Freakonomics Radio - 676. Has America Lost the Plot?

Episode Date: June 5, 2026

Another war in the Middle East. A retreat from the international order. A presidency built on self-dealing and arbitrary power. It’s enough to make you think the U.S. is in a steep decline — but Fareed Zakaria thinks otherwise.   SOURCES: Fareed Zakaria, journalist and author.   RESOURCES: "Iran is an imperial trap. America walked right in." by Fareed Zakaria (The Washington Post, 2026). "‘Bomb and hope’ is not a strategy," by Fareed Zakaria (The Washington Post, 2026). Age of Revolutions: Progress and Backlash from 1600 to the Present, by Fareed Zakaria (2024). The Accidental Superpower: The Next Generation of American Preeminence and the Coming Global Disorder, by Peter Zeihan (2014). The Affluent Society, by Jonathan Galbraith (1958).   EXTRAS:  "Fareed Zakaria on What Just Happened, and What Comes Next," by Freakonomics Radio (2024). "Are We Living Through the Most Revolutionary Period in History?" by Freakonomics Radio (2024). "The Folly of Prediction," by Freakonomics Radio (2011). Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Let me just say this up front. Predicting the future is hard. We once made an episode called the Folly of Prediction, episode number 41, if you want to hunt it down. The findings were clear. Most of us are much worse than we think at making predictions, and we're also much more confident than we ought to be. But that doesn't stop us from trying. Look at the huge success of prediction markets like Kalshi and Polly Market. We are always dying to know what might happen next.

I am not immune from this desire. You probably aren't either. One particular temptation is geopolitics. It is so complex and dynamic and important that it's hard to hold yourself back, even if you know that your prediction is at best an educated guess. So you might as well get your geopolitical predictions from someone who is extremely educated in these matters.

Someone like this. Forid Zakaria, I work at CNN and write a column for the Washington. Washington Post and write books. Zakaria is a foreign policy stud, a political scientist by training, a journalist by vocation, and longtime member of the Council on Foreign Relations, which is why we are having him on the show today for a third time. His last appearance was just after Donald Trump had been re-elected to the presidency, but before Trump took office.

You did make some predictions last time you came on the show. Uh-oh. The second Trump administration, you said, it's not going to be as bad as people think. This is a country with a lot of checks and balances. You have institutions, you have bureaucracies, you have laws, you have rules. These all can't just be willy-nilly dispensed with. Yeah, I'd say it was basically wrong. A few months ago, Trump made one of his most unpredictable moves yet, and possibly one of the most consequential to a joint military strike on Iran with Israel. Fariad Zakaria did not think this was a good idea.

As he wrote at the time, bomb and hope is not a strategy. So what is the strategy? Today on Freakonomics Radio, we ask Zakaria to look at some of his past predictions, and we forced him to make some new ones about how the war with Iran will end, about whether the U.S. political system is due for an overhaul, and whether globalization is really dying. I think that the reports of the death of globalization are vastly exaggerated. We also ask Zakaria to tell us something important. that he has changed his mind about because in a world that defies expectations, it's good to have an open mind.

This is Freakonomics Radio, the podcast that explores the hidden side of everything with your host, Stephen Dubner. This conversation with Farid Zakaria was recorded on May 20th. At the time, negotiations between the U.S. and Iran were very much in flux. And depending on when you're hearing this, they may still be. There's also a lot of flux in D.C. as well. I started the conversation by asking Zakaria how the second Trump presidency has compared to his earlier expectations. Dramatically different, mainly because the first term and the second term have been so different. We can see in retrospect that Trump didn't expect to win the first time around, got into office in a hurry, was somewhat nervous about the idea of governing, and in a way delegated or authority to a series of people. And all these people, it turns out, act as great constraints on

Trump. So Gary Cohen tells us that twice, I think Trump wanted to do what he did with Liberation Day tariffs. And Cohen persuaded him not to. Jim Mattis has pointed out that Trump said he wanted to attack Iran. And Mattis said that's a really dumb idea and explained why. So I think what happened is for Trump, two things. One, it turned out for him, all these people were disloyal in the end, because they distanced themselves or even denounced him after January 6th. And personal loyalty is absolutely pivotal for Trump. But the second is, I think he came to realize that's not how he likes to work. That's not how he likes to run things. You know, I've truly ran a small real estate company where he made all the decisions. There were no layers of bureaucracy. There was

no institutionalizing. And that's much more what he likes. So, If you look at the second term, it's all die-hard loyalists, people who are slavishly loyal and obedient to him, no matter what they are asked to do. He just likes to wing it, do it on his own, be impulsive. Regime changed by jazz improvisation is how one of your recent guests put out. Exactly, exactly. Regime changed by jazz improvisation, exactly. And so much of it is jazz improvisation, reconciliation with China by jazz improvisation. Three weeks ago they were the evil empire. Now, she is his best friend. It worked in the moment. And I think what you've ended up there for with is a much more ideologically maga in terms of what he has done, and then much more amateur.

It's just like throw a bunch of things in the air, see what works. And all of it as a result has been very different from the first term, which surprisingly looks kind of ordered and predictable in comparison. Let's talk about Iran for a bit. Here's something that you wrote recently, Farid. For about 15 years, many American leaders, including all three presidents in that period, believe that the U.S. was too deeply entangled in trying to reorder the societies of the Middle East. They felt the more pressing challenges included rebuilding America's industrial base and confronting the rise of China. Yet here America is, once again, fighting a war to reorder a society in the greater Middle East. And like in Iraq, Afghanistan, and Libya, this war seems unlikely to turn out quite as its

proponents may hope. Why, you wrote, does this keep happening? So I'll bite. Why does this keep happening? I think at a broad structural level, it is because the United States and Washington in particular are very attached to the idea of an imperial America that orders the world, that exercises the enormous power it has, particularly military power. The two areas where the U.S. is unrivaled, a military and currency. And we have in both cases promiscuously used that power, misused it, abused it. And I worry very much that that will result in a kind of reaction in the world. But the specifics are important, again, is always with Trump. So much is being done by this one person that it's not just broad structural forces. Because the truth is, the U.S. had learned its lesson from the Middle East,

