WEBVTT - Dr. Adam Posen Talks U.S.-Saudi Relationship

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, Radio News.

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<v Speaker 2>All Right, we're going to stay on global relationships the

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<v Speaker 2>economies that drive them, and turn on over to doctor

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<v Speaker 2>Adam Posen. He's president of the Peterson Institute for International Economics.

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<v Speaker 3>He joins us from I believe.

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<v Speaker 2>The Nation's capital on this Tuesday, Yes, Washington, DC, Doctor Posen,

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<v Speaker 2>good to have you back here on Bloomberg and on

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<v Speaker 2>Bloomberg BusinessWeek Daily. These relationships. I first got to ask you,

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<v Speaker 2>you know, watching the relationship what seems to be a

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<v Speaker 2>very close relationship between the United States and Saudi Arabia,

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<v Speaker 2>and I think about their economies.

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<v Speaker 3>How do you see it? What's significant for you here

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<v Speaker 3>in watching this?

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<v Speaker 4>Thank you Carol for having me back on Bloomberg BusinessWeek Daily.

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<v Speaker 4>I want to pick up on some things you discussed

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<v Speaker 4>with your previous guests, which is there is a huge

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<v Speaker 4>economic leaving aside the national security incentive for Saudi to

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<v Speaker 4>behave in this way in that MBS, the Crown Prince

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<v Speaker 4>has very definitely been seeing part of his agenda to

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<v Speaker 4>try to transition Saudi away from over dependence on export

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<v Speaker 4>of fossil fuels, and it's the right thing for them

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<v Speaker 4>to do. From the economic perspective, and obviously Saudi for

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<v Speaker 4>many decades has been accumulating surpluses of cash and trying

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<v Speaker 4>to invest them. They've been trying to diversify. I wouldn't

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<v Speaker 4>go quite as far as your previous guests did in

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<v Speaker 4>extolling how much a RAM cost first five, but they've

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<v Speaker 4>been trying. I think the deeper integration with the US

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<v Speaker 4>is a path towards that, and it is a credible

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<v Speaker 4>path towards that. That's not to say they haven't been

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<v Speaker 4>doing a lot of good things in terms of domestic

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<v Speaker 4>investment and on the economic front on liberalization. They have,

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<v Speaker 4>and I know a lot of very serious money investors

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<v Speaker 4>who are very excited by this, but just to say

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<v Speaker 4>this puts them on the path for the US, However,

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<v Speaker 4>I think it's less important economically. It is more about

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<v Speaker 4>the security relationship, or at least it should be. There's

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<v Speaker 4>never been a shortage of people willing to invest in

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<v Speaker 4>the US, or at least except with the exception of

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<v Speaker 4>a few years in the late seventies and early eighties,

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<v Speaker 4>not since nineteen hundred. And that remains the case, even

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<v Speaker 4>though things are happening to make the US a little

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<v Speaker 4>less attractive. So for the US, I think there has

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<v Speaker 4>to be more of the security, diplomatic conditionality. Just simply

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<v Speaker 4>getting Saudi investment in the US is not that big

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<v Speaker 4>a game.

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<v Speaker 1>What type of conditionality, especially in exchange for fter thirty

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<v Speaker 1>five state of the r jets.

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<v Speaker 4>Well, Tim, I think that's the right question, And I

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<v Speaker 4>would not say it necessarily needs to be tied to

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<v Speaker 4>Israel recognition in the abraham A courts, but it needs

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<v Speaker 4>to be tied to something of that caliber. So maybe

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<v Speaker 4>it's something about how they're relating to Iran, or something

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<v Speaker 4>about the Saudi mutual guarantees with Pakistan, some sort of

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<v Speaker 4>agreement on how the Saudis will influence Pakistan, or maybe

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<v Speaker 4>it's about the investment which the Saudis have indicated they're

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<v Speaker 4>willing to do in rebuilding Gaza and dealing with what

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<v Speaker 4>will be refugee issues there. All I'm saying is that

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<v Speaker 4>it has to be something substantial. But I also think

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<v Speaker 4>you want the f thirty fives, of course are a

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<v Speaker 4>big carot, but you also want to think of it

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<v Speaker 4>in terms of the relationship. And this is what is key,

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<v Speaker 4>whether it's UK or Saudi or Japan.

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<v Speaker 2>Adam Adam you talk about relationships, and I think about

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<v Speaker 2>something that came up questioning by reporters of the President

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<v Speaker 2>and MBS while at the White House, and that is

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<v Speaker 2>about kind of the relationships that the Trump organization has

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<v Speaker 2>with Saudi Arabia on business deals. And we have a

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<v Speaker 2>story in the Bloomberg about the Trump organization planning a

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<v Speaker 2>luxury resort in the Maldives with a Saudi Arabian partner.

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<v Speaker 3>It's just one case. I'm just curious.

