00:00Nouriel Roubini of Roubini Macro Associates joins us now for more.
00:03Nouriel, good morning, good to see you.
00:05Great seeing you.
00:05You walked into the studio and said, no longer Dr. Gloom, Dr. Boom.
00:08Is that right?
00:09What's behind the new Dr. Boom?
00:12Well, I've been arguing for over a year that there's a productivity growth acceleration
00:18because of technology of the future.
00:20Everybody's obsessed about Gen.AI, but there's also semiconductors,
00:24robotic automation, quantum fusion, defense tech, fintech, new material science,
00:31space exploration, biomedical research, and so on and so on.
00:34They're all related to AI, but they're all separate, essentially, siloces and verticals,
00:39and each one of them, thanks to AI, there's going to be a significant boom.
00:43The U.S. has added in most of them.
00:44China has added in some of them.
00:46This is a game between U.S. and China.
00:47That's why I've been saying that potential growth in the U.S. is already well above 2%,
00:51and by the end of the decade, it's going to be closer to 4%.
00:54I'm quite convinced of that.
00:55When I say to economists, they say, you're crazy, 4% growth,
00:59but when I speak to the technologists, they tell me, you're still Dr. Doom
01:02because 4% is too low, it's going to be higher than that.
01:04But I think it will be close to 4%.
01:06Let's say you're right.
01:07How does that change the outlook for interest rates, if at all?
01:10Well, you know, Kevin Warsh argues, like some others,
01:14that that implies that because we're going to have lower inflation,
01:17that justifies lower Fed funds rate.
01:19I think it's incorrect because if potential growth is higher,
01:23the equilibrium real long rate and also the real short rate,
01:27Fed funds rate has to be higher because there's a correlation
01:30between real growth potential and real interest rate.
01:33It's true that then inflation will be lower than 2%, maybe closer to zero.
01:38But today, say, you have a Fed funds rate where most of it is inflation
01:44and one and a half of it is maybe the real rate.
01:46But once you have a growth of 3%, 4%, the equilibrium real rate has to be at least 3%.
01:51Maybe inflation is one and then you get still at the 4% nominal.
01:55So having a lower inflation doesn't justify lower Fed funds rate if growth is higher
02:01and growth is going to be higher.
02:02I think there's a fallacy in that argument.
02:04Well, he might deliver it either way.
02:06And if that's the case, if there is a bias to cut at this FOMC
02:09in the face of what you're predicting, do we face a real risk of overheating?
02:12Oh, yes, but I'm not sure he's going to be able to deliver it.
02:17You know, in the Fed system, the Fed chair is a primus inter partes,
02:22is a constitutional monarch, is not an absolute monarch.
02:25One vote.
02:26And he has to convince the rest of the FOMC to go along.
02:29And if the economy is strong as it is and is accelerating,
02:32if inflation is still well above, you know, target and if it's not going to fall very much,
02:39it would be hard even to justify one rate cut to this year, let alone two of them.
02:44So he cannot really bully the committee.
02:46He could end up into a minority and be outvoted.
02:50So I'm not sure.
02:50And the data so far don't justify having lower Fed funds rate.
02:55Maybe one cut later this year in the second half,
02:59if gradually inflation is going to be slightly lower.
03:02But growth is going to be very strong this year, much stronger than last year.
03:05I mean, Q3 growth was 4.3%.
03:08The last estimate of Q4 is 3.7.
03:12So we don't even have that growth, how to say, recession that everybody was predicted.
03:16There's actually growth acceleration.
03:18And this year is going to be even stronger because you have the tailwinds from AI continuing.
03:23You have easy financial condition, stock market, and other indices are all-time high.
03:27You have the monetary easing in the pipeline, and you have fiscal stimulus
03:30because all the spending cuts were pushed until after the mid-term election.
03:35So you have strong forces going to lead to acceleration of the economy,
03:38not the slowdown of the economy.
03:40I remember once upon a time I knew someone whose name was Dr. Doom,
03:44and he talked about fiscal deficits.
03:46He talked about the breakdown of world order.
03:48He talked about inflation.
03:50He talked about a shift away from the financialization of a world
03:54where suddenly he couldn't get these returns.
03:55What happened to him?
03:57You know, I wrote this book, Mega Threats, in 2022,
04:00when I said that lots of trends are going to lead to lower growth and higher inflation.
04:04And that's exactly what happened.
04:06There were a whole bunch of factors.
