WEBVTT - Adam Posen Has a Warning on the Danger of Bidenomics 0:00:10.119 --> 0:00:14.000 Hello, and welcome to another episode of the Odd Lots podcast. 0:00:14.040 --> 0:00:16.360 I'm Joe Wisenthal and I'm Tracy Alloway. 0:00:16.680 --> 0:00:20.040 Tracy, you know, we're still here at Jackson Hall. We're 0:00:20.040 --> 0:00:23.600 hanging on We're not really in the actual event space, 0:00:23.640 --> 0:00:25.360 so we're just sort of hanging out in the lobby 0:00:25.360 --> 0:00:27.680 looking for people. It's like, hey, do you want to 0:00:27.680 --> 0:00:28.480 come on the podcast? 0:00:28.480 --> 0:00:29.360 And we found a person. 0:00:29.440 --> 0:00:32.040 We found a person. We have the perfect guest. Actually. 0:00:32.040 --> 0:00:34.120 But one thing I'm really exciting, you know, we've one 0:00:34.120 --> 0:00:36.559 of the things we've been talking about already is this 0:00:36.640 --> 0:00:40.479 idea that you know, monetary policy. It's always challenging. It's 0:00:40.479 --> 0:00:45.120 always challenging when you have things like COVID, the war, etc. 0:00:45.440 --> 0:00:48.840 But we're also in a period in which fiscal policies, 0:00:49.040 --> 0:00:53.040 macro policies, trade policy, industrial policy, these things that we 0:00:53.120 --> 0:00:55.840 talk about on Odd Lots all the time, like how 0:00:55.880 --> 0:00:57.200 do central bankers deal with them? 0:00:57.280 --> 0:00:59.560 Absolutely, I feel like I've said this a number of 0:00:59.600 --> 0:01:02.520 times at this point, but one of the themes of 0:01:02.560 --> 0:01:05.839 this meeting seems to be how do central bankers get 0:01:05.840 --> 0:01:09.320 a better understanding of the real economy and then actually 0:01:09.440 --> 0:01:12.920 respond to it. So things like supply chain issues or 0:01:13.560 --> 0:01:18.920 booming fiscal spending. How does monetary policy actually react to that? 0:01:18.959 --> 0:01:22.000 And it is fairly new at a time when the 0:01:22.080 --> 0:01:26.160 unemployment rate is at multi decade lows. We have this 0:01:26.280 --> 0:01:28.199 huge run up in the deficit. 0:01:28.120 --> 0:01:30.119 Right, and we had you know, people always talk about 0:01:30.120 --> 0:01:32.039 like the sort of forty year period, but we really 0:01:32.040 --> 0:01:35.200 you know, liberalization, globalization, et cetera. And then in the 0:01:35.240 --> 0:01:39.440 twenty tens sort of the fiscal activism really taking a backseat, 0:01:39.600 --> 0:01:42.680 not much, probably not enough by many people's accounts, of 0:01:42.800 --> 0:01:46.240 like demand management on the fiscal side. And now we're 0:01:46.240 --> 0:01:48.920 getting the reverse right, because we had the aggressive expansion. 0:01:49.120 --> 0:01:52.160 We're also having these in the US, in particular, these 0:01:52.280 --> 0:01:57.240 very aggressive domestic investment plans right to climate semiconductors. It 0:01:57.360 --> 0:02:01.240 intersects with trade in a very big way, tensions with China, 0:02:01.520 --> 0:02:05.560 an attempt to move supply chains, particularly around advanced tech 0:02:05.680 --> 0:02:09.600 or clean tech on US shores, And so how that's 0:02:09.639 --> 0:02:12.680 going to work. How should economists think about it, How 0:02:12.720 --> 0:02:15.280 should regulators think about it? How should central bankers think 0:02:15.280 --> 0:02:18.239 about it? Is sort of like a huge question that hangs. 0:02:18.000 --> 0:02:19.960 Over all this absolutely and you're right, we do have 0:02:20.040 --> 0:02:20.679 the perfect guest. 0:02:20.760 --> 0:02:22.839 We do have the perfect guest because he's someone who 0:02:22.919 --> 0:02:24.919 is spans all of these topics. We're going to be 0:02:24.919 --> 0:02:27.960 speaking with Adam Posen, president of the Peterson Institute for 0:02:28.000 --> 0:02:32.280 International Economics, also a central banker, a member of the 0:02:32.280 --> 0:02:36.240 Monetary Policy Committee at the Bank of England, and someone 0:02:36.240 --> 0:02:40.440 who lately has been somewhat critical of the Biden administration 0:02:40.680 --> 0:02:43.360 and some of the domestic policy and trade choices that 0:02:43.360 --> 0:02:46.560 the administration has made. So let's have a conversation with Adam. Adam, 0:02:46.600 --> 0:02:48.799 thank you so much for coming on outlaws. 