Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Hello and welcome to another episode of the Audlots Podcast.
Speaker 2: I'm Tracy Alloway.
Speaker 3: And I'm Joe. Why isn't Joe?
Speaker 2: This is very special. This is actually this must be
Speaker 2: our fastest turnaround time on an episode ever.
Speaker 3: Well, it is election day.
Speaker 4: Yes, I think we had technically a faster turnaround day
Speaker 4: on the day of the Baltimore Bridge collapse.
Speaker 2: Okay, fine, fine, but this was like four hours of
Speaker 2: content that we are squeezing into a very timely episode.
Speaker 2: So what you are about to hear is a live
Speaker 2: recording of the Audlots Podcast, multiple panels, multiple conversations, that
Speaker 2: took place on November fourth, at a recording in front
Speaker 2: of a live audio in New York.
Speaker 5: That's right.
Speaker 4: So today is an election day. Last night was election Eve.
Speaker 4: We figured a bunch of people, if they have preferences
Speaker 4: in this election, we're probably anxious looking for something to
Speaker 4: do other than just sort of refresh the Internet and
Speaker 4: refresh Twitter all night. So I figure, why not get
Speaker 4: some of our favorite guests over the years from the
Speaker 4: podcast and get our fans who we always love seeing
Speaker 4: our listeners and hang out and talk politics and policy
Speaker 4: for a little while. And I didn't drink, actually, but
Speaker 4: some people drank.
Speaker 2: I stress drink.
Speaker 6: I did it.
Speaker 3: Yeah I didn't.
Speaker 2: But what better way to spend election day than listening
Speaker 2: to some live recordings of the au Thoughts podcast. So
Speaker 2: what you are about to hear is a selection of
Speaker 2: the conversations. We had some amazing guests. So we started
Speaker 2: with Zoe lu She is of course a senior fellow
Speaker 2: for China Studies at the Council on Foreign Relations, and
Speaker 2: we had her with Jordan Schneider of the China Talk podcast.
Speaker 2: We've spoken to both of them before, but we had
Speaker 2: a great conversation about what's going on in China right
Speaker 2: now and what could possibly happen with US China trade.
Speaker 4: Right and then where this particular episode will pick up.
Speaker 4: Then we had a conversation with Neil Dutta of Renaissance
Speaker 4: Macro Research, Sconda Amernath, executive director at Employee America. And
Speaker 4: we had a special guest that we kind of have
Speaker 4: to explain here for a second, because otherwise some of
Speaker 4: the conversation might not make any sense. We had zvie Maashwitz,
Speaker 4: and he is a prediction market's better.
Speaker 3: He's a writer.
Speaker 4: He's a legendary designer of Magic the Gathering Decks. He's
Speaker 4: an advisor to Polymarket. He used to be a Jane
Speaker 4: Street trader. We're gonna have to have him on some time.
Speaker 4: Tracy just yeah, it's totally separated.
Speaker 6: He was great.
Speaker 2: I just want to talk to him about deck construction, deck.
Speaker 4: Construction in Jane Street. Let's do like that episode.
Speaker 2: Okay, But Zphie, in addition to all those things, set
Speaker 2: up a betting pool on Manifold for which podcast he
Speaker 2: would actually appear on in twenty twenty four, and one
Speaker 2: of those options was blocks, right.
Speaker 4: He set it up at the beginning of the year,
Speaker 4: and so there's all these different possibilities which podcast will
Speaker 4: appear on. And just again to sort of set the stage,
Speaker 4: we never announced the t V is going to be
Speaker 4: part of this. He is our mystery guest. But we
Speaker 4: flashed the market onto the screen behind us while we
Speaker 4: were at caveat the place where we recorded the episode,
Speaker 4: and then during the conversation we watched as the market
Speaker 4: slowly repriced.
Speaker 2: It's very priced up and down.
Speaker 3: It was very strange.
Speaker 4: My belief in efficient markets has been completely debunked.
Speaker 2: No, you know what, it was this is actually really interesting.
Speaker 2: There was someone in the audience who was using free
Speaker 2: manifold tokens to bring the probability down even as V
Speaker 2: was actually on stage. So a live experiment in how
Speaker 2: prediction markets work.
Speaker 4: How they actually work right. Well, Actually, one of the
Speaker 4: things you'll hear is V talks a lot about one
Speaker 4: of the constraints and prediction markets being a capital constraints
Speaker 4: among traders. Yeah, so here's a guy who currently had
Speaker 4: no capital construction because he had free tooken, and you
Speaker 4: see how much that destroys that. So we started off
Speaker 4: that conversation to about all things markets, finance, what to
Speaker 4: watch it polling, what to watch for in tonight's selection yep.
Speaker 2: And then our headliner of the evening was Brad Setzer.
Speaker 2: He is, of course a senior fellow at the Council
Speaker 2: on Foreign Relations, one of our favorite guests. We've had
Speaker 2: him on I can't even remember how many times.
Speaker 3: Nine times now probably Yeah.
Speaker 2: He was also a trade advisor to USTR's Catherine Tie
Speaker 2: under the Biden administration, So someone who definitely knows what's
Speaker 2: up when it comes to, I guess, the sausage making
Speaker 2: of trade policy. So a fantastic group, a great evening.
Speaker 2: Big thanks to everyone who came, and if you weren't
Speaker 2: able to make it in person, we hope you enjoy
Speaker 2: this version.
Speaker 4: Right so start off check out our first our conversation
Speaker 4: with Skanda, Neil and Zvie. We have some great guests
Speaker 4: coming up and.
Speaker 2: Bowser chance to money.
Speaker 3: Now's your chance you could play.
Speaker 4: We have a one of the people I'm not gonna
Speaker 4: say who it is, but one of the people that
Speaker 4: we will be having on the show is an avid
Speaker 4: prediction markets trader expert in this area, and I'm not gonna.
Speaker 2: Say who it is, but it's a mystery mystery guest.
Speaker 4: So let's bring to the stage, in no particular order,
Speaker 4: we have a Neil Dutta of Renaissance Macro Research, frequent
Speaker 4: odd Lots guests, and we have Skanda Amernath of Employee America,
Speaker 4: another frequent odd Lots guest. And we have Zvimashewitz. He's
Speaker 4: a writer, trader into prediction markets and stuff and currently
Speaker 4: on Manifold Markets. There's a twenty percent chance that he
Speaker 4: appears on odd Lots in the year twenty twenty four,
Speaker 4: so we're doing a little test of prediction markets or sorry,
Speaker 4: efficient markets right here live on stage, so.
Speaker 3: Thank you so much. He's ready to insider trade.
Speaker 4: He hasn't insider traded on his own market yet, but
Speaker 4: it's just sitting there.
Speaker 3: We'll see, we'll see if the odds move. We'll see.
Speaker 2: If the odds move, they should be at one hundred percent.
Speaker 4: So yeah, I guess prediction markets are debunked if they
Speaker 4: don't immediately move to one hundred percent.
Speaker 3: Actually, V, let's start with you.
Speaker 4: When you look at any prediction markets and you're also
Speaker 4: advisor to polymarket.
Speaker 6: Yes, I'm advised it's your trader prediction market guy.
Speaker 3: Oh there it is. It moved up to forty four percent,
Speaker 3: still works, It's still.
Speaker 6: Not high enough, Like it's still I'm not sure.
Speaker 3: It's literally on stage, is literally on stage right now?
Speaker 6: Like how do you note that? Yes, but you don't
Speaker 6: think you should take it farther?
Speaker 4: Yeah, it's something for okay whatever, maybe if someone, oh
Speaker 4: there it is, someone tweet this out. There's still fourteen
Speaker 4: percent gains to be made. The IRR of fourteen percent
Speaker 4: in like thirty seconds of increduble anyway, when we see
Speaker 4: these odds, not for this market, apparently, but when we
Speaker 4: see these poly market and kelshy odds, et cetera. They say, whatever,
Speaker 4: how seriously should we take them?
Speaker 6: I take them at least as seriously as any other
Speaker 6: data point or source of information that we have available.
Speaker 6: They are the best thing we have.
Speaker 4: It's up to there's still a chance that you're not
Speaker 4: appearing on this stage right now.
Speaker 2: Yeah, wait, why do you they're the best thing we have? Like,
Speaker 2: please explain in the context of this still being stuck
Speaker 2: at ninety four percent.
Speaker 6: Well, if you're on the internet, what other source do
Speaker 6: you have other than the actual broadcast? Like obviously, if
Speaker 6: you're looking at the poll not just the polls, but
Speaker 6: like the actual ballots and you're like, oh, I guess
Speaker 6: we know who won, then that's better than a prediction market.
Speaker 6: But anything short of that that we have is going
Speaker 6: to be incorporated into the prediction market, right, So, like
Speaker 6: the polls, the aggrogations, the projections, all of that gets
Speaker 6: worked into how we trade the prediction markets. So for
Speaker 6: the prediction markets to be wrong, there has to be
Speaker 6: is thematic mistake. And those mistakes do happen, and you
Speaker 6: can in fact profit from them, but it cannot to
Speaker 6: be very large.
Speaker 4: Neil, what about real markets, and you know, you're always
Speaker 4: watching what's happened what I said, real markets, the ticker DJT,
Speaker 4: what's happening in rates, maybe regional banks. What are you
Speaker 4: like seeing over the last few days or what are
Speaker 4: you going to be sort of watching in terms of
Speaker 4: the real markets and how they trade.
Speaker 7: Well, I I mean, my work suggests that the sort
Speaker 7: of Trump trade, particularly with respective fixed income markets, wasn't
Speaker 7: so much Trump, I mean, as it was just stronger
Speaker 7: economic news. I mean, you have to remember that the increasing
Speaker 7: probability at least up until recently, that you know, Trump
Speaker 7: would you know, sweep into the White House. That was
Speaker 7: coinciding at a time of you know, meaningful data surprises
Speaker 7: to the upside, we had a strong job's number of
Speaker 7: strong retail sales. Jobless claims have been low. So I
Speaker 7: think it's less about politics and a lot more just
Speaker 7: about the data as it's been coming out. I mean,
Speaker 7: in terms of what I'm going to be watching in particular,
Speaker 7: my sense is that people will just replay the twenty
Speaker 7: sixteen playbook if if that's what happens, and if you
Speaker 7: get the alternative, in which case I think it's likely
Speaker 7: that you know a Vice President Harris Wins. You probably
Speaker 7: get a Republican center. You probably see, you know, a
Speaker 7: rally and fixed income.
