WEBVTT - Job Switchers, Not Stayers, Will Get The Wage Increases: Slok 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:32.720 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. We 0:00:32.760 --> 0:00:36.560 did get those jobs numbers earlier today. They were great 0:00:36.760 --> 0:00:40.880 by almost all accounts, with you participation increasing the job 0:00:41.159 --> 0:00:43.760 right following to the lowest and two thousand and even 0:00:44.000 --> 0:00:47.680 wages accelerating. But Kennis continue and what does this mean 0:00:47.960 --> 0:00:50.559 about the path fed rate hikes? To answer all of 0:00:50.600 --> 0:00:53.440 these questions for us, I want to bring in Torsten Slock. 0:00:53.520 --> 0:00:58.200 He's chief international economist at Deutsche Bank, also a publisher 0:00:58.280 --> 0:01:01.520 of charts that are ex jraordinary and timely tours and 0:01:01.520 --> 0:01:04.160 thank you so much for joining us. So first, just 0:01:04.200 --> 0:01:06.920 can you please just give us your take on today's 0:01:07.080 --> 0:01:11.360 jobs report. No, absolutely, you just summarized it very well. 0:01:11.720 --> 0:01:15.040 This is indeed some very good numbers, both on the headline, 0:01:15.040 --> 0:01:17.760 of course, a number of jobs creative, the unemploying rate falling, 0:01:18.240 --> 0:01:22.039 and most importantly we've been waiting for wages to go up, 0:01:22.520 --> 0:01:26.960 and it's in some sense finally happening after quite some time, 0:01:27.640 --> 0:01:29.480 and in some sense it's a really good day for 0:01:29.480 --> 0:01:32.600 the economics profession. We have been looking for wages to 0:01:32.600 --> 0:01:34.360 go up. We've seen in the number of indicators, the 0:01:34.360 --> 0:01:37.080 employment cousindics have gone up, the quitch rate has been high, 0:01:37.400 --> 0:01:39.800 and now we're finally also seeing the last few drop 0:01:39.880 --> 0:01:42.960 here in the average old learning Stata today also checking higher. 0:01:43.040 --> 0:01:45.960 So overall it is it is very good news both 0:01:46.040 --> 0:01:48.280 for the American consumer and for the US economy. Are 0:01:48.320 --> 0:01:51.600 you basically saying that the Phillips curve works? Yes, So 0:01:51.640 --> 0:01:54.120 now of course the forensics can begin that we can 0:01:54.160 --> 0:01:56.480 begin to discuss why has it not worked, or has 0:01:56.520 --> 0:01:59.000 it been dead, or is it waking up, or what 0:01:59.080 --> 0:02:02.440 was the reason why it took so long time. One 0:02:02.440 --> 0:02:05.400 answer to that is that we have seen a structural 0:02:05.600 --> 0:02:09.120 change over the last several years where the number of 0:02:09.160 --> 0:02:13.040 people who are staying in their jobs. If you do that, 0:02:13.080 --> 0:02:16.920 you tend to get basically very little weight increase. So 0:02:16.960 --> 0:02:18.840 what we have seen more recently is that the number 0:02:18.840 --> 0:02:21.480 of people who are quitting jobs, they have tended to 0:02:21.520 --> 0:02:24.440 get higher weight growth, and the fact that the data 0:02:24.480 --> 0:02:26.639 to day shows you that we are at the highest 0:02:26.720 --> 0:02:30.080 level of people who voluntarily are leaving their jobs in 0:02:30.160 --> 0:02:33.639 twenty years. And that's also voting quote unquote wealth for 0:02:33.880 --> 0:02:37.320 more wage pressure going forward, simply because people who stay 0:02:37.360 --> 0:02:39.680 in their jobs tend to get very little weight increase, 0:02:39.720 --> 0:02:41.920 whereas if you switch jobs, that's when you get the 0:02:41.919 --> 0:02:44.000 big wage books. And the more people who are switching jobs, 0:02:44.240 --> 0:02:46.160 the more we will see wege increase. In some sense, 0:02:46.160 --> 0:02:48.720 looking at it today, it does make sense to say 0:02:48.760 --> 0:02:51.399 that wages have been going up because the Phillips curve 0:02:51.639 --> 0:02:54.440 structurally changed so that you had to be a job 0:02:54.520 --> 0:02:57.320 switcher to see an increase in wages. Rather if you 0:02:57.360 --> 0:02:59.760 were a job stayer, then you would not see an 