00:00:02:22 - 00:00:32:13
Unknown
Good afternoon everyone. Welcome. So Im Kal Raustiala. I'm director of the UCLA Burkle Center for International Relations. And it's my pleasure to welcome you here today for our annual lecture honoring UCLA Professor Arnold Harberger. This lecture has gone on for almost three decades at this point, and we've had a really stellar cast of people come through over the years, including Jeffrey Sachs, Melinda Gates, Esther Duflo, Carmen Reinhart, Emmanuelle Sears.
00:00:32:15 - 00:01:01:23
Unknown
Today, maybe Inauspiciously dubbed Liberation Day. We are honored to have joined us. One of the world's leading economic thinkers, Simon Johnson. I'm going to properly introduce Simon in a moment. I just want to lay out what's going to happen. So, we will begin in a few moments with remarks from Simon. He has a slideshow, of course, followed by a discussion with, my colleague, our colleague Sebastian Edwards, and then they will open it up to questions from all of you.
00:01:01:23 - 00:01:29:07
Unknown
Time permitting. So there's microphones for that. So hopefully that will all, work out. And there will be time for, discussion amongst all of us. Let me, introduce our speaker and our moderator. When I'm done, Simon's going to come directly up and then Sebastian will join him afterwards. So Simon Johnson is the Ronald Kurtz 1954 professor of entrepreneurship at the MIT Sloan School of Management, where he is head of the Global Economics and Management Group.
00:01:29:09 - 00:01:53:17
Unknown
In December, I think, as many of you know, he received, along with his colleagues, Darren Acemoglu and James Robinson, the Nobel Prize in economics for, quote, studies of how institutions are formed and affect prosperity. Extremely important issue at this moment, really always, but especially at a time when I think questions of economic development and even of economic aid itself are under attack.
00:01:53:18 - 00:02:18:09
Unknown
Simon Johnson was previously chief economist and director of the research department at the International Monetary Fund. His most recent book with our Nassim Moghalu, which I was planning to hold, is a copy somewhere in the room. Is power in progress or 1000 year Struggle Over Technology and Prosperity, which explores the history and economics of major technological transformations, including artificial intelligence.
00:02:18:11 - 00:02:42:11
Unknown
As moderator, I've asked Sebastian Edwards of the Anderson School, and of our center faculty board to play that role. Sebastian is the Henry Ford, the second chair in international management at the Anderson School and previously chief economist for Latin America and Caribbean region at the world Bank, is also past president of the Latin American and Caribbean Economic Association, 2004.
00:02:42:16 - 00:02:59:08
Unknown
Sebastian was appointed to the California Council of Economic Advisers. He's the author of over 200 articles on economics, macroeconomics, economic development, etc. I couldn't think of a better person to serve as our interlocutor today. So please join me in welcoming to UCLA Simon Johnson.
00:03:11:22 - 00:03:39:08
Unknown
Thanks very much for the kind words of introduction. And thanks for the opportunity to to be with you today. And it is an auspicious and important day for economic policy. I hope we'll talk about tariffs. Certainly. Two of my favorite sources on tariffs, Sebastian Edwards sitting right here and Kim closing, who's at the back. And I just want to say also what a wonderful a moment it is for me to not only be speaking at UCLA, but as Cal already mentioned, I'm the Ronald Kurtz, professor of entrepreneurship at MIT.
00:03:39:10 - 00:03:47:19
Unknown
And Ron Kurtz's grandson is sitting in the second row with with his with his wife. And I want to say thank you very much, the Kurtz family, for their generosity. I so many years.
00:03:47:19 - 00:04:03:22
Unknown
So so, my my my topic is technology and global inequality in the age of AI. And I think the age of AI is is definitely upon us. It's pretty fascinating. Lots to talk about. And I'm sure many unsettled questions at the at the beginning and at the end of this conversation.
00:04:04:00 - 00:04:05:16
Unknown
But but I want to,
00:04:05:16 - 00:04:27:16
Unknown
summarize and I've got a number of slides. I'll go through them fairly quickly. I'm looking forward to the discussion with Sebastian. I just sort of summarize my main points or where I think we are, myself or my colleagues in terms of thinking about, the impact of AI. On the one hand, of course, there's a tremendous amount of, optimism about the technology and about its impact on productivity.
00:04:27:17 - 00:04:39:05
Unknown
So one view is that you will never have to work again because the, bounty will be so enormous that you're basically going to be taken care of just relax and let the technology do its thing.
00:04:39:05 - 00:04:56:02
Unknown
So, on the other hand, of course, there's also pessimism. So the exact opposite, which is, you know, all the good jobs are going to be taken by AI. All that's going to be left is relatively menial tasks. And there's going to be a lot of us competing for those tasks. So wages are going to get driven round really extreme views.
00:04:56:02 - 00:05:13:03
Unknown
And I'm super interested to hear what you have to say about this. Our view is that, this is important. This is is an important, meaningful technology. But if you look out as far as you can and, you know, I'm going to really stretch in on this and go out to ten years, we could push it out maybe to 20 years.
00:05:13:05 - 00:05:38:19
Unknown
I don't think we're looking at a miracle in terms of US productivity. I think it's AI will happen. I'll be part of how we continue to deliver on, roughly speaking, the same productivity trend we've had in recent decades. I do think that the most conspicuous impact it we will experience, and most people in this room will see probably rather vividly during their working lifetimes, is increasing job market polarization.
00:05:38:20 - 00:06:00:19
Unknown
And I'll talk about what I mean by that. But basically it's, people who are well-educated and relatively well-to-do doing even better. People in the middle likely getting squeezed, and people without a lot of education, without a lot of resources getting pushed further down. So that's consequential. And that obviously plays out in terms of politics, both directly in terms of who gets elected and what kind of policies they want to pursue.
00:06:00:21 - 00:06:22:23
Unknown
The main point, though, of our research and on our, policy outreach and our various activities at MIT, is it doesn't have to be this way. It doesn't have to be any which way. Actually, it's a choice. Technology is always a choice. And that's the the the point of the book that I elaborate on when we come to these moments, when we, when we're a new technology is think about when the engineers and the scientists are having their brilliant ideas.
00:06:23:01 - 00:06:43:22
Unknown
We need to think through, as a society, what exactly do we want to adopt? What is it that you what are the problems that you want? Technology to solve? And in that context, what kind of jobs are we going to create and who is going to have those jobs? So the takeaway from today is there are choices to be made.
00:06:44:00 - 00:07:04:20
Unknown
There's a path for technology that is being chosen. And I think we need we all of us here need to get more actively engaged in the decisions around those choices. Now, I was talking recently to a very prominent technology, entrepreneur. Okay. It was Sam Altman, and I said, and I made the same point, the same point that I'm making to you.
00:07:04:20 - 00:07:24:03
Unknown
And he said, Simon, relax. We are all going to be gods. I literally we will be playing with galaxies. Now, I'm not opposed to playing with X, playing with galaxies, okay, whatever that means. But the question that I'm interested in and what I want to dig into in the next, 20 or so minutes is who gets a good job.
00:07:24:05 - 00:07:45:02
Unknown
And this is work, joint withdrawals. Some of he and I wrote the book Power and Progress. And also David Autor, who is our, very brilliant colleague at MIT in the economics department, one of the world's leading labor economists. Together we run a center, called the MIT initiative for, the Future of work, studying the future of work and understanding the future of work and the work.
00:07:45:02 - 00:08:09:00
Unknown
I'm going to show you that the the findings from show you today come from that, that effort. And if you're anything like everyone else I've met since October of last year, you want to know how it was to win the Nobel Prize. If Sebastian asked me, I'll answer you. But I tell you, I tell you, it comes with a number of wonderful, amazing surprises, like being invited to UCLA and also a pictures like this suddenly appearing on the on the internet.