and it had moved away, most importantly by electing Trump, who ran on a platform. basically that was centrally about getting out of foreign wars and getting out of the Middle East and things like that. But I think what happened again, Trump 2.0, unleashed, unconstrained, unchecked by people like Jim Mattis and generals who would tell him that this is a bad idea. He fell in love with the kind of arbitrary, unilateral power that the president has. If you notice the thing Trump loves more than anything else is to wield unaccountable arbitrary power, that's why he loves. He loves tariffs. I don't like the way the White House has set up. I'm just going to destroy the East Wing and rebuild it. I am going to arrest Maduro. When he was asked, so who controls Venezuela's oil now,

he said, me. Trump loves that idea. And so I think in that context, Bibi Netanyahu understood how to play Trump and told him to the effect, 47 years American presidents have tolerated Iran. You can be the one to liberate it. And Trump fell for all this nonsense. But it's a bit of it. But it's a important to point out, it's happening in a Washington that is filled with these imperial elites that have gotten very used to the idea that the United States should run the world whimsically, arbitrarily. Okay. So if you're an imperial elite, you presumably believe in your imperial power, your military power, your ability to dominate a weaker enemy. When we last spoke for it a couple years ago, You said that Iran was weaker than it appeared. You called it a paper tiger. Yet you've also written recently, why is the most powerful country on the planet that's us unable to get its way with a much smaller, weaker country that has been ravaged by economic sanctions and military strikes? So what is Iran doing well and right from its perspective to fend off for the time being at least the United States? Why is their refusal to buckle working so far?

far. Very good question. And this is the case where actually there's no inconsistency in what I was saying. What I was saying earlier and what I've always said about Iran is it's a much weaker country that we make it out. It does not as a result pose any direct threat to the United States. It does not have intercontinental ballistic missiles. It does not have nuclear weapons. Something it's important to point out. It has a nuclear energy program that could, if a series of steps were taken, that would be visible and obvious and apparent, maybe produce a few bombs that they would then have to weaponize, then they would have to put them on missiles, and then they would have to be able to figure out how to, in an undetected way, do all that, and then launch them. So the point I was trying to make there, which I still

believe is true, is it's not an industrial powerhouse. It does not pose a threat to the United States. It does not really pose much of a threat to Israel, given the Iron Dome, which protects Israel from all its missiles. What is true, however, about Iran, is two things. One, the regime has shown the ability to survive and survive under very adverse circumstances. Remember, this is a regime that right after its birth was attacked by Iraq in the Iran-Iraq war, and that war lasted for eight years. So the regime almost in its DNA has figured out how to survive foreign attacks, and it is set up in multiple spheres of authority, multiple layers of control for precisely that. And secondly, that it is willing to take an enormous amount of pain. And this is the

fundamental miscalculation that the United States has made, just like it made in Vietnam, which is you may be up against a much weaker party. But if they are willing to take more pain than you are, ultimately they will win in the sense that you can't compel them. And that's what's happened in Iran, which is, yeah, we've destroyed their Navy and their Air Force, as Trump keeps pointing out. But the goal, of destroying all those things was to get them to sign on the dotted line, and they are not willing to sign on the dotted line, which means, in some very fundamental sense, so far they have won. This has been a recurring problem in the United States, because we always misunderstand nationalism, and we misunderstand the degree to which, you know, you may be talking about a small,

weak country, but they have a powerful sense of nationalism, and that makes them unwilling to cry uncle. If you think about Iraq, Iraq is created in 1921 by the British. Iran has been around for 5,000 years. This is one of the places in the world with the oldest and strongest conception of national identity. And you thought two days of bombings and the whole thing would collapse. It was insane. Fried, what do you think Iran looks like a year from now?

Who's running it? Who are they fighting with, if anyone? What's their relationship between Iran and the U.S.? and maybe Iran and Israel? I think the most likely scenario is that there is some kind of a deal that has arrived at between Iran and the United States. And so what does that look like for Iran? It means, first of all, Iran has essentially more from a theocratic regime to a military dictatorship. Because what has happened is by attacking Iran, you consolidated the really tough guys in the regime, the IRGC, the Revolutionary Guard. And they now call the shots. The new Ayatollah, who is Khomein, who is Khomein. son is very much a creature and an ally of the Republican Guard, but they now have the real power because he doesn't have the kind of legitimacy and authority that his father did. And so it's become more of a military dictatorship.

The regime is maybe more oppressive than it was before. It has, in a sense, been legitimized by the deal that is made with Donald Trump, of all people, right? This is a guy who is, in effect negotiating with them, had to make some concessions to them. and what they will look for, I think, is a broader resolution of the conflict. Trump is trying to get them to do a kind of quick ceasefire. What they're saying is, no, we have this weapon that you made us realize we have, the ability to close the Strait of Hormuz and threaten the world economy.

We are not going to give it up without some kind of resolution of the broader issues involved, meaning some kind of understanding that the Islamic Republic is legitimate and is here to state. Along with lifting of oil sanctions, et cetera, et cetera. Some lifting of the sanctions. And maybe not just the oil sanctions. There are more sanctions involved. So probably what happens is also a kind of modus vivendi between Saudi Arabia and Iran. Saudi Arabia's role here has been very interesting.

Unlike the UAE, they have not been the warmongers. They have been searching for a diplomatic solution. They have been quietly communicating to the Iranians. Look, don't hit us. we won't be belligerent toward you. And for the most part, that has been true. The Iranians have hit the Saudis very little. Saudi oil revenues, by the way, are up 20%. The UAE's oil revenues are down 40%. The Iranians are looking, I think, for a final vindication that they are not a kind of temporary transient intruder into the Middle East system. Ironically, this foolish attack by Trump

might give them this victory that they have always sought. Let's talk just a bit more about the relationship between Iran and its neighbors. I've seen some scholars describe Iran's strategy as triangular coercion, which is an idea that comes out of game theory. The idea being that Iran, in order to stymie or beat a much more powerful military like the U.S. will attack neutral or neutral-ish third parties, were you surprised to see Iran do that? And what do you think are the ramifications of those attacks, especially on the UAE? let's say. Yeah, I was surprised, and I have to confess, I initially thought it was a miscalculation by the Iranians. Even the UAE had not been very gung-ho about this war. This really was a war

that was foisted on us by the zealousness of one individual, B.B. Netanyahu, who was able to convince Trump. I don't want to make that sound like some conspiracy theory about Israel. It isn't. It's about literally two people, Trump and Netanyahu. But I thought that the Iranians shouldn't have widened the war. I still think that the most effective thing they've done has been to shut down the straight of hormones, not so much this other stuff. But they did, as a result, do exactly what that game theory concept tells you, which is they hit where they could rather than the most logical place.

