Moody's Talks - Inside Economics - The Old Normal with Daleep Singh

Episode Date: December 9, 2025

Daleep Singh, Vice Chairman and Global Chief Economist of investment manager PGIM, joins the Inside Economics team to discuss the seismic shifts occurring in the global economy and financial system. The unipolar global economy, which the U.S. dominated for decades after the collapse of the Soviet Union, has given way to the old normal, a world much like that of the Gilded Age that only ended with World War I. Listen in to hear if Daleep believes this time will be different. Hosts: Mark Zandi – Chief Economist, Moody’s Analytics, Cris deRitis – Deputy Chief Economist, Moody’s Analytics, and Marisa DiNatale – Senior Director - Head of Global Forecasting, Moody’s AnalyticsFollow Mark Zandi on 'X' and BlueSky @MarkZandi, Cris deRitis on LinkedIn, and Marisa DiNatale on LinkedIn Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics, and I'm joined by one of my trusty co-host, Marissa D. Natali. Hey, Marissa. Hi, Mark. How you doing? How's your week going? It's good.

Yeah, gearing up for the holidays, I guess. Yeah, we're right in the middle of it all, aren't we? Sort of, yeah. I'm the president. I should ask you, because I've been all over the place, haven't been paying attention. Do you, have you been following holiday sales at all? How are they doing so far? Because this is December 4th, Thursday, December 4th.

So we should be getting some of that data in. Have we gotten anything in? Well, we got retail sales, right? We talked about that with Scott last week and they were okay. That's in the rearview mirror. Yeah. Well, I mean, I've read. five articles that say five different things about holiday sales. So you know how it is. A lot of

the narrative is around, you know, high income consumers spending with abandon and lower income consumers trading down. Right. Penny pinching, that sort of thing. But I haven't seen any actual numbers put to it other than from some of the credit card companies and that kind of thing. Right, right. Okay. Well, we got a guest, Dilip Singh. Delip, good to see. you? Good seeing you, Mark, especially off of those couches in Newark, which we're kind of like kryptonite for middle-aged men with back problems. So good to see virtually. Yeah, DeLeep is the vice chair and chief economist of PGM, which is the asset management arm of Prudential. Do I get that right, Prudential? Yeah, exactly. Instead of better than I can. And you guys are massive. You're big.

You're like, what, over a trillion dollars in asset? One and a half trillion. Yeah. About a third of our money comes from Prudential, but the rest comes from institutional investors and retail investors. So Prudential is our parent, but we're a global asset management firm. Yeah. And you're referring to the Aspen Institute function that we were participating in a couple months ago. It feels like a long time ago now. It was warm outside, as I recall. Or at least there was some warmth, but it's pretty sure. Before everybody got sick. But, yeah, but that was, you're referring to the couches. We were, I was interviewing you and we were sitting on these couches in this auditorium.

They look comfortable, but they were definitely not. I mean, the sink, the sinking factor was overwhelming. Yeah. Yeah. Anyhow, I don't think people, well, people, I'm happy to talk about that. Yeah, yeah, exactly. You're not both shared back problems. Yeah, exactly.

I'm sure it'll be very entertaining for your ratings. And you were a very significant player in the Biden administration as well. Do you want to describe a little bit about, well, why don't we just take a step back? Can you just, everyone's very curious, how, what your path is to becoming vice chair and chief economist of PGM. How did that happen? Yeah, it's more freestyle than choreography. I spent half of my career in public service, half of it in the private sector.

I did start out. I cut my teeth in the late 90s in the tech industry during the dot-com boom. And this was to help companies figure out what they could do with all this bandwidth that was getting laid down. So not a dissimilar challenge to those who were accumulating computing power in AI data centers. But then I joined Goldman Sachs after grad school in the early 2000s. I was first on the U.S. interest rate desk in New York and then eventually in London, eventually trading EM currencies and local currency bonds. So then about a decade later, I pivoted to public service.

And I always wanted to make a contribution at a time that felt consequential and when I had something to say. And after the financial crisis, I felt like I had something to say. So I joined Treasury in an unglamorous civil service job in 2011. And at Treasury was literally in the dungeon of the building, you know, where diesel fumes from the Secret Service cars outside filled the room and there was condensate dripping from the ceiling. It was unglomerous, but my mission was to help translate the message of the markets to senior policymakers like Secretary Geithner. And eventually, I was offered the chance to transition into policy roles, you know,

the public sector analog to risk-taking. So I worked on Dodd-Frank. I oversaw our debt management office. I led our engagement with Greece when it was flirting with Euro exit. And then ultimately, I was pulled into national security into the situation room after Russia invaded Crimea in 2014. And that last assignment was kind of trippy at the time because my marching orders were to take everything I'd learned about what makes open market economies function

well and then flip that logic on its head to engineer a sudden stop against Russia, which at the time was one of the largest, most connected, most complex economies in the world, and do that without creating blowback to the U.S. and the global economy. So that was my accidental and unintended entrain to national security. Just to kind of skip to the end, I mean, after the election in 2016, I returned to the private sector to work for a global macro hedge fund. Just before COVID, I was asked to run the markets group at the New York Fed. that's the team that implements monetary policy for the FOMC, and in practice, what I ended up doing

