0:00

Two, three. Hi.

0:04

Good afternoon. Good morning. Welcome to Off

0:07

the Fence, the Transatlantic podcast, where

0:09

three guys try to sort out what's going on

0:11

in the world in a given week

0:13

or month. Today

0:16

we're gonna start by looking at the proposal

0:18

that has come from Germany, from the Greens,

0:20

and the coalition led by Robert Koch, the

0:23

economy minister who has proposed

0:25

subsidizing energy for German industry.

0:29

For the next several years

0:31

to the tune of 6 cents a kilowatt

0:34

which is seen as a game changer

0:36

for many reasons. One

0:39

it would subsidize green energy more than

0:41

other. But so that's one way. But

0:44

more importantly, it's a subsidy,

0:46

it's state aid that's being given out

0:48

in Germany. It would be given out in Germany.

0:51

And which other EU countries can't match.

0:54

So it was boost German competitiveness

0:56

at the expense of its neighbors and

0:58

this strike at the very heart of what

1:01

Europe and the its single market are

1:03

all about. He is opposed

1:05

by the finance ministry

1:07

led by Christian Linner, but it's

1:09

really not clear what's gonna happen here because

1:11

they're in a government coalition, government not

1:14

always a happy one. And and

1:16

it's just not clear the way it will play out.

1:19

Luis who's here with us, can explain

1:21

what he thinks it might mean for the European Union

1:24

and why don't we take it from there, Luis?

1:30

It's seems that since Covid, it's

1:34

been a period

1:36

of enormous flexibility around

1:38

the rules and. Set

1:40

forth by the treaties of the European Union

1:44

that, we're very explicit in trying

1:47

to avoid any state aid

1:49

to particular businesses,

1:52

and also trying to keep

1:55

government spending within a

1:57

very narrow band

1:59

of deficits and total debt to

2:01

government, debt to gdp. As

2:04

a result of covid the rules were loosen

2:07

very quickly and there was

2:09

like a jumbo for governments,

2:11

especially those of the more affluent European

2:14

countries with more fiscal slack

2:16

to come in with big

2:18

programs to support industry.

2:21

Of course, if you have a single

2:23

market with no internal trade

2:27

barriers Initially subsidies

2:30

the one to company A in

2:32

country a make life

2:34

for a company Z

2:37

in Country Z if that

2:39

company is not getting the same kind of

2:41

subsidies for tradeable goods. And

2:44

this is what's been happening now for three

2:46

or four years. Nobody's made a huge think

2:48

about it. But it tells you that

2:51

we don't have, or we haven't

2:53

had a single market. Or

2:55

the rules of a single market in place for a

2:57

while. And that's gonna create distortions

3:00

for sure if it's maintained. I also

3:03

observed that fiscal deficits in some

3:05

of the European Union countries that are members

3:07

of the Eurozone and that have to abide

3:09

by strict fiscal rules until

3:11

covid were loosened at the

3:13

same time. So this has allowed some

3:16

countries or all countries to

3:19

overspend. To try to

3:21

stimulate the economy to recover from

3:24

the big drop

3:26

in activity that resulted from

3:28

the response to the covid epidemic.

3:31

Next year, the

3:34

European Commission, which

3:37

is one of the four. Arms

3:40

of governance in the European Union

3:42

would, has stated very clearly, they would

3:44

like to see member countries

3:46

return to the target set

3:49

forth in the growth and st in the stability

3:51

and growth back. And at the

3:53

same time that we have distortions

3:56

from subsidies dis and distortions

3:59

from larger than normal state aid

4:02

the central bank has been.

4:05

Hiking rates, maybe

4:07

at a, maybe for some people

4:09

at a too rapid pace

4:11

for other people at not sufficiently

4:14

as efficient, continues to rage

4:16

on. And I think

4:18

we're facing another one of those existential

4:21

moments for the European Union where member

4:23

countries governments need to decide how

4:26

to move forward. So I

4:28

think going. Into next year.

4:31

We're also gonna have some elections in some of the

4:33

countries. That may change a little bit the political

4:35

landscape. I think all of that makes

4:37

for an interesting question

4:39

on a why are investors

4:42

still so sand wine on

4:44

the Europe, which is to some degree

4:46

surprising to us. And more

4:48

so why investors

4:50

also saw sang about European

4:53

markets and in particular financial

4:55

institutions in the European markets.

5:00

Those are all good questions, Alex,

5:02

anything? Yeah. Let me ask you this question

5:04

stepping back to, three steps

5:06

from there. I'm

5:08

trying to understand the European project

5:10

in the concept of, in the context of

5:12

the last. Five

5:15

years, right now. What's fascinating

5:17

about what's happening in Ukraine, what, which means

5:20

that some players have had to understand

5:23

their military spending

5:25

and re-upping whatever they gave

5:28

or planning for whatever they need with

5:31

the stimulus that it went with Covid. With

5:34

the energy compensation,

5:38

and this is, Germany is acting in its

5:40

own way, but you saw similar policies

5:43

in smaller ways to subsidize

5:45

the consumer or to try to do this. The

5:47

issue I remains to

5:50

me and particularly in the

5:52

context of the retirement

5:54

age. Rising by two years

5:56

in, in France and the whole mayhem that's

5:59

that's created. Where

6:02

do regulators maintain credibility

6:04

and what are they optimizing for at

6:07

this level? Are they optimizing for national success?

6:09

Are they optimizing for, is there any

6:12

common policy that actually has

6:15

some Some effectiveness

6:17

is, of course we can talk about how

6:20

well they've responded to Ukraine and all that kind of stuff.

