I've covered the economy for a long

time. I've covered the financial crisis.

>> The bottom to America's financial wos

appear nowhere in sight.

>> I covered the pandemic.

Supply chain issues, record high

inflation, and labor shortages slow

pandemic recovery.

>> I cannot remember a stranger and more

chaotic year in the economy than this

one. from the tariffs and liberation day

and then the deals and the pauses and

the carveouts.

What is our tariff policy now to the

giant AI buildout that is keeping the

economy afloat?

Is it good for us? Is it bad for us?

Good for whom? Other years the economy

is bad. It's good. But what is the

economy right now? So now as 2025 comes

to an end, I want to do a show wrapping

up the strangest year in the economy

that I have covered. So, I wanted to

have on Tracy Aloway and Joe Weisenthal

who at Bloomberg and co-host the

excellent economic podcast OddLotss to

talk it all through with me. As always,

my email Ezra Kleinshowny Times.com.

>> Tracy Aloway, Joe Eisenthal, welcome to

the show.

>> Thanks so much for having us.

>> Yeah, thrilled to be here.

>> All right, so we're here almost to the

end of 2025. Uh Tracy, let's start with

you. How would you just describe how the

economy is doing right now if you knew

nothing else?

>> Um, that's actually a really tough one

which probably says something about this

moment in economic history which is no

one really knows anything. Uh, you know,

we had these tariffs that came in and

everyone was expect not everyone but

many people were expecting those to have

an inflationary effect. We haven't

necessarily seen that even on things

like unemployment, but a lot of people

have been concerned about a recession

for ages now and that just hasn't

materialized. I think a lot of the sort

of traditional economic thought that

should dictate how things develop and

unfold isn't bearing out. And so I would

describe the economy as unexpectedly

chaotic. Perhaps it's just not acting

the way a lot of people thought it would

in the current situation. Is it chaotic

or is it unexpectedly normal? I I kept

thinking as I was looking at this data

that if you just showed me the macro

dead of the year, if you showed me the

jobs numbers like month, show me GDP,

you showed me inflation and I didn't

know any storyline, I would say, hey,

pretty normal year in the economy.

>> Yeah, there's a layer of policy chaos

built on top of an economy which seems

surprisingly resilient to that chaos.

>> Joe, what's your what's your state of

the economy gloss? There is clearly a

labor market deceleration happening. I

don't think anyone would dispute that.

So now unemployment is as of November

4.6%. All that being said, you know, the

temptation is to assume that okay, you

have this like creaking labor market and

then it snowballs and then you have like

a proper recession. But people really

have been talking about the imminent

recession for three years.

>> I remember Joe Biden recession. There

were so many imminent recessions and I

think everyone's just very gunshy right

now about callulling anything. We also

have this sort of weird thing with you

know the econ understanding the economy

is murky in the best of times. Then

layer on to the fact that data

collection prior to the government

shutdown has been getting worse and

worse response rates to government

surveys. Then you figure okay for during

the shutdown you know there impaired the

data collection process on top of that.

So you have this other multiple I don't

know error bands is maybe how you would

present it and then the underlying

economy itself let's say we had this

clear snapshot then you have this very

strange economy where we know there is

this one sector of the economy that's

doing absolutely phenomenally well which

is AI and other tech adjacent things and

then the other areas that probably are

sort of stagnating maybe a little like

stagflationary vibes so even if we had a

very clear picture let's say we had

great response response rates and all of

the surveys and they had been running

and we hadn't have a government

shutdown. This is just a very strange

underlying condition. So levels and

levels and levels of uncertainty.

>> The ontology of the economy is unclear.

>> Yeah, absolutely.

>> So I want to go through some of these

stories that you all have covered very

closely that we've covered some and try

to go through what happened at the start

and and and where they've settled. And I

want to start on tariffs. Uh Tracy, you

mentioned the the tariffs. So, take me

back a little bit to the week of

Liberation Day. Um, there were a lot of

emergency uh episodes of your guys'

podcast, which were great.

What happened then and what has happened

at a high level since then?

>> Yeah. So, that was a crazy week for

obvious reasons. Sort of capital H

history being made. I think the

surprising thing to everyone was the

actual roll out of the tariff

announcement and just how unstructured

it seemed to be in many ways in this

idea that you know we were going to

impose tariffs on small islands um you

know out in the like in Oceanana who's

the penguins right and whose only export

is like bat guano or something like that

um it just didn't make any sense and you

know markets don't deal with uncertainty

at the best of times and this was like a

boatload load of uncertainty being

dumped onto the market. So, you saw this

huge reaction. What was even more

surprising is that the market recovered

so quickly. We spoke to a lot of

businesses back in sort of April and May

and asked them, "How are you dealing

with the tariffs?" And we heard, for

instance, from a women's clothing

company saying, "It's been absolute

chaos. We don't know what's going to

happen this year. I'm supposed to be

putting orders in for the winter

Christmas season. I don't know if I can

actually do that with my suppliers in

China. I don't know how much to order.

And yet, fast forward to now and things

seem to be ticking on relatively well.

The big question is going to be whether

or not that's an overhang from, you

know, earlier periods in the economy.

People have already bought a lot of

stuff. You know, they stockpiled

inventory coming into tariffs. So maybe

we're still living through that that

hangover in many ways. And maybe at some

point all that uncertainty, which you

would presume would cause businesses to

invest less in their own companies,

maybe eventually it'll hit.

>> One of the reasons the tariffs were were

hard to cover is they kept going up and

down. You know, then there would be

these bilateral deals with other

countries. Joe, I want to show you a

chart from the Yale Budget Lab that

tracks effective tariff rates.

>> This is cool,

>> isn't it?

>> Yeah. I love this.

>> Um that that that tracks effective

tariff rates since the beginning of the

year. So can you talk through what you

see on the chart just like what

happened?

>> Sure.

>> And then what you make of it?

>> Yeah, absolutely. So this is a chart of

the US average effective tariff rate

since the beginning of the year till

now. And at the start of the year, I

mean the US was a truly like it was an

open economy. We had very few trade

barriers. It was less than 5% on

average. Probably looks like it was

somewhere close to 2%. Then obviously

when we we start getting those initial

tariffs on Mexico and Canada and then of

course liberation day in early uh April

nearly 30% effective tariffs across the

board and then of course we started

getting the deals and the carveouts and

the bilateral arrangements and we've

settled in this area that's a little bit

you know somewhere between 15 and 20%.

But we are now a very high tariff

country. I think if you had taken those

first numbers seriously, people would

have looked at them as like no, we just

can't trade at these levels. With the

modifications, they became I think

tolerable. But I think like the way I've

been thinking about the tariffs is this

is like on the one hand you might say,

okay, tariffs are inflationary, right?

They raise the price of goods, that's

inflation. Another person might say

tariffs are disinflationary. Tariffs are

a tax historically and most economists

would say that when you raise the tax on

things, you're taking money out of the

economy. That's disinflationary. So you

could actually very it's kind of you

know to add to this uncertainty you

could make both arguments. The way I

conceive about

>> it's disinflationary because it slows

down economic.

