A (2:12)

Yeah. Anyway, it'll be great to talk to Cesar, as always. He's such a. He's a incredibly bright and interesting guy. So let's get at it.

C (2:28)

My name is Cesare Hidalgo. I'm the director for the center for Collective Learning, which is an interdisciplinary laboratory with offices at the Toulouse School of Economics and Corvinus University of Budapest. And I'm also the founder of Data Wheel, a company that specializes in the creation of data distribution and visualization systems, including the oec, which is one of the main platforms in the world to distribute and visualize international trade data.

A (2:52)

That's awesome.

B (2:52)

Great.

A (2:53)

Well, Cesar, it's so good to see you. We haven't chatted in a long time. We're really excited to have you on the podcast to talk about trade. Both Goldie and I have always felt like Your perspective on trade and the perspectives that you evolved with Hausman. Others are by far the most nuanced and smartest takes on, on how all this stuff fits together that we've seen. But it is quite complex. So perhaps you could start and do the best that you can to characterize how you think about how this stuff fits together versus the sort of primitive, conventional view.

C (3:36)

Yeah. So the way that we think about the geography of economic activity, and that includes trade, but includes also other things, is a process of knowledge accumulation in which the accumulation of knowledge is very difficult because knowledge is very hard, it's multifarious, it's non fungible or non interchangeable. And therefore the accumulation of knowledge requires to create a structure such as cities or companies, where all of this knowledge can be put together. Maybe the pictorial way to tell you that is. I don't know if you've heard the story of a designer called Tom Twaits.

A (4:09)

Yeah, sure, yeah.

C (4:10)

Okay, so like that story of Tom Twaitz that he basically, in 2008 had to do a master thesis in the Royal College of Arts, and his thesis was to design a toaster, but he wanted to design a toaster from scratch. So he went into the mines to get the iron, he tried to get on an offshore oil rig to get the oil, and eventually he creates a toaster that works poorly.

A (4:31)

Mostly a fire hazard.

C (4:32)

Exactly. But it illustrates the point that the world works not because a few people know a lot, but because a lot of people know very little. And that knowledge is distributed. And the magic of the markets is that the knowledge is put together. So the way that we think about this is that when we're looking at data on what, which country exports what or which city, patents on which technology or which university, patents on which research field, what we're seeing is some sort of imperfect image of this distributed knowledge. And that's where we start from. We start from this idea that knowledge is distributed and all of these are expressions of that distribution.

A (5:05)

One of the things that you've elaborated on, I think very successfully is the difference between knowledge and know how, which is crucial, I think. Can you explain that a little bit?

C (5:16)

Yeah. So when people talk about knowledge, it's hard to understand what people are referring to because it's a word that we use to talk about many different things. So in the academic literature we have a lot of distinctions. One of them is the distinction between knowledge as statements of fact. For example, I know that Washington D.C. is the capital of the United States, or I know how to play the guitar. And in that case, I say I know how because actually, I'm not referring to knowledge, I'm referring to know how, when, which is this capacity to make. In other languages, we actually have two verbs. So in Spanish and in French, we have different verbs for knowledge and for know how, conocer or saber. In Spanish, we have these two different verbs. Yo conos cuan iq. I know Nick, but I cannot say I know Nick like I know how. Nick. Yes. Pero yo seto Carla guitarra. I know how to play the guitar. We have these two different verbs because one is knowing a verb and the other one is knowing a noun. So knowledge of facts is the one about nouns, and knowledge of verbs is know how. And that is really hard to communicate and transmit because it requires practice, it requires experience, it requires another form of learning, which is not simply repeating something.

A (6:22)

That someone else said to make things that are value added. It requires both knowledge and know how. And the know how is the tricky part, often because the knowledge you can buy in a book or look up on the Internet, but being able to do it knowing how is, of course, very hard. And so can you contrast that more sophisticated, nuanced view of generating value that you described with the sort of conventional.

B (6:51)

Economic view in relations to trade? Nick, you're talking about this versus comparative advantage.

A (6:56)

Yeah.