00:08:09:02 - 00:08:32:03
Unknown
What? What is this? Who are these people? What are they trying to say? But, I will, I will, I will make a few points about institutions along the way, and I hope we will get into that a little bit more when I talk to Sebastian. So the talk is focused on technology. The current research is very much about the future of work, but we try to embed all of our thinking in what we've claimed that we've learned and understood about institutions.
00:08:32:05 - 00:09:00:18
Unknown
Now, I think that the, first, the most fundamental question when you're thinking about a new invention is to understand where is it being invented, what's the society into which this technology is being born? And one key, issue there is inequality. And what's happened to inequality. So if you look at the top picture here, this is change in, real weekly earnings in the United States for men since the 1960s.
00:09:00:21 - 00:09:23:08
Unknown
It's an index. This is from work done by David and Ron. It's an index that starts, where they started at 0 in 1963. So you can see, how different people's wages have, have evolved. And the pattern there is, which is, I think now a very widely accepted fact is that, men who had who have, and had a lot of education, graduate degrees, the top line, they've done well.
00:09:23:08 - 00:09:40:05
Unknown
So stay in school, do as your parents recommended. It turns out that pays off. Bachelor's degrees also. Fine. Not quite as good as graduate degree. If you look at people who only had some college or high school graduates, they've done much less well in terms of wage increases. And a lot of those jobs, of course, got squeezed.
00:09:40:05 - 00:10:00:04
Unknown
So that's the decline of the middle class or pressure on the middle class. And then look at the, real wages of high school dropouts that have barely moved since the 1960s. Now, that's that's actually pretty extraordinary that the other industrial countries in this, in this time frame, many of them, most of them have had similar experiences. But it didn't always wasn't always like this.
00:10:00:06 - 00:10:25:23
Unknown
We did have, very important long episodes of technological transformation and economic growth in the United States when everybody's wage went up, the rising tide lifts all boats. Idea. That's not what's happened here. We're coming into AI is being brought to us and being brought to fruition at a time when we're already very unequal. And that matters in a number of ways in terms of who has visions for what the technology can do.
00:10:25:23 - 00:10:53:06
Unknown
Also, where's the market? Where's the money? Who has the spending power comes directly of this kind of this kind of picture and and the the risk and the danger. I think. But it's early. We don't know for sure, but I think what we need to absolutely worry about is that AI is going to exacerbate these polarizing trends, that is going to further help the people at the top further squeeze the middle and push people down at the bottom.
00:10:53:08 - 00:11:22:02
Unknown
Now, you can tell me whether or not that bothers you. And we then we need to talk about the politics, and then we need to talk about the policies that come out of it. But I think that's the that's the very real danger. And on top of that, I think it's also obvious, but important to say there are very real risks for the democracy stemming from the fact that we've already found it difficult to manage information, arguments, deliberation and politics in the digital age, the digital age that's already been with us for for decades.
00:11:22:06 - 00:11:39:13
Unknown
And that partly we can talk about how the internet has played out. Partly we can talk about the impact of social media. I could go either way. As I said, there are choices, but I think the, the danger is it becomes much more problematic. Now, this is a technical slide I'm not going to spend any time on.
00:11:39:15 - 00:11:56:04
Unknown
I will say that all the slides are available and I want everyone, including, but not only students, to look at these slides to click through into the references of the papers, to, to think about, open questions. There's an enormous amount of research to be done in this field. It's very fruitful research. There's companies to be built. There's papers to be written.
00:11:56:04 - 00:12:14:01
Unknown
There's things to invent. And I'm hoping really just to stir your minds a little bit and push you in this direction. This this particular chart is a labor share, of income in the United States over a long period of time back to the 1950s. It's declined a lot. Some people look at this say, well, it's already declined a lot.
00:12:14:01 - 00:12:29:14
Unknown
So what could have what what what more could go wrong, perhaps. You know, we're surely going to bottom out. The answer is, unfortunately, to that, the more the right response, I think, to that assertion is to look at other countries, other parts of the world where the labor share of income is substantially lower than the United States.
00:12:29:14 - 00:12:52:23
Unknown
So the shift from the first picture I showed you was shifts within labor. This is shift from labor to capital. It's entirely possible that labor will end up with a substantially lower share capital end up with more as a result of this, wave of technology. Now, we're obviously interested, very deeply interested here in economic development and what happens to the rest of the world.
00:12:53:03 - 00:13:10:03
Unknown
And I want to be entirely obvious with you. I don't think we yet see clearly any of the patterns that are emerging in middle income countries, let alone lower, lower income countries. We do see some impact of AI in higher income countries. There are some very good studies. I'm going to talk about, but this is a really open, issue.
00:13:10:05 - 00:13:49:08
Unknown
Again, the concern is that, I will squeeze the middle because the technology has capabilities are going to make it much easier to either bring activities back to the United States, perhaps it's jobs coming back, or perhaps it's your people in United States becoming more productive and therefore not needing to outsource. But I think it's we're also seeing pressure on I mean, you wouldn't even call the middle income countries low and middle income countries feel pressed by countries that have even lower wages, because those low wage people can be supported by AI in a way that allows them to take over some tasks and play that kind of role in the global economy.
00:13:49:10 - 00:14:19:17
Unknown
So a lot of the AI is is absolutely continuing this digital trend of reducing trade frictions. And obviously, today with Mr. Trump's announcements, you're seeing, One set of responses to previous reductions in trade frictions. What happens going forward? Well, let's talk about it. But there's many pressure points to some extent on the US economy, definitely on, the rest of the world.
00:14:19:17 - 00:14:49:10
Unknown
So deepening inequalities, and, and making local markets more unstable and making global politics more stable. Absolutely possible. Now the the Nobel Prize work. He's into this because I think, as Carl already alluded to, if we have strong rule of law, if you have protection of property rights, if people have democratic rights, that's good for economic development and it's good for political stability.
00:14:49:15 - 00:15:15:18
Unknown
Now, that might seem completely trite and obvious. Actually. People argue about that all the time, including in Washington DC right now. But that's what our work was about. And that was the, evidence that that we mustered in a couple of fairly famous papers and about 25 other papers that you should also read if you're reading, our work, we looked at particular at the experience of European colonization, and we looked at what the Europeans did in different parts of the world.
00:15:15:20 - 00:15:39:05
Unknown
And the bottom line there is that in places where the Europeans wanted to encourage other Europeans to come, they built relatively, inclusive means favorable to most people, economic and political institutions in places where the Europeans didn't want to bring up the Europeans, mostly because it was really unhealthy for Europeans, due to tropical diseases. Malaria and yellow fever will be at the top of that list.
00:15:39:07 - 00:16:01:07
Unknown
Remember, this is all before, the age of modern medicine. So there were no effective, therapeutics or vaccines or even effective preventive measures. So the Europeans said, well, we can't move to West Africa because if we go there, most of us will die. But they didn't mean they they backed off. On the contrary, they found ways to be involved in to establish, rules of the game that were favorable to them.
00:16:01:07 - 00:16:28:10
Unknown
They ran the slave trade out of West Africa. They found ways to, rule over large parts of India. They, ran, most of the or the entire West Indies. And, had effects on, Latin America and many other places. So if you if you go back through that history and look at what the Europeans did and look at what drove those colonial strategies, you can find an explanation for early institutions being either more inclusive or more extractive.
00:16:28:10 - 00:16:57:08
Unknown
More extractive means favors just a few people. And that then lets you unpack, at least to some extent, the effect of institutions today, like rule of law, like democracy on, outcomes like GDP per capita. So GDP per capita is not the final story. It's not the only thing that interest you. I started off by talking about inequality, but GDP per capita is the number one, benchmark that we use when looking around the country and saying, right, who's got some level of prosperity?