Speaker 2: Scanda. What are you watching? Because with poles, so obviously
Speaker 2: there's a lot of you know, people have strong opinions
Speaker 2: about the usefulness of poles. I kind of think, like
Speaker 2: who is answering the phone anymore? If someone an unidentified
Speaker 2: number is calling them, it feels like there's a bias
Speaker 2: to towards a certain demographic that's actually picking up the phone.
Speaker 6: But what are you watching?
Speaker 8: Yeah, I mean I think there's a clear limit on
Speaker 8: what poles are going to be able to tell you
Speaker 8: be on a certain point. I think that itself just
Speaker 8: kind of tells you it's close.
Speaker 5: It's probably fifty to fifty.
Speaker 8: Your ability to discern whether it's fifty fifty or sixty
Speaker 8: forty is pretty limited, even like you could make a
Speaker 8: case for sixty forty for either side. But beyond this, like,
Speaker 8: we don't have a lot of information that polls tell
Speaker 8: us poles are scammier.
Speaker 3: Now what do you mean by that?
Speaker 8: There are some establishments that seem a little less scrupulous
Speaker 8: that do a good job of gaming the rating systems.
Speaker 8: So I guess like to give the finance analogy, so
Speaker 8: passive versus active, like the idea of just like, okay,
Speaker 8: just trust the aggregation more so than in visual polls.
Speaker 8: But now we have like a weird set of partisan
Speaker 8: or quasi partisan polsters that come in less transparent methodologies
Speaker 8: and the attempts to make process to better understand who's
Speaker 8: better who's worse.
Speaker 5: That's not great.
Speaker 8: So we actually have like aggregators that I don't pay
Speaker 8: as much attention to relative to. Just like, Okay, if
Speaker 8: there's a good poll from a whether it's a republican
Speaker 8: establishment or democratic establishment, there are some good ones on
Speaker 8: either side, I think that's got more information in it.
Speaker 8: But even then it's like very limited, there's a ceiling.
Speaker 8: I mean, I'd be more curious to see about the
Speaker 8: geographic distribution. So obviously the Sphing states come out seven
Speaker 8: pm onwards. We get some early states I report early
Speaker 8: but are read. Just seeing the geographic distribution is gonna
Speaker 8: be kind of interesting because that's actually the polarizing thing
Speaker 8: I see, which is urban like urban versus more democratic
Speaker 8: trending suburban versus rural, And it's like ultimately about the
Speaker 8: margins and how those shift relatives of twenty twenty. That's like,
Speaker 8: still not really clear about how many new Trump voters
Speaker 8: can come out of the would work there were a
Speaker 8: lot in twenty twenty and how much will a lot
Speaker 8: of those suburbs swing further to the left. Yeah, these
Speaker 8: are all kind of open questions, and I don't think
Speaker 8: we have great ways of betchmarking probability be on a
Speaker 8: certain point.
Speaker 4: Zv Anskanda, maybe can you explain the hurting controversy. I've
Speaker 4: been seeing a lot of tweets like upholsters are hurting
Speaker 4: and what's that? And then I don't know, how do
Speaker 4: you heard exactly? Like what is that all about?
Speaker 3: Like doing?
Speaker 6: So? The idea is, if you have a poll and
Speaker 6: you come up with the same results as every other pollster,
Speaker 6: and so everyone is saying Harris plus one or Trump
Speaker 6: plus one, you come out with Harris plus one or
Speaker 6: Trump plus one or zero, then no matter what happens
Speaker 6: in the election, this is not your fault, right, you
Speaker 6: didn't screw up. But if you were to say Harris
Speaker 6: plus four and then Trump wins that state, then suddenly
Speaker 6: everyone looks at you and goes, you're terrible, your career
Speaker 6: is over, You're an idiot, and to lesser extent if
Speaker 6: it's Trump plus four. So what a lot of these
Speaker 6: pollsters are very cretively doing batistical analysis for the polls
Speaker 6: is they are cooking their books, putting their fingers on
Speaker 6: the scale to make sure that their number comes back
Speaker 6: very close to what everyone else is saying. And there
Speaker 6: are only a few, like New York Times Morning consults
Speaker 6: that are clearly not doing that. And often they'll also
Speaker 6: do this thing where they'll take a poll and they'll
Speaker 6: see the result is like way off, and then maybe
Speaker 6: they just won't release it, or they'll find a way
Speaker 6: to adjust it or whatever they have to do. And
Speaker 6: Nate Silver recently posted recently on Twitter the chance of
Speaker 6: all these polls coming in this close even if the
Speaker 6: race was actually tied on the order of one in
Speaker 6: nine trillions. So it's clearly just not a coincidence.
Speaker 2: So what actually happens on prediction markets on election night?
Speaker 2: I imagine like things are going to be moving quite a bit.
Speaker 2: But also when does the actual payout occur for Trump
Speaker 2: versus Harris?
Speaker 6: So the payout depends on the exact terms of the contract.
Speaker 6: So four years ago, we had a lot of very
Speaker 6: interesting discussions going on behind the scenes, and a lot
Speaker 6: of very public yelling as different sites proposed to pay
Speaker 6: out based on the fact that Biden had actually won
Speaker 6: the election, and other people very much disputing that Biden
Speaker 6: hadn't won the election, and in fact buying Trump long
Speaker 6: after Biden had won the election. Yeah, I made some
Speaker 6: money on that. That was kind of awesome. And so
Speaker 6: I mean, like the bets before election day, they did Okay,
Speaker 6: I won them, but I should have held my money.
Speaker 6: The bets afterwards so much better. But the way it
Speaker 6: works is there's a technical rule for when the bet
Speaker 6: pays out, and this convey based on where you bet.
Speaker 6: So what are the ways to do it? Did you say, Okay,
Speaker 6: if the networks call the election, then that counts because
Speaker 6: they're being very conservative these days. And then we pay
Speaker 6: out immediately no matter what happens. And that way you
Speaker 6: don't have to hold it for weeks and weeks, including
Speaker 6: if there's another dispute, which you know, we all hope
Speaker 6: there isn't, but you never know that.
Speaker 4: The way happened, it occurred to me, so you're now
Speaker 4: at ninety six percent chance of appearing on odd lats.
Speaker 4: It occurred to me there may be some ambiguity of
Speaker 4: the rules because this this audio could I don't want
Speaker 4: to jinx it, but maybe it never comes to see
Speaker 4: the light of day. And so maybe just the same
Speaker 4: way people are wondering the technical rules of your contract
Speaker 4: here and whether interviewing you on the stage is the
Speaker 4: same as appearing on the podcast. Let's get to a
Speaker 4: little macro neil monetary policy. Have you been contacted about
Speaker 4: being either the next fed share or being on the
Speaker 4: FOMC in the event of.
Speaker 3: A Trump victory.
Speaker 7: What are you trying to say?
Speaker 3: I am not saying anything.
Speaker 4: I'm simply asking whether the transition team has reached out
Speaker 4: not a role.
Speaker 7: I've not been contacted, and I wouldn't expect you, though
Speaker 7: I know people that are that traffic in those circles.
Speaker 4: Okay, do you what do you like when you think
Speaker 4: about the medium term trajectory of monetary policy under a
Speaker 4: theoretical Trump administration or a Harris administration. Does tomorrow night
Speaker 4: sort of change your outlook on that type of policy?
Speaker 7: Not really? I mean I think in terms of what
Speaker 7: I typically do, as you know, I don't let political
Speaker 7: outcomes really affect my kind of near term decision making
Speaker 7: in terms of what my monetary policy call is going
Speaker 7: to be. I think the next few rate cuts are
Speaker 7: really just baked, I mean, regardless of who wins. And
Speaker 7: that's because I think the underlying dynamics in the economy
Speaker 7: are still kind of pointing to slower growth, benign inflation,
Speaker 7: and probably ongoing monetary policy recalibration. So I don't think
Speaker 7: that's going to change, you know, before the first quarter
Speaker 7: of next year. So I think they'll they'll keep cutting.
Speaker 7: It's really just about how much they will gone to.
Speaker 2: I'd be curious to get your take on this as well,
Speaker 2: like what kind of economy or how would you characterize
Speaker 2: the economy that either Harris or Trump will inherit.
Speaker 8: So, I mean, all things considered, like employment's still very high,
Speaker 8: inflation is generally falling. I mean, each month is their bumps.
Speaker 8: That's not a bad hand to be given. Productivity growth
Speaker 8: looks like it's picking up a gear at least for
Speaker 8: the time being. All these things are pretty good at
Speaker 8: the same time. To Neil's point, there are gonna be
Speaker 8: some foreseeing signs that growth will be slower in Q
Speaker 8: four and probably Q one, and for that reason, like
Speaker 8: we're kind of see some some bumps in the road.
Speaker 8: I don't think that policy is going to be changing
Speaker 8: on a dime, even if like Trump goes for really
Speaker 8: aggressive tariffs. These are not things that will be done overnight.
Speaker 8: And so that's like the kind of friction in the system.
Speaker 8: Everyone likes to talk about politics and how it's relevant
Speaker 8: to markets, and there will be some election reaction, but
Speaker 8: it's like as twenty sixteen kind of told you, right,
Speaker 8: whatever correlation structure was their pre election, doesn't it to
Speaker 8: be their pro selection. And I do think that's like
Speaker 8: something is to be mindful of. As far as like
Speaker 8: policy will take more time to change, I think it's
Speaker 8: pretty clear that if it's a Harris administration, it's probably
Speaker 8: with the Republican Senate, there's like some compromise on tax policy.
Speaker 5: You're not going to get big things done.
Speaker 8: But I don't think there's even like a huge appetite
Speaker 8: within the Democratic Party to do big things. That's a
Speaker 8: little different in terms of like like they've already passed
Speaker 8: all legislation, right, but in terms of Republicans they actually
Speaker 8: have a.
Speaker 5: Good shot at trifect though.
Speaker 8: Right if that happens, then the box opens up. They
Speaker 8: might cut corporate taxes more, but there's also more discretion
Speaker 8: on like trade and immigration that Trump could wield.
Speaker 7: Well, I was just gonna say, I mean, if you
Speaker 7: go back to twenty seventeen, remember that discussion around monetary offset.
