Thanks to the IIF for organizing this. We've been doing this podcast for several years. I'm pretty sure it's the first time we're recording in a ballroom. Our listeners won't be able to see the chandeliers, the multiple chandeliers here, but it is a very impressive ballroom. And yes, for people who have not been listening to our podcast, as you just heard, we usually start every episode with a data point. And the data point for this week's episode would be 428.9. That is the level that the global economic policy uncertainty index reached last year. Now for people who are not familiar with that index and not been watching it closely over the decades, I'll include myself there, that's a very high number. That's 13 times higher than the standard deviation for that uncertainty index. And this came about around the time of Donald Trump's liberation day where he imposed tariffs on countries around the world unilaterally. A lot's happened since then, obviously. A lot more that would contribute to uncertainty, one would expect. Not least the ongoing war in Iran, crackdowns on immigration in the United States, threats to alliances, uncertainty is the theme of much of global politics right now. And so that is much of the theme of today's meetings here at the IIF conference. And we thought we'd try to unpack some of that uncertainty in our discussion right now. And Adam, to start off with, you know, it's useful to have these concepts, disorder, uncertainty as a kind of framing device for international politics. It dawns on me that, you know, not recently there was another concept I think that was often cited as the kind of relevant concept that was polycrisis. And in some sense we've sort of without any kind of real intentional highlighting of it, we've shifted from polycrisis to uncertainty or disorder. And you are responsible I think for much of the polycrisis discourse. So what do you make of this? Have we left polycrisis behind? What is the relationship between polycrisis and the disorder that we're now confronted with?
Yeah, I mean it's a great question. First of all it's a pleasure to be here. Lovely to see so many people out so bright and early. Personally I'm a longtime reader of IIF research, wished I was able to get behind the paywall to see more of the invaluable data that's collected there. Have asked often. I'm asking again now. It's a really invaluable hub for thinking about global finance for obvious reasons and there's no better place to be thinking about how to decipher risk, right? which is the theme today. Yeah. The polycrisis term it wasn't one I invented. It was out there. It had come up in debates in European sort of broad sociological thinking in the '90s. It was John Cunliffe who put it into circulation in the middle of Europe's crisis in the 2015 2016 and it really sort of took off a little bit in 2022 around the Ukraine war in the aftermath of COVID. It's my first experiment really in launching a meme and it kind of in the manner of these things, it was a sorcerer's apprentice experience. They kind of ran away from me. If you ask are any of the substantial forces that made for this sense of a convergent series of extraordinarily disharmonious heterogeneous shocks? Are any of them moderated since 2022? The answer would clearly be no. Right? The geopolitical tension is up even beyond the level that it was in 2022. The war in Ukraine is ongoing and now we have an additional war. The climate crisis, the ecological crisis is not slowed down, even if it may have dropped out of the headlines somewhat. The competition between the US and China, many people think is the force that is bubbling in the background even of the politics of the Middle East. and we are confronted with the very real possibility of tripolar nuclear competition over the next decade. This is just to name three or four elements of this crisis. So to that extent it seems to me that that diagnosis and Larry Summers and I actually converged on this point that this may not be the most dangerous phase the world has ever been in but it may be one of the moments in which the converging sources of risk are least nicely suited to each other. It's a badly assorted buffet of risk if you like. It's a mixture of ice cream and sushi and pasta all in one menu of risks and that is confusing and that's what polycrisis was supposed to point towards.