00:16:57:10 - 00:17:41:18
Unknown
That can be shared. On a reasonable basis. And again, if you go through if you look at these slides afterwards, you can see, a rather simple graphical presentation of our results. You click through for the papers and you can have more detail. The interesting thing about, the value of these institutions in the colonial experience is if you there were enormous, transformations of many economies during the 19th century, including the United States, United States in the 1700s was a an agrarian base and in the mid, the 1800s, it was still not regarded as that all developed or leading a leading edge in terms of, engineering and industry.
00:17:41:20 - 00:18:08:06
Unknown
By 1890, the U.S. had become the leading, industrial power in the world, and other countries that started out with relatively advantageous, economic circumstances, such as, India, fell behind the pattern of that distribution of income in the 19th century. What was established by 1900 is largely what we live with today. So there was relatively little change.
00:18:08:08 - 00:18:16:03
Unknown
Average income per capita rose, but relative distribution of income did not change much in the 20th century.
00:18:16:05 - 00:18:40:01
Unknown
This is more on that, reversal of fortune. So what is it that we want to get from? I. We want to get what we got with the railroads. We want to have, expanded opportunities. We want to have an opening up of, new, new tasks for people. We want to have, productive work for people who don't have a lot of education to start with.
00:18:40:02 - 00:19:12:02
Unknown
We want to enhance human capabilities irrespective of initial education levels. Now, I'm not saying that that industrialization was easy, and I'm not saying some people, weren't harmed because they absolutely were harmed. But if you think about. When the developing new technology went well, what happened when the US auto industry was built? In 1900, when Henry Ford started to work in Detroit, the US car industry, employed about 30,000 people making 40,000 cars.
00:19:12:04 - 00:19:48:11
Unknown
In 1929, Ford and GM alone made 3 million cars, and the auto industry employed 400,000 people, most of them doing things, doing tasks that humans had never done before. And that's the kind of transformation that boosts railway races, productivity of people without a lot of education. That makes it possible to get high wages. But I have to emphasize that trade unions were a very important part of building the middle class and arguing and pressing and forcing the people who owned these factories to pay wages that were affordable, because productivity had gone up by so much, but they weren't going to pay them without the union pressure.
00:19:48:13 - 00:20:08:13
Unknown
And, we can talk about what happened, and maybe we will talk about what happened to wages, around the world and the ways in which some countries, such as Japan, have figured out how to harness technology and create shared prosperity. This is, the wages of relatively low income, low skilled workers in different countries. So you see Japan catching up towards the United States.
00:20:08:13 - 00:20:29:12
Unknown
It's a remarkable success of economic development, I would say, even though it's often, no longer, the focus of economic development studies. China and India, obviously have had very different experiences. The real wages are substantially lower. And this is the, again, the structure of the global economy that we face today. So what is I going to do.
00:20:29:14 - 00:20:50:05
Unknown
So hey, it clearly takes over certain kind of certain kind of tasks that that humans are good at and that humans like doing. So there are a lot of studies, about, precisely who will be affected. I come to that in a moment, but the key thing to remember is, and to be quite honest, I suppose this is automation.
00:20:50:07 - 00:21:17:19
Unknown
This is replacing people with machines. Now, we've been replacing people with machines for many, many, hundreds of years. And then just revolution is about replacing physical labor with machines. Absolutely. Here we're replacing mental labor or calculation or thinking whatever you want to call it, with machines. So automation can be positive, automation can boost productivity, but automation also displaces people.
00:21:17:22 - 00:21:38:13
Unknown
What you need to harness the benefits is new task creation. You need humans to do new things, and those new tasks need to require expertise. Because if they can be done by anybody just hired off the street, you're not going to. I'm sorry. You and I are not going to get paid any kind of premium wage. So are we creating new tasks and who can who can benefit from those new tasks?
00:21:38:13 - 00:22:02:05
Unknown
That's the question. So we can go, in more detail, and you can read the underlying papers. What we know about what, these algorithms can do the ways in which they can, compliment some people on the way in which they displace other people. We have, some good studies, on that. But as I said, there's room for a lot more.
00:22:02:07 - 00:22:06:01
Unknown
The,
00:22:06:03 - 00:22:31:16
Unknown
There's also studies about, the. Amount of change in the labor market that'll be required as people move from existing jobs to, to new jobs. And there's, concern about the amount of labor turnover will be needed. I think in the US, actually, we look relatively good on these metrics. Other parts of the world, such as Europe, seem likely that they're going to struggle more.
00:22:31:18 - 00:22:54:04
Unknown
And there is this, documented concern. This is not our work, but I want to flag it for you that some people, women and younger workers are particularly, currently engaged in jobs that will be more likely to be taken over by algorithms. Now doesn't mean that those people will lose net, because they may also be able to take advantage of the new opportunities and move into those new tasks.
00:22:54:06 - 00:23:14:16
Unknown
But it does mean, I think, that, we should be very mindful of what we teach in universities, of what we encourage people to learn of the kinds of skills that we believe will serve us well through, working lifetimes, because the pressure is, already considerable.
00:23:14:18 - 00:23:47:23
Unknown
Now. If the, big, positive growth projections are correct, then there is obviously less to worry about because the pie gets a lot bigger and you can share that pie with people. You can compensate people who lose their jobs and so on. So there's a set of studies that look at, these effects and I think that, if you take them as a whole, and if you evaluate them and we've got some work by my colleagues on a small group that's done exactly that.
00:23:48:01 - 00:24:07:02
Unknown
The productivity gains, headline probity gains will not, be significant. So productivity will continue to grow in the United States. I will be part of what gives you that productivity growth. But it's not going to, dramatically change that trend line. If I'm wrong, that's great. You can forget all about this talk. You can be happy the rest of your lives.
00:24:07:02 - 00:24:32:15
Unknown
You'll have the cornucopia that you dreamt of, but it seems, unfortunately, rather unlikely, at least on the basis of what we see currently. And at the same time, we are continuing, we must continue to deal with this big difference in wages across different kinds of economies, different kinds of political systems. And,
00:24:32:17 - 00:24:57:14
Unknown
We don't know exactly what trading system we're going to be living under. But I think that this is going to be a very important context for thinking about who gains and who loses from AI globally and within the United States. Now, in conclusion, because Sebastian, will be stepping up in just a moment for us to continue the conversation.
00:24:57:16 - 00:25:23:18
Unknown
There are plenty of policies that could be pursued that would push AI towards what we call a Pro-worker version. So Pro-worker version would be AI that complements the skills, and the abilities of workers with who didn't go to four year college, for example. I think this is entirely feasible. It's not there. And then we have some perfectly fine conversation with, people in the tech sector, people who are inventing technology about this.
00:25:23:20 - 00:25:49:00
Unknown
I wouldn't say that they're dramatically opposed to this proposition. It's not their current focus. It's not where the money is. It's not where the market is. And this is also, I think, fairly obviously not the current focus of policy. I think policy, the desire to help people who are left behind is, is admirable. I think many people have been left behind in this economy, many regions of this economy and very hard hit by automation and globalization.
00:25:49:02 - 00:26:11:19
Unknown
Many people who previous had middle class jobs have been very hard hit by exactly these phenomena and by the decline of trade unions. But putting up trade barriers and trying to close, if your economy is not likely to reverse those trends or really help people, that mean the big issue is what comes next, what gets invented, and who gets a good job as a result of those inventions.
00:26:12:00 - 00:26:37:08
Unknown
And that's something that I believe we can all affect and influence through our, advocacy, through our inventions, through our, engagement with, with these issues. And that's what I encourage everybody, everybody to do, particularly because I think, the democracy is really in pretty, severe danger. So the book is power in Progress. It's available in about 20 languages.