>> Yeah. Because you're taking money out.

You don't have that money to so it's a

tax and so it's disinflationary. I think

the way the way I resolve the tension in

my head is not to think about inflation

versus disinflation itself per se but

just to think about this idea we have

raised the cost of doing business in the

United States. That's that I think we

could safely say. So Tracy mentioned we

talked to a woman's clothing retailer.

We're also in Alaska this summer and we

talked to this guy who runs who owns the

biggest furniture chain in Alaska which

is really fun. And he was talking about

how okay we going to find a company in

India that manufactures this couch or

chair instead of in China. So they find

workarounds which is why trade hasn't

come to a halt. But that company in

India maybe they don't take as many

orders as previously because they're

worried that by the time that couch gets

to the port that maybe the tariff

schedule is going to be different and

then the person doesn't want to take the

comp the importer doesn't want to take

delivery of it at the new tariff rate

etc. You know when it all shakes out

like inflationary disinflationary we

don't really know but you like add up

all of these factors it's going to make

uncertainty about sourcing decisions.

It's going to change your pricing. you

don't know about how consistent you're

going to access your goods. And so I

think in the end it raises the cost of

doing business or you know it throws

sand in the gears so to speak of the

economy in ways we may not feel for a

long time but which may over time sort

of degrade the economy or degrade our

standard of living.

>> It settles high right that is a big it's

more than half as high as it was um

right after liberation day. And I feel

Tracy like I listen to a lot of in that

period as in every period.

>> And I was listening to the Flexport CEO

>> Yeah.

>> tell me that global shipping was going

to collapse. I was hearing people say

that kids were not going to have

Christmas toys. And then Donald Trump

said, "Well, what do these kids need all

these toys for anyway,

>> which she's right, which she's right

about.

>> Um, it's the anti-materialist turn in

Bloomberg here." and and I was hearing

that things were just going to break

down if tariffs held at high levels and

then they held at high levels

>> and things did not break down.

>> Why?

>> Why? Uh it's an excellent question. So

one thing I would say is first of all a

lot of that hyperbole that we heard

about empty shelves and things like that

was right after the tariff announcement,

right? And so there's still a debate.

Had you stuck with those levels, maybe

we would have seen that. But even where

they settled at the higher rate,

actually if you zoom out on that chart

and go back to the 1930s, we're at the

highest effective tariff rate since the

Great Depression basically. So you're

right. This is really surprising. I

think one of the things that's happening

here is there's a tendency to

oversimplify

um I guess the business environment. You

know, people think there's a company in

the US that imports stuff from a

supplier in China and that's all that

happens. That's like the way things

actually get into my house. But of

course, there are all these middlemen

entities in between that process. And so

what that means is you actually have,

you know, a pretty diverse cushion to

absorb some of the tariff costs and

maybe even some of the operational

issues. So, you know, you'll have the

shipping company, maybe the shipping

company lowers some of their rates in

order to encourage business. You'll have

an actual importer who's bringing that

stuff and then selling it wholesale.

Maybe they'll start reducing their

prices to offset some of the tariff

rate. And so, if everyone is sort of

giving up a tiny slice of that value

chain, then the impact on prices can end

up being a lot less than than you

expected. One thing I real I appreciated

or really realized after co after the co

shock specifically, American businesses

are really good. Like they're really

wellrun. Like, oh no, we're going to

like figure out a way to turn this

restaurant into an overnight commercial

kitchen for delivery. And we saw this

incredible amount of like resilience

during that period. We saw a tremendous

amount of like companies figuring out

okay what do we have and how can we keep

operating during these extreme

conditions and I don't know like I have

come out of the last 5 years with a

greater admiration for the the

creativity and resilience of corporate

America to like withstand these shocks

and management and executive teams

essentially finding a way to very

quickly pivot and figure out how are we

going to keep running our business under

this new uncertainty.

>> But not just us, right? I mean, one

thing I think about when we were hearing

from all kinds of people who had line of

sight on global shipping data and port

data

>> that one reason the predictions of

collapse felt so vivid

>> was that it was so inhumanly complex.

You would think something that intricate

could not possibly be as flexible

>> withstand a shock of that magnitude.

this many shocks like shock after shock

after shock. I mean there have been wars

in this period.

>> That's right.

>> And that's like that was my you know

that was sort of my realization after

the co shock. I I mean there was that

was such an extraordinary impact every

corner of the globe restructuring life

almost overnight or maybe in like the

span of a couple weeks. And of course

there were like tremendous shortages

everywhere and all kinds of disruptions.

But somehow like the machine kept

ticking in a way that I think would have

uh you know looking back would have

surprised a lot of people.

>> But I do think not to be super negative

but I do think we shouldn't downplay the

impact on productivity right cuz there

are a lot of manhour being devoted to

figuring out the tariff schedule maybe

figuring out how to game it a little bit

and then filling out paperwork at the

docks and stuff like that. And I don't

know about you but I shop a lot. I

bought something from the Netherlands um

in September and I never got it because

the shipper said they couldn't figure

out how to mail to the US and who would

actually have to pay the tariffs.

>> I ended up getting into a credit dispute

with them. Yeah. And anyway, it took up

a lot of my time basic. Yeah.

>> So many of

>> I still don't have the item, but

>> we get so much content from Tracy. We

get so much

>> from my daily life.

>> Yeah. From Tracy's daily life, we get a

tremendous amount.

>> But that's like one thing, right? So

imagine this multiplied by millions of

things across various companies. It's a

lot of hours, a lot of manpower.

>> But but let me ask you about the other

side of this because we're talking about

the catastrophes that either didn't or

only sort of happened. And I I take your

point that there was a there there was

real disruption here even if it wasn't

um economy shattering. But obviously the

point of the tariffs which were a chosen

policy in the way that the you know

global pandemic was not was to create

benefits.

And as I would listen to the Trump

administration I would hear a few. I

would hear that it was going to bring a

ton of manufacturing jobs and and

capacity back to the US. I was going to

I heard a lot about how much income um

it would bring in revenue. Maybe we

wouldn't even need income taxes anymore.

I would hear a lot about the security

benefits of this. So the tariffs are a

policy meant to create a gain for

America. Did they

>> This is the funny thing where I know

it's so funny. We're talking about

tariffs for all these minutes or for so

long as if it was just something that

happened. But to your point, there was

ostensibly the idea was that it was

going to make the economy better. We

chose to do it which makes it very

different than the pandemic. Obviously I

have I have seen no evidence that we

have seen some gain from it. None. There

has not been some great boon for the

American workforce. It's like, okay, we

have to, you know, we know that

unemployment has been ticking up. Yeah,

it is true that revenue had, you know,

the they're collecting a decent amount

of revenue from the tariffs. That is

real. But like the idea that that is

somehow obviously redounded to the

benefit of the American consumer or home

buyers or something or whatever made the

uh you know our deficits more

sustainable per se. I haven't seen any

evidence of it. So like in terms of the

good I don't know like

>> well there's also a major policy tension

right where Trump was claiming that this

isn't going to have an impact on prices.

Your prices are going to stay the same.

