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- [00:00]
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- [00:33]
Chase Bank Representative
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- [01:10]
David Westin
Harder at America's Best Value Inn by Sonesta with convenient locations from coast to coast and value pack comfort at every turn, it's a practical choice for road trips, quick getaways, and everyday travel that keeps things simple without sacrificing comfort. And when you're a Sonesta Travel Pass member, staying at America's Best Value Inn means earning points toward free nights, upgrades and more every time you stay. Go to Sonesta.com to book your stay and unlock the best rates with Sonesta Travel Pass Here today, Rome tomorrow. Join now@sinesta.com Terms and conditions apply. This is Wall Street Week. I'm David Westin bringing you stories of capitalism. The air race isn't just among companies and countries to get there first. It's also a contest between scientific discovery and making a whole lot of money, and Demis Hassabis is trying to win at both. Plus, if we don't watch out, China will end up beating the US In AI by winning the race to bring new power online, including through a dramatic increase in renewables. And even as some governments are trying to attract new business and wealth through favorable taxes, others are going the other way, which has led to a nasty public spat between Ken Griffin and New York's Mayor Mamdani. But we begin with the war in Iran, which seems far from over despite President Trump's wishes. But so far, the war hasn't really bothered the Debt and equity markets, all that much. Bridgewater founder Ray Dalio has spent a career making long term investments based on his understanding of the geopolitics and the politics of great economic powers like the US being challenged by others.
- [03:06]
Ray Dalio
Follow the cash, follow the money. Okay? There's a reaction, like wars are bad and wars are bad. But the reality is markets trade as the present value of future cash flows, by and large. And so if you've got the cash, follow the cash. So what's happening in the way of changes, what it means for energy in Asia or what it means here and for our cash flows. But the markets are trading on the basis of the cash flow. So when we came into this period of time, there was a reaction before we had the earnings reports where there was a reaction that this is a scary thing. Quite often markets will sell off. At that time they did sell off and then we had great earnings estimates and the reported earnings were much greater than the actual earnings. So follow the money, okay? At the end of the day, you're exchanging a lump sum payment for a future cash flow and that's what matters.
- [04:07]
David Westin
What about those longer term trends? I mean, tectonic plates as they were shifting, whether it's monetary, whether it's financial, whether it's geopolitical. How does the war in Iran fit into those sort of long term shift?
- [04:19]
Ray Dalio
Yeah, it's interesting if you look at the markets, Pearl harbor comes, imagine that, and you see not much effects, initial effect, and then you see the cash flows mattering. But over the period of time, it depends, there are, there are the winners, there are losers, and they're the neutral countries. Okay, Economically, the winners still experience the cost of the war, the debt. Like the British Empire had the debt and had its consequences. The losers of the war get wiped out. You change all orders, you change the domestic political order, the international order, the monetary order and almost everything. The winners are the neutral countries because they profit during the war. The United States made a lot of money in Both World War I and World War II in the time when it wasn't in the wars, and then it accumulated a lot of gold and so on, and then it entered the period late. So the neutral countries are the ones that end up not being disrupted and end up doing the best.
- [05:23]
David Westin
I'm not even sure what it means for the US to win the war in Iran right now.
- [05:28]
Ray Dalio
I think it's clear. Tell me, okay, the world is looking at, will Iran have this control of the Strait of Hormoz, Will it retain the uranium, the nuclear and Will it also have the power through the missiles and others to inflict harm? Will the United States have the power to fight the war? In other words, with politics and Americans, with gas prices and cost of living, we now have a situation where the world is looking at this and defining it. Does the United States have the capacity to win the war? And this has huge implications because it means for countries, it means alliances. Why do they have the bases there? The United states has about 750 bases in about 80 countries. And those bases are largely there under the assumption that, that the United States will turn up and defend them. Right now that perception is changing. So I think winning the war is clear. Iran is perceived as a middle power, not a great power. And can the United States win it or not? And this is now having a big effect in when I go around the world, like in Asia, you know, the United States has been viewed as a countervailing force relative to China. Okay. Now it's believed that the United States cannot be relied on to fight that war, will not be there with those bases. And this is changing relationships with China too. You're seeing a number of leaders go up to China and essentially have, essentially have relations. But it's like the tribute system, but also in the region. There's the recognition in their view that there is an environment where the countries in the region have to recognize and respect that power. And so now you're seeing that happen. That tribute system is not an oppressive controlling system. It's much more like there's the more powerful have an obligation to behave well with the less powerful and the less powerful have an obligation to recognize the more powerful and they should operate in a harmonious way.
- [08:06]
David Westin
You say that as far as we can tell. You can tell the Chinese by and large think they're doing pretty well in the rivalry with the United States.
- [08:14]
Ray Dalio
Right now China Inc. Is making a ton of money. In other words, if you look at the amount of money that they are making through their export earnings
- [08:27]
David Westin
and the
- [08:28]
Ray Dalio
amount of financial assets that they've accumulated and are accumulating, it's huge. So one talks a lot about trade, but you have to look about at money and the quantity of money and their earnings and their raising of living standards and how they're competing in various areas, certainly AI, but robotics and a number of areas, you would have to say that they are doing very well.