But I agree with you that it seems to have kind of gone off the boil and I wonder why and I think I would offer two reasons. The first is that in some sense polycrisis was always in the eye of the beholder. It was always in some sense the diagnosis on the part of somebody like me or someone like Larry Summers who was used to being able to make sense of the world realizing that we can't make sense of the world anymore. So there was always an implied I think some people would say liberal hegemon who was there. And the horrifying fact about our current circumstance is that that illusion I think has really burst to the point where the implied confused subject of global governance is no longer very evident. People say is this a Suez crisis is what's going on in the Gulf right now. Well, a Suez crisis would take the Eisenhower administration and the United Nations to be holding the ring whilst Britain, France, and Israel humiliated themselves. That is what made that a Suez crisis after all is that there was an external force that judged this to be a catastrophe. There is no external force with equivalent force in the current moment. So, if you no longer have a unifying sense of global governance, can you really have a polycrisis? So this might be beyond polycrisis. And the other point which will be very much I imagine on your minds I was at a JP Morgan dinner last night and it was very much on minds people's there which is that the financial markets just don't show the stress right so there is a sense that in the geopolitical world have been crying wolf for god knows how long and sensible people in the market look at their world and say is there really a risk to dollar hegemony I don't see it maybe I need to slightly rebalance my portfolio away from the US, but I'm not selling America. I'm rebalancing, right? Because I was overcommitted to the US. And I might have done better last year if I'd been in European or emerging markets assets, but that's not the end of the world. The sky's not falling. There are other huge stories which are red-blooded American stories of innovation like AI. So, I'm not backing away from this. So, I would say that we're in a world now which is really one of cognitive dissonance in that sense, right? in that and this was rather the conclusion people stumbled out of this JP Morgan dinner which was people like me and people from the policy community and a bunch of folks from the markets literally saying to each other as we headed towards the elevators all in agreement two worlds two worlds because for the policy people the world as we know it is really over folks in the markets it's continuity you keep on trading you're looking for advantage you're looking for those marginal advantages that sustain the business. The world is not shaken. And I think that to me has come to define the moment more than anything else this so then the question is complacency. Then the question is well when is the shoe going to drop? Are we missing something? Is there something around the corner we can't see? Hence you know then I start looking the global imbalances conversation. If you're any room in any of the rooms this week discussing macro in Washington DC, there's one topic for the macroeconomist. It's global imbalances. And that's again a when will the sky fall, when will the shoe drop conversation, that kind of a conversation, right? Because the global imbalance is also a reflection of the global division of labor. But there's an implied sense that something's got to give, right? Things that aren't possible can't go on forever. At some point, they become impossible. There's something wrong here. the American investment position is too weak etc etc etc you know the arguments but that for me is one of the places where this sense of unease is being registered this week
That is very useful yeah it does sound like it's almost our current era is continuous with this polycrisis era so to speak but the implication there before was that there was some order that things were complex but if one tried hard enough we can sort of kind of make sense of it whereas now there maybe is some sense that that may even be beyond our ability to understand. I guess if we were to take the war right now as one factor contributing to uncertainty, aside from the sort of day-to-day events of the fighting if one takes a step back it does seem remarkable that some of the effects of the war have been in some sense ironic in that the United States started this war and some of the effects are precisely against what the United States has prioritized politically in terms of perhaps this war could be accelerating a global green transition. There's been some discussion of that. There's been mention of how this war is undermining the administration's AI strategy of basing data centers in the Gulf and the geopolitics behind that. There's even a suggestion that some of the inflation as a result of this war could lead to higher interest rates by the Fed. As we all know Donald Trump has wanted lower interest rates. So, I'm just curious, historically, would this be typical for a war to have ironic effects of this kind?
