WEBVTT - Daron Acemoglu Talks Theory of Trump

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>For those who've been listening to us regularly, you might

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<v Speaker 2>remember a conversation we had yesterday. It was with Bloomberg's

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<v Speaker 2>Jordan Fabian, and it was about whether or not there

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<v Speaker 2>was a focus in the White House. We asked him, Jordan,

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<v Speaker 2>because it was another day of NonStop social media posts

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<v Speaker 2>and flow of thoughts actions from President Trump and his administration.

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<v Speaker 2>It is again today. It feels like it's been like

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<v Speaker 2>that for a while, NonStop, maybe for the past year.

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<v Speaker 2>Looking at that and really trying to figure out if

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<v Speaker 2>there's a philosophy guiding President Trump and his closest advisors

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<v Speaker 2>when it comes to his barrage of executive orders and

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<v Speaker 2>daily challenges to the judicial system feeding a NonStop White

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<v Speaker 2>House cycle is economic Nobel Laureate Drone Asamoglu. He took

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<v Speaker 2>a step back to see if there's some sort of

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<v Speaker 2>theory and wrote about it in a Bloomberg BusinessWeek piece.

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<v Speaker 2>It's featured in the coming new issue that does really

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<v Speaker 2>a deep dive into President Trump's first year in his

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<v Speaker 2>second term. Jerome by the Way, Institute, Professor in the

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<v Speaker 2>Department of Economics at the Massachusetts Institute of Technology Mit

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<v Speaker 2>joins us from Cambridge. So nice to have you here

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<v Speaker 2>with us, and this is a really thoughtful piece. You

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<v Speaker 2>took a step back, you looked at this, and we're

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<v Speaker 2>just trying to understand. You know, this NonStop White House

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<v Speaker 2>news cycle. Is it about the president and his team

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<v Speaker 2>controlling that news cycle? And this is what we all chase,

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<v Speaker 2>you know, is it something more significant beyond just kind

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<v Speaker 2>of a flood the zone concept that we often associate

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<v Speaker 2>with President Trump and his team. What did you come

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<v Speaker 2>up with?

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<v Speaker 3>Well, thanks, thanks a lot having me on the program. Look,

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<v Speaker 3>I mean, obviously there is a flood dozone element in there,

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<v Speaker 3>and it looks chaotic. But in my mind, worryingly, there

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<v Speaker 3>is a bit of a theory, which is that all

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<v Speaker 3>of these actions are aimed at centralizing power in the

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<v Speaker 3>hands of an executive presidency with fewer and weaker checks

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<v Speaker 3>which come eor from institutions or norms. So even the

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<v Speaker 3>foreign actions are all about increasing domestic power. Even the

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<v Speaker 3>sort of unconventional appointments that are about weakening norms that

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<v Speaker 3>control what the president can do and bringing in more

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<v Speaker 3>loyalists that have now more room for maneuver because all

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<v Speaker 3>the norms that had guided US political dynamics have been broken.

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<v Speaker 1>So you write that it would have been viewed as

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<v Speaker 1>completely unacceptable for Bill Clinton, George W. Bush, or Barack

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<v Speaker 1>Obama to ask his attorney general or the DOJ to

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<v Speaker 1>go after enemies. It would also have been considered beyond

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<v Speaker 1>the pale for a president to invoke what you describe

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<v Speaker 1>as a poorly documented crime emergency as a pretext for

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<v Speaker 1>sending the National Guard into US cities, or for a

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<v Speaker 1>president to continue to be involved in family business. Well

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<v Speaker 1>in office, why is it being viewed, at least by

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<v Speaker 1>members of Congress Republicans in Congress as acceptable for President

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<v Speaker 1>Trump to do these things?

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<v Speaker 3>Well, you know, part of the reason why those actions

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<v Speaker 3>would not have been taken in the past is because

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<v Speaker 3>they go against norms. There weren't explicit laws that said

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<v Speaker 3>these things, so it was part of an institutional equilibrium

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<v Speaker 3>with norms of acceptance and backed up by other politicians

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<v Speaker 3>deviating and sort of distancing themselves if a president did that,

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<v Speaker 3>or bigger sort of pushback from civil society or the media.

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<v Speaker 3>But President Trump and his team have been breaking these

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<v Speaker 3>norms systematically for the first year. But even if you

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<v Speaker 3>go to the first term of the president, there was

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<v Speaker 3>already the same attend and all of these have now

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<v Speaker 3>culminated in Trump controlling the party and the rest of

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<v Speaker 3>the party, even part of the judicial system, are no

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<v Speaker 3>longer able to stand up to him, and all of

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<v Speaker 3>the norms that would have helped them sort of mobilize

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<v Speaker 3>around some sort of objection saying this is not acceptable.