- [09:01]
David Westin
We say the post World War II order imposed ledger with the US is breaking down. You say China has a substantial say if not dictating the next world order.
- [09:12]
Ray Dalio
Yes, of course, but that doesn't mean, I think you said it well and not dictating. I think that there will be an evolution and I think that China's rise in relative power that we're talking about is creating a situation that they will create a tribute system type of system. And what's important and actually practical about that is it recognizes that there are differences in power. Okay. The system that we went through, a tiny country in the United nations could have the same vote as a huge country and it wasn't a practical system. So I think you're going to see it evolve in that region as being a world attribute system type of system. I think increasingly we're going to see that in the world. I don't expect China to be an aggressive military power. I think that they, you will see economically Chinese companies competing in the world. You're going to see an acceleration of that. The use of the renminbi as a world currency, you're going to see an acceleration of that. It won't replace the dollar quickly, but it's going to grow quickly for transactions. So you're going to see that kind of operation. You're going to see in negotiations, you're not, you're going to see that you will not be able to push around China, that there will, it will be a force.
- [10:51]
David Westin
What does this mean for investors such as you? I mean, investments are made against an order of some sort. There's a predictability. You have contracts, you can enforce them. If in fact there's a breakdown of the world order, what does that say to investors?
- [11:05]
Ray Dalio
I think, I think first of all, when we think of investing, we have to think of what is investing for and it's our total life, not just making the most money. So they have to think about diversification very well. Right. In other words, they have to think about we're now in a turbulent time. And that means, for example, the value of money could be a risk. What currency is it going to be? It so, and how do you diversify? So for example, now as we have AI having a big effect, it's a fantastic technology that's like going to have big revolutionary effects. If we look in history of such cases, what we can see is then it also can create bubbles. Also, liquidity is very valuable in a very rapidly changing world because uncertainty is so great. Look at the difference in SAS stocks by way of example.
- [12:11]
David Westin
Right.
- [12:13]
Ray Dalio
So who would guess? Who could know? And so liquidity is very valuable. That's right. Diversification is very valuable. And when I say diversification I do include gold in that in terms of money because we do have a question mark in terms of money and these are not tactical moves. In other words, I don't think that the average man should be able should be moving in and out based on what I say or what others say. They should have a strategic asset allocation mix that they by and large stick to that has the best reward to risk ratio
- [12:56]
David Westin
coming up. What happens when the world of scientific discovery runs up against the need for hundreds of billions of dollars? The story of Demis Hassabis of DeepMind next.
- [13:13]
Public Investing Advertiser
Support for the show comes from Public. Public is an investing platform that offers access to stocks, options, bonds and crypto, and they've also integrated AI with tools that can assist investors in building customized portfolios. One of these tools is called Generated Assets. It allows you to turn your ideas into investable indexes. So let's say you're interested in something specific like biotech companies with high R and D spend, small cap stocks with improving operating margins, or the S&P 500 minus high debt companies. Chances are there isn't an ETF that fits your exact criteria. But on Public you just type in a prompt and their AI screens thousands of stocks and builds a one of a kind index. You can even backtest it against the S&P 500. Then you can invest in a few clicks, go to public.com market and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com market and paid for by Public Holdings Brokerage Services by Public Investing member FINRA SIPC Advisory Services by Public Advisors SEC Registered Advisor Crypto Services by Xerohash Sample prompts are for illustrative purposes only, not investment advice. All investing involves risk of loss. See complete disclosures@public.com disclosures we buy insurance
- [14:26]
My Policy Advocate Advertiser
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- [14:57]
Adobe Acrobat Advertiser
Making sure your clients understand the file is the hard part. But with PDF spaces in Adobe Acrobat, you can give your clients the full picture. With custom intros, audio summaries, and a helpful AI assistant to your Docs. So if you want to stop the endless follow ups, do that with Acrobat. Need to make your docs crystal clear. Do that with Acrobat. Want to make sure your clients get everything they need to hear? Do that with Acrobat. Learn more at adobe.com/do that with Acrobat.
- [15:31]
David Westin
This is a story about passion and profits. The quest for scientific discovery often begins with curiosity. But money and power can follow closely behind. We saw it with the printing press, the nuclear bomb, and now we're seeing it with artificial intelligence. When a technology becomes powerful enough to change the course of humanity, who should benefit most from it and who has the power to control it?
- [15:56]
Sebastian Mallaby
Maybe Demis Isabis turns out to be the Robert oppenheimer of the 21st century. Somebody who leads a project like the Manhattan Project, brings into the world an incredible technology, it's a massive scientific achievement and it's dangerous. And I think the builders of the technology, including Demis, as I got to know him, had that same thought.
- [16:22]
David Westin
Sebastian Malaby is a senior fellow at the Council on Foreign Relations and the author most recently of the Infinity Machine. His book chronicles the rise of artificial intelligence through the lens of one of its key players, Demis Hassabis, a Nobel laureate and the co founder of Google's AI lab, DeepMind.