0:02:59.760 --> 0:03:03.000 increa reacent wages. So it's implicitly a recommendation for everyone 0:03:03.040 --> 0:03:05.079 here to go out and switch jobs, because this is 0:03:05.120 --> 0:03:08.520 the main way today to get away increase. Okay, let's 0:03:08.560 --> 0:03:10.160 say you don't want to switch a job. Let's say 0:03:10.160 --> 0:03:12.600 you're just looking for a job, or indeed you're out 0:03:12.600 --> 0:03:14.840 of the labor force. What's your thought about the labor 0:03:14.880 --> 0:03:20.160 force participation rate? Yes, so that has as you implicitly 0:03:20.160 --> 0:03:22.640 having your question that has been not been tacking up 0:03:22.680 --> 0:03:26.280 as much as we all would have thought. But that 0:03:26.360 --> 0:03:28.480 being said, there are a number of reasons why people 0:03:28.480 --> 0:03:32.080 are still outside the labor market. Some people are structurally 0:03:32.080 --> 0:03:34.960 difficult to get into the labor market again. But we 0:03:35.000 --> 0:03:37.960 are beginning to see, and this was in the basebook 0:03:38.240 --> 0:03:42.320 this week, anecdotes that the employers are beginning to relax 0:03:42.360 --> 0:03:48.280 conditions for drug testing and also conditions for criminal records testing, 0:03:48.840 --> 0:03:51.840 and those anecdotes are telling us very importantly that we 0:03:51.880 --> 0:03:56.520 are beginning to reach the outer stock of the labor 0:03:56.560 --> 0:03:59.480 force in terms of how much available labor there is. 0:03:59.520 --> 0:04:02.880 So I understand that the participation rate could potentially be 0:04:02.960 --> 0:04:05.920 slightly higher, but the generally speaking, the fact that wages 0:04:05.920 --> 0:04:08.880 are going up is indeed already selling us that if 0:04:08.920 --> 0:04:11.520 there really were all these people sitting outside the labor market, 0:04:11.720 --> 0:04:13.960 then we would not see where just go up at 0:04:13.960 --> 0:04:16.359 this point, So we still believe that the labor market 0:04:16.400 --> 0:04:19.080 is very tight, and therefore that we are again going 0:04:19.120 --> 0:04:21.800 to see more upward pressure on wages going forward, so 0:04:21.880 --> 0:04:24.719 towards in. One thing that struck me was that the 0:04:24.800 --> 0:04:28.000 yield curve flattened after this report. In other words, the 0:04:28.040 --> 0:04:32.200 gap between ten and two year treasury yields flatten. It's 0:04:32.240 --> 0:04:34.960 about the lowest since two thousands seven. It seems to 0:04:35.040 --> 0:04:37.080 indicate the people think that the Federal Reserve is going 0:04:37.120 --> 0:04:41.679 to high rates more frequently this year then basically stimmy 0:04:42.000 --> 0:04:45.240 growth in the longer term and pause and not hike 0:04:45.360 --> 0:04:47.800 more in the years after. Do you think that that 0:04:47.880 --> 0:04:52.120 is an accurate assessment? Yeah, So the challenge here is 0:04:52.160 --> 0:04:54.520 that the front end of the cove UT two year 0:04:54.600 --> 0:04:57.560 rates and and even should in have been driven a 0:04:57.600 --> 0:05:01.279 lot by fit expectations and fattic between just generally have 0:05:01.480 --> 0:05:04.240 been and including today, driven a lot by what is 0:05:04.279 --> 0:05:06.560 the macro data telling us for the US, and the 0:05:06.640 --> 0:05:09.640 data today basically says, you know what, the Fed has 0:05:09.680 --> 0:05:13.760 been right, The Fed has been on the right trajectory, 0:05:13.920 --> 0:05:17.320 and it's actually probably likely that they will be raising 0:05:17.400 --> 0:05:19.440 race that they have the way that they have promised us. 0:05:19.800 --> 0:05:22.279 What's more complicated, and which is in a very important 0:05:22.320 --> 0:05:24.919 part of of your point here, and that is to 0:05:25.000 --> 0:05:27.320 think about what a long rate doing A long rate 0:05:27.400 --> 0:05:30.040 in the US of course this week in particular, but 0:05:30.120 --> 0:05:33.680 generally move around for global reasons and for reasons that 0:05:33.720 --> 0:05:36.600 are unrelated to what's going on in the US economic data. 0:05:37.360 --> 0:05:40.400 So the fact that the Yell curve has moved away 0:05:40.440 --> 0:05:42.680 it has today, I think it just tells you that 0:05:42.920 --> 0:05:45.440 for now, the market is back to believing, and you 0:05:45.480 --> 0:05:48.960 could also see on your Bloomberg screen expectations to what 0:05:49.000 --> 0:05:51.640 the FIT will do over the coming meetings, that the 0:05:51.680 --> 0:05:54.640 market is back to believing, that the FIT is still 0:05:54.800 --> 0:05:57.360 raising rates, and we are still on an upward trajectory, 0:05:57.720 --> 0:06:00.240 and for now that continues to be a race strong 0:06:00.279 --> 0:06:03.520 outlook for the US economy overall. That's simplicit in that Towardsten. 0:06:03.680 --> 0:06:05.800 But I wonder if we could just switch topics for 0:06:05.839 --> 0:06:08.880 a second and get your thoughts about Italy. We've got 0:06:08.920 --> 0:06:12.880 the swearing in of the new government, President Sergio Mazzarella 0:06:13.080 --> 0:06:16.719 at the Quernale Palace swearing in the new government today. 0:06:16.960 --> 0:06:19.160 What are your thoughts about what that means for the 0:06:19.200 --> 0:06:23.320 euro and the European Central Bank. So, of course, the 0:06:23.400 --> 0:06:26.000 challenge for the ECB here is that they have been 0:06:26.400 --> 0:06:29.080 for a long time now on track to say that 0:06:29.120 --> 0:06:32.520 they would end quee later this year. You can discuss 0:06:32.560 --> 0:06:35.559 if it's September or December, and then they would most 0:06:35.600 --> 0:06:38.359 likely they have also been saying that several members of 0:06:38.400 --> 0:06:40.400 the Governing Council have been saying at the ECB have 0:06:40.440 --> 0:06:43.360 been saying that they would probably high rate sometime by 0:06:43.400 --> 0:06:46.320 the second quarter of next year. The good news is 0:06:46.360 --> 0:06:49.760 that we now have a government in Italy. This is 0:06:49.920 --> 0:06:52.920 at least more clarity and much less turbulent than what 0:06:52.960 --> 0:06:54.640 we had earlier this week, where we had a lot 0:06:54.640 --> 0:07:00.160 more uncertainty. So in some sense that's probably a bit 0:07:00.200 --> 0:07:02.200 of a sigh of relief at the ECB today that 0:07:02.240 --> 0:07:03.960 then now we can go back both of the c 0:07:04.040 --> 0:07:06.400 B and in markets and look at the economic data. 0:07:06.640 --> 0:07:08.920 Inflation was a little bit better in Germany and the 0:07:08.960 --> 0:07:13.160 your area this week, including also in Spain, and if 0:07:13.200 --> 0:07:17.160 the fundamentals still justify it, which we absolutely believe, then 0:07:17.480 --> 0:07:19.560 we do still think that the CB is on track 0:07:19.600 --> 0:07:23.360 here to gradually exit with ending queue later this year 0:07:23.400 --> 0:07:26.120 and raising rates sometime in the second quarter of next year. 0:07:26.120 --> 0:07:29.080 But it is complicated situation, of course, where you have 0:07:29.440 --> 0:07:32.000 on the one side all the economics, which in some 0:07:32.120 --> 0:07:34.680 sense it's very simple because that's telling you should they 0:07:34.720 --> 0:07:37.280 exit or should they not exit, and on the other 0:07:37.320 --> 0:07:41.320 side of the table you basically have these political winds 0:07:41.320 --> 0:07:43.920 and forces and the epp and tide of different things 0:07:43.960 --> 0:07:47.360 that are happening. That makes a quantification of those risks 0:07:47.440 --> 0:07:50.040 rather complicated. Thank you very much for being with us. 0:07:50.200 --> 0:07:55.000 Touristen Slock is the chief International economist at Deutsche Bank, 0:07:55.120 --> 0:07:59.440 talking about today's non farm payrolls report as well as 0:07:59.520 --> 0:08:19.280 events in Europe. American workers are finally starting to see 0:08:19.480 --> 0:08:22.480 their paychecks increase. According to the jobs numbers that we 0:08:22.520 --> 0:08:26.520 got out earlier this morning, average hourly earnings increased by 0:08:26.560 --> 0:08:29.600 two point seven percent from a year earlier. That is 0:08:29.640 --> 0:08:33.520 more than projected. But are these wages increasing quickly enough? 