It's not going to slow down the American

economy etc. But then he was also

arguing that this was going to be a huge

revenue generator for the US government.

You can't have both, right? You can't

charge people a bunch of money and raise

a bunch of money and expect not to be

taking the people's money, right? It has

to come from somewhere.

>> I didn't mention one other uh policy

aim here. So, we had Liberation Day. We

tear off a bunch of penguins for a

while. they begin to sort of remove some

of them and then there's a really big

policy pivot that makes a lot of people

on the right happier which is they

settle down the tariffs on our more

normal trading partners and they jack

them up on China

>> and the new policy rationale we are

given is that this is a trade war with

China. We are going to isolate China. We

are going to take our manufacturing

capacity back from them. we are going to

reverse their manipulation of world

markets.

Now, we're here at the end of the year

and we finally have a deal with China.

Tracy, what's the deal with China? What

did they come to? What's the deal with

China?

>> What's the deal with China?

>> And how does that fit or not fit

the sort of China theory phase of the

trade war?

>> Yeah. So it is true that competing with

China is one of the few areas of

bipartisan agreement at the moment. I

think everyone feels this sense of

competition but what China has actually

been really good at is creating

ecosystems for certain products and

industries. So for instance on the rare

earth side side of things you know we

hear all the time that rare earths are a

major choke point for the US and there

are worries that China is going to cut

off supplies. The way China has

approached that industry is they have

mining extraction. Again, probably

benefits from a lack of environmental

regulation, but they've also built

manufacturers and then they have a very

vibrant, you know, EV industry, computer

industry that's built around that rare

earth supply and is there to offtake the

supply to actually consume it. It's very

hard to replicate those types of

ecosystems on a short time frame.

>> So I buy that we went from 100% plus

tariff on China as an effort to make

them less competitive to I believe now

it's going to be a 20% tariff on China.

>> So it seems like we're not

>> well we don't know. That's the thing

like we don't really know what where the

white house stands on the you the

question you posed is the entire trade

war about isolating China because that

was sort of one view the US is not the

only country where people have very

serious concerns about manipulation or

the effect that Chinese manufacturing

has on their own national champions and

so forth like all the anxieties that we

have in the US they're shared by plenty

of other countries and not just Europe

elsewhere in Asia South America so forth

But like we don't really know like there

are China hawks in the administration

that clearly feel like oh this is like

an existential threat. Trump himself is

like seem Trump who arguably more than

any American of the last decade or

whatever is responsible for the sort of

massive national turn towards uh on

China. Maybe one of the least hawkish

members of the administration when it

comes to China. He clearly has a lot of

admiration for Xiinping. I think he

likes him. Um like he may think it's

unfair but he clearly like does not hold

it against China. He clearly sort of

admires the fact or appreciates the fact

that the various strategies that the

country has undertaken were done in

pursuit of the national interest which

he seems to uh think. So I don't think

we actually know. And again if you're

going to do this isolate China strategy

then you really or I would say

intuitively you want to have as much

trade as possible with the non-China

world. really like destroy any barriers.

And we've, you know, this is a

bipartisan thing. You know, the most

frequent uh guest on our show who's been

on more than any other time, the

economist Brad Setszer, he's been

talking for years about how, you know,

the US and Europe really need to form

some coherent trading block such that

the economies have the market scale to

compete with China, but we haven't done

that. So, I don't think really we know

where this administration views these

sort of tensions with China in part

because I think it's divided. Does this

get to a reality that I think a lot of

us suspect but it's inconvenient to talk

about? We are used to covering

White House policies like they are

highly connected to White House goals

that there is a legibility to to the

connection between beans and ends. The

Trump administration often seems to me

to have different levels operating

completely separately. And so there are

policies that come out of highly

ideological members of the

administration sometimes in conflict

with each other. And then there's Trump

who is built who who sees the world

through deals and relationships.

And what I see happening in the tariffs,

if you sort of track the year, is a

series of policies that are then

overtaken by a series of deals and

relationships. And Trump will, you know,

there will be a kind of standard policy.

We're going to tariff everybody. we're

going to tariff China, you know, 100%

110, 165. And then slowly, you know,

Trump will get worked on by the person.

Some kind of tribute maybe that we can

see or I suspect more often that we

can't see is going to get paid and all

of a sudden the tariffs are down and

there's no policy that comes through

clearly because there never is a policy.

There are only in the end deals.

Tell me, tell me if that's wrong. If you

have a better narrative than that. I

mean, I think there's definitely an

element of erraticism. Is that a word?

Erraticism when it comes to the Trump

administration's policy, and it gets

back to that tension, you know, between

alleged policy goals. Again, if you're

really worried about the US deficit, are

tariffs the best way to actually

generate money for the US government?

Probably not. Which then begs the

question of, well, why are we doing

this? I guess if you were going to be

very very cynical about it, you could

argue that Trump really likes deals

because it gives him those short-term

wins and those short-term headlines,

right? People forget things fairly

quickly when it comes to the news flow.

And so if all they see is the US strikes

a deal with China, um you know, the US

is bringing China to the negotiating

table, people forget all the chaos that

it took to actually bring us to that

moment. I do think with China in

particular the rare earths thing was

really important. I think there was a

sort of

>> describe what happened there.

>> Sure. So basically China said okay you

you're going to tariff us at 50% or

whatever. We're going to cut off the

supply of magnets that are used and lots

of batteries um computers things like

that. And I think that sparked an

element of panic among the type of

people that Trump listens to. Right. So

we're talking business executives who

are thinking, well, this is an

incredibly important component for my

particular business. I can maybe get

some of it from elsewhere in the world,

but certainly not at the cost and scale

that I've been getting it from China.

So, China has done a phenomenal job of

basically putting itself right in the

middle of a crucial choke point for the

entire global economy. And they were

able to use that to their benefit to

reduce the tariffs. They didn't get them

all to zero, but they brought them down

a lot.

>> So, do we fight the trade war with China

and lose?

>> I mean, I think look, I I do think Tracy

is absolutely right that um the the rare

earth specifically to some extent

because of our vulnerability there may

have undermined the entire like

prosecution of the trade war so to speak

because it's so specific. But to your

like and so arguably, yes. I think

though to I think to your you know your

question though I think that offers such

an important insight into how he thinks

the idea of like a strategy or a policy

is abstract right whereas a deal is him

a deal is something that he could shake

the hand of someone else that is real

that is tangible to him

>> it's good TV

>> whereas yes whereas all this other stuff

what we call what is our long-term

strategy it's it's abstract it's

depersonal it's not the way I do not

think this is the way Trump conceives of

government,

>> but he's got people around him. This is

I I actually find what just happened

with the AI chips

>> shocking. So, back background of this

for people who've not been following it

as much, we have had since the Biden

administration pretty tough export

controls on forms of uh chips that are

very very useful grading frontier AI

systems. and Trump just cut a deal on on

the urging of um the CEO of Nvidia to

ship some of the more advanced Nvidia

chips to China. And it is just on some

level to me impossible to having covered

a number of white houses you just

normally have a bunch of advisers around

being like sir that's not our policy

like everything you have said everything

we are trying to do is trying to

maintain dominance on this specific

frontier AI against this specific

competitor China. So, you can't give

them the chips just because one of the

CEOs who've you've now taken a cut,

you've had the country take a cut in his

company, wants to

them giving China the uh Nvidia chips

just struck me as like the final

collapse of the China policy, at least

in any level of intelligibility in the

Trump White House. I I just didn't have

a way of reading it aside from that.