- [16:41]
Sebastian Mallaby
Right from the start they were thinking, you know, the Manhattan Project was both good and bad and probably going to be the same with AI and we have to be careful. And so right at the beginning of DeepMind's story, Demis Hassabis meets his scientific co founder Shane Legg at an AI safety lecture in London. And this is, you know, 17 years ago. You know, again, the nuclear analogy is instructive. We have a nuclear non proliferation treaty for nuclear weapons. It's not completely airtight, but it's better than nothing. And that's what we're going to need to have with artificial intelligence to get there.
- [17:15]
David Westin
Some believe that we might need a wake up call. That's what Nobel laureate Geoffrey Hinton told us late last year here on Wall Street Week.
- [17:22]
Sebastian Mallaby
Some people say that our best hope is to have AI try to take over and fail. We need something to really scare the shit out of us. Something like Chernobyl for AI. I'm not sure I agree with that, but that's certainly a possibility. We need something to make people pay more attention and put more resources. So at present the big companies aren't going to put like a third of their resources into figuring out how to make it safe. But if it tried to take over and only just failed. Maybe they would.
- [17:55]
David Westin
Even without an AI uprising. Malaby thinks policymakers have become more aware of the technology's risks, especially in the wake of Anthropic's Mythos rollout.
- [18:06]
Sebastian Mallaby
Mythos is a dangerous point because already the US treasury secretary, the Fed chairman, have told the banks, listen, your bank accounts are going to be emptied if you don't protect yourself against these systems. So we've had hints of Cuban Missile crisis already. I would point out to Geoff Hinton, who I like very much, that before the nuclear Non Proliferation Treaty in the 60s, there was the 1950s. And in the 1950s, that's when the IAEA to track all the nuclear material was created. In 1956, it was negotiated. So, you know, that was actually ahead of the Cuban Missile crisis.
- [18:42]
David Westin
Whatever the outcome is for AI, Malawi thinks it will be shaped by the people who create and control it and their individual personalities and motivations.
- [18:52]
Sebastian Mallaby
And in Demis Asapis case, he's building something which he himself says is dangerous. Why do you do that? What makes you want to do it? And the answer in his case is scientific curiosity. He is so burningly determined to understand what he calls the fabric of reality that he expresses that ambition in spiritual language that to understand nature is to become closer to God.
- [19:16]
David Westin
For others, Mallaby says, it's the ambition for money or power.
- [19:20]
Sebastian Mallaby
I think if you look at the other end of the spectrum, you look at Mark Zuckerberg, for him, it's always been really commercial, right? He wants AI because it will make Instagram and Facebook be more compelling, maybe more addictive. That's what he's motivated by. I think Elon Musk just wants to be the greatest industrialist of all time. So he wants to do it for that reason. Sam Altman is kind of opportunistically riding against something that will make him powerful. This is a man who thought of running for governor of California. California is rumored to have thought of a presidential run. So he wants power.
- [19:51]
David Westin
But whether it's power or money or scientific achievement that motivates the world's AI titans, they all have at least one thing in common. The drive to be number one.
- [20:01]
Sebastian Mallaby
I remember going to see Demis right after the launch of ChatGPT at the end of 2022. And of course, this was the moment when DeepMind and Demis Hassabis had been the leaders in global AI without dispute for a decade. And all of a sudden, this upstart in California, Sam Altman, drops this model, it goes viral, and Demis is no Longer the leader. So I go see him and I say, well, how do you feel about this? And he says, sebastian, they've parked their tanks on the lawn. This is war. You could see that competitive fury in his eyes. And yes, I think most complicated human beings have more than one personality inside them. And in Demis's case, there is the scientist, there is also the furious competitor.
- [20:43]
David Westin
There's also the enormous need for money, for capital to compete for compute, but also for the talent that comes across in your book about how much it costs to really get some of these scientists to come work with you. Does that necessarily take it out of the science and make it fundamentally a commercial phenomenon?
- [21:01]
Sebastian Mallaby
Well, it's definitely a commercial phenomenon. And we just saw in the results this week from all the big tech firms that they've expanded what they say they're going to spend on the computing chips, the infrastructure that they need. This is just going from extremely big to crazy big. So you're totally right. It's commercial and we can't escape that. But it could also be scientific. You could have both at the same time. And for what it's worth, Demis view is that the future path to, to the kind of AI that can unlock all of science is through these large language models. There's no alternative path where you go in some totally parallel route. So we're going to build these large language models. They're going to get better and better, they're going to become more agentic where they actually take actions. They're going to understand the physical world, that spatial intelligence, and then from there it will get into the ultimate test, which is supposing you trained an AI and you told it everything that people knew in 1911, could it then invent by itself general relativity?
- [22:04]
David Westin
The tension between the science and the business of AI has come to a head in the ongoing trial between elon Musk and OpenAI. At the center of the trial is a debate over who should control the ChatGPT creator. And the outcome could shake up the corporate models that have underpinned the tech industry's explosive AI growth. As of right now, as we speak, is something like $725 billion this year from the big investors. How does that pencil out?
