Hidden Forces Podcast Summary

Episode: AI Bubble, Inflation, and the Limits of Monetary Policy
Guest: Jason Furman
Host: Demetri Kofinas
Date: December 15, 2025

Episode Overview

In this engaging and wide-ranging conversation, Demetri Kofinas sits down with Jason Furman, Harvard professor and former Chair of the Council of Economic Advisors, to dissect some of the most urgent topics in economics and policy today. The episode delves deep into the nature of the perceived "AI bubble," debates surrounding AI policy, inflation dynamics, the limitations of monetary policy, and the complex role of government in managing technological change and economic growth. The interplay between practical policymaking and academic economic models is a recurring theme as Furman draws on decades of experience in the Clinton and Obama administrations.

Furman’s Economic Journey and Government Experience

Formative Years and the Appeal of Economics

• Mathematics Meets Social Reality: Jason Furman shares how his affinity for math and physics, coupled with fascination for political debates, made economics an ideal field.

  “Economics was a really natural way to combine those two interests… People just don't behave quite as well as quarks and leptons do.” (04:02, Furman)

• Transition to Policy: He describes being recruited to Washington for a policy role while still in academia, quickly finding that the unpredictability of real-world economics was more interesting than theory alone.

Inside the White House

• Clinton Era: Joined the Council of Economic Advisors (CEA) in the Clinton administration, focusing on macroeconomic analysis and briefing presidents on new data.

  “We’d get the data a day in advance... really learn how to read data, think about how the macroeconomy functions.” (06:32, Furman)

• Obama Era: Served as Deputy Director at the National Economic Council (NEC) and eventually chaired the CEA, working on issues from the financial crisis to tech policy.
• Wearing Different Hats: Explains the difference between the analytical focus of the CEA and the more strategic, politically tuned role of the NEC.

  “At the National Economic Council, it was a more political hat, more strategic, more what is possible. The Council of Economic Advisors is... a little bit more, ‘here’s the best option, here’s the second best.’” (07:52, Furman)

Artificial Intelligence: Bubble or Breakthrough?

The State of the “AI Bubble”

• Excitement and Caution: Furman is optimistic about AI’s impact but recognizes profound uncertainty.

  “Any predictions about the future of AI have to have enormous confidence intervals... I’m much more worried about having too little of it than having too much of it.” (11:19, Furman)

• Bubble Definition: He defines a bubble as prices exceeding their fundamental value due to self-fulfilling expectations, noting it’s only a bubble if short sellers can profit when calling it.

  “If you call it a bubble today, and the market doubles and then falls by 40%, you were wrong—it was not a bubble.” (25:05, Furman)

Policy and Regulation

• Benefits vs. Risks: Emphasizes cost-benefit analysis and continuous improvement over perfect safety.

  “You can't just wait until you can prove everything is perfectly safe... waiting for that is a way of condemning people to die by cancer and not get tutored in school...” (12:20, Furman)

• Domain-Specific Regulation: Advocates for integrating AI oversight within sectoral regulators (e.g., auto safety, finance) rather than a central AI super-regulator.
• Policy Shifts under Trump and Biden: Describes Biden’s regulatory approach as mixing pro-innovation and bias/safety concerns, and Trump’s as removing bottlenecks.

  “Under the Trump administration, you basically had all of that ripped up and full speed ahead type of attitude... one of the few things... I’d probably put on the positive side of the ledger.” (16:27, Furman)

Infrastructure Bottlenecks

• Government Role: Main responsibility should be removing permitting obstacles—for energy grids and chip manufacturing—rather than direct subsidies or market intervention.

  “What the government needs to do is make sure that process can happen... doesn’t need to subsidize anything, doesn’t need to give grants.” (19:07, Furman)

US Innovation Model vs. China

• State’s Role Revisited: While influenced by the Janeway “three-player” model of innovation (state, finance, markets), Furman has grown more cautious on departing from orthodox market economics.

  “If you follow all the conventional recipes, you get to the 85th percentile of economic performance. If you depart from them... you might turn into Singapore... or Venezuela...” (21:57, Furman)

• Exceptions: Thinks government intervention is warranted for national security (e.g., microchips), basic research (positive externalities), and potentially for competition/antitrust—though he notes ample competition in AI as of now.

Productivity and Economic Outlook

Where Are AI’s Gains?

