Speaker 1: This is Wall Street Week. I'm David Weston bringing you
Speaker 1: stories of capitalism. This week, we take a look at
Speaker 1: the Trump administration's creativity in finding the cash for that
Speaker 1: sovereign wealth fund the President wants so badly, plus national
Speaker 1: security rubs up against economic policy and the art of
Speaker 1: the deal in the saga of TikTok and getting the
Speaker 1: planes to run on time, the state of the US
Speaker 1: air traffic control system, and rival competing solutions for how
Speaker 1: to make it better. But we start with President Trump's
Speaker 1: big tariff announcement.
Speaker 2: My fellow Americans, this is Liberation.
Speaker 1: Day and what it may mean for the US economy.
Speaker 1: Our special contributor Larry Summers of Harvard tells us the story.
Speaker 3: I think that we basically have a moment when we're
Speaker 3: discussing whether the existing system of global economic integration, where
Speaker 3: products are produced in supply chains across multiple countries, is
Speaker 3: going to be something we're going to preserve with all
Speaker 3: the efficiencies, all the benefits to consumers, all the increase
Speaker 3: in their purchasing power that has brought, or.
Speaker 2: Whether we're going to try to turn the clock back
Speaker 2: to where it was before the Second World War. And
Speaker 2: if we turn it back.
Speaker 3: I think that's going to be enormously costly for the
Speaker 3: United States and for the world economy.
Speaker 2: I think people may not just because there's always.
Speaker 3: A clamor about something, appreciate just how sweeping the proposals
Speaker 3: the United States has made are. The United States has
Speaker 3: traditionally been the world's leading advocate of open markets, to
Speaker 3: keep our alliances together, to help the best American companies
Speaker 3: and workers be able to export, to help American consumers
Speaker 3: buy goods at low costs. We're talking now about the
Speaker 3: United States imposing by far the highest tariffs of any
Speaker 3: reasonable sized economy in the world. We're talking about the
Speaker 3: United States having tariffs that are well above the level
Speaker 3: of the Smooth Hawley tariffs that made the depression great.
Speaker 3: And markets are processing that, and they're seeing.
Speaker 2: A big.
Speaker 3: Set of problems, a big set of reductions in economic
Speaker 3: activity ahead.
Speaker 2: And the stock market.
Speaker 3: Only measures a very small fraction of the losses to
Speaker 3: the economy from policies of this kind. There are also
Speaker 3: big losses to workers, to consumers, and that's spread more broadly.
Speaker 3: So we're going to make very important choices in the
Speaker 3: weeks ahead. I hope we make them wisely, which will
Speaker 3: involve back in off of the policies that have been announced.
Speaker 1: And that's what happened on Wednesday when President Trump announced
Speaker 1: the ninety day suspension of most of the tariffs, with
Speaker 1: the notable exception of China. You referred to history a
Speaker 1: couple times before the World War Two, Smooth Holly, back
Speaker 1: in nineteen thirty Does history give us any guidance about
Speaker 1: where we might go? For example, Richard Nixon, who's president,
Speaker 1: did take us off the gold standard, and there was
Speaker 1: a fairly abrupt change in global economics as a result
Speaker 1: of what President Nixon did. Have we had this sort
Speaker 1: of abrupt departure from what has been before an economic
Speaker 1: policy before.
Speaker 3: This is a much more abrupt change than when Richard
Speaker 3: Nixon took us off the gold standard. Then there were
Speaker 3: ten percent tariffs and those were just the Those were
Speaker 3: the policy. Now the ten percent tariffs are treated as
Speaker 3: some kind of base. The efforts of the United States
Speaker 3: in the aftermath of what President Nixon did were to
Speaker 3: cooperate with other countries, not to coerce other countries. So
Speaker 3: I don't know that there really is a historical precedent
Speaker 3: for what's being done now. And marcuts are speaking with
Speaker 3: incredible clarity. Sometimes markets are hard to interpret, but this
Speaker 3: is not one of those times.
Speaker 1: You have handled your fair share of crises, both of
Speaker 1: the Treasure Department and Secretary, but also in the White
Speaker 1: House during the Great Financial Crisis. From your experience, if
Speaker 1: you were back in the White House or Treasure Department,
Speaker 1: what would you be looking at as perhaps the next
Speaker 1: shoe to drop? What would you be most concerned about
Speaker 1: right now?
Speaker 3: I'd be I would have one concern if I was
Speaker 3: in the White House or in the Treasury, and that
Speaker 3: was my boss, the President of the United States.
Speaker 2: The main shoe that will drop or will not drop.
Speaker 3: Is the next thing the President says and the next.
Speaker 2: Order that he gives.
Speaker 3: And so I would be telling his political advisors that
Speaker 3: this had nothing to do with what was being said
Speaker 3: in other countries, this had nothing important to do with
Speaker 3: business executives' actions in the United States, that if the
Speaker 3: president was on this course, there would not be confidence,
Speaker 3: and if the President signaled a willingness to adjust his course,
Speaker 3: there would be.
Speaker 2: Confidence and show.
Speaker 3: The sole preoccupation that I would have if I were
Speaker 3: in the government, would be with what the President was saying,
Speaker 3: and frankly, As I've said before, David, there are a
Speaker 3: very limited number of issues, and it has to be
Speaker 3: immensely significant. That makes it the right and moral thing
Speaker 3: for a senior official to resign because he is not
Speaker 3: comfortable with the direction that the president is setting. And
Speaker 3: the president is titled to have advisors who believe in
Speaker 3: his policies, and individuals are entitled to follow their conscience,
Speaker 3: and so there are moments when the right thing to
Speaker 3: do is for a senior official to resign. When Elliott
Speaker 3: Richardson resigned when given what he found to be an
Speaker 3: unacceptable order from Richard Nixon, that was such an example.