00:26:37:08 - 00:26:43:08
Unknown
Happy to share copies. With you afterwards. Thank you very much.
00:26:47:18 - 00:27:14:04
Unknown
Thank you, Simon, for a great talk. This is a copy of the book. For those of you who don't have it yet. Get it? It's, fascinating. Please. So, thank you for coming. Simon, I have a lot of questions to ask. Until what time do you have? We have, what an. Okay, great.
00:27:14:06 - 00:27:45:16
Unknown
So, not not until Cory Booker stops talking in the Senate. We got a question for the panelists. Say hello, project. Okay, so let me start by asking you some personal questions. If if I, if I can, I, I've known Simon for a very long time. We have, work together and, but I, I did, go through some of his interviews, on YouTube.
00:27:45:18 - 00:28:16:20
Unknown
To get ready for our conversation today. So, you grew up, in Sheffield, in, in England. And you come from a family? That was related to the industrial sector. You said that, one side of your family had a small factory manufactured screws, and, on the other side, your. I think your father worked in a steel mill as an executive growing up in an industrial parts.
00:28:16:21 - 00:28:39:19
Unknown
How did that affect your perspective and your interest in, becoming an economist and then the career that you have followed as a as an economist? Very different growing up in Sheffield and growing up, say, in Vegas. I think, yes, for probably true. Yeah. So it was it was my grandfather who worked in the big steel mill.
00:28:39:21 - 00:28:55:12
Unknown
And my father, I mentioned this cause my father is still alive. He's almost 89, and he watches all these videos. So I'm going to make sure I get these details right. And, you know, I grew up, in the 1960s, 70s and 80s at a time when industrial decline was around us in the North of England.
00:28:55:17 - 00:29:25:23
Unknown
And I was, you know, concerned by the fact that so many people of my, fathers and mothers generations lost their jobs in these in these factories, and they lost them through this, an earlier version of this same process that we're talking about, including global competition. So that, I think, really shaped my interest in trying to understand the world and what is happening in the world and what are the forces, both beyond our control, genuinely beyond our control, but also what are the policies that we can, imagine and even implement that make a difference?
00:29:26:01 - 00:30:01:18
Unknown
Okay. So you also said, I think it was the same interview that you thought that economics should the purpose of economics should be to devise ways of getting and getting the world to become more prosperous and to have shared prosperity. That I was not surprised that you said that. But then you said you thought that good economics was like engineering, like building bridges and building infrastructure.
00:30:01:20 - 00:30:28:04
Unknown
Why don't you elaborate? Because I forgot to the econ department here or at MIT, for that matter. Not all the colleagues will agree with that. So what? What's the connection that you see between building things? And in that interview you said bridges and economics. Why do you think that economists should have that point of view? Okay, so what I was saying the interview was that that was what I believe when I went into economics.
00:30:28:09 - 00:30:52:15
Unknown
And I would say that for a long time I didn't see economics as that. But I think today, Sebastian, I do I think that, what I find is not economists alone are not economics by itself, but economics working with other disciplines, including engineering or public health or other other fields. I think we have a lot to add in terms of very practically, what can be achieved?
00:30:52:17 - 00:31:20:05
Unknown
How would you put this together? What makes it robust in the face of global economic difficulties or financial crises or what have you? And I find, certainly on our campus at MIT, a lot of productive conversations with engineers who want to build things, and particularly people who want to build systems, around critical minerals, for example. Well, thinking about the economics of that and thinking about where that fits in the economic system of today and tomorrow is, is very constructive for them and for me.
00:31:20:11 - 00:31:57:21
Unknown
Okay. So you mentioned, I want to say on passing, you may be offended by these, passing unions, who we had as an early speaker in the Harvard lectures, Angus Deaton, our friend Engels, and one of the things that he said is not at the lecture, but in his recent sort of, may I Cooper in the IMF, finance and Development, that unions have to sit at the table in deciding which direction I will take.
00:31:57:23 - 00:32:23:05
Unknown
So it's related to what you told us here, power and how I will affect polarization. But he says unions should sit at the table. How do you see that? How could that happen? Do you agree with that notion? Yeah. Yes, I do agree with that notion. And, there are unions that, feel the same way. And I think that, you know, that there's obviously tension.
00:32:23:05 - 00:32:40:20
Unknown
And we talk about this in the book more than in passing. By the way, I don't know you passing here based on here fair I don't know the book. Right. I yeah, yeah. I mean, I think that, you know, if you, if you don't have a seat at the table, then your visions and aspirations are just going to be ignored.
00:32:40:20 - 00:32:57:08
Unknown
I mean, for everyone. And so if you say, right, who can represent workers? What is it the workers need? What is it that would really enhance job quality? What makes people safer at work? What will really increase productivity and therefore make it possible to have high wages? I think unions have a lot to add to that now.
00:32:57:08 - 00:33:18:22
Unknown
So do you think that unions should be strengthened that that that the trend of unions, having lost power in the United States has been detrimental and that there should be a rethinking about the role of unions? I think the decline of trade unions in the United States has definitely played a role, a role in the decline of the middle class, because those were good.
00:33:19:02 - 00:33:42:08
Unknown
A lot of those union jobs were in manufacturing, were good jobs. And I believe in fact, you pointed out to me that President Trump called the the head of the UAW to the states today. He gave a little 90s. And I think that that speaks to this, this, concern that many people have legitimate concern that, those jobs are further going to fade unless some other policies are adopted.
00:33:42:08 - 00:34:02:04
Unknown
I'm not endorsing Mr. Trump's tariff policies at all. We'll get to the tariffs. But yeah. So I think look, I think voice for voice for workers is important. I think trade unions are important part of this. The AfL-CIO has a technology group that that works on this. And we're very supportive of of them. And I've talked to other specific unions where the conversation is not, how do we stop this?
00:34:02:08 - 00:34:24:08
Unknown
Because I think the at least the young people I've talked to don't believe you can stop technology, but how can we argue for technology, push technology in a direction where it's better for the workers, better for more of the workers who keep their jobs? That's a reasonable conversation. Okay. So let's let's change topics you worked in in Russia and the Ukraine.
00:34:24:10 - 00:34:47:04
Unknown
So tell us a little bit about that experience. What did you do there? And how that percolates into the the current situation? I am not sure. I don't remember if you were in Russia and the Ukraine or just in the Ukraine. Yeah, in the early 1990s, I worked in the various parts of the post-communist world. I worked for the first solidarity government in Poland.
00:34:47:06 - 00:35:23:14
Unknown
I worked in Ukraine, from before independence, actually. So, in 1990, 91, before, before the Soviet fell apart. And I also worked in Russia at various points, during the 1990s. And, I ran a management education center in Saint Petersburg for Duke University, and I worked for various projects in Moscow. And in the second half of the 1990s, my perspective, on, On the War is that, the full scale invasion by Mr. Putin is absolutely horrendous violation of many things, including agreements that the that Russia.
00:35:23:14 - 00:35:44:07
Unknown
And if Mr. Putin had signed previously and I think that Ukraine will will we'll keep fighting and I think that, ultimately Ukraine will survive. But it's going to be extremely, extremely nasty that there are better ways to end the war, including some economic proposals that are out there that I've supported quite strongly. So can you talk about that?
00:35:44:07 - 00:36:04:22
Unknown
What what kind of economic, proposal have you made? And, well, as to end the war, I mean, I related to so the, the primary export of Russia is oil, some gas, some petroleum products, but it mostly sells crude oil at this point, most of that crude oil is carried by tanker. And all of these tankers attract.
