The Biggest Disruption Is Yet to Come — ft. Justin Wolfers

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0:01:26 Right now is the AI gold rush.
0:01:31 And that means everybody who builds an app, a platform, a piece of software, a gizmo that’s
0:01:32 somebody, anything.
0:01:34 Everybody is trying to put AI everywhere.
0:01:39 And for two weeks in a series on the Vergecast, we are talking through what that looks like.
0:01:43 We’re talking to developers about what they’re building and how they’re building it.
0:01:49 And whether AI actually does make sense everywhere, or is just going to ruin everything in the process.
0:01:53 That’s the AI miniseries on the Vergecast, wherever you get podcasts.
0:01:57 This series is presented by MongoDB.
0:02:01 Today’s number 469.
0:02:06 That’s how many times executives said storyteller or storytelling on earnings calls and investor
0:02:07 days in 2025.
0:02:10 A 31% increase from last year.
0:02:17 At Merry Christmas, true story, when I was five, I got a piece of coal from Santa, and I
0:02:21 was so pissed off that I poisoned his cookies, and that motherfucker killed my father.
0:02:25 Listen to me.
0:02:26 Markets are bigger than us.
0:02:28 What you have here is a structural change in the wealth distribution.
0:02:30 Cash is trash.
0:02:31 Stocks look pretty attractive.
0:02:32 Something’s going to break.
0:02:33 Forget about it.
0:02:37 I was a five Hertford, or Hartford, whatever it’s called, one of these douchey members clubs
0:02:38 here in London.
0:02:38 Hartford.
0:02:39 Smell you.
0:02:42 Grand Prince of Wales.
0:02:49 Anyways, so, and I started talking to a very lovely prostitute, and I said, so, what did
0:02:51 you ask Santa for, young lady?
0:02:54 And she said, huh, 500 bucks, like everyone else.
0:02:59 Well, it’s hilarious, because you also gave me $500 for Christmas, so clearly I’m the prostitute
0:02:59 as well.
0:03:04 Except I got it as a digital gift card.
0:03:04 Is that what we gave?
0:03:06 I literally have no idea what we gave.
0:03:08 I mean, I’m so, I picked it out myself.
0:03:10 I’m so glad.
0:03:11 A $500 digital?
0:03:12 How did we pick that number?
0:03:13 $500.
0:03:14 Thank you.
0:03:15 Thank you, Scott.
0:03:17 Spend it on the ones you love, Ted.
0:03:19 Spend it on the ones you love.
0:03:20 God, in New York, that won’t even be a date.
0:03:21 Thank God you have a girlfriend.
0:03:25 That wouldn’t even be a date these days in New York.
0:03:28 You and your douchey Shea Margot members club.
0:03:30 Oh my God.
0:03:33 That’s the thing I don’t like about Shea Margot is it has, I’m fine with women your age at
0:03:34 those places.
0:03:36 I am not fine with men your age at those places.
0:03:37 We’re terrible.
0:03:39 We’re cramping your guys’ style.
0:03:40 Oh, Prop G, you’re so interesting.
0:03:42 Let’s talk about interest rates.
0:03:43 Fuck off.
0:03:47 Fuck off.
0:03:52 I’m not that nice and I’m not the last thing I want to talk about is business when I’m out.
0:03:57 You really need to make sure you never do that because this happened to James Corden where
0:03:58 he was a huge dick in public.
0:04:00 Actually, he was at Balthazar, which is your favorite restaurant.
0:04:05 Huge dick in public, publicly shamed and canceled for it.
0:04:06 People stopped listening to the show.
0:04:09 People really care how you interact in person.
0:04:16 So even if those feelings come into your mind, I would encourage you to just really suppress
0:04:16 them.
0:04:17 Just be nice and say.
0:04:21 Except for Uber, I could not be nicer to service people because I used to be.
0:04:24 This guy changed.
0:04:25 There was a couple of guys.
0:04:30 I used to park cars and the same guy used to give me 20 bucks, which was like $7,000 when
0:04:31 I was your age.
0:04:37 And I love, anyways, except for Uber drivers, I’m definitely going to have a vulture pick
0:04:40 up my liver forever by the way I treat Uber drivers.
0:04:42 But everyone else, I’m very, very good to.
0:04:43 Very kind to.
0:04:45 What do you have it against the Uber drivers?
0:04:45 I get in a car.
0:04:46 I’m stressed out.
0:04:51 And they’re like, literally, I’ve put into the app, I’m going to LaGuardia.