Speaker 3: When Cyrus Vance resigned because he didn't support what the
Speaker 3: Carter administration was doing in Iran.
Speaker 2: That was an example.
Speaker 3: When a number of officials in President Clinton's administration were
Speaker 3: not able to support his welfare reform bill, they chose
Speaker 3: to resign.
Speaker 2: Frankly, if I were in an.
Speaker 3: Administration that we're pursuing policies as dangerous as these, I
Speaker 3: would be thinking very carefully about whether I had the
Speaker 3: ability to influence policies in a positive direction, or whether.
Speaker 2: The right thing for me to do is to resign.
Speaker 1: So, Larry, you and I have talked in the past
Speaker 1: about the question whether, in fact various people into enemies
Speaker 1: will absorb the increased terriffs so it won't actually to
Speaker 1: a largerie fall in the consumer. What do you make
Speaker 1: of the arguments that producers intermediaries may well absorb a
Speaker 1: lot of the pain.
Speaker 3: I think they're unquestionably wrong. Economists have studied very carefully
Speaker 3: the experience of the previous Trump tariff increases. For example,
Speaker 3: they looked at washing machines that were tariffed versus dryers
Speaker 3: that were not tarffed. They used a variety of different methodologies.
Speaker 3: Essentially all the study concluded that prices go up with tariffs.
Speaker 3: I've had the opportunity now to speak with senior executives
Speaker 3: at a range of major retailers.
Speaker 2: That is certainly their view.
Speaker 3: I suspect when you start getting earnings calls and business
Speaker 3: leaders are asked, will they absorb tariffs, will they be
Speaker 3: able to push tariffs back on to their suppliers, or
Speaker 3: do they expect tariffs to raise consumer prices? I suspect
Speaker 3: they will acknowledge that the dominant effect will be on
Speaker 3: consumer prices. And the important thing for people to understand
Speaker 3: is that this moment is very different than the previous.
Speaker 2: Trump tariff moment.
Speaker 3: It comes at a moment when we already have some
Speaker 3: inflation psychology, It comes at a moment when the economy
Speaker 3: is pretty close to full employment. And most importantly, these
Speaker 3: tariffs are more than ten times as large as the
Speaker 3: tariffs that were put in place in twenty eighteen, and
Speaker 3: therefore there's far less room for them to be absorbed
Speaker 3: in the traditional margin of distributors or suppliers. So I
Speaker 3: think it's fundamentally dishonest to make any claim that these
Speaker 3: tariffs are going to do anything other than be passed
Speaker 3: on in the form of higher.
Speaker 2: Prices coming up.
Speaker 1: President Trump wants a sovereign wealth fun of his very own,
Speaker 1: but to get there, he's going to have to come
Speaker 1: up with some cold, hard cash. We suggest where he
Speaker 1: might look for it. This is a story about creative solutions.
Speaker 1: What happens when a country wants a sovereign wealth fund
Speaker 1: but doesn't have ready cash to put into it. The
Speaker 1: Trump administration is willing to get creative to answer that question,
Speaker 1: and our colleague Michael McKee brings us the story.
Speaker 2: We are going to monetize the asset side of the
Speaker 2: US balance sheet for the American people.
Speaker 4: President Trump's executive order for a US sovereign wealth fund
Speaker 4: will require the country to raise trillions of dollars and fast.
Speaker 4: The biggest sovereign wealth fund in the world is Norway's
Speaker 4: worth one point eight trillion. It's run by Nikolai Tangan.
Speaker 5: We have invested in nine thousand companies around the world.
Speaker 5: We own one and a half percent of all the
Speaker 5: equities in the world. I think you need money to
Speaker 5: set it up. I don't think it makes sense to
Speaker 5: borrow money to set it up.
Speaker 6: It's mostly countries that run a surplus, that have access
Speaker 6: cash to spend, that don't need to deficit finance or
Speaker 6: debt issue to finance their deficits.
Speaker 4: MC Command is the head of US rate strategy at
Speaker 4: Bank of America.
Speaker 6: And the US does not meet any of those categories,
Speaker 6: so it would be fairly non traditional across the countries
Speaker 6: who are utilizing sovereign wealth funds today.
Speaker 4: Former tech investment banker from Morgan Stanley Michael Grimes is
Speaker 4: tasked with setting up the new sovereign wealth fund. One
Speaker 4: of the administration's suggestions to raise the money needed is
Speaker 4: by monetizing the country's balance sheet. So what is on
Speaker 4: that balance sheet?
Speaker 6: Well, the Treasury Secretary has talked about this certainly said
Speaker 6: that they do. The current administration does want to try
Speaker 6: and monetize the balance sheet to use all available financial resources. However,
Speaker 6: we struggle to understand exactly what would want to be
Speaker 6: monetized on the balance sheet.
Speaker 4: As of the fiscal year ending September twenty twenty four,
Speaker 4: the US balance sheet shows total assets of five point
Speaker 4: six trillion dollars coming from cash, property, investments, and inventory.
Speaker 4: Also on that balance sheet two hundred metric tons of
Speaker 4: gold valued at about seven hundred and sixty five billion dollars.
Speaker 6: So there is a relationship between the Treasury and FED
Speaker 6: that has set the price of gold essentially nine times
Speaker 6: lower than where the market is today, and there is
Speaker 6: discussion out there about the possibility of remarking gold to
Speaker 6: current value to then generate additional resources that the government
Speaker 6: could utilize. Seems pretty easy and clean in one respect. However,
Speaker 6: we believe it's going to be a bit more complicated
Speaker 6: in practice. Current law suggests that Congress actually sets the
Speaker 6: statutory rate on gold, So Congress would have to be
Speaker 6: the ones who decide to accept a remarking of gold,
Speaker 6: and we are not sure that Congress would necessarily want
Speaker 6: to do that in order to allow the government to
Speaker 6: have more resources that essentially don't need to be paid
Speaker 6: for with deficits or higher treasury issuance that would free
Speaker 6: up It would essentially create money to be spent in
Speaker 6: the economy, almost in ways similar to QE, and in
Speaker 6: an environment with still elevated inflation and some signs that
Speaker 6: inflation expectations are ticking up, we are not so sure
Speaker 6: Congress would want to move in that direction. Now, if
Speaker 6: they choose not to monetize gold on the government's balance sheet,
Speaker 6: then if you look at what other assets could be monetized,
Speaker 6: they generally take you mostly to land, property, and other
Speaker 6: natural resources.