C (6:57)

So in some way, I think there are layers to economic theory, and I think all economists more or less agree on these different layers. And what happens is that sometimes we get stuck on the simplest layers simply because that's where the dialogue is at. But on the first layer, you can think of economic theory as a theory of decision making. What should you do given what you have? And what you have is a static on that theory. If a country has a certain set of capacities, what should they trade based on those capacities with other countries that have a different set of capacities? And that's the theory of. Of comparative advantage, which is that you should specialize on the things that you're good at and basically buy the things that you're not good at. But these capacities are not static, are dynamic. And a lot of what we have done over the last 20 years or so is to create both mathematical models, but also empirical work showing that these capacities are dynamic and that they evolve according to a certain set of rules. Actually, I'm coming up with a book that is being published this November called the Infinite Alphabet and the Loss of Knowledge, where I explore these rules, these sort of like, principles that govern how knowledge diffuses, because that diffusion is not Random. It depends on a variety of things, and one of them is having related activities or having capacities that can be combined with others in ways that you need few new capacities to enter into a new activity or to new product. And those things help us understand these dynamics, because the dynamics is not haphazard. It has a certain order. And once we're able to measure not only what you're able to do, but what you could be good at doing.

A (8:34)

Yes.

C (8:34)

Then we are able to have a dynamic theory that can show us that countries can change over time and the laggards can become sometimes leaders.

A (8:42)

And just to be clear for our listeners, I think one of the things that was implicit in what you said is if you want to have a country that gets generally more prosperous over time, you need to find ways to make more things, not less. Right. And ideally more complicated things, not less complicated things. And that trajectory requires strategy. Ideally.

C (9:07)

Yeah. It's a lot about the quality of what you make, because I think at a larger scale, we are all playing a game that is very relatable at the individual scale. So at the individual scale, when you're in an organization, there's some tasks that people don't want to do. Everybody kind of like tries to pass them on. Yes. You try to kind of like, let's say in the world that I live, usually new hires have to clean data, not because they're the best at cleaning data, but because nobody else wants to clean data. Yes. And the world, I think, operates a little bit in that way too. Everybody wants to specialize, hopefully, on things that they would want to do or that they feel fulfilled at doing, but not everybody can. So we all have to sometimes eat the frog and take a bad job or a job that we don't like, because we are not the one that can specialize on that because there's someone that is simply better and they're going to be the ones doing that job. So at the individual scale, we have kind of like a little bit that dance of passing on the tasks that we don't like among each other. But at the global scale, we have that as well. And there's a few things that if you are able to produce at high quality, you would be able to specialize in them and acquire all of the other things that might require jobs that you don't want to do. So that game, it's happening, I think, at all scales. And countries that are successful are the ones that, on the one hand, are diverse, but actually that at the very end, highly specialized on knowledge. Intense activities. So countries like Switzerland, Singapore, Finland, certain parts of the United States are extremely specialized on knowledge. Intense activities that have huge productivity, generate enormous returns. And in exchange for a few hours of thought, you can buy the labor of many, many people because you are operating at the level in which you're doing something that very few other people can do and that has value, that is also very scalable.

B (10:53)

I've got a question, because I've been thinking about this. As I understand your work and Hausman and others, the economy expands into adjacent product space. And that's not random. As you said, there's rules to that. What you can do in the future depends on what you can do now because it's very path dependent and obvious over history. In country after country, including the US and the UK and China, the textile industry was a big jumpstarter in terms of industrialization. And from there that was an important step into modernizing into other manufacturing industries. But once you have a highly technical and complex economy like the United States, do you still need a textiles industry or can you jettison the less knowledge intensive industries once you've developed beyond a certain point? Essentially, is there a difference between developing countries and developed countries in terms of these rules and strategies?

C (12:00)

So I think the rules are rather universal, like the laws that govern knowledge diffusion are universal. But the context that countries provide can be extremely specific and can lead to very different outcomes. So let me give you an example, one of these rules using the textile industry as an example. So have you heard of Samuel Slater?

B (12:19)

Samuel Slater? No.