00:36:04:22 - 00:36:28:09
Unknown
So it's public commercial knowledge exactly how much Russian oil is on a ship anywhere in the world. You follow the ships by satellite, among other forms. You can't. Ha. If you try and ship it to other ship, that that can also be tracked. And so we know exactly who buys the oil from Russia. And the proposal under the Biden administration was to put a cap on the price of oil and to lower that progressively.
00:36:28:11 - 00:36:59:00
Unknown
And Russia needs this, revenue. This is how they buy their imports, including electronics and weapons systems from other countries, such as such as China, not only China, the current proposal actually, which proposal of the week, which has been a little bit lost in the other noise, comes from, Senator Lindsey Graham and 49 co-sponsors is in the Senate, Democrats and Republicans who are arguing for they call it, secondary tariffs.
00:36:59:02 - 00:37:25:17
Unknown
But I think secondary sanctions would work just as well. And in effectively other ways to tax those Russian oil exports and reduce the revenue that Putin receives. If the president, determines that the Russians are not cooperating with the peace process, which they're not. So I think that there are ways to to go at the Russian oil revenue without disrupting the world oil market, because that would be problematic in terms of spillover consequences.
00:37:25:19 - 00:37:49:09
Unknown
And, the good news is steps have been taken in the right direction. The bad news is too little and not yet not yet enough. Okay. So, let's let's talk about, today, the tariffs. So I'm not going to ask you whether you do you agree because you already said you don't and that most economists don't.
00:37:49:11 - 00:38:22:18
Unknown
But I want to put this in a broader context. Many economists, including Joe Stiglitz, Paul Krugman, Benny Rodrik have, become very critical of globalization and have argued that we need industrial policy and usual industrial policy tends to have a component of tariffs. So why don't you tell us what you think from that perspective?
00:38:22:20 - 00:38:55:07
Unknown
Globalization, industrial policy, and how that, contradicts what you think about that. What is, what was announced today, which is not industrial policy is like mega super, absurd. Tariffs levels, right? Yes. But I think the main problem with what was announced today is we don't really know what was announced at these new permanent level, 300, 397 pages past the report.
00:38:55:07 - 00:39:15:20
Unknown
I wish I did. I read 97 already. Well, you're way ahead of me. You're way ahead of me, as usual. Sebastian. Look, I think the uncertainty about, you know, are these new levels is it going to get even higher? Are they going to be negotiated away? We don't know. And that's a big problem for the real economy, because how how can you make any business decision that involves anything imported if you don't know what the price is going to be?
00:39:16:01 - 00:39:37:00
Unknown
So I think that's problem number one. Problem number two is that, as I said, and I emphasize the the increasing polarization in this country is very much about the pressure that's been on the middle, which is partly automation. That's what we emphasize in this book, but it's also globalization. But to to say we'll put up massive tariff barriers and the jobs will magically come back.
00:39:37:02 - 00:40:01:04
Unknown
I think that that is an illusion. I don't think that's what's going to happen. It wouldn't surprise me if we get some, increase in manufacturing output in this country. I think that's been in the works for a while, but I think it'll be highly automated. You won't get a lot of jobs. From that, the proposal that, John John Gruber and I put forward in 2019, a book called Jumpstarting America, was to double down on what we're really good at in the United States, which is this kind of enterprise.
00:40:01:04 - 00:40:28:21
Unknown
Universities, science, invention, commercialization. Put more money into NIH, ramp up biomedicine. Yeah, exactly. We're going in the wrong direction. Right. The Human Genome Project cost the government private venture capital. Didn't want to take it on because there were too many spillovers. Too much uncertainty cost the government a couple of tens of billions of dollars. It's an industry that supports 300,000 people now, making really good money.
00:40:28:21 - 00:40:47:13
Unknown
Oh, and they also provided you with, Covid 19 vaccines. You may not like the vaccines. I buy them all. Okay. So you can make up your own mind. But so I think that investing in the future of science and technology and commercializing it with 330 some million people in a world of 8 billion, that has a lot of problems.
00:40:47:13 - 00:41:15:18
Unknown
We're inventors, which we find solutions. Sebastian. That's that's my answer to the globalization thing, which is invent more, invent better, move up the valley. What do you tell the the the people who say that Brazil, should have, industrial policy or, Indonesia, and should, should, have, an active policy to, using tariffs, to increase manufacturing and so on and so forth.
00:41:15:18 - 00:41:43:10
Unknown
Are you that's, did you write that the definitive paper on this in 1983? Sebastian? I mean, I think it's a trick question, right? Because, the history of Latin America is full of brilliant, brilliant, brilliant economists. I mean, it's sort of coming back now. Yes, yes. Yeah. Look, I think that, it's very much coming back, and I think it's very dangerous, and I think it's going to hurt us, and I think it's going to hurt other economies, because when we when countries have tried import substitution, it doesn't work.
00:41:43:10 - 00:42:10:12
Unknown
It doesn't work. Right. So I have a last question before I ask, the public for question. So but going back to the your, I, discussion, I forget who maybe it was, old as well. Who said you really to take advantage of what the LMS offer, you really need to know how to communicate to them with them.
00:42:10:14 - 00:42:48:13
Unknown
And you have to know how to prompt them. And I started thinking about that. I think that maybe that is you will learn how to do that unless you're doing coding, with very solid, liberal arts. Degrees. And then that means that the humanities and the literature and the history, and going back to basics in college, will be the way forward, because that you need to have a fruitful conversation, with, ChatGPT.
00:42:48:15 - 00:43:17:06
Unknown
What do you think that there is, that sort of, a collateral effect or, spillover that really the humanities will revive because we need them to have a conversation with. ChatGPT. Okay. I think the humanities is going to do. Well. I don't think it's in order to have a chatbot conversation with ChatGPT. I think it's in order to talk to humans and and to communicate with humans and persuade.
00:43:17:08 - 00:43:35:17
Unknown
We don't talk to humans anymore. Well, all right, we need to we need we need to get back on that. On track with that. But, so one of my friends who runs a lab at MIT employs some computer science grads and some non-computer science people who are humanities philosophy type people. And he says the productivity of the non-computer science people has gone up relative to the computer science people.
00:43:35:19 - 00:43:57:11
Unknown
Because, you know, you don't have to do coding. You have to you don't know how to do coding anymore. You can have I help you do the coding. And so I think it does change the relative value of certain kinds of skills. And I think it does tilt towards being able to have conversations, being able to, understand how other people are feeling, be able to find persuasive arguments or work in a team.
00:43:57:13 - 00:44:27:20
Unknown
And that's what we emphasize in our MBA program. So I said that that was my last question, but I was lying. My last quote, I am, intrigued by the fact that, do you guys think that there will be no effect on total productivity growth? There was a quote from Bob Solow, the famous quote, we can see computers, which he said in the late 70s.
00:44:28:01 - 00:44:55:00
Unknown
Yeah, we can see computers everywhere except in the productivity data. That's what Bob solo said. I'm surprised you really, really think that there will be no effect on productivity. So when you say, this is what, what I heard you say, the trend for productivity will continue to be the same, but now it will be driven in large part by AI.
00:44:55:02 - 00:45:16:20
Unknown
If that is the case, it has to find out something that was producing that trend before. What is it? I mean, I find it hard to believe that there would be no change in productivity. I think you're being on the pessimistic side on that regard. Possibly. I mean, we are trying to be careful and grounded in the data.
00:45:16:22 - 00:45:37:06
Unknown
And so and the the improvement of the capabilities of this technology is remarkable. And it's come very fast. And a lot of my very expert friends are surprised by that. But if you look at what's actually happening in the workplace and look at what the technology can actually do and look at to try to measure that impact and look at the tasks that can be taken over.
