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- [00:00]
A
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B
News not saying that's the case now. These markets may go on forever. Maybe we finally found Irana. But I'll tell you my view of whatever it's worth. I think one has to think very carefully about what you think the risks are, what you think the rewards are and try to make reasonable judgments. And I'm not predicting in any way with markets are going to do. I'm just going to say that I think that the risks are enormous. And I think, you know, I guess I do think, I do think it's not. I guess I do think that the markets don't properly weight those.
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A
So let's talk about some of the specific risks. People. When the tariffs were announced On Liberation Day, April 2, there was this feeling that business would collapse.
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B
Wasn't my view, but go ahead.
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A
Well, why, why has the market been so surprised? Why have companies been so surprised themselves? CEOs I talked to say we've been shocked that things kind of keep going.
- [01:22]
B
Yeah, let me Lisa, they may keep. I think the tariffs were extremely unwise. I think open trade has served our country extremely well over many, many, many, many decades. I do think that some caveats to that. I do think you need to protect supply chains when they have national security or economic security dimensions through subsidies or trade restrictions. But having said that, beyond that, I think open trade has served us extremely well. I think tariffs will hurt us in terms of growth and I think it's a one time increase in cost. It's not, it's not in that sense. It's not inflation, but it is a one time increase in cost. Cost to our producers will go up. That decreases their efficiency and competitiveness. It could lead. I've never forgotten something Paul Volcker said to me. He said that inflation could take on a life of its own. And of course that was a reference to inflation expectations. Maybe and maybe not. The tariffs could create a set of inflationary expectations and it could lead to inflation. But whether it does or it doesn't, it almost surely will adversely affect growth. But I didn't, I for one never thought it was going to have an immediate impact. But I thought the risk was over time. And I still think that's that's the risk. And if you speak to CEOs and you know in our firm we do a lot of that, we have an immense business dealing with basically large corporate America. I think most CEOs, virtually all CEOs think they're going to be passing on a lot of this in terms of prices. So cost to consumers will go up and cost to producers who are importing. Excuse me. And components will be, will be going up.
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A
What's fascinating is when the tariffs were announced, people thought that it would be really bond negative because inflation would go up and you would see sort of this stagflation like kind of environment. And so bonds would be in a sort of quagmire, as would the Fed, as would the rest of policymakers. Instead, tariffs are now treated as a positive because they are a revenue boost that will offset any deficit spending. I could tell you agree with that.
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B
So I only disagree with it because it's wrong, but go ahead.
- [03:15]
A
Well, so I'm just curious, you know where this is getting misunderstood.
- [03:21]
B
No. Well, the L Budget Lab, which is terrifically reliable and sensible about budget. About fiscal matters. I asked her the other day. That one runs with Natasha Sarina who's attending professor at Yale and Terrific authored a PhD in economics. She told me that she suspects she thinks that revenues will be about 2 point maybe 280 billion a year or some number like that which is. And then. And that's before the adverse effects on growth and retaliation. You take it all into account, maybe 200. It's a very small fraction of our deficits. This is not going to be a fiscal response and you're paying a price for it in terms of I said a moment ago, risk to growth and at least I think, think the possible certainly higher cost to consumers and to producers and possibly triggering inflationary expectations. What, what is it the tariff is assuming that it gets passed on which if you talk to our clients I think all this going to get passed on over time. It's a regressive tax and so regressive tax which has adverse effects on growth, as I say a moment ago on inflation.
- [04:23]
A
So I'm trying to pair this with the idea that we're seeing mergers and acquisitions accelerate. Oh, we hear a growing number of companies talk about in corporate executives a reacceleration in the consumer. How do these two things go together?
- [04:36]
B
I don't think it's complicated. When I was at Goldman Sachs we had economists that we had terrific people, strategists. They always tell me what they thought was going to happen. In the short term. And I would always say you're very nice people and I think that's nice for you to do. And our clients are interested, so you should do that. But I myself wouldn't base my decisions on them. Things short terms and short term effects, Lisa, could be whatever they're going to be. The question is what's going to happen over time. And I think over time, for the reasons I've said, I think tariffs are a very substantial negative. And I think that open traders, with the caveats that I mentioned, I think open trade has served us very well.
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A
How much are companies rethinking their US Footprint in a new kind of way?