>> If you're going to ask us to explain it,

we're going to struggle.

See, you know, the David Saxs argument

is that the important thing is that

Nvidia, the American chip company,

remains the dominant infrastructure for

the development of AI. And I don't find

that to be completely unreasonable. I

don't find that to be an completely

absurd argument. So there's the on the

one hand dominance of AI. The question

is like well, who is developed? Who is

at the front? Who is at the edge of

developing models, right? That's

certainly one way of measuring who is at

the uh frontier of AI. But the I think

it's totally it does not strike me as

per se crazy to redefine the question of

the AI race as who has the on what on

whose chips and on whose software

architecture will all AI models be built

in the future. I don't have like a view

on like which should is right or wrong.

it. I'm just saying it does not strike

me as necessarily absurd that view that

it is a win if everyone is using the

chips of an American design.

>> On some level, I I disagree with the

view, but I don't think it's absurd.

What I would say about it though is what

I guess what you could say is the Trump

administration spent a year evolving on

the question of China.

>> Yeah,

>> I would find it genuinely interesting if

a member of the Trump national security

team would come out and give a speech

being like how we rethought everything

on China. But nobody did that. I mean,

we just went from one policy to the

other without anybody really explaining

how the theory of the policy changed.

>> I mean, I think that's right. And I

doubt anyone in the Trump administration

was like, "Okay, we need to change our

approach right now. We've had this big,

you know, realization." Um, what I would

say, if you think about how China views

the sort of technology competition with

the US, the thing that comes up quite a

lot domestically in China is, have you

guys read the threebody problem? Yeah.

Or okay.

>> I never read it. I should brief.

>> I started it.

>> There's a there's a pretty good Netflix.

>> I've watched the Netflix show. I should

watch it.

>> Uh very brief synopsis, but um you know,

aliens are threatening Earth and

basically all of humanity comes together

at some point and develops technology to

get rid of the aliens.

>> In a domestic context,

>> I think that does some violence to the

plot as my

>> It definitely does, but you know, we

don't have that much time, so I'm

shortening. But like in China there's

this idea that you know you can think of

it as a Sputnik moment or whatever but

if the US completely cuts off the

country from global technology then

China is going to accelerate its own

technological development and basically

do everything that the rest of the world

does probably more cheaply and at better

scale. And so that that was a concern

that we saw starting to bubble in the

Biden administration when they toughened

up the initial chips development. You

know, we or sorry, when they toughened

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>> So I think we should move to talking

about another major economics for the

year which you've begun to back into

here which is artificial intelligence

and the huge AI buildout and I want to

start here um Tracy by showing this

chart from JP Morgan. So so just walk me

through what you're seeing here.

>> Yeah. Okay. This is US real GDP growth

contribution from tech capex.

And as you might expect, uh, technology

related, AI related capex has become a

much more important driver of GDP

growth. I can't tell on this particular

chart, but I heard 40% of US growth in

2025 is estimated to be coming from AI,

which is more than the growth we're

getting from consumer spending, which is

pretty phenomenal in the context of the

US economy. I would also just add right

before we came in here to record I saw a

number from standard chartered they were

saying twothirds of US growth this year

is coming from AI and you know you never

want to be too dependent on one

particular industry you especially don't

want to be too dependent on

an as yet unproven technology in a

highly cyclical industry for your

growth. What is all this money buying?

You all had a bunch of episodes this

year on the sort of AI buildout.

>> What is being built out?

>> Yeah. Um gigantic computers basically,

you know, hu in huge complexes that are

as large as Central Park somewhere in

like near Abene, Texas or whatever where

it's these mammoth um

what data centers that are these assets

that are a combination of real estate.

So, they're a real estate play. They're

high-tech plays because they're filled

with those Nvidia chips or other chips

and so forth. They're huge energy

consumers or increasingly energy

producers in their own right. So,

whether you know because it takes a

while to get anything access to the

grid. They'll have a natural gas

facility producing energy on the campus

directly. And so it's this extraordinary

buildout all over the country of these

data centers which of course become very

political and very important to the uh

economic growth etc. When I look at that

chart contributions from tech cap capex

you know the the the the really

important thing is since basically 2008

2009 2010 this handful of tech companies

have been where a lot of the action is

for grow particularly for growth and

income and making money in the US

economy. These companies used to just uh

you know they did not have to they

mostly just spent on labor. Their main

cost was their software engineers etc.

And everything else was like pretty

cheap because cloud compute was pretty

cheap etc. But they're famously like

asset light as they say. So the big

story the other big story of this chart

setting aside the sort of US GDP

component is the degree to which these

very important companies for the US

economy have suddenly become like big

spenders on stuff in a way that they

never had any history before. And so you

see these companies they're taking out

more debt or they're coming up with

these special financing vehicles where

there's sort of this you know it's it's

offbook and suddenly we're like uh you

know there the yeah these offbalance

sheet arrangements to finance these

things. So there is this fundamental

restructuring I would say of like the

P&L and the balance sheet of these big

companies that is novel in their

corporate history and that's really a

story of the last two or three years.

>> I was watching this interview with Sam

Alman. So, I think the single biggest

question I've heard all week and and

hanging over the market is how, you

know, how can a company with 13 billion

in revenues make 1.4 trillion of spend

commitments, you know, and and and

you've heard the criticism, Sam.

>> First of all, we're doing well more

revenue than that. Second of all, Brad,

if you want to sell your shares, I'll

find you a buyer.

>> I just enough. And is the argument he's

making there is there are so many

investors of every different level

piling into this piling into if you

could buy I mean open AAI remains a

private company but if you could buy

open AI stock people very much would but

these are as Joe was just saying banks

and private equity players and and there

are all kinds of highly sophisticated

financial players and and companies

coming in behind these investments to

make them. That means there are all

these board meetings and shareholder

meetings where an argument is being made

about how these huge buildouts of these

giant computers uh will lead to profits

that justify the buildouts. So when Meta

and Microsoft are making these arguments

to their shareholders, to the other

investors they might want to work with,

what is the argument? What does this

look like if it pays off economically?