Speaker 4: Plus, if you're talking about remarking gold, the technical way
Speaker 4: of getting that money to the treasury.
Speaker 2: Goes through the Federal Reserve.
Speaker 4: You raise the risk of the FED seeing being seen
Speaker 4: as politicized, and you raise the risk possibly of inflation.
Speaker 6: Absolutely, it would essentially impact the Fed's balance sheet in
Speaker 6: very similar ways to how QE impacts the Fed's balance sheet. However,
Speaker 6: in contrast to QE, you would have the asset that's changing,
Speaker 6: not be securities holdings on the asset side of the
Speaker 6: Fed's balance sheet, but you would have it be gold
Speaker 6: that is increasing. And then if gold does increase, then
Speaker 6: other liabilities on the Fed's balat sheet would naturally need
Speaker 6: to grow. Those would presumably be commercial bank reserves, cash
Speaker 6: that commercial banks hold, or cash in money markets in
Speaker 6: the overnight reverse repo facility. Either way, it essentially grows
Speaker 6: the size of the Fed's balance sheet. It grows the
Speaker 6: money supply, and then that does mean that there are
Speaker 6: greater risks that it could stoke inflation. It certainly gives
Speaker 6: the government more resources to go out and spend on
Speaker 6: whatever it might want to spend on, or to help
Speaker 6: finance the deficit if there's lower revenue growth due to
Speaker 6: a reduction in taxes. So yes, it runs the risk
Speaker 6: of being inflationary, and we doubt that the FED would
Speaker 6: be terribly comfortable with that, given where inflation is today
Speaker 6: and where some measures of inflation expectations are going.
Speaker 4: President Trump has another idea to monetize the ballot sheet.
Speaker 4: He's suggesting the government can sell off its federal buildings
Speaker 4: and properties which fall under property, plant and equipment, coming
Speaker 4: in at around one trillion dollars on the balance sheet.
Speaker 6: We could see a case where they might sell some
Speaker 6: government buildings that are not being utilized, especially with some
Speaker 6: of the other changes taking place in federal employment right now,
Speaker 6: But it's hard for us to envision what else could
Speaker 6: be monetized beyond that. Might they sell land that the
Speaker 6: military is using, possibly, but presumably the military is using
Speaker 6: that for good reason. Could they sell other natural resources
Speaker 6: or treasures like the Statue of Liberty? I hope not,
Speaker 6: but that is a theoretical possibility. So we're just not
Speaker 6: really certain what else they would sell. But if you're
Speaker 6: not going to remark gold, then there are very few
Speaker 6: other options, we think, for them to monetize the asset
Speaker 6: side of the government's balance sheet outside of maybe selling
Speaker 6: some buildings.
Speaker 4: Is there a reason we would necessarily want to run
Speaker 4: a sovereign wealth fund to do these kind of investments
Speaker 4: instead of just doing the investments, say through the International
Speaker 4: Development Bank or something like that. They've been taught for
Speaker 4: years about an infrastructure bank that.
Speaker 6: Sort of thing, sure, or doing them through Congress having
Speaker 6: Congress appropriate funds for these types of purposes. Why would
Speaker 6: you utilize a sovereign wealth fund for that well, presumably
Speaker 6: because it gives the individuals who are overseeing the sovereign
Speaker 6: wealth fund more flexibility as to where investments can be made,
Speaker 6: and presumably it would be done in a way that
Speaker 6: does not require as much congressional authorization or potentially oversight.
Speaker 6: So it's just a more degrees of flexibility I think
Speaker 6: for those who would be overseeing that fund.
Speaker 4: Salar Garamoni is a professor at Penn State University who's
Speaker 4: done some research on what a US sovereign wealth fund
Speaker 4: would mean for the US. Well, the sovereign wealth funds
Speaker 4: we hear about all have wealth. They come from locations
Speaker 4: where there is mineral wealth or something that adds to
Speaker 4: the treasury. The US has a big deficit. We don't
Speaker 4: have sovereign wealth at this point.
Speaker 7: Yeah, it's interesting. There have been very very few, if
Speaker 7: in fact, there may not have been any sovereign wealth
Speaker 7: funds that were not created by some sort of a surplus.
Speaker 7: And as you just noted, we have a deficit and
Speaker 7: we have a national debt and no surplus. There might
Speaker 7: be creative ways to gather assets and put it into
Speaker 7: the portfolio of a sovereign wealth fund. But again I
Speaker 7: would venture out and underline that work creative. So it
Speaker 7: may not be intuitive, but I think there are ways.
Speaker 4: One major challenge that stands in the way of a
Speaker 4: US sovereign wealth fund is the issue of the national debt,
Speaker 4: which runs thirty six trillion dollars deep.
Speaker 7: One of the concerns about the proposed US Sovereign Wealth
Speaker 7: Fund is that is it the most efficient way to
Speaker 7: address the specific reasons for the creation of the sovereign
Speaker 7: wealth fund. For instance, if the reason is to be
Speaker 7: infrastructure spending, Congress has already allocated billions of dollars toward
Speaker 7: trillions of dollars in fact, toward infrastructure spending. So yeah,
Speaker 7: there is a concern that creating a brand new bureaucracy
Speaker 7: to answer whatever the question might be, whether it's potential
Speaker 7: social security shortfalls down the road, whether it's infrastructure projects,
Speaker 7: would it make sense to divert the attention from paying
Speaker 7: for those specific projects and going through a brand new
Speaker 7: bureaucracy to address those issues.