And they realized that these were the softer targets, these were the places they could hit them very accurately. By the way, there's not a lot of collateral damage and not a lot of missed targets. It tells you this was very strategic and very well planned. I think there's a shadow of this war that will persist. One piece of it is that not only do you know the strait of Hormus could be closed at any time, you now realize that liquid fossil fuels traveling around the world by tanker are vulnerable to very cheap asymmetric threats.

The most effective weapons in Iran's arsenal were not the ballistic missiles that it built at great costs. It were these $30,000 and $15,000 drones. Well, guess what? Pirates can get those drones. People can get those around the Strait of Malacow through which more energy passes than through the Strait of Hormuz. So I think there's a kind of risk premium that is going to be attached to liquefied fossil fuels going through tankers everywhere. And that affects the Gulf, obviously, and the economics of the Gulf. The second piece is the Gulf has presented itself as a kind of oasis of stability. The idea has been, welcome to Dubai. You're really not. in the Middle East, you're in Switzerland. Well, it's very hard to say you're in Switzerland when you've gone through this process. And I suspect that that changes the business model a bit.

But I wouldn't exaggerate it. The one thing we've seen about tourism, after all these crises, whether it's the Iraq war, whether it's COVID, people bounce back. People have short memories. Let's just talk a little bit more about the UAE, especially in contrast to Saudi Arabia. So the UAE left OPEC. It seems to be developing more of a rivalry with Saudi Arabia. Also, the UAE has been using the Iron Dome system from Israel to defend itself against Iran, even though cooperation with Israel is still taboo among most of the Arab public. So where is the UAE positioning itself? Where does it find itself in a year three from now, especially in relation to Saudi, Iran, Israel, in the U.S., let's say? So it's important to

understand what the UAE is, because it looms large in our imagination. And it is run by a very forward-looking, very technologically sophisticated, very economically sophisticated regime. So this regime has been able to invest in all kinds of ways so that the UAE is not really fundamentally an oil economy anymore. It is a vast series of hedge funds that sit atop a bunch of oil. What it can do, is very different from what Saudi Arabia can do. So it can say we don't want to be part of VOPEC because we don't get most of our revenues from oil anyway. So we want the flexibility to not be part of this cartel

and we can set our own standards and we can do more when we want to, we can do less. We can get much closer to Israel because we don't really have that large and native population and we keep them very comfortable with all kinds of lavish subsidies anyway, so they're not going to rebel. And we can become part of the Israeli

technosphere and move into advanced industrial economics rather than being stuck in the Middle East. The Saudis, on the other hand, Saudi Arabia is a real country. It has whatever, 30 million people. It relies largely on its oil revenues, though even they are modernizing. And I think the Crown Prince realizes he needs a plan for long-term stability. One of the great learnings that has taken place for Saudi Arabia and for the Crown Prince is he came in a young man in a hurry, very hot-headed. And he goes to war with the hoodies. He does a blockade on Qatar.

He gets angry with the Sunnis in Lebanon. Now it's very different. He's established diplomatic relations with Iran. He's made a rapproch more with the Qataris. He's made up with the Lebanese. He is looking for stability and peace so that he can enact his domestic modernization vision. But he has a real country with real public opinion.

And I think it's going to be much harder for him to normalize with Israel in the wake of Gaza. I think he'd like to because I think they all like the idea of tying up with Israel economically and technologically, but he's going to need some movement on the Palestinian issue. Where do you think that moves? Because it's been put on pause during the Iranian war. You said earlier that Israel was not really under threat by Iran, which surprises me because the proxies has Belaw in the North and Hamas in the South, it certainly, I think, feels like a constant threat if you're living in Israel.

But what do you think happens in Gaza over the next one to three years? Is it a Palestinian enclave or is it something totally different? Yeah, what I mean is that Israel is not under existential threat from Iran. And I agree with you. If you're living in Israel, it's a life of enormous anxiety and worry and things like that. But, you know, we know what the numbers are. Has well, I launched a lot of rockets against Israel over the last 20 years. the number of Israelis they were able to kill was tiny.

The Iranians have never even tried a major offensive against the Israelis that have, again, achieved more than pinprick success. But the larger point, I think, is Israel's political spectrum has shifted so far right that I don't see how you could get the minimal concessions on the Palestinian issue that the Saudis would need to be able to make a deal. And why do the Saudis care that much about the Palestinian cause, per se? I don't think they really do. I think that certainly the elites in those countries have never really cared very much about the Palestinian cause.

But they always believed that the street did, that their publics did, that it has a kind of symbolic resonance. Look, these are all absolute monarchy. So these are rulers who are worried about their legitimacy, worried about their control. And in that context, the Palestinian issue was always a easy way to signal something that the Arab street wanted. But I don't think they care very much, which is why, as I said, I think they're all searching for a way to do business with Israel. They need enough symbolically that allows them to do it. And all I'm saying is, I think Israel has moved so far on this issue that the minimum of what the Saudis need would break Netanyahu's coalition right now. So it sounds like you're suggesting just a stalemate for the time being.

I think so. I mean, it's possible that the Saudis find a creative way around it. Maybe what will happen is a more under-the-radar, quiet cooperation, the way the UAE and Israel are doing right now. But you notice the Israelis leaked that Prime Minister Netanyahu visited the UAE during the war, and within an hour, the UAE flatly denied it. My sources tell me, in fact, he did. Netanyahu did go to the war.

the UAE. But the fact that the UAE immediately denied it tells you that they do not want to seem publicly associated with Israel. How do you see Netanyahu, over time as a leader of a country trying to defend itself as a lone democracy in a region where there's hostility directed toward them for a variety of reasons? Look, I think BB Netanyahu is one of the most skillful politicians I've ever met. He is incredibly smart, incredibly well-read, incredibly learned, He understands how to play the Israeli system, but he also understands almost as well, maybe even better, the American system. It's quite unusual to have that. When he shakes the hand of a monarch in the Middle East or a Putin or a Trump, is he reliable?