was setting up most of the emergency liquidity facilities that backstop the real economy during the most acute phase of the pandemic. And then Jake Sullivan called after the 2016, after the 2020 election and said, hey, will you come back to Washington and be my deputy national security advisor for international economics. And to take on policy challenges at the intersection of economics and national security. So the way I'm wired, if you're asked to serve, you say yes. And so I did. And now I'm back in the private sector. As you mentioned, Vice Chair, Chief Global Economist at Pigeum. And my job is basically to help our investors and our clients connect the dots you know, between geopolitics, economics, technology, and markets.

And, you know, I'm no longer trying to shape the world as it should be as a policymaker. I'm just trying to see the world as it is. And so I try to use as many lenses as I can to see the world clearly. Sometimes it's an economics lens. Sometimes it's a political or geopolitical lens. Increasingly, it's a technological lens you have to use to see what's really changing. So that's my long and winding backstory. Cool. Man, you've seen a lot, you know, going all the way back to Dodd-Frank. Can I ask,

this is a little bit off script, but on Dodd-Frank, are you happy with the way that turned out in the way that shaped the financial system in the subsequent, well, now it's what, 15 years ago since Dodd-Frank, I think, maybe no longer? Too early to say. I'll use the Confucian approach. I mean, what I mean is, you know, so it successfully reduced the risks that were systemic in the banking sector, you know, with liquidity buffers, capital buffers, reductions of counterparty risk and so forth. And by design, well, not by, in part by designer, just the acceptance at the time was that risk was going to be shifted away from the regulated banking sector to the non-regulated. portions of the financial system. So in my mind, what's happened is we've transformed too big to fail to too small to see. And so it's too early to say because now we have potentially systemic risks that are, again, forming, that are large, complex, and connected to systemically important

institutions, but we no longer have the visibility outside the regulatory perimeter. Now, the FSOC, the Financial Stability Oversight Council, was meant to scan outside the perimeter and try to take a forward-looking view of what kind of new institutions, new activities could give rise to systemic risks. But the FSOC is essentially defunct at the moment. And so I worry that we have pockets of risk, particularly in crypto, if you ask me, that are going to end badly. Well, you threw it out there. I'm going to grab it. You said crypto. Can you explain? I mean, it sounds like you're not a fan. It sounds like you're not a fan. Look, I just, I see so many echo, the echoes to 2006 are just everywhere, right?

I mean, there's a lot of good money chasing after many intrinsically weak assets. Those assets are increasingly getting leveraged in ways that are highly complex. And they are finding their way onto the balance sheets of systemically important institutions. I do think we're starting to reach a scale at which these exposures become systemic. And both political parties, I have to say, have been captured. And so the likelihood that regulators are going to be vigilant about risk to the financial system and the households in particular, I don't feel great about our ability to spot those risks and to deal with them before they become a real problem for people have nothing to do with crypto.

And when you're talking about the non-bank part of the financial system, Are you only focused on crypto? Is that, are you thinking more broadly like private credit and other aspects of what's going on in the non-bank part of the system? Or is it mostly, is crypto the top of mind for you? I mean, crypto is symptomatic of the broader point, you know, that we have shifted risk outside of the regulatory perimeter in ways that we can't, regulators, policymakers, investors, economists can't rigorously assess.

We can. So it's an unknown. I think there definitely are positives to the private credit wave in terms of diffusing risk-taking to a large number of institutions that can probably better absorb shocks. And we've been stress-tested a number of times, and the system has seemed to come through. But, you know, again, I think you always have to be a bit nervous about what you can't see. And that's where we are. Right, right.

I mean, you know, the thing about crypto that I've kind of hung on to, and I'm just curious whether you think I am being polyanish, is that it's just too small. I mean, it's certainly a lot bigger than it was, and it's, you know, the direction of travel is that it's going to be a lot bigger than it is now, you know, particularly given all of the changes to regulation and, you know, the kind of the support being, as you pointed out to by both parties to the growth in this industry. But right now, what, it's three, four, five trillion, something like that. I mean, those are big numbers, but, you know, in the grand scheme of things, is that systemic? I mean, when you were talking, I just, like, what I'm hearing in my head is the subprime crisis is contained. You remember the line from Bernacki? I just don't think we know. You know, when you think about how these exposures are getting leveraged and the potential mismatchers on balance sheets, the run dynamics, you know,

I mean, we're, I don't think we've revoked how financial cycles operate, and we're in a greedy phase of the cycle. So I just think we have to be more cautious, you know, as the person on the street, you know, when Uber drivers that I and you and others use to get from here to there asking about Bitcoin and crypto, I get worried, reminds me at pets.com. Right, right. Well, it feels like, and I promise, we're going to get back to the global economy and all the work you're doing there.

