:09:48.200 --> 0:09:50.400 five ten years from now, and I keep looking in 0:09:50.480 --> 0:09:54.400 this book into millennium and Z generations and what those 0:09:54.440 --> 0:09:59.000 generations actually want to have as they become the dominant 0:09:59.240 --> 0:10:02.240 voting block, because today they only round thirty percent of 0:10:02.280 --> 0:10:05.400 the votes. When they become a dominant voting bloc, they 0:10:05.440 --> 0:10:09.280 will identify exactly the frontier as the boatons, how far 0:10:09.440 --> 0:10:12.240 you can go? Where should you go? And at that 0:10:12.320 --> 0:10:15.959 point in time the corporates could actually solidify. But right 0:10:16.000 --> 0:10:19.920 now day in the flocks, they're reflecting purely societal flocks. 0:10:20.240 --> 0:10:23.280 It feels to me like when Trump won in twenty sixteen, 0:10:23.920 --> 0:10:26.680 corporations in the way they're like, you know what, the 0:10:26.720 --> 0:10:29.840 election happened, but we're going to continue on. This doesn't 0:10:29.880 --> 0:10:32.360 change our commitments to net zero, This doesn't change our 0:10:32.400 --> 0:10:35.880 commitments to diversity, This doesn't change our commitments to gender 0:10:35.880 --> 0:10:39.199 equality and so forth. It feels like a they're following 0:10:39.200 --> 0:10:41.680 the mood of the election much more this time. I 0:10:41.720 --> 0:10:44.160 was really struck by a utility company the day after 0:10:44.160 --> 0:10:46.079 the election say yeah, we're probably going to burn more 0:10:46.120 --> 0:10:49.120 call now in line with changing regulations. You see the 0:10:49.120 --> 0:10:52.000 Walmart News three weeks afterwards. I want to get in 0:10:52.080 --> 0:10:56.960 something else about the three eyes. There are tensions among them, 0:10:57.240 --> 0:11:00.760 and how much does the American way of life, the 0:11:00.800 --> 0:11:04.320 middle class or the upper middle class way of life 0:11:04.840 --> 0:11:07.200 in some way? You know, there's a lot of tension 0:11:07.240 --> 0:11:09.240 about the cost of living. How much though, is it 0:11:09.360 --> 0:11:14.880 somewhat predicated on inequality and the ongoing influx of cheap 0:11:14.960 --> 0:11:18.800 immigrant labor to sustain what people expect? Is this sort 0:11:18.800 --> 0:11:22.000 of like comfortable middle class to upper middle class life here. 0:11:21.800 --> 0:11:26.280 Totally one thing. Whenever Donald Trump discusses current account deficits, 0:11:26.720 --> 0:11:28.679 I'm not sure if you fully realize that it's an 0:11:28.679 --> 0:11:32.040 accounting identity. The deficits of one country is equal to 0:11:32.120 --> 0:11:35.440 surplus of another country unless we start trading with Mars 0:11:36.160 --> 0:11:40.840 or extraterrestrials. Exports and inputs, surpluses and deficits have to 0:11:40.920 --> 0:11:43.720 line up. And so one of the things the incoming 0:11:43.920 --> 0:11:49.800 Treasury Secretary is discussing is basically unwinding Paul Walker's revolution, 0:11:49.960 --> 0:11:54.400 which led to significant discontinuities. In other words, some countries 0:11:54.520 --> 0:11:59.880 being accumulating significant surpluses other countries where accumulating significant deficits. 0:12:00.200 --> 0:12:03.880 So once saying American people probably don't realize that they 0:12:03.880 --> 0:12:07.080 can just maintain consumption at the current level and still 0:12:07.160 --> 0:12:10.840 not run the deficits. At the same time, if Americans 0:12:10.920 --> 0:12:14.480 run the deficits, by definition, China, Geman, and Japan have 0:12:14.559 --> 0:12:16.360 to run the surpluses. 