6:22

I'm not talking about that. I'm talking about how do you

6:24

achieve economic, fiscal

6:27

policy design as a European

6:30

as a, let's say a large country, European government. I'm

6:32

talking about the, the majors in this,

6:34

in, in this kind of environment. Everybody seems to be

6:36

a little bit. Towing

6:38

the common line on very few subjects like Ukraine

6:41

again, and perhaps a couple others, and

6:43

then everybody seems to be playing personal

6:47

ball on, on, on everything

6:49

else. I'm I'm thoroughly confused about how

6:53

industry and the consumer

6:55

looks at, whether

6:58

you call it the administration or the regulator in Europe. As

7:01

navigating or participating in navigation

7:03

of the ship, since Europe is so much more, has

7:06

so much larger role in the state and the economy,

7:09

I'm just confused just

7:11

and you're right to be. I, I am a for

7:13

I was a correspondent in Brussels for many years as

7:16

a journalist, and this has been

7:18

part of the push and pull of the European

7:20

Union since it was founded. Where

7:22

do national interests end? Where do where does it make

7:24

sense that. We work more together.

7:27

And the whole, the single market, the

7:29

1992 project of

7:32

all those years ago and even the European

7:34

currency, we're all based on the notion that

7:36

there was more in it for us to

7:38

pool our sovereignty to

7:41

and to eliminate barriers and

7:43

com compete on a level playing field

7:45

as much as possible. With measures

7:48

to level the playing field that included regional

7:50

funds and subsidies to the poorer states.

7:53

If and the premise was accepted

7:56

and it's what was what modern

7:58

Europe was built on, it's what the

8:00

Brits, to some extent couldn't couldn't

8:02

abide by because it was getting leading

8:04

to ever closer political union. And

8:07

now we have a situation where one of the motors

8:09

of that. Of that model

8:12

one of the builders of it, Germany is,

8:14

seems to be turning around and saying,

8:16

no, we'll just take care of ourselves now. Yeah.

8:19

But I, I think it's not just the European Union.

8:21

And with all the cent centrifugal

8:24

force that this exerts on the European

8:27

Union, which is considerable,

8:29

I think this is a national this is a global

8:32

issue as well. Martin

8:34

Wolf, the Ft columnist recently

8:37

began columns in which he said

8:39

we're all interventionist now. And

8:41

he pointed out that there seems to be no appetite

8:43

whatsoever among governments

8:46

of any political stripe to abide by

8:49

some of the hardships or cycl,

8:51

cyclical adversity that, that

8:54

a market economy will throw at us, whether

8:56

it's covid or whether it's. Or whether

8:58

it's a monetary tightening to, to

9:00

damp down inflation. Everything seems

9:02

to be met with measures and that

9:04

includes the us. Agreed.

9:06

Agreed. The thing he and it makes trade

9:09

more difficult. It will have its cost in inflation.

9:12

If you haven't read it, Jake Sullivan, the US National

9:14

Security Advisor, gave a big speech

9:17

two weeks ago at the Brooking Institution.

9:19

I, it was called

9:21

something innocuous, like Thoughts on The Economy

9:24

by Jake Sullivan. But it

9:26

was really actually a, it

9:28

spelled out the Biden administration's

9:30

vision in a much more coherent way

9:32

than Joe Biden ever has. That brings

9:34

together all the, the under, if

9:37

it were Donald Trump, you'd be calling it an America first

9:39

banner, bringing together energy

9:41

security and independence. As well as sustainability,

9:44

but the bringing all of

9:47

the trade policies, technological

9:49

security national

9:51

security under the same umbrella, and

9:54

and basically proposing that the US was gonna do

9:56

this, but only go so far. Not abandoning

9:58

in the market economy, but retweaking

10:00

it, readjusting it because the last 40 years

10:03

had hollowed out the. The middle

10:05

and and we wanna rebuild it. Was his

10:07

argument was Jake Sullivan's argument. It's

10:10

but it's a vision that includes intervention. It

10:12

justifies the ira, the, that is the

10:15

Inflation reduction Act, which doesn't have

10:17

a lot to do with reducing inflation. And

10:19

it's a, it's a blueprint

10:21

for the new interventionism. Sorry,

10:25

Alex. No

10:27

I agree. Again, My

10:29

worldview is that the next, decade

10:33

is gonna see a significant amount of

10:35

disruption across all industries, right?

10:37

For all the reasons we've talked about many times. And

10:40

the issue always remains what

10:42

is the role of government in trying to facilitate

10:45

or, nullies

10:48

the changes there thereof.

10:50

And there too, right? European,

10:53

and again, I come from France, so I look at

10:55

everything through a little bit of a, that charismatic

10:58

bias. The idea of trying

11:00

to control or

11:03

enact policies that have an impact

11:05

on it is important,

11:08

but, When

11:10

you have a knee-jerk reaction or when you have an exogenous

11:13

factor like covid, like

11:16

the war in Ukraine, you can argue

11:19

for a lot of exceptions to certain

11:21

particular, fiscal discipline rules or

11:23

reinvestment projects, or how do you

11:25

actually manage a budget, for your.

11:28

For your industry, for your economy.

11:31

The changes that are coming are gonna be slow.

11:33

They're not gonna be rapid, they're not gonna be exogenous.

11:35

They are the very definition

11:38

of endogenous. The, all these

11:40

jobs are going to change, all these

11:42

livelihood hoods are gonna change. And

11:46

the European model feels

11:48

like it tries to find an

11:51

answer or to regulate the markets

11:53

ahead of change, or as things change.