I would like to shift to another contributor to our moment of uncertainty. You know, a private sector contributor to this moment namely artificial intelligence. Yes. And Sam Altman, the head of OpenAI, recently published a report sketching an idea which amounts to a kind of super intelligence new deal arguing that the welfare state will need to be restructured and sketching a new social contract that he would like artificial intelligence companies to design and steer for society. And I'm just curious historically what role have disruptive businesses themselves played in creating new social contracts for the societies that they are disrupting? I mean, should Altman's proposals really be taken in good faith here? What would history suggest? Well, I think it's really indicative of another dimension of this moment of the suspension of disbelief, the Wile E. Coyote, the feeling of cognitive dissonance, the question of complacency and when the shoe's going to drop. I think AI is another dimension of that reality that we're in right now, which is that after all, to put it really starkly, if you believe the AI hype and the valuations, even the adjusted ones now, and you're behind the hundreds of billions of dollars of investments, $600 billion we think, or at least was scheduled for this year, right? You are betting on a radical transformation of the workplace and of society and of the world. If you really believe the hype, artificial general intelligence is heading towards us perhaps even before the next American presidential election in the United States. That is a crazy timeline and that's what warrants the massive investment. So that's scenario one. And scenario two is it is hype and it is going to burst and there is a bubble here in which case America is heading for a catastrophic fall. And either one of those two options is hardly one which should inspire us with a sense of confidence. And I think what Altman is doing and I hear the same thing. I literally I have a student who chose to come to study with me at Columbia against the advice of his girlfriend who was one of the 12 founders of Anthropic who chose to continue his undergraduate education at Columbia with me specifically instead of being a founder of Anthropic. So imagine the burden of responsibility I feel towards that guy. like it really has to have been worth it. He tells me because he's deep in this that in Silicon Valley right now the left wing the young people who are mobilizing are posing the question that Altman is posing. In other words, what is the social project here? If we are serious about this, what is your plan?
And on that scale, I've seen slides from meetings that are going on there, no doubt you have your ears to the ground as well, where basically the conversation is about either jobs guarantees or universal basic income because that is and this isn't necessarily because they think that this immediate reality is coming down the line. It is that politically somebody needs to be seen to be responding to the crisis that we're producing and the left wing of the Democratic party is going there. The other place it's going is wealth taxation because of the enormous accumulation of wealth that's going on. Historically speaking, what is fascinating about this is where the impulse is coming from, right? Because you could say about Henry Ford in the Fordist production model that he had a vision of American society and how he was actually going to transform it. But the actual model of American society which everyone still in some senses pines after. I walked from across town to the hotel this morning went past the White House and the AFL-CIO opposite each other right within shouting distance of each other. That model of American society was not one granted by Ford. It was one by the United Auto Workers in persistent struggle over decades of class struggle that resulted in the Treaty of Detroit. And it took two world wars to shift the balance of power between capital and labor in the United States that produced the Treaty of Detroit. So if you're actually asking where these social models come from, they don't come from the benign, magnanimous, generous offerings of corporate leaders. They come from social struggle in which people measure the weight of their will and their power against each other and conclude a social bargain on the basis of a real balance of force. And the question I think in America today is whether that balance of power is in any way imaginable or whether we do indeed end up in some sort of glorified system of corporate welfare or perhaps no solution at all. Right? Maybe we're heading towards a radical transformation by means of technology which really never has a clear social answer. One of the things we've seen after all from Congress over recent years is a diminishing ability to arbitrate the social contract in the United States. I mean the administrations of the 80s, 90s even the Obama administration were attempting to broker big deals around healthcare for instance and that is one of the fundamental problems of Congress right now is it cannot grasp the nettle on anything other than tax cuts of large-scale social design. And yet that is clearly what may be called for if the prophecies of AI are real. And if they're not, well then a whole bunch of financial bets are going to go bad, right? So I do think it's very symptomatic that Altman should be coming up with these kind of appeals because I think they know in Silicon Valley that they need answers.
That makes me also think that perhaps Altman is coming up with these plans precisely because there's not yet a struggle from below and that when there is the AI companies are likely to become more adversarial. I mean I suppose we'll see how that develops and I do want to shift a bit geopolitically to another potential source of uncertainty. We've talked about the US, AI now but China I was hoping also to talk about and we've talked many times and it's a long-running topic of discussion that China needs to change its economic model from export-led growth. We're now already seeing the end to the era of high growth in China. There's a lot of discussion of involution causing problems in China. And I'm curious when will the breaking point arrive in terms of this need for a new economic model? Will there be a breaking point? Are we nearing it? How would we know?