0:02:48.440 --> 0:02:50.720 Thank you, Joe, and thank you for the generous introduction. 0:02:51.040 --> 0:02:52.880 Let's just jump right into it. You had a piece 0:02:52.880 --> 0:02:55.120 I think in March in foreign policy that's got a 0:02:55.160 --> 0:02:57.400 lot of attention. I still see people talking about it. 0:02:57.880 --> 0:03:00.600 Adam Toos wrote about it recently in his chart book 0:03:00.680 --> 0:03:02.600 and said, like, this is this sort of I think, 0:03:02.639 --> 0:03:05.360 in his view, one of the defining critiques. We talk 0:03:05.400 --> 0:03:07.799 about this all the time. We've had people who run 0:03:07.840 --> 0:03:10.960 the chips program in IRA et cetera. But like big picture, 0:03:11.040 --> 0:03:14.200 like what is your concern about some of the domestic 0:03:14.200 --> 0:03:15.880 policy choices being made right now? 0:03:16.680 --> 0:03:19.480 Thank you for referring to my article, and it is 0:03:19.520 --> 0:03:23.959 a concern that not just the government's getting involved in 0:03:23.960 --> 0:03:26.679 industrial policy in the US. The US, as you've talked 0:03:26.680 --> 0:03:30.400 about previously, I've heard some episodes at various times since history, 0:03:30.440 --> 0:03:33.480 there's been public investment by the US and technology. There's 0:03:33.520 --> 0:03:37.280 been more aggressive, less aggressive efforts. What I'm worried about 0:03:37.520 --> 0:03:42.240 are potentially four big things. First, so much of this 0:03:42.840 --> 0:03:48.080 has been cloaked as rescuing the industrial sector and not 0:03:48.320 --> 0:03:54.600 so subtly buying the votes of angry white industrial workers 0:03:54.640 --> 0:03:58.480 who feel left behind in Wisconsin and Pennsylvania and West Virginia. 0:03:58.520 --> 0:04:01.400 And I understand that's need. I'm not sure it's going 0:04:01.480 --> 0:04:04.600 to work. I'd like to think there's other ways to 0:04:04.600 --> 0:04:08.480 win an election. But the good news on that is 0:04:08.880 --> 0:04:11.680 several of the people who advocate this policy have now admitted, 0:04:12.040 --> 0:04:15.000 you know, even if it goes well, we're talking affecting 0:04:15.160 --> 0:04:18.479 a few towns several hundred thousand people, which matters, but 0:04:18.600 --> 0:04:21.040 isn't going to make a thing. The second thing, which 0:04:21.080 --> 0:04:25.880 I'm much more concerned about, is whenever you create a 0:04:25.920 --> 0:04:30.200 government program that's about giving money to individual companies and 0:04:30.240 --> 0:04:34.200 you combine it with this trade policy, that's very much 0:04:34.320 --> 0:04:39.120 as the President keeps saying American made, American bills, American exports, 0:04:39.160 --> 0:04:43.800 buy America, buy America. That you end up creating what 0:04:43.880 --> 0:04:45.800 we used to complain about a lot in Japan and 0:04:45.880 --> 0:04:50.640 Korea and China and Europe, these national champions. So you know, 0:04:50.680 --> 0:04:53.760 it may be that Intel or Micron, just to pick two. 0:04:53.800 --> 0:04:55.919 In the names that are out there are great companies 0:04:55.920 --> 0:04:58.920 with great tech, but you put them on the government 0:04:58.960 --> 0:05:01.800 payroll for billions of dollars, and you say that we 0:05:01.839 --> 0:05:05.599 want to make sure there's an American presence in this industry, 0:05:05.600 --> 0:05:07.760 American leadership in this industry, and they can end up 0:05:07.800 --> 0:05:11.120 taking you to town. And frankly, if Trump gets back in, 0:05:11.600 --> 0:05:18.200 the corruption opportunities are horrible. Third thing is internationally, I'm 0:05:18.240 --> 0:05:21.719 hopeful that the Biden administration is realizing that they went 0:05:21.720 --> 0:05:25.120 a little too far in their anti trade rhetoric. We 0:05:25.160 --> 0:05:28.240 can debate how much trade has been fair or unfair 0:05:28.240 --> 0:05:30.960 and how much that matters, but in the context of 0:05:30.960 --> 0:05:32.680 what you said and the lean in, and again, I 0:05:32.720 --> 0:05:35.200 know you've talken about this with other people. You know, 0:05:35.320 --> 0:05:38.599 the US has been basically withdrawing from globalization for twenty 0:05:38.600 --> 0:05:41.640 plus years. Everyone thinks, oh, globalization did us in, but 0:05:42.120 --> 0:05:45.120 we've actually since NAFTA, we've done almost no trade deals. 