11:57

The American market, I completely would agree, is

11:59

the far west. It's a complete, free

12:02

for all with, ebbs and flow

12:04

in the regulatory landscape depending on

12:07

who's in power. But ultimately, most

12:09

actors just do what they need to do

12:11

in Europe. It still feels that you

12:14

need to have somewhat of a trust

12:16

in the regulator, in the administration,

12:19

or you need to. Go

12:22

with or somehow be associated

12:27

with whatever their policy is, which is

12:29

something that I don't see in the us. The US you just

12:31

do, either through lobbying or through in,

12:34

break the rules and then, pay a fine

12:36

perhaps the movement is

12:38

somewhat in inexorable. I just

12:40

don't see, we talked about I share the. This

12:42

week there's a beautiful map of where

12:45

Google released its Bard

12:48

ai tools a across

12:50

the world. And if you look

12:52

at Europe, you basically see the uk. That's it.

12:55

Because of all this, regulatory, it's not available

12:57

in Spain. I can confirm exactly

12:59

not available anywhere in the EU

13:01

because it just, Self-regulating

13:03

themselves away from a headache. And that's,

13:06

that's gonna be the norm on some of these

13:09

going forward. I don't wanna be the, the American of

13:11

the bunch. I get that. I

13:13

just, I'll do that. Yeah. I

13:15

just I just wish there was a little bit more rationality

13:18

in some of these things. It's worrisome. For all

13:21

the faults that the. Whatever

13:23

you wanna call it. The Washington consensus of

13:25

the last 30 years, or the post

13:27

World War II structures of

13:29

Bretton Woods and what grew up

13:31

after it. The wt O Yep.

13:34

Et cetera. For all their faults. They also brought

13:36

us 40 years of growth reduced

13:39

global poverty to, to

13:42

the lowest levels ever. And

13:44

and have been the formula for prosperity

13:47

that is unmatched in human history. So

13:50

undoing them and we seem to be undoing

13:52

them at an accelerating pace. I

13:55

don't see how it's going to lead to better outcomes.

13:57

Yeah. Yeah. Particularly from the

13:59

middle class, in my sense of, yeah. You

14:01

and particularly even for the middle, or

14:03

especially for the middle class, it's supposed to be protecting.

14:06

It's supposed to be happening for. Yeah.

14:08

Which is the engine of, many societies. Did

14:10

you watch or did you see the excerpt of the the

14:13

CNN Town Hall with with Donald

14:15

Trump 45th president?

14:17

I did not, I've read about it quite a bit.

14:19

Did you watch it? Yeah, I did. I

14:22

watched most of it. I think the,

14:27

in the US you are at a point where

14:29

the. It's very difficult to be a centrist,

14:31

let's put it this way, right? Oh yeah. It is practically

14:34

impossible not to get offended by something.

14:36

And it is fair to say that,

14:38

the sides are unrecognizable when it comes to trying

14:40

to dispatch their own view viewpoint.

14:43

This was a, again,

14:46

an attempt at C N that tries to shake.

14:48

Its. Bias

14:50

or it's perception that it is biased

14:53

as, quote unquote mainstream media by

14:55

inviting and doing this

14:57

in New Hampshire and doing this with registered Republican

14:59

voters and e everything that would just

15:02

make it a non c

15:04

n type of event.

15:06

And I think, it is good for them because obviously

15:09

people talk about it and a lot of people saw it. I'm guessing

15:11

the ratings are good and all kinda nonsense. He

15:13

was unapologetic. He was exactly who he

15:15

is. And I think that, there were a

15:17

lot of reactions, but what was most interesting is, I think

15:21

at least the polling after this kind

15:23

of indicated that nobody changed their mind on the guy. Like

15:26

the left seems to be completely obsessed

15:28

in trying to say, just look at

15:30

this. This is insane. Why would anybody

15:33

vote for the, for this guy? And the right

15:35

has. Literally not

15:37

cared about any of that since an elevator

15:39

in 2015? I would say

15:41

that, the left may, may say that,

15:44

but any, a person who would consider him as him

15:46

or herself, a centrist as I do Yeah.

15:48

Also says it. And this is what,

15:50

I don't think that there are equivalent,

15:53

similar, how do you say it, diametrically

15:56

opposed trends happening on the right

15:58

and the left. On the right, the Trump

16:00

wing controls the Republican Party.

16:03

He's in charge. The extremists

16:06

on the left, the progressives the the

16:08

people who identify even as socialists,

16:10

who aren't even, all that socialists are

16:13

few. They're not in positions of power.

16:15

It's a broad coalition and the center

16:18

seems to be governing. Yeah. So I

16:20

think that's an important thing to keep in mind. Now the

16:22

problem is, that's boring. It's not

16:24

as exciting as a Donald Trump Town

16:27

Hall. But it's it's, it's

16:29

recognizable governance. No

16:31

for sure. The thing which is hilarious

16:34

in some ways is, and look, you

16:36

know how I feel about about the man, but

16:39

what I think is very interesting

16:41

to me is that he will

16:43

not change who he is. And we know that,

16:46

and I think that. It'll be

16:48

the beginning. The 80% of the election will

16:50

all be about the somewhat

16:52

extremes because I think it's now clear who the two

16:55

nominees are likely to be. And as a result

16:57

of that, what's gonna happen is you're gonna have a lot of

16:59

red meat being thrown to both sides. And

17:01

in the last, in, in the last

17:04

month or two months or three months, what

17:06

usually happens, which is that everyone tries

17:08

to go for the center at that point because I realize they need the

17:10

center to win. And I just think that,

17:13

he's not going to, he's just gonna be who he is.