Speaker 7: We were all talking about monetary offset because the idea was, well,
Speaker 7: you know, Trump is going to be this sort of
Speaker 7: inflationary demon, and you know the Fed has to do
Speaker 7: all this sort of rate hikes to offset. And in hindsight,
Speaker 7: there wasn't really a monetary offset. They ended up doing
Speaker 7: more or less what they were planning to do. So,
Speaker 7: you know, I just think it's it's important to kind
Speaker 7: of try to separate these things out and just sort
Speaker 7: of take the world as it comes to you. I
Speaker 7: think that's as opposed to trying to forecast in front
Speaker 7: run sort of potential fiscal outcomes.
Speaker 3: I mean, if you're the.
Speaker 4: FITZV, do you see anyone, Well, you're back down to
Speaker 4: fifty percent.
Speaker 6: How did that happen?
Speaker 3: We've fallen.
Speaker 4: Someone hit the cell and apparently the order book must
Speaker 4: not be They're like, all right, I'm going to take
Speaker 4: my profits at ninety six percent. And I guess the
Speaker 4: order book was pretty thin because whoever just sold you like,
Speaker 4: really got a bad price on that, So you shouldn't
Speaker 4: have sold whoever that was.
Speaker 3: Oh okay, there you go. Yeah, it gotta get we
Speaker 3: gotta get some liquidity.
Speaker 4: Here is anyone doing, like, do you see people in
Speaker 4: your world trading cross between the prediction markets and the
Speaker 4: real the real markets, I don't know what to call them,
Speaker 4: oh market, you know. Do you see much of that
Speaker 4: where it is like, you know, this should this level
Speaker 4: of confidence in Trump is not consistent with this thing
Speaker 4: we're seeing in I don't know, bitcoin or something like that.
Speaker 3: Are you seeing much of that?
Speaker 6: So you earlier asked what happens on election night, and
Speaker 6: what happens on election night is that the odds will
Speaker 6: move dramatically and they will respond very quickly to every
Speaker 6: piece of news. And there's both the reaction that happens
Speaker 6: when the news is available to those who are paying attention.
Speaker 6: So like if the counties file their numbers online, there's
Speaker 6: some people who are downloading the information from the counties
Speaker 6: and they have their spreadsheets ready and they're analyzing all
Speaker 6: the details and they're trying to stay ahead of the game.
Speaker 6: And then there are the people who are watching the
Speaker 6: news and they're like, oh, they've network called Wisconsin and
Speaker 6: then they suddenly you know, the money comes in.
Speaker 4: But of course it's kind of embarrassing, isn't it, Like
Speaker 4: I remember that last time, Like the people always following
Speaker 4: on Twitter clearly new stuff before the official calls, and
Speaker 4: yet the market seem to react to the calls in
Speaker 4: many cases.
Speaker 6: That's right, So if if you know what the calls
Speaker 6: are going to be, you can clearly make some money
Speaker 6: by doing something before the market moves. But this is
Speaker 6: often true of that there's there's one set of people
Speaker 6: who have one set of information and those lot of
Speaker 6: people who have a different set of information, which is
Speaker 6: coming to them slower. Right, they're more square action, they're
Speaker 6: more less sophisticated, and they still help make the market
Speaker 6: more accurate in general, but they're often predictable somewhat in advance.
Speaker 6: But they're all transaction cost about Neil, I know, people
Speaker 6: only have so much capital, Like all the major players
Speaker 6: on election night are going to be somewhat capital constrained
Speaker 6: in the prediction markets because they're often going to see
Speaker 6: there's some sort of systematic miss pricing, there's some sort
Speaker 6: of opportunity and they're going to have to watch their
Speaker 6: bankrolls and make sure they don't spend too much. Right,
Speaker 6: So in a situation where everyone's looking for these big
Speaker 6: miss pricings, but then like you have these different waves
Speaker 6: and then one of the things that you notice is
Speaker 6: the early movement on the prediction markets is often actually
Speaker 6: ahead of the financial market movements and things like currency
Speaker 6: things that are open and you can in fact make
Speaker 6: money for real if you are watching about this, because
Speaker 6: the beta thing is real. Right, so like you go
Speaker 6: touch not you say, okay, what is going to be
Speaker 6: the trump you know beta for everything in the world, right,
Speaker 6: every currency exchange, every index that's still trading, whatever you
Speaker 6: can get and if it was going on during market hours,
Speaker 6: it would be so much more fun.
Speaker 2: Wait, who's actually trading on the prediction markets? Like walk
Speaker 2: us through the typical person who's doing this and whether
Speaker 2: or not that introduces some bias into the probabilities because
Speaker 2: I imagine, you know, for something like poly market, you
Speaker 2: have to have a VPN, you have to be somewhat
Speaker 2: crypto literate. L Yeah, so like does that influence some
Speaker 2: of the numbers that we're seeing.
Speaker 6: So you could be a French multi millionaire. You could
Speaker 6: be a Scottish teen is the other traditional joke. But
Speaker 6: the answer is, you know, all types of people around
Speaker 6: the world are getting into it, but yes, because it's
Speaker 6: poly market. You see a difference between poly market and say,
Speaker 6: you know Calshi or you know these other sources predict
Speaker 6: it that are allowing Americans in and that aren't crypto,
Speaker 6: because there's absolutely a bias in who has easier access
Speaker 6: to polymarket, who wants to get involved in poly market,
Speaker 6: who's eager to do that, and that bias is favoring
Speaker 6: Trump this year, Trump is much more for a crypto.
Speaker 6: You see these associations in various different ways. So polymarket
Speaker 6: has been several points stronger for Trump than other similar
Speaker 6: prediction markets. And you could also of course argue that like, no,
Speaker 6: it's polymarket, that's fine, and then everyone else is biased
Speaker 6: and like you know, who is really to say?
Speaker 3: You're up to ninety eight point six.
Speaker 4: Now, Scanna, tell us more about what specifically you're going
Speaker 4: to be watching. You mentioned the rural urban splits that
Speaker 4: even in the red areas we may get signal from
Speaker 4: some of these things. Are there bell weather counties that
Speaker 4: are useful to watch Wakeosha County, Wisconsin is like a
Speaker 4: crucial Waukeasha County. Now you're done to fifty percent? Uh?
Speaker 4: Is there anything like that? Like what a what are
Speaker 4: talk more about? How you're going to be consuming the
Speaker 4: information to man?
Speaker 3: Yeah?
Speaker 8: Bell Weather counties are basically fake, right, So like what matters?
Speaker 8: Like you can have We've had a twenty twenty twenty
Speaker 8: sixteen where the p packing, isn't it.
Speaker 4: Because you can always find some county that always vote
Speaker 4: for the winner but doesn't necessarily manage.
Speaker 8: I mean we have every county is moving somewhere at
Speaker 8: the margin, right, and every marginal vote counts. So if
Speaker 8: like let's say Harris is really well at just trimming
Speaker 8: Trump's margins and rural counties, that's like a big deal.
Speaker 8: In the same way that Trump's ability to amplify them
Speaker 8: in twenty twenty was very underrated by the polls, by
Speaker 8: general expectations among forecasters that he was able to scale
Speaker 8: rural turnout even the percent margins, which people obsess about.
Speaker 8: Percentage margins in a lot of deep red counties did
Speaker 8: narrow in twenty twenty, but just because turnout was ramped
Speaker 8: up even further, Trump got more margin and so a
Speaker 8: lot of states were a lot closer than what the
Speaker 8: polls predicted. You find your ways to cluster the counties,
Speaker 8: whether it's an urban, suburban, ext urban, rural, whatever way
Speaker 8: you want to swing it, that cluster every single one matters, right,
Speaker 8: every part of it. Like there's going to be some
Speaker 8: movement among the urban counties those that among that are
Speaker 8: trending blue, and every vote counts on either on all
Speaker 8: of them. So it doesn't really make a lot of
Speaker 8: sense to like obsess about a particular county where if
Speaker 8: it slips from red to blue, that can happen at
Speaker 8: the exact same time a bunch of red counties that
Speaker 8: are deep red become even redder.
Speaker 5: And that's like what happened in Florida for example.
Speaker 8: Right, So we had a like Pinelli's County was highlighted
Speaker 8: as that chooses the winner. It wasn't in twenty sixteen.
Speaker 8: It was Hillsborough County and that wasn't right. So these
Speaker 8: these flip blue and it didn't really matter. And it's
Speaker 8: just that's a good warning for a lot of this
Speaker 8: election I coverage.
Speaker 9: Neil.
Speaker 2: I know one of your favorite things to do is
Speaker 2: to tear apart the ism Manufacturing survey. What happened to
Speaker 2: the vibes like the soft data post the election, and
Speaker 2: how should we measure it? I guess not the ism clearly.
Speaker 7: Well, I mean you mean when right.
Speaker 2: Now, no, after the election, next week?
Speaker 7: I mean I think you would. I would expect to
Speaker 7: see a pretty meaningful increase in consumer confidence and small
Speaker 7: business sentiment, primarily because you know, small business sentiment. I
Speaker 7: mean that survey really skews you know, I mean, think
Speaker 7: about who's putting it out. It's the NFIB. What do
Speaker 7: they do. They're a lobbying an organization on behalf of
Speaker 7: you know, sort of right wing causes. So my sense
Speaker 7: is that the small business sentiment number would go up
Speaker 7: a lot, consumer confidence would probably go up a lot too.
Speaker 7: Whether that actually translates into real consumer spending, I have
Speaker 7: my doubts, but that's kind of what you saw after
Speaker 7: the twenty sixteen period, right And similarly, you saw a
Speaker 7: big decline in sentiment after you know, after the twenty
Speaker 7: twenty election, but again that didn't really translate into what
Speaker 7: people were actually doing. So, you know, I think twenty
Speaker 7: sixteen was an interesting case because things like the ism
Speaker 7: which you mentioned, I mean Trump was coming into office
Speaker 7: at that time at the front edge of sort of
Speaker 7: a global manufacturing recovery. So this is, you know, the
Speaker 7: so called sort of Trump boom. I mean that was
Speaker 7: it was an Abe boom, and it was a you're
Speaker 7: you know, you saw that in a Macron boom. I
Speaker 7: mean it was everyone was kind of feeling it at
Speaker 7: at the time, so it wasn't just us specific.
Speaker 3: This time around.