0:04:55 And they’re like, and then they pull up their thing and then they type into Waze for 10
0:04:56 minutes.
0:04:57 And I’m like, can we go?
0:05:01 And then he’s like, I have a different route.
0:05:02 And I’m like, what?
0:05:08 You’re smarter than the AI called Waze?
0:05:10 Google Maps needs you.
0:05:14 Have you thought about going to work for Amazon, for Google Maps?
0:05:16 Is that your next career?
0:05:18 I can’t handle myself in the back of a car.
0:05:19 I’m stressed.
0:05:24 My favorite line in The Devil Wears Prada, and it’s coming out next, is when she gets
0:05:30 into the car, in the back of her car, and they’re just sitting there and she goes, go.
0:05:38 That’s where I feel like every time I sit in, I’m like, go.
0:05:42 I’ve already put in the fucking, what’s the point of me putting in the address 20 minutes
0:05:45 ago if you don’t already have the route figured out?
0:05:48 And all you got to do is follow the blue line.
0:05:50 I thought you were going to say, my favorite line from that movie is,
0:05:53 Anne Hathaway is doing something clumsily.
0:05:56 And she says, by all means, move at a glacial pace.
0:05:57 You know how much that thrills me.
0:05:58 That’s not even the best.
0:06:03 The best is Emily Blunt, who says, I’m one stomach flew away from my target weight.
0:06:06 That’s the best line.
0:06:09 God, we need more movies like that.
0:06:10 Do you know what’s coming out?
0:06:13 It’s coming out with my friend, my friend Justin Theroux is in it.
0:06:15 Devil Wears Prada 2.
0:06:17 I can’t wait to see that in Meet the Fockers 4.
0:06:19 But those clearly aren’t money.
0:06:23 I’m glad Meryl Streep’s getting her second home or second penthouse somewhere.
0:06:29 The creative community was demanding a sequel to The Devil Wears Prada.
0:06:31 We were.
0:06:32 We actually were.
0:06:36 Shall we get into our conversation here with Justin Wolfers?
0:06:36 Why not?
0:06:37 Why not?
0:06:43 Here is our conversation with Justin Wolfers, Professor of Public Policy and Economics at
0:06:44 the University of Michigan.
0:06:47 Justin, great to see you.
0:06:52 Thank you for joining us on our final episode, final guest episode of 2025.
0:06:53 Good to see you.
0:06:54 Where are you packing up?
0:06:55 Going home?
0:06:55 Done?
0:06:56 Going home.
0:06:56 Done.
0:06:56 Calling it a day.
0:06:57 That’s it.
0:06:58 Calling it a day.
0:06:59 I’m going to take over.
0:07:01 I’m going to begin just by saying congratulations.
0:07:04 I heard that Forbes was looking for people under 30.
0:07:05 Wow.
0:07:07 And they managed to find 30 of them.
0:07:07 Thank you.
0:07:15 And, mate, I reckon, look, it’s not only often you get a moment, let me explain, the audience
0:07:18 probably heard it, but Ed was named one of the 30 under 30.
0:07:22 And, you know, you’re from the journalism side and I’m from the econ side.
0:07:29 So I want to say as an accredited economist, mate, I think you’re there because you are an immensely
0:07:31 talented economics communicator.
0:07:35 And I tip my hat to you and you earned every part of it, mate.
0:07:35 Wow.
0:07:39 That is really, really kind, especially coming from you.
0:07:39 Thank you.
0:07:40 Scott.
0:07:42 Yeah, Scott’s gone quiet.
0:07:44 God, I hate this podcast so far.
0:07:50 It’s not like we’ve been talking about this nonstop for the last what feels like 30 years.
0:07:52 You’re the one who brings it up, Scott.
0:07:54 We’re very proud of Ed, Justin.
0:07:55 We’re very proud of him.
0:08:05 I want to start with a reflection on the year as our final interview of 2024.
0:08:07 It’s been kind of a wild year.
0:08:12 How would you grade Trump’s first year back in office?
0:08:19 With many of my students, I look at the output they produce and I give them a grade and then
0:08:23 they come to my office after and say, but Professor Wolfers, this isn’t fair.
0:08:24 I put a lot into it.
0:08:28 Their claim is that I should grade them on inputs rather than outputs.
0:08:32 And I think if you were to do that in Trump’s case, you would actually get very different
0:08:32 answers.
0:08:38 So if we were talking about outputs, how’s the economy doing in terms of hard numbers that
0:08:40 we have at this point in time?
0:08:43 And to be clear, it’s December 2025.