17:16

And I think that Biden usually does a better job

17:18

at doing that. And while a lot, I

17:20

don't know a lot of people who are excited to vote for him, but

17:23

I think that you'll probably You'll

17:25

probably see some of the more extreme

17:28

people on his cabinet leave around

17:31

that time. You'll start seeing them

17:33

re replaced by people who are

17:35

more centrist. And it'll be just another

17:37

one of those small pivots that'll say,

17:40

okay, it's okay. You're fine. You're who are the extremists

17:42

in Biden's cabinet. So you

17:44

have some. I would argue

17:46

to me like the, where it gets personal

17:49

is the AI are, I think was

17:51

a nonsense. Or at least what comes outta the White

17:53

House in terms of what, how they think about technology

17:55

is a little bit nonsensical. I think

17:57

that the student loan advocates

18:01

I don't even want to get to the, to Some of the speeches

18:03

and some discussions about, diversity and

18:05

other things that have come out of the White House. But on

18:07

the policy front, you have a few people who have tried

18:10

to push some of the historical main

18:13

important points. And I think

18:15

that those are the

18:17

ones that give the most heartburn to the center.

18:19

I think I think the student loan thing

18:21

was something that that, that

18:23

took a lot of. Middle

18:25

of the rotor and made them it was probably one

18:28

of the bigger. Actual bread and butter

18:30

issues. There's a lot of people who paid off their loans,

18:32

who we are Democrats and who

18:34

don't like the idea. On the other hand, the

18:36

whole indu industry and sector needs reform.

18:39

We get that. But I think just a

18:41

blanket blanket eraser was something

18:43

that, that they got a lot of people pissed off. It's

18:45

not extreme, but there is some, and I think the

18:47

problem is that it's everything is being exploited.

18:50

On both sides to try to make the other side look

18:52

more extreme. So Biden looks

18:54

like a daughtering old man surrounded

18:56

by woke people, which is not the truth. And

18:59

Trump is largely irrelevant to

19:02

most of what happens around, but he's got

19:04

a big mouth and he gets a lot of press. Again, what's nice about

19:06

the US is it doesn't really matter. At the end of the day,

19:09

the, like the stuff that's going to change and

19:11

is going to create jobs or

19:14

create economic opportunity or cultural

19:16

opportunity over the next. 10, 15

19:18

years is so far removed from Washington.

19:20

We can talk about the, the dead ceiling if you want.

19:22

These are things that happened in Washington that, can I get in the

19:24

way more than help anything? I

19:27

may I make a little inroad into the conversation?

19:30

Sure. Please do. So

19:33

on the Google. Issue.

19:36

They're not making their AI tools

19:39

available in the European

19:42

Union but they're making them available

19:44

in the uk. For the

19:46

people who really want to use that, I

19:48

think most of them would know how to use A V P N

19:51

and therefore most of them are gonna use it, right?

19:54

So at the end of the day, it is. Highly

19:58

politicized consideration. I think

20:00

Italy was the first country Yeah.

20:02

That said that they would prevent chat g

20:04

p t from being offered in Italy because

20:06

of concerns about the privacy

20:09

of the data. Yeah. And the privacy

20:11

of the data is an

20:14

overriding concern of the European Union.

20:17

Not so much. The politicians. Remember that European

20:19

Union has a fourth power,

20:21

which is the bureaucracy, which is the European

20:23

Commission itself is a

20:25

branch of government, and they've

20:28

been very active in making sure that

20:31

Europe stands out as the regulator

20:33

to the world. I don't know how long

20:35

that's gonna hold, because, if

20:38

the European Union's economy continues to

20:40

perform as

20:42

poorly relative to the economies of the rest of

20:44

the world, it will become irrelevant sometime

20:46

in the next 25 years. But I

20:48

think it's it's interesting that everything

20:50

is just about the politics and nothing is about

20:52

the substance. If they were really concerned

20:54

about something, They would try

20:56

to fix it because, and not

20:59

just say, okay, we're gonna not allow this

21:01

in Italy, where when they know very well

21:03

that anybody in Italy who wants to use chat G B

21:05

T just gets a V VPN and uses it through a

21:08

server in neighboring

21:10

France, for instance. So

21:13

we are living in a world

21:15

where I think the

21:19

intellectual and level

21:22

of the political discussions

21:26

has dropped beneath. Anything

21:29

that could be interesting to most

21:31

people who are actively engaging, doing something

21:33

with their lives. And I think that there's

21:36

the danger because as most,

21:38

as, most people have become disengaged

21:40

from politics as

21:42

they did in arguably

21:44

in the US a long time ago as evidenced

21:47

by how. Few

21:49

people actually participate in elections.

21:52

It's easy for certain organizations

21:55

to gain significantly

21:57

more power than they deserve from their representation

22:01

in the population. And that's my

22:03

sense of where we're going. And I'm, I feel that,

22:06

that could be a threat. I dunno if you've shared

22:08

that view or not. Yeah,

22:10

I do share a view that things like

22:12

Italy's ban of chat, g p t, which

22:14

was, which was never gonna work is

22:17

posturing. And we're seeing a lot of posturing

22:19

in politics now. It has to do

22:21

with the merging of politics and

22:23

entertainment that's been going on for a long time. It has

22:25

to do with social media and

22:28

the quest to Dr to, for the

22:30

competition for attention that politicians.