But since we're on the topic, it feels like you're not a fan of kind of the move away from regulatory oversight that, you know, Dodd-Frank ushered in an era of more oversight, and certainly for the banking system, a lot more capital, a lot more liquidity. But now we're moving, it feels like we're moving away from that, you know, in the current administration. CFPB, the Consumer Financial Protection Bureau, has been effectively neutered. I think that's fair to say. there's very little regulation or oversight on the crypto market you know a lot of discussion around

private credit but doesn't feel like we're making any you know advances there and trying to get private credit into that regulatory perimeter as you call it am i do i am i getting that right what i'm hearing is i am i getting that right you're not a fan of this kind of move to to less oversight in the context of too too small to see yeah i look I don't think you can ever, nor should you ever try to destroy risk taking. It's part of what makes our economy dynamic and innovative. So the natural consequence of Dodd-Frank is that you're just going to shift risk-taking away from the banks. And my point is we shouldn't have our eyes closed to how those dynamics are playing out. It may be benign. It may be, but we don't know.

And I worry that we're pulling back. There's a political cycle that is overlapping with a financial cycle and potentially the worst possible way. So it has a lot of hallmarks to me of what we experience in the run-up to 2008. Right. Okay. Mercia, did you want to ask anything on this topic before we move on to the global economy? No, I don't think so. I was going to ask them about private credit.

So you answered my question, yeah. Okay. Yeah, I mean, private credit's been kind of top of mind in kind of my circles. You know, people, and there's strong views on both sides of it. You know, as you point out, there's, you know, clear kind of structural benefits to private credit, you know, because you don't have the same kind of, kind of mismatch between your funding and your lending. Like, the bank system has, you know, an inherent problem deposits are able to run and, you know, you're left with the inability to fund your lending activities. And that's not the case, at least not so far, not the case for private credit. but you're right about the

at least to my way of thinking it very opaque, not transparent growing quickly you know all the ingredients for you know potential problem down the road if we don't get more a better sense of what's going on there

for sure and that doesn't feel like that's going to happen anytime soon so but anyway I'm just pontificating let's talk about the global economy and maybe we can start kind of big picture, broadly speaking, how are you feeling about things? I mean, the global economy, you know, big place, lots of moving parts. I don't know how you would, you know, characterize it

or frame it, but, you know, how do you feel about the global economy at this point? So there's the next 12 months and the cycle, then there's the structural. Yeah. Conversation. I mean, on the, on the structural conversation, you know, I'm much, I'm much less optimistic than I am about the next 12 months, which I think will be largely fine, although with one big caveat, which is, I mean, I worry much more of the next 12 months about economic overheating than I do about recession, because I do think we're going to have a markedly dubbish shift in the Fed's reaction function after May of next year. You know, I think the Fed is going to gradually nudge the policy rate towards neutral before May.

But after May, you know, I take President Trump at his word. he wants to see much more dovish monetary policy. It appears likely he's going to appoint a Fed chair that will carry out his wishes. Now, there's, of course, a big division within the FOMC, and so the ability to carry out the president's wishes, you know, one can speculate about that likelihood, but the desire will be to push Fed policy towards a much more dubbish stance. And if we have easy monetary policy, let's say 2% Fed funds, alongside loose fiscal policy, growing pass-through from tariffs, a smaller labor force,

and the ongoing tailwind from AI cap-X, I think we can have a growth acceleration over the next year, but also an inflation acceleration, possibly up to 4%, you know, in ways that dislodge inflation expectations and spike long-end yields and ultimately correct risky assets. That's my main tail scenario for next year, it's not my base case. Space case is another kind of muddle through like the one we had this year. But what I worry about is the right tail more than the left tail, if you ask me about the next 12 months or so. Right.

And I guess we're going to get a sense of, I'm sorry, I think we're going to get a sense of that with the president's choice for the next Fed chair. You mentioned May of next year. Of course, May of next year is when current Fed Chair Powell rolls off as Fed Chair. And the president is now contemplating who he's going to put into that, into that. spot. The person that's, I suppose that that will be a tell with regard to how aggressive or not the president will be with regard to Fed independence and those lower rights or not. Are you looking to that nomination as an important indication of how he's thinking

and what it'll do? Yeah, I think that personnel choice really matters, but also the Supreme Court's decision on whether the president can fire Fed official, that government, at will is really important because it all kind of determines whether he'll have a majority of the FOMC to dictate monetary policy. I also think you have to watch Congress. You know, people sometimes forget the Federal Reserve Act is all that protects the Fed's current way of operating. And it's been amended over 200 times since 1913. It just requires a simple majority of Congress. So even if the White House doesn't have a working majority on the FOMC, there are also legislative routes that could subordinate the Fed's independence to the Treasury

Department and ultimately the White House. You know, I think we've been hearing from many economic policy leaders in this administration about changes to the structure of the Fed itself. And some have referenced the Bank of England as a model. And I think one of the key distinguishing features of the Bank of England relative to the Fed is, you know, every year the Bank of England gets a letter from the UK Treasury that defines what price stability means. And is it 2%? Is it 3%?