0:08:48 We still don’t have a lot of the numbers from late 2025, so it’s only a partial report.
0:08:51 We are not in a recession, probably.
0:08:55 We do have unemployment drifting up.
0:08:58 We do have inflation uncomfortably high.
0:09:05 We do have a budget deficit that is at a point that simply doesn’t make sense for where we
0:09:06 are in the business cycle.
0:09:09 All of those would push you toward a B.
0:09:12 You might go and say, remember, this is a grade-inflated America.
0:09:16 You need to understand the extent of grade inflation in this country right now.
0:09:19 But you can go a step further.
0:09:24 We have needlessly turned allies into foes.
0:09:27 Our incoming tourism is terrible.
0:09:31 Our exports of education are going to be in the tank.
0:09:36 Our role in the world and the respect with which we’re held around the world, I don’t think
0:09:38 it’s been lower in my lifetime.
0:09:43 Whether that has an economic impact is something of an open question.
0:09:46 So in terms of outputs, actually, I’m on the generous side.
0:09:48 Let’s go back to inputs.
0:09:56 The inputs are, do we have a coherent—the president’s first job is to appoint a high-quality
0:09:57 economic team.
0:09:59 I think by any measure he failed.
0:10:06 It’s the worst economic team in a White House at a minimum in my lifetime, and I’m just not
0:10:06 very good at history.
0:10:08 That’s why I can’t say ever.
0:10:11 The president’s chief trade advisor is a felon.
0:10:16 His chief economic advisor is a yes-man.
0:10:22 He is chair of the Council of Economic Advisers, claims to believe in the independence of
0:10:22 the Fed.
0:10:25 That’s why he’s currently on leave from the executive and sitting at the Fed.
0:10:32 The people on his shortlist to become the next Fed chair, if you look at the history of our
0:10:36 Fed chairs, people like Ben Bernanke, who went on to win the Nobel Prize in economics, people
0:10:40 like Janet Yellen, extraordinary public servants.
0:10:43 His shortlist doesn’t look like that at all.
0:10:51 And if you think about—again, judging by inputs, now this is a question of policy process and
0:10:52 actual policies implemented.
0:10:54 The policy processes have been a disaster.
0:11:01 The man 10 years after declaring that his number one economic priority was tariffs, the man who
0:11:07 had run two election campaigns and, in fact, won four-year term as president, arrived and
0:11:13 still didn’t have a tariff agenda, even though he’d written one several times, announced one
0:11:19 on the White House lawn on so-called Liberation Day and was forced to back off within seven days, giving
0:11:20 you a sense of how chaotic it was.
0:11:23 Of course, that’s not where you need to look.
0:11:28 You could ask the penguins at the Herd and McDonald Islands whether this was a well-thought-through
0:11:30 and highly-targeted tariff regime.
0:11:36 You have a regime which I think doesn’t make any sense on its face, but at least 10 months later, they’ve
0:11:39 finally figured out that tariffs on bananas are not going to bring banana factories back to the
0:11:42 United States because we simply don’t have the soil or the sunshine.
0:11:48 And so the very fact it took 10 months to figure that out is extraordinary.
0:11:51 And that’s, I’m not even getting started.
0:11:55 So I do want to get to the important thing.
0:12:00 The important things here are the man fired the head of the Bureau of Labor Statistics.
0:12:06 I will tell you, Betsy and I were on vacation, Betsy, my partner, fellow economist, and she woke
0:12:10 me up at 6 a.m. and said he fired the BLS commissioner.
0:12:17 So for folks at home who don’t understand how weird that is, my partner woke me at 6 a.m.
0:12:20 in quite some distress.
0:12:28 This is something you have not seen from a non-autocrat anywhere in the world ever.
0:12:35 We’ve had continued attacks on the Fed, continued attacks on the rule of law, continued attacks
0:12:35 on immigration.
0:12:40 Then many Trump supporters say, no, no, no, it’s all about illegal immigration, except it’s
0:12:40 not.
0:12:48 And the institutional foundation of American prosperity is wrapped up in those deeper forces,
0:12:50 and that’s what he’s undermined.
0:12:55 And the reason you don’t want to grade based on what’s happened in the first year is much
0:13:03 of this is white anting the foundation of prosperity and will show up not next week, not next year,
0:13:06 but in a decade or two.
0:13:11 And the effects from what we know in the economics literature is the effects are quite substantial.
0:13:17 And so in 10 and 20 and 30 years time, our kids, the beautiful little baby Ed Elson, I bet
0:13:18 they’re so cute.