You know, there's a lot about the AI

boom, the AI race that, you know,

probably intuitively sort of reminds me

in many dimensions of the sort of race

to build a nuclear bomb. Okay. So, first

of all,

>> I'm not sure where that was going, but I

didn't quite see that. So um you know

someone once described to me open AI as

being like it's like the Manhattan

project except the goal is not to build

the V because you know the big fear is

that AI as many people in the space fear

is like you're going to have this like

runaway AI that kills us all right so

it's like how do we like build something

that doesn't kill everyone

>> it's very

existential right that's exactly it so

there's that there's this fear of like

who is going to get there first there's

the US versus China etc. I think there

is something going similar going on with

the way companies feel about being part

of the buying into AI as products etc.

that this technology is going to be so

powerful, it's going to be so important

that even if you can't articulate why

you need to be adopting it for your

company, you better like have an AI

project. you better have an AI

experiment going on because the stakes

are so high for whoever figures it out a

way to like plug AI into their business,

reduce labor cost, get more productivity

and so forth that the gains are going to

be so great that you literally just

can't afford to not be investing in it

from a consum consumer experience. I

think like you know you know you like

listen to someone like Mark Zuckerberg

he clearly thinks that. I think you look

at every other company it is this fear

and I do think it's worth pointing it's

there are examples you know clearly

engineers use AI coding all the time

other companies are figuring out a way

we did an episode with the CEO of a firm

and he was talking about how AI allows

them to see like companies that are

misstating what the what they do in

their terms of service. So it is true

that already companies are figuring out

ways to deploy these tools, but I really

do think there's a tremendous amount of

fear driving this at both the

hyperscaler level and the customer level

that someone else is going to figure

something out.

>> Let me zoom in on that because I I mean

I've covered these AI companies for a

long time. I covered the anthropic guys

when they still worked at OpenAI and

that is how they all used to talk about

it that it is a race to build the super

intelligence the one AI that will rule

them all

>> to build God.

>> Yeah. To build the machine god. But I

think if you believe that version of it

that there is a race, there's like a

like a piece of tape at the end of the

race and one of the companies is going

to like pass first and then you know

second place is the first loser.

>> Yeah.

>> That actually implies something very

dangerous about this buildout which is

that it only matters for one of them,

>> right?

>> And the assets are going to be not

useless but not that useful for the

others. And I believe they believe it or

certainly believed it. It has been

strange watching these people turn into

like SAS businesses. You know,

>> it seems to me more like what you see is

Anthropic is trying to own coding.

>> Meta you know is going to try to own

social relationships and AI and you know

use it to kind of manipulate you into

buying things that you know Open AI is

going to be a layer in enterprise

software like Microsoft you know and

Google has everything in Google. I mean,

what you're getting at is actually my

fear about it that there are two

stories. Yeah.

>> That they're sort of acting as if it's a

race to the finish line and so all that

matters is being in front. But if that's

not true, then actually there's like way

overinvestment.

>> And then there's this phenomenon where

it's like while we're on the race to

create super intelligence, we're going

to create these sort of, you know, slop

apps that everyone has. Like so uh Meta

has the Meta AI which is sort of like

Instagram except it's all AI generated

garbage and chat GPT is Sora which is a

little bit better I think but you know

whatever it does not feel like a it does

not feel like a way station on the path

to super intelligence when you see them

rolling out these things and as you

mentioned starting to look more and more

like traditional software businesses

that just sort of like plug into various

layers. So I agree. I think it's like

very muddled and I don't think we know

yet what whether these I'm sure there's

a mix within the companies, right? I'm

sure there are people like no we are

here to build super intelligence and

there are probably others who are like

we are here we are here to build

enterprise software and build a

subscription. Well, what you were

watching happen inside the company since

I feel more confident talking about is

the very normal thing that happens in

politics and in companies which is that

you begin to align behind you you talk

yourself into the story

>> that your bottom line needs you to

believe.

>> Yeah.

>> And so the way to build super

intelligence

>> is through building SAS software.

>> Yeah.

>> Because that's going to get you the

scaling. It's going to get you the

investment. I I think the most striking

thing to me in covering this for years

now covering like the things I have

heard from people building AI are just

wild and they were really wild in 2022

and in 2021 like truly like the wildest

things I've ever heard in my reporting

in terms of like what people believe to

be true in like 10 years.

>> I'm not even sure they're wrong about

what will eventually be true.

>> But then watching them end up running

these totally normal looking businesses

except for the scale of the investment.

you know, how much of your slack should

be written by AI kind of thing. It is

amazing. I mean, I guess it's true for

religion, too, right? You're you're

trying to create you're you're trying to

tap into transcendence, but also you

need to fund the real estate investments

for the church.

>> But but there is this incredible mixture

>> Yeah.

>> of the sci-fi and the mundane. And

watching the companies have to bring

those two things into alignment

>> Yeah. has been to me sociologically

very interesting and a reminder of the

incredible power of capitalism to

persuade people of things.

>> I was just about to say first of all if

you couch everything in existential

terms then you know the limit on your

capital expenditure is basically

infinity. So that's part part of what's

happening here. There are two approaches

to building out AI at the moment and I

call this the coffee pod theory of AI.

America is building really expensive

cappuccino machines that it thinks are

going to produce the most amazing cup of

coffee um that the world has ever known.

And because of that, everyone in the

world is going to want to buy one of

these cappuccino machines. That is not

the only way to approach AI development

or the AI business model. China has

taken a very different approach. Again,

China is doing the Nespresso coffee pod

version of AI technology. They're

producing something that's relatively

cheap, something that's pretty

standardized, and something again that

it sees the entire world being a market

for. I don't think we yet know the

answer which particular model is

business model is going to win out. But

then you mentioned capitalism on the

customer side. We're also seeing this

dynamic, this narrative dynamic where,

you know, latestage capitalism, it's

kind of hard to boost returns forever.

And so now this new lever has appeared.

It's called AI. And all you have to do

is pull it or at least put out a press

release saying that you're pulling the

AI lever and, you know, cutting workers

and saving a bunch of money and you'll

see your sh your share price go up. And

I think that's pretty important. like

investors are still responding very well

to any utterance of AI in a business

press release. There may come a moment

where people are actually like, wait a

second, we want to see the cost savings,

but it's not happening yet. I

>> I'm just going to take a point of host

personal privilege and we're going to

wander down an alley for one minute and

I'm going to not keep us there. But

>> in terms of questions I would like to

ask the odd lots hosts,

>> what is latestage capitalism and do you

believe in it as a conceptual

>> Tracy said it so I'm going to make her

I have no idea. I'm going to

>> I'm going to flip. It's all on Tracy.

It's not the odd

Tracy's the one who mentioned it.

>> I mean, okay, it's a it's a little bit

of an intellectual crutch. I will give

you that because we're basic we're

always living in late stage capitalism,

right? Latestage capitalism is now. But

I think if you if you look at our

existing situation, it's this it's a

relentless search for growth. And a

relentless search for growth is also

something that is in many ways very

unique to America. Um, other countries,

I hate to keep talking about China, but

other countries take a different

approach, right? So in China, we've seen

China take the lead in a number of

strategic industries, which you know

counts as growth, but that growth hasn't

translated into huge returns for

investors. So if you look at a line of

the Shanghai Composite, it's been going

sideways for many, many years. China is

willing to make that trade-off. You

know, we're going to develop important

industries and give people jobs and

maybe, you know, shareholders just

aren't going to make that much money off

of it. In the US, it's pretty much all

about shareholder return and getting

that line going up forever. And our

political economy is basically built on

that entire system of if you put your

money in the S&P 500, you'll probably

have a decent retirement. and so

everyone will be fine.