Speaker 7: I mean, manufacturing frankly looks a little sluggish. I mean
Speaker 7: there there hasn't really been much. There's been a lot
Speaker 7: of construction of manufacturing facilities, and I know Scan's Scanda
Speaker 7: has been pointing that out quite a bit, but but
Speaker 7: if you look at actual manufacturing production, you know, it
Speaker 7: hasn't really been great shakes.
Speaker 4: Is election uncertainty and you see this like in the
Speaker 4: anecdotal comments on some of these surveys, whether it's the
Speaker 4: is M or the Dallas FED, which always has very
Speaker 4: colorful anecdotal aspects. Is election uncertainty real or is that
Speaker 4: just a code word for people who preferred Trump hoping
Speaker 4: that that's the outcome and then that maybe changing their
Speaker 4: outcome out their outlook.
Speaker 5: I'm sure it's probably both. I think there's like something.
Speaker 3: I really deals not happening. He's like, I don't, we
Speaker 3: don't know.
Speaker 8: I think, like, I'm serious, but we'll think about all
Speaker 8: the enacted legislation. Right, So, if you say there's like,
Speaker 8: if let's say Ira, maybe parts of chips that have
Speaker 8: come up under scrutiny or parts of the infrastructure wal
Speaker 8: if these are all things that are cast as these
Speaker 8: were all left wing items that Biden passed, and if
Speaker 8: it's like depends on whether Trump's going to be an
Speaker 8: office or not. If you perceive it as like, well
Speaker 8: it's a fifty fifty proposition. If Harris is in place,
Speaker 8: then it's goin to stick. If Trump's in.
Speaker 5: Place, it may or may not stick.
Speaker 8: Then I can actually see like a case for like,
Speaker 8: if you have any business attached to a government contract
Speaker 8: or a government subsidy that might actually be genuine.
Speaker 5: I think that I think there's also some partisanship.
Speaker 7: I think generally speaking in my career, I mean, you
Speaker 7: talk about these sort of formal measures of policy uncertainty,
Speaker 7: like the one from Nicholas Bloom that's widely cited. My
Speaker 7: experience is that when that index is high, it's usually
Speaker 7: a time to go long equities right when so, so
Speaker 7: when policy uncertainty is high, it's usually a time to
Speaker 7: dip your toe into the market. It's a buying opportunity
Speaker 7: for stock historic.
Speaker 2: Can we go out in the line and talk about
Speaker 2: like what everyone's day is actually going to look like tomorrow?
Speaker 2: Like how are you spending the election? Let's start with Neil.
Speaker 7: So, like I said, I mean, the election is actually
Speaker 7: a very small part of what I try to do
Speaker 7: on a day to day basis. I'll probably i mean
Speaker 7: just a front run aer. I'll probably be spending some
Speaker 7: of my spare hours working on this piece that I
Speaker 7: was talking to you about.
Speaker 4: You we have a new daily odd Latch newsletter, and
Speaker 4: Neil has promised to be one of the contributors, and
Speaker 4: so we have a piece coming from him.
Speaker 7: So it just sort of gives me an opportunity to
Speaker 7: kind of take a step back because I have no edge.
Speaker 7: I don't try to pretend to have an edge on
Speaker 7: political stuff. And you know, one of the things I've
Speaker 7: been thinking about is just the sort of you know,
Speaker 7: this neutral interest rate. I mean, you know, FET's talking
Speaker 7: about it all the time and just exploring the ideas.
Speaker 7: They're like a dual neutral rate. I mean, for example,
Speaker 7: the neutral rate for housing, I mean whatever it is
Speaker 7: that it's not working. I mean, housing is not working
Speaker 7: with mortgage rates here, So the neutral rate for housing
Speaker 7: is clearly a lot lower than maybe it is for
Speaker 7: say the housing I mean the labor market.
Speaker 6: I don't know.
Speaker 7: I mean so did and so if if if you
Speaker 7: sort of buy into that, I mean, it would imply
Speaker 7: that the FED needs to do a bit more to
Speaker 7: get you know, certain areas of the economy going. And
Speaker 7: if the Fed's lost the ability to stimulate housing, you know,
Speaker 7: I think that that's a that's a potential problem. So
Speaker 7: I'll probably be focusing more of my time on that
Speaker 7: as opposed to checking out the returns in I don't
Speaker 7: know what is it, Cuyahoga County or something.
Speaker 8: I too am working on a piece for thover that
Speaker 8: that that that sir forthcoming as well on productivity. But
Speaker 8: I look, elections are people like numbers changing and like
Speaker 8: following them, which is probably most of you, I'm gonna
Speaker 8: guess on some level. If you're interested in finance and markets, Yeah,
Speaker 8: it's just a fun exercise of like seeing.
Speaker 5: How margins shift.
Speaker 8: I have some spreadsheets prepared for myself just to kind
Speaker 8: of track things if the New York Times needle isn't
Speaker 8: up and running, and yeah, I'll probably take it easy
Speaker 8: in the day, but I'll maybe I'll catch a nap
Speaker 8: and then.
Speaker 5: I will probably be up till at least three am.
Speaker 6: So as a writer, I want people to read what
Speaker 6: I'm writing, and I want them to think about it
Speaker 6: and pay attention to it and learn from it, and
Speaker 6: I want to influence them. So this past week has
Speaker 6: been a case of if I write about something, no
Speaker 6: one's going to pay much attention to it because they're
Speaker 6: going to be focused on the election. And so I
Speaker 6: kind of take this time off because I'm not going
Speaker 6: to try and put anything up except for my weekly
Speaker 6: update until after the election is settled. So instead I've
Speaker 6: had a chance to like program some tools that are
Speaker 6: going to help me write over the long term. I
Speaker 6: might go see a movie, have a nice long lunch,
Speaker 6: you know, relax, and then of course in the evening
Speaker 6: I'm going to absolutely be following. I'll have the prediction
Speaker 6: markets up in various windows and various devices.
Speaker 3: How many screens do you have?
Speaker 6: I have three thirty inch screens, so I have I
Speaker 6: have one horizontal and two vertical on the two sides. Yeah,
Speaker 6: the trader you have six. But now that I'm trying
Speaker 6: to stay away from that, like I think that three
Speaker 6: is about right. And so you know, about one of
Speaker 6: them will probably be various prediction markets, especially Polymarket, and
Speaker 6: various different markets within them, So you need a lot
Speaker 6: of space. And then you know, you're watching the television
Speaker 6: like everybody else, and you're watching Twitter, and you know
Speaker 6: you're just trying to get through it and process it
Speaker 6: because you know that, like even if you don't really
Speaker 6: want to pay quose attention, Like, what else are you
Speaker 6: going to do tonight?
Speaker 3: Sorry? What else is anyone going to be doing?
Speaker 5: Wait?
Speaker 4: Real quickly, why is there not Why has the spread
Speaker 4: on some of these markets between the say Kelsey and
Speaker 4: Polymarket not been harbed away.
Speaker 3: What is the constraint to free money?
Speaker 6: The constraints is liquidity and access to the market, and
Speaker 6: the capital costs of committing the capitol to multiple places
Speaker 6: moving the money in and out. You know, everyone's kind
Speaker 6: of a little bit terrified every time they initiate any
Speaker 6: crypto transaction that somehow they don't and it's going to
Speaker 6: finish or something wrong is going to happen. I mean,
Speaker 6: it's it's very very unlikely in any given transaction it's
Speaker 6: going to happen. But you know, I definitely have an opinion.
Speaker 6: By the way, I want to be clear, like when
Speaker 6: I say, like who knows which one is wrong? I
Speaker 6: very strongly believe that the poly market line is the
Speaker 6: one that is biased in the situation due to the
Speaker 6: access issues, Whereas I think that the line at the
Speaker 6: other markets is much more effective of what the line
Speaker 6: kind of showed in some air quotes.
Speaker 4: Sense be actually real quickly, Skanda, Since you mentioned productivity
Speaker 4: and I know you have some thoughts on productivities via
Speaker 4: In fact, you just mentioned coding up some tools to
Speaker 4: make your life as a writing easier, I think you
Speaker 4: both have some different You think we're going to have
Speaker 4: like fifty percent GDP growth in the coming year on
Speaker 4: year because of AI or something like that.
Speaker 6: No, not fifty percent this year.
Speaker 4: No, but no, like you give us the give us
Speaker 4: the short the short synopsis of what you think is
Speaker 4: coming for productivity growth.
Speaker 6: I think that the the skeptical line on productivity growth
Speaker 6: is we're talking about you know, percents per year every
Speaker 6: year on the course of ten to twenty years. And
Speaker 6: I think that's sort of the the ultimate barecase for AI.
Speaker 6: It doesn't do what we want it or expect it
Speaker 6: or hope it would do. And the bual case singularity
Speaker 6: super intelligence, we're all completely transformed.
Speaker 4: Great, Uh, it's Kanda, what's your what's the gist of
Speaker 4: the productivity? And then also Neil, but what's the gist
Speaker 4: of your productivity piece that you have coming for the
Speaker 4: odd lasted daily newsletter.
Speaker 8: Yes, so just speaking in terms of the realized data,
Speaker 8: and I try to start from how the data measured,
Speaker 8: what what are we actually capturing which may not be
Speaker 8: indicative of sort of conceptually what we assay say the
Speaker 8: productive productivity, but proctivity growth is actually outperformed post pandemic
Speaker 8: in a pretty meaningful sense relative to what we were
Speaker 8: seeing pre pandemics or pre pandemic was roughly one zero
Speaker 8: point four percent. If it takes sort of longer look
Speaker 8: backs and we've been done put post pandemic period something
Speaker 8: like two percent. Maybe it's one point nine, maybe it's two.
Speaker 8: But that's like on an anualize basis, that's pretty meaningful deviation.
Speaker 8: And there are like a lot of reasons why but
Speaker 8: I think that it all kind of has to come
Speaker 8: back to, like the measured set of transactions inflation adjusted
Speaker 8: divided by total hours worked. That is basically our most
Speaker 8: measurable version of productivity. It comes with lots of flaws.
Speaker 8: For example, Google maps that everyone uses on a day
Speaker 8: to day basis, right, it's ads supported, Right, it's not
Speaker 8: supported by a final expenditure. It should filter in somehow
Speaker 8: into our productivity statistics, but we don't have a great
Speaker 8: way of saying now and estimating.
Speaker 5: That's actually really hard.