0:13:19 They’re going to be lovely.
0:13:23 And they’ll be looking for their first job, but their first job won’t be as good as what
0:13:27 you’re hoping for right now, Ed, because our economy won’t be as big.
0:13:28 It won’t be as prosperous.
0:13:35 There will be entrepreneurs who never entrepreneured, inventions that weren’t invented, diseases that
0:13:38 weren’t solved because of what’s going on right now.
0:13:44 So on this measure, it’s the worst single year in an administration as far back as I
0:13:46 know American history, which really is only 50 years.
0:13:47 Is that an F?
0:13:49 Mate, how far does the scale go?
0:13:53 A to D and F.
0:13:55 Well, when I don’t know what to do, I just give an incomplete.
0:13:59 And incomplete feels like where we’re at right now.
0:14:00 Yeah, incomplete.
0:14:07 So how is it you, I like that you’re creating a distinction between the inputs and the outputs.
0:14:10 The inputs, really bad.
0:14:12 Outputs, not so bad.
0:14:14 It sounds like it’s your description.
0:14:18 Outputs being perhaps stock market performance up 17%.
0:14:19 Let’s pause there.
0:14:22 You don’t like that one.
0:14:22 Okay.
0:14:28 So this has been the number one talking point from the administration, which is look at us,
0:14:29 markets are up.
0:14:31 We must be doing incredible stuff.
0:14:37 So one of the things we try and do is we think about what would have happened otherwise.
0:14:38 That’s called counterfactual thinking.
0:14:43 So what would have happened to the U.S. stock market if it weren’t for the president?
0:14:47 Well, one thing you could think is maybe we just would have gone up at the same rate as
0:14:47 everyone else.
0:14:52 So let’s compare the returns on the American stock market to everyone else.
0:14:57 And so I did an exercise recently where I took, I believe it’s 23 developed countries that are in
0:15:00 the Morgan Stanley total return indices.
0:15:06 And I calculated the returns since Liberation Day in every one of those countries up to about a week
0:15:07 and a half ago.
0:15:08 I can update it again if you want.
0:15:15 And what I discovered, of those 23 countries, we were third last, maybe fourth last.
0:15:19 So Denmark is below us because the Danish stock market is Novo Nordisk.
0:15:22 And if things aren’t going well with their wonder drug, there goes Denmark.
0:15:24 New Zealand is beneath us.
0:15:27 And Australia is pretty close.
0:15:33 But every other major country, Germany, Italy, Japan, just name your favorite countries,
0:15:41 Portugal, Spain, they’re all doing better in terms of stock market returns in US dollars
0:15:42 than the US.
0:15:47 So if you think Canada, Canada’s doing better despite the fact we’ve clobbered Canadian exports.
0:15:51 So if you say, are we doing well, the question is compared to what?
0:15:55 And the answer, if the answer is compared to almost anyone else you think should be in your
0:16:00 peer group, unless you believe New Zealand and Denmark are your peer group, we’re actually
0:16:03 doing worse in terms of stock market returns.
0:16:09 I’m having a tough time sussing out the impact of AI on unemployment, or if there is one
0:16:09 yet.
0:16:10 Any thoughts?
0:16:15 I think you’ve actually gotten something really, really painfully important, which is that
0:16:16 unemployment has been rising.
0:16:18 And that is an untold story.
0:16:23 Unemployment has been rising at exactly the pace that will attract zero media attention while
0:16:25 still disrupting people’s lives.
0:16:30 And unemployment has been as low as three and a half percent just in the pre-pandemic period
0:16:31 were up to four and a half percent.
0:16:33 That is an enormous difference.
0:16:37 And the problem is it occurred month by month or every second month, and no one’s talking
0:16:38 about it.
0:16:42 And so that’s part of why I think the output of this economy is so weak.
0:16:47 The second reason I think that’s very important to think about is a lot of our economic measures
0:16:49 right now are distorted by what’s going on with immigration.
0:16:54 So, for instance, employment growth in numbers is not that great, but that’s partly because
0:16:57 usually employment growth’s got to be high to keep up with population growth.
0:16:59 We’ve got no population growth.
0:17:01 So we’re going to see pretty crummy employment numbers.
0:17:05 There’s also a lot of questions about benchmarking, a whole lot of nerdy stuff about how you measure
0:17:06 stuff.
0:17:10 One of the nice things about unemployment is it tends to maintain its interpretability during
0:17:12 these complicated moments.
0:17:16 All of which is to say, so far, Scott, all I’ve done is granted the premise of your question.