22:33

Feel they have to engage in. I

22:35

totally disagree with the notion that it doesn't matter

22:38

and that what's the future's gonna be decided

22:41

apart from this, whatever happens

22:43

is with the debt ceiling, for example, doesn't

22:45

matter. I think it matters hugely and

22:47

I think I, in the case of the United States,

22:49

I think people are aware of that. I've never seen the

22:51

country as politicized. Voting

22:54

participation was at

22:56

a record high in 2020 after falling

22:58

to somewhere near the 50%

23:00

level or less in presidential elections.

23:03

It, I think it was somewhere up around 70 something

23:05

percent in 2020. Yes

23:08

and no. Part of political polarization

23:10

includes mobilization and

23:12

people are mobilized. Unfortunately, I think a

23:15

lot of what's mobilizing them is. Is

23:17

emotions and feelings

23:19

as opposed to anything resembling

23:23

analysis. And it's part of what drives nationalism.

23:25

It's part of what's driving nationalism and policy

23:28

and part of what you know, enables

23:30

a guy like Habe and Germany to propose

23:33

a completely basically anti

23:35

EU subsidy. Yeah,

23:38

it's happening, but I'm not very sanguine about

23:40

it. I think somebody asked early

23:42

in this why is the dollar doing,

23:44

or why is the euro doing so well against the dollar

23:46

when Europe is doing so poorly? The

23:48

debt ceiling standoff must

23:51

have something to do with that. Just bringing this back to

23:53

the immediate, impact. I

23:56

I think we're, I think we're at a really

23:58

worrisome moment history

24:00

and we're the direction of travel is

24:02

there this anti this,

24:04

we're all interventionists now as Martin Wolf

24:08

said. And, but you unleash that

24:10

and it's very difficult to put it back in the bottle.

24:13

I think in this respect, I think I would agree

24:15

with Larry Summers's view.

24:18

It's very, been very popular to talk about

24:20

digitalization and a

24:23

lot of people who are

24:26

specialists in shifting

24:30

their opinions to the flavor of the

24:32

day are. Bring their arms

24:34

up in the air and saying, oh my God, it's

24:36

the end of the dollar era. And, look

24:38

at what's going on with China in,

24:41

and the, Latin

24:43

American countries that have agreed to do some of their

24:45

trading in China, in

24:47

Remin, and maybe some of the oil

24:50

producing countries that have agreed to that as well.

24:53

I think that the, that what most people

24:57

need to understand is that a yes,

24:59

there is, like with anything else where there's

25:01

posturing and people who are not very reasonable, potentially

25:04

some problem with the ceiling

25:06

the US that ceiling, I

25:09

think the markets would not take

25:11

it well if there was a default of the

25:13

US government, even if it was a technical default.

25:16

There's no disputing that. If

25:18

you look at the way that the US bond market is trading,

25:20

it's not reflecting a significant panic

25:23

in, in, in my opinion, the,

25:26

so it would be a major surprise if it did happen.

25:28

That would be a major blow to financial

25:30

stability around the world. I think it would be the end of

25:32

the Euro, for instance, if that happened, not

25:35

the end of the dollar. Now I

25:37

agree. And when I say why is the

25:39

dollar doing well against the Euro or

25:41

the Euro doing? No. The Euro, I'm not predicting the

25:43

Dollarization. Yeah,

25:46

what's happening in the month of May 23?

25:48

But let me finish the statement, is that

25:51

when people talk about that

25:53

digitalization, which is one of the hot topics

25:55

today, I think they seem to all ignore

25:58

that China's

26:01

foreign exchange Reserve peaked. A few

26:03

years ago, B

26:06

China has been posting a current account

26:09

surplus since. Which

26:11

bes the question, what's going on and the, and what's

26:13

going on is massive capital flight, which

26:15

you can only see if you look at a small

26:17

item below the line in the capital

26:19

account. Which is called errors

26:21

and emissions, and you will see that every year

26:24

there's somewhere between 600 and 800 billion

26:27

that are unaccounted for the leave China, which

26:29

is the capital flight. So I think

26:31

I would be more concerned about the

26:34

renminbi stability than about the dollar

26:36

stability. That's my biggest concern

26:39

today. The other thing that I find,

26:42

interesting is that, we started a conversation with these

26:45

potential. Disruption

26:49

of the Europeans Union single market.

26:52

I believe that is the, problem

26:55

that has little to do with us

26:58

politics but something

27:00

to do with us politics. At the

27:02

end of the day it was

27:05

President Trump who. Some

27:08

people would say was very antagonistic to the European

27:10

Union, I think. I think he

27:13

was the person who tried

27:15

to open the eyes of the European Union politicians

27:18

to the realities of the 21st century

27:20

world. And ever

27:23

since the European Union has been trying

27:25

to avoid seeing what

27:27

the issues are, and that's the

27:29

problem that. Living here

27:31

is my biggest concern. Can

27:34

you summarize the Trumpian view that was

27:36

being transmitted? Because all I remember

27:38

is insults and, incoherence,

27:40

but I'm sure I'm, I was missing something.

27:44

I think you were missing the force for the trees. It's

27:46

all the European Union, they needed to spend more on their

27:48

defense, and then he told them that

27:50

they could not rely on gas imports from Russia.

27:53

So two for two batting 100%.