- [22:30]
Sebastian Mallaby
I mean, fundamentally, what we've got at the moment is an A plus technology with a C minus business model. And the purpose of capital markets is to bridge from today when the technology is great but you're not making money, to some beautiful future when finally you figure out the business model and you do make money. But I think we're running an experiment in the limits of that capital market function because the capital markets are not infinitely deep. So when you have OpenAI, which was spending money like completely crazy and was not attached to one hyperscaler, deep pocketed balance sheet that was extremely precarious, is extremely precarious. I said three months ago that I thought there was a 50, 50 chance that OpenAI would go bust basically. I mean, it would be absorbed by another company. And I still believe that, that by the summer of next year there's a half, half chance that it just runs out of its ability to raise money, has to sell itself.
- [23:24]
David Westin
And that's where the hyperscalers are now, all created equal. Because in a Google, they can say, we're making up more money on search and maybe genius as well. We've got some revenue coming in for this and Amazon can say, we certainly have the cloud that's helping a lot. Then you get to a meta. It's not quite so close clear what they have to support this investment.
- [23:41]
Sebastian Mallaby
Right, right. And they just seem to be quite clumsy about translating all the money they spend on AI into actual AI results. And we'll see how this plays out. But there was this moment last year in 2025 when they were doing record expenditures on the signing bonuses of AI scientists because basically they didn't have much of a team. And the only way they could get a team coming from behind was to just 10x people's salary. And so all the other lads were going nuts. I actually witnessed the head of one of the other companies pretty much yelling at the meta person, saying, you're draining all our talent. You guys are completely useless. You're never going to build a system that's really powerful because you're hopeless. But you're taking our good people away and then the Chinese will overtake us and then they'll kill us. It's pretty extreme.
- [24:31]
David Westin
If throwing money at a problem is the clumsy solution and often not the right one, what business model both contains ambition and allows science to flourish? Mallaby says some of the big players have tried through their corporate structures, though none has yet proven effective.
- [24:48]
Sebastian Mallaby
You know, all of the top three labs have experimented with these governance ideas. And in fact, in my research for this book, I found out about a thing called Project Mario, which was secret hitherto, but Project Mario was essentially Demis Hassabis saying, I need safety, governance, I need a kind of nonprofit board which will oversee the powerful AI when I get it. And we can't just have the corporate Board of Google deciding how it gets rolled out. That's not democratically legitimate, that's not good for humanity. We need that nonprofit structure to be grafted onto Google. So he spent three years fighting about that. As we know in OpenAI more in the public domain. They began as a nonprofit and then they graphed it on a for profit later. Anthropic has its own version of this kind of hybrid for profit nonprofit. But the harsh reality is, as you said earlier, this is an extremely expensive technology to build. And so the for profit capital raising kind of reddened tooth and claw capitalist thing is going to dominate because you need money all the time.
- [25:50]
David Westin
Is there anything the government can and should be doing now on the safety front?
- [25:54]
Sebastian Mallaby
So there are three things. The first thing is we already have a national AI sort of security monitoring body, but it doesn't have enough resources, it doesn't have the power to veto a model before it's released. We should have one which is like the Food and Drug Administration, which is properly resourced, it has expert staff, and if the drug is not safe or efficacious, you can ban the release.
- [26:17]
David Westin
Right?
- [26:18]
Sebastian Mallaby
AI is just as dangerous as drugs. So we should have an FDA for AI. Second thing we should do is we should divert more money from just building the model stronger to alignment research where you align the model with human priorities. That's a whole field of engineering. It's getting some resources at the moment, but obviously it's not in the commercial interest of the companies to invest too much in that. So public policy needs to support the public good of AI alignment. And the third thing is on the international front, because like it or not, the Chinese have very good AI models. So unless we bind in China and other countries like France, which has the AI lab, Mistral and other places, we need everybody to acknowledge, just like we did in the nuclear age, that this is dangerous if it proliferates into the hands of terrorists and so forth. And so we should all come together with agreed joint common safety standards. Otherwise, if just one country is safe and the other ones aren't, we haven't made humanity any safer.
- [27:22]
David Westin
The invention of the atomic bomb gave humanity a stark it's up to humans to safeguard against technology of immense power, endangering us all. And as the AI battle rages all, all around us, maybe we can take some lessons from that earlier arms race to limit the potential damage from the next one. Up next, the US is in a race with China to develop AI. But who wins may depend less on the models and chips than it does on how we go about finding the power for all that AI needs.