Speaker 8: So for example, there's a lot of things that AI can
Speaker 8: make our lives very efficient and the same way the
Speaker 8: Internet's made our lives very efficient, but it didn't necessarily
Speaker 8: lead to a lot of transactions.
Speaker 5: And that's kind of the open question.
Speaker 8: That's like, for a lot of AI breakthroughs, how that
Speaker 8: leads to it may improve a lot of welfare, But
Speaker 8: the actual nuts and bolts of how it leads to
Speaker 8: more people spending in ways that are reflecting real things
Speaker 8: and not price increases, that is like actually a big
Speaker 8: part of the ballgame.
Speaker 3: Neil An, your thoughts of productivity.
Speaker 7: I mean, I agree with Scanda. The measure data is
Speaker 7: what the measured data is or the data are I
Speaker 7: mean's over it's you know, two percent, that's very strong.
Speaker 7: I think for what that means for me is that basically,
Speaker 7: this is one reason why we should not worry about inflation, okay,
Speaker 7: and and that and that should give the FED, you know,
Speaker 7: plenty of cover, right being, And this is something we
Speaker 7: talked about earlier in the year, right is that it's
Speaker 7: one thing to just see the inflation data it's going
Speaker 7: up without having like a rational framework for why it's
Speaker 7: going to keep doing that. And you know, the fact
Speaker 7: that productivity has been fairly robust over the last year,
Speaker 7: I think it means a couple things. Number One, we
Speaker 7: should sort of resist the temptation to kind of buy
Speaker 7: into the stagflation store. You can't really have stagflation of
Speaker 7: productivity is doing what it's doing. But it also makes
Speaker 7: the likelihood of like some inflation reacceleration highly unlikely as well,
Speaker 7: like where is it coming from? Unit labor cost growth
Speaker 7: over the last year is basically zero, So, you know,
Speaker 7: for a FED that has a very labor market centric
Speaker 7: view of how the inflationary process works, the robust growth
Speaker 7: and productivity that we've seen, I think is an important
Speaker 7: kind of you know story in terms of mitigating inflation risk.
Speaker 2: If you had to choose, what would you say is
Speaker 2: the biggest constraint for Trump and Harris both?
Speaker 6: Like?
Speaker 2: Is it political? You know, maybe like Harris gets in
Speaker 2: and doesn't have a trifecta like maybe the Republicans would have.
Speaker 2: Is it something like the deficit? Choose one for each.
Speaker 7: Well, I mean, personally, I think that it's going to be.
Speaker 7: I mean, the markets have been sort of like, oh,
Speaker 7: the unified GOP. But I mean even if Trump, even
Speaker 7: if it was to be a unified GOP government, the
Speaker 7: margins in the House would still be very very thin.
Speaker 7: It's not like they can just steamroll whatever the hell
Speaker 7: he wants, you know, next year. But I would I
Speaker 7: would probably say the bond markets the constrain. I mean,
Speaker 7: you have to be worried about how what's the appetite
Speaker 7: going to be in the fixed income market to fund
Speaker 7: a huge sort of deficit, you know, spending plan.
Speaker 2: Skanda.
Speaker 5: I go back to the politics.
Speaker 8: I think like American government makes it very hard to
Speaker 8: pass things in general, and the wisdom of that where
Speaker 8: everyone wants a debate. It's just even under a unified government.
Speaker 8: To Neil's point, like Lisa Murkowski still has a lot
Speaker 8: of leverage, Susan Collins has a lot of leverage.
Speaker 5: They probably will pass some things.
Speaker 8: It's easier to pass things under unified government than under
Speaker 8: divide government. But that's probably still binding constraint. It was
Speaker 8: the constraint on Biden in one twenty twenty two. I mean,
Speaker 8: even though interest rates are going up, the real question
Speaker 8: was was Joe Manchin willing to say yes to? And
Speaker 8: so even if like we can debate how much, what's
Speaker 8: the nature of public finance constraints? Oftentimes they are re
Speaker 8: used ultimately to like the hardball legislative politics.
Speaker 4: I've alluded to this before, and I don't want to
Speaker 4: like let it shade my view, but I would like
Speaker 4: mortgage rates to come down in the next two years.
Speaker 4: Do we need to get do we need to like
Speaker 4: do we need a spending crackdown? Do we need to
Speaker 4: go into austerity mode to get mortgage rates back to
Speaker 4: roughly somewhere on the ballpark of the twenty tens.
Speaker 8: I mean, I would say, to the extent you can
Speaker 8: free of real resources, right, yeah, I mean to the
Speaker 8: extent that you're actually reducing inflation or getting the FED
Speaker 8: to be more confident about the willingness to lower interest rates.
Speaker 5: That would probably be the main methods.
Speaker 4: I won't let my mortgage affect how I assess the economy.
Speaker 8: But I'm just saying, yeah, but I think that's like
Speaker 8: a tricky thing. You can do a lot of deficit
Speaker 8: reduction that doesn't necessarily move the needle on inflation or
Speaker 8: the fence reaction function. But like health care costs for example, right,
Speaker 8: health care costs in general need.
Speaker 5: To be constrained. They do have a pretty direct role
Speaker 5: in inflation outcomes.
Speaker 8: And because of those two things, that's a pretty strong
Speaker 8: nexus for if we could reduce health care inflation by
Speaker 8: half a percentage point each year, that would be a
Speaker 8: very big deal for what the FED will We'll probably
Speaker 8: get to the last mile of whatever the Fed's trying
Speaker 8: to achieve. V.
Speaker 4: Can you say a little bit more like about the
Speaker 4: spreadsheets set up that and you scotn do you mentioned
Speaker 4: your spreadsheets too? As that data is coming in tomorrow,
Speaker 4: I mean, this is what we really care about, right,
Speaker 4: Like the numbers start to come in, they get posted
Speaker 4: on what secondary of state websites, et cetera. Like how
Speaker 4: are the traders ingesting that in that process to be
Speaker 4: ahead of like when the network's the cold Wisconsin.
Speaker 6: So it's gonna vary a lot from trader to trader,
Speaker 6: from house to house, and you know, a remarkably large
Speaker 6: number of people just don't do this. And that's clear
Speaker 6: by because you look at the financial markets over time,
Speaker 6: like I haven't followed the most recent was like twenty
Speaker 6: twenty two that carefully in terms of the reactions, but
Speaker 6: you definitely see these delays, and like if there was
Speaker 6: a lot of participants in the market who were keeping
Speaker 6: close eyes and incorporating that money that information instantly, that
Speaker 6: wouldn't happen. So the right ways to do it involve
Speaker 6: things like setting up automatic interfaces with these websites to
Speaker 6: just pull things into your spreadsheets. Right, so you have
Speaker 6: your Excel spreadsheets that contain all of the county by
Speaker 6: county data from all of the returns, and then ideally
Speaker 6: you want to figure out what that implies about the results,
Speaker 6: and the technically correct way to do that is a
Speaker 6: basy in calculation. It takes a new account all the
Speaker 6: information because you don't know which piece of information you're
Speaker 6: going to get, so you need to know how to
Speaker 6: feed them into your calculation, and then that should then
Speaker 6: output a range of distributions with various probabilities of various
Speaker 6: different outcomes, and you price that into your beta on
Speaker 6: various things based on those elements, and you figure out
Speaker 6: what the prices are supposed to be, and then you
Speaker 6: make the good trades.
Speaker 2: See weren't you at Jane Street before? What was an
Speaker 2: election night? Like there?
Speaker 6: Well, I mean all hands on deck, right, so everyone's there.
Speaker 6: It's a working night, and you use what tools you have,
Speaker 6: and you you know, use what instruments are available for
Speaker 6: you to trade because it's the middle of the night.
Speaker 6: So like you know, obviously if the US dock market
Speaker 6: was opened, everything would be dramatically different. But you are
Speaker 6: somewhat limited, right, I.
Speaker 4: Have one last question as an AI productivity optimist, Like
Speaker 4: I don't know anything about how to code a system
Speaker 4: that will ingest all the data and set up a
Speaker 4: basian model in your vision of what AI could do.
Speaker 4: Can I in a couple of years, could I go
Speaker 4: to Chad GBT and say, like, write the code that
Speaker 4: will pull this in and then build some kind of model.
Speaker 6: You can do that now?
Speaker 9: All right?
Speaker 6: All right?
Speaker 3: Vs?
Speaker 4: Skanda and Neil. Thank you so much. I feel prepared.
Speaker 4: V is it ninety one percent? So there's still some
Speaker 4: ambiguity about whether he was on stage.
Speaker 2: Or We're still.
Speaker 6: All right?
Speaker 2: The final stretch here with Brad Setzer, Senior fellow at
Speaker 2: the Council for Foreign Relations. Who better to tie up
Speaker 2: all the disparate things we've been talking about in the
Speaker 2: previous two sessions, then, Brad, we always enjoy speaking with
Speaker 2: you because we can basically throw anything at these Yeah,
Speaker 2: I'm pretty sure you might be close to the top
Speaker 2: for number of odd loots appearances. But why don't we
Speaker 2: start with something really specific? Because you published a paper
Speaker 2: recently all about globalization. The title is the Surprising Resilience
Speaker 2: of Globalization, an examination of claims of Economic fragmentation, and
Speaker 2: your conclusion was basically that we are still globalizing, and
Speaker 2: to some extent since twenty sixteen, we've globalized even more.
Speaker 2: Walk us through how you come to that.
Speaker 9: Well, First, thanks for inviting me, and thanks for asking
Speaker 9: me about my recent paper. You are the first person
Speaker 9: who actually seems to have read the whole title.
Speaker 2: I promise I did actually read it. I read it
Speaker 2: earlier today, but I'm.
Speaker 9: Impressed, and then thanks to everyone for sticking around. Appreciate it.
Speaker 9: So most papers, or many of my papers, originate out
Speaker 9: of a sense that a narrative has taken hold, and
Speaker 9: that narrative is sort of perpetuated itself, even when that
Speaker 9: narrative isn't fully backed by all of the detailed data.