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B
Well, my impression, and I get this largely from speaking I don't speak to many companies myself, but our people are just enormously plugged into corporate America and also have three advisory relationships with pretty substantial investment, I guess you call them funds. I think a lot of people are rethinking how much they want to be allocated to the United States. And you see a little bit, by the way, in the dollar. The dollar has, after all, suffered through this thing. I don't think too much of it has happened so far, but I think it's a risk that we're taking. And I think what's what's so sad to me, Lisa, is we have such tremendous strengths and so many advantages and I think the damage we're doing is very substantial. Attacking our research, attacking science and basic research, attacking our universities, immigration policy that makes no sense whatsoever. We should have an economic, we should have economically, we should have immigration that serves our economic needs. And then we should have, at least in my opinion, measures to deal with the currently undocumented people so they can become more who are part of our economy. And if they're obviously doing adverse things or criminal, that's a different matter. They can be continue to prosper in our economy, eventually become citizens. There's so much that we can do, but we're doing the opposite of all these things.
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A
There is this feeling and we're seeing this in the political sphere. And as someone who is in the Clinton administration when globalization was really taking off, I'm wondering what your perspective is on how the story of globalization is being told now and that a lot of people are saying there were a lot of people left behind and that there are some things that need to be done to remedy that.
- [06:50]
B
I totally agree with that. When President Clinton announced NAFTA in the East Room, I totally agree with that, Lisa. One of the things he but I think I think the wrong conclusion is, therefore let's not open trading markets. I think the right conclusion is let's do what President Clinton talked about when he announced nafta, but that we never were able to do politically. We lost control of the Congress and we lost the ability to do it, and that is have in place retraining, social safety nets, a greatly increased earned income tax credit so that people with low incomes will have higher incomes and have all that to deal with job losses. And as much as that is a problem with respect to trade AI, in my opinion, you all have your own views. Some of you probably know a heck of a lot more about it than I do, but I've been taking tutorial for the last two years twice a week, so I kind of know something about it. I think that the potential for job loss is very substantial. And so as much as we needed that kind of an adjustment set of programs to deal with trade. And we did need that. LISA Absolutely. And we don't have it, I think we're going to need even more to.
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A
Deal with AI, which is something that we're not hearing as much about as a lot of people think.
- [07:51]
B
LISA there's no it's not part of the political dialogue, and it should be. Look, our political system is in terrible shape, and that's not a partisan comment, though I do think Trump is doing just immense damage to our country with his economic policies and his actions. But in neither party are we talking about a lot of what we need to talk about. And one of the things we need to do is to do exactly what I just said. But there's no political ability to get not a lot of political focus on it, and really no political ability to get it done.
- [08:19]
A
Given the footprint that you have and the access to companies, do you have a sense of how much they plan to reduce their staff or whether they are not necessarily hiring recent college graduates as a result of their using.
- [08:32]
B
Yeah, yeah, I got the question. I don't have much wisdom on that. I've asked our people that, too. I mean, clearly the labor market is softened. There's no question about that. I'll give you my personal opinion, whatever it's worth and but really mostly based on just what I think about. I I think it has the potential for tremendous positives in terms of productivity, which, by the way, could be partially responsive, albeit not fully responsive to our fiscal trajectory and our district fiscal trajectory on multiple basis seems to me is a tremendous risk to our economy over time. So this could be partly, partly responsive to that and productivity, increased growth, increased revenues and so forth. But I think, I think a lot of, yeah, I do think it's going to have very substantial job replacement fix. A lot of things that are being done now by people are going to be done by AI. And I, as you know, what is the human mind? You. And by neural systems. Right. What is AI? AI is neural systems. And if you take AI and you pursue it, and some of you know much more about this than I do, but you pursue, you build bigger and bigger data centers and more and more capacity, you create neural systems that are able to do not only the more mundane tasks, Lisa, but all the kinds of, many of the kinds of complex thinking that we're accustomed to associating with human beings. And that, as you know, is sort of the question of AGI. And admittedly, you can, you can define AGI a lot of different ways. I get that. But whatever we want to, we want to define it. I don't need a question that AI is moving, at least in my opinion. I may be wrong, but I don't think I'm wrong moving very quickly toward ever more sophisticated capabilities that can more and more replicate the neural processes of the human mind.
- [10:10]
A
Which is the reason why when you talk to some Fed officials on and off the record, more off the record, they will talk about running the economy hot or prioritizing the labor market as a way to ameliorate some of the potential job losses from AI because it encourages companies to invest more in their workers and keeps people employed so people won't be left behind as much. I mean, do you buy into that kind of idea and sort of endorse the idea of having a more accommodative monetary policy at a time like this?