Is it an average inflation target? Is it something else? And so, again, it subordinates the ability to conduct independent monetary policy to the fiscal authority. And if we move in that direction, then, you know, you start to get my point. It's not just the choice of the Fed share. it will be, I think it's likely to be Kevin Hassett. That's what the betting markets are predicting, and I agree with that prediction. But it's not just, it's not just that choice. We could

see a market shift in the reaction function through legislative changes or through any number of other mechanisms that just shift, shift the Fed along the continuum from where it is now to a less independent central bank. It's not binary. Yeah, I learned something just yesterday about I should have known this, but I didn't. Chair Powell can roll off as chair, but he can still stay on the Fed. And I guess that will also be, to my mind, a big tell as well. Because typically the Fed Chair, when they roll off his chair, they roll off the board. They, you know, they go do something else.

But if Powell decides to stay on, I think that would be a really strong tell. We should all be worried. Because obviously he's doing that because he wants to defend the independence of the Fed. Probably not because he wants to, but because he feels like he has to. It's pretty clear he doesn't want to. Yeah. Interesting. Okay.

But now, so that's that, I'll have to say you're depressing me a little bit to leave. Let's talk about AI and productivity then. Before we do that, let's go deeper into the rabbit hole, okay? All right. Because you talked about this kind of structural issues. And I know you've done a lot of work here. You wrote a great piece. This is a big part of the discussion at the Aspen Institute function that we, you know,

participated in. And I know you've been doing a lot of speaking around this kind of the structural issues affecting the global economy. You wrote a great piece in foreign affairs, you know, not too long ago. It goes to some of these issues. So maybe you can kind of articulate, you know, your concerns here about what's going on structurally in the global economy. Yeah, thanks. And sure. Look, I think everybody now appreciates we're no longer in the post-Cold War unipolar order that underpin the great moderation of the global economy for almost 30 years, you know, with growth, inflation and volatility compressing into narrow bands. That world is gone. It's not coming back anytime soon. And we're in a more contested, fragmented and volatile environment. So the question is, how do we connect the dots to the global?

economy and financial markets. But just to be clear about the world we're in now, China and Russia have both expressed and revealed a desire to challenge the U.S.-led order. They both have the capacity to do so in different ways. China, because it's nearly a peer competitor to the U.S. across economic, military, and technological dimensions, Russia doesn't punch at China's strategic weight, but it's willing to take more risk. And it still has systemic relevance with nuclear weapons and its energy supply to the world. So, look, the U.S. and its allies are pushing back against Russia and China, but there's a large and growing number of countries, let's call them geopolitical swing states, that are increasingly hedging their bets and trying to carve out

a non-aligned path. So that's a very different geopolitical backdrop than what we've experienced for most of the past 30 years. You know, I think it's a backdrop with much more uncertainty far less scope for cross-border cooperation to manage cross-border risk and much more frequent conflict. But here's the point. Because today's great powers are mostly nuclear powers, the risk of mutually assured destruction is shifting, it's channeling direct conflict away from the battlefield and into the arena of economics, because confrontation in economics or technology or energy, it's not existential. And so that has real implications for the, for the structural equilibrium that we're headed towards.

And I think we'll look back and see that a break, a structural break happened over the past decade, that we've loosened the anchors on growth and inflation and risk premium. Now we have monetary policy, fiscal policy, regulatory policy, and foreign policy all in flux at the same time, which means the demand side and the supply set

of the economy are both in motion. And that means the uncertainty bands you're supposed to put around the macro regime you're in are much wider. And we're back to a steady state that I called the old normal because it resembles the long sweep of history that was experienced before 1990. And in that old normal, central bankers are increasingly price takers from fiscal authorities and political authorities. Political authorities are ushering in a period of fiscal dominance, both for defense spending but also industrial

policies, which we should talk about. They're deploying economic weaponry to an unprecedented extent, and I had a firsthand, I participated firsthand in that process. And they're doing so both in terms of the frequency of economic weapons being deployed, but also the potency, both to break bonds in the global economy, and also to threaten doing so for geopolitical advantage. Supply chains and technological ecosystems, they're shrinking in scale because countries are trying to strike a better balance between efficiency and resilience, growth, and security. And then we have global energy markets, which are chronically imbalanced because we have global demand for energy rising sharply, in some cases exponentially due to AI and electrification,

but supplies struggling to keep up. There's a maze of institutional and regulatory bottlenecks and more and more choke points are getting weaponized. You see where I'm going. I mean, I think in the absence of ambitious efforts to rewrite the social contract at home and to try to shape a more stable equilibrium abroad, all of these trends will be reinforcing. And on current course, they're going to translate into higher trend inflation, higher risk premium, and higher equilibrium interest rates. And I think the implication for trend growth are ambiguous. So just to kind of reiterate so that everyone gets a clear sense of what you're saying, you're saying, hey, look, I think you go back to 1990. That's kind of the end of the cold,