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<v Speaker 3>You know, we don't see them now. Recently for the

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<v Speaker 3>FED case, a few senators have started making grambling, so

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<v Speaker 3>perhaps there might be some limit to what the legislature

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<v Speaker 3>is going to put up with. But the part of

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<v Speaker 3>the agenda that is I think now very clearly visible

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<v Speaker 3>is sort of break down one piece after another of

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<v Speaker 3>this edifice that was constraining other presidents that are now

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<v Speaker 3>gone for President Trump.

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<v Speaker 2>So Deerron to basically right. We thought this checks and

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<v Speaker 2>balances would work right three branches of the government. It

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<v Speaker 2>made such sense, and it for so long has pretty

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<v Speaker 2>much worked pretty well. But there was this strategy when

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<v Speaker 2>it comes to the legal part, certainly of the government

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<v Speaker 2>as well as the legislative. But let's just talk the

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<v Speaker 2>legal part, because we did have you know, a judge

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<v Speaker 2>saying dominion Energy can resume a win project that President

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<v Speaker 2>Trump had halted, so we have seen him lose some

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<v Speaker 2>of the judicial actions out there. Having said that, if

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<v Speaker 2>he didn't have that in terms of the Supreme Court justices,

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<v Speaker 2>would we not be maybe having this conversation today? Is

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<v Speaker 2>that what's so much about it? Or is it all

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<v Speaker 2>of it? That and the legislative side of it, and everybody,

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<v Speaker 2>you know, even them GOP members of Congress saying yeah,

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<v Speaker 2>do what you want to do. You know, it's kind

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<v Speaker 2>of interesting because that's their job kind of being taken away.

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<v Speaker 3>Yeah, I mean exactly the sort of separation of powers,

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<v Speaker 3>would you know, not just the Congress and the judiciary,

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<v Speaker 3>but also the independent agencies acting like the fourth Brunch.

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<v Speaker 3>Those were the things that constrained presidents and if today

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<v Speaker 3>those constraints were working, well, we wouldn't be in this

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<v Speaker 3>turmoil in terms of the domestic situation. And part of

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<v Speaker 3>the concern is that right now it's really the parts

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<v Speaker 3>of the judicial brunch that are standing up against Trump indeed,

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<v Speaker 3>But that's that's got its limits because there are a

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<v Speaker 3>lot of Trump appointees, and the Supreme Court, with lots

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<v Speaker 3>of Republican and Trump appointees, hasn't really taken a very

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<v Speaker 3>strong stense either. So all of these are piling up

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<v Speaker 3>and taking us more and more to a situation where

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<v Speaker 3>I think many of the former sort of presidents or

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<v Speaker 3>constitutional scholars would find very scary because the structure of

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<v Speaker 3>US government wasn't meant to function this way.

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<v Speaker 1>So then I'm trying to understand. And one thing that

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<v Speaker 1>we do each and every day is we look at

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<v Speaker 1>the markets, and we look at market reaction to these things,

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<v Speaker 1>and I think a lot of people have been surprised

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<v Speaker 1>that we haven't necessarily seen a bond market reaction to

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<v Speaker 1>some of these moves. Markets were and have been kind

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<v Speaker 1>of seen as a backstop here to at least some

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<v Speaker 1>of the things that the president has said he will

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<v Speaker 1>do or wants to do. Do you think are reacting

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<v Speaker 1>to his decisions or do you think they're saying, hey,

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<v Speaker 1>it's all fine and good at least up until now.

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<v Speaker 3>Yeah, it is hard to understand why the markets haven't

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<v Speaker 3>reacted more because some of the effects are already seen

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<v Speaker 3>from the tariffs, And indeed, people you know, talk about

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<v Speaker 3>the bond market now because the stock market hasn't reacted.

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<v Speaker 3>But I think that just really underlies that, you know,

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<v Speaker 3>the stock market is not the fifth branch of government.

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<v Speaker 3>It's not really a hard constraint in the same way

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<v Speaker 3>that the other ones were supposed to be on the

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<v Speaker 3>sort of centralization of power in the hands of one

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<v Speaker 3>person or one group, And the tariff debacle demonstrates that

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<v Speaker 3>the administration is much bolder and is willing to take

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<v Speaker 3>actions that could lead to market reactions, at least in

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<v Speaker 3>the short run. Now some people are saying, Oh, it's

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<v Speaker 3>the bond market really that we need to watch out for.