- [27:58]
Public Investing Advertiser
Support for the show comes from Public. Public is an investing platform that offers access to stocks, options, bonds and crypto, and they've also integrated AI with tools that can assist investors in building customized portfolios. One of these tools is called Generated Assets. It allows you to turn your ideas into investable indexes. So let's say you're interested in something specific like biotech companies with high R and D spend small cap stocks with improving operating margins or the S&P 500 minus high debt companies. Chances are there isn't an ETF that fits your exact criteria. But on Public you just type in a prompt and their AI screens thousands of stocks and builds a one of a kind index. You can even backtest it against the S&P 500. Then you can invest in a few clicks, go to public.com market and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com market and paid for by Public Holdings Brokerage Services by Public Investing member FINRA SIPC Advisory Services by Public Advisors SEC Registered Advisor Crypto Services services by ZeroHash sample prompts are for illustrative purposes only, not investment advice. All investing involves risk of loss. See complete disclosures@public.com disclosures we buy insurance
- [29:11]
My Policy Advocate Advertiser
for peace of mind, but every year millions of claims are denied. Not because people did anything wrong, but because their policies quietly excluded what happened. Insurers know every detail. Policyholders rarely do. That's why my policy advocate exists. For just 27 cents a day. Their platform reads your policies and explains where you are vulnerable. They don't sell insurance, they deliver. Deliver transparency. Before you trust your policy to protect you, let my policy advocate tell you what it really says. Go to mypolicyadvocate.com Everyone has been there.
- [29:42]
Chase Bank Representative
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- [30:25]
David Westin
This is a story about taking your eye off the ball. Since President Trump came to office the first time, he's been focused on the economic and national security risks posed by one country in particular.
- [30:37]
Hank Paulson
Did you say China? China. China. We were losing to China. We want to beat China. We're leading China.
- [30:45]
David Westin
In his second term, President Trump has focused on AI as a key area of competition, competition between the two countries and specifically the chips needed to drive all those large language models.
- [30:57]
Hank Paulson
China and other countries are racing to catch up to America having to do with AI, and we're not going to let them do it. We have the great chips, we have the great everything, and we're going to be fighting them in a very friendly fashion.
- [31:12]
David Westin
But while the US Is doing what it can to protect its lead in the computer race, there's another contest that it may be losing. The battle to make sure we have the power we need to drive all that AI we're developing.
- [31:25]
Hank Paulson
It's fascinating because when you look at AI, there's a huge energy need for the data centers.
- [31:33]
David Westin
We all know Hank Paulson from his time running Goldman Sachs and then leading us through the great financial crisis as Treasury Secretary. But he's also devoted much of his career to climate issues and helped lead Goldman Sachs to China over 30 years ago.
- [31:49]
Hank Paulson
We have one big advantage on China in the sense that we have. We're energy independent, right? And they aren't. But we have a shortage of electricity in this country. The demand is much greater than the supply and it's growing. And so we have a shortage of electricity to power data centers. China, on the other hand, they're investing massively in coal and a lot of things I wouldn't like them to be investing in. But they are investing big time in renewables, solar and wind. They have more renewables than Europe, the uk, the US combined. They're going to have half their energy from renewables. So they've got plenty of electricity. Meanwhile, in our country, utilities can't meet the demand. Electricity prices are spiking up. So ratepayers are putting up their hands and say no more. At the same time, we need the electricity. And so the interesting thing is, if you look at the U.S. all of our electricity, essentially new electricity the last couple years, has come from solar and wind. At the same time, the administration is restraining it. So again, I would say that we are ahead of China when it comes to AI. They're investing massively. But I gotta tell you, the biggest potential drag we have is not having enough electricity to power our data centers.
- [33:25]
David Westin
Are we disadvantaging ourselves?
- [33:26]
Sebastian Mallaby
I think we are.
- [33:28]
David Westin
Former U.S. ambassador to China Nick Burns saw the unprecedented scale of China's energy Investment firsthand.
- [33:36]
Sebastian Mallaby
I used to travel a lot by train in China because you can see a lot more of the country. You can talk to people. The degree to which China is building transmission lines all across the country, and I visited 26 of the provinces, even out to the west, it's staggering the degree to which they're now controlling the global supply chain in electric vehicles, in lithium batteries, in solar panels, in wind power. They are the world leaders in this. And I think that the United States should be making a similar effort. You know, maybe it's not as cost effective now, but we have to think out to the2030s and2040s. And I do think, as we consider this big challenge of, of how do we compete with China and yet not get into a war with China? We have to start planning more long term.
- [34:22]
Ray Dalio
As they are doing, the numbers bear
- [34:26]
David Westin
out what Hank Paulson and Nick Burns have seen on the ground in China since 2021. In just five short years, it has added more power capacity across all energy technologies than the United States has built in its entire history. And that gap is only growing. Over the next five years, China plans to add more than 3.4 terawatts of energy generation capacity, nearly six times as
- [34:52]
Chase Bank Representative
much as the US they've been developing their electric grid at a rate that is extraordinary.
- [34:59]
David Westin
Elizabeth Economy, a China policy expert and senior fellow at the Hoover Institution, says there will be a high cost to falling farther behind.