Speaker 4: But there might be some benefits to a potential US
Speaker 4: Sovereign Wealth fund.
Speaker 7: Ideally, if the long term interests financial interests of the
Speaker 7: United States is the primary concern and not so much
Speaker 7: driving geopolitical interests, and that can have legitimacy too. Infrastructure
Speaker 7: projects potentially addressing potential shortcomings of social security and so
Speaker 7: on could potentially be looked at a legitimate usage of
Speaker 7: the Solemn Law Fund. However, there could also be the
Speaker 7: possibility that the Solemn Wealth Fund's primary purpose it's not
Speaker 7: so much the long term financial interests and the financial
Speaker 7: outcomes of the fund itself, but being in line with
Speaker 7: some other national interests, whether it's related to foreign policy
Speaker 7: or whatever else.
Speaker 2: The case might be.
Speaker 4: Where could a fund like that invest, Would it work
Speaker 4: to have it invest in the US, or would it
Speaker 4: need to go overseas to avoid conflicts of interest.
Speaker 7: There are Solemn well funds that are created with specific
Speaker 7: legal mandates of asset allocation strategies and even the asset
Speaker 7: classes in which they can invest. Norwegian legal mandate, for instance,
Speaker 7: for the Norwegian Solemn Well Fund is as specific as
Speaker 7: saying that no more than five percent of the fund's
Speaker 7: assets can be invested in asset class X, and there
Speaker 7: are also percentages specifically these around areas of geography. So
Speaker 7: ideally there should be a legal mandate transparently discussed that
Speaker 7: limits that puts at least constraints on what the solemn
Speaker 7: wealth fund can invest in. Ideally, a good solemn wealth
Speaker 7: fund would be diversified across geographies, across asset classes, across
Speaker 7: even etterteral asset managers, which is something that many solemn
Speaker 7: wealth funds employ.
Speaker 4: The idea of a sovereign wealth fund is not new
Speaker 4: to the twenty US states that have sovereign wealth funds,
Speaker 4: including Alaska.
Speaker 8: It's a way for Alaskans to store their non renewable resource,
Speaker 8: especially oil, mining, minerals, etc. So in nineteen seventy six,
Speaker 8: the state legislature sent to the people of Alaska a
Speaker 8: constitution resolution to constitutionalize the concept of a permanent fund
Speaker 8: in our constitution, and that was successful. Fund was born
Speaker 8: in seventy six. Nineteen eighty the Permanent Fund Dividend came
Speaker 8: into being. This is all as a result of oil
Speaker 8: that was discovered in Alaska and some really really smart
Speaker 8: people that had a lot of foresight. The fear was
Speaker 8: that we would spend all of our oil money and
Speaker 8: we wouldn't have anything for future generations. What the permanent
Speaker 8: Fund does is it captures the woryalties of oil and
Speaker 8: minerals and puts them into a constitutionally protected fund. That
Speaker 8: fund is called the CORPUS. It is invested into equities, private,
Speaker 8: public equities, real estate, et cetera. And the idea is
Speaker 8: to continually grow the fund so that over time we
Speaker 8: will have we will have a fund that can help
Speaker 8: future generations of Alaskans at the same time paying out
Speaker 8: a dividend every year to Cerne Alaskans. About six hundred
Speaker 8: and forty thousand Alaskans would receive a dividend this coming year.
Speaker 4: Just because it's a good idea for his state, that
Speaker 4: doesn't mean Governor Dudley V sees a similar path forward
Speaker 4: for the federal Sovereign Wealth Fund.
Speaker 8: I don't know if it makes sense to borrow money
Speaker 8: to put into the fund, but I think what the
Speaker 8: federal government can do is something similar with you know
Speaker 8: what Alaska has done, and that is royalties on federal lands,
Speaker 8: whether it's oil, whether it's gas, possibly timber mining. Any
Speaker 8: income that's produced on federal lands could actually have some
Speaker 8: of that go into a permanitive fund and grow a
Speaker 8: permit fund, just like Alaska has. So, especially when you're
Speaker 8: looking at non renewable resources oil and gas, it may
Speaker 8: make sense and there is a lot of federal land.
Speaker 8: There are a lot of offshore leases, on shore leases potentially,
Speaker 8: and so you know, it is something to think about.
Speaker 8: We're proud of the Permanive Fund because once again we
Speaker 8: know that we have saved a considerable amount of money
Speaker 8: for future generations.
Speaker 1: Coming up, the strange twisted tale of TikTok and President
Speaker 1: Trump's version of the art of the deal national security style.
Speaker 1: That's next on Wall Street Week. This is a story
Speaker 1: where let's make a deal meets national security. TikTok has
Speaker 1: been something of a pinata, caught between its appeal to
Speaker 1: some one hundred and seventy million Americans and the US
Speaker 1: government that has founded a national security risk. The question
Speaker 1: is whether President Trump's deal making skills can reconcile the two.
Speaker 1: Richard has A's centerview partner, spent over twenty years as
Speaker 1: head of the Council of Foreign Relations and has seen
Speaker 1: his fair share of wheeling and dealing over national security.
Speaker 1: What is the intersection between national security in one hand
Speaker 1: and commercial transactions such as TikTok on the other.
Speaker 9: Well, TikTok's a special one in part because of the
Speaker 9: data that could be captured and transferred. Also the content.