0:12:15.760 --> 0:12:19.120 But just on the immigration component as well. How much 0:12:19.200 --> 0:12:22.439 does the US standard of living as we know it 0:12:22.480 --> 0:12:26.000 and our service sector labor restaurants. I mean, I'm thinking 0:12:26.040 --> 0:12:29.040 back to the immediate post pandemic period. We had the 0:12:29.160 --> 0:12:33.000 fairly modest labor market tightening, and people went ballistic about 0:12:33.000 --> 0:12:35.120 the quality of service they were getting in restaurants because 0:12:35.120 --> 0:12:38.120 workers didn't immediately go back to their jobs. 0:12:37.840 --> 0:12:40.320 At the pace it would it be very ironic if 0:12:40.400 --> 0:12:44.560 Trump won because of post pandemic inflation caused by labor 0:12:44.600 --> 0:12:48.680 tightness in part, and then part of his administration is 0:12:48.720 --> 0:12:52.040 basically imposing a new form of labor market tightness. 0:12:52.200 --> 0:12:55.720 Well, that's that's right, But you also have to separate politics, 0:12:56.160 --> 0:12:59.480 optical illusion, what you're trying to do, and the reality. 0:12:59.640 --> 0:13:02.640 If you're remember well you don't remember, but anyway, Eisenhower 0:13:02.880 --> 0:13:06.280 in operation I think it was called Webpack Operation which 0:13:06.320 --> 0:13:09.080 is a horrible name. But anyway, asenhow expelled one point 0:13:09.160 --> 0:13:13.439 one million Mexicans in nineteen fifties, only to see they're 0:13:13.440 --> 0:13:16.320 more trickling back into the country in a matter of 0:13:16.400 --> 0:13:19.920 months and years. So you have to separate politics, what 0:13:19.920 --> 0:13:23.439 you're trying to do, optical illusion you're trying to create, 0:13:23.840 --> 0:13:26.880 and the reality of what is actually being achieved. My 0:13:27.040 --> 0:13:29.480 view is that there is sufficient guard rails in a 0:13:29.600 --> 0:13:34.239 system in the US to prevent probably the worst outcomes 0:13:34.240 --> 0:13:38.680 that potentially could have happened. Now. The first, clearly guardrail 0:13:39.080 --> 0:13:41.800 is electoral process. US is one of those countries that 0:13:41.880 --> 0:13:44.120 elections never end. I mean, they just carry on all 0:13:44.160 --> 0:13:47.199 the time. So if you think of inauguration in January, 0:13:47.400 --> 0:13:51.040 within twelve months everybody will be in a midterm mode. 0:13:51.080 --> 0:13:53.920 Everybody will be discussing what's going to happen to midterm. 0:13:54.200 --> 0:13:57.480 So if you're not careful and you're causing significant frictions 0:13:57.520 --> 0:14:01.560 in the labor market, significant tightening in coming back, you 0:14:01.679 --> 0:14:04.720 have to roll back your policies. But there are other areas. 0:14:04.840 --> 0:14:08.480 Capital markets is a classic example. That's why you get 0:14:08.559 --> 0:14:11.720 your Treasury secretary a hash fund manager, because at the 0:14:11.800 --> 0:14:14.800 end of the day, markets are bigger than individuals, and 0:14:14.840 --> 0:14:18.599 they're bigger even than the underlying economies. So any distress 0:14:18.640 --> 0:14:21.480 that you're going to see in risk premia, in mortga 0:14:21.520 --> 0:14:24.800 trades and interest rates or anything like that, they will 0:14:24.800 --> 0:14:27.600 have to peddle back a lot. So what that basically 0:14:27.600 --> 0:14:30.760 implies there is a friction here between political objectives, what 0:14:30.800 --> 0:14:33.560 you're trying to do, what you genuinely believe, and I 0:14:33.600 --> 0:14:36.320 think Trump probably does believe it's a good idea to 0:14:36.600 --> 0:14:40.720 expel those people out of the country. Any economic reality, 0:14:40.760 --> 0:14:44.160 inflationary reality that you're going to face. Don't also forget 0:14:44.240 --> 0:14:47.920 commercial and corporate interests, like he's talking about getting rid 0:14:47.960 --> 0:14:50.960 of Chips Act or IRA Act. Over eighty percent of 0:14:50.960 --> 0:14:53.840 the money and those acts went into the red districts 0:14:54.440 --> 0:14:57.600 which are represented in Congress, which has a tiny majority. 