C (12:21)

So Samuel Slater should be the most famous entrepreneur in America. Hopefully it's going to be after my book, because this is a guy that basically started working on the textile industry in the UK in Derby, Cromford, in the area where the first water powered cotton spinning mills were developed. At the tender age of 21, after working through his teens and becoming a manager in one of these mills, he escapes England pretending to be a farmer, and without even telling his mom, and leaves for the port of New York, arrives there, finds a mill in New York. He decides that their machinery is crap, so it's not gonna work with them. He quits within the first four days. And eventually he hears from this sloop captain that there was someone in Rhode island, like a rich industrialist that was trying to develop water cotton spinning technology. And he goes there, he also tells them that the machine is not good. But he makes a deal with them to build the machinery in exchange for getting a share of those profits. And within a year he has the first operating water powered cotton spinning mill in the history of the United States, which was a technology that lots of people in the US were trying to develop at that time. This is the, the exact time also of the American Revolution. So just bringing the technology from the UK to the US was an act of treason. This guy went through great risk and he knew that he was bringing knowledge that it was going to be valuable here. And it was very hard to reproduce because all of these people in America were trying to do it and were not succeeding. And he becomes very successful. He becomes rich, of course, and then actually he quits about like 20, 30 years later because he realizes that just like it had happened in the uk, that knowledge was spreading and, and it was going to become like a dog race of thin margins and so forth. So you have these universal mechanisms, but then you have kind of like this absorbent capacity, which is. For example, if maybe Samuel Schleider would have moved to Paraguay, he wouldn't have been able to succeed in the same way because he wouldn't have been able to find the industrialist that had so many of the complementary pieces that he needed to get that going. And I think in that context, a specific component is where you find a lot of the nuance and the stories of why some countries end up succeeding at some sectors and not others.

A (14:30)

And you've developed this four part heuristic. What, where, when, who?

C (14:36)

Yep.

A (14:37)

Did I get that right? As a way to think through these strategies. Correct.

C (14:42)

Yeah. So we have a paper on the policy implications of economic complexity. What we do there is that these methods have become widely adopted by now in international development circles, export promotion agencies and so forth. And I thought there was a need to organize some of that literature in a framework. The what is the idea of defining targets? And I think that's what a lot of these methods help us do, is to identify targets not only in terms of how decidable they are, but also how plausible they are. I'm a big believer in markets and so forth, but we still need targets, we need strategy, we need direction, we need to rally the troops towards a certain goal. And what you can do there is to say, well, this country, given these capacities, might be more likely to succeed at these sectors and maybe not so much at these others. Then you have another dimension, which is when is it the time to make this jump? Because sometimes countries are going to have to face the dilemma of whether they double down on what they're good at doing right now or where they should attempt to develop something more risky. That Might provide a bigger reward, but might be harder to develop. So should they jump to artificial intelligence or to biotech? What time they should do that? And we find that there is a time which is optimal for countries to take those risks, which is soon before they enter this middle income trap. So as countries develop and they accumulate capacities, there is a point in which they are capable but they're yet poor, meaning that they would have a price advantage over countries that are equally capable but are much richer than them. So for example, right now, if we use these measures to look at that, India is at that point, so India has the same economic complexity or comparable economic complexity with countries like Turkey, which are much richer than India in GDP per capita. But India has much lower salaries. So at this point it has the capacity to enter more sophisticated activities at a lower cost and therefore can make that jump. Now, if you don't make that jump at that point, what happens is that your income is going to continue to grow and that opportunity window is going to shrink and it might even disappear. And, and I think Latin America had a little bit of that. Latin America was a continent that had many countries that were successful at exporting raw materials and they went through the middle income segment and now they're kind of like stuck in some cases at upper income without finding new avenues of growth because they didn't diversify when the opportunity came. So that's when, when you should jump. When is the right opportunity to target unrelated activities? Then where is about where you're getting the knowledge. So knowledge travels through space, like in the story of Samuel Slater, travels through cultural networks. So diasporas are important also for knowledge flows, shared language and all of those type of things. But it also moves among related activities. So you have to ask yourself the question, well, if now I want to hit that target and I think it's the right time, who do I want to get? Where do I get that knowledge? Do I get it from my neighbor? Do I have some other entrepreneurs in this country that might be able to go into that activity? So then from the where you eventually go into the who, which are the agents of structural change. Because actually entering a new sector is something that requires a high tolerance for risk and a lot of creativity. Because developing a sector in a country that sector does not exist might have idiosyncratic problems that might go beyond what you can learn from other places. So that's kind of a little bit like the framework to think about what you're going to hit if it's the right time to hit it. Where are you going to get the knowledge and who's going to own it?

A (18:14)

Yeah.

B (18:15)

So we've been talking about trade for about 20 minutes now, and weirdly, we haven't talked about tariffs once. I know you have said that you've called the original sin of economics is that it. It starts with trade. And right now we have an administration that's committing an original sin. You know, every few minutes. I'm wondering, in terms of your take on the Trump trade policies, is there any justification there to his tariff policies? Will this bring manufacturing jobs back home? Do we even want, in the words of, Is it the Secretary of Commerce, Treasury? Who was it, Nick?