0:05:45.120 --> 0:05:48.400 We've cut way back on immigration, we take a lower 0:05:48.440 --> 0:05:53.360 amount of investment from abroad than we used to. And 0:05:53.400 --> 0:05:56.520 there's all kinds of blowback from this. There's foreign policy blowback, 0:05:56.560 --> 0:06:00.440 there's development blowback in the South, the global South, there's 0:06:00.760 --> 0:06:03.159 technology races, and so this sends up with these things 0:06:03.240 --> 0:06:06.159 like these subsidies races that we're having with Europe and 0:06:06.200 --> 0:06:10.200 de facto with China. Now the final point. Sorry to 0:06:10.200 --> 0:06:13.159 go on so long, but the biggest thing is where 0:06:13.200 --> 0:06:15.960 I think the bid An administration is right is the 0:06:16.080 --> 0:06:19.080 US had to do something constructive on climate. I mean, 0:06:19.360 --> 0:06:23.000 it's an emergency. We weren't doing anything, or at least 0:06:23.000 --> 0:06:25.640 the government wasn't, and so they were trying to figure 0:06:25.680 --> 0:06:28.320 out a way. They couldn't do a carbon tax, they 0:06:28.320 --> 0:06:33.360 couldn't do a lot of things. This package of investments, 0:06:33.440 --> 0:06:36.240 as they call it, was supposed to get us some 0:06:36.400 --> 0:06:40.240 climate progress, and it is. My worry is that it's 0:06:40.240 --> 0:06:41.880 going to end up being a repeat of what happened 0:06:41.920 --> 0:06:46.960 with COVID vaccines, which is the developing world, and even 0:06:47.000 --> 0:06:50.240 the relatively high income developing world, places like Brazil or 0:06:50.360 --> 0:06:53.880 Turkey are not going to get the access to this technology, 0:06:54.000 --> 0:06:56.520 or when we have good green technology, it's going to 0:06:56.520 --> 0:06:58.960 become a political football. Are you loyal to China? Are 0:06:58.960 --> 0:07:02.200 you loyal to the US and for saving the planet. 0:07:02.240 --> 0:07:04.920 To put it bluntly, the most important thing is when 0:07:04.960 --> 0:07:08.039 we get good new green tech, it gets used and 0:07:08.120 --> 0:07:11.280 adopted as widely as possible. And this is where I've 0:07:11.280 --> 0:07:14.360 been particularly trying to engage with the Biding Administration's extent 0:07:14.440 --> 0:07:17.560 they of interest is to say, if you're doing this 0:07:17.640 --> 0:07:22.480 whole bundle of industrial policy and trade policy and nationalist policy, 0:07:22.640 --> 0:07:25.240 how do we make sure that the technology does get 0:07:25.280 --> 0:07:27.480 down that it's not like with COVID vaccines that you 0:07:27.520 --> 0:07:29.679 hoard it off for yourself and you make it a 0:07:29.720 --> 0:07:31.920 political loyalty test. Do you buy from us or do 0:07:32.000 --> 0:07:34.200 you buy from them? 0:07:34.280 --> 0:07:37.240 So many different directions we could go in already, and 0:07:37.320 --> 0:07:40.440 we're sort of talking about multiple different policies at once. 0:07:40.520 --> 0:07:44.400 So let me step back and ask a big picture question, 0:07:44.440 --> 0:07:49.440 which is is there a good model of industrial policy 0:07:49.760 --> 0:07:53.120 in your mind? Can you sort of distinguish between bad 0:07:53.160 --> 0:07:58.640 industrial policy that potentially leads to protectionist outcomes and perverse 0:07:58.760 --> 0:08:03.720 incentives and you know, good industrial policy that does achieve 0:08:03.760 --> 0:08:05.280 the outcomes that are intended. 