Most American officials who have dealt with him for an extended period of time would answer that question emphatically with one word, no. I know that there were administrations that tried very hard to work with him, and the biggest problem they had was they felt precisely that he was just unreliable in the sense that he would not live up to his commitments, not be true to his word, say one thing to one person and another to another person. But I think that his great strength has been survival. His great strength has been to figure out where the winds of Israeli politics were going and they were blowing right and to be willing to jump onto that, to make alliances with these far-up

parties that no one had been willing to ally with before. He, I think in a certain sense, militarily has made Israel more secure. I mean, I think the attacks on Hezbollah were a masterstroke. I think the first attack on Iran's air defenses were very important in making Israel more secure. But I think that no solution to the Palestinian problem, you have five million Palestinians who are living in a state of colonial occupation by Israel. and he doesn't even want to have a solution to that.

And I think that because of that, the other legacy of Bibi Netanyahu, you would have to say, is enormous military success that has made Israel the superpower of the region at some level, but coupled with enormous diplomatic and symbolic isolation. Israel is more isolated in the world than it has ever been that I can recall,

and it is now being isolated even from the United States. Bibi's legacy, the ultimate legacy might be, to have ruptured the relationship between the United States and Israel by turning it into something so partisan. So I think it's very much a mixed legacy. Where do you think that reputation goes in the future? I was talking to someone the other night about when Americans started buying German cars after World War II, how long it took. There was the same thing for Japanese products. And now we consider German and Japan, two of our very, very, very best friends and allies.

So reputations of countries certainly change, but it takes a good amount of time. If you were to look at the Middle East, the major players, what do you see that landscape looking like way down the road, 10, 20, 50 years? I think that if Saudi Arabia plays its cards right and allows itself 10, 15 years of modernization and development, it could emerge as a very, very powerful country, just because you It's the only one that has size and wealth. It has enough people and it is enough of a landmass and can field enough of an army. And, you know, it can be a kind of multi-dimensional power. The problem with the UAE, which is extremely high-tech and smart and sophisticated, is just too small to be a global power of any kind. And the same is true of Qatar. Kuwait is also tiny in comparison. So it's really the Saudis who have that capacity. I think Iran is going to continue to be completely dysfunctional.

Don't forget that the Islamic Republic is not just Islamic, is also sort of socialist. So it's been very, very badly run. When you look at per capita GDP, Iran was probably ahead of Saudi Arabia when the Shah was removed. And Iran is now way behind all these countries. We always hear that the majority of Iranians don't want the theocracy and they want a more normalized state. What do you know about that sentiment now? And do you think there's enough sentiment to lead to an internal change, a regime change by some form other than more? I think this is a very good but very complicated question, and I'll begin by saying, I don't know. And it's very hard to know. Most of the people who say these things confidently have not been to Iran in 45 years. Much of the Iranian diaspora are like the white Russians after the Russian revolution. They are imagining an Iran that may have existed in 1977. But what I'll say is, I've been to Tehran. And the regime is clearly very unpopular among the people in Tehran, educated, young. westernized. When you talk to older people, even in Tehran, I wasn't allowed to leave

Tehran. When you talk to older people, more religious people, there is more support for the regime. And I'll point out one thing, which is in neighboring Iraq, which holds free elections, a large part of the Shia population votes for religious parties because the Shia do believe in the fusing of religious and political authority. So it's not inconceivable that there is some part of Iran, the older, the more rural, the more religious, who have some deference and respect for the idea of mullahs in politics. So, I mean, if I would have put a number, I would guess maybe 65% of the country hates the regime, but 35% has some degree of support. I will say this one thing, which I'm pretty sure of traveling around the world, nobody likes

being bombed by foreigners. Nobody likes being bombed by the United States, the superpower of the world. So whatever the situation was three months ago, I think that the regime has more support now because it's an act of disloyalty to the nation, not to support a regime that is being bombed by Americans and Israelis. The central mistake of American foreign policies from 1945 has been to misunderstand nationalism and to not understand that you may have very good ideas for what should happen in that country, but no country likes being bombed. into enlightenment. Coming up after the break, given the war with Iran, why haven't oil prices spiked even more than

they have? Also, is the U.S. making its own Brexit? And will Trump, too, go down in history as the great grifter administration? The scale of what he's doing and the nakedness, the openness with which is happening, is breathtaking. I'm Stephen Dubner. This is Freakonomics Radio. We'll be right back. Farid Zakari's most recent book is called Age of Revolutions, Progress and Backlash from 1600 to the Present.

So he takes a long view of geopolitics. I asked him to summarize U.S. foreign policy over recent history and what it will take to break some bad foreign policy habits. The U.S. has to find a way to transform, amend, reform, and stabilize the international order that, it created after 1945. I think what people forget is that the international order we created after 1945 is pretty much unique. It's the first time in human history that you have had this 80-year period with no great power wars where you have allowed a single open international system economically to flourish and expand as communism finally collapsed. It has allowed poor countries to grow on a scale that they've never been able to grow before. It has allowed for for the introduction of concerns about human rights.