0:14:57.680 --> 0:14:59.840 You really are looking at only four or five seats 0:15:00.120 --> 0:15:02.280 they're going to have in the majority in the Congress. 0:15:02.480 --> 0:15:07.640 So there is constant tension. Now that tension will create volatilities. Inevitably, 0:15:07.920 --> 0:15:10.640 they're going to create currency volatilities, they're going to create 0:15:10.640 --> 0:15:15.320 equity volatilities, interest rate volatilities. So that's inevitable. But the 0:15:15.360 --> 0:15:20.400 hope is that the guard rails, between electoral cycles, tiny 0:15:20.480 --> 0:15:25.640 majority in the Congress, between corporate interest, the capital markets, 0:15:25.920 --> 0:15:29.880 stickness of institutions. Remember, you can't just unscramble a lot 0:15:29.920 --> 0:15:32.600 of the commitments that the United States have, whether it's 0:15:32.600 --> 0:15:35.720 a do WTO, whether it's NATA, whether it's un whether 0:15:35.720 --> 0:15:38.360 it's NAFTA. You can't really do that that There is 0:15:38.520 --> 0:15:41.800 enough there that, as I said, tariffs are not going 0:15:41.800 --> 0:15:44.040 to go up to twenty percent. They will increase from 0:15:44.120 --> 0:15:46.200 three to four to maybe six, seven, eight, but they're 0:15:46.240 --> 0:15:48.920 not going to twenty. You're going to not be expelling 0:15:48.960 --> 0:15:53.560 millions of people. Labor force increase will shrink, but probably 0:15:53.600 --> 0:15:56.200 no more than twenty five thirty percent rather than much 0:15:56.200 --> 0:15:59.440 more robus numbers that could have occurred, and that should 0:15:59.480 --> 0:16:15.040 moderate some of the inflationary outcomes and economic outcomes. 0:16:16.760 --> 0:16:20.200 You said earlier that the nineteen thirties were your preferred 0:16:20.440 --> 0:16:24.360 historical analogy to our current time period. And one thing 0:16:24.360 --> 0:16:28.480 that happened in the nineteen thirties was also tariffs and 0:16:28.720 --> 0:16:32.400 the Smooth Holly Act, and then we had retaliation. 0:16:31.840 --> 0:16:35.160 Expulsion ful the illegals. To oh, oh so it happened, 0:16:35.200 --> 0:16:38.640 You asked us was doing six times expulsions in nineteen thirties, 0:16:38.640 --> 0:16:40.040 and they were doing in nineteen twenties. 0:16:40.120 --> 0:16:42.520 Oh wow, So it happened. There was a big wave 0:16:42.600 --> 0:16:44.480 in the nineteen thirties and the nineteen fifties. 0:16:44.800 --> 0:16:45.760 That's right, that's right. 0:16:45.920 --> 0:16:48.960 America has a long history of expelling immigrants. 0:16:48.480 --> 0:16:51.600 But not just the US was expelling in nineteen thirties. 0:16:51.840 --> 0:16:54.880 So was Germany, so was many other countries. So desire 0:16:54.960 --> 0:16:59.120 to close the borders, the desire to expel foreigners, the 0:16:59.240 --> 0:17:04.000 desire to established terrors protect locally interested was all prevalent 0:17:04.200 --> 0:17:05.520 in nineteen thirties. 0:17:05.760 --> 0:17:08.600 But what I was going to ask is how worried 0:17:08.680 --> 0:17:11.760 are you or what's the potential for retaliation by other 0:17:11.800 --> 0:17:15.680 countries because we've obviously been focused on the US. Everyone 0:17:15.760 --> 0:17:18.479 is focused on what Trump is doing, but he is 0:17:18.560 --> 0:17:20.400 not the only actor here. 0:17:20.880 --> 0:17:23.719 No, it is not. And that's one of the issues 0:17:24.000 --> 0:17:26.920 that and I think he probably understands it. If he's 0:17:26.920 --> 0:17:29.560 been negotiating with anybody, he has to understand it that 0:17:29.640 --> 0:17:34.800 the other side will try not to reciprocate aggressively, primarily 0:17:34.840 --> 0:17:38.280 because of the size and importance of the US domestic market. 