>> So it's not so much that you the way you

understand it is not so much that

there's something specifically late

about the stage of capitalism so much as

this is financialized growth capitalism.

>> Yes. And also latestage capitalism

implies that there's an end at some

point and I'm not sure there is. Well,

that actually uh is a better segue to

this next chart I was going to show you

than I thought it would be, which is

there's some suspicions going around

that this whole thing has become a kind

of circular

>> Yeah.

>> money machine that the hunt for growth,

the hunt for justifying share prices and

investment and valuations is leading to

>> like just money constantly passing hands

to create the almost appearance of

activity. So, uh, Joe, I'm gonna show

you this chart which is a Bloomberg

chart.

>> Bloomberg chart. I recognize it from a

distance. I know this chart from a

distance.

>> Extremely hard to parse, including for

me. But

>> you almost don't need to par like the

point is almost not to parse it. The

point is to just a vibe. As much as it's

a vibe, it's visual to gaze upon this

like incredible level of interlinkages.

>> This to me is the most interesting art

chart to look at in AI. For those just

listening, you know, here we have it's a

charge with Nvidia at the center and

basically everyone is invested in

everyone else. So Nvidia invests in open

AI then has an investment in Cororeweave

which is one of these neo cloud data

center companies and Cororeweave buys

chips from Nvidia. So the revenue gets

recycled. So there's two so it's

basically everyone is linked to everyone

else. And again

>> birectionally right

you pay someone and they pay someone

else. It's like you pay them and they

pay you.

>> Yes. Yeah. You invest in them and they

invest in you.

>> So I'm going to invest in you and then

not only are you going to buy uh chips

for me, you're going to make an equity

investment. So obviously there is the

the web of complexity which I think we

associate with 2007208

which is just like the sheer incredible

number of um you know the just the sheer

volume of the web of relationships and

so forth and you know part of just like

how hard that is to decipher. But then

there's the other element that go back

to like the dot bubble. And if you

looked at a lot of the uh companies that

were riding high in the dotcom bubble,

they had real revenue. The poster child

for this was Yahoo.com or Cisco. So

these you have these companies that say,

"Okay, maybe they're like a little rich

on the stock market." But look, we know

they're real businesses. The issue is

that underneath these real businesses,

there was a lot of financialization

going on. By that I mean specifically

there was a host of startups and they

were raising money on in IPOs and then

that IPO money that they raised would

immediately be put into either ads on

Yahoo or purchases of Cisco equipment

and when the IPO market closed down when

there was a little bit of riskoff

appetite in the stock market and

suddenly then therefore the revenue

collapsed at those giants and so yes

while what looked like sustainable

healthy businesses were actually really

being funded by financial markets and I

think that the concern when you look at

um the AI boom is you have all these

companies doing very well and Vida is

absolutely a real business. It

absolutely has real revenue. It

absolutely has real profits. No one is

denying it. Is there some richness in

the valuation? Sure maybe. I don't know

but very plausibly they're real

businesses and so I think that like the

issue when we talk about a bubble in the

AI sure there may be rich valuations but

the fear would be that the actual like

revenue that these are not sustainable

revenues and therefore not sustainable

profits.

>> So let's talk about the question of a

bubble Tracy you all have done a bunch

of episodes talking to different people

about this make for me the best case you

can both against the idea of a bubble

and then for it.

>> Oh man. Okay. Um so against the idea of

the bubble is very simple. It's this

idea that that we were talking about

earlier which is this is um basically a

winner takes all strategy and if

everyone develops the products that they

say they're going to develop if they

develop AI models or systems that

magically solve every business or

person's um problems in the entire world

then perhaps you can justify some of

those valuations. It's not a bubble if

magic occurs.

>> That's right. That's right. You and

that's what a lot of these companies.

They're promising magic, right? That's

the way they talk about it. So, I think

there's a concern as AI becomes an even

more dominant force in the US economy.

If the bubble bursts or even if you know

the promised revenue and savings doesn't

materialize to the scale that people

think it's going to, then you're going

to have an economic impact that

potentially feeds on itself, which would

be similar to what we saw. Again, not to

be too pessimistic, but similar to what

we saw back in the runup to the great

financial crisis. Housing became an

incredibly important driver of US

economic growth. Everyone was buying

houses. houses were being built. We saw

the share of housing construction in the

US economy go up and eventually it got

so big that housing became the source of

wider problems in the US economy. That

wasn't always the case. It used to be

that there were problems in the US

economy and housing would get hit. What

happened was housing got so big that

housing became the approximate source of

problems in the wider US economy. And

the concern now is that we might be on

the same path with AI. So, you know, you

showed the chart of the circularity of a

lot of these businesses. I always think

about that um it's sunny in Philadelphia

meme of the guy standing in front of,

you know, the board with all the red

strings connecting everyone.

>> Check this out.

>> Take a look at this.

>> It feels very much like that once you

start to untangle these relationships.

But the other concern is just the

opacity of how AI is actually getting

financed. Right now there's a lot of

stuff going on in the private credit

market. We

>> You want to say what the private credit

market is?

>> Sure. So the private credit market is

where businesses get loans from you know

sometimes banks but mostly other types

of investors and these loans and bonds

are not publicly issued not publicly

traded. So normally if you know IBM or

Microsoft or whoever issues a bond it

would come with a big prospectus.

There'd be a lot of information

available about it online. You could see

the terms and people would trade it.

Anyone can buy it. You would trade it

after.

>> Private credit is something much more

bespoke. It's sort of a customized loan

between a business and an investor. It's

very hard to get much insight on that

particular market for obvious reasons.

Right. The clue is in the name. It's all

private. And so I think when it comes to

financing, it's it's pretty difficult to

get a sense of the scale of what's

happening right now, but also to get a

sense of who is actually financing what.

We hear stories, you know, you hear big

investors like big private credit

investors like an Apollo who will say

something like, "Oh, you know, we're

really into data centers at the moment."

But it's hard to get a sense of how

much. So I I want to look at this not

then from the market's perspective or

the financeier's perspective but from

the workers perspective.

You were talking about how they're

promising magic and that's a funny

that's a that's one way to put it. The

other way you might put it is a

promising replacement.

>> Yeah. that the thing that would make

these companies extraordinarily valuable

is if in fact you are suddenly you being

other companies able to replace human

labor like accountants and parillegals

and HR workers with tireless chat bots

who never want to join a union.

And one thing I have wondered about a

lot is

not in the case where they invent super

intelligence which has its own set of

you know possibilities and problems. But

in the place where the more direct

economic bet pays off

>> the bet I hear CEOs talking about and

investing in

>> is that good for workers? Is it like if

we are not in a bubble does it mean we

are in a labor substitution world which

in some ways is going to be much tougher

on normal people Joe than a bubble?