Speaker 9: And there have been two narratives that have been you know,
Speaker 9: they're closely related, narratives that have been very prevalent and
Speaker 9: prevalent at the IMF, prevalent at Davos, prevalent in the
Speaker 9: financial media, prevalence on Bloomberg. One is that the world
Speaker 9: is deglobalizing, and the other, which is related but not
Speaker 9: quite the same, as the world is fragmenting, different political
Speaker 9: blocks are interacting less economically. That thesis seemed at odds
Speaker 9: with a couple of things. One I spend a lot
Speaker 9: of time. Don't ask why trade in pharmaceuticals. No, It's
Speaker 9: just it's an interesting subsector of the global economy. It's
Speaker 9: a hobby. Yeah, I mean, I'm certainly not paid from
Speaker 9: my odd take on the pharmaceutical industry. And the pharmaceutical
Speaker 9: industry has continued to globalize. US imports of pharmaceuticals have
Speaker 9: doubled since twenty sixteen. The US imports from low tax jurisdictions,
Speaker 9: which is a big part of pharmaceutical trade. It's not
Speaker 9: with low cost jurisdictions, it's low tax duristictions. About half
Speaker 9: of our imports are from five tax hubs. They've doubled.
Speaker 9: One quarter of those imports come from the great Country
Speaker 9: of Ireland. So that's not a story of deglobalization. That
Speaker 9: is a story of continuity. It's a story of globalization
Speaker 9: continuing because there's a tax advantage filter globalization. But then
Speaker 9: the other component of the argument is the one that
Speaker 9: sort of irritates people. I looked at the data. Everybody
Speaker 9: tries to look at the data. And you know, if
Speaker 9: you look at the data for China, biggest economy and
Speaker 9: the biggest potential source of fragmentation, I mean, you can
Speaker 9: fragment with Russia, which has happened, but fragmenting with China
Speaker 9: would be big. And I didn't really see the evidence.
Speaker 9: So China's exports to the world are up by about
Speaker 9: of manufacturers or up by about a trillion dollars since
Speaker 9: twenty nineteen, so since the peak of the trade war,
Speaker 9: since the pandemic. China's imports are up, manufactures up two
Speaker 9: hundred billion, China's surplus of manufacturer goods is up eight
Speaker 9: hundred billion. And I'm pretty confident because I have some
Speaker 9: sense of magnitudes. Is that's not all trade with Russia.
Speaker 9: There's a little bit which is trade with Russia, but
Speaker 9: it is mostly because trade deficits amongst democracies have risen.
Speaker 9: So the classic offsets to China's surplus or are the
Speaker 9: deficits in the UK, the US, and India not geopolitically
Speaker 9: aligned with China, but the global counterpart. So my overarching
Speaker 9: thesis is the world has continued to globalize, but in
Speaker 9: unhealthy ways. Unhealthy because there's still a lot of tax
Speaker 9: driven globalization, and unhealthy because this increase in China's exports
Speaker 9: is a reflection of deep weaknesses which have already been
Speaker 9: discussed in China's domestic economy, which make China incapable of
Speaker 9: growing at the pace at once without relying more, not less,
Speaker 9: on exports.
Speaker 4: So that's the theme, a lot to chew on, and
Speaker 4: that's what we're gonna do. But the trade war that
Speaker 4: started in twenty eighteen, does it show up with the
Speaker 4: data in any meaningful sense, like when you look at
Speaker 4: the data now versus some counterfactual where tariffs had put
Speaker 4: in place, do you see fingerprints of it?
Speaker 9: Yes. The most obvious is that you know the US
Speaker 9: is the one country that currently doesn't import any cars
Speaker 9: from China. Since the trade war, China has become the
Speaker 9: world's biggest auto exporter, and the US market is effectively
Speaker 9: for now walled off. If you look at the bilateral
Speaker 9: trade data between the US and China, the first thing
Speaker 9: to notice is they no longer agree. In the bilateral data.
Speaker 9: From the US side, we think our trade with China's
Speaker 9: gone down, and significantly if you look at that same
Speaker 9: data from the Chinese side, China thinks it's exports to
Speaker 9: the US are broadly unchanged. Now you can still say
Speaker 9: there's an impact because China's exports to Europe, the obvious counterfactional,
Speaker 9: have gone up. So there's some evidence of a bilateral decoupling.
Speaker 9: There is a lot of evidence of tariff avoidance. And
Speaker 9: then at a global level, there's no real evidence of
Speaker 9: a serious decoupling or fragmentation, because a serious fragmentation, in
Speaker 9: my view at least, is one where China runs a
Speaker 9: smaller surplus with democracies where China trades balances amongst the
Speaker 9: axis of autocracies, that clearly hasn't happened.
Speaker 2: You mentioned earlier tax incentives to globalization, and I'm trying
Speaker 2: to think how to frame this question, but like, why
Speaker 2: are we so obsessed with tariffs if you know, the
Speaker 2: ultimate cost of a product is not the only thing
Speaker 2: driving decisions about where it's made and where it's going.
Speaker 9: I mean, in all honesty, I think it's because Donald
Speaker 9: Trump won the twenty sixteen election, and Donald Trump believes
Speaker 9: tariff's matter. Donald Trump is, He's a tariff man, he
Speaker 9: really is. The other one is, Look, there is absolutely
Speaker 9: no lobby, powerful lobby that is pushing back against importing
Speaker 9: more pharmaceuticals from Ireland. And there's a very powerful lobby
Speaker 9: that wants this current pattern to remain by producing outside
Speaker 9: the United States and moving intellectual property outside the United States.
Speaker 9: The American pharmaceutical industry has reduced its effective tax rate
Speaker 9: to ten roughly ten percent. Why wouldn't you want to
Speaker 9: maintain that The opposite side, the loser side, is mostly
Speaker 9: the taxpayer. There's not a lot of jobs at stake,
Speaker 9: although there's some so a couple of shocking to me
Speaker 9: little nuggets. The US pharmaceutical industry top six companies roughly
Speaker 9: made sixty to seventy billion dollars in twenty twenty three
Speaker 9: top six companies. Those top six companies paid collectively some
Speaker 9: a little bit of offsets zero in tax to the
Speaker 9: US federal government. They reported losing money on their US operations,
Speaker 9: even though the US has well known much higher pharmaceutical
Speaker 9: prices than the rest of the world, And they report
Speaker 9: making all of their profit and paying all of their
Speaker 9: tax in other jurisdictions. So everyone except seems to win.
Speaker 4: What was the effect, if any so one of the things,
Speaker 4: regardless of who wins tomorrow's vote, At some point there's
Speaker 4: going to be a The Tax Cut and Jobs Act
Speaker 4: is going to come up, though I think the corporate
Speaker 4: side is permanent that that part is going to be
Speaker 4: less controversial or not going to be a thing. But
Speaker 4: what was the effect of the Tax Cut and Jobs Act?
Speaker 4: Because there was some impulse at least claimed that, oh,
Speaker 4: this will encourage companies to recognize their revenues in the
Speaker 4: United States and crack down on that to some extent,
Speaker 4: at least in the realm of pharmaceuticals as you've described,
Speaker 4: that hasn't happened. What was the intent and what was
Speaker 4: the effect.
Speaker 9: Of that bill? Look, first of all, you broke my
Speaker 9: heart by saying there's nothing that's going to happen on
Speaker 9: the corporate tax code next year?
Speaker 8: Is there?
Speaker 9: Like it is obviously going to be part of a negotiation.
Speaker 3: Okay, Yeah, that's right.
Speaker 9: It is the great chance that we have to correct
Speaker 9: some of the flaws. In my view, the tax.
Speaker 4: Cuts the corporate side doesn't expire automatically the way some
Speaker 4: of the personal does.
Speaker 9: So you know how much detail do you want to
Speaker 9: go into. The twenty one percent does not expire, the
Speaker 9: ten and a half percent low guilty rate, which is
Speaker 9: for your global intangibles income, which is.
Speaker 3: Really anything about this stuff.
Speaker 9: Clearly it goes up to thirteen point one twenty five,
Speaker 9: which of course some people care about. And the Foreign
Speaker 9: derived Intangible's Income tax or FITTY goes up to the
Speaker 9: god awful higher rate of sixteen percent. So there are
Speaker 9: some ratchet ups. So what happened with the Tax Cuts
Speaker 9: and Jobs Act? First of all, the corporate side was
Speaker 9: a total revolution. Before the Tax Cuts and Jobs Act,
Speaker 9: the US had a system called deferment, a deferral where
Speaker 9: profits earned abroad in theory were taxed at the US
Speaker 9: headline tax rate of thirty five, but only if the
Speaker 9: profit was returned to the United States. Profits were never
Speaker 9: returned to the US companies borrowed against their offshore profits.
Speaker 9: And that was essentially a system that sort of worked,
Speaker 9: but it meant that US companies had on the US
Speaker 9: side of their balance sheet a lot of debt and
Speaker 9: on the foreur in side of their balance sheet a
Speaker 9: lot of assets. It wasn't great. So the main thing
Speaker 9: that tax cuts and JOBZAC did was it got rid
Speaker 9: of deferral. You pay tax as you go. Once you
Speaker 9: pay your US tax, you're free to move your money
Speaker 9: wherever you want. That was supposed to bring a lot
Speaker 9: of money back. Obviously lowered the headline tax rate from
Speaker 9: thirty five to twenty one. It created this new global
Speaker 9: minimum on intangibles, which is sort of a strange concept
Speaker 9: but essentially intellectual property that everyone pays on their global income.
Speaker 9: So in theory it's sound territorial, but it's not entirely.
Speaker 9: And then it created a separate low tax rate, the
Speaker 9: foreign derived intangible's income tax rate for companies that move
Speaker 9: their intellectual property back to the US and used it
Speaker 9: to export. Pharmaceutical companies make most of their profit, although
Speaker 9: they don't say it on their US sales. They preferred
Speaker 9: to keep their intellectual property and production abroad and remain
Speaker 9: in the ten and a half percent guilty bucket. So
Speaker 9: no change there. Apple, same thing, Microsoft broadly the same thing,
Speaker 9: but some companies did adjust. Facebook and Google return their
Speaker 9: intellectual property to the US you see this very clearly
Speaker 9: in their corporate returns, and now sell their intellectual property
Speaker 9: to their Irish subsidiary where they book most of their
Speaker 9: ad revenue globally. Qualcom has also adjusted its global taxbusher.