04:08But there were also chapters on AI in which I said if things that look like may happen,
04:14but it hadn't happened yet, because at that time in October of 2022,
04:17Charged EPT was not out yet.
04:19The proof that you could do fusion energy was not there.
04:22The improvements in quantum were not there.
04:24All those things happened.
04:26They were already in the book.
04:27And I said if those things are going to happen,
04:28there will be an acceleration of growth, reduction, inflation,
04:30and therefore will be in the utopian equilibrium as opposed to dystopian.
04:34And what was speculative at that time has materialized as being real since then.
04:39So since it happened and I was writing about it,
04:42now I'm believing that actually tech optimists, as I said, tech trumps tariffs,
04:47because tech is first order, 200 basis points, increasing potential growth,
04:51and everything else that is, how to say, stagflationary,
04:54that is not just tariff reduction in migration, fiscal deficit,
04:59filling with independence of the Fed, filling with the rule of law,
05:02all the other things are second order.
05:04So I said, tech trumps tariff, but also tech trumps temper tantrums too,
05:10because all those things are second order,
05:12and market discipline has forced him last year,
05:15as I exactly predicted in April, to back down.
05:18When the market went down, he was forced to do deals on trade
05:21that pushed the tariff rate from 30% to 14% and falling every day.
05:25Okay, so Dr. Bloom, the sort of gap between dystopian and utopian, pretty wide.
05:30And I'm just wondering what happened to some of the political aspects of this,
05:34especially as it relates to jobs.
05:35I mean, if there is significant job loss, won't the political backlash be somewhat significant?
05:41I mean, how do you sort of dismiss the dystopian chapters in your book?
05:45Well, I do believe that eventually we're going to get a permanent technological unemployment,
05:51but it's going to be a bit of an inverted kind of a J-curve.
05:55Initially, actually, demand for labor is going to increase,
05:58because you have to build all these data centers, there'll be an investment boom,
06:01and not just in AI, across the economy.
06:04Therefore, demand for labor is going to increase, we're already at full employment.
06:06So for a few years, we're going to be actually okay.
06:09Of course, people are out of college, those first-time jobs are in short supply,
06:14and this and that, and that's becoming an issue.
06:16Longer term, absolutely.
06:18I think that by the end of this decade, growth is 4%.
06:21By 2046, by 2050, we have AGI, we're at 10%.
06:26But when growth is 10%, then unemployment is going to be 80%.
06:29But it's better to be in a world where growth is 10%, unemployment is 80%,
06:34and we've got doubling every five years, you can redistribute,
06:37because you can tax the winners and redistribute.
06:38I can't drop that in two minutes before the end of the show.
06:40I mean, we don't have enough time.
06:41I tell you, that's my bet.
06:44We'll get to AGI, we'll get to SAI, and there'll be exponential growth.
06:48Not for me to disagree, that's your forecast.
06:50That's right.
06:51Let's say you're right.
06:51How does the government respond in that scenario?
06:53Listen, we're already in a mean-tested UBI system.
06:56You know, I live in New York City.
06:57My marginal tax rate between federal, state and local is 54%.
07:01We're in Mandan, maybe 57%.
07:02I pay real estate taxes.
07:04I pay also sales taxes.
07:05And all this progressive tax system is redistributing in top to those who are,
07:09rightly so, left behind.
07:12Medicare, Medicaid, Social Security, unemployment benefit, disability, food stamps.
07:16So we're already in UBI, de facto.
07:18We'll have to make it bigger.
07:19So in a world in which 10% of the people get most of the income and the wealth,
07:23you're going to tax them more, and you're going to redistribute to everybody else.
07:26For two reasons.
07:27Reason number one, if you don't do it, there is a revolution, as long as there is democracy.
07:31Reason number two, if you don't do it, there's not enough aggregate demand.
07:35A rich person cannot eat more than three times a day.
07:37You cannot eat 100 times.
07:38So you need enough aggregate demand.
07:39And Marx was right.
07:41Capitalism is going to destroy itself from within, because under consumption,
07:45if the share of labor shrinks, the share of capital increases.
07:48The only way to prevent it is to redistribute from the winners to the losers.
07:51So we're already in a mean-tested UBI.
07:53We're going to make it bigger.
07:54That's what's going to happen over the next few decades.
07:57That's going to be the political solution to massive permanent unemployment.
08:00It'll be socially disruptive, but the alternative is a revolution.
08:04That's what's going to happen over the next few decades.
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