Podcast Summary: Prof G Markets – "The Biggest Disruption Is Yet to Come"

Guests: Justin Wolfers (Professor of Public Policy and Economics, University of Michigan)
Hosts: Scott Galloway, Ed Elson
Date: December 19, 2025

Episode Overview

This episode serves as the Prof G Markets’ final guest conversation of 2025, featuring Justin Wolfers. The discussion centers around a turbulent year in the capital markets, with particular emphasis on Donald Trump’s first year back as U.S. president, the economic effects of AI, rising tariffs, and the broader question of American institutional and economic strength. Wolfers offers both an expert diagnosis of current macroeconomic conditions and a thoughtful meditation on the societal and structural consequences that may not be visible until years later. The tone blends critical analysis, dark humor, and moments of optimism.

Key Discussion Points & Insights

1. Grading Trump’s First Year Back (08:02)

• Wolfers draws a distinction between inputs (the administration's actions, personnel, and policy quality) and outputs (measurable economic outcomes: unemployment, inflation, budget deficit).
• Inputs: "Worst economic team in a White House, at a minimum, in my lifetime..." (Justin Wolfers, 10:51)
• Outputs: Wolfers concedes that by the numbers, the U.S. isn’t in recession, but unemployment is up, inflation remains "uncomfortably high," and the deficit is "at a point that simply doesn't make sense for where we are in the business cycle." He suggests, by "grade-inflated American standards," this might merit a B, but warns the real damage (especially institutional) may take a decade or more to appear.

2. The Illusion of Stock Market Performance (14:08)

• Wolfers challenges the narrative that a booming U.S. stock market proves economic strength, pointing out the U.S. market’s underperformance compared to international peers.
• Quote: "Of those 23 countries, we were third last, maybe fourth last... Germany, Italy, Japan... they're all doing better in terms of stock market returns than the US." (Justin Wolfers, 15:32)

3. AI’s Current & Future Impact on Labor Markets (16:00, 19:53, 22:32)

• Unemployment is rising, particularly among recent graduates, but Wolfers says there’s sparse direct evidence this is due to AI. He suggests AI adoption is "remarkably weak" so far in terms of impact but is poised to become the next great economic disruption.
• Two possible futures for AI’s effect on labor:
  • Substitution: AI directly replaces jobs (e.g., typists eliminated by computers).
  • Complementarity: AI augments jobs, moving workers "up the value chain" (e.g., tellers post-ATM).
• Speed of technological adoption impacts outcomes: slower = more time for labor to adapt, faster = more short-term displacement.
• Quote: "If slowly I can learn the skills so that AI becomes the cape that gives me superpowers, then I keep my job. If I don't have the time... you're going to fire me and hire a 22-year-old who can put the cape on straight away." (Justin Wolfers, 26:48)

4. Capital Markets & the AI Winner-Take-All Debate (19:53, 36:47)

• Wolfers argues the current high valuations of AI companies may not indicate future profit dominance. Intense competition could keep profits and shareholder returns low, even as the technology transforms society ("AI gas station on every corner").
• Alternatively, if one company pulls ahead, AI could produce the next true monopoly—like tech’s previous winners.
• Quote: "You can have the same AI revolution, one where companies are worth trillions and another where it's worth zero. And that's all about the market structure..." (Justin Wolfers, 21:57)
• Galloway summarizes: "Our thesis has been... you’re either going to see chaos in the labor markets that justifies the expenditure on these companies... or the valuations... come way down." (Scott Galloway, 18:31)

5. Policy Paralysis & Lack of AI Regulation (33:13)

• Wolfers critiques the Trump administration for neglecting foundational AI policy, regulation, and research infrastructure, at a time when AI is “the most important economic change of the day.”
• Quote: "Who is the administration's chief AI economist? Where's their working group? Where are the... discussions? Nothing. Point. Nothing, Nothing. It's a profound disappointment and an enormous mistake." (Justin Wolfers, 35:17)

6. Tariffs: Misunderstandings & Real-World Impacts (39:32, 44:22)

• Wolfers unpacks the "overblown" discourse on tariff-driven inflation, explaining the effect is moderate (1% CPI per year for two years, as predicted).
• Quote: "A tariff-fueled inflation is fundamentally different than the usual inflation... prices go up, but my wage never catches up." (Justin Wolfers, 43:40)
• The real pain, he stresses, is the sustained reduction in purchasing power and retaliation that reduces U.S. markets abroad.