0:08:05.600 --> 0:08:08.840 It's a very good question, Tracy, and I think the 0:08:08.880 --> 0:08:11.000 devil's not in the details. With the devil is in 0:08:11.080 --> 0:08:15.560 some basic design choices. So one aspect is I think 0:08:15.600 --> 0:08:20.720 it's much better to have the public investment going more 0:08:20.840 --> 0:08:25.840 into infrastructure, more into public goods. And some people associate 0:08:25.880 --> 0:08:28.400 with the bidenmistration say, well, that's that old neoliberal thing 0:08:28.960 --> 0:08:31.720 that that didn't work, But actually those parts did, we 0:08:31.800 --> 0:08:35.240 just didn't spend enough. So invest in universities, invest in 0:08:35.320 --> 0:08:38.720 R and D tax credits, invest in skilled immigration, invest 0:08:38.760 --> 0:08:45.240 in infrastructure of power grid and fiber and EV charging stations, 0:08:45.240 --> 0:08:48.520 if that's how you want to go. The second thing is, 0:08:48.760 --> 0:08:51.560 and to be fair, the Bidministration and the Congress have 0:08:51.640 --> 0:08:54.360 done a little bit on this is to make it 0:08:54.400 --> 0:08:57.520 so that even if you're trying to get production at 0:08:57.520 --> 0:08:59.760 home for say a good reason like we need to 0:08:59.800 --> 0:09:03.559 have some semiconducting capacity in the US, manufacturing capacity in 0:09:03.559 --> 0:09:06.840 the US, you still leave it open that there's room 0:09:07.200 --> 0:09:10.920 for competition from abroad. So you're trying to avoid the 0:09:10.960 --> 0:09:15.600 whole corruption and international backlash, or at least reduce those 0:09:15.720 --> 0:09:19.640 aspects by saying, Okay, if it turns out it's a 0:09:19.640 --> 0:09:22.280 German or a Korean or a Japanese company that has 0:09:22.360 --> 0:09:25.400 the good tech, you know, we're not going to prevent 0:09:25.800 --> 0:09:28.480 or discourage our people from buying it or discourage them 0:09:28.480 --> 0:09:31.599 from selling it. Here and again there are some loopholes 0:09:31.640 --> 0:09:35.120 like this whole leasing deal they made for electric vehicles 0:09:35.280 --> 0:09:39.200 in the bill, that they could make. There's more things 0:09:39.240 --> 0:09:42.679 they can do. So anyway, to me, those two things, 0:09:42.440 --> 0:09:45.200 that a lot more of the public investment goes to 0:09:46.400 --> 0:09:51.400 general good and rather than specific company capacity, and that 0:09:51.880 --> 0:09:56.319 you make sure that there is competition, including international competition, 0:09:56.679 --> 0:09:59.040 for the industrial policy goals you have. 0:10:00.160 --> 0:10:01.920 I want to go back to something you said, and 0:10:02.000 --> 0:10:03.920 I think there is a little bit of controversy, and 0:10:04.040 --> 0:10:07.079 you may have said this in another context, but the 0:10:07.120 --> 0:10:12.839 idea of like manufacturing, the politics of manufacturing, the maybe 0:10:12.880 --> 0:10:17.600 the nostalgia for manufacturing this side, and you know you mentioned, 0:10:17.640 --> 0:10:21.439 okay that there are the China shock really hurt certain 0:10:21.440 --> 0:10:25.359 areas of the Midwest. Should is the point of accelerating 0:10:25.360 --> 0:10:30.320 domestic manufacturing to maybe placate you know, several hundred thousand 0:10:30.400 --> 0:10:33.880 white men in the Midwest by reinvigorating that but there 0:10:33.920 --> 0:10:36.920 is another school of thought and that I find interesting, 0:10:36.920 --> 0:10:40.960 which is that no, actually manufacturing is really important. Complexity 0:10:41.040 --> 0:10:45.800 is important, ability to produce advanced goods is an important 0:10:45.840 --> 0:10:49.040 aspect of being a rich country. Is that false? Do 0:10:49.080 --> 0:10:51.120 we just have this sort of like false nostalgia for 0:10:51.200 --> 0:10:53.680 the benefits of having a manufacturing economy? 0:10:53.960 --> 0:10:56.480 I think both issues should raise Joe or right. And 0:10:56.640 --> 0:10:59.600 just to be clear, you know, white males have just 0:10:59.600 --> 0:11:02.679 as much right the government large, just as any other groups. 