A (19:00)

It's Treasury Besant.

B (19:02)

Besant, who repeatedly talks about how great it will be when we have millions of Americans putting tiny little screws into iPhones. Is that a sensible trade strategy on the part of the US I don't think so.

C (19:16)

And I think many people, even maybe within the administration by now, they have realized that tariffs are not the way to go. And I think there's a few arguments that I can share to add to that conversation. The first one is that the US doesn't have as much of a trade deficit as it think it has. And the reason for that is that the US It's a very big exporter in the digital sector, and those exports do not get accounted for in trade data because basically, companies in the digital sector open subsidiaries in foreign countries and therefore the best that you're going to be able to get is a return on a foreign investment, but you don't see a trade flow. So, for example, here in Europe, where I live, Amazon operates out of Luxembourg. How many engineers are building AWS in Luxembourg? I would bet not so many. But if I buy AWS here, well, it appears as domestic trade within the EU because it's located in Luxembourg. If I buy an ad on Instagram, Meta is located in Ireland. You know, if I buy a Netflix subscription, they have subsidiaries everywhere. So the U.S. we account, we did a paper last year in which we looked at estimates of digital trade using corporate revenue data to try to allocate these revenues. Because if you look at companies like Google or Amazon, these are companies that make hundreds of billions of revenue a year, and not all of that revenue is coming from the United States. So therefore they are involved in trade. And what we found is that the US runs a surplus of about 700 billion a year in digital products. That's like the total exports of France. This is not like the trade surplus of France. This is the total Exports of France is the same that basically Silicon Valley plus Seattle and New York would be exporting in terms of digital a year, which is huge.

B (20:58)

That is fascinating. You're talking here in Seattle, where all of the US engineering is going on. None of that is accounted as an export, even though it's driving all of this, this export trade, all of this business overseas and around the world. So that's purely domestic accounting. And it doesn't go into the trade data.

C (21:24)

It doesn't go into the trade data because. Exactly. Amazon has opened subsidiaries all over the world. So its revenue units are distributed. And they're not buying it from Amazon Seattle, they're buying it from Amazon, France, Italy, et cetera.

B (21:37)

Is this just an artifact of tax evasion, of our weird tax system in the US that they set up these overseas? I know Apple does this. It puts a lot of its intellectual property, what, in Ireland? I think for tax reasons. So is this just a tax artifact?

C (21:56)

I think in part it's a tax artifact. Another example, if you want to move away from the US as a case, if you look at the Chinese Internet, it operates primarily from the Cayman Islands for the West. So when you look at companies like ByteDance and Tencent, they would appear as they're not Chinese companies, they're companies in the Cayman Islands. But of course they're a subsidiary from a Chinese company that is based in China. So I think tax purpose is definitely one of them. It distorts our statistics enormously. So I think that's kind of one point I think is important and that we have been missing. It's also something that is much more easy to. Much harder, sorry to tariff because these digital flows are paradoxically harder to trace, even though they are digital. But the physical products, because they cross a physical border and someone has to open the container and so forth, they're actually more accounted for.

B (22:53)

It turns out, Nick, we're like Seattle is like the fifth largest economy in the world. Who knew?

A (22:58)

Yeah.

C (23:00)

California runs physical product trade deficits all the time because they have a huge digital product trade surplus. So yes, you can import whatever you want. Adobe is exporting and Netflix and Airbnb, all of those are exporting.

A (23:14)

So we're going to go on, but we may ask you to come back just to talk about that paper. That's just a mind boggling thing, but I think I.

B (23:24)

And by the way, we'll definitely have you back on when your book is out.

A (23:27)

Yeah. Thank you, sir. So the 1.2-ish trillion dollar trade deficit that the US claims it has is probably more like 500 billion when you account for the 700 billion of digital products that we export effectively. Did I get that math?

C (23:47)

Yeah, even less, because what we see in digital, it also happens in other sectors. So when the United States opens McDonald's here in France, part of that is also exports of that intellectual property that are not accounted for in the trade balance simply because that, again, a return on a foreign investment. In digital, it's more pronounced because in digital you can open a foreign subsidiary with two lawyers and a mailbox, while in services, you're still going to have to employ a number of people to run that franchise.