- [35:08]
Chase Bank Representative
China has made a big bet on renewables and clean energy more broadly this past year. For the very first time, it has more power generation capacity in clean energy than it does in fossil fuel energy. They're not the only ones. Europeans are following suit, but we clearly are moving in the opposite direction, sort of all in on fossil fuels. I think it's important to understand that the bet from the Chinese side is not necessarily necessarily just about the health of the Chinese people or the Chinese environment. This is a real economic play for them. You know, they are cognizant of the fact that by 2035, the Clean Energy market is estimated to be globally as big as $7 trillion. And they want to command that market. So they have spent a lot of time over the past several years investing very heavily in renewables. You know, last year, a trillion dollars in renewable investment investments, and as a result, they've seen their exports of EVs skyrocket. 80% increase in 2025, 40% for battery exports, 20% for solar panels. This is a real moneymaker. So I think for the Chinese, as they look out. Clean energy is green, right? It's green for the environment, and, you know, it's green for money.
- [36:20]
David Westin
You make a really interesting point that this has been going on for several years. President Xi did not just wake up yesterday and say, let's have a lot of renewals for AI. It started before, really there was the big push for AI. How much of this is pure commerce rather than development of AI and competition?
- [36:35]
Chase Bank Representative
And I mean, on the energy side of it, I don't think that. I think AI is very late to the game. I mean, the Chinese have been beginning with renewables beginning in the late 1980s, early 1990s. They were already inviting Western firms in for wind turbines and solar panels and saying, sure, we'll give you access to access to the Chinese market. Now you just give us some of your advanced technology or set up an R and D center, or sometimes they might just illegally appropriate the technology. But, you know, one five year plan after another. Renewables have been part of the Chinese plan. And you're right, exactly. Xi Jinping did not wake up, you know, one day and say, oh, this really matters.
- [37:14]
David Westin
Though China's push into renewables may not have been intended for AI, that's where it could matter most. In the US Power demand is exploding, with consumption from data centers alone expected to triple by 2035, putting even more pressure on a grid already under strain. But instead of racing to close the gap with renewable alternatives, the US is pulling back from a sector China increasingly dominates, accounting for roughly 80% of global technology production in solar and battery tech, and more than 70% in wind. This enormous development of renewables in China didn't come free. They had to spend some money to do it. If the United States wanted to get back in this game and compete on the renewable part, does it have the capacity? How much money is involved? How much money has the Chinese government really put into this?
- [38:04]
Chase Bank Representative
I mean, at this point, it's easily over a trillion dollars. It's been billions of dollars every year, and as I mentioned, a trillion dollars, you know, just last year in clean energy investment. So there's not a way that we're going to compete across this spectrum of technologies. You know, solar, wind, nuclear. We're just not going to be able to do that at this point. Even in EVs, right, China's exports were worth about $76 billion last year, ours somewhere around three to four billion dollars. I mean, don't forget, they're also a country of 1.4 billion people, so roughly three and a half, four times as large as we are. So that capacity is much greater as well. But could we get back in the game? I think that was the point of the Biden administration's Inflation Reduction act, right? It was a mix of subsidies and tax incentives. It attracted an enormous amount of foreign investment. So it had, I think, a lot of potential to reboot the clean energy sector in the United States. But, you know, the Trump administration is not that interested in the clean energy in the renewable sector. And so, you know, we saw that they rolled back probably 95% of the inflation Reduction Act.
- [39:15]
David Westin
Can the markets make up a good part of the difference? By that, I mean this. Instead of the government giving subsidies or tax breaks, incentives and renewables, is it possible the market will take over and say it's just cheaper to get energy for from some of the renewals?
- [39:29]
Chase Bank Representative
Well, I think there's always a hurdle, right, when you're introducing a new technology that you have to. It has, that you have to get over. And that is where the government subsidies or incentives, you know, can play an important role. I mean, we see that now with rare earths. And I think the Trump administration has come around to appreciate, right then if you're going to compete with China, you're going to have to adopt some elements of their playbook, right? You're going to have to invest, you're going to have to have a secure market, you know, for the new investment, for the new technology that you're developing, right? Because you have to get it over the hurdle from the innovation to the manufacturing to the deployment and export. And I think that's the, that's the full life cycle of new technologies that China has created, its playbook. And we don't really have a playbook that can compete without a little more government intervention than we've typically been comfortable, comfortable with.
- [40:22]
David Westin
The US And China may be competing hard on AI, and the US may have taken its eye off the ball on energy. That's critical in that competition. But there's at least one area where they may find common ground, agreeing on rules to make sure that all this AI being built and powered is as safe as possible. Do we need to work with China on safety for AI?
- [40:47]
Hank Paulson
Yeah, obviously we do at some time. But right now, they're an adversary when it comes to military and security. So I think we're going to be forced to do it when we start seeing accidents and bad things happen. And I just want to make sure we're in the lead when we get to that point. I really do. And I take a step further and say when President Trump and Xi meet, it's going to be the first of, I hope, you know, four summit meetings. And I'm hoping right now there is, you know, we got a trade deficit, but we've got a trust deficit big. And I want to close that trust deficit because we need to figure out how we can compete and work together at the same time. And if we don't, the world is going to be a much more dangerous and less prosperous place. So again, I view, and I think a positive is I really do believe President Trump wants to find a way to work with China, and I hope that the Chinese feel the same way.