0:08:33.520 --> 0:08:36.200 And why have they been so slow to rise? To 0:08:36.200 --> 0:08:38.120 answer some of these questions, I want to bring in 0:08:38.200 --> 0:08:40.679 David While. He is dean of the Heller School for 0:08:40.880 --> 0:08:44.640 Social Policy and Management at Brandeis University, also the former 0:08:44.679 --> 0:08:46.800 head of the Wage in Our division of the US 0:08:46.920 --> 0:08:51.959 Department of Labor back in two fourteen. Dean While, thank 0:08:52.000 --> 0:08:54.040 you so much for joining us. So I want to 0:08:54.080 --> 0:08:56.600 get your take first on the numbers that we got 0:08:56.640 --> 0:09:00.840 out this morning. Uh from the Labor Department, pretty much 0:09:00.880 --> 0:09:05.120 across the board solid read what's your take? Uh? Yeah, 0:09:05.160 --> 0:09:07.360 I think that's right. I mean, it's certainly good news 0:09:07.400 --> 0:09:11.600 when the economy adds that many jobs to the economy 0:09:11.800 --> 0:09:15.760 and UH and when the unemployment rate falls so overall, 0:09:16.360 --> 0:09:19.240 you know, we have the long recovery that certainly began 0:09:19.400 --> 0:09:24.160 well into UH back in the Obama administration. UM. I 0:09:24.240 --> 0:09:28.960 think the continuing concern is with unemployment rates as low 0:09:29.040 --> 0:09:32.240 as they are, just the fact that wages still look 0:09:32.440 --> 0:09:36.360 very slow in recovering, very different than what we've seen 0:09:36.360 --> 0:09:38.640 in the past. I wonder if you could speak a 0:09:38.640 --> 0:09:42.480 little bit about the labor force participation rate and when 0:09:42.520 --> 0:09:44.720 maybe your students come to you and say, can you 0:09:44.800 --> 0:09:50.800 explain why it remains low? Well, the labor force participation 0:09:50.920 --> 0:09:54.760 rate really is about whether people's optimism about whether or 0:09:54.800 --> 0:09:56.720 not they're going to be able to find the kind 0:09:56.760 --> 0:09:59.680 of employment they're looking at in the labor market. And 0:09:59.720 --> 0:10:03.960 it's measure of the difficulty and the continuing difficulty of 0:10:04.000 --> 0:10:06.920 coaxing UM. You know, an important part of our labor 0:10:06.960 --> 0:10:10.160 force back into the labor market. And I think one 0:10:10.200 --> 0:10:13.040 of the reasons we again have seen what looks like 0:10:13.200 --> 0:10:19.480 historically lower rates of labor force participation than in past recoveries, UM, 0:10:19.679 --> 0:10:21.920 is the kinds of jobs that are out there, the 0:10:22.000 --> 0:10:26.160 kinds of opportunities that people are seeking, um, just are 0:10:26.200 --> 0:10:29.800 not as attractive as they once were. We've really restructured 0:10:29.960 --> 0:10:34.120 our economy in ways that just are are less and 0:10:34.240 --> 0:10:38.200 less favorable to working people. So, but that said, we 0:10:38.280 --> 0:10:41.480 are seeing, uh, we are seeing what we just increase 0:10:41.520 --> 0:10:44.360 at this point. So I'm wondering, you know, first of all, 0:10:44.480 --> 0:10:47.520 is it enough because we have seen rents increase at 0:10:47.559 --> 0:10:51.600 a much faster pace, for example, than wages, as well 0:10:51.640 --> 0:10:54.560 as energy costs of late and other sort of fixed 0:10:54.600 --> 0:10:58.120 costs in people's lives. Is a two point seven percent 0:10:58.480 --> 0:11:02.440 increase enough in your view? Uh, well, it's not, and 0:11:02.480 --> 0:11:05.280 it's not for both the short term reasons you site. 0:11:05.320 --> 0:11:09.360 I mean, there's a lot of costs, particularly that lower 0:11:09.400 --> 0:11:13.400 income households are vulnerable to, like the cost of gasoline 0:11:13.480 --> 0:11:17.920 and housing, um. But there's even a more fundamental, longer 0:11:18.040 --> 0:11:21.439 term reason why these levels of wage growth just aren't sufficient, 0:11:21.480 --> 0:11:25.880 and that's that real wages for working people for decades 0:11:25.960 --> 0:11:30.400 have stagnated and there's just an immense there's a wage 0:11:30.480 --> 0:11:33.520 gap that we really need to