7. The Economic Danger of Closed Doors: Education & Trade (51:02)

• U.S. higher education (an export sector) is suffering as fewer international students can secure visas; R&D and global conferences are heading elsewhere; tourism is down. Wolfers warns these wounds, especially loss of "soft power," are not easily healed.
• Quote: "These are the places that Google's founded... these are the places that vaccines are developed... and these are export jobs." (Justin Wolfers, 52:28)

8. 2025 in Two Words: AI & Incompetent Governance (55:11)

• Wolfers rejects the idea that tariffs alone define the year.
• Quote: "I want to take tariffs out and I want to say incompetent governance. We have had falls at every level of government... the destruction of American institutions." (Justin Wolfers, 55:11)

9. What to Expect in 2026? (56:18, 57:48)

• Wolfers predicts AI will continue to be the dominant issue. He is less optimistic about political change reversing current damaging trends quickly, due to the depth of institutional harm and the reliance on executive action.

10. Global Models of Good Governance (59:01, 62:00)

• Historically the U.S. was the model, but now Wolfers extols Australia, Canada, and the Nordic countries for robust institutions, democracy, and social cohesion.
• Extended digression on Australian society, gun laws, and the virtue of independent, trusted government.

11. A Note of Optimism: Reinventing Masculinity (64:40)

• Wolfers describes a men’s group in Australia as an example of social reinvention, ending on the hopeful idea that societal change is possible, even in tough times.

Notable Quotes & Memorable Moments

• On Trump's Economic Team:
  "It’s the worst economic team in a White House, at a minimum, in my lifetime."
  — Justin Wolfers (10:51)

• On the Stock Market:
  "If you say, are we doing well? The question is compared to what? ...We're actually doing worse in terms of stock market returns."
  — Justin Wolfers (15:32)

• On AI and Labor:
  "I'm glad you've got your eye on the issue, Scott, because I think it is the biggest disruption coming to the labor market in decades. I'm just not yet confident we're there yet, except at the very sharpest edge of the wedge."
  — Justin Wolfers (17:54)

• AI Company Valuations:
  "You can have the same AI revolution, one where companies are worth trillions and another where it's worth zero. And that's all about the market structure..."
  — Justin Wolfers (21:57)

• On Tariffs:
  "A tariff-fueled inflation is fundamentally different than the usual inflation... prices go up, but my wage never catches up. So ...that is immensely more painful."
  — Justin Wolfers (43:40)

• On Institutional Destruction:
  "We have fools and charlatans at every part of our government... They are tearing down institutions. And... building takes time... tearing down is easy."
  — Justin Wolfers (55:28)

• On Social Change:
  “When I look around, I see people who are interested and excited to reinvent masculinity, men who hug. And that fills me with tremendous excitement...”
  — Justin Wolfers (65:19)

Important Timestamps

• Trump’s year one grade & its hidden consequences: 08:02 – 13:49
• Stock market 'success' compared to the world: 14:08 – 15:53
• AI and unemployment—data vs. hype: 15:53 – 22:32
• AI: gas stations vs. monopolies: 19:53 – 22:32, 36:47
• Tariffs and inflation mechanics: 39:32 – 44:22
• Soft power & higher education as exports: 51:02 – 53:12
• Defining themes of 2025: 55:03 – 56:01
• Governance models & public institutions abroad: 59:01 – 64:10
• Optimism: reinventing masculinity: 64:40 – 65:52

Tone and Dynamics

Wry, biting, and darkly humorous, with moments of nerdy enthusiasm and real-world frustration. The hosts and guest share insider banter but ensure tough critiques and strategic insights remain accessible and relevant. The episode closes on a surprisingly personal and hopeful note—anchoring its big-picture economic warnings in the capacity for human reinvention.

For Listeners Who Missed It

This episode provides a lively, unsparing year-in-review with hard-hitting economic realities, critical warnings about institutional decay (notably under Trump’s administration), and a nuanced exploration of AI as an historic disruptor. The roundtable weighs both short-term trends and durably transformative shifts, making it valuable for anyone trying to think beyond the headlines into the coming decade.