war, Berlin Wall came down. I know 1990 well because that was the year my son was born, my first born. And it was the year I started an economic consulting firm that we ultimately sold the Moody. So 1990 was a big year for me. That's a big year. I remember it quite. Was it Berlin Wall? Didn't it come down in 1990? Do I have that right? Yeah, exactly. Yes, 89 or 90? We should 89, I might have been 89, 90, yeah, in that period. And so you're saying when that happened, the U.S. took on the central position in the global economy, what you call the unipolar order, with the uni being the United States of America kind of in the middle of everything. And then that era continued all the way through, I guess, Obama up through Trump won, his first term. And then you're saying things changed at that point. And at that, point, that's when President Trump started taking us in a very different direction. Instead of a globalized economy, a globalizing economy, we were de-globalizing and pulling away from the rest of the world. And the result of that is where we are today. And of course, now that

he's won a second term and is pursuing all of these policies even more aggressively and more quickly than he did in his first term, this move back to what you call the old, the, the The old, I'm sorry, what did you call it again? The old normal. The old normal. Sorry about it. I got to get that right. The old normal.

I keep singing new normal, old normal, is in full swing. And that's where we are right now. And that doesn't feel like there's anything that's going to change that anytime in your future. We're on that path. And we're going to continue on that path. Yeah, but I wouldn't put it just on President Trump. I mean, I think, yeah. So, yes, we were in this world for almost 30 years, the post-cold war.

unipolar order that was more or less anchored by fiscal discipline, globalizing supply chains, cheap energy, technological diffusion, you know, technology was seen as an unambiguous force for peace and prosperity. And there was a sense of ideological convergence that made geopolitical rivalry almost seem obsolete. Okay, so we're obviously not in that world anymore. But I think, you know, the reasons why have more to do with, they're not just about one man. Okay. I think, this era, you and I talked about this at the Aspen event, I think it really does echo the late 1800s in the early 1900s because just like then, back in the late 1800s, that was the so-called first wave of globalization. You know, when Keynes wrote beautifully about it, he could he could

sip his morning tea in bed, order all the products of the earth, invest in any quarter of the world, travel to any country without passport, and regard that state of affairs as normal, certain, and permanent. Okay, so globalization was spreading across the world in late 1800s. The technological changes back then were also transformational. Back then, it was the railroad, the internal combustion engine, the telephone, the telegraph. Those two forces, globalization and technological change created enormous amounts of wealth. And that wealth was concentrated in the hands of a few people, the oligarchs of that era, you know, Rockefeller, Carnegie, Vanderbilt, J.P. Morgan. inequality eventually fueled an immigration fueled populism.

That populism increasingly expressed itself as nationalism. And nationalism triggered the geopolitical rivalry that eventually collapsed the brittle balance of power in 1914. So what I am warning against is sleepwalking into another 1914, because to me, the echoes are there. And we, again, we have, we're in the wake of another wave of globalization. We have enormous technological change. It's creating untold amounts of wealth that are in the hands of a few people.

I think inequality plus the atomization of the media and also a surge of immigration are again fueling a populist wave. It has more to do with just President Trump that is expressing itself as nationalism. Geopolitical rivalry is the corollary of that type of domestic political shift, not just here but elsewhere. and it creates a more contested, fragmented, and dangerous world. That's where we are. And I'm trying to connect the dots to the global economy and financial markets.

That's really where I'm going with this. Got it, got it. Yeah. And I think what you're saying is President Trump is more a reflection of all of these dynamics than kind of leading the way here. I think so. I mean, I think he's been almost uniquely, at least in the current political climate, uniquely capable of taking advantage of the vulnerabilities in our political economy to gain

power. But I don't think he's a singular force. Right. Because you see this happening all over the world, of course. Right. And there's a certain degree of contagion. When it happens in one place, it normalizes the move towards, it could be towards the right or the left, but it's an anti-establishment push across most Western democracies that you can observe. And just to reinforce the point, when you say old, we're going back to the old normal,

what you're saying is we're going back to that period feels like in the late 1800s, early 1900s, the same kind of dynamics were in play, in terms of technology, in terms of globalization, and the impacts of that's having and how that, the results of all that are very similar to today. Therefore, the old normal. That's what you're saying. That's right. And I think it leads us towards an environment, again, of higher trend inflation, higher risk premium, steeper curves, and higher equilibrium interest rates on the front end. Right, right. And as you point out, that period in the late 1800s or early 1900s didn't end well. I mean, that ended in World War I and maybe even World War II. Are you saying it feels

like we're going down that path? Is it that dark where we're going to end up in that kind of of a military country? Right now you're saying no, mutually a sure destruction, therefore that's not where the battlefield's going to be. It's going to be economics. But is it that we could possibly get to that place where it becomes more of a military conflict than not? Is that something you worry about? I worry about it. None of its destiny. It's a function of our choices. Right. So I do think we're going to need ambitious efforts to rewrite the social contract at home to create a more stable equilibrium in our political environment. And we are going to have to shape new rules, new institutions abroad so that we don't have an escalation of tensions that leads into military conflict. So, you know, look, I can walk through a few of my ideas.