recover. There's just a 0:11:33.679 --> 0:11:37.400 big part of the growth of the economy that in 0:11:37.480 --> 0:11:42.199 the past workers shared with people who you know, owned 0:11:42.800 --> 0:11:45.920 own capital and and and who had labor they shared 0:11:46.000 --> 0:11:49.720 those games. That hasn't happened. This is a really important 0:11:49.760 --> 0:11:52.520 point why. I mean, this is not a past five 0:11:52.600 --> 0:11:54.760 years issue of past ten years issue. This is a 0:11:54.840 --> 0:11:59.520 decades long issue. Why that's that's exactly right it is. Uh, 0:11:59.679 --> 0:12:02.720 it really goes back to the late nineteen seventies and 0:12:02.760 --> 0:12:07.200 the eighties and and grew much more in the post 0:12:07.240 --> 0:12:10.439 Great Recession period. And that the answer to your question 0:12:10.559 --> 0:12:14.360 is employment now looks really different than it used to look. 0:12:14.920 --> 0:12:18.760 Employers used to the major businesses that drive our economy 0:12:18.800 --> 0:12:23.640 across the different sectors. Manufacturing service used to directly employ 0:12:23.800 --> 0:12:27.240 millions and millions of workers. That is no longer the case. 0:12:27.520 --> 0:12:31.000 That the whole structure of employment has shifted out, whether 0:12:31.040 --> 0:12:35.840 it's through outsourcing or subcontracting or third party management. Uh. 0:12:35.880 --> 0:12:39.320 And it used to just be about low wage workers. Now, 0:12:39.360 --> 0:12:42.040 with what people like to call the gig economy that 0:12:42.200 --> 0:12:46.040 goes way beyond just the digital platform world. Uh, there 0:12:46.080 --> 0:12:48.880 are more and more jobs where the people who actually 0:12:48.920 --> 0:12:52.079 employ you are no longer the main companies that really 0:12:52.160 --> 0:12:56.160 still drive the economy. And that means the way wages 0:12:56.200 --> 0:12:59.920 are set look really different. A lot of those gains 0:13:00.280 --> 0:13:04.440 that go from increasing productivity and expansion of our economy 0:13:04.520 --> 0:13:07.320 are no longer being shared because the people setting those 0:13:07.360 --> 0:13:11.839 wages are are sometimes these lower level subcontractors or other 0:13:11.920 --> 0:13:15.800 parties who simply cannot pass on the wage gains the 0:13:15.800 --> 0:13:18.320 way they used to. But is it possible that they 0:13:18.360 --> 0:13:22.559 can't pass along the increased cost because as you describe, 0:13:22.600 --> 0:13:24.720 you have a new economy wh there's always someone else 0:13:24.760 --> 0:13:27.760 breathing down your neck that doesn't have legacy costs or 0:13:27.880 --> 0:13:31.280 legacy employees that they have to shoulder the burden for 0:13:32.000 --> 0:13:36.120 absolutely right, and unfortunately many of the reasons why you 0:13:36.240 --> 0:13:40.040 have leading companies in the retail sector and manufacturing and 0:13:40.320 --> 0:13:44.240 hotel industry really across the board shifted out those jobs 0:13:44.240 --> 0:13:47.120 as they wanted to get rid of those legacy costs. 0:13:47.120 --> 0:13:50.559 They wanted to get rid of the costs of expensive 0:13:50.600 --> 0:13:54.000 costs about employing people. Um that used to be part 0:13:54.040 --> 0:13:56.560 of the social contract that we thought this was part 0:13:56.600 --> 0:13:59.640 of employment. You kind of shared the burdens of whether 0:13:59.640 --> 0:14:03.680 it was employment insurance or worker compensation or just meeting 0:14:03.720 --> 0:14:06.480 basic wage and our requirements. That used to be my 0:14:06.679 --> 0:14:11.840 job in the labor department. Um that has been we 0:14:12.040 --> 0:14:15.079 our laws and the structuring of our economy have allowed 0:14:15.480 --> 0:14:19.040 that burden to be shifted out two employers who, as 0:14:19.120 --> 0:14:22.880 you correctly say, are in direct competition with a bunch 0:14:22.880 --> 0:14:25.640 of other employers who are less able of doing that, 0:14:25.960 --> 0:14:29.760 and uh, the party that bears the burden. The risks 0:14:29.800 --> 0:14:32.600 that have been shifted more and more are on on 0:14:32.680 --> 0:14:36.000 working people. Just quickly give you ten seconds. Is there 0:14:36.000 --> 0:14:37.720 a role that the government will play or do you 0:14:37.760 --> 0:14:41.160 believe that that's over as well? Well? I think uh, 0:14:41.440 --> 0:14:44.040 you know, certainly in the next few years, I would 0:14:44.240 --> 0:14:46.520 would doubt it, although we're seeing at the state level 0:14:47.800 --> 0:14:50.680 government is jumping in with increases in minimum wage and 0:14:50.720 --> 0:14:53.760 other kinds of ways of helping helping working people. In 0:14:53.800 --> 0:14:55.680 the long term, I think government is going to have 0:14:55.800 --> 0:14:59.240 to play a role. Uh. In really writing this, I 0:14:59.320 --> 0:15:01.000 want to thank you for very much for spending time 0:15:01.040 --> 0:15:04.280 with us. David Wild, dean of the Heller School for 0:15:04.360 --> 0:15:09.280 a Social Policy and Management at Brandeis University, former head 0:15:09.360 --> 0:15:11.560 of the Wage and Our Division of the U. S 0:15:11.640 --> 0:15:31.760 Department of Labor. In March of our next guest UH 0:15:32.400 --> 0:15:36.400 was before the US Senate Select Committee on Intelligence hearing 0:15:36.440 --> 0:15:41.880 the topic disinformation, a primer in Russian active measures and 0:15:42.080 --> 0:15:46.000 influence campaigns. Clint Wants is a Senior Fellow for the 0:15:46.040 --> 0:15:49.440 Foreign Policy Research Institute. He's also Senior Fellow at the 0:15:49.440 --> 0:15:54.120 Center for Cyber and Homeland Security at the George Washington University. 0:15:54.360 --> 0:15:58.160 He can be followed on Twitter at Selected Wisdom, and 0:15:58.240 --> 0:16:00.080 he is the author of a new book, and I 0:16:00.560 --> 0:16:04.280 Messing with the Enemy, Surviving in a social media world 0:16:04.360 --> 0:16:09.320 of hackers, terrorists, and Russians and fake news. Watts, thank 0:16:09.360 --> 0:16:11.960 you very much, thanks for having Why did you write 0:16:11.960 --> 0:16:15.200 this book? I actually had a proposal for the book 0:16:15.360 --> 0:16:18.320 together before I testified, and no one wanted it. They 0:16:18.320 --> 0:16:21.400 were not interested. And getting people interested in the Russian 0:16:21.440 --> 0:16:25.400 descent fo in Sen was very difficult. Uh, the Islamic 0:16:25.440 --> 0:16:28.720 State was the focus of everything. People weren't buying into 0:16:28.720 --> 0:16:31.360 the Russian stuffor that it mattered, and that all changed 0:16:31.360 --> 0:16:34.000 in about a year. And I wanted people to understand 0:16:34.000 --> 0:16:36.800 that a lot of these phenomenons had played out repeatedly. 0:16:37.320 --> 0:16:39.200 So the Arab spring, if you remember that was the 0:16:39.200 --> 0:16:42.640 Facebook revolution, didn't really turn out that way. In the end, UH, 0:16:42.680 --> 0:16:45.720 the Islamic State overtook al Qaeda on social media. If 0:16:45.720 --> 0:16:48.760 you look at our own politics, social media populism, the 0:16:48.840 --> 0:16:51.880 Trump wave overtook the GOP and now you look at 0:16:52.120 --> 0:16:55.080 the resistance and sort of it's offspring, you know, with 0:16:55.120 --> 0:16:58.200 the Democratic Party. So we're seeing the social media populism 0:16:58.280 --> 0:17:00.920 pop up in different contexts around the world. You said 0:17:00.960 --> 0:17:04.159 that the book introduces us to a frightening world in 0:17:04.200 --> 0:17:08.280 which terrorists and cybercriminals don't hack your computer, they hack 0:17:08.359 --> 0:17:11.160 your mind. What does that mean? I mean? And what's 0:17:11.200 --> 0:17:15.640 the difference between hacking your mind and disinformation and just 0:17:15.920 --> 0:17:19.560 a good campaign? Right, So that we used to always 0:17:19.560 --> 0:17:23.040 worry about, for example, hackers hacking into the US power grid, uh, 0:17:23.080 --> 0:17:25.360 you know, and turning it off or or breaking it down, 0:17:25.359 --> 0:17:27.919 our foreign country doing it. The real art of it 0:17:27.960 --> 0:17:30.960 now is you can convince an American potentially unwittingly to 0:17:31.000 --> 0:17:33.480 turn the power grid off for you. That's the different 0:17:33.480 --> 0:17:36.600 objective because it also gives you plausible deniability of actually 0:17:36.600 --> 0:17:39.680 doing it. And you're using an unwitting ally, which is 0:17:39.720 --> 0:17:43.119 a low cost and very effective way to achieve your objectives. 