0:11:04.200 --> 0:11:08.319 And anything I've said to indicate otherwise was mistaken. I mean, 0:11:09.000 --> 0:11:13.680 so it's but it is this idea that nostalgia is 0:11:13.679 --> 0:11:16.640 the word I used, Thank you that there's Trump had 0:11:16.640 --> 0:11:18.240 a lot of this, but I think Biden has some 0:11:18.320 --> 0:11:20.160 of it. That you know, there was this sort of 0:11:20.200 --> 0:11:25.200 golden era when a person without a high school diploma 0:11:25.679 --> 0:11:28.440 could make a really good living in a plant, and 0:11:28.480 --> 0:11:31.200 that plant would employ lots of people in one place 0:11:31.720 --> 0:11:34.360 and they could depend on the job and so on, 0:11:35.320 --> 0:11:38.200 and this created a community and all this and the 0:11:38.360 --> 0:11:42.839 point of calling it nostalgia is and meaning that's a 0:11:42.880 --> 0:11:47.040 bad thing is threefold. First, that really only applied to 0:11:47.080 --> 0:11:49.640 a small number of people. I mean, even at its height, 0:11:50.160 --> 0:11:53.880 you know, manufacturing share of employment in the US, I 0:11:53.880 --> 0:11:56.200 don't think ever got much about thirty percent, and that 0:11:56.280 --> 0:11:59.000 was in the immediate aftermath of World War Two, and 0:11:59.080 --> 0:12:03.079 obviously there were people, women, people of color who didn't 0:12:03.120 --> 0:12:07.720 have equal opportunity in that space as other people. But anyway, 0:12:07.880 --> 0:12:10.000 so there's still a lot of people. And even now 0:12:10.040 --> 0:12:12.560 it's thirteen percent of employment, it's still a lot of people. 0:12:12.960 --> 0:12:15.880 But just to say it was never, ever, ever going 0:12:15.960 --> 0:12:20.680 to be the engine for everybody. The second thing is 0:12:20.760 --> 0:12:26.720 to say that there is a bias in that that 0:12:27.000 --> 0:12:32.840 under plays just how adaptable a lot of Americans, white, black, female, male, 0:12:32.920 --> 0:12:36.320 everybody has been, you know, moving around the country. Immigrants 0:12:36.320 --> 0:12:38.480 who come here, but people who moved in the great 0:12:38.520 --> 0:12:41.440 migrations from the South to the North for manufacturing and 0:12:41.440 --> 0:12:43.640 then out of the North and back into the South 0:12:43.679 --> 0:12:47.440 and to the west, but also communities that came back up. 0:12:48.120 --> 0:12:51.600 We think about, you know, Charlotte, North Carolina is a 0:12:51.640 --> 0:12:55.120 financial center, Durham is a technology center. It's this whole 0:12:55.160 --> 0:12:58.680 area in North Carolina that, you know, several decades ago 0:12:58.760 --> 0:13:02.720 was tobacco. And Pittsburgh everybody always cites it because it's amazing. 0:13:02.760 --> 0:13:05.880 Pittsburgh is now a health center and many other things, 0:13:05.880 --> 0:13:09.320 and it's not steel anymore, and so there is this 0:13:09.400 --> 0:13:13.719 sort of bias towards not understanding the change is part 0:13:13.760 --> 0:13:17.000 of economic life and it's actually good. But the third thing, 0:13:17.080 --> 0:13:19.520 which is where I guess it gets a little more controversial, 0:13:19.840 --> 0:13:22.920 is for some people, and I think this was much 0:13:22.920 --> 0:13:24.880 more true of Trump's and some of the people who 0:13:24.880 --> 0:13:31.040 supported him, there's this sort of idea that macho tasks 0:13:31.120 --> 0:13:36.320 of large hot metal or big heavy things you can 0:13:36.400 --> 0:13:39.760 drop on your foot is just somehow more. 0:13:39.600 --> 0:13:41.880 Worthy the allure of welding. 0:13:42.280 --> 0:13:45.439 Yeah, well, and you know, and teresay as people point out, 0:13:46.040 --> 0:13:48.680 it's you don't make fun of people for that. That's fine. 0:13:48.960 --> 0:13:50.760 For some people that's a real calling and they really 0:13:50.760 --> 0:13:53.640 want to do it. But the idea that every son 0:13:53.720 --> 0:13:56.320 of a welder or daughter of a welder wants to 0:13:56.360 --> 0:13:58.360 be a welder and should want to be a welder, 0:13:58.360 --> 0:14:00.840 and doesn't want it, like maybe go into a white 0:14:00.880 --> 0:14:04.120 collar job or maybe work indoors or outdoors or whatever, 0:14:04.880 --> 0:14:07.320 it is just weird. And so sorry, Joe. Your big point, 0:14:07.320 --> 0:14:10.960 which is the more important one, is can we survive 0:14:11.760 --> 0:14:14.400 if we don't have a vital manufacturing sector. 