- [10:44]
B
Yeah, I get the point. And this is good debate. This is the kind of things that if you have sensible people sitting in a room, you could really discuss in very interesting ways. No, I actually don't agree with Lisa. I'm much more concerned about the possibility of inflation. And if you run the economy too hot and you get higher rate of inflation and that in turn has a weaker dollar and it has higher interest rates, I think that can have a lot more adverse effects than the benefit you're getting from, from, from Fed funds rates being lower and whatever you think might contribute, so you might actually accomplish the opposite of what you wish. So I know if I were at the, look, I'm, nobody's going to ask me what I think at the Fed, I promise you. But if anybody did, I think I would say to them, you've got a dual mandate under Humphrey Hawkins, as we all know. And I would worry more about the inflationary side of that than I would I worry about both, but I'd be I'd be quite concerned about inflation.
- [11:39]
A
One thing, Ray Dalio is speaking earlier and he drew the parallel to the 1970s as well as the 1930s, which is a little bit even more alarming. I'm just wondering, from your perspective, do you think that the 1970s style inflation is the correct analog?
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B
Well, 1970, interesting time and that that's actually what Paul was Paul Volcker was talking about and I were talking about this, you know, I don't know that probably not many of you here, well, maybe none of you actually lived through the 1970s. I did and inflation took on a life of its own. LISA and inflation, this was Paul's point, inflation expectations built on themselves and once that happens, it's very, very hard to deal with. And Paul's point was, and I think he's right about this, that once inflation gets going, inflation expectations are very, very difficult to deal with. That's why if I were the Fed, I'd be focused on both both aspects of my dual mandate. HUMPHREY HAWKINS But I would be quite concerned with not allowing inflation to move in a way that is threatening.
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A
We spoke a bit ago and you said the US Is still the best place to invest. Do you still feel that?
- [12:45]
B
Yes, I do, but it's complicated. We have such, I really am troubled about Trouble is the wrong word. It is tragic what we're doing to ourselves and what this administration is doing on so many dimensions, in my opinion, in of public policy, because I think we have enormous strengths compared to others. I'm repeating myself and I know that we have flexible labor and capital markets. We have dynamic culture. We have capital markets that are unrivaled anyplace else in the world. We have great universities that now we're attacking them in ways that are usually counterproductive, in my opinion. And so much else going natural resources. We have so much else going our way. But we are doing a lot of damage on the Yes, I would still invest here because I think, I think, look, my I think ultimately it's going to depend what happens to our political system. And I think sooner or later we'll come back. I hope, I hope it's wrong. I think the odds are we will come back at some point to the historical system that we've had. We have a conservative party, sort of Ronald Reagan is a historical conservative you have a progressive or liberal Democratic party, you want to call it center left, I don't care. And then they have the debates and we're back where we used to be. Be. It won't be the same. It will not be the same, but it'll be some analog to that. So I believe that's the most likely outcome. And China has enormous. Look, China has some great strengths, we all know that, but it also has enormous problems. We also all know. And Europe, you know, Europe. From 2019 to 2022, productivity in Europe grew 0.4%. Productivity in the United States were 6%. And the Mario Draghi report, which was designed to deal. I was with Mario the other day, we spent an hour together. I just told him about this because he was in New York and we still got together. It was designed to address the productivity problems in Europe. They've done virtually nothing on it. So, yeah, I'd still bet on us, but I think we. I'd still bet on us. I'd still rather be here. I am here in terms of my own personal resources. But I think what we're doing to ourselves is very seriously troubling.
- [14:42]
A
There's a lot of question around gold and the fact that a lot of people are going into it and whether this is sort of a signal of something with the debasement of the dollar or of people's state of mind. What's the message? What's the signal from gold?
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B
I don't know the foggiest notion. Look, gold has always been this sort of so called refuge from the dollar, I assume the dollar, I mean from uncertainty and you know, it's thousands of years of history of that. Is the current action of gold a signal of something? I have not the foggiest notion. I personally wouldn't own it, but that's just because I've never. Gold has no use value. It's only a psychological. But look, I'm not demeaning it. It's for thousands of years it's been a psychological refuge from uncertainty. But I don't know if it, I wouldn't call it. I mean I think one could think rationally and thoughtfully of all these things. I personally wouldn't weigh the price of gold in my thinking about what the odds are.
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B
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A
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B
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