It's allowed for the introduction of foreign aid, all these things which really were never part and parcel of the international system before. So I think it's a pretty unusual, extraordinary international arrangement that Franklin Roosevelt conceived Harry Truman and Eisenhower built. What we have to understand, however, is it's been 80 years. There's been a lot of change. Other countries want to be more involved. They want to be more powerful.

it has to have that ability, that flexibility. But we shouldn't be trying to do what Trump is trying to do, which is basically abandon it and let it collapse, because what will follow will be most likely the law of the jungle, which is what you've had for most of human history. So I would say that the intelligent reform amendment and repair of this international system so that it makes sense for other countries. Now, by the way, it does, right? China, for all its desire to, quote, quote, replace the United States has grown rich and powerful

under this very international system. And it is aware of that, which is why it is not trying to tear it down. It's actually the second largest supporter of the United Nations now, right, which is amazing when you think about where Mao's China was only 40 years ago. It was a rogue revolutionary power. So what we need to do is to make sure that we stabilize a system that has been profoundly good for the United States, made us the pivot of the world, but also been very good for others. Do you think nationalism, on average, is beating out globalization at the moment, or it's just

interrupted it? Oh, not at all. I think that the reports of the death of globalization are vastly exaggerated. Look at it this way. So Trump has, as a result of his nationalism, taken the United States and gone from being the most free trade country in the advanced industrial world to the most protectionist country in the advanced industrial world. We now have the highest tariffs of any advanced industrial country. However, if you look at the rest of the world, what they are doing is more free trade, not less. The European Union's response to Trump tariffs was to lower tariffs between Europe and Latin America, lower tariffs between Europe and India.

Canada's response to American protectionism has been to lower the tariffs between China and Canada, between Europe and Canada, between India and Canada. Some of these deals haven't been finalized. But what you see is the rest of the world trying to kind of re-globalize in a different way. Some of them are being wary of too much dependence on China. But what do they do when they think they're too dependent on China? They go to Vietnam, India, Mexico. Last I checked, those were still foreign countries.

So it's a very interesting re-globalization. And if you look at the strength of the global economy, the ability to withstand COVID, the ability to withstand this oil shock, which is the largest energy shock in the history of the world. It is because of globalization. It's because you can shift sources of production so easily. So I think you're seeing actually the resilience of globalization these days. Are you surprised the oil shock hasn't been even steeper than it's been? Yes. And I think part of it is that markets are very sanguine. And maybe they will be right, but maybe they will be wrong. If you look at two things.

One, it's this point about the resilience of globalization. There was a lot of things people were able to do to quickly compensate for the loss of oil coming out of the Gulf. There was a lot of slack in the market. There was a lot of oil out there in supplies in various ways. That's all running short. And the way you can see it is it's a little technical but important. The numbers that you hear when people talk about what the price of oil is is usually futures contracts. In other words, it is contracts for the future purchase of oil, and that's at about $100, $105 a barrel.

The actual price of oil, the price at which a barrel of oil is being bought in Asia today is $120, $125 a barrel. So either this crisis is going to blow over and everything is going to get much easier, or what will happen is the traded price will become closer to the real price. And if it goes to 125, then you certainly have a recession in many, many, many parts of Asia. You probably don't have a recession in the U.S., but you have a substantial slowdown of the economy. And more importantly, the Fed will be completely unable to lower rates in a scenario like that. But additionally, the U.S. has been producing a lot more oil and gas over the last 10, 12, 15 years generally. But the export numbers from the U.S. in the last couple months have just spiked through the roof, yes?

And that's the globalization. That is when you can't get your oil out of the Middle East, there are other places you can get it. The U.S., Venezuela, Nigeria, and that's all very real. But it's important to understand the fact that we produce oil means we don't have a shortage of oil, but the price is a global price. So we and the average American suffers as much the increase in price of oil as anybody else. The people who benefit are for American companies. I'm exaggerating, maybe 40 American companies, but the oil producers, but the fact that Exxon is making more money doesn't mean that the average American is doing better.

Can you explain why our federal government allows sitting politicians to freely trade stocks and companies over whom they have obvious influence and non-public information? It's insane. The broader point to make is, most people don't realize this. We have the oldest constitutional system in the world, and that's a glorious. and we are going to celebrate the Declaration of Independence. It's 250th birthday. But it's also 250 years old.

And it's an ancient Tudor polity and a constitutional arrangement. And it has many, many gaps and many, many weak spots. One of them, for example, is in most Western democracies today, the investigative judicial function, the Department of Justice, is set apart from an independent of the prime minister or president. whereas in the American system, the Attorney General is appointed by and serves at the pleasure of the President. That's not true in almost every European country.

And so we have things like that. And one of these is we don't have enough laws that are kind of anti-corruption laws in various forms. But the whole nature of our system allows for this kind of institutionalized corruption. Look at the president's stock account, which is mind-boggling. I mean, his 3,700 trades. And in his case, it's so naked again that he literally will go visit a company, buy its stock, and then put out a tweet saying, this is a hot company and putting the stock market ticker of the company there. The level of self-dealing and grifting, let's call it, in the Trump administration, is astonishing to a lot of people, included many people who voted for him. What do you make of it?

I'm especially curious if you see parallels to other leaders in recent or ancient history. I think in today's world, the only comparison I can think of in terms of the scale of the dollars involved is probably Putin. I was talking to an Indian friend who's in government, and he was saying none of the things Trump is doing would be possible in India anymore. There was a time when India was very corrupt, and there's still a lot of corruption, but both the scale of what he's doing and the nakedness, the openness with which is happening, is breathtaking. And I think you'd have to search far and why it defined a place where you could do something like that. If you think about this latest IRS deal where the IRS is forever banned from auditing, not just Trump, but his whole family. Or if you think about the $2 billion investment plus the $500 million investment that the UAE government makes in Trump's basically the Trump-Witkoff cyber venture world financial. And then literally a few weeks later, they are granted the coveted.