Speaker 9: I'm always struck by the difference between TikTok China and
Speaker 9: TikTok America. Let me just say, TikTok America is the
Speaker 9: equivalent of drinking several cans of soda to day and
Speaker 9: eating an awful lot of candy, whereas TikTok China is
Speaker 9: much more spinach and educational. Plus is the potential obviously
Speaker 9: for political bias and the rest. So I think that's
Speaker 9: influence of security, both in the data transfer way potentially
Speaker 9: as well as in the content way, and I think
Speaker 9: it makes the larger point than in many cases, economic
Speaker 9: transactions do have a national security dimension, whether it's direct
Speaker 9: or indirectly.
Speaker 1: Given that dimension of national security in normal commercial transactions,
Speaker 1: where should the line be, I mean, how far should
Speaker 1: the government go and really interfering with commerce.
Speaker 9: It's a good question. It's hard to give you a
Speaker 9: rule of thumb that's in every instance, but one auto
Speaker 9: at least assess the national security implications. That's why, for example,
Speaker 9: you have Syphius, the Committee on Foreign Investment in the
Speaker 9: United States that looks at when you have incoming, say investment,
Speaker 9: does that give this party access to something that could
Speaker 9: give them therefore data or information or technologies that either
Speaker 9: could give them a competitive advantage or even a strategic advantage.
Speaker 9: I think that's a legitimate screen to have export controls,
Speaker 9: or a second legitimate scree before we ship something overseas,
Speaker 9: we want to say, again, is this giving someone a
Speaker 9: competitive advantage? Could they take this technology, which almost all
Speaker 9: technology is dual use, and use it either for internal
Speaker 9: repression or could something that's meant for say a civilian airliner,
Speaker 9: end up in the cockpit of a military fighter and
Speaker 9: so forth. So I think the idea of asking those
Speaker 9: questions is healthy. Probably also David, in this day and age,
Speaker 9: it's not just security, but against foreign challenge, because of COVID,
Speaker 9: because of natural disasters. At times, we've got to ask questions,
Speaker 9: what do we need to either have domestically produced home shoring,
Speaker 9: near shoring, friend shoring, when we put together supply change
Speaker 9: of critical materials, and so forth. So I think we
Speaker 9: again we need to ask to what degree are we
Speaker 9: comfortable leaving ourselves somewhat vulnerable or open to the vicissitudes
Speaker 9: of what other governments might do, or just simply what
Speaker 9: may happen out there.
Speaker 1: The specific national security concerns surrounding TikTok range from the
Speaker 1: data les from users in the US to the very
Speaker 1: heart of its secret sauce its algorithm. Jennifer Huddleston is
Speaker 1: a Senior Fellow of Tech Policy at the Cato Institute.
Speaker 10: When we look at some of the concerns around the
Speaker 10: TikTok algorithm, for example, is this actually about TikTok, or
Speaker 10: actually about TikTok's tice to China, or is this about
Speaker 10: the way that we see young people using social media
Speaker 10: more generally that may be causing some discomfort from older generations.
Speaker 10: What the national security interest is is actually a bit
Speaker 10: of a debate. One of the things that has been
Speaker 10: pointed to are questions around the data and particularly how
Speaker 10: it relates to a Chinese national security law, and concerns
Speaker 10: that in a way that the Chinese government could lean
Speaker 10: on TikTok's parent company, that could lean on TikTok and
Speaker 10: Singapore that could lean on TikTok us, that could force
Speaker 10: the data on the American users to be given to
Speaker 10: the Chinese Communist Party. But we've also heard it concerns
Speaker 10: expressed more or around the TikTok algorithm or around the
Speaker 10: specific speech on TikTok that some policymakers are considering to
Speaker 10: be propaganda. And the question here then that is raised
Speaker 10: is how do we balance potential concerns about national security,
Speaker 10: particularly related to the data elements, with concerns around free speech,
Speaker 10: Because it's important to remember that not only are we
Speaker 10: talking about TikTok and TikTok's expression rights, we're talking about
Speaker 10: the expression rights of the millions of American users.
Speaker 1: If those are the potential national security interests the data
Speaker 1: and the algorithm, can we in the United States protect
Speaker 1: those national security interests if Byiteden still has any control,
Speaker 1: any ownership at all, of the algorithm or the data.
Speaker 10: This has been one of the important elements of the debate.
Speaker 10: Are there less restrictive means that could address the potential
Speaker 10: national security concerns while not having as significant of an
Speaker 10: impact on the speech, particularly of the American US of
Speaker 10: this platform. So some of the things that have been
Speaker 10: proposed include things like banning TikTok from government devices. This
Speaker 10: is something we've seen done at both a state and
Speaker 10: federal level that has largely been upheld to ensure that
Speaker 10: that data perhaps is more secure. There's also been conversations
Speaker 10: around what was called Project Texas, where TikTok offered to
Speaker 10: localize the American data on Oracle servers in Texas and
Speaker 10: allow the US government additional oversight over that data. The
Speaker 10: other question about the data is is this data actually
Speaker 10: any Is this a particular risk when it comes to
Speaker 10: TikTok's data. Much of this data is already available on
Speaker 10: the market from data brokers. We've also seen that the
Speaker 10: Chinese have engaged in numerous hacks to obtain American data.
Speaker 10: So is the risk of TikTok any bigger than the
Speaker 10: data privacy or data security risk out there more generally?
Speaker 10: And is this something that instead of talking about TikTok,
Speaker 10: we should be talking about data security and data privacy
Speaker 10: more broadly.
Speaker 1: The focus is very much on the administration of President
Speaker 1: Trump right now. But the statute came from Congress. Does
Speaker 1: the Congressional statute have a threshold ownership that if you
Speaker 1: get it down to a certain number, a certain percentage,
Speaker 1: then it's okay.
Speaker 10: So there are percentages in the Congressional Statute. But I
Speaker 10: think what's more interesting is this question of what does
Speaker 10: a qualified divestiture look like? Because the law from Congress
Speaker 10: is very vague on what would actually have to be divested.