>> Yeah. The way I like to think about it

is either the AI if the AI bet fails

then we're going to have a recession. A

bunch of people are going to lose their

jobs. And if the AI bet succeeds then a

bunch of people are going to lose their

jobs because AI will be able to replace

labor. So either way bet or succeed it

feels like it ends in a bunch of people

losing their jobs. I mean I I have very

mixed feelings about this question

though. I mean economists are very sort

of strict on this idea that like there's

always demand for labor that yes of

course sectorally you're going to have

the historically you're going to have an

invention that from time to time puts an

entire class of workers out of business

or that there is no longer need for this

work because we've developed the

technology but then that means savings

from someone else and then they spend it

somewhere else and that creates new

labor demand. F furthermore, they would

say, you know, that is the def that's

prog that's literally what economic

progress is, is that, you know, we're

not toiling in the fields the same way

because we've gotten so much more

productivity. They would say this is by

definition what progress is. What feels

different about AI obviously is just the

sheer range that's all happening at once

and the sheer range of potential

vocations that AI could disrupt whether

we're talking about lawyers, whether

we're talking about accountants, whether

we're talking about coders, etc. So

again, progress is labor saving

technology. The ability to get more with

fewer uh manh hours is what economic

growth is at its core. But it is weird

to talk about a technology. I just think

I just think what makes AI different or

why it raises anxiety in the way that

other laborsaving technologies might is

just the sheer range of uh professions.

Let me combine your two scenarios there

into the one that I actually worry about

the most

>> on the labor market side, which is you

could have this thing where the AI

bubble pops at some level.

>> This creates some kind of recession,

which leads to firms wiring themselves

for AI in a way they haven't before and

bringing in the technology in a way

that's actually much worse for for

labor.

>> And then you have a scenario where the

there's been an acceleration

of labor substitution.

>> Yeah. And yes, in the long run,

according to the economists, the labor

markets will adapt. Although again, AI

is a bit of an unusual technology

because it's meant to mimic us.

>> Yeah.

>> But markets adapt over time. People

>> Yeah.

>> don't like that. I mean,

>> we have so much time here. Our

productive years are very limited.

>> And we know that to be fired during

recession

>> scars for life.

>> Yeah.

>> But if it accelerates really fast,

>> so I just say two quick things. One is I

think an interesting twist in the story

of the last several years is that a few

for the in 2022 20 well 21 2021 through

maybe 2023 for like the first time in

decades firms realized or learned that

they couldn't just put a help and sign

in the window when there would be a line

of labor and so I think actually we've

already seen the the beginnings of this

setting aside AI where there's been this

catalyst for labor saving technology

that started even before Chad GPT

because for the first time I think it

was sort of taken for granted that there

would not be an endless supply of labor

and I think there there are further

developments since then that have driven

this besides AI so obviously there's the

change in flows of immigration is one

and then you have demographics so we

know that an aging population is going

to put incredible amount of strain on

the existing on the productive

population because we have to care for

the elderly and so forth so already

there are these catalysts for firms to

feel like we have to get more

productivity out of our existing labor

force even before we get to the AI

question, even before we get to the

recession question. But look, I but to

the point it's like yes, recessions are

catastrophic. They're really bad. I

think actually one of my I think

economists and policy makers are too um

comfortable with the inevitability of

recessions. That is like no, recessions

are natural, recessions are healthy.

This is like what clears out the brush.

They're they ruin lives. They impair

earnings forever. They're they're

terrible for workers.

>> I would just add that also what's

different about AI this time is uh you

know we're not talking about industrial

automation. We're talking about

>> automation that's really centered in the

knowledge economy. So things like

writing, filling out forms, podcasting,

all you know I would describe it as a

lot of the fun stuff like writing music

and doing art and things like that. And

that's really where AI is dominating.

Meanwhile, we're still waiting for the

robots who can, you know, fold our

laundry or, I don't know, serve us a

burger or something like that.

>> Watch our children during the day. Yeah.

>> Yeah. Something like that. So, it's

kind, you know, I think that's also why

there's a lot of nervousness around

this. So there's been a lot of talk

about first whether or not we are seeing

any evidence in the labor market data

that AI is doing anything but then also

there's been more and more evidence that

there's something strange in the hiring

and firing side of the economy where

things seem more frozen than normal.

>> C could you sort of walk through both of

those questions? Do you think that

there's an an AI effect on the labor

market and then what is the frozen labor

market that people are talking about?

Yeah. Okay. So, first of all, whether AI

is having an impact on the labor market,

I mean, it's hard to tell, right? You

know, people, you know, if people or

businesses are cutting or adding workers

broadly, you don't necessarily always

know the reasons. I will say that I

remember very clearly a moment. I think

it was last year when the Challenger uh

jobs report came out and there was a

little anecdote.

>> The Challenger jobs report.

>> Yeah.

>> So, there's a company called Challenger

that produces their own layoff tally,

>> right? So, they're counting up the

number of layoffs in the US. And there

was a tiny little bit of text at the

bottom of this report that said a bunch

of companies said they were laying off

workers because of AI.

>> Yeah.

>> And I think it gets back, you know, that

was the first time I ever really saw

layoffs being attri or job losses being

attributed to this new technology. Um,

but going back to our earlier point

about the narrative, it's hard to tell

whether businesses are actually doing

this because they're replacing workers

with AI or whether they've just figured

out that if I say I'm cutting people

because of AI, investors like that. And

my boss really likes it. So, that's what

I'm going to say. Um, and then in terms

of the broader employment environment,

>> just by the way, culturally a little bit

grim.

>> Yeah. But it's real. Yeah.

>> Incentives matter, right? like a lot of

the world works because people are doing

what their boss wants them to do.

>> Um beyond that though, broader

employment, uh the way everyone's been

characterizing it is that low hiring,

lowfiring environment. So we're really

seeing companies basically stick with

the workforce that they have. Two things

to say on that. I think it gets back to

Joe's point about the scarring from the

pandemic. Everyone found themselves

caught short of labor supply in 2020. No

one wants to repeat that process. So

they're actually holding on to people.

And then secondly, it goes back to this

uncertainty as well. No one really has a

good handle on how the economy is going

to unfold. And so if you're sort of

unclear on what's going to happen, then

you're basically frozen in terms of your

investment choices. So people are just

choosing or having to stay where they

are.

>> I think another um you know this there's

a third option. We did an episode with

our friend Connor Sen who writes for

Bloomberg where he said you know look

you could say going into 2026 that every

company has to make decisions about

allocations and if the view is we are

definitely going to spend more money on

AI technology then we're going to just

re shift some of our spending plans for

the year from hiring to capital

investment and so maybe there is a

direct link not so much that the models

themselves are good substitutes yet for

an employee. But just from a sort of

yeah capital planning standpoint, 2026

is the year we spend more on AI.

Therefore, we don't post as many uh job

openings this year.

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>> So for a couple of years now, economics

types have debated this idea of the vibe

session, which is a term from Kyla

Scanland. And in one of her recent

newsletters, she had this chart that of

every graph I've shown you guys, this is

the one I have been thinking about the

most. I'm going to give it to to you,

Tracy, to just this is her chart of the

vibe session and how you know it's real.

>> Okay.

>> And

>> oh, all right.

>> Walk me through what you see here.