0:17:43.160 --> 0:17:45.800 And that's really what the Russians figured out was they 0:17:45.800 --> 0:17:49.800 combined some different techniques. If you remember anonymous and lull sect. 0:17:49.800 --> 0:17:52.679 The original hackers, they were going around stealing people's information 0:17:52.720 --> 0:17:55.280 and dumping it out onto the internet. The Russians understood 0:17:55.320 --> 0:17:58.000 that too. They've they've been doing compromising information for a 0:17:58.000 --> 0:17:59.680 long long time. So when they hit the d n C, 0:18:00.400 --> 0:18:03.080 John Podesta, General Breed Love, they understood, I'm going to 0:18:03.200 --> 0:18:05.480 do this out there, but rather than try and hack 0:18:05.600 --> 0:18:07.359 just for the information, I'm going to use it to 0:18:07.480 --> 0:18:10.720 drive influence. And it's a much more powerful technique because 0:18:10.720 --> 0:18:13.320 you're changing the way the audience that you're targeting is 0:18:13.359 --> 0:18:16.520 perceiving not only information, but their own politics, or own country, 0:18:16.600 --> 0:18:19.919 their own institutions. I want to mention that you're a 0:18:19.960 --> 0:18:23.800 graduate of West Point, US Military Academy. You served in 0:18:23.840 --> 0:18:27.359 the infantry. Thank you very much for your your service. UH. 0:18:27.680 --> 0:18:30.720 You also worked as a special agent for the Federal 0:18:30.760 --> 0:18:35.760 Bureau of Investigation and served on the Joint Terrorism Task Force. 0:18:36.560 --> 0:18:41.240 Do we face terrorism or do we face criminals? You 0:18:41.320 --> 0:18:43.960 face both, and it really comes down to you know 0:18:44.000 --> 0:18:46.760 what their objectives are in the objective is either money 0:18:46.880 --> 0:18:50.160 or is it ideology? You know, changing governments, taking down 0:18:50.760 --> 0:18:54.320 uh the United States. We face both and what's interesting 0:18:54.400 --> 0:18:58.080 is that they learned from each other. So criminals activists 0:18:58.320 --> 0:19:00.560 they both learned from each other in terms the tools. 0:19:00.800 --> 0:19:02.960 You know, when we look at criminal hackers, they came 0:19:03.000 --> 0:19:05.879 after if you remember the old activists, the hackers, you know, 0:19:05.920 --> 0:19:08.399 the people that did it for fun and for just learning. 0:19:08.560 --> 0:19:10.560 Criminals recognized that and said, well, you know what else 0:19:10.560 --> 0:19:12.520 we could use this for. We see the same thing 0:19:12.560 --> 0:19:15.360 going on now, by the way, with disinformation. The Russians 0:19:15.400 --> 0:19:18.800 are brilliant at the art of disinformation, but now everybody 0:19:18.920 --> 0:19:21.400 is copying their playbooks. So I've been talking a lot 0:19:21.440 --> 0:19:24.680 about the elections. I'm not so worried about the Russians 0:19:24.720 --> 0:19:27.080 as I am. Everybody else's copying it. And so what 0:19:27.160 --> 0:19:30.000 you're seeing is those who can amass data from lots 0:19:30.000 --> 0:19:33.680 of social media companies you're purchasing preferences, and use advanced 0:19:33.680 --> 0:19:37.399 technology like machine learning. They have cutting edge ability to 0:19:37.480 --> 0:19:40.360 do influence campaigns on steroids and do them much quicker. 0:19:40.800 --> 0:19:44.600 So those that are you know, political public relations companies, 0:19:44.600 --> 0:19:47.280 are political campaigns, they really will have more capability on 0:19:47.320 --> 0:19:49.719 the horizon than any of these nation states we've been 0:19:49.720 --> 0:19:52.520 worrying about so far. Yeah, and when you add artificial 0:19:52.560 --> 0:19:55.320 intelligence into it, you can start to imagine that this 0:19:55.440 --> 0:19:59.520 disinformation becomes incredibly effective. I'm just wondering, you know, what 0:19:59.760 --> 0:20:02.560 is sort of the counterbalance to this, How how is 0:20:02.600 --> 0:20:05.920 there anything that could kind of, I don't know, get 0:20:05.960 --> 0:20:07.840 in the middle of this, because basically this is just 0:20:07.880 --> 0:20:11.679 the old propaganda campaigns on steroids, right, it is just 0:20:11.720 --> 0:20:14.480 taking it to cyberspace, where you have it's much more 0:20:14.680 --> 0:20:18.120 cost effective and much more effective in terms of moving populations. 