27:56

So that, and those were the important things. And

27:58

he said also, don't necessarily

28:00

come to the United States bailing you

28:02

out every time you need to pull some

28:04

of your weight. I think those were very clear statements

28:07

that he made. I remember vividly a

28:09

lot of German people sitting in

28:12

the conference laughing when he said that

28:15

you should not rely on your energy. Needs

28:18

on oil gas imports from

28:20

Russia. As a matter of fact, it has been the that's not

28:22

when they laughed. But

28:24

they laughed at the UN speech that he made

28:26

where he made claims about Yeah.

28:29

US policy that I don't even remember what it

28:31

is, but, the Obama administration also

28:34

made the same warnings to Europe. This has

28:36

been an issue in nato,

28:38

not with the eu, but within nato. Since

28:41

the early 1990s or even even

28:43

better. There's broad consensus in the us

28:46

I wouldn't, this is part of, what's inherent

28:49

in the relationships is the Russian gas thing.

28:51

He never he was only calling Germany's

28:54

bluff or giving Germany a hard time

28:56

because, he loves to shout hypocrite.

28:59

But I don't think he he wasn't the first one

29:01

to make warnings about Nord Stream and

29:04

Nord. Yeah, I think we're

29:06

all aware of that and what I'm trying to say, it doesn't matter

29:08

who said it, it matters what's going on.

29:10

We have that reliance we're

29:12

in a very bad situation. Some people

29:15

are patting themselves on the back because they

29:17

seem to have navigated the first

29:19

winter without anybody

29:21

freezing to death. It's all nonsense.

29:24

What's really happening is that companies are

29:27

signing 10 year electricity contracts

29:29

at 50 euros megawatt hour, which

29:31

is, which in, sets

29:35

a distinct differential

29:37

in costs to other industrial

29:40

companies in other parts of the world. And

29:42

that is the problem. And again,

29:44

what I'm trying to say is that we are not

29:47

in a society where people discuss

29:49

the real issues they discuss.

29:52

Other things. The real problem

29:55

today is that, the

29:57

European industrial companies have become

30:00

uncompetitive because of the cost of energy.

30:02

The German government or

30:05

part of the German government are facing

30:08

that pressure from their industrial. Companies

30:10

are saying, oh, we have the resources

30:13

to subsidize that. We

30:15

know it doesn't confirm with the treaties

30:17

that we have signed, but we are going

30:19

to try to do it anyways. So

30:22

going back to the rules-based world that

30:24

came, that you mentioned before, that was very

30:26

successful, this is one more blow to that

30:28

rules-based world. It is. And it's

30:30

coming and that's what I'm worried about.

30:34

And I think we're all, I

30:36

think to be honest, we're all saying the same thing in different

30:38

ways. I do too. Problem the trusted

30:40

institutions is at an all time low.

30:42

The ability of institutions to actually hold the line

30:45

is. An all time low.

30:47

There are exogenous shocks. One of which has probably

30:49

passed is covid, one of which is thoroughly

30:52

unresolved, which is a security situation

30:55

first in Ukraine. And more

30:58

generally the Amer, the free

31:00

market umbrella is shaky. Security

31:03

umbrella is shaky or potentially

31:06

shaky. It all depends, which

31:08

philosophy wins out in international

31:10

relations. How

31:12

would you grade let me ask you this. How would you both

31:15

grade the Biden administration,

31:17

not the man on Foreign

31:20

policy international relations? The last

31:22

thir two and a half years. I,

31:27

I would I'd give them a, probably

31:29

an 80 a b minus on

31:32

the grade scale, which is a lot. Okay. Better

31:34

than the than the f I would give. Trump.

31:38

Yes. And somewhere around where I think Obama

31:40

was doing as well, here's what, here's, and then

31:42

let me say what I, what, why,

31:44

why I give them a, why they're in the 80 range.

31:47

They have restored America's

31:49

normal relationships with allies and friends.

31:52

They understand the need for cooperation,

31:54

collaboration around the world. And

31:57

our, and our, in

31:59

terms of tone and I think substance

32:01

are at least behaving in a in a responsible

32:04

manner. What they're getting wrong

32:06

is it's this trend of fragmentation

32:09

that we've been discussing and interventionism,

32:11

and this isn't just foreign policy. This is economic

32:14

policy as well. And they're playing into

32:16

it. They're going with that trend with

32:19

a notion of, we'll only we don't want to. We

32:21

don't want it to go too far, but we're going in this direction.

32:24

And I think it's a it's

32:26

a difficult one because it's prompting the reactions

32:29

that you're seeing in Europe. Like the German

32:31

sub subsidy. And

32:33

and France wants to re industrialize

32:35

with industrial policy. The it's that's

32:37

why I'd give them a lower mark. Sorry.

32:42

And you. As

32:44

a, I think I

32:46

would I don't have a strong I

32:50

don't have a very view on

32:52

this particular subject. I have,

32:56

I think the, I

32:58

think from the perspective

33:01

of the rest of. The

33:04

things that the Obama administration, sorry,

33:06

the Biden administration is

33:08

the, for policies doesn't stand

33:10

out one way or another. I,

33:15

there's seems

33:17

to be very, a

33:21

very mute reaction to some

33:23

of the challenges that. They

33:26

are receiving from former allies

33:28

in terms of their rep,

33:31

their closeness to China. In

33:33

some ways, maybe

33:36

it's calculated, maybe they realize

33:38

it's an empty threat.

33:41

We, such as these agreements between the,

33:44

the Gulf States and China, or

33:46

the agreements between the Latino American countries

33:49

that have traditionally been. Close

33:51

to the United States, getting closer

33:54

to China. I don't know.