- [42:02]
David Westin
Coming up. Don't text you, don't text me. Text that guy behind the tree. But what if that guy is Ken Griffin?
- [42:18]
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- [44:39]
David Westin
This is a story about Balancing the books Faced with putting together his first budget, New York City's Mayor Mamdani managed to pick a nasty and very public fight with one of the biggest names on Wall Street, Ken Griffin. New York City has long been known as the City of Opportunity, home of the Statue of Liberty, Broadway and Wall Street. It's also home to the highest number of billionaires anywhere in the world. The city's new mayor thinks they might be able to help him with his budget problem.
- [45:17]
Public Investing Advertiser
When I ran for mayor, I said I was going to tax the rich.
- [45:22]
Sebastian Mallaby
Well, today we're taxing the rich.
- [45:24]
David Westin
In April, New York City Mayor Zoran Mamdani stood in front of a penthouse on Billionaires Row, a penthouse owned by Citadel CEO Ken Griffin, and made him the poster child for a proposed so called pied a terre tax on second homes in the city. With an assessed value of $5 million
- [45:42]
Public Investing Advertiser
or more, this tax will raise at least $500 million directly for the city.
- [45:47]
David Westin
The move triggered some of the other Wall street leaders to come to Griffin's defense. If your goal is to make New
- [45:55]
Sebastian Mallaby
York City kind of financially solvent, what
- [45:58]
David Westin
you don't want to do is drive out the Ken Griffin's of the world.
- [46:00]
Sebastian Mallaby
Wall street and the tax revenues from Wall street are what enable New York
- [46:05]
David Westin
City, all the people in New York City, to have a better life. Mamdani originally proposed increasing real estate taxes overall, but thought better of the idea after Governor Hochul came up with some help from the state budget. So far, however, he's sticking with trying to tax the most valuable second homes in the city.
- [46:22]
Whitney Tilson
I think Mamdani made a mistake going after Ken Griffin by name as he trumpeted his success in raising taxes even though he only got a tiny morsel.
- [46:32]
David Westin
Wall street veteran Whitney Tilson ran for mayor of New York City against Mr. Mamdani last year.
- [46:38]
Whitney Tilson
What we're talking about is, you know, those pencil towers overlooking Central park that are dark at night because nobody actually lives there. I do think Tone Matters and just out there. Painting billionaires as evil is really dumb. Given that 1% of New York City taxpayers account for 47% of the personal income tax paid in New York City, A bunch of billionaires went down to Florida during COVID and that has real budgetary impacts on New York. We should be rolling out a welcome mat for every rich person who wants to live invest here. And we're already a very high tax city, depending on how you measure it, probably the highest tax burden of any city in the country. But there's something unique about New York. I tell my rich friends who are thinking of moving. The whole point of being rich is you can live where you want to live.
- [47:31]
David Westin
Imposing new taxes on their property may not be the best way to attract wealthy residents. But Steve Fulop, the head of partnership for New York City and the former mayor of Jersey City, has even deeper concerns.
- [47:44]
Steve Fulop
I think that there is a bigger message with regards to the Ken Griffin conversation. Okay, yeah, it's not great that he was highlighted in that way. And in this environment where you have people being the targets of political violence, CEOs being assassinated, it's inappropriate. And that's been covered fairly extensively.
- [48:06]
David Westin
Whether it was smart to target a specific Wall Street CEO like Ken Griffin or not, the fact remains that New York City has struggled with years of budget shortfalls. Mamdani's new proposal promises to balance the city's budget, at least in the short term, despite inheriting a $12 billion deficit, but only with that pied a terre tax included.
- [48:28]
Whitney Tilson
It's about the size of the budget. New York, if it were a state, it would be the 13th largest state by population. It would be the third largest state by budget. So he's looking at some real budget cuts. And that, of course, affects the unions that were among his biggest supporters. He wants to spend more money as a Democratic socialist. So he's sort of caught between a rock and a hard place.
- [48:49]
David Westin
The challenge facing Mamdani is made more complicated by the structure of the tax system. Property taxes are the single biggest source of revenue for New York City, accounting for more than 30% of its budget. But those taxes hit residents in very different ways. As an example, even though single, while single family homes have the highest nominal tax rate, caps on assessment mean they pay the lowest effective rate, putting most of the burden on apartment buildings, condos and commercial property owners.
- [49:19]
Whitney Tilson
There are weird anomalies in which someone who is grandfathered into an older building but very expensive apartment on Park Avenue is paying a much lower tax rate than a Blue collar person out in one of the outer boroughs. Right.
- [49:35]
Ruth Culp Haber
It's a very different burden on those owners. The middle class family in Queens versus the billionaire on Central Park South. So you have to come up with some type of other structure. I think the Pierre de Terre tax is a fair idea.
- [49:51]
David Westin
Ruth Culp Haber is a partner at commercial real estate firm Wharton Property Advisors. For her, the issue isn't so much the idea of a new real estate tax, it's more a matter of how mayor Mamdani is going about it.