0:20:18.119 --> 0:20:21.359 I think we've seen that ultimately. I think, you know, 0:20:21.400 --> 0:20:23.239 sort of a big part of the book is what 0:20:23.320 --> 0:20:25.320 happens to us over time when we're in this and 0:20:25.359 --> 0:20:27.879 you start to see what I call preference bubbles, and 0:20:27.920 --> 0:20:31.919 so you see social media nations emerge that overtake physical nations. 0:20:31.920 --> 0:20:34.359 And by that, I mean if you're spending three to 0:20:34.400 --> 0:20:36.160 five hours a day on your cell phone, you were 0:20:36.400 --> 0:20:39.439 with virtual connections more than physical connections, and you're starting 0:20:39.480 --> 0:20:43.640 to build relationships online that overtake your neighbors. And so 0:20:43.720 --> 0:20:48.080 that is truly devastating for real companies and countries, uh 0:20:48.160 --> 0:20:51.480 in terms of how they do their business. Who governs cyberspace? 0:20:51.520 --> 0:20:53.960 I think we saw with social media companies there are 0:20:54.000 --> 0:20:56.320 only they're the only ones that really understand how their 0:20:56.359 --> 0:21:00.560 systems work. Governments are struggling to regulate them or understand 0:21:00.560 --> 0:21:02.480 the dangers that are there. And I think for the 0:21:02.480 --> 0:21:05.639 private sectors, a big issue with banks and law firms. 0:21:05.680 --> 0:21:08.600 If you want to do a compromising campaign where our 0:21:08.600 --> 0:21:11.000 secrets held and seek secrets are held at banks and 0:21:11.080 --> 0:21:14.720 law firms, that's where the information warfare battlefield really takes place. 0:21:15.520 --> 0:21:19.320 So the implications are devastating and will ultimately come down 0:21:19.320 --> 0:21:22.119 to civil society to solve this. And we have to 0:21:22.119 --> 0:21:24.600 get a you know, we have to restore a basis 0:21:24.640 --> 0:21:27.280 of fact and fiction. You can't have policy debate if 0:21:27.320 --> 0:21:28.919 you have your facts and I have my facts, and 0:21:28.920 --> 0:21:30.880 we're debating about whose facts are right. You can't even 0:21:30.880 --> 0:21:33.760 debate the policy because we don't even agree on where 0:21:33.760 --> 0:21:36.639 the playing field is. And we're seeing that today. The 0:21:36.640 --> 0:21:39.200 other thing is we're seeing these bubbles start to emerge 0:21:39.440 --> 0:21:42.800 in the information space where I like you, you like me. 0:21:42.960 --> 0:21:45.800 We build our own nation, we build our own history, 0:21:46.080 --> 0:21:49.640 we start our own institutions which reinforce our preferred facts 0:21:49.680 --> 0:21:52.760 and our preferred science, and we don't come together and 0:21:52.800 --> 0:21:55.959 we don't discuss, so we'll have implications for science. They 0:21:55.960 --> 0:21:59.239 will have amplifications for government. And really it's about do 0:21:59.320 --> 0:22:02.439 you want to your relationships in the virtual world to 0:22:02.520 --> 0:22:05.120 be about people who look like you and talk like you, 0:22:05.240 --> 0:22:07.280 or do you want it to be about your fellow Americans. 0:22:07.600 --> 0:22:09.919 And that's really the challenge moving forward. We have to 0:22:09.960 --> 0:22:12.159 restore what we believe in as a country and and 0:22:12.200 --> 0:22:15.480 really what we want to push around the world and 0:22:15.880 --> 0:22:20.800 about the Is there any nation or group of people 0:22:21.440 --> 0:22:24.399 that are doing this better than we are here in 0:22:24.440 --> 0:22:28.000 the United States in terms of meeting these challenges. Yes, 0:22:28.160 --> 0:22:32.920