>> Okay. So, there's two lines on the

chart. One is real disposable personal

income per capita. So, how much people

can spend individually

>> accounting for inflation. accounting for

inflation that spiked in the years after

the pandemic and then it started to dip

and now it's sort of flatlining. Uh

meanwhile we have the University of

Michigan consumer sentiment which uh is

very volatile but in general had been

going up in the years from let's say

2010 to 2020 and since 2020 has been on

a broadly downward plunging path with

occasionally tiny tiny bits of recovery

but not really. I mean what I see on the

chart is those two things used to kind

of track each other a bit. Yeah. Right.

They they they orbit around each other

and basically since the pandemic

>> Yeah.

>> There's a chismic difference has opened

up.

>> This is the latestage capitalism thing,

right? Found it. It's in the chart.

Yeah.

>> That's right. Eventually, you know, if

you want more and more growth, then it

takes more and more to keep people

satisfied. And I think one of the things

that's happening now is,

you know, it used to be that money was

in some senses shameful in some way. You

know, being too rich was a bad thing.

And if you were a billionaire, you were

expected to give some of your money to

charity or, I don't know, contribute to

the world in some other way. Now, we're

seeing this sort of grifting culture

take over the world. Right? Money is the

point. Even on the religious side of

things, we have prosperity gospel now,

which basically says if you're rich,

it's because God loves you. And so, it's

good to be rich. There's no limit on how

rich people want to get anymore. And I

think that's part of the reason that

we're seeing a broad dissatisfaction.

Let's put it that way. But then, you

know, realistically, I think a lot of

people also are just desperate about

their future. They see house prices.

They see insurance costs um they see,

you know, retirement programs

diminishing and and they think like,

well, the only way for me to get out of

this hole that's been dug for me is to

do something like gamble or bet on a

meme stock or something like that. So I

think you know money itself is becoming

more and more an important part of not

just not just the way our economy

functions and the businesses that get

built but also on on our culture.

>> What is your explanation of the vibe

session?

>> I mean clearly like some co kind of

broke a lot of society but I don't know

I'm like sort of um I'm an it's the

phones guy. Now granted the problem with

my theory with that chart specifically

is obviously the smartphone has existed

for long before co but I still think

that like there is to some extent

because the important thing the other

important thing of that chart is like

that there has not been some major

change in affordability. There's not

been some major change in the cost of

living. Yes, there was an inflation

spike. Yes, the cost of living has gone

up. but in such a dramatic way that

could massively explain why people are

so pessimistic. I don't think you'd like

see it on the chart. Real wage growth

has generally been positive and it's

been trending up lately and it looks

more or less along that same trajectory

that was pre-COVID. So I do think like

something is going on that I would say

economists themselves are not equipped

to answer. I think we're in a point in

in the world in which economists only

have some of the answers right now. got

all the answers obviously, but I think

there are things going on in the way

people perceive the economy that I would

say logically precede economics and they

have more to do with cultural status or

they have politics or just the amount of

times that people are spent like you

know scrolling their phones alternating

between doomcrolling rage bait or

doomcrolling slap. I think these are

real things and so I sort of put myself

in I definitely put myself in the it's

the funds camp. I think economists have

also historically underestimated the

importance of relative relationships and

relative gains. So, you know, most

economists would look at that chart and

focus on um personal income and say,

well, everyone's been getting better off

on an absolute basis. Everyone is, you

know, doing slightly better than before.

Realists would probably not look at that

that chart, but they'd look at uh the

actual tales of the chart. So like how

much has personal income been going up

for the wealthiest segment of society

versus the poorest society and would say

well what actually matters here is the

relative gains. Even if you are slightly

better off yourself if you see someone

who's doing much much much better than

you you're going to be annoyed and

depressed which is what that consumer

sentiment line says. connect those two

theories, right? Which is to say you

could say what you're talking about is

to some degree uh

>> we might be having very unequal wage

gains. Although I will say that if you

look at median incomes are going up too.

>> This is not just a a a factor of you

know Bill Gates or Sam Alman is getting

all the money and and nobody else is

like you look at down the income

quintiles and it doesn't we have been

seeing gains since the pandemic. On the

other hand, to the extent people are on

their phones all day looking at viral

videos, looking at Instagram,

the comparison dimension of just human

life has really changed.

>> Yeah,

>> there's that famous phrase, comparison

is the thief of joy, which is a phrase

that people have known about forever,

and now we have the ultimate comparison

engine, and no one's happy anymore.

Well, that phrase predicted it all right

there. Right. Well, there's also, isn't

there a line that um a good economy or

wealth is when you have more money than

your brother-in-law, right? That that's

like

>> So, there's the other thing which that

chart does not capture at all, which is

the effect of wealth because this is an

income chart. And so, what we know is

that like it's been incredible times for

people who already have assets. And if

you're lucky to have like the really

special assets, if you had been, you

know, someone in your family had gotten

interested in crypto at some point in

the mid2010s, you didn't work harder

probably than anyone else, but you're

like you happen to be standing on top of

a gold mine, etc. And so there is this

there is this distribution of wealth in

this country that not only is it

unequal, it feels arbitrary in many

respects. Why did that person get crazy

rich such that their bloodline never has

to work again? They're just standing in

the right thing. It feels disconnected

in many ways from the effort or time

that someone put into labor income, you

know,

>> and also this is something that

traditional economics just isn't

prepared to deal with, right?

Traditional economics is all all about

those absolute gains and we're talking

about relative differences. And then I

do you remember I wrote about this in

the OddLots newsletter? Shout out for

the OddLots newsletter. And someone

actually wrote into me saying, "Well, if

the poor owned more assets,

>> if the poor owned more assets, then they

would be in a much better position."

Which I thought,

>> yeah, you know, have you tried not being

poor?

>> Yeah. I

>> I guess one way of thinking about what's

going on here is consumer sentiment is a

tricky thing to measure. I mean, you can

word the question in different ways, but

I do think it you're getting at

somebody's story about the economy.

>> And

I think something happening in people's

stories about the economy right now is

so one, Trump came in and he

disappointed even his own people. I

mean, this tariff policy is terribly

unpopular. Things are very chaotic.

Trump himself is unpopular. It doesn't

feel like there are people with their

hands on the wheels of the economy who

have a vision and a theory and

competence and you trust them. So your

story that you're living in a um in a in

a period when the line is going to go up

is weakened. The AI story is threatening

to people and then you have the

comparison stories and procarity and

just like I think things just feel

like both not good in the moment. But

there isn't a story that people believe

either because there is a leader

>> Yeah.

>> or because there is a plan or because

the thing that is seems right around the

corner seems good.

>> There's very little sign of things

getting better.

>> I mean, yeah. layer into the fact that

um right we've had a few massive crises

in a short period of time and we have

the added uh you know the the the way

the phones mess with our heads and yeah

what is the thing that what is the thing

that's supposed to make you happy

supposed to be AI it's got that is here

to replace you

>> yeah right that is right

>> and drive up your electricity cost

>> yes right that's a really important part

of it which people perceive that AI is a

combination of it's going to make

electricity more expensive and you're

not going to have a job that's not It's

a tough cell, let's put it that way.