Speaker 10: Are we talking about TikTok's brand, Are we talking about
Speaker 10: TikTok's algorithm? Are we talking about the data itself? Because
Speaker 10: this national security concern has also been rather vague.
Speaker 1: Does the president have the ability to extend seventy five days?
Speaker 1: The statute had an initial extension, but I don't remember
Speaker 1: a second extension, So this has.
Speaker 10: Been a really good question. Because the statute had a
Speaker 10: ninety day extension. There were also actions from the Department
Speaker 10: of Justice and a letter sent to some of the
Speaker 10: American companies that could have been subject to the penalties.
Speaker 10: That seems to have been around the potential non enforcement
Speaker 10: of those penalties, ensuring that the app was still available
Speaker 10: to the Americans who have used it for expression. But
Speaker 10: as you mentioned, we've seen this done by executive order
Speaker 10: and executive order kind of like hitting the snooze button
Speaker 10: again and again, which doesn't actually get to that underlying
Speaker 10: question and those underlying issues that are so important to
Speaker 10: this debate. Regardless of what happens to TikTok, at the
Speaker 10: heart of this law is the question of how do
Speaker 10: we balance potential national security concerns with the speech rights
Speaker 10: of millions of Americans, particularly on a popular social media app.
Speaker 10: But more generally, what sort of authority do we allow
Speaker 10: the executive to have to intervene into the app store market,
Speaker 10: to intervene potentially into the speech rights of millions of Americans.
Speaker 10: Even if this continues to be done by executive order,
Speaker 10: even if TikTok lives to see the day, we haven't
Speaker 10: necessarily settled that important debate.
Speaker 9: There is, in principle a deal. Clearly by the way
Speaker 9: President Trump wants a deal for whatever set of reasons.
Speaker 9: I tend not to be in the business of ascribing motives,
Speaker 9: but he is clearly anxious to have a deal. He
Speaker 9: keeps kicking down the stream, down the road, the deadline here,
Speaker 9: But I would just say, whatever the details are at
Speaker 9: the end of the day. In terms of data and content,
Speaker 9: I would also love to see reciprocity, though if we
Speaker 9: do end up with control over both data and content
Speaker 9: then we don't need it. Then essentially we set up
Speaker 9: a parallel situation with China.
Speaker 1: Though everyone is focused on the effect of the ban
Speaker 1: on TikTok, the statute itself is directed not at TikTok
Speaker 1: but at US companies. Including access to the social media
Speaker 1: site over their products.
Speaker 10: I think it's important to also remember when we're talking
Speaker 10: about this particular law, that the burden of the law
Speaker 10: actually falls on American companies. The law says that TikTok
Speaker 10: must divest from its parent company by dance or it
Speaker 10: otherwise bans the distribution, maintenance, or updating of the app.
Speaker 10: That means those that are actually facing penalties are not
Speaker 10: TikTok itself, but our companies like Apple and Google, who
Speaker 10: if they continued to host the app, would be the
Speaker 10: ones that would potentially be facing penalties that have up
Speaker 10: to a five year statute of limitations that could extend
Speaker 10: beyond this current administration.
Speaker 1: And the TikTok case raises some big questions about reciprocity,
Speaker 1: both in the way that China treats US social media
Speaker 1: companies and in what other countries might do to regulate
Speaker 1: US companies.
Speaker 9: It's not like we American social media companies have accessed
Speaker 9: to China in terms of asking them to transfer data
Speaker 9: or allowing us to control content. So this is incredibly
Speaker 9: one side.
Speaker 1: You raise the reciprocity issue going back and forth between
Speaker 1: US and China. Are we opening up the door potentially
Speaker 1: to other countries saying way a second, we don't want
Speaker 1: you to own the data, the algorithm when you're coming
Speaker 1: into our country.
Speaker 9: Quite possibly, And I think the fact that the United
Speaker 9: States has been adopting a more nationalist position, more unilateralist
Speaker 9: position on tariffs and many other aspects of policy on
Speaker 9: America first approach, the Europeans clearly do not feel special
Speaker 9: to say the least. So yes, I think we have
Speaker 9: to expect that we're going to move into a world now,
Speaker 9: we're moving towards a world where alliances and partnerships count
Speaker 9: for less, and others are going to treat us more
Speaker 9: at arm's length and set up the kind of rules
Speaker 9: of visa v the United States that we're increasingly setting
Speaker 9: up Visa VI.
Speaker 1: Them coming up. We've all been caught in those maddening
Speaker 1: flight delays. Is there any way we can save all
Speaker 1: of us some of that time and aggravation. We bring
Speaker 1: you several possible alternatives. Next on Wall Street Week, this
Speaker 1: is a story about kicking the can down the road.
Speaker 1: Big changes in big systems are never easy, and when
Speaker 1: it comes to the way we met manage our airspace,
Speaker 1: one thing is certain. The system is understrained and has
Speaker 1: long needed and overhaul, but for the past thirty years
Speaker 1: it has been easier to kick that can down the road.
Speaker 5: Global tech outages linked to Microsoft and CrowdStrike causing widespread
Speaker 5: business disruptions.
Speaker 11: Thousands of flights being delayed or canceled. I mean this
Speaker 11: is an industry that has had a lot of post
Speaker 11: COVID issues and a lot of issues with investing into
Speaker 11: this exact type of infrastructure.
Speaker 1: In twenty twenty four, airlines reported four hundred and thirty
Speaker 1: seven tarmac delays of more than three hours on domestic flights,
Speaker 1: up from two hundred and eighty nine in twenty twenty three.
Speaker 1: Of all flights last year, more than five percent were
Speaker 1: delayed because of national aviation system issues. Safety, of course,
Speaker 1: is the top priority in regulating flights, and sadly this
Speaker 1: year airline safety has been in the news too often.