license to be able to buy Nvidia chips and have a big data server, which many countries in the world were vying for. I think there's very, very few examples of this. To me, the really interesting question is why it's not causing outrage,

but even with his base, there is an interesting answer there that for a whole part of America that has not benefited that much from the last 30 years of enormous growth and prosperity, they look at the last 30 or 40 years that in many ways could be described as the rise of meritocracy and the

rise of markets and the rise of a certain kind of fair system that was anybody could come from anywhere. And if they somehow did well on Wall Street or did well in Silicon Valley, they became rich. There's a whole segment of America that looks at that and says, you know what, I don't know about all that. It just feels fixed to me because it looks like somehow you guys all get into these fancy colleges. Somehow you guys all get fast-tracked for these fancy jobs. Somehow you guys all end up with IPOs. I'm not saying it's right or wrong, but I'm saying there's a very powerful feeling among the have-nots, that the haves have gotten to where they have through a lot of connections and self-dealing and internal promoting. And as a result, they look at it and say, the system's

fixed and corrupt anyway. Trump is doing it openly, nakedly, in a sense. sense it's worse, but we don't care. Everyone was doing it. And that feeling, I think, is what in a strange way has allowed Trump to get away with what otherwise is a staggeringly open level of corruption. Putting Trump himself and his family aside for a moment, do you feel the U.S. is in, let's call it a secular decline? No, I think that the astonishing thing about the United States, and I often try to explain this to my European friends, is it's a country of enormous, variety variation. It's a ragged country, by which I mean, yes, the subways look dirty and the highways look like they've got too many potholes on them. And yes, we have no high-speed rail. And yet,

look at the AI, look at the technology companies in general, look at the cutting edge of biotech, look at pharma. The U.S. is at the same time the most advanced country in the world by far and the country with the worst infant mortality statistics in the developed world. You have to be able to understand that contradiction. The simplest number I can give you is the U.S.'s percentage share of world GDP in 1980, when Ronald Reagan was inaugurated, was 25%. Since then, you have had the massive rise of the rest, as I call it, the emerging markets. China gone from essentially 0% of global GDP to 15% roughly.

India has gone to, I think, 3 or 4%. 4%, all this massive shift in power. Do you know what the U.S.'s percentage share of world GDP today is? I'm guessing 25%. We have managed to maintain our market share. And the reason is, there are enormous parts of the U.S. that are incredibly productive. And in general, we are a much more supple, flexible economy. The things that Trump often rails against, the fact that we have let manufacturing decline so that we could let services and technology. and all that boom, that's the flip side. But as a result, the U.S. is astonishingly productive, astonishingly advanced in many areas. It does, however, have that feature, that there are many

measures by which it is among the worst, if not the worst, in the advanced industrial world. So considering there's been so much chaos, considering there's been so much, let's call it, anti-democratic action at the federal level, considering that Trump and his family administration have self-dealt a lot, you still say that you, U.S. isn't in secular decline. Walk me through, in your mind, not the fantasy version that you would like to happen, perhaps, but the real version that you think will happen politically for this country. I can't give you a pure prediction, because so much of it depends on what human beings do. There's human agency here. So I'll give you what is my hopeful prediction, but not entirely

divorced from reality. So Trump's very unpopular, which tells you that probably he will lose the mid-term or there will be some setback. And probably, I would, again, this is hopeful prediction. Probably MAGA does not get re-elected in 2028. And there is some kind of pendulum swing away from it. And I think a lot depends on how big it is, because that will determine how much people interpret it as a repudiation of MAGA. On the other hand, the Democratic Party is not winning any approval rating wars either. No, it isn't. But on the generic ballot, it's doing much better. It's leading by a lot. So let's assume that there is some repudiation which allows for some tightening of ethics laws.

One of the things we've realized is there's just too much leeway in the executive power for corruption and abuse of authority. And that probably, as with post-Watergate reforms, you need another round of these reforms. Meanwhile, the U.S. economy continues to do what it's doing very well. I think China, while very powerful and extraordinarily impressive, has its own problems. It has demographic collapse. It has huge debt problems. There is too much government direction of the economy, which will have its own shortfalls. So you look at that and you say, who's the competition, right?

Japan is in total demographic decline. Europe is turned into a museum. India is still too small to be a viable competitor. So the U.S. remains the least dirty shirt in the laundry pile. And I think we continue in exactly this kind of chaotic fashion. John Kenneth O'Golbrate said in the Affluence Society, which was published in the early 1960s, I think, he said the mark of the United States is private affluence and public squalor. And you know what?

If it was true in the early 1960s, maybe people are hoping for a transformation, but we'll always be this ragged, uneven country. But I don't see a collapse. I think that for that to happen, you'd need a lot more to go a lot worse. Galbraith was not just a well-regarded economist. He was also one of the most realistic, especially when it came to predicting the future. The only function of economic forecasting, he once said, is to make astrology look respectable. I'm Stephen Dubner. This is Free Economics Radio.

We will be right back to finish up our conversation with Fareed Zakaria. Let's talk about American electoral politics for just one. minute. It doesn't take a lot to be dissatisfied with the current electoral political system in the U.S. Most people are pretty dissatisfied with many, many elements of it, the way that primaries drive the races, the way that Congress has standstills and partisan friction and so on. So there have been many, many, many versions of gentle reform. What about a more radical reform? What do you think of the ancient Athenian model of sortition, which is a form of democracy with representatives? chosen by lottery. This is how we choose our jurors today. I've always thought of this idea as a

crazy old idea, like how would that possibly work? But I actually sat on a jury recently for and I was really moved and impressed with how 12 people who didn't know each other and probably wouldn't spend any time together outside of the jury room came together with a common cause, and they weren't specialists. They weren't chosen for their expertise in any area that the jury was engaging in. They were just chosen because they happened to live. in a place where they were required to serve jury duty. And the idea being that rather than electing people who manage to win an election because of their personality or money or background, you're choosing actual representatives, I know that sounds crazy, probably even to a

political scientist like you, but I'm curious to know what you think of it. No, I'm actually a big supporter of the idea theoretically. And I'll tell you why. It solves one of the core existential problems of political science or of governance, which is the people who want to exercise power over you are by definition broken people. The ones you don't want exercising power. Same for co-op boards, by the way, in New York City. Exactly, exactly. And the more complicated and messy and expensive the political process becomes, the more it becomes subject to virulent personal attacks, right? So how do you solve that problem, which is there's a huge what economists would call

selection bias problem. But as you say, the ancient Greeks had this system, which is you randomly pick people and you let them run it. Now, there are issues of what would it mean to run something, what would it mean to have that political power? Because there's a lot of very technical stuff that happens in government. And you'd need probably a much more activated civil service than we now have. Exactly. And so you'd have to have some combination of political control but also administrative efficiency.