I mean, for example, if you look at the prevalence of economic weaponry being deployed, you know, it's unprecedented in frequency and potency. The number of sanctions worldwide is up 10x in this century. You know, tariffs have quintupled in the last five years alone. The percentage of advanced economies that are screening investments in or exports of sensitive technologies, it's 90%. It was a third a decade ago. So, so suggestion one is, just like we've been crafting and refining doctrine for the use of military force for hundreds of years, I think we now need a doctrine for the use of economic weaponry.

That in the first, the first step is to articulate such a doctrine at the highest levels of the U.S. government, you know, principle, limiting principles for why, how, when, to what extent we use tools that break bonds in the global economy. But then I don't think it can stop at our borders. I mean, it's not realistic. It's naive to expect the U.S. to unilaterally disarm its economic weaponry without other countries doing so. We're going to need something like a Geneva Convention in which the leading powers of the day come together and say, for our own sake, really out of our own enlightened self-interest, we need rules. We need limiting principles so that we don't have a race to the bottom. the kind of race to the bottom that hurts the leading powers more than any others. So that's suggestion one on the punitive side of economic statecraft.

And then we haven't talked about industrial policy yet, but industrial policy interventions are up eight X. You know, and so that's the positive side of statecraft. Countries are trying to say, how can governments actually shape economic incentives in the private sector to better align with national interests, you know, supply chain resilience, technological preeminence, rebuilding our industrial base,

rebooting our national defense. The question there again is, can we come together on a set of rules so that we don't have a race to the bottom a subsidy war at best, but maybe unintended consequences in terms of actual conflict at worst? So I think there again,

I think we have to have a framework that says, what is the strategic objective of the industrial policy intervention? you know, is it supply chain resilience? Is it something else? Number two, how does the intervention, what is the market failure that you're trying to correct? Is it a cost differential? Is it a supply chain choke point? Is it a lack of funding? And then the intervention should be designed to remedy the market failure, right?

I mean, this kind of comes to the question of whether the Intel intervention was the right one. Did they need more capital or do they need more customers? It seems to me they need more customers. They're not, you mean, you mean the administration bought the stock? 10% equity stake. Yeah, right. That's what you mean. So the question is, when should you?

I'm a believer that there are circumstances in which we should use equity injections, particularly for early stage companies in which you need a first loss layer to de-risk other investors to come in behind you. But Intel didn't strike me as a candidate for that type of intervention. At least that shouldn't be the only intervention. And then, you know, you have to make sure your intervention sustains market competition. It doesn't substitute a foreign dependency with a single point of domestic failure. And then can you multilateralize it?

Can you create a positive sum framework in which if we're using these tools of industrial policy and there are many different kinds and countries playing by the same rules do the same, are we net better off? So I just think we have to institutionalize the conduct of industrial policy and not let it slip into ad hoc. interventionism you know that that seems like very unlikely anytime soon you're right yeah absolutely but like so I mean again I don't want to sound completely out to lunch here but the first Geneva Convention was in 1864 you know it was just in the aftermath of the Italian Civil War and it started out very very small how do you treat wounded medical personnel in the battlefield I think we've got to start small again, with any of these, whether it's a doctrine to limit the use of economic weaponry

or a framework for the positive use of industrial policy. Start very small, not very ambitious, then create concentric circles with your closest allies, and then begin a conversation with strategic adversaries. It's going to take a long time. You know, the last Geneva Convention, the one everybody knows about, was in 1949. But we've got to start this conversation because the alternative is far worse. And I do think this isn't the self-interest of the United States. The alternative, again, would leave us far more damage than any other economy because we're more connected and we have more at stake.

Of course, in that earlier period, to generate the political will necessary to come to some kind of agreement in 1949, two world wars, you know, to get there. I mean, if that's our guide, if that's our historical guide, it's a pretty uncomfortable kind of path forward if that's what's going to happen here. But okay, we are now pretty deeply into the rabbit hole. I'm going to try to take us out of the rabbit hole a little bit. Let's go to view the distribution. Yeah.

I mean, there's another branch of the probability tree that I think is almost equal. likely. Oh, really? Okay. So let's definitely come back to that. But before we do, Marissa, let me just quickly bring you back in. Is there anything that you want to bring up at this point? Anything you pushback? I think delete needs a little, he needs a little cheering up, you know, or maybe not. Maybe you're going to put us into a rabbit hole. Yeah, yeah. I'm not going to help cheer you up. Okay. I mean, it seems unlikely anything's going to happen in the next, right, three years to go down this road. Like, it's going to be next election cycle at the very least before there's any even talk of this. But DeLeep, you know, you were talking about sort of

the Geneva Convention of using economic weaponry and the rules of play around that. And then you were talking about domestic policy. So it seems to me like in the current administration, they think of the use of tariffs as domestic policy in a way, right? Like the justification has been, we want to strengthen the manufacturing base in the U.S., we want supply chains coming here. And therefore, that is why we are implementing all these tariffs on our global competitors. How do you respond to that? Are there better ways of doing that?