A (24:21)

Okay. Today we've learned that the US trade deficit is not as bad as we thought it was. That's important. But even just stipulate that, do you think that the current approach the administration is taking makes any sense? With this one small caveat, that China, of course, has been taking advantage of all sorts of people and we need to push back on them to a certain degree.

C (24:45)

Yeah. So it doesn't make sense because there is some other component of trade which is, let's say, less academic, maybe even more political, more sneaky, more business, which is that trade can be very slippery. So I was looking at the US trade numbers for April of this year, which they were released last week because we published those at the oec. So I was constructing a thread for X and I see, okay, the US is importing about 20% less year over year from China, but the US is importing a lot more from Taiwan, from Vietnam, quite a bit from Mexico. What are they importing? Well, imports of computers from Mexico, they grew up by 500%. In April of 2025, imports of computers from Vietnam grew by 1,600%. So is that Vietnam developed overnight capacity to more than 10x their production of computers, or is it that, well, you can play with this place of origin type of regulations, and you send it, well, as long as it is boxed here. And we have seen that before. The development of Malaysia, for instance, that comes in part from this plaza cord, was in part an example of development, or at least exports coming from boxing things that were done elsewhere to be able to claim that the origin was different so you could export them to the United States. So we've seen that before. And that slippery component of trade is the one that is hard because you cannot close yourself only to China. China is fantastic at producing and exporting things, and they're going to find other channels to send it to you and the people in those Other countries are going to be happy to be a channel for them as well, you know.

A (26:25)

Yeah, okay, but that's true, Cesar, but that doesn't mean that it doesn't make sense to push back on their very deliberately mercantilist strategies. I grew up doing business in China and their determination to build their industries irrespective of whether it made economic sense on a commercial basis or not. Look, I don't fault them for it, but it's impossible for companies or industries that are not supported by the government to compete with that. So you either have to effectively be fine, abandoning your industries, or you have to find a way to reasonably push back on these strategies. Just by way of example, when I was like, you may recall, my family business was in the home furnishings business. And our competitors in China who made finish down comforters, got an 11% rebate from the Chinese government for every product that they exported, which makes it pretty hard to compete if you're making those things in the United States, even though the labor costs are very, very low. Right. It's just effectively impossible to compete. So again, you can just say, well, to hell with it, we'll just give it all to the Chinese or you can find a way to push back on it. I'm very heavily in the second camp.

C (27:48)

Yeah. So I think there are different ways of pushing back, and I think that's where you know, like the nuances. So at least in the economic development literature, you have ways of pushing back that are more protectionist, you know, so trade would be considered a protectionist measure. Like, you close yourself up and you hope, you know, that you have a big enough domestic market that you can do it all on your own. It doesn't tend to work like Cuba, you know, the Soviet Union, they kind of like went through that route. And there's another way of pushing back, which is more export promotion, which is what places like South Korea did. And that is try to help your industry be competitive in a global market while remaining open. And that might involve things as simple as subsidies, which can be tricky or dangerous. But also the U.S. you have to remember that the federal budget of the US is about like 4 trillion a year. So we do have a lot of firepower when it comes to the ability to spend at the federal level. If we wanted to do things to help support our businesses and promote our economy. And I think the US Is a big country, you know, so if we will be talking about like China vis a vis Uruguay, maybe, yes, you have a big but. But the U.S. i would say, still should be able to face China face to face, head to head. Not with a protectionist mindset, but we're going to be able to out export you and out compete you because we are leaders in technology. We attract people from all over the world. We have the best labor market maybe in the world, which is extremely flexible and dynamic. And we're going to be able to basically move always to the next industry faster than you. I don't think we are there yet, but I think the responsibility would be on that side. At that level.

B (29:36)

I wouldn't count on our ability to attract people from all over the world anymore.

A (29:40)

Yeah, that was yesterday's news.

C (29:44)

The pendulum swings, huh?

A (29:46)

Sometimes things just collapse.

B (29:49)

Yeah, sometimes that pendulum just hits you right in the head as it's swinging. That's. That's what I'm afraid of right now.

A (29:57)

So if you were in charge of trade policy for the United States, what would you do?

