The Exchanges

Q Ok, you're nervous. So if you're Jay Powell, if you had Jay Powell's job right now, what is the delta? From what he's doing, what would you do differently, do you think?

A I, I thought Jay Powell was a million miles off course two years ago. I thought he was talking about zero interest rates till twenty-twenty-four. He was talking about inflation being transitory. It was all on a different planet than the one that I thought I was seeing. Starting about a year ago, he has recognized That the principal problem is inflation, that the Fed was way behind the curve, that he needed to focus on getting inflation back to target, and so my differences would be small and on tactics rather than large and fundamental. I think the Fed Probably needs to be investing a bit more in its credibility by emphasizing that it's prepared to raise rates again if it doesn't see inflation, ah, decline. I think the Fed should be recognizing that the extraordinary size of the U.S. budget deficit And where it is in prospect is gonna complicate the macro policy task and should be more willing to call that out, ah, than it is. I think the Fed on matters relating to financial regulation should be giving more attention to market prices and the market values of assets. And less to a variety of book value regulatory concepts than it tends to emphasize. But again, I think that what we did in 2021 When the Fed, when the government basically infused 2.9 trillion dollars into a rapidly recovering economy, and when the Fed promised it was going to keep interest rates at zero till, uh, 2…

AI assessment note: “my differences would be small and on tactics rather than large and fundamental.”

Q staff, Susie Weil, started receiving calls from executives and lobbyists expressing concerns, and, uh, the Wall Street Journal reports that Trump was influenced heavily by Besant. They were flooded with worried calls from Wall Street, and that the president was, uh, lobbied to find an off-ramp. Trump ultimately relied on his instincts, according to the administration. Larry, is this for DHS, or is this something else? What are your thoughts?

A This is, uh, dangerous work with a sledgehammer on a pretty sensitive machine, which is the global economy that's having really serious, uh, consequences. First, it's important to understand that there's more tariffs that are around than you described. Even after the big back off, there's a 10% across the board tariff, a range of structural tariffs, like on steel and automobiles, and a range of new tariff threats, like on, uh, pharmaceuticals. Here's a kind of market-based estimate of what the damage that the market thinks this is all doing to the US economy is. Markets down, let's take today's number, nine percent. If that's right, that would be about four trillion dollars. Of course, the four trillion dollars since Liberation Day, of course, markets were down coming into Liberation Day. Because of some anticipation of these policies. So let's be conservative and say these policies have taken six trillion dollars off the stock market. Now, the stock market only measures the adverse impact on corporate profits. Not the adverse impact on workers. Not the adverse impact on consumers. So you need to add to that, uh, stock market number. Uh, one way of thinking about adding to it would be to say that corporate profits were 10% of the economy. So you could argue for multiplying by a factor of 10, but maybe that's being too exaggerating or too bold. So let's multiply by a factor of, …

AI assessment note: “This is, uh, dangerous work with a sledgehammer on a pretty sensitive machine”

Q You know, in terms of how they behave, to, to Sax's point, are they thinking about The politics in the current administration? Or are they acting independently like they're supposed to?

A First of all, I don't, I think I'm, I'm a spectator and commentator, not, ah, not the dominant, ah, actor by, ah, any stretch. I, I, I'll leave it to others to speculate about everybody's motives. It's, it's not only people in political situations who, when they develop a strong view, change it only slowly in response to evidence. I'm basically someone who mostly goes to Washington and explains when I'm in Washington that there are limits to our knowledge and limits to our competence, and so it's often true that the best thing we can do is get out of the way. So I, I believe that, but I also think that it's a mistake To think whenever anybody makes a judgment that doesn't turn out right in Washington, that it's because they had some bad political motive and were playing politics, rather than they were using their best judgment and they turned out to be wrong, and like human beings in public environments, they changed their mind slowly in, ah, the face of evidence.

AI assessment note: “it's a mistake To think... it's because they had some bad political motive”

Q out there? Obviously China has not magically become a democracy, but I guess you could argue they do have a middle class. Now we haven't gone to war with them. So I guess you could argue that this has been good for relations, but to Sachs's point, they are incredibly powerful and they are our top adversary. How would you grade the history of this so we can move forward?