I mean, could that be an effective way of doing? it? Or do you think that that's just totally the wrong line of, wrong line to go down if you think about domestic policy? Yeah. So my view is tariffs are a tool. They're not a strategy. There's a, there's a role for tariffs in the context of a broader strategy in which you say, number one, what we're trying to do is to strengthen and scale up our productive capacity in a set of sectors that are really important for our economic growth potential, but also our national security. So we, you know, we identified semiconductors in the Biden administration, semiconductors, batteries, pharmaceutical products, certain supply chains that are critical for national

defense as being strategic. And so you make public investments like the Chips Act or like the IRA or like the infrastructure law that allow us to build our productive capacity. That's, that's prong one in a sensible approach. Prong two would be to say, we're not going to be able to produce all of the goods or technologies that we deem critical. So for countries that are playing by the same set of rules,

let's take, for example, Japan in shipbuilding or Taiwan and leading-edge semiconductor production. We are going to allow the free flow of trade and capital and technology so that we can take advantage of each other's comparative advantage. And the number three, we collectively use tariffs. I mean, you know, we're necessary to level the playing field with countries that are not playing by the same set of rules. And the goal is not to raise revenue or to punish an adversary so much as to change the terms of competition.

So you change the terms of competition towards your ability to innovate and your ability to build a network of alliances and partnerships. and your ability to attract talent. If those are the terms of your competition, you know, I very much like America's chances. But again, that's a much broader strategy than tariffs by themselves. And so I'm waiting to see what else is part of this policy thrust. So, DeLie, let's look on the other side of the distribution a little bit. And maybe artificial intelligence, we can talk a little bit about that as well. I'm not sure if that plays into the upside scenarios that you're contemplating. But I'd be very curious how you think AI and the rapid development of AI will influence this kind of way you're thinking about the world. Is it going to

change things in any way or not? Yeah, I mean, there's a, I think there's a very decent chance mark that when the historians write the first paragraph of this era, it's going to be a about the transformative technologies that we're seeing play out, you know, the most technological progress, arguably, that we've seen in a century. And so it is, I mean, when you think about technologies like artificial, general intelligence, but also quantum computing, synthetic biology, nuclear fusion, there are a number of what are called general platform technologies that are on the cusp of reaching commercial scale over the next decade, let's say.

And they're not just tools for doing one thing or upgrading the productivity of a single company or a single industry. They're more like electricity, right, or the internet or semiconductors. I mean, they could upgrade the productivity across every sector and reshape the trajectory of the economy, either on their own or especially together. And so, you know, of course, we can talk about AI, but, you know, think about quantum computing, the ability to solve problems in less than a second, that classical. computers require thousands of years to solve, you know, in simulation and optimization. Not many people focus on synthetic biology, but that allows us to program living cells and physical matter in the same way that AI programs digital bits, which means you can engineer molecules to make medicines in fuel and food. And then fusion is, you know, that's the harnessing the power of the

sun on Earth, right? It's like, you know, it's the promise of clean, limitless energy. And if you crack it, it transforms power generation, manufacturing, transportation, virtually anything that depends on energy. So these are not niche breakthroughs that we're on the cusp of unveiling. This is not like a new color on your iPhone or like a self-cleaning water bottle. I mean, this is different. These are platform technologies that everything else gets built on top of. And I actually think the story is even better than electricity because those, the general platform technologies of the past, they had very long diffusion timelines because they required laying down a lot of physical infrastructure in order to scale at a cost-effective rate. Most of these technologies that I'm talking about now,

they're self-improving, they're mostly intangible, and so you could deploy them globally at scale without a lot of incremental costs. So I do think there is a right tail, a productivity payoff, let's say above 3%, like we saw in the late 1990s, that could lower costs offset our demographic and debt headwinds and turbocharged the economy. But the big picture question for me is, does the geopolitical fragmentation and political disruption get in the way of the adoption and diffusion of these general purpose technologies? To me, that is the, that's why both tails are fat, both the left tail and the right tail. Oh, okay.

So when you say that they're equally fat, So you're putting as much weight on this more optimistic scenario where we get these productivity gains that kind of bail us out, change the dynamics here globally, equally as probable as the scenario where things continue to go in a dark direction, where we've spent most of our time in our conversation. Those are equally probable. That's because I'm an optimist in terms of America's capacity for self-correction, but it requires it.

If we don't, if we don't get that over the next five to 10 years, then I think the left tail becomes much larger. Right. And so what is in the middle of the distribution then? If those are the tails, what is the middle of the distribution? The middle is a muddle through. You know, it's where we are. Where we are.

Okay. Yeah. So, I mean, just look at the economy, the U.S. economy this year. I would say we're muddling through. We have been muddling through mostly at a slightly below trend growth rate. I don't know, 1.6, 1.7. And maybe it'll end up a little bit higher depending on how the next two quarters play out. And, you know, that's mostly, I think, being driven by the AI CAPX story, as well as consumption from the wealthy, who are less sensitive to the slowdown in the job market, more sensitive to asset appreciation.