0:17:38.400 --> 0:17:40.840 But you can't push them too far. You have to 0:17:40.920 --> 0:17:44.920 find that middle ground, and that's where discussion of negotiating 0:17:44.960 --> 0:17:48.000 tactics that as think you started from, I think comes 0:17:48.040 --> 0:17:51.800 in that. I do think that the US side understands 0:17:51.800 --> 0:17:55.680 that you have to find a compromise, and that compromise 0:17:55.840 --> 0:18:00.239 optically should look better for the United States. Like if 0:18:00.280 --> 0:18:04.960 you're singer of renegotiation of NAFTA back in two thy seventeen, 0:18:04.960 --> 0:18:09.399 twenty eighteen, it hasn't actually changed a lot, but optically 0:18:09.400 --> 0:18:12.240 it was presented as a much better case for the 0:18:12.359 --> 0:18:15.199 United States going forward. So you need to find that 0:18:15.480 --> 0:18:19.040 sort of middle ground. If you don't, if you actually 0:18:19.080 --> 0:18:22.520 do become aggressive as it happened in nineteen thirties, yes 0:18:22.600 --> 0:18:25.520 you could have retaliatory actions very quickly. That's one of 0:18:25.600 --> 0:18:29.520 the things I keep highlighting that today people are angry, 0:18:30.000 --> 0:18:33.399 people are polarized, but they are not yet mad enough 0:18:33.480 --> 0:18:36.879 to burn down the house, Whereas in nineteen thirties they 0:18:36.920 --> 0:18:41.160 were really mad. In other words, they were accessible primarily 0:18:41.200 --> 0:18:45.280 because degree of suffering that actually people encountered in nineteen 0:18:45.320 --> 0:18:49.520 thirties were significantly worse than anything we're experiencing. So people 0:18:49.560 --> 0:18:52.160 are not happy, but they don't want to burn down 0:18:52.200 --> 0:18:56.399 the house yet. That maybe another war, another pandemic, and 0:18:56.480 --> 0:18:59.640 people will be really angry. But that is not today. 0:19:00.040 --> 0:19:02.639 So if people are not angry, they're pulling back the 0:19:02.720 --> 0:19:06.880 politicians within their countries. Also, because people are not angry, 0:19:06.960 --> 0:19:10.920 geopolitical tensions are kept under some degree of control. It's 0:19:11.040 --> 0:19:15.879 only when people magnify extremes that both geopolitical tensions and 0:19:15.960 --> 0:19:19.120 domestic tensions get out of control. And I don't think 0:19:19.160 --> 0:19:21.960 we're at that point yet. I said we might be 0:19:22.080 --> 0:19:23.880 at some point in town, but not today. 0:19:24.640 --> 0:19:26.520 One of the things. And it came up during the 0:19:27.119 --> 0:19:30.800 first Trump administration significantly, and it's almost certainly going to 0:19:30.800 --> 0:19:34.200 come up now. And I mentioned sovereignty, and an element 0:19:34.200 --> 0:19:36.480 of sovereignty is having a military, and an element of 0:19:36.520 --> 0:19:40.840 having a military is having a domestic weapons manufacturing economy. 0:19:41.160 --> 0:19:44.320 Trump has put a lot of pressure on the Europeans 0:19:44.600 --> 0:19:48.719 allies specifically to spend more on defense. Very angry at 0:19:48.760 --> 0:19:52.320 their military budgets, their lack of military budgets, etc. And 0:19:52.640 --> 0:19:55.840 you know, in the dream society of peace, no one 0:19:55.840 --> 0:19:59.520 has to spend too much on military. How inflationary is that? 0:19:59.560 --> 0:20:02.480 If if you know, there's this perception that the US 0:20:02.520 --> 0:20:06.119 is going to pull back the security umbrella, so to speak. 0:20:06.160 --> 0:20:09.360 If there's this trade pressure to spend more, if there 0:20:09.440 --> 0:20:12.320 is a major rearmament, even setting aside war, which of 0:20:12.320 --> 0:20:15.080 course would be costly on multiple levels, If there is 0:20:15.119 --> 0:20:18.560 this sort of major impulse among governments around the world, Oh, 0:20:18.560 --> 0:20:20.560 we do have to spend more. Maybe we can't rely 0:20:20.680 --> 0:20:22.880 on the US. Maybe the US is putting stress on us. 0:20:23.080 --> 0:20:26.280 Maybe we have to be more anxious about further Russian expansion. 