C (30:04)

So, you know, first of all, I would not use this aggressive stance to tariffs and I think I would use maybe other ways to negotiate deals that the US has and that I think it uses in some way. So when you look at trade agreements between countries, usually they're called trade agreements, but in reality there's a lot that goes in one of these levers that the US has, you know, is the ability to make it easier or simpler for people to get visas to come to the U.S. to work, or to come to the U.S. to do business, or to come to the US to study and so forth. You could use that as some form of leverage if you wanted to kind of have other countries open up. But I would maybe focus on a policy that would not focus so much on trade itself, but on the capacities that underlie it. And what I mean by that is that I would use some of that firepower that the US does have at the federal level. And I will be doing the opposite of what it is doing in terms of funding research, both at the universities and at the federal level. I would superpower the nih. I would superpower the universities. I would superpower all of that innovative capacity that the US has. And that generates good returns because the money doesn't go to waste. It's going to people that have the capacity, have the skills and have the hunger to succeed. And I would love to.

A (31:32)

Yeah, we should be doubling down on all that stuff right now instead of. Yeah, it's absolutely insane.

C (31:37)

Forget about trade. They're going to figure out how to export the new biotech product. They're going to figure out how to export the new software solution. They're going to figure out how to export the AI, you know, so just bet on research and let the market figure out who buys it from whom.

A (31:50)

Interesting.

B (31:51)

Okay, so double down on research. Check. We're destroying research. Attract high quality, high skilled people. Check. We're kicking people out of the country, making it a hostile place to come. Okay, so obviously you're not advising the Trump administration, unfortunately. What about during the Biden administration, the increase from focus on industrial policy, the investments in semiconductor manufacturing, does that work in the US Was that a big enough effort or should we.

C (32:36)

I don't know, because like. Like to me, like what I see, like, I wasn't so hot on the Biden administration either. I felt it was rather ineffective, you know, and largely rhetoric, you know, so I didn't see those things actually becoming something larger as they should have given the Air Force. It reminds me a lot of like the Brussels administration, which sometimes they like to do this speech and present themselves as really good and everything, but they don't really sink their teeth into the problems in the way that sometimes problems need. So, yes, there might have been a place with good intentions, but I do think that we live in a world in which you do need decisive action and to push in certain directions. And this administration might not be pushing in the right direction, but they're definitely pushing in that direction. They are pushing. You cannot give.

B (33:29)

Yes, gotta give them credit for that. Nick, final question.

A (33:32)

Why do you do this work?

C (33:34)

Well, I think the reason why I do this work, it's very personal. So I grew up in suburb of Santiago. At that time. There was of course, no Internet, There were a few TV channels, and there was a room in the back of my house where I live that had a bookcase with a bunch of books. And I would read about all of these famous people like Galileo and Adam Smith and so forth, and it was clear that none of them came from where I came. None of them came from Chile. And my idea was like, well, it cannot be that everyone here is stupid. It must be something else. It must be something at the collective level that we are missing. Because talent might be everywhere, but opportunity is not. And I've dedicated my life to understand why talent doesn't develop everywhere equally. I think that's a fundamental question. Because at the end of the day, the world does need development. We can worry about inequality, we can worry about climate change, but if you really travel around and, you know, the lives of people, there's a lot of people that still need a lot of growth, and we need that talent to develop for that to happen. So I dedicated my life to understand that question, which I think is one of those eternal questions that people have been pondering for centuries, if not millennia.

A (34:46)

Well, it was fantastic to talk to you as always.

C (34:49)

Same.

B (34:49)

Look forward to your book.

A (34:51)

Yeah, for sure. You'll have to come back because I.

B (34:54)

Have to tell you why Information Grows was like. That was. That's when everything clicked for me. When I read it. Nick had gotten me started on evolutionary theory, and I was kind of. I was getting the connection to economics.

A (35:09)

Yeah.

B (35:09)

But when I read your book, it's like the universe was revealed to me. It all made sense.

A (35:14)

Yeah. Great book.

C (35:15)

Thank you.

A (35:16)

Underappreciated.

C (35:17)

Hopefully this one is better. You know, I learned how to write a lot during the last 10 years.

B (35:23)

I'm curious. I was recently introduced to assembly theory, and it seems to be really consilient with your work and your ideas, and I'm wondering whether you've put that to work at all, if you've thought about that.

C (35:40)

I haven't explored it to the point that I would have to be able to say something smart about it. I've been working a lot on theory more recently, but we have our own set of mathematical tools that we've been developing to really put all of this together. But not assembly theory in this case. But there might be something there. A lot of the times, math has a lot of multiple. Multiple paths that takes you to the same place, you know, and you eventually end up making these connections.