Speaker 9: So it's not a story of no change, but it
Speaker 9: is a story of mixed change. And it is a
Speaker 9: story where, at least in my view, the six biggest
Speaker 9: pharmaceutical companies clearly pay less to the US government after
Speaker 9: the Tax Cuts and Jobs Act than they did before
Speaker 9: because they actually had to bring some money back from
Speaker 9: their offshore tax subsidiaries at they're thirty five percent to
Speaker 9: cover their ongoing cost and Apple now mostly for even
Speaker 9: more complex reasons, but Apple books more of its profit
Speaker 9: in Ireland than in the United State States and Apple
Speaker 9: is now paying roughly as much in tax to Ireland
Speaker 9: as is it pay into the United States. That's why
Speaker 9: Ireland has a sovereign Wealth Fund. So there are still
Speaker 9: changes that could be put in place that broadly speaking,
Speaker 9: wouldn't significantly increase the corporate tax burden, but would increase
Speaker 9: the amount that the biggest and most successful US companies
Speaker 9: paying the US. So hence you broke my heart. You
Speaker 9: said there's nothing to be done.
Speaker 3: It was just ignorant, It was it was just ignorant.
Speaker 2: I realized I should have said this in the intro.
Speaker 2: But in addition to writing and researching and tweeting about
Speaker 2: all these issues, you also have real life experience when
Speaker 2: it comes to trade policy. You were an advisor to
Speaker 2: a US trade representative, Catherine Tie, who has also been
Speaker 2: on the show. Maybe you can't get into specifics here,
Speaker 2: but like give us a sense of what the most
Speaker 2: surprising thing was when you were actually in that advisor
Speaker 2: role when it comes to the construction the rail, I
Speaker 2: guess of making trade policy, I.
Speaker 9: Guess one surprise, and it's just a cultural thing about
Speaker 9: usdr as I previously worked at the US Treasury, is
Speaker 9: that financial markets, which you know, are the obsession of
Speaker 9: this town. Presumably this crowd are weighted at about zero.
Speaker 9: In USCR internal decision making, people do not get a
Speaker 9: report on what happened in the market at the start
Speaker 9: of a significant meeting at USDR, whereas that would be
Speaker 9: kind of the norm at the US Treasury. So culturally
Speaker 9: it's not driven by the market. Culturally, US trade policy
Speaker 9: is driven by lawyers, and lawyers care a lot about process.
Speaker 9: So I think what surprised me the most is the
Speaker 9: weight that is given to following the procedural niceties of
Speaker 9: the various different trade laws, which I think are actually
Speaker 9: quite relevant if Trump were to win, which I person
Speaker 9: we certainly do not hope is the case, but those
Speaker 9: procedural niceties become constraints on how quickly he can restart
Speaker 9: various trade wars.
Speaker 4: You mentioned in the beginning that globalization continues despite all
Speaker 4: the memes and despite all of the narrative, but you
Speaker 4: described it as an unhealthy form of globalization. Was there
Speaker 4: a point where it was healthy in your view? And
Speaker 4: is there a turning point where the globalization process went
Speaker 4: from healthy to unhealthy?
Speaker 9: So in general, I think globalization in the nineteen nineties
Speaker 9: had a different impact on the US economy than globalization
Speaker 9: after the nineteen nineties. If you look at at trade
Speaker 9: patterns in the nineteen nineties, and you know there's a
Speaker 9: significant interruption in the Asian financial crisis, and I think
Speaker 9: most people in Asia would say globalization went wrong in
Speaker 9: the nineteen nineties. But during that period, broadly speaking, experts
Speaker 9: and in him were both expanding symmetrically, and you didn't
Speaker 9: have an expansion and explosion of the offshore balance sheets
Speaker 9: of big banks and their special investment vehicles like the
Speaker 9: obsession of Wall Street in the pre global financial crisis period.
Speaker 9: So to me, that was a healthier form of globalization.
Speaker 9: What went wrong, well, a technical thing checked the box
Speaker 9: made it really easy for US companies to shift intellectual
Speaker 9: property offshore. That unleashed a wave of tax driven globalization
Speaker 9: that we have not yet, in my view, been able
Speaker 9: to rein in. It created incentives wherever broadening sectors of
Speaker 9: the US economy. So one of the things I point
Speaker 9: out in the Aspen Econometic Strategy paper is that semiconductor
Speaker 9: equipment manufacturing actually a pretty strategically important industry, has between
Speaker 9: two thousand and five and twenty twenty three twenty four,
Speaker 9: moved a lot of its manufacturing and all of its
Speaker 9: profit to Southeast Asia. Why we thought that was in
Speaker 9: our strategic interest is beyond me. But it wasn't just
Speaker 9: a one off. It's been a continuous process. And then
Speaker 9: obviously China enters the WTO, the Chinese surplus explodes, and
Speaker 9: I think that generated a period of unhealthy globalization as well.
Speaker 9: And so that's why I'm a little worried right now
Speaker 9: that the increase in China's surplus judged on the global basis,
Speaker 9: not on the bilateral basis against the US, is on
Speaker 9: a magnitude comparable as a share of world GDP. To
Speaker 9: that scene immediately after WTO.
Speaker 2: Entry, there seems to be some consensus about diagnosing the
Speaker 2: problems in the Chinese economy, so not enough domestic assumption
Speaker 2: to high savings, et cetera. And yet it still seems
Speaker 2: relatively committed to the export driven model. Why is that?
Speaker 9: The pithy answer would be that there can be no
Speaker 9: consensus in China that doesn't include President She. So actually,
Speaker 9: I don't think there is consensus because I think President
Speaker 9: She doesn't share this diagnosis. I think President She, generally speaking,
Speaker 9: views support for households as unproductive, and he views investment,
Speaker 9: particularly investment in high tech sectors, as productive. The intellectual
Speaker 9: leap that giving checks to households, taking less from households
Speaker 9: lets household spend more, and therefore supports investments, not just consumption,
Speaker 9: but it supports investment throughout the economy is not one
Speaker 9: that president, she obviously shares. So, yeah, I don't think
Speaker 9: there is yet consensus.
Speaker 4: One of the things that people love to talk about
Speaker 4: is just forever for as long as is the future
Speaker 4: of the dollar, and you know, just one of those
Speaker 4: things people just love to talk about it.
Speaker 9: I've noticed.
Speaker 3: Yeah, when you look at it, it.
Speaker 9: Is not a topic that I prefer to talk about,
Speaker 9: but I will talk about it.
Speaker 3: No, you have to talk about it.
Speaker 4: He didn't talk about it, all right, Tracy, what she introduced,
Speaker 4: she said, we could ask Brad anything.
Speaker 3: So this is on my mind.
Speaker 4: When you look at unhealthy globalization, do you see any
Speaker 4: strains on the existing the dollar regime or any reasons
Speaker 4: to think that there is going to be a meaningful
Speaker 4: change in the trajectory of dollar usage, either within the
Speaker 4: trade for goods and services globally or the use of dollar.
Speaker 3: In financial transactions.
Speaker 9: Globally, not really. So there has been one obviously important
Speaker 9: and significant change, which is the sanctions on Russia. You know,
Speaker 9: Russia is one of the top ten global economies, produces
Speaker 9: a lot of oil in the world wants oil. We
Speaker 9: meaning in this case, the US, the EU, the sanctioning
Speaker 9: coalition the G ten countries have generally not actually sanctioned
Speaker 9: dollar in europayment. But even though we have not sanctioned
Speaker 9: dollar in europayment, Russia obviously is very concerned that we could,
Speaker 9: particularly because we've frozen all the central Bank's assets, and
Speaker 9: that was a pretty big step. Russia, to be fair,
Speaker 9: was the country that did the most before twenty twenty
Speaker 9: twenty two the invasion to reduce dollar usage. Didn't get
Speaker 9: rid of it, but Russia had moved almost all its
Speaker 9: reserves out of the dollar. It had certainly removed all
Speaker 9: of its reserves out of visible dollars, stuff that the
Speaker 9: US can see in this normal data reporting, and it
Speaker 9: had migrated to basically using the Euro for most of
Speaker 9: its oil and gas transactions. You could say that's just logical.
Speaker 9: Russia traded mostly with Europe before the invasion, but it
Speaker 9: was using the euro to denominate trade with China, not
Speaker 9: the yuan, not the dollar, And I think the main
Speaker 9: lesson of the sanctions it has been that if you
Speaker 9: want to diversify out of the dollar and you want
Speaker 9: protection against sanctions, which is the one thing that you
Speaker 9: get with diversification out of the dollar, diversifying out of
Speaker 9: the Euro isn't diversifying far enough, so you essentially have
Speaker 9: to diversify into using the yuan. Now, the yuan has
Speaker 9: a bunch of disadvantages. The wan is not accepted globally.
Speaker 9: If you're an African country and you get yuan for
Speaker 9: selling something to China, you can't use that yuan to
Speaker 9: buy stuff from your neighbor. It's not that kind of
Speaker 9: global currency yet. The dollar in euror and in general,
Speaker 9: holding financial assets in yuan means you've been holding a
Speaker 9: depreciating currency with lower yields than in the dollar. And
Speaker 9: then by the way China uses is geopolitical and g
Speaker 9: you want. Mostly it's been over its trade leverage pretty aggressively,
Speaker 9: and you would have to assume if you have a
Speaker 9: lot of your financial assets in yuan, or your trade
Speaker 9: is denominated in yuan, that you are potentially subject to
Speaker 9: Chinese financial pressure. So you you get a little bit
Speaker 9: of defense against US and European sanctions, but at a
Speaker 9: pretty significant cost, and you just don't see it. So
Speaker 9: one one anecdote, you know, because you know, it goes
Speaker 9: a little interesting. It was. It was sort of striking
Speaker 9: to me because I hadn't been to China for quite
Speaker 9: some time. I was a little nervous about it, to
Speaker 9: be honest, and heard a bank treasurer from a big
Speaker 9: Chinese bank talk about how they were thinking about the world.
Speaker 9: And you know what that Chinese bank was worried about.
Speaker 9: I was worried about the fact that Yuan lending rates
Speaker 9: were being forced down and that was squeezing Yuan net
Speaker 9: interest margins and fair things. That's what all banks tend
Speaker 9: to worry about. Although it was king to me that
Speaker 9: this bank treasurer was more or less saying, you know,
Speaker 9: the official lending rate, which the Chinese had been deemphasizing,
Speaker 9: was actually really important. The other thing he was complaining
Speaker 9: about is, well, there's all these lending quotas. Like again,
Speaker 9: I was like, I thought you'd reformed your commercial banks.