00:45:37:06 - 00:45:54:01
Unknown
This is what drones paper is about, for example, it's not yet persuasive that it moves the needle macro dynamically. The quote I have, the other quote I have with this other quote is from John Williams, who's the president of the New York Fed, very sensible person. And his line, which I like a lot, is that much.
00:45:54:01 - 00:46:15:02
Unknown
It does a lot. You change many things, but in aggregate it just delivers roughly the same productivity gain. We'll see. I mean, again, if I, if I'm wrong, it's not the worst thing I can. I can spend more time on the beach. Okay. So my I just want my greatest use of, of, AI is for translation.
00:46:15:04 - 00:46:39:10
Unknown
And, if you, if you are working with archives that are in a different language now with your iPhone, you take a photo, even if it's handwritten and you cannot decipher what is written there. I will et decipher it and be translate it for you in three seconds. It is truly amazing. So let's open up, for, to the public for, for questions.
00:46:39:12 - 00:46:45:11
Unknown
So.
00:46:45:13 - 00:47:00:04
Unknown
So raise your hand. We have to, don't be shy, but so that they can see you on bring remind you. Oh, yeah. Okay, so let's start at the back there. Yeah.
00:47:00:06 - 00:47:44:14
Unknown
Hi. Thank you. Simon, really appreciate that. I have a couple questions. And the first is regarding the inequality that you talked about as a result of AI. And the second is about the skills that will emerge through AI. So the first one you talked about how it will kind of, exacerbate that inequality. But I think the hypothesis is that the democratization of tools like AI, similar to the internet and other tools, will kind of be the tide that lifts all boats in the sense that the average person can get, an expansive education very quickly.
00:47:44:14 - 00:48:16:16
Unknown
They can complete tasks much more efficiently. You do that at scale and in aggregate, it kind of drives everything up. So if that's the hypothesis, what do you find incorrect about that? And and I look at some comparisons like I said you brought up the industrial changes. You talked about machinery, the automotive industry. I feel like those are fundamentally different mental models compared to the digital internet information age.
00:48:16:18 - 00:48:43:15
Unknown
In the sense that on the industrial side, it's about how can you contribute to building a car, contributing to, a corporation's productivity. Whereas with the internet, with digital tools, it's individual productivity. You can start a business, you can launch your own venture, you can do all those things in a much more self-sufficient capacity. So how do you make that comparison compared to like the automotive industrial side?
00:48:43:17 - 00:49:02:19
Unknown
You also look at India, how they've jumped past desktop and gone into mobile. Those are leapfrogged in productivity. So how do you square all of that? And finally the second thing is when it comes to okay, okay, I just want to just what okay. So let's we're going to accumulate three questions and then ask Simon to answer.
00:49:02:19 - 00:49:12:18
Unknown
So over here. Yeah I think that was three questions. But anyway. So
00:49:12:20 - 00:49:41:20
Unknown
Thank you. I want to ask somebody to elaborate on the issue that women will be more particular, very squeezed. And if you were meeting a women's rights organizer, for instance, what might you have the key to, not have that have. So I'll take advantage of being the moderator. I mean, when you said that, I was also surprised.
00:49:41:20 - 00:50:05:14
Unknown
And then I thought, maybe it's the job rather than the gender. Maybe it's, childcare. And I take my grandkids to childcare. Still there are mostly women working there, and I don't know how they can use it. So it's that's part of the work. And this again, one more question over here. And then Simon will answer.
00:50:05:14 - 00:50:19:02
Unknown
Then we'll get another round or thank you so much for the presentation. I'm very curious. Is based on your expertise, how would created the input? Steffen. Given we have a need to call it the irony.
00:50:19:04 - 00:50:43:07
Unknown
Okay. Simon. Yes. So? So, I can answer the first the second question of partial. The answer partially, similar overlaps. So there's no question that that if, I can reduce barriers to acquiring knowledge, it could be transformational in many parts of the world. So the, formal schooling doesn't work well for everybody. It doesn't work well in many parts of this country.
00:50:43:07 - 00:51:13:17
Unknown
It's very bad in other parts of the world. If, I mean, if somebody wants to work on a breakthrough, application world changing application, I would say education through AI is the way to go. And that could be really transformational for many people, particularly lower income people. The problem is, of course, and we talked about this in the book that, this is what we thought, as you said, the internet was going to do this work we thought PCs were going to do.
00:51:13:22 - 00:51:46:21
Unknown
Remember this. So the hacking culture of the 1960s and into the 70s was anti IBM anti-corporate, put the technology in the tools in the hands of people decentralize innovation. So we've had that for 40 years. And and yet we've had this growing divergence of real wages. So it's not unfortunately clear that you're going to get anything different from the, the next step in digital transformation or digital technology than what you got over the previous 40 years.
00:51:47:01 - 00:52:09:20
Unknown
And the irony is, yes, exactly. That, that the, in the automobile industry, you had to work for Ford or GM or one of the other big, companies, and you were a small cog in a big corporate machine. And yet real wages did rise, right? That was the period when we had the middle class growth, but we had unions and and now we're in a world where we don't have unions because the structure of private employment has changed dramatically.
00:52:09:20 - 00:52:33:07
Unknown
And that's got to be recognized and called out. And, and the, the technology alone is not, is not going to, is not going to change this. The as for women. So the issue for women is exactly the jobs that they have. And if you look at so this comes from people who look at the kinds of tasks, all the different kinds of people and what tasks the algorithms are relatively good at.
00:52:33:07 - 00:52:57:04
Unknown
And it's actually the clerical work that's relatively exposed. How to work with some routine element that's the most exposed to algorithmic take over. And women do more of that. Young people do more that a lot of times it's a career ladders. A lot of times these are the jobs that people can, find a certain stage of their career, for example, at the beginning of their careers in terms of the advocacy for women's rights, I think that's a really interesting question.
00:52:57:04 - 00:53:21:01
Unknown
And it has to be, if you take our framework seriously and the evidence that we focus on, it's about what kind of tasks people want to do, what kind of tasks require expertise, what are those tasks going to be that are going to be in demand and well remunerated in the future, and helping women recognize that early and believe in those and identify with them and then acquire the skills and enough of the familiarity with the technology to be able to benefit from that.
00:53:21:02 - 00:53:40:11
Unknown
So where are we going in terms of new task creation? It's a very hard question to know. Right. But but if you have enough people plugged in and discussing that, I think you might make some progress. What is creativity going to look like? I have no idea. And that's, you know, obviously a fascinating and fun part of this process.
00:53:40:13 - 00:54:06:23
Unknown
I think the, expansion of what we can invent is, is a great thing and, and a very positive thing. But I think we also need to consider the consequences for people who are not at the forefront of people who are being displaced. And, and, you know, are we creating well remunerated work for other people? I think that should become I think it will become a bigger topic,
00:54:06:23 - 00:54:22:13
Unknown
for this kind of discussion. So we're going to have another another round. Oh, after the break. Okay. But let me ask the first question of the second round of the one word that you did not mention or area is the environment.
00:54:22:15 - 00:54:42:12
Unknown
And, if I understand, these models use an enormous amount of energy and there is this whole issue that, where is that going to come from? And so on and so forth. So, maybe you can talk a little bit about, about that. So, in here. Yeah. Or. Very well. I think we have another mic over
00:54:42:12 - 00:54:58:12
Unknown
literally. Yes. I think there is another word that, you did not mention. That's culture. And, I'm reminded of Sam Huntington's famous quote. He said that in the 1960s, South Korea and Ghana had the same per capita GDP.
00:54:58:17 - 00:55:12:06
Unknown
And several decades later, there's a huge divergence. And he argued that culture has a lot to do with it. So in the context of your work, what role do you see for culture?
00:55:12:08 - 00:55:22:10
Unknown
We have another question there. Yes, there is one personal.