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<v Speaker 2>You've watched, you've talked about, you've analyzed different administrations, this

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<v Speaker 2>kind of what seems to be a mixing melding. I

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<v Speaker 2>know the President answered the question, he said, I have

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<v Speaker 2>nothing to do with family business, but how do you

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<v Speaker 2>see this?

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<v Speaker 4>No, I appreciate your asking that, Carol, and I don't

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<v Speaker 4>want to be mean, but it doesn't matter whether the

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<v Speaker 4>president literally in the narrow sense, has nothing to do

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<v Speaker 4>with it or not. We had laws, and what more importantly,

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<v Speaker 4>we had norms, and we had expectations from the press,

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<v Speaker 4>from the public, from the markets that the US did

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<v Speaker 4>not deal in family enrichment when you're in public office,

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<v Speaker 4>let alone when you're the president. Some of your viewers

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<v Speaker 4>might remember the old John Adams miniseries in which John

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<v Speaker 4>Adams alienated both his daughter and his son in law

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<v Speaker 4>or one of his sons and his son in law

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<v Speaker 4>because he wouldn't advance them while he was in the

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<v Speaker 4>White House. And what matters is this very strong perception

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<v Speaker 4>which is obvious in cutter in the United Arab ben

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<v Speaker 4>where it's in Saudi, but even with the gold that

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<v Speaker 4>was offered just the other day to the President, that

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<v Speaker 4>there is this perception that you link things. Now, I

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<v Speaker 4>don't want to overdramatize this. There are a lot of

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<v Speaker 4>countries in the world, including Saudi, including Turkey, including China,

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<v Speaker 4>where this kind of ties go on between the leaders,

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<v Speaker 4>families and chosen friends and foreign policy and other governments.

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<v Speaker 4>It's not good, it's not fair, it's wasteful and distortionary.

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<v Speaker 4>But it's also not the end of the world. Businesses

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<v Speaker 4>and investors can proceed. But for the US, this is

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<v Speaker 4>going back to your original question, this is a huge

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<v Speaker 4>step change. We've not seen anything like this the least

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<v Speaker 4>since Teddy Roosevelt, meaning one hundred and twenty years.

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<v Speaker 2>So just to be fair, because we certainly get feedback

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<v Speaker 2>from our audience, and to say that the president says

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<v Speaker 2>I'm not involved, though, you know, and we've had you know,

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<v Speaker 2>any president that walks into the White House, Republican or Democrat,

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<v Speaker 2>you know, certainly has allegiances to industries or so on.

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<v Speaker 4>So I agree. I agree, it's never going to be absolute.

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<v Speaker 4>And we all know the stories of people going back

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<v Speaker 4>to Jimmy Carter's brother selling beer, that there's always relatives

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<v Speaker 4>who try to profit on these things. But the so again,

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<v Speaker 4>this isn't about ascribing the levolent intent. But you want

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<v Speaker 4>to have a system in place where people expect and feel,

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<v Speaker 4>particularly investors, but also average citizens expect and feel that

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<v Speaker 4>this is an exception, not the rule that you occasionally

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<v Speaker 4>have the rogue family member, but that on the one hand,

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<v Speaker 4>policy choices are not being driven and being perceived and

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<v Speaker 4>by these things, and on the other hand, the economic

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<v Speaker 4>choices are being made on a commercial basis. And that's why,

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<v Speaker 4>no matter how many times people of different parties and

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<v Speaker 4>different administrations or appointments fail on this front, you want

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<v Speaker 4>to have a system of scrutiny and rules and presumptions

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<v Speaker 4>that it discourages our elected officials from being so overt

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<v Speaker 4>about it. I think, to be fair, you know, the

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<v Speaker 4>Trump administration and the sons of President Trump and Secretary

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<v Speaker 4>Lutnik and the Middle East negotiator Guy and all these people.

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<v Speaker 4>You know, they're being very open, and I think that

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<v Speaker 4>in one sense does matter, like they are with Crypto,

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<v Speaker 4>But in another sense that doesn't solve the problem because

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<v Speaker 4>then the perception is still people are being favored, decisions

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<v Speaker 4>are being made on a bad basis. You have to

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<v Speaker 4>offer gold, crown or hotel deals to make things happen, and.

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<v Speaker 2>Transparency doesn't necessarily negain actions, right.

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<v Speaker 1>Yeah, Doctor Wilson, Doctor Posen, you said it's not the

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<v Speaker 1>end of the world if we're in a situation such

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<v Speaker 1>as this or in a society.

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<v Speaker 4>Such a sist But it's not the end of the world.

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<v Speaker 1>But I'm wondering if there are potentially long term economic

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<v Speaker 1>repercussions that happen in societies that don't necessarily have the

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<v Speaker 1>same rules in place, if we can look to history

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<v Speaker 1>or modern history to get an understanding of what the

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<v Speaker 1>implications of that could be in the US.