Now, let's assume that that radical change will never happen. Are there pieces of that idea that you see as possible amendments to the way that we run our elections now? I think the primary system is frankly a very bad idea. It is unique to America. Most people don't realize this. You're going to give the people the choice at the election, but the party itself should be able to make its own internal choice as to who it wants to choose. And the problem with leaving it to democracy as the primary process does is that in those kind of democratic contests, 80% of people don't participate. So you're getting the rule of the most fanatical, most obsessed. most ideological, often richest members of the public, totally non-representative. And if you think about what the old system was that is often caricatured, there people call it the smoke-filled rooms, right, which is the ultimate negative thing you can say nowadays is to imply that there were cigarettes involved anywhere. I think they were cigars, it's okay. And what were these smoke-filled rooms?

They were filled with mayors and aldermen and senators and congressmen and governors. In other words, the people who chose the kids. candidates were themselves elected officials who had a lot of experience getting elected by the general public, not just by the Democrats, not just by the Republicans, but in general elections. And so they had a tendency to try to find viable candidates for the center. Now, when you have the extreme fringe on the left and the extreme fringe on the right choosing through a primary system, and when you have social media, so if the primary voter is 10% of the Republican Party or 10% of the Democratic Party,

and the most extreme. The people active on Twitter are 10% of that 10%. It's the most crazy people sitting in their mom's basements firing away, angry tweets. So the whole system is geared towards the extreme rather than the center. I would abolish the primary system entirely. I would do something about money in politics, and I would end redistricting. And I think that those three things are all perfectly within the realm of possibility. Economists now have enough data to measure a lot of the downstream effects of Brexit for Britain. And they're not very good, as you could imagine, but rather than being just political conversation, they're actually empirical arguments. And those same economists say that when you look at the Trump presidency and what it's doing

to our standing in the global economy, that it's going to take a while. It's going to take five or ten years before the effects can at least be fully measured the way that the Brexit effects have been measured. When that time comes, what do you think those effects look like? So I think it's going to be not nearly as bad as Brexit. The U.S. economy is much stronger, more resilient. First of all, most important thing to remember, we are not a trading economy. One of the reasons that Trump's crazy tariffs, and I'm totally opposed to them, one of the reasons they haven't had that much negative effect on the U.S. economy is the American

economy is a domestic economy. I mean, in the Brexit case, it was just like insane. Like 40% of British exports went to the European Union, and they said, let's make this much more expensive and complicated and put lots of barriers. So the second piece is the Trump administration has been very pro-business in a regulatory sense. And I think that the left tends to forget how important that is. There's a huge boost to businesses to be able to depreciate plant and machinery and

investments fast. It's a huge boon to business to have licenses happen fast for the SEC to take its foot off the break as much as it has. Now, there are dangers, obviously. things can blow up. But for the most part, you just look at something like housing, right? Why is that Texas is able to both build many, many, many more houses, but also build much more green technology than New York or California? It's because it has a lower regulatory burden and a faster regulatory process. So all of that is really important. The thing I worry about, the ticking time bomb

for the United States is Trump has turned out to be somebody who, like many Republicans before, for him, talks a good game about the debt and deficit when he's campaigning and actually runs it up massively when in office. We are now running deficits that are in the 6, 7% of GDP, and it's going to go up to 8 and 9 as the baby boomers retire. We've only run these kinds of deficits during World War II. It was really 1942, 43, 44, maybe three years. So we have never seen this kind of spending. There was that one short spike during COVID spending. That was like World War II spending, but briefly.

Exactly. But then that spending came down very fast. And I worry that it's happening at the very same time that we have been abusing the power of the dollar at a time when the Chinese are trying to figure out, can they make the reman be more of a reserve currency? The Europeans are asking themselves, can we find an alternative to the swift payment system so the U.S. can't impose these secondary sanctions on us at the time that crypto is and stable coins may become some kind of a challenge. So you're running these crazy deficits that require

the rest of the world to buy enormous amounts of your debt. And yet, you're making it so that your currency may not be as secure. And I don't think it's going to be replaced anytime soon. But we don't have that much experience with these things. Is it possible? that the dollar is not replaced, but there's some competition that comes from a combination of those things, the Remenby, stable coin, things like that. Who knows, it's a very dangerous bet to assume that everybody else is going to fumble and stumble, and we will be able to run deficits of the kind that no superpower has ever run. When you look historically, do you find that great powers tend to decline mostly because of internal or external forces?

It's usually a combination in the sense that historically it has been external forces that bankrupt you internally. Look at Britain. Britain was trying to fight two world wars and run a global empire. And the costs of all that eventually just bankrupted the country. If you look before that and you look at France and the Habsburgs, almost always it's been external expansionism, which has ultimately a huge price internally and often involving debt. and things like that. I guess compared to those countries, the U.S. is still relatively small scale when it comes

to foreign invasion, colonialism, et cetera. Correct, correct. As a percentage of GDP, in some cases, particularly if you go back to the Habsburgs and the French, in those days, the state was a night watchman state. So it wasn't spending money on Social Security and Medicare. It basically was spending on wars. But what worries me is Neil Ferguson has this line that if a country becomes a great power starts spending more on interest payments on its debt.

than on its defense budget, it doesn't stay a great power for long. And he says, if you look back in history, there's no exceptions to that rule. Well, the United States has begun to spend more on interest payments on its debt than it has on its defense budget. How can you best explain why the U.S. economy has remained so dominant and dynamic for such a long time? There are other countries that invent things. There are other countries that do very well in some sectors and sometimes export them. But if you look at them as engines of prosperity for their populations and for shareholders and so on,

the U.S. is really unparalleled. I think there are three broad factors. One is enormous natural advantages. The United States geographically is built to be rich, by which I mean it has the most fertile agricultural land in the world. But that agricultural land sits right next to these extraordinary navigable waterways, the Mississippi River, the St. Lawrence River system. When you look at the coastline of the United States, it has, I believe, three of the best deep water ports in the world.