0:14:14.160 --> 0:14:16.040 Or at least advanced manufacturer, right. 0:14:16.160 --> 0:14:18.280 And I think the answer to that is, well, we do. 0:14:18.640 --> 0:14:21.160 We just don't have as much manufacturing employment as we 0:14:21.280 --> 0:14:24.280 used to. So it's just you look at the very 0:14:24.280 --> 0:14:27.040 basic numbers, the share of the US economy and value 0:14:27.040 --> 0:14:30.360 added in manufacturing. It's basically on change or even slightly 0:14:30.440 --> 0:14:33.520 higher than it was when the manufacturing employment chair was 0:14:33.640 --> 0:14:36.240 much more, which is not our way of saying productivity 0:14:36.240 --> 0:14:39.880 and manufacturing has gone up enormously. We're producing more value 0:14:39.920 --> 0:14:44.080 of stuff at the higher end with fewer people. And 0:14:44.200 --> 0:14:47.440 so in a sense we can debate that question you raise, 0:14:47.800 --> 0:14:50.320 but it's also it's just not even a realistic question. 0:14:50.440 --> 0:14:53.760 So like, look at the semiconductors. Yes, it's true we 0:14:55.000 --> 0:14:57.720 did not take into account, and I say we, I 0:14:57.760 --> 0:15:00.960 mean everybody did not take into a count just how 0:15:01.000 --> 0:15:05.840 dependent certain kinds of semiconductors were on This obviously exposed 0:15:06.000 --> 0:15:10.040 very specific set of plants in Taiwan. But the fact 0:15:10.160 --> 0:15:15.520 is there's a huge number of components of semiconductors, including 0:15:15.520 --> 0:15:17.880 the ones made by TSMC and the ones made by 0:15:17.880 --> 0:15:22.960 Samsung and Heinex and others, that are dependent on American technology. 0:15:23.000 --> 0:15:26.440 They're dependent on American design technology, they're dependent on American 0:15:26.480 --> 0:15:30.400 intellectual property, they're dependent on American components, and it's the 0:15:30.920 --> 0:15:34.600 low end stuff the US doesn't make anymore. So in 0:15:34.680 --> 0:15:36.840 theory it's a good question, but in practice it's not 0:15:36.840 --> 0:15:37.920 one we even have to fax. 0:15:54.720 --> 0:15:57.560 So you brought up semiconductors, and they are probably the 0:15:57.560 --> 0:16:02.040 best example of this. But if you take some of 0:16:02.080 --> 0:16:06.240 these stated goals of this new Industrial policy at face value, 0:16:06.360 --> 0:16:09.320 it feels like a lot of it was sparked by 0:16:09.480 --> 0:16:12.880 things that happened during the global pandemic when it did 0:16:12.920 --> 0:16:17.680 become somewhat difficult to get critical components from the East 0:16:17.840 --> 0:16:21.320 to the west. How do you address that supply chain 0:16:21.640 --> 0:16:23.120 resiliency concern? 0:16:23.560 --> 0:16:29.000 Yeah, I think there's no question Tracy that from some 0:16:29.040 --> 0:16:33.000 sort of optimal planning perspective, or if you're meaning, you know, 0:16:33.040 --> 0:16:35.520 if the government tries to take the interests of the 0:16:35.560 --> 0:16:39.960 whole society or economy rather than an individual company or investor. 0:16:40.640 --> 0:16:45.640 We were past the point of resilience. We had too 0:16:45.720 --> 0:16:49.480 few notes. But it's important to recognize that didn't happen 0:16:50.200 --> 0:16:54.320 because of somebody making a stupid decision. That didn't happen 0:16:54.760 --> 0:16:58.560 because of some perverse government incentives. That happened organically. I 0:16:58.600 --> 0:17:02.760 mean you would have things where our multinational company, the CFO, 0:17:02.880 --> 0:17:05.680 on an earnings call or whatever, would say and we're 0:17:05.680 --> 0:17:08.920 going to cut costs fifteen percent next year, and somebody 0:17:09.000 --> 0:17:13.280 working in a plant four levels down says, oh my god, 0:17:13.280 --> 0:17:15.439 I got a memo. I got a cut cost twenty percent. 0:17:15.880 --> 0:17:19.480 And they figure out, oh, if I ordered this from 0:17:19.840 --> 0:17:23.600 Korea or this from Mexico, I can get it cheaper. 0:17:24.119 --> 0:17:27.720 And over time that works and you realize, oh, there's 0:17:27.720 --> 0:17:29.840 a whole group of companies down there in Mexico. Maybe 0:17:29.840 --> 0:17:32.639 I can do some more from them. It just developed organically. 