- [50:04]
Ruth Culp Haber
To take for granted an owner such as Ken Griffin, who has contributed in the form of his company. It's going to be 25,000 jobs before he's done and hundreds of millions to hospitals and museums. I mean, this is a guy we want here, you know, and we don't want to antagonize him in any way. Citadel alone has paid tens of millions in taxes. Yes. Their employees make a lot of money, and I can understand how some people have a problem with that.
- [50:42]
David Westin
Citadel has about 1300 employees in the city, and Griffin is now saying he'll move at least some of them to Miami and take another look at a huge new office tower on Park Avenue.
- [50:53]
Ruth Culp Haber
Not only has he committed to a 60% ownership of this development, but he's committed to being the anchor tenant, meaning he's going to take like half the space in the building. This is a major commitment. If he pulls out from that, the message that is going to go out literally to the world is New York is not a good place to do business. It would be a disaster.
- [51:18]
David Westin
This wouldn't be the first time Griffin made good on a promise like that. Citadel once employed more than 1,000 employees in its 50,000 square foot office building in Chicago.
- [51:28]
Ruth Culp Haber
We need to look to history and what happened in 2022 with Ken Griffin in Chicago, with Governor Pritzker, and Ken Griffin was building his business in Chicago. There was politics, got involved. Ken Griffin wasn't happy about the crime situation in Chicago, and he left.
- [51:50]
David Westin
Thus far, most of what we've heard about to address the budget gap has been about raising more revenue. But Fulop thinks it's not fundamentally a question of how much the city is taking in.
- [52:01]
Steve Fulop
I think at the core of the problem is that you have a spending problem and less of a revenue problem. And that's what we try to kind of hammer home repeatedly.
- [52:10]
David Westin
Where did New York City go in the wrong direction in their budget? There was a time not too long ago that they had balanced budgets. They were doing okay. Is it because the spending just grew too much or did the growth of the overall economy slow down?
- [52:24]
Steve Fulop
I mean, look, it's complicated because you have a lot of things simultaneously happening. So you had costs Covid go through the roof. You had tariffs. You have wages and union contracts that have increased fairly significantly. You've had very progressive mayors that have layered on additional social service. So all those things kind of come together. But a pragmatic person would look at it and say the city budget has grown significantly faster than the rate of inflation. And that is a question mark on why. But putting that aside for a second, what we've tried to say is we should be thoughtful about the program overall and whether it achieves the outcome that you you want to achieve.
- [53:04]
David Westin
If the pied a tear tax goes forward, it's. And if it's $500 million, that's still way short of where we need to be. I mean, the estimates are over $5 billion. So if you'd won, if you got to be mayor, where would you look for the other four and a half plus billion dollars?
- [53:20]
Whitney Tilson
I found it very difficult and I tried to really get down into the weeds. I mean, you can see $5 million to build a public restroom in a park is 10 times too much. We pay six times as much as any city in the world to construct one mile of subway. So you can see those examples. Just the school budgets, 37% of our $118 billion budget. I have been very involved in charter schools and education reform over the years, and I know there's a lot of fat in there, you know, dead people on the payroll and that kind of thing. So I think I might start with just sort of a 1 or 2% across the board cut. And that sort of gets you in $118 billion budget, that gets you a bunch of the way there, and then negotiate from there.
- [54:06]
David Westin
Balancing the books on a New York City budget is never easy. And it's not surprising that there's a range of ideas about how to come up with a few billion dollars to make it work with or without calling out specific CEOs and their penthouse apartments. But the one thing most everyone agrees on is that we need to get the balance right to ensure that New York City remains a magnet for talented young workers and the companies that employ them.
- [54:34]
Steve Fulop
The best asset here, which is very hard to replicate. New York City brand is very, very special. And two, it is the most desirable place for young people to want to be. Okay. That is a very, very special thing. Now you have AI that uncertainty around jobs and the affordability on housing. So those are two things that go directly at that young person who wants to live here. So that is a challenge. And then you also have places like use Texas as an example. So JP Morgan today has more jobs in Texas than they do in New York. It's a crazy thing to think about. Ten years ago that wasn't the case. So the trend is moving in a bad direction. Goldman Sachs trend in the bad direction. Why? It's bigger than taxes. Texas has been very deliberate with their strategy on how they're going to attract jobs. So they changed their court systems entirely to replicate Delaware to make it more corporate friendly. They're starting a Texas stock exchange to have better access to the capital markets. Then they have incentives and they have leadership that talks about embracing their big corporate communities.
- [55:40]
Whitney Tilson
You need to build a lot more housing. Not just low income or affordable housing, but it all trickles through. We need to build more housing for young professionals who can afford to pay more. Look, when Amazon came and wanted to put their headquarters here, you want a mayor who invites Jeff Bezos and the Amazon executives to Gracie Mansions, sits down with all the key people from the city and rolls out the welcome. Matt so some of it's just sort of messaging and signaling and being a champion for business in the city.
- [56:12]
David Westin
That does it for us. Here at Wall Street Week, I'm David Westin. See you next week for more stories of capitalism.
- [56:33]
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- [57:01]
David Westin
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