33:56

The European certainly are playing a very

33:58

ambivalent role

34:00

in the confrontation with China. On the one hand,

34:03

they want to have the, the

34:05

strength of NATO to behind,

34:07

but on the other hand, they don't want to lose the business

34:10

opportunities of and trading opportunities

34:12

that China has been affording

34:15

them. What I find. More

34:19

worrisome is that these fragmentation

34:22

of Europe that you refer

34:24

to and these various policies

34:26

that have been announced in the past couple

34:28

of weeks, including Macon's

34:30

article today on the, in the,

34:32

I think it was on the Financial Times about re

34:34

industrializing France

34:39

are, I think

34:41

it may be in a previous. And

34:45

era of American soft

34:48

power prevalence,

34:50

it would have been more difficult to

34:53

have these European

34:55

countries that are at the core of the European

34:57

Union show how they're

35:00

distancing themselves almost inevitably

35:03

by discussing. The

35:06

breakup of the

35:10

institution that was created

35:12

in many ways to make sure that there were no

35:14

further conflicts in

35:17

the European continent. But

35:19

that's why I'm very concerned about what's being said

35:21

this week, both in from

35:24

the German minister and also from the French

35:26

president, and the

35:28

fact that doesn't seem to be. An

35:30

American statement on that is

35:33

for the moment is perhaps

35:35

what, deserve a des sell the B minus.

35:38

Because at the end of the day, whenever there's been conflict in Europe,

35:40

it's ended up being destabilizing also

35:43

to in other places including the United

35:45

States. So

35:48

to answer my own question, I think that I would give

35:51

him a b plus. I think

35:53

as opposed to you, I actually am. Surprised

35:57

at how important it has been in

36:00

the last three years to have the

36:03

United States arguing

36:05

its place

36:08

and its theories across

36:10

the world. I,

36:12

the problem with Trump to me was, to,

36:14

to cite somebody I know. Even a broken clock

36:16

could be right. Twice a day. I think

36:19

he was right on many things, but there were just so

36:21

much that I don't think that the

36:23

amount of chaos that was there from an

36:25

international point relations point of view, I think

36:27

is was untenable and not conducive

36:29

to, to progress on international relations

36:31

and possibly gave people the

36:34

wrong impression about. How the

36:36

US would react to certain actions. But

36:38

what is my biggest surprise is how

36:41

I look less fondly at Obama's

36:43

international policy and how

36:47

almost optimistic it was. And

36:52

I guess my point here is that my grade coming

36:54

out in 2016 versus my grade

36:56

today, looking back I would be harsher

36:59

on the accomplishment on inter, on the international

37:01

stage that the Obama administration

37:03

had, if I'm only looking, outside

37:06

of the Trump years yeah, no,

37:09

and I agree about Obama. He was at heart

37:11

a very conservative. President

37:13

in many ways who did not have a very

37:15

forceful foreign policy, and he was not and

37:18

he got some big things wrong, like the Arab Spring

37:20

speech. Yeah. On Biden,

37:22

B minus. I know. Yeah. It's probably

37:24

a bit harsh, but I think it's

37:27

I'm also thinking about while the response

37:29

to Ukraine has been an A or an A

37:31

minus I, there was

37:33

the withdrawal from Afghanistan. There's

37:35

the fact that China's brokering piece

37:37

between Iran and Saudi Arabia.

37:40

And and then I think just we

37:43

need to rethink on the, we're

37:45

not getting it right in China. We're

37:48

too much of what we're doing is reflexive, fueled

37:52

by domestic politics. And

37:54

I don't know how I don't see,

37:56

I don't see a great outcome there. So

37:58

that's, those are my concerns. But glad

38:01

to hear you're a, you see it as a b plus. Maybe

38:04

I'm being too harsh. Harsh. When

38:07

it comes time to grade my students. I give them all better

38:09

than that. But anyway. But

38:12

that's funny cuz they were your students exactly.

38:16

They tell me what I want to hear, which is what

38:18

I just told them to say. Exactly.

38:23

Strategy BT works the same. Okay. Should we

38:25

wrap it up? Yeah, I guess I'll

38:27

make I'll make a generalized pitch to

38:29

something at Something that Luis said. Obviously,

38:32

we work with a lot of companies and we try to help them out

38:34

on, on, on AI stuff,

38:36

or at least these days, this where the conversation

38:39

has gone. But it's always been there in terms of

38:41

what you do with your data and how do you present it and all that

38:43

kinda good stuff. But what I find fascinating

38:45

is that, yeah the

38:50

right now, the tools haven't really been built,

38:52

and I think that tragedy PT is obviously

38:54

what's taking all the oxygen out of the room

38:57

because it's the one that everybody's experience and

38:59

everybody's personal experience and colors

39:01

how they see the product. But let's

39:04

not forget, and I think this is the point that

39:06

the open AI

39:08

and then now Bard and a little bit

39:10

Microsoft or. Or providing

39:13

you these services, either

39:15

through the website or through the APIs.

39:18

And that's not the mature ad

39:20

equilibrium solution for

39:23

companies. And so I think, and for institutions

39:25

and for governments and whatever, it is. Somewhat

39:28

idiotic that every single request

39:30

out there will go to, the servers and

39:32

the, and a, and the trainer model that

39:34

exists in, in, in one single place from

39:36

all over the world. Which is more or less the solution

39:38

that both Google and Open AI have now.

39:41

What are the biggest problems? Is that, You

39:44

haven't had either the tools or you haven't democratized

39:46

enough the idea of training your own model inside

39:49

companies, but that's really what it is at maturity.