Speaker 1: A passenger play and has collided with a military helicopter
Speaker 1: midair in Washington, DC.
Speaker 11: You know that sixty four were on that American Airlines
Speaker 11: commercial flight and three were on that US Army Blackhawk helicopter.
Speaker 1: But despite some recent incidents, flying within the United States
Speaker 1: is remarkably safe. Elaine Chow was the Transportation Secretary under
Speaker 1: President Trump during his first term.
Speaker 11: Well, I think it's important for people to know that
Speaker 11: we have literally the safest system in the world and
Speaker 11: that the United States is still considered basically the gold standard,
Speaker 11: but clearly technology changes and maintenance and repairs need to
Speaker 11: keep up.
Speaker 1: Edward Bollen agree is that the system is safe, but
Speaker 1: that we need to make some investments. He's the head
Speaker 1: of the association representing the private business side of the
Speaker 1: aviation industry.
Speaker 12: We know definitively that is the safest, the most efficient,
Speaker 12: the largest, and the most diverse air transportation system in
Speaker 12: the world by a lot. But we need to be
Speaker 12: investing in the people, the facility, and the equipment to
Speaker 12: make sure that we are able to continue to respond
Speaker 12: in a dynamic way.
Speaker 1: Federal air traffic control in the US began in nineteen
Speaker 1: forty one, and computer technology was added to radars in
Speaker 1: the nineteen sixties thanks to IBM. In February nineteen eighty two,
Speaker 1: the FAA released its first comprehensive plan for improving ATC services.
Speaker 1: This system has been in place for some time now.
Speaker 1: Was it built for this much load and how much
Speaker 1: more loaders are going to be in the future.
Speaker 11: Well, I think the load is going to continue because
Speaker 11: air travel has become democratized ever since nineteen seventy eight
Speaker 11: with the deregulatory aspects of air traffic, passenger traffic, and
Speaker 11: so it's almost as each is to go on an
Speaker 11: airplane as it would be to let's say, a bus,
Speaker 11: and so more and more people are going and now
Speaker 11: we have over billion passengers, and they're accessing the system
Speaker 11: that clearly was not prepared for even a fraction of
Speaker 11: the current volume.
Speaker 1: According to the FAA's preliminary data, there were sixteen point
Speaker 1: eight million flights in the nation's airspace in twenty twenty four,
Speaker 1: an increase of about five hundred thousand from twenty twenty three.
Speaker 11: It's making air travel much more difficult for the consumer.
Speaker 11: How many of us can say within a month that
Speaker 11: we have never been caught in a delay or some
Speaker 11: kind of cancellation, And this is despite the best efforts
Speaker 11: of air traffic controllers and of airlines who want to
Speaker 11: fly frequently so that they can provide a steady service
Speaker 11: to their passengers.
Speaker 1: It's more than just the inconvenience of all those delays.
Speaker 1: The government has taken a hard look at the existing
Speaker 1: air traffic control system and found it to be unsustainable.
Speaker 13: I faded this risk assessment to understand of the existing systems,
Speaker 13: which ones are unsustainable, which ones might be potentially unsustainable
Speaker 13: and need investments to modernize them. Many of these systems
Speaker 13: are each and face long standing challenges.
Speaker 1: Heather Kraus is the managing director of Physical Infrastructure at
Speaker 1: the GAO, which produced a report on the overall state
Speaker 1: of the air traffic control system in the United States
Speaker 1: in March. She testified before Congress about its findings.
Speaker 13: So around seventeen we found to be somewhat concerning in
Speaker 13: terms of the timelines that they have, as well as
Speaker 13: four of those systems not having baselines, so not knowing
Speaker 13: when those systems will be delivered. So important that FA
Speaker 13: focuses on what are the most critical systems, how are
Speaker 13: they going to mitigate risks in the meantime as they
Speaker 13: are working through the modernization efforts and then delivering on
Speaker 13: those modernization plans.
Speaker 1: Washington has been talking about updating the system for at
Speaker 1: least forty years. It's commonly referred to as next gen
Speaker 1: short for next generation.
Speaker 13: So in terms of next gen it's already being deployed
Speaker 13: in the National Airspace system, and so the ways that
Speaker 13: it's improving operation is through various phases of flight and
Speaker 13: really through kind of some key areas. So improvements in communications,
Speaker 13: so for example, communications between pilots and controllers and digitizing
Speaker 13: some of those communications. Navigation improvements to create more efficient
Speaker 13: routes for airplanes to travel from their arrival to destination,
Speaker 13: which leads to efficiency benefits as well as fuel savings.
Speaker 13: There's things also automations, so there's new automation tools being
Speaker 13: added to the system to support the air traffic controllers
Speaker 13: management again of the efficient and safe operation of the
Speaker 13: national airspace system, as well as surveillance, so having better
Speaker 13: situational awareness and ability to more accurately track where aircrafts
Speaker 13: are at. All of those efforts kind of come together,
Speaker 13: and the real goal of next Gen is to kind
Speaker 13: of get to what's called trajectory based operations. What that
Speaker 13: is is really additional data and tools for the controllers
Speaker 13: to better manage and sequence flights from arrival to departure.
Speaker 13: So again controllers they're managing flights with you know, altitude, longitude,
Speaker 13: and latitude, and these tools offer the additional kind of
Speaker 13: considering time as another element of managing the flight, so
Speaker 13: controllers would have an ability to know where and at
Speaker 13: what time aircraft are at key points in a route,
Speaker 13: taking into consideration conditions and other things even before an
Speaker 13: aircraft takes off.
Speaker 1: The long runway for modernizing our air traffic control system
Speaker 1: is a real problem as technology continues to evolve.
Speaker 11: By the time that the air traffic controllers can get
Speaker 11: a new piece of equipment, it's about seven or eight
Speaker 11: years old. It's not as modern as there should be.