There's extraordinary forests, there's extraordinary natural resources, oil. We sort of have everything, and people sometimes forget this. There was a very, very good book by Peter Zahan called The Accidental Superpower, which makes this point very powerfully. I think that's one bucket. The second is we have, broadly speaking, the most market-friendly system of any large economy. Probably Singapore and Switzerland are better, but of any large economy, which tends to have a political tendency toward a certain kind of statism and anti-market forces, we are probably the best. And I think the third is immigration, because what immigration does is it gives you, and I mean

historic immigration over the last 250 years, it gives you people who have an insatiable drive for success. I often, when talking to businessmen, when I make the point about immigration, I tell them all, you've all been incredibly successful. Now, let me ask you, put up your hands, those of you who think your children are as driven to succeed as you are. I have literally never had a hand go up. And the reason is children rationally react to the circumstances that they are in. The poor person in Mexico who's crossing the Mexican border on pain of death so that they can come and wash your dishes, that person has drive. And we've had that for 250 years. You talk about selection bias. Those are people who wanted to be somewhere more than the others around them

or found a way to get there. Exactly. And the high end part is the particularly dramatic part. We think that America's lead in the sciences is some kind of natural, God-given thing. Well, it happened And if you think about it historically, it's a very unusual recent thing. In 1933, Germany had won more Nobel Prizes in Science than Britain and the United States put together. But what happens after 33 is Europe gets consumed in the conflagration of World War II. All the smart Europeans, particularly the smart European Jews, who were an absolutely central part of the scientific revolution in Europe, moved to the United States. and the state in the U.S. after World War II starts funding science on a massive scale inspired by the Manhattan Project. Those were all completely unusual circumstances, and that's what produced the U.S. dominance.

And by the way, you might notice all three of those forces are waning. We now have a real competitor in China in the way that we didn't because Europe had been destroyed. We don't have the exodus of Jews, and if you can add to it, the Indians and the Chinese in the 60s and 70s, That is slowing because of the immigration crackdowns. And finally, the government is cutting spending on basic science. So that's a part that in the long term, that worries me a lot. Last question. Tell me something, anything, that you, Farid Zakaria, believed for a long time to be true,

but realized that you were wrong, something important that you changed your mind about. Oh, probably the central one in terms of my worldviews. I thought that as China liberalized its economy, it would liberalize its politics. And the reason I thought that is it's been true for every country in the world, really. One of the few iron laws of political science is that as countries become richer, not counting oil-rich states, once they get past $7,000 per capita GDP, they're almost all democracies. In fact, there's almost no case of democratic regression. Why did that happen?

I think because two things. One, China is unusual in that it has a political system that is so, it's not a dictatorship in the conventional sense of the word. The Communist Party is so deeply infiltrated into the entire society. And secondly, human agency, the Chinese watched the collapse of the Soviet Union and they said we're not going to let this happen to us. Xi Jinping's absolutely clear in his writings and his speeches, he says that when the Soviet Union opened up its economy and opened up its political system.

system at the same time, what they ended up doing was causing chaos and a collapse. And so the implication is we'll open up our economic system, but carefully and in a modulated way, and we will not open up our political system. And so far, they've been able to pull it off. Do you think she is happy that the U.S. has gone to war with Iran? Oh, he has to be. This is a godsend for the Chinese. First of all, it takes the focus off Asia.

It means the United States military is now running down its. stock. So at a very simple technical level, we lack the capacity to deter and to respond to any kind of attack. That means Taiwan is looking a little bit easier every day? Right. And that's not just the sheer issue of arms. It's also you've used up political capital, diplomatic capital and all that. And I think because it hasn't turned out well, it will have that effect of making America more gun-shy about these kind of things. This Iran war is, I cannot think of a geopolitical mistake that the U.S. has made that has been so consequential because Iraq was very expensive, but it didn't have this spillover where, look at what Iran has done. It has redounded massively to the benefit

of Putin and against the Ukrainian. So the war that we cared about that is kind of system-threatening actually is making things worse. It's hurt all our closest station allies like Japan. like South Korea, like Taiwan, who desperately need stable and low-priced energy. It's hurt the core of our alliance with Europe, which is also facing massive new energy bills. It's discredited us because we did it in a way that was completely illegal. We didn't even bother to go to the UN. And then it has rehabilitated the Iranians who were in a bad shape before this. I think it's very hard to find an event that has had as many costs for the U.N.

with as few benefits. You are the best political science professor I never had. I learned so much from you every time, and I really appreciate your taking the time. And I also appreciate the hours upon hours that you're spending, reading, and talking to people to have so much information to deliver. It's a great bounty for us.

So thank you. You're very kind, Stephen, and it's always a huge pleasure to come on the show. That, again, was Fareed Zakaria. His CNN show is GPS, Global Public Square. My thanks to him and to all of you who sent in questions, let me know what you thought of this episode or if you have any ideas for future episodes. Our email is Radio at Freakonomics.com. Also, if you are catching World Cup fever and you need a smart companion to make your way through the maze of sport and politics and fandom, check out the new podcast, Sokernomics.

It is based on the book of the same name by Simon Cooper and Stefan Shimonski. The podcast features both of them as well as Ashish Malhotra. You can get it wherever you get your podcasts. And coming up next time here on Freakonomics Radio, we get back to our series on games, and we ask a very simple question. Can Backgammon save the world? That's next time. Until then, take care of yourself.

And if you can, someone else, too. Freakonomics Radio is produced by Renbud Radio. You can find our entire archive on any podcast app. It's also at Freakonomics.com, where we publish transcripts and show notes. This episode was produced by Pete Madden and edited by Ellen Frankman. It was mixed by Jake Loomis with help from Jeremy Johnston. The Freakonomics Radio Network staff also includes Augusta Chapman, Delvin Abouaji, Eleanor Osborne, Elsa Hernandez, Gabriel Roth, Ilaria Montenicourt, Mandy Gorenstein, and Teo Jacobs. One name you didn't just hear for the first time in about nine years is Zach Lipinski.

Zach produced dozens of Freakonomics radio episodes, some of our very best, and now he is going off to be. a novelist. I'd like to thank him for being a great producer, colleague, and friend. We will miss him, but he does plan to do some freelance work for us. I hope he does. Thanks for everything, Zach. Our theme song is Mr. Fortune by the hitchhikers, and our composer is Luis Guerra. As always, thanks for listening. Oh, I did just want to ask you, did you know Ted Turner? I met him once in an elevator in Atlanta and he said to me, I love your fucking show. Very Ted Turner. The Freakonomics Radio Network, the hidden side of everything.