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<v Speaker 3>I don't know why. You know, right now, the bond

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<v Speaker 3>market would be much more important than the stock market,

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<v Speaker 3>and sometimes both of them are things that both the

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<v Speaker 3>administration and the business community are watching. But I wouldn't

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<v Speaker 3>you know, bet on, you know, the market mechanism being

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<v Speaker 3>a strong enough guardrail against this kind of executive imperial

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<v Speaker 3>presidency emerging. And if it does, I think it has

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<v Speaker 3>really sweeping implications for how business is done again. You

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<v Speaker 3>can see that from the fact that the President Trump

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<v Speaker 3>can invite people to his office and say give us

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<v Speaker 3>twenty percent of your shares. Yeah, something.

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<v Speaker 2>Yeah, there's just a moment after a moment where many

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<v Speaker 2>would say this is it's kind of remarkable which I

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<v Speaker 2>went Drona Asimoglu. He is economic Nobel laureate. He is

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<v Speaker 2>also Institute professor in the Department of Economics at MIT,

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<v Speaker 2>joining US from Cambridge. So I am curious is this lasting?

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<v Speaker 2>Like I am wondering who this emboldens in terms of

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<v Speaker 2>whoever might be in the White House next? Is this

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<v Speaker 2>the playbook? The new US playbook?

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<v Speaker 3>And to be sorry, that's what I'm worried about exactly.

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<v Speaker 3>I mean, you know, because look, I mean Trump is

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<v Speaker 3>an agent of change, He's really reshaping norms and institutions,

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<v Speaker 3>but he is himself a symptom of what was wrong

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<v Speaker 3>in some sense with the US system. There was a

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<v Speaker 3>lot of inequality, there was a lot of discontent, and

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<v Speaker 3>there was also some gridlock. You see more executive orders

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<v Speaker 3>by Bush than by Obama than by Biden. So Trump is,

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<v Speaker 3>you know, accelerating that trend, but he's continuing that trend.

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<v Speaker 3>And I do not trust that the next Democrat or

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<v Speaker 3>Republican is going to be much better behaved. Once the

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<v Speaker 3>floodgates are open, I think we're going to go to

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<v Speaker 3>a place where, you know, presidents could have much more

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<v Speaker 3>arbitrary power, both in terms of their ideological agenda, but

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<v Speaker 3>also in terms of corruption and kleptocracy.

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<v Speaker 1>You know, you've study a lot, and part of your

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<v Speaker 1>study has included the strength of institutions and the relationship

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<v Speaker 1>between economic prosperity and the strength of these institutions, and

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<v Speaker 1>on the implications of this for the United States. It's

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<v Speaker 1>widely seen as an area of the world that has

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<v Speaker 1>had transparency, It has markets that people pay a premium

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<v Speaker 1>for as a result of that transparency, as a result

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<v Speaker 1>of the regulatory environment. And I'm wondering, kind of to

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<v Speaker 1>build on Carroll's question, what that means for the future

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<v Speaker 1>of the US economy. If these norms are indeed shattered

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<v Speaker 1>permanently or at least in the near future.

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<v Speaker 3>We would be entering a completely unknown territory. I mean,

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<v Speaker 3>there are so many advantages that we enjoy because of

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<v Speaker 3>our institutions. Everybody wants to have investment in US assets, treasuries,

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<v Speaker 3>corporate debt, stock market. Why. Because people trust US institutions,

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<v Speaker 3>they want to be subject to US law if there's

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<v Speaker 3>a dispute. This is a very dynamic entrepreneurial economy. Why

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<v Speaker 3>people think that if they're successful, they're going to be

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<v Speaker 3>able to take on the biggest companies and build their

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<v Speaker 3>own business. Again, that depends on institutions. In many of

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<v Speaker 3>the countries around the world. You see that incumbents crush

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<v Speaker 3>every bit of competition. So if we start damaging that,

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<v Speaker 3>the secret source of the US economy would be heavily

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<v Speaker 3>damaged too.

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<v Speaker 2>So we're not China, but we're something else. Just got

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<v Speaker 2>about ten to fifteen seconds. Who are we?

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<v Speaker 3>Yeah, well we are something else. I don't know where

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<v Speaker 3>we're going. I mean state institutions are State capitalism is

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<v Speaker 3>what people used to call China. While we're getting close

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<v Speaker 3>to that.