0:17:32.680 --> 0:17:35.280 And during COVID with Peterson's who tried to look more 0:17:35.280 --> 0:17:37.680 into this, and we discovered it really was that way 0:17:37.760 --> 0:17:40.000 that I'm not going to name them, but we would 0:17:40.000 --> 0:17:44.280 talk to major global manufacturing companies and say, we just 0:17:44.320 --> 0:17:46.000 want to do research, we just want to understand what 0:17:46.040 --> 0:17:49.879 you're supplyshing is. And the response we kept getting was 0:17:50.080 --> 0:17:52.280 we don't really know. It just sort of grew up 0:17:52.840 --> 0:17:55.199 and we're just now figuring out where it all is. 0:17:56.200 --> 0:18:01.120 So anyway, that doesn't mean it's still valid. I don't 0:18:01.119 --> 0:18:03.679 want to do a double negative. It's still valid for 0:18:03.760 --> 0:18:07.000 the government to say, you know, in certain critical industries, 0:18:08.800 --> 0:18:11.800 the interests of the society, the economy are not being 0:18:11.840 --> 0:18:15.720 taken account by all these decentralized decisions. But it's worth 0:18:15.760 --> 0:18:20.800 remembering that even if that's right. By creating resilience, what 0:18:20.840 --> 0:18:22.600 you're essentially doing is you're saying, I'm taking out a 0:18:22.640 --> 0:18:27.679 costly insurance policy, I'm building redundant capacity. I'm buying something 0:18:27.720 --> 0:18:30.960 that's more geopolitically safe but more expensive because remember, there 0:18:31.000 --> 0:18:32.920 was a price reason why it was done the way 0:18:32.920 --> 0:18:35.080 it was done. There was a reason stuff was being 0:18:35.080 --> 0:18:39.360 produced in China not Mexico. So it may be worth it, 0:18:40.880 --> 0:18:42.520 and this is the thing I tried to argue in 0:18:42.560 --> 0:18:44.720 the past. It may be worth it to do that 0:18:44.760 --> 0:18:48.000 from a societal perspective, but we shouldn't pretend that it's 0:18:48.040 --> 0:18:52.000 going to be short term beneficial for productivity or profits, 0:18:52.040 --> 0:18:55.399 because what you're doing is you're buying insurance. You're spending 0:18:55.480 --> 0:18:58.520 money against a bad outcome. The other point, just echoing 0:18:58.520 --> 0:19:00.159 something we were talking about a minute ago, is the 0:19:00.200 --> 0:19:05.960 international side. As an economist, and when you talk about resilience, 0:19:06.000 --> 0:19:14.159 the issue is diversification. It's not necessarily reshoring domestic I mean, 0:19:14.240 --> 0:19:16.520 it gets a little confused, because if you decide China's 0:19:16.560 --> 0:19:20.920 a strategic rival or worse, then maybe you don't want China, 0:19:21.760 --> 0:19:24.879 but or you may want to distinguish friends for friends shoring. 0:19:25.560 --> 0:19:28.679 But ultimately what you care about is diversification. And so 0:19:28.720 --> 0:19:32.240 if you have one plant in the US and it's 0:19:33.440 --> 0:19:36.720 hit by a local flood, or it's taken over by 0:19:36.840 --> 0:19:41.040 a terrorist group within the US, or it's corrupt, the 0:19:41.040 --> 0:19:44.040 same way a corrupt company appears in a different country 0:19:44.040 --> 0:19:48.000 and it produces substandard products, and you haven't diversified from that, 0:19:48.320 --> 0:19:52.080 you're still in trouble. So these are the cautions I 0:19:52.080 --> 0:19:52.640 would put in. 0:19:53.040 --> 0:19:55.520 So I'm glad you brought up China because this leads 0:19:55.600 --> 0:19:57.600 nicely into the other thing I wanted to ask you, 0:19:57.640 --> 0:20:00.439 But how much of the current industrial policy do you 0:20:00.520 --> 0:20:05.720 see as a direct response to a potential either economic 0:20:05.880 --> 0:20:07.680 or geopolitical threat from China. 