Speaker 11: It took forever for the air traffic control system to
Speaker 11: have a GPS system.
Speaker 1: If everyone agrees that the air traffic control system needs
Speaker 1: to move to the next generation, why has it taken
Speaker 1: four decades to get to where we need to be.
Speaker 1: First of all, it is complex and requires great care
Speaker 1: to make sure we get it right.
Speaker 12: The systems themselves have to be certified, and that means
Speaker 12: they have to have a degree of redundancy and resilience
Speaker 12: that is different than what you would see in a
Speaker 12: lot of off the shelf technologies. It's got to be integrated,
Speaker 12: it's got to be certified. So that's part of it.
Speaker 1: That's part of it. But far from the only part.
Speaker 1: What about the controllers who run the system. There's general
Speaker 1: consensus about their being outstanding professionals.
Speaker 11: It's a tribute to the men and women of the
Speaker 11: air traffic control that they can keep the system kind
Speaker 11: of safe and maintained with their expertise.
Speaker 12: Our air traffic controllers are outstanding. They go through a
Speaker 12: very rigorous training process and it takes years.
Speaker 1: But as good as the controllers are, we need more
Speaker 1: of them. We're air traffic controllers in the United States
Speaker 1: in twenty twenty four than in twenty eleven.
Speaker 12: We need to make sure that we are getting enough
Speaker 12: that are being put into place. Currently we're not where
Speaker 12: we need to be. We're anywhere from twenty to twenty
Speaker 12: five percent behind where we would like to be.
Speaker 11: Some people are saying we should increase the age of
Speaker 11: air traffic controllers. Right now, they're maxed out at fifty
Speaker 11: six years old. You know, at fifty six these days,
Speaker 11: we're in much better health than what we used to
Speaker 11: be a generation ago, and so for those that want
Speaker 11: to work beyond fifty six, we should be able to
Speaker 11: allow them to have that option, and currently they don't.
Speaker 1: Even more than the need for more air traffic controllers.
Speaker 1: Is the need to expedite the procurement process for getting
Speaker 1: them the equipment that they need and get it to
Speaker 1: them faster.
Speaker 12: The procurement is a challenging We get money that needs
Speaker 12: to be spent on an annual basis. We'd like to
Speaker 12: see that be more multi year so that we can
Speaker 12: have more money upfront and be able to carry that
Speaker 12: through in a multi year process.
Speaker 1: Secretary Chow agrees that it takes far too long to
Speaker 1: get the latest equipment purchased and deployed, but that it's
Speaker 1: more than just streamlining things. The problem may be in
Speaker 1: the very structure of the system.
Speaker 11: In twenty seventeen, there was an effort under the first
Speaker 11: Trump administration to reorganize the structure of the air traffic
Speaker 11: control and basically it would take the air traffic control.
Speaker 11: It's not privatizing it because it's being put into a
Speaker 11: nonprofit organization, but rather I call it liberating the FAA
Speaker 11: and the air traffic Control, basically liberating the air traffic
Speaker 11: control from FA and even more succinctly, the federal government,
Speaker 11: so that air traffic control, like many others structured like
Speaker 11: this around the world, would be their own entity. They
Speaker 11: would have their own nonprofit status, they would have their
Speaker 11: own board of directors, but more importantly, they would use
Speaker 11: their own funding of resources and be able to use
Speaker 11: it for long term planning.
Speaker 1: As you look around the world, has anyone done this?
Speaker 1: Can we go to school in any other country in
Speaker 1: the way they've.
Speaker 2: Handled this well.
Speaker 11: Canada is a primary example, Great Britain, Australia. There are
Speaker 11: many other countries who have taken air traffic control out
Speaker 11: of the government process and put it separately in its
Speaker 11: own nonprofit organization. And by doing that it allows this
Speaker 11: nonprofit air traffic control system to plan ahead, have control
Speaker 11: over one hundred percent of its budget, and be able
Speaker 11: to purchase equipment at a very timely rate and very
Speaker 11: efficiently as well.
Speaker 1: Not everyone agrees with Secretary about splitting the safety responsibilities
Speaker 1: from the day to day operations and taking the latter
Speaker 1: out of the government altogether.
Speaker 12: What we want to do is make sure the United
Speaker 12: States stays the world leader. We can do that by
Speaker 12: looking at what they're doing in other countries and what
Speaker 12: has candidly not worked well. So when we look at
Speaker 12: countries around the world like Canada, the United Kingdom, Australia,
Speaker 12: New Zealand that have privatized their air traffic control system,
Speaker 12: we see a number of challenges in terms of their
Speaker 12: air traffic controllers, their technology, their delays, and most importantly,
Speaker 12: safety issues.
Speaker 1: Whatever the changes, no one seems to doubt that they
Speaker 1: need to come and need to come sooner rather than
Speaker 1: later for the sake of the airline business, the convenience
Speaker 1: of all of us flying, and ultimately to make sure
Speaker 1: the US maintains its safety record.
Speaker 12: It is key at all of the different parts of
Speaker 12: the aviation system have really come together and sending a
Speaker 12: message to Capitol Hill about what we can do to
Speaker 12: advance our air transportation system. It's not enough to be
Speaker 12: the safest and the most efficient, the largest, and the
Speaker 12: most diverse in the world.
Speaker 13: It is still safe to fly. That said, continued reliance
Speaker 13: on aging systems does diminish the margin of safety and
Speaker 13: adds additional stress to the national airspace system, which is
Speaker 13: really why it's important that FAA improve the management and
Speaker 13: oversight of its modernization efforts.
Speaker 1: That does it for us. Here at Wall Street Week,
Speaker 1: I'm David Weston. This is Bloomberg. See you next week
Speaker 1: for more stories of capitalism.