A (36:06)

Well, Cesar, thank you again for being with us.

C (36:09)

Thank you.

A (36:10)

Always interesting. And I hope to talk to you soon again.

C (36:13)

Well. And if you come to France, you know, this is the best part of the country.

B (36:22)

Okay, Nick, I'm sure your big takeaway is going to be my big takeaway. What new thing did you learn today in our conversation with Cesar that was so funny?

A (36:36)

Yeah. That the trade deficit is not what it seems.

B (36:39)

Of course.

A (36:39)

It makes perfect sense.

B (36:41)

That's right. That we export data, but you can't account for that. So, you know, data processing.

A (36:48)

I got to dig up that paper. We got to dig up that paper. I want to look at it.

B (36:53)

This is amazing. It's like, here we are. I mean, you're in London, I'm here in Seattle, home to aws, which is the empire of data processing. And none of that is accounted for in the trade numbers because it's all done through subsidiaries overseas that don't have to pay Amazon for any of this. And that and in so many other industries where the engineering, the intellectual property, it's. It's all developed here and accounted for someplace else.

A (37:29)

Yeah.

B (37:30)

Because taxes.

A (37:32)

Yeah.

B (37:32)

Oops. Yeah. And it's funny when you account that, when you take that into account also with the idea that one of the other things that the US Exports is dollars.

A (37:42)

Yeah.

B (37:43)

Because we have a monopoly on the creation of US Dollars, which is the world's reserve currency, we can't help but have a trade deficit.

A (37:53)

Yeah.

B (37:54)

If we're going to be. I mean, that is pretty much definitional. So when you add all that together, these things that aren't accounted for and the fact that we're literally exporting dollars, that's what people need overseas. It's not nearly as. As bad as it looks.

A (38:15)

Pretty interesting as always. Cesar has a lot of really interesting perspectives. And just like, yeah, you could talk to the guy for hours.

B (38:22)

And from a practical perspective, of course. And we've all kind of sensed this. We know this. But just when he talks about what he would do and it's the opposite of what we're doing, the two most important things are attract talent. Right. Because that know how is embedded in human beings. And he talks about this how knowledge and know how it's hard. I think in his book why Information Grows, he says the word he uses is heavy. That it's hard to move know how geographically from one place to the other. And for 75 years, for longer, the US has been this destination for know how for people with talent, with knowledge, with know how to come here to do their research, to start their businesses, to look for opportunity, to find other people in related fields that will make their visions possible. As he talks about it, we are driving people away.

A (39:30)

Yeah.

B (39:30)

And of course, the other thing he says is invest in research. Invest in the greatest university system in the world, greatest research institutions in the world. And here we are intentionally trying to destroy them. Telling Harvard. Whatever you think about Harvard, it is certainly one of the most prestigious institutions, if not the most prestigious institution in the world. You have the President of the United States saying, nope, you can't have foreign students anymore. You can't attract any of these people anymore who might set up businesses here, who might do important research here. Nope, nope, can't have that. So we're focusing on tariffs, which don't work because China's getting around that through Vietnam and Mexico and wherever you'll. It'll always find a way. We're telling smart and talented people not to come here, that we're going to put you in prison if you try, because there might be something a little wrong with your visa and you might find yourself in a Salvadoran prison camp. And we're going to dismantle our research institutions because, I don't know, somebody insulted.

A (40:45)

Because they're woke or something.

B (40:47)

They're woke. They're woke. That's right. So there you go.

A (40:52)

That's good times strategery, as George W. Bush would have said.

B (40:59)

Again, if you want to read more from Cesar Hidalgo, we'll have links in the show Notes, including to his excellent book why Information Grows.

A (41:08)

Awesome. Pitchfork Economics is produced by Civic Ventures. If you like the show, make sure to follow, rate and review us. Wherever you get your podcasts. Find us on other platforms like Twitter, Facebook, Instagram and Threads. Itchforce Economics Nick's on Twitter and Facebook as well. Ickhanhauer for more content from us, you can subscribe to our weekly newsletter, the Pitch over on Substack. And for links to everything we just mentioned, plus transcripts and more, visit our website, Pitchfork economics.com as always from our team at Civic Ventures, thanks for listening. See you next week.