00:55:22:12 - 00:55:57:18
Unknown
I thank you so much for the lecture. What does the frontier of possible expansion in jobs that AI is going to create look like? If that can be forecasted at all? And if that is, if that expansion is not going to successfully outstrip the automation of jobs, what does the discussion look like on, the competitive alternate theories for how labor accords with wages, since things like UBI are constantly, questioned as being quote unquote free money, which is obviously, not the case, but, those are my that's
00:55:57:18 - 00:56:01:00
Unknown
that's not true.
00:56:01:02 - 00:56:31:06
Unknown
Okay. And why don't we ask one more an over there? Well, the mic is going, you didn't mention of Europe. Mario Draghi, you only get 20 minutes. That's the other I know you didn't mention. Is not that you ignored it. Mario Draghi and his, reports for the EU. One of the things that the president said, he said of the ten largest and most efficient models, eight are in the U.S. and two are in China.
00:56:31:08 - 00:56:41:07
Unknown
Basically, you were saying not when it is in Europe. How do you see Europe in this whole, development of the AI, world going forward? Let's get a question here on that.
00:56:41:07 - 00:56:57:16
Unknown
thank you. But you've sort of partly anticipated my question, but because, you know, the talk began, by you indicating the sort of path dependent nature of technology and that it depends on the sort of decisions, various actors make.
00:56:57:18 - 00:57:23:05
Unknown
But I think, we sort of looked at domestic actors, so, you know, states and, and unions. But what about sort of international organizations? Is there a scope for multilateral, sort of international actors to have any relevance in the future of AI or sort of not serious actors anymore? Okay. So I think I'll take these questions in reverse order.
00:57:23:07 - 00:57:45:20
Unknown
The international organizations are not players in this space. The, allocation of capital, according to the best estimates we have, which don't include China because we don't really have accurate information. So this is China. It's 97% of the capital going into AI investments right now is in, sorry, not 95% in the United States, 3% in Europe, and 2% of the rest of the world.
00:57:45:20 - 00:58:05:13
Unknown
It's incredibly skewed, much more skewed than other industrial technologies. And so even the computers, even the PCs, we had more and even I think it the internet, we had more action in Europe. Now, Europe's obviously got, a number of other geopolitical problems that are rather in their face right now. And I think there's tremendous opportunities for them.
00:58:05:15 - 00:58:28:23
Unknown
I don't think they can outcompete the US and the foundation model level of AI. I think it's too late for that. But I think there's many other places that they could, invest, develop technology, commercialize it. I think Draghi was another MIT graduate. Draghi was at another. Remember student Draghi is absolutely spot on. And it remains to be seen whether or not the Europeans get that and how quickly.
00:58:28:23 - 00:58:55:15
Unknown
So I'm not writing Europol off at all. But there's no question they fell behind in a big way here. So the decisions are being made by the US tech sector and the US tech sector has got, well, you know, how much political voice they have and where they get to sit at the inauguration and so on. So this is kind of today, one of the things I regret, I don't know if you saw the likes of me of I don't I'm in trouble in the garden Liberation day.
00:58:55:17 - 00:59:20:00
Unknown
Like, he didn't recognize, he so. Yeah. Know. Yeah. Okay. So as far as I spent part of the 1980s also studying the Soviet Union, and I went to seminars where we would discuss who sat next to whom on the podium. Yes. Yeah. So we're a little bit slipping into criminology here. You know, on the jobs question, if I understand correctly, I think the problem is exactly that.
00:59:20:00 - 00:59:48:05
Unknown
We can see a lot of the automation. We can see it very concretely. And when you talk to corporate executives, I mean, these are not, evil people that people who have a job and the people and their job is to make money for their shoulders. They can show you and tell you exactly how, the amount of time needed to handle a customer call is falling from 8 minutes to 6 minutes, because the AI now does the transcription, it does it with less error, and it actually discloses some of the actually you comfort in this.
00:59:48:08 - 01:00:08:00
Unknown
It records less, confidential information is not supposed to be written down than it than a human does when the human takes the record. So we can see the automation that we don't yet see the tasks. And that's what we're pushing for, and that's what we're encouraging people to look for and to research and to try to develop more new tasks, more channeling the creativity to do things humans haven't done before.
01:00:08:04 - 01:00:28:00
Unknown
That's going to be that that's that's the that's what you need for the labor market. Otherwise, we're exactly trying to find some basic income for people, but they won't if productivity goes up a lot, then we can afford basic income, right? If it goes up enough. But I don't think it's going to go by that much. Therefore, basic income is not appealing to me as a strategy.
01:00:28:03 - 01:00:49:01
Unknown
I also would suggest that politically, having a set of people, who are on basic income doesn't is very hard to sustain. Kurt Vonnegut wrote a brilliant book about this in, I think he wrote at the end of the 1940s called Play a Piano A Society with two, where there's some very highly educated engineers who run everything and everyone else does make work and is low status and pretty unhappy.
01:00:49:04 - 01:01:12:11
Unknown
And I tell all my audiences, if you're only going to read one book, if you heard me speak, you should read my book. It's called Power and Progress. But if you can read two books, Kurt Vonnegut is play a piano. Brilliant. I mean, he wasn't right about, he was very caught up in and studied, or thinking about cybernetics, which was what one of the one thing that I, one name that I do always had been automation had previously.
01:01:12:13 - 01:01:31:09
Unknown
He wasn't right about what happened in that part of the, industrial age, but I think he's quite prescient in terms of what he was wrote about going forward, culture. So I so my, my, wife's family's from Korea, my, my father in law, who sadly passed away. I sent me a one line email when I became chief economist of the IMF.
01:01:31:15 - 01:01:53:14
Unknown
He said, please be nice to Korea. So I was and I've thought a lot about exactly this comparison. The, the India, the, Korea, comparison, you know, and the fact of the matter is that some people, I think they might have been from the world Bank, but Sebastian might say they were from the IMF in the 1950s, looked at Korea and gone and other countries and said, you know, Korea is not going to go anywhere because they have a culture problem.
01:01:53:16 - 01:02:16:04
Unknown
Right? And I think culture is positive and plays a has played a constructive role in what happened in South Korea. But but it was much more about building resilient good rule of law, ending corruption. And she building a pretty resilient democracy. That I think was a bigger has was it played a bigger role. But I'm happy to give an assist to culture.
01:02:16:06 - 01:02:37:06
Unknown
But that's a basketball term, right? We do things, you know, and on the environment. Yes. Look, you sure you're right about energy? The, the, advocates for the sector say energy use will come down. The models will get better at it. Being efficient. But I think, one way to bet, one way that some people bet on the future of AI is by buying up power generation.
01:02:37:08 - 01:02:56:21
Unknown
Right? Particularly you think the crypto world is going to go boom or pop, or one of those noises, that there's going to be a lot of pressure and a lot of pressure on electricity prices. I think, Sebastian, that's a place where we're going to see some real friction going forward. So you regulators say that they should read a book.
01:02:56:23 - 01:03:17:22
Unknown
I think the book value out of books, the white of burning white House press, that was, a major Canadian one. So the the book is called white House burning. It's a reference to what something happened in the War of 1812, which just a great way American history works have was actually in the summer of 1814.
01:03:18:00 - 01:03:50:14
Unknown
And that was, a war between the United States and Britain. And the British broke down. Well, the Canadians were on the side of the British or vice versa. And they won, and the Americans suffered severe reverses because kind of a worse candidate can win every war, if it wants. Or they could look, if they want to become the 51st state or 51 two and three and have six senators, the people, the good people of Canada make the people of Massachusetts look left wing, look, look right wing.