0:20:08.960 --> 0:20:13.240 One thing that's true of big economic policy decisions in 0:20:13.400 --> 0:20:17.920 Washington anywhere, just as it's true of committee decisions in 0:20:17.960 --> 0:20:21.520 central banks, is your goal is to get the majority 0:20:21.520 --> 0:20:24.240 of people to say yes. They can each say yes 0:20:24.240 --> 0:20:27.199 for a completely different reason. You don't need to have 0:20:27.240 --> 0:20:30.160 a coherent one set of reasons. Why you say yes, 0:20:30.240 --> 0:20:32.680 You just want all the people to say yes, right, 0:20:33.280 --> 0:20:36.920 and so we had, in a sense, the perfect storm 0:20:37.040 --> 0:20:39.159 behind the set of policies. So there were people with 0:20:39.680 --> 0:20:42.399 legitimate concerns about China, and particularly from the point of 0:20:42.440 --> 0:20:45.560 view supply chain resilience, but also the national security. There 0:20:45.560 --> 0:20:50.480 are people with overhyped, crazy concerns about China, fearing Chinese students, 0:20:50.520 --> 0:20:53.359 I think to an excessive degree. For example, there are 0:20:53.400 --> 0:20:56.280 people who were very concerned about resilience coming out of 0:20:56.280 --> 0:20:58.719 COVID and the way you said, there are people who 0:20:58.800 --> 0:21:03.120 were very concerned about the left behind post industrial communities. 0:21:03.200 --> 0:21:05.240 There were people who were you know, you go down 0:21:05.240 --> 0:21:08.200 the list. There were so many reasons for this policy, 0:21:08.920 --> 0:21:12.040 and so you know, so for someone like me to 0:21:12.080 --> 0:21:13.920 be arguing against it, this is in some way sort 0:21:13.960 --> 0:21:18.480 of silly because it's overdetermined. Right, There's a thousand reasons 0:21:18.520 --> 0:21:22.200 why they're doing this. When we talk about China specifically, 0:21:23.400 --> 0:21:26.080 I have a new article out in Foreign Affairs, and 0:21:26.160 --> 0:21:28.760 I argue we should be thinking to put a bumperstick 0:21:28.800 --> 0:21:32.159 on it more in terms of suction than sanctions. That 0:21:32.720 --> 0:21:36.840 she and the Communist Party have messed up their economy 0:21:37.400 --> 0:21:43.159 by being interventionists in people's faces, not just politically in 0:21:43.200 --> 0:21:46.160 a way they hadn't been for decades. That I mean, 0:21:46.200 --> 0:21:49.680 obviously the Communist Party, the leaders ruled China, but there 0:21:49.720 --> 0:21:52.280 was a what I called a no politics, no problem 0:21:52.359 --> 0:21:56.040 deal that you see in a lot of autocratic societies. 0:21:55.560 --> 0:21:58.919 Stang Shaoping and idiot sunflower seeds exactly. 0:21:59.040 --> 0:22:04.240 I was just rereading that in the bio, was rereading 0:22:04.280 --> 0:22:06.280 that part of the bio of dung that as Are 0:22:06.359 --> 0:22:09.000 Vogel did a few years ago, and and so you 0:22:09.040 --> 0:22:10.560 see this in a lot of countries. This was true 0:22:10.560 --> 0:22:13.000 even under Putin in his early days in Russia. Basically, 0:22:13.160 --> 0:22:14.960 you don't protest in the street, you don't run for 0:22:15.040 --> 0:22:18.320 office against me. You do the occasional bribe. I'll leave 0:22:18.359 --> 0:22:22.560 you alone to pursue your livelihood, to run your small business. 0:22:22.960 --> 0:22:27.280 But now zero COVID comes along and everybody has to 0:22:27.320 --> 0:22:30.199 study she thought and all these other things, and the 0:22:30.240 --> 0:22:34.080 average Chinese person is spoot. Anyway, the upshot of this is, 0:22:34.920 --> 0:22:37.479 I think we need to worry less about containing China 0:22:38.320 --> 0:22:41.600 in the economic sphere, except for some very specific national 0:22:41.640 --> 0:22:44.560 security technologies. You can make a case I think it's 0:22:44.640 --> 0:22:49.240 more that let she put up barriers, put up interventions 0:22:49.240 --> 0:22:53.639 in his society, Let us and the other allies attract 0:22:53.720 --> 0:22:57.600 capital and people an investment out of China. This worked 0:22:57.600 --> 0:23:00.560 against the Soviet Union, this worked against the ashes in 0:23:00.560 --> 0:23:04.680 the thirties. I'm not saying there's gonna be wholesale exodus 0:23:04.680 --> 0:23:08.680 of millions of people, but you want that positive sort 0:23:08.720 --> 0:23:12.920 of suction pressure on she and the regime. And then 0:23:13.040 --> 0:23:17.520 what usually happens is, as we saw in the Soviet case, 0:23:17.600 --> 0:23:22.040