Speaker 9: You weren't doing quotas. No, no, no quotas for manufacturing,
Speaker 9: quotas for lending to innovation. The Treasurer obviously was sort
Speaker 9: of implying quotas that required us to lend to companies
Speaker 9: that were going to generate losses in the future. So
Speaker 9: what was the great hope. Well, they looked at the
Speaker 9: Japanese banking system and discovered that the Japanese banks do
Speaker 9: this great dollar business that generates half their interest income,
Speaker 9: and they looked at that with with envy. You could
Speaker 9: choose your own interest margin in dollars and you weren't
Speaker 9: forced to lend to loss making companies in dollars. So,
Speaker 9: just as an anecdote, you see growth in the dollar business,
Speaker 9: offshore dollar business of Chinese state banks, which completely runs
Speaker 9: against the d dollarization narrative and is very much a
Speaker 9: function of China's own domestic weakness. So I think that
Speaker 9: to me that was telling.
Speaker 2: You had a great line in the paper, just going
Speaker 2: back to the like lending quota point, but you said
Speaker 2: free markets appear to favor a country that hasn't freed
Speaker 2: its own market. Ie, China has probably benefited the most
Speaker 2: from the trade liberalization of the nineteen nineties and early
Speaker 2: two thousands. Why is that?
Speaker 9: Well, again, Tracy, thanks for really closely reading my paper.
Speaker 6: I try.
Speaker 9: I actually thought that was a good line. Ummm, you're
Speaker 9: the first person who's noticed it. Um I'd throw in, like, hopefully,
Speaker 9: like some witty quips and a forty page paper just
Speaker 9: to test to see if anyone actually reads U tast
Speaker 9: you did. Look, I am not the first to make
Speaker 9: this observation. I think it's an observation that has influenced
Speaker 9: politics and policy in the United States and in Europe.
Speaker 9: China does not have a full market economy. The government
Speaker 9: runs the banking system. The banking system still dominates the
Speaker 9: distribution of credit within the Chinese economy. It favors some
Speaker 9: sectors over others. The Chinese state, in its many layers
Speaker 9: at the central government level but also at the provincial level,
Speaker 9: provides a lot of equity investment for Chinese companies. And
Speaker 9: so you can argue that China doesn't just have one
Speaker 9: industrial policy, kind of has twenty because all the different
Speaker 9: provinces have their own industrial policy trying to build up
Speaker 9: provincial champions that become national champions, and in the process
Speaker 9: they get cheap capital, very cheap capital. There isn't a
Speaker 9: mean the private equity industry in China exists, but it's
Speaker 9: not demanding you lever up to get a fifteen percent
Speaker 9: internal rate of return. It exists to provide a bit
Speaker 9: of a veneer of private capital for strategy investments and
Speaker 9: strategic sectors. There's a lot of patient capital that has
Speaker 9: gone in to sectors that are quite capital intensive and
Speaker 9: that are willing to accept high risk and low rates
Speaker 9: of return in part because it is state capital. And
Speaker 9: as a result, in those sectors where this internal competitive
Speaker 9: hothouse generates globally competitive products, production migrates to China. So
Speaker 9: that is the trend that was famously exhibited in the
Speaker 9: solar industry. Joe loves excavators. It's a slightly different story,
Speaker 9: but you know, twenty years ago China was importing a
Speaker 9: lot of excavators actually from the United States. Then Caterpillar
Speaker 9: sets up shop in China. Then a bunch of Chinese
Speaker 9: companies with state capital backing them, they're not all state owned,
Speaker 9: get into the excavator business. Then Chinese demand for excavator
Speaker 9: goes ballistic. With the property market, the property market tanks
Speaker 9: and guess who's exporting excavators to the world. I know so,
Speaker 9: and obviously everyone's petrified that this is the same pattern
Speaker 9: will replicate itself in electric cars and potentially legacy semiconductors
Speaker 9: and potentially cutting edge chips. But that's a little there's
Speaker 9: a little tech war going on to something.
Speaker 4: If Trump wins tomorrow, Look, it seems very plausible that
Speaker 4: we could get some sort of radically different approach to everything,
Speaker 4: certainly on the trade front. So let's just sort of
Speaker 4: accept that that, you know, again, per the models and
Speaker 4: the aggregators of fifty percent chance, if Harris wins, as
Speaker 4: you see it, what are the priorities when looking at
Speaker 4: unhealthy globalization? Not like necessarily what she's thinking, but from
Speaker 4: your perspective, what are the priorities towards addressing this unhealthy
Speaker 4: version of globalization that you describe.
Speaker 9: Looks start well, I would start to some degree with
Speaker 9: some of the points that Secretary Yellen and Layale Brain
Speaker 9: would have made about China's own unbalanced economy. And fundamentally,
Speaker 9: the US has, in my view, and interest in a
Speaker 9: more balanced Chinese economy, and we have an interest in
Speaker 9: convincing our allies and partners who also join us and
Speaker 9: putting pressure to get a more balanced Chinese economy. That's
Speaker 9: a long, hard slog. It depends a bit on choices
Speaker 9: China makes so one interesting example least I find it interesting.
Speaker 9: You know, Trump talks a lot about replacing the income
Speaker 9: tax with tariffs. That's been one of his ideas. It
Speaker 9: is unclear if he's actually gonna do it, but it's
Speaker 9: an idea. China currently collects more revenue from tariffs than
Speaker 9: from its personal income tax. It already has achieved this,
Speaker 9: partially because it still has somewhat significant tariffs, and partially
Speaker 9: because it only collects one percent of GDP and personal
Speaker 9: income tax, which is a very low number. We collect eight,
Speaker 9: so that to me is necessary. It's a part of
Speaker 9: the broader policy package that generates more balanced Chinese economy.
Speaker 9: But it is not something that the US Congress can change.
Speaker 9: So the other component for addressing unhealthy globalization is something
Speaker 9: that the US Congress can change, which is the US
Speaker 9: tax law. So my immediate priority, if I were given
Speaker 9: advice to, hopefully President Harris, would be Look, there's a
Speaker 9: budget negotiation Washington, DC will be consumed with the expiration
Speaker 9: of the tax cuts. Twenty twenty five is a fiscal year.
Speaker 9: It is a year which is set up in DC
Speaker 9: to debate the structure of taxation, and Republicans, and this
Speaker 9: is conventional wisdom, have an incentive to come to the
Speaker 9: table because if nothing happens, we have a cliff and
Speaker 9: all of Trump's personal income tax cuts expire, Republicans don't
Speaker 9: go to Washington to raise people's tax so they have
Speaker 9: an incentive to bargain. And my hope would be as
Speaker 9: part of that bargain, some of the remaining incentives in
Speaker 9: the corporate tax code that have clearly encouraged or not
Speaker 9: discourage the migration of intellectual property and production outside the
Speaker 9: United States get addressed. That'd be where I'd start. I
Speaker 9: also think one of the tensions, you know, one of
Speaker 9: the tensions in trades Trump's trade policy was that bilateral
Speaker 9: tariffs are way less effective than he thinks. You can
Speaker 9: get around them really easily. You put you know, ninety
Speaker 9: five percent Chinese content, a few screws in Southeast Asia,
Speaker 9: you go to a zero tariff. Right, It's trivial to
Speaker 9: get around with a little bit of work. So bilateral
Speaker 9: tariffs don't really work, but Trump loves them. One of
Speaker 9: the tensions in Biden administration views on trade, again widely accepted,
Speaker 9: is that the Biden administration talked a big game about
Speaker 9: friendshoring working with allies, and then you know, thanks to
Speaker 9: Joe Manchin, your friend, very important US Senator, Thanks to
Speaker 9: Joe Mansion, we have an inflation reduction Act, and thanks
Speaker 9: to Joe Manchin, that inflation Reduction Act didn't treat our
Speaker 9: friends very nicely. So I think there's a lot to
Speaker 9: do to kind of harmonize our industrial policies with our allies,
Speaker 9: and they have to make some changes too. I think
Speaker 9: the Europeans are ridiculously obsessed with following a super strict
Speaker 9: interpretation of what the WTO allows, which means that they
Speaker 9: won't do buy Europe on their EV subsidies inside Europe,
Speaker 9: even though China clearly did buy China on its EV
Speaker 9: subsidies inside China, they just didn't write it into the law.
Speaker 9: They just never qualified a foreign made car, actually initially
Speaker 9: never qualified a battery made in China by a foreign company.
Speaker 9: That only happened after the Chinese companies which now dominate
Speaker 9: global Batteri's got a good foothold. China has been super restrictive,
Speaker 9: and I think Europe should be symmetric. Do a kind
Speaker 9: of buy Europe deal and My idea is that like, hey,
Speaker 9: we have buy us Europe, we will You know, this
Speaker 9: is what I learned at USCR. You can deem European
Speaker 9: or allied goods to be American for purposes of qualifying
Speaker 9: for US subsidies. And we would offer to do that
Speaker 9: if Europe would deem American goods to be European for
Speaker 9: qualifying for European subsidies. So we kind of each create
Speaker 9: an open market towards each other while being pretty restrictive
Speaker 9: towards China. So those are I think, to me, the
Speaker 9: cutting edge of policy in the Harris administration.
Speaker 2: Would you be open to a potential position in a
Speaker 2: Harris administration?
Speaker 9: I had a suspicion, you might ask, I have never
Speaker 9: turned down an opportunity to serve my country.
Speaker 2: So that was our live recording of the podcast at
Speaker 2: Caveat in New York. I can't believe after all that
Speaker 2: that it's actually election day.
Speaker 4: Now, Wait, did we find out last night who's going
Speaker 4: to win?
Speaker 3: I forget did anyone?
Speaker 4: I think that's the one question we forgot to ask.
Speaker 4: We should have put.
Speaker 2: Everyone on the spot. Yeah maybe not okay, but we
Speaker 2: hope if you came to the show that you enjoyed it.
Speaker 2: We are hoping to do more of these events in
Speaker 2: the future, so if you liked it, please let us know.
Speaker 2: And in the meantime, a big thank you to everyone
Speaker 2: who worked to make this possible, notably Carmen Rodriguez, our producer,
Speaker 2: and Kate Seaberry at the Bloomberg Events team, as well
Speaker 2: as the entire crew at Caveat.
Speaker 4: Thank you so much, and again, we'll do it again
Speaker 4: in four years, but all the things in the meantime,
Speaker 4: shall we leave it there?
Speaker 3: Let's leave it there.
Speaker 2: This has been another episode of the All Thoughts podcast.
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 4: I'm Jill Wassenthal. You can follow me at the Stalwart.
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