• Service Sector Focus: Expects most gains from AI to arise in coding, law, consulting, finance, education, and possibly even creative fields like podcast production.

  “Service sector historically has been an area where it’s harder to get productivity growth... Coding is the most obvious one that seems to be what it’s best at.” (27:18, Furman)

The State of the US Economy

Contradictory Signals

• Data Shroud: Cited lack of timely government data due to a shutdown, with jobs numbers showing weakness but GDP estimates remaining strong.

  “Jobs numbers are more reliable than GDP numbers... shifting the composition of production towards areas... that don’t have a lot of jobs, like data centers.” (28:48, Furman)

Limitations of Monetary Policy

• Fed’s Constraints: Furman doubts the Federal Reserve can do much to improve structural economic weaknesses, such as those driven by demographic shifts like reduced immigration.

  “I don’t think there’s a lot the Fed can do to help this economy.” (29:23, Furman)

Inflation Models and Interest Rates

Can the Fed Tame Inflation?

• Theoretical Blind Spots: References criticism (notably from Mervyn King) that central banks lack a unified theory of inflation, but counters that the problem is knowing which existing theory fits a given scenario.

  “The trick is to know which theory to use at which point in time.” (34:22, Furman)

• Response to Surging Inflation: If inflation stayed at 4% for several years, the Fed would need to raise rates further and potentially tolerate higher unemployment.

  “You need to keep raising interest rates and you might need much higher unemployment in order to solve that problem, unfortunately.” (44:33, Furman)

The Fed’s Target and Fiscal Considerations

• Shifting Target?: Furman acknowledges the Fed may have implicitly raised its inflation target from 2% to something higher, possibly due to pragmatic considerations.

  “I think it’s possible that they’ve shifted the inflation target away from 2.0 and to 2.8x.” (37:08, Furman)

• Deficit Dilemma: With the US deficit above 6% of GDP, he notes this is highly unusual outside of recession or crisis and expresses skepticism that current policymakers see inflation as a policy lever to address it.

Independence of the Central Bank

• Political Pressures: Furman argues, based on recent history, that the Fed has maintained significant independence despite political pressures from both Democrats and Republicans.

  “This is not a Fed that looks particularly partisan for the administration that is in office.” (41:24, Furman)

Notable Quotes and Memorable Moments

• On economic models:

  “Importantly, I just said models, plural. Don’t just reduce it to one single model and combine that with a certain amount of just trying to listen... and combine all of that in a way that is admittedly less disciplined than just hewing exactly to one model.” (05:15, Furman)

• On AI optimism:

  “It’s sort of amazing that I’m using the very, very worst AI I’m ever going to use for the rest of my life. It’s only getting better from here.” (11:34, Furman)

• On government activism:

  “You better be really, really sure of what you’re doing... sort of small-c conservative about not straying too far from [orthodoxy].” (22:01, Furman)

• On bubble predictions:

  “If you say it’s a bubble, you are only right if you basically would have made money short selling it at the point that you said it was a bubble.” (25:10, Furman)

• On the service sector and AI:

  “Some of the Silicon Valley people who think it’s going to replace all the jobs, I think they’re thinking most jobs are like coding, when most of them are not.” (27:30, Furman)

• On inflation targeting:

  “I wouldn’t knowingly cause a big recession just to get the inflation rate from 2.8% to 2.0%. I think it’s fine for the Fed to be a little bit opportunistic...” (32:34, Furman)

Key Timestamps

• Furman’s early years and path to policy: 03:16–06:32
• White House roles and policy experience: 06:32–08:53
• His core policy concerns and AI bubble intro: 08:53–09:58
• AI policy/regulation discussion: 10:46–15:44
• AI bubble, productivity, and gains: 25:05–28:23
• US economy’s current state: 28:23–29:51
• Inflation, monetary policy, and the Fed: 29:51–44:43

Further Themes (Second Hour Preview)

• Affordability crisis and the broken social contract
• The politics, appeal, and efficacy of price controls
• Tariffs, industrial policy, and currency depreciation
• Feedback effects between government deficits, rule of law, and foreign appetite for US assets
• The critical significance of the next Fed chair for policy credibility

For more in-depth analysis and the remainder of this conversation, including Furman’s take on price controls, tariffs, and affordability politics, access the Hidden Forces premium feed.