39:51

To, to your point, Peter, the

39:54

question we always ask is, how much of

39:56

your. Proprietary data

39:59

or client data is being fed directly,

40:02

indirectly into tragic PT because somebody

40:04

in the organization is asking a question.

40:06

And I think that points, I think Peter, as you mentioned,

40:09

many corporates to go out and put just a wholesale

40:11

ban on, on it until they can figure it out.

40:14

The ban itself is messy

40:17

because there probably

40:19

is not a better predictor over the next

40:21

five years of what a middle management.

40:24

Effectiveness is going to have, but

40:26

their ability to use some of these tools, whether

40:29

they be built inside or outside the organization.

40:31

But one of the more important things that that

40:34

everybody has to get ready for is

40:36

when you can talk

40:38

to your own corporate data and

40:41

institutional data and present essentially

40:44

these solutions inside the organization, outside

40:46

the organization, and how much that's going

40:48

to tear into. A lot

40:50

of processes that you see inside organizations.

40:53

Review policy security policies

40:56

com, committees. A

40:58

lot of decision making has

41:00

been done in a in

41:04

a way, which is, so when

41:06

we look back at it, 10, 15 years from now will

41:09

look so antiquated. And.

41:12

My fear to go to circle

41:14

back to the thing about Europe is that

41:16

I can't figure out whether the regulator or the

41:18

institutions are banning it or wanting

41:20

to ban it, simply because

41:22

it's a little, it's a little worrisome,

41:25

which is fun. Fascinating. In contrast to

41:27

all the carbon control policies

41:29

they've put in. It's hilarious in that particular

41:32

respect how futuristic you can

41:34

be on one point, but not on another. I

41:36

would hope that they understand

41:38

and that they get good counsel in how

41:42

to try to use this

41:46

just revolutionary way of looking

41:48

at all your systems, your governmental systems,

41:50

your ministry

41:52

systems, your business operation systems and

41:55

then the idea of just banning people and

41:57

then putting your head in the sand I think is gonna be a massive

42:00

productivity. Dis destroyer

42:02

for those who don't adopt it? To the extent, yeah.

42:05

Just to be clear I did refer,

42:08

I think before this podcast started to a

42:10

company that I know that banned

42:12

employees from using, just banned

42:14

access to chat G P t. But

42:16

the Bard case isn't a ban, it's an

42:18

unintended consequence of gdpr,

42:21

if I understand that. Agreed, agreed. Agree. Yeah.

42:24

To me I throw them both in the same

42:26

bucket, which is that Yeah, I know that Google

42:28

did not want, Google has a strategic

42:30

problem, which is that AI

42:32

takes away a lot of what

42:34

was an extremely defendable

42:37

moat for their search business. Sure.

42:39

And so for them, they need to pivot and they

42:41

need to just hold onto customers one way or another.

42:44

And the last thing that they wanna do in the middle of trying

42:46

to fight that battle is to have to fight another regulatory

42:49

battle. So they, for them it's just easier to say, Hey,

42:51

just throw a v p N and if you're really

42:53

interested, going into it that way and

42:55

the self regulation, I think is even worse to me

42:58

because I think that when you think of these companies,

43:01

you want them. Some of the best and

43:03

brightest minds are in Europe, or being trained

43:05

in Europe or in European classrooms.

43:08

And I think it would behoove the

43:11

European administration

43:13

institutions to think about that a little bit more. Again,

43:16

it's, and it's all in the context of fragmentation,

43:19

isn't it? One set of re regulations in

43:22

Europe that's been imposed that they

43:24

expected to become a global standard. It has,

43:26

but now Google's taking a step just

43:28

to avoid that, and this is, so

43:31

we get the splinter net. Yeah. Yeah. We

43:33

didn't want and if

43:35

you go and

43:38

ask end users, what do they care

43:40

about in their privacy you'd

43:42

be surprised at the answers. Yeah. Yep. This

43:45

has been a happy podcast. Thank

43:47

you. Thank you Alex and

43:49

Luis. Thank

43:53

you guys. Just one question before I go.

43:57

25 years ago there

44:00

was a software program

44:03

that had some elements of artificial

44:07

intelligence in it was launched called

44:09

Mathematica. I don't know if you guys ever used

44:12

it. Yes. The

44:14

creator of that program, war

44:16

firm, yes. Has been

44:18

very active in developing

44:20

artificial intelligence. Yes.

44:22

Since he became very significantly

44:25

well funded as a

44:28

result of the success of Mathematica. I

44:31

wonder what makes everybody think that this

44:33

time around we're gonna have

44:35

any. Much

44:38

more significant impact

44:40

on productivity than programs

44:43

like that had at the, in the past 25

44:45

years, which is, I think, is very difficult

44:47

to measure but doesn't seem

44:49

to come up in the general productivity

44:51

numbers for the economy anyways. So

44:55

if you don't mind, let's try to have a conversation the next time,

44:57

because it just takes a little bit more time. But no,

44:59

it's a question that I would like to 30 seconds for

45:01

next time. Yes, agreed. Wolfrem was

45:04

actually one of the very first plug-ins on chat, g

45:06

p t, and he's

45:08

been quite active. An

45:10

interesting guy. It's a fan. There's a very good podcast

45:13

with Lex Friedman with Wolfram from

45:15

a week ago or two weeks ago, which is Which I'd encourage

45:17

you to listen to. So I,

45:20

let's talk about it next time. That's a very interesting subject,

45:22

which I'd be happy to pretend I know

45:24

something about. Great,

45:28

thanks. Let's talk about it.