0:20:26.560 --> 0:20:30.639 What does this do economically if more countries feel this pressure. 0:20:30.840 --> 0:20:33.600 It depends on the extent because one of the things I 0:20:33.640 --> 0:20:37.040 discussed in a book in nineteen fifties and sixties, there 0:20:37.080 --> 0:20:40.280 was no inflation. In fact, inflation didn't pick up until 0:20:40.400 --> 0:20:43.879 sixty eight sixty nine, and then much more into nineteen seventies. 0:20:44.240 --> 0:20:47.600 At the time, military spending globally we're about five six 0:20:47.640 --> 0:20:51.840 percent of GDP, some countries way up to seven percent. Today. 0:20:52.000 --> 0:20:54.960 Global military spending already up to about two point two 0:20:55.040 --> 0:20:57.439 two point three percent, So in other words, we're spending 0:20:57.440 --> 0:21:00.080 more on defense than R and D. For example, on 0:21:00.119 --> 0:21:03.040 the global basis, already in the US we're up to 0:21:03.080 --> 0:21:05.959 about three point five three point six percent of GDP. 0:21:06.520 --> 0:21:08.760 If all we're going to do is go up to 0:21:08.800 --> 0:21:11.879 maybe five and Europeans made go up to about three. 0:21:12.560 --> 0:21:17.240 There will be no inflationary impact at all. But if 0:21:17.280 --> 0:21:21.320 you have a much hotter conflicts, that's where military spending 0:21:21.400 --> 0:21:24.919 goes up to fifteen, twenty, thirty, forty percent of GDP. So, 0:21:25.000 --> 0:21:27.479 for example, in the World War One, US was spending 0:21:27.520 --> 0:21:30.719 fifteen percent of GDP. In World War Two, at the 0:21:30.840 --> 0:21:34.399 peak in nineteen forty four, US was spending forty percent 0:21:34.440 --> 0:21:37.399 of GDP on defense. If you're thinking of countries like 0:21:37.480 --> 0:21:41.359 Britain or Japan, they were spending up to eighty percent 0:21:41.359 --> 0:21:44.200 of GDP on defense. So when you get to that level, 0:21:44.840 --> 0:21:47.880 normal economy just collapses. It just war economy. That's all 0:21:47.920 --> 0:21:51.480 you're dealing with. So long as we're staying around the 0:21:51.520 --> 0:21:55.320 area of the Cold War of nineteen fifties nineteen sixties, 0:21:55.359 --> 0:21:58.960 that is, we're spending maybe five percent of GDP on defense, 0:21:59.560 --> 0:22:02.960 I don't know believe there will be any significant inflationary impact. 0:22:03.480 --> 0:22:06.840 Despite all the scary things that we're talking about, and 0:22:06.880 --> 0:22:09.720 the fact that you mentioned the world on fire as 0:22:09.760 --> 0:22:12.240 part of your book title, you kind of end the 0:22:12.240 --> 0:22:15.920 book on an optimistic note, and you talk about things 0:22:16.240 --> 0:22:20.400 maybe getting better. Specifically in the nineteen forties, maybe we'll 0:22:20.440 --> 0:22:24.160 get a big productivity boost and our social values will 0:22:24.240 --> 0:22:26.520 change and you know, we could have a three day 0:22:26.560 --> 0:22:29.240 work week or something like that. Of course, the irony 0:22:29.320 --> 0:22:32.280 is that I'll be retired by the nineteen forties, right 0:22:32.320 --> 0:22:33.240 when that twelve. 0:22:33.000 --> 0:22:37.120 Forties, I have to retire in the nineteen fifties. When 0:22:37.200 --> 0:22:39.920 you're when you're a retirement portfolio gets eaten away. 0:22:40.040 --> 0:22:45.199 Yeah, Like why the twenty forties specifically? And then like, 0:22:45.280 --> 0:22:49.120 what causes you to be optimistic given everything that's going on? 0:22:49.760 --> 0:22:50.720 Made me feel better? 0:22:50.800 --> 0:22:53.080 Well, the way I look at it, a human history 0:22:53.359 --> 0:22:58.119 is very convoluted and very complex, quite often contradictory. I 0:22:58.280 --> 0:23:01.560 like Kevin drom phrase that I can keep using constantly 0:23:01.600 --> 0:23:04.000 in the book He's a blogger from California, when he 0:23:04.080 --> 0:23:08.640