You know, that wealth effect is proven really powerful. But meanwhile, we have, we still have stubbornly high and sticky inflation just below 3%. And it's being pressured higher by policy shocks, you know, the growing, I think, passed through from tariffs, but also increasingly binding constraints in the labor market due to immigration policy, as well as loose fiscal. So that's kind of the muddle through, slightly below trend growth, high and sticky inflation. That's what's in the middle for me. It's not a terrible outcome. Markets can have long bull runs in an economic environment like this one. Actually, that's what happened in the late 1800s and early 1900s, but they were about once a decade punctuated by sudden stops when there was a sudden reappraisal of the big picture risks that are involved.

So I think we're kind of back to that environment. I am not telling a sky's falling story from markets. And much more, if you ask me to put on my policymaker hat, that's when I start to get much more dark. Got it, got it. Okay, so maybe we're connecting the conversation there. So the kind of, as you characterize it, the muddle through scenario is kind of the most likely scenario in the middle of the distribution, even though you've got, as you say, these fat tails on both sides.

So it's a flat distribution of possible outcomes here. So it makes it much more difficult to kind of have a strong view about how this is going to play out. But what does that mean for the investor, you know, for your, this is why you get paid the big bucks to leave because like me, the kind of. conversation ends at this point, I don't have to go, well, what should I do with that? How do I invest based on it? You got to do that. That's why you get to, you know, that's why you get paid the big bucks. So what do I do with that? What do I do with that kind of, that distribution you just

articulated? Without, without recommending like particular trades. Oh, yeah, yeah. A short time rise. Let me just put it this way. I think if you're an investor or if you're a policymaker, it's a really good time to think in terms of probabilities and scenarios, especially in the tails, rather than relying on your base case and the point estimates of that base case, because you want to pressure and probe, you know, what lies in the middle, you want to challenge lazy narratives, you want to search for your own blind spots, we all have them. And I just think it's an environment that's going to reward investors that are humble and curious and willing to learn from the past and try to imagine future scenarios that haven't

occurred in many decades. It's going to punish those who think that we're in another environment which this time is different. I mean, I look, and I think you also have to anchor, anchor your thinking around where the steady state is going to settle. And I do think, I do think the likelihood, if we don't see corrective policy action, we haven't talked about what those policies could be, then we are going to see structurally higher inflation, structurally higher term premia, structurally higher interest rates. And, you know, that's how I see it over the next 12 months.

You know, because I am an economist and I'm not, you know, I don't think about investing as much as I probably should. I would take, my instinct is to take kind of the way you're viewing the world, or at least the way I'm interpreting the way you're viewing the world, this kind of flat distribution of possible outcomes. The investment strategy I would take is do nothing. Just keep going on, you know. Which will get you fired in this environment. I mean, just, you know, just let the ship on the same, on the path, you know, kind of the tried and true investment strategy of, you know, just invest for the long run, you know, look through the punctuations and just invest for the long run. There are still attractive opportunities in the front end of fixed income curves, government fixed income curves. If you expect, for example, we may have a far more doveish reaction function by the Fed and other major central banks may get four.

force to follow suit to avoid excessive currency appreciation, you know, that that implies an opportunity on the front end in which you're already getting paid some carry and roll down. You can also bet on the shape of the curve. You know, I think we're going to have steeper curves for a long period of time. There are also some structured, high quality structured products that have, that are offering a yield pickup relative to those government investments. I also think, you know, we started out this conversation talking about private markets, I think for every geostrategic vulnerability that you can point to in supply chains or technologies, there's a commercial opportunity, which is to say we have heavily constrained public balance sheets in Western

democracies, right? And so what industrial policy tailwinds are suggesting is that you are going to have a government backstop, if you're a private sector investor, to investing in rare earths or ships or drones or batteries or other areas in which there's currently limited domestic production capacity and high import dependence from a strategic adversary. There is a real asset investment that the market, the geopolitical backdrop is begging the private sector to make. So you can almost think of this barbell strategy in which you you kind of play it safe in terms of your liquid macro investments. But you bet on for the next decade or two, the private sector making much more investment in economic and national security. And that becomes an investable asset class.

To me, that's where you start to get into an interesting conversation about what to do. And I don't think it's doing nothing. Well, this is why I knew you. This is there was a reason you could pay the big bucks. that makes that makes perfect sense in the context of the frame you provided that this has been a fantastic i got so many questions to leap i got so many questions but i thought that are a little non-sequitur to the conversation we have but maybe we can have that for another you can have that conversation another time because this i thought was a very uh co you kind of laid out things in a very clear cogent way and i don't want to screw things up by asking other questions and we've already taking a lot of your time. So let me thank you for participating and engaging with us and

look forward to hopefully we're on the right side of the tail as opposed to the left side of the tail as we go forward. I hope so. Thanks for having me on Mark and Marissa and happy to come back anytime. Thank you so much. With that, dear listener, we are going to call this a podcast. Take care now. Thank you.