01:03:50:14 - 01:04:26:19
Unknown
Okay, because they have socialized medicine anyway. The, but the point, the point of that book was, was about, undermining US fiscal capacity because the US military was woefully underprepared, because there was no they'd overspent basically, relative to, relative to their revenues. And so the point of that book was to, this was in the aftermath of the financial crisis to, rebuild finances and and to put the debt, the US government debt onto a sustainable basis, which I thought then, was entirely feasible.
01:04:26:19 - 01:04:58:18
Unknown
And could be done without a great deal of hardship. But unfortunately it wasn't done. And so we're in a place now where further tax cuts, for example, will make our fiscal position more precarious and I think, undermine our national security. Honestly, we have, so. Well, talk to us about the the debt you just mentioned. Okay. So I each, report from Senate Sloan and I show them that we GDP in the U.S., and it was very persistent for a long time.
01:04:58:20 - 01:05:26:03
Unknown
And then can we go through of the percent of GDP and cents on some but one? And then comes, meaning and it goes from, Ken Roberts has the end of the world. And then you went to a hundred and then to one point. Is there any we can go further? I'm going to be why can't we be like Japan?
01:05:26:05 - 01:05:42:19
Unknown
Okay. The great Japan that two sets of our GDP, right? The question is, when will the world end? And, one thing you learned, one thing to tell you, actually, the first day of being chief economist of the IMF is never predict, never give it predict a number and an event, a date, precise date in the same prediction.
01:05:42:20 - 01:05:59:16
Unknown
So, the world will end, but I won't tell you when it's best to look. I see you know better than anyone. In fact, literally better than anyone in the world. I think, we don't know what is the carrying capacity of the world relative to US debt. If we push it higher, we might get away with it.
01:05:59:16 - 01:06:16:22
Unknown
Rates might stay lower. Although the the phase of the 20 tens when people are arguing you will get issue, unlimited debt and rates will never rise. That phase is over. Thank thank goodness. Right. That was a very unreal and I think dangerous phase. So now the point is is clear in people's minds that the bond vigilantes can come for anyone.
01:06:17:03 - 01:06:31:16
Unknown
They came for Lester. I was asked by the BBC to comment on Liz Truss's government, a couple of years ago. And it was. I was late on a Friday and I thought, I have a lot of bad things to say about her fiscal policy. But you know what? I'm really tired and busy with other things. Wait until Monday and next week.
01:06:31:16 - 01:06:52:17
Unknown
Exactly. She was gone. So I always take the call from the BBC. Don't hesitate to speak out about the dangers of irresponsible fiscal policy. Well, my lesson learned there. But, you know, I think it's fascinating. I mean, what's the what's the if we're legalizing an encouraging cryptocurrency? Sebastian, what does that do for demand to demand for the US dollars reserve currency?
01:06:52:17 - 01:07:14:03
Unknown
Now, it might go down because there might be more substitutes, but it might also create much more instability in the world. And therefore demand for the US dollar goes up. So I think it's imponderable and unanswerable. But my recommendation is to be careful. The the debt, in your historical description, which is right, of course, but the, other big there were other big spikes historically, particularly when wars occurred.
01:07:14:03 - 01:07:30:09
Unknown
And World War Two, of course, was a massive spike in debt. And that the Alexander Hamilton philosophy was run up the debt in a crisis or in a war or in a financial crisis. I think we were okay with that. But then bring it back down as a percent of GDP, allow the economy to grow while you stabilize the debt.
01:07:30:11 - 01:07:40:16
Unknown
And I think that is, exactly what we should be pursuing in the United States. And that's not, unfortunately, what what both Democrats and Republicans have preferred to do. But you want
01:07:40:16 - 01:07:54:16
Unknown
about Germany? Why am I asking about Germany now? I know before it's because Germany just relaxed its constitutional constraint on how much debt they could have.
01:07:54:18 - 01:08:06:23
Unknown
So they were constrained at 60% and they just relax. So Germany, Germany's going through a difficult time. I think I would you I mean what a great country. Right. So. Well when you
01:08:06:23 - 01:08:21:00
Unknown
asked me that question, I immediately I tend to think historically and look that the big the two biggest, the biggest, success in the world of the past 70 or 80 years is that Europe no longer fights.
01:08:21:00 - 01:08:38:22
Unknown
Western Europe no longer fights itself. Okay. They had for hundreds of years they fought devastating wars that had global impact. And actually the US tried to stay out of them and got sucked into a couple of them. And then there was this postwar moment where the US actually brought everyone together and said, you know what? We're not going back to empires.
01:08:39:00 - 01:09:05:09
Unknown
We're not going back to that same sort of competition for territory. We're going to run this thing. We're going to call something called the Bretton Woods system, with a much more open trading. Set of relationships and and a Pax Americana to back it up. And I am very worried about Europe writ large. I'm very worried about Russia, Ukraine and what happens there and what happens coming from the East.
01:09:05:11 - 01:09:46:01
Unknown
I am I'm not worried about Germany becoming overly militarized and overly aggressive, but I am worried about whether the Europeans can, reignite economic growth and deliver shared prosperity. And the developments in France this week, including with Marine Le Pen being excluded from the presidency, are one further indication of how close some of these well-established democracies are to to falling into a different kind of equilibrium, which, I mean, I hope everyone at UCLA knows the among the many things Sebastian's famous for is writing about Latin American populism in the 1980s in a way that was not only extremely helpful to me when I when I was in the economics, and extremely insightful for understanding
01:09:46:01 - 01:10:13:17
Unknown
Latin America in the 1980s and for what happened afterwards as they tried to grow out of it. But many other countries have fallen into versions of populism. I think we can agree subsequently, including potentially, we'll see the United States. Right. And Europe, I think, faces some of the same dangers. So I, I firmly believe that building strong economic, political institutions is what you need for sustained economic prosperity and for a vibrant democracy.
01:10:13:19 - 01:10:32:09
Unknown
But if you don't if even if you have those good institutions and you don't deliver on shared prosperity, if you leave people behind and those people get angry, then you're dealing with trouble and you may be less than behind because of the way globalization was managed, maybe left them behind because technology did some things that, you know, you didn't even understand at the time.
01:10:32:09 - 01:11:07:06
Unknown
It just overtook you. Or maybe you, you know, you put the boot in and you gave the workers a hard time. And so you get away with it. Whatever the combination of whatever the history you want to tell, leaving people behind, even in these by historical standards, rich democracies is a very bad idea for, well, for everything, for for anything you care about for, for, social stability, for peace in the world, for, you know, living as we've all lived in a world substantially without the world, substantially without interstate, massive conflict of the kind that, that, that it experienced 100 years previously.
01:11:07:09 - 01:11:31:21
Unknown
So I hope I really hope we're not going back to something like that for the last of the open up, I say there are two camps, the optimists, the pestilence way. So I testified, at the height of the financial crisis to it to House Committee and, on, on my, on my left was Joe Stiglitz.
01:11:31:23 - 01:11:50:14
Unknown
And on my right was Tom Hoenig. Joe Stiglitz is obviously the dean of left wing economists everywhere, always. And Tom Hoenig was then president of the Kansas City Fed and, maybe no, maybe he wasn't a registered Republican, but he was certainly a right leaning independent. And I was right smack in the middle. Sebastian, I'm always you'll always find me right in the middle.
01:11:50:16 - 01:12:07:00
Unknown
The, I right in the middle of the of the former chief economist of the IMF. Come on. The IMF has a test. IMF, you don't get to be chief economist. I mean, if you're if you're extremely left or extremely right, there's a test for for moderation and and being reasonable. And I did really well on that test.
01:12:07:15 - 01:12:12:20
Unknown
Okay. On that note, thank you for your time.
01:12:12:20 - 01:12:12:23
Unknown
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