A I was a surging, growing, reforming economy, growing at double-digit rates. That it was before there was any WTO agreement. The WTO agreement did not change a single rule that represented a US restriction on imports from China. It did change a variety of rules, not as far as I would have liked, that let the United States export more to China, and the protected United States intellectual property in China, and that brought China more closely into the international system. You need a counterfactual for what would have happened if China had been excluded From the World Trade Organization. That counterfactual is not that they would not have sold goods to the United States. That principle had already been crossed 15 years before. Not a single restriction was, uh, reduced.

AI assessment note: “brought China more closely into the international system.”

Q capitalism in that sense. But many other countries are shades of this. And again, let's not talk about China, which is- I agree with you. So Larry, hold on a second. So Larry, so what you have is how do you defend dumping? How do you defend that? How do you defend spot market manipulation that drives American companies out of business? How do you fight that? And I think-

A Here's the problem. If President Trump had announced a big broadening of anti-dumping law to confront a variety of instances of what he, what the administration, after careful economic analysis, saw as inappropriate subsidy, I might or might not have thought that they were doing that in the right way, but we wouldn't be having this argument. The front pages would not be about tariff policy day after day, and the stock market would not be down by five trillion dollars. The central thing we are discussing is not whether there are sensible modifications to trade policy to respond to bad practices in other countries or to promote resilience. Those are technical debates that frankly aren't that interesting to a large number of people. The question is whether declaring that we need a whole new era of US economic policy Around universal tariffs against everything is a rational step forward, or using bilateral trade surpluses as a judge.

AI assessment note: “The central thing we are discussing is not whether there are sensible modifications to trade policy”

Q encouraging to you, Larry? Do you think that's the right way to do it? Because we haven't been able to get the government smaller since Clinton. So are you pro-Doge, not Doge? And do you think this sort of objection to, hey, we're going too fast, too violently, Maybe that's what we need to do at times, and then I'll go back to you, Ezra, to answer the same question.

A I think that Ezra is broadly right about the promiscuous distribution of the veto power. He's broadly right that we need to be able to do more things more quickly in the state if we're to be an effective government. I think we need much more reform I think Democrats have allowed themselves excessively to become hostage to particular groups, particular traditional, uh, concerns, and have lost touch in important ways with an American mainstream. And I think that insofar as the election outcomes in recent years have not been what they wanted, that is an important contribution. To how that has happened. And I agree with David that Donald Trump represents a transformative and profoundly different ideology that has been present in governing America before. I do believe that it is fundamentally not new under the sun, just new in America. That it is the Juan Perón approach, which is very familiar to students of Latin American history in particular, and that the general experience of that approach is that its leaders, particularly when they have galvanizing personalities, can be very popular for a substantial period of time. But that they are very rarely remembered well by historians of their countries, and so my best judgment is that this project is Going to end in disastrous failure, despite having put its finger on some important concerns and issues. Of course, there should be much m…

AI assessment note: “my best judgment is that this project is Going to end in disastrous failure”

Q for America in terms of our spending. Trump added a trillion to the deficit. Biden already four trillion. We've had this debate on the pod. Are, are we in an existential crisis in terms of how much we're spending debt to GDP ratio? Is that the most acute issue for America? And then what are your thoughts about America on the global stage versus other emerging powers, China and India?

A So there are a lot of parts to that question. I think the most important theme in American history is resilience. I'm old enough. I'm not that old, but I'm old enough. I'm old compared to the people in this room, I guess. Um, but I'm old enough to remember when Jimmy Carter declared a crisis of the national spirit and a pervasive malaise. I'm old enough to remember when the country was being torn apart by the Vietnam War, and the President of the United States couldn't go speak anywhere in the country, pretty much, except on a military base, and where there was gunfire on, ah, college campuses. I'm old enough to remember when, I'm not old enough to remember, but I've read about, when Joe McCarthy had the country, ah, in his thrall and people on university campuses were, were afraid to express progressive beliefs. If you read the history, almost everyone advised FDR in 1932 that he needed to use his inaugural address to declare dictatorial powers to take, ah, the country over, ah, to deal with the depression because democracy wasn't up to it. Patrick Henry said in 1792, 17 92, That the spirit of the revolution had already been lost. And so I think the theme in American history is the capacity for self-denying prophecy. It is the capacity for the Jeremiads that generate all this alarm, that set in, set in motion the processes which, ah, lead, ah, to renewal. And it won't be that …

AI assessment note: “So there are a lot of parts to that question. I think the most important theme”