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<v Speaker 4>In your view, oh, I think they're enormous. I think

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<v Speaker 4>then because it's the US, which, as I've argued to him,

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<v Speaker 4>has been the lynchpin of the rules based, law based

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<v Speaker 4>system of economy since World War Two. It has repercussions

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<v Speaker 4>around the world because it means the US is not

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<v Speaker 4>only enforcing the norms against this kind of corruption or

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<v Speaker 4>perceived corruption or tied political choice making. It means that

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<v Speaker 4>the US is setting an example that you can get

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<v Speaker 4>away with it, and other people should get away with it,

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<v Speaker 4>and it breaks down the regimes and the operating principles

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<v Speaker 4>we have to attorney thinks. So when I say it's

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<v Speaker 4>not the end of the world, I don't mean to

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<v Speaker 4>suggest it's not very harmful. It will reduce the returns

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<v Speaker 4>on capital. It will reduce the ability of average people

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<v Speaker 4>and normal businesses to get access to opportunities. It will

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<v Speaker 4>divide the world. It will increase in stability and investment markets.

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<v Speaker 4>It will waste public money. It's bad in a lot

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<v Speaker 4>of ways. I just merely want to be very clear

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<v Speaker 4>that though it's unusual for the US in the last

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<v Speaker 4>one hundred plus years to behave this way, in our

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<v Speaker 4>long ago history and in other countries around the world,

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<v Speaker 4>this has taken place, and that there have been much

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<v Speaker 4>small or much less overt examples of this by you,

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<v Speaker 4>a previous US administration, and you.

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<v Speaker 2>Know, just thinking about all you've just said, doctor Posen,

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<v Speaker 2>and then kind of squaring that with the recent government

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<v Speaker 2>shut down and the domestic issues that kind of came

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<v Speaker 2>to the forefront. You know, the one in eight Americans

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<v Speaker 2>who are on some kind of food assistance or food stamps.

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<v Speaker 2>You know, the amount of Americans that are just struggling

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<v Speaker 2>to put food on their table, a roof over their head.

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<v Speaker 3>I want to bring it down.

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<v Speaker 2>Then, with so much focus on global issues, and some

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<v Speaker 2>would say when you're president, you have to look beyond the.

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<v Speaker 3>US borders as well as within the US borders.

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<v Speaker 2>But having said that, what is it that you know

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<v Speaker 2>is being maybe being ignored in your view domestically, that's

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<v Speaker 2>really got to be.

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<v Speaker 4>Addressed, and you're asking very profound questions. I'll just say

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<v Speaker 4>that in an enlightened administration, the reason you get involved

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<v Speaker 4>in the rest of the world is because it ultimately

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<v Speaker 4>is if you've set up a rest of the world

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<v Speaker 4>that feels safer and less corrupt and more stable and

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<v Speaker 4>less subject to disease and refugee flows and wars, that's

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<v Speaker 4>ultimately to the benefit of the average American. And if

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<v Speaker 4>you have open and free commerce on a rules based

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<v Speaker 4>basis that raises American opportunities and American citizens purchasing power.

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<v Speaker 4>So I agree with you, there's a question of how

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<v Speaker 4>you prioritize. And this goes to the point with Saudi.

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<v Speaker 4>I'm not sure that that should be the biggest priority

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<v Speaker 4>of an American administration right now. It's fine, you can

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<v Speaker 4>walk into gum. It can be one of the things.

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<v Speaker 4>So when you say what's in the domestic front, I

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<v Speaker 4>think the removal of health care support subsidies and access

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<v Speaker 4>to Medicaid and to all these Obamacare related things is

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<v Speaker 4>going to materially affect the health and well being of

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<v Speaker 4>millions of human beings in the and that is bad economically,

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<v Speaker 4>but it's bad in human terms. I think the reduction

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<v Speaker 4>of options through the anti migration policies, through other policies

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<v Speaker 4>that make it so more people, mostly women in late

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<v Speaker 4>middle age, have to stay home to be caregivers to

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<v Speaker 4>elders and to children and to disabled people, is materially

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<v Speaker 4>bad for humans and is a huge pressure on people.

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<v Speaker 4>And I think the combination of anti migration policy, attacks

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<v Speaker 4>on the Fed tariffs deal making, some of which looks corrupt,

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<v Speaker 4>all adds to a more inflationary environment, which reduces real

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<v Speaker 4>incomes for people. So there's a whole bunch of things

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<v Speaker 4>on the domestic front. But I just want to say

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<v Speaker 4>that it's not about choosing the global versus domestic. It's

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<v Speaker 4>about choosing the self interested versus the public welfare.

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<v Speaker 2>I think we need to leave it there, but I

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<v Speaker 2>gotta say sometimes I'm in all of our guests, and

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<v Speaker 2>I certainly am on this Tuesday, Doctor Posin, thank you

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<v Speaker 2>so much.

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<v Speaker 3>Really appreciate all the kids for having me same here.

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<v Speaker 3>Thank you for joining us.

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<v Speaker 2>Doctor Adam Posen, President of the Peterson Institute for International Economics,