0:17:18 You might now ask me to answer it.
0:17:25 So there’s a little swirl of conversation that says recent college grads’ unemployment rate
0:17:27 is a bit higher than you might like.
0:17:29 Therefore, AI.
0:17:34 First of all, that’s not much of the overall story because recent college grads are not much
0:17:36 more, much of the overall population.
0:17:43 And trying to discern these things in real time is kind of tricky because there’s, you know,
0:17:46 measurement error and seasonal adjustment and blah, blah, blah.
0:17:48 I’m not at all convinced that’s the issue.
0:17:51 I could believe it in specific sectors.
0:17:56 So, for instance, I’m quite confident the last interpreter has been hired.
0:18:01 I am less confident that the last coder has, although I’m aware that things are a lot tougher
0:18:02 for coders right now.
0:18:09 But when you look at data on the adoption of AI by American businesses, it’s still remarkably
0:18:10 weak.
0:18:12 So it’s very much a forward-looking story.
0:18:13 I think it’s one.
0:18:18 I am glad you’ve got your eye on the issue, Scott, because I think it is the biggest disruption
0:18:21 coming to the labor market in decades.
0:18:28 I’m just not yet confident we’re there yet, except at the very sharpest edge of the wedge.
0:18:29 What are you saying?
0:18:35 You hear about the kids at business school not getting as many offers, but they’re still
0:18:36 getting offers.
0:18:41 And the employers on the demand side, they say they’re not letting up their hiring, even
0:18:41 law firms.
0:18:45 Well, that’s interesting because, like, law firms are one of the places where we won’t
0:18:46 know them anymore.
0:18:51 I wonder if there’s a bit of a bias among, quote-unquote, the expert class to catastrophize
0:18:52 because it makes you sound more intelligent.
0:19:00 But I’m not saying the collapse in employment that the, I don’t know, that the experts are,
0:19:02 I’m not saying it’s not going to happen.
0:19:04 I just don’t, I don’t see it yet.
0:19:11 Talk a little bit about, so our thesis has been that if you look at the valuations, the
0:19:14 underlying valuations of these companies, they’re so extraordinary that built into those
0:19:21 valuations is the expectation, they’re going to get an incremental $3 to $5 trillion in
0:19:28 revenue gains for their clients who’ve purchased these expensive site licenses, or they’ll get
0:19:30 efficiencies, which is Latin for layoffs.
0:19:34 We haven’t seen a ton of incremental businesses from AI.
0:19:39 What we do see evidence of is these efficiencies, whether it’s Disney saying they’re going to spend
0:19:42 less money on legal or JP Morgan, less money on compliance officers.
0:19:47 But our thesis is one of two things have to happen, curious to get your feedback.
0:19:56 You’re either going to see chaos in the labor markets that justifies the expenditure on these
0:20:01 companies from efficiencies, or you’re going to see the valuations of these companies come
0:20:02 way down.
0:20:03 Any thoughts?
0:20:06 So you actually had a question there about capital markets and a question about labor markets.
0:20:07 Let’s take them in turn.
0:20:12 The question about capital markets is these companies are valued at a bajillion dollars.
0:20:13 That seems crazy.
0:20:20 I don’t think capital market valuations are very informative about how transformative the
0:20:21 technology will be.
0:20:23 The logic is simply this.
0:20:30 If this remains a market with many competitors, and switching between competitors is very simple.
0:20:35 In fact, apparently there’s been a lot of people jumping off of open AI and implementing
0:20:37 Gemini in their corporate systems.
0:20:44 In some sense, then that says Google and open AI and Anthropic are like, you know, when you
0:20:50 drive to a corner where there’s a gas station on every corner, very easy to go from one gas
0:20:51 station to the other.
0:20:58 If you save a couple of pennies, at the moment, when you talk to IT folks, it looks a lot like
0:21:01 there’s a gas station on every corner or an AI station on every corner.
0:21:03 And so there’s a lot of competition.
0:21:08 Competition pushes price down to marginal cost and it pushes economic profits approximately
0:21:14 to zero, which means you can have an utterly transformative technology, but capital doesn’t
0:21:14 get rich.
0:21:16 Instead, the gains go elsewhere.
0:21:20 The prices aren’t high enough for these companies to be worth a ton of money.
0:21:26 The other possibility is that one of these companies will come to be seen as the clear
0:21:30 leader when you hear all this talk of America needs to lead the tech revolution, it sounds
0:21:31 like, or we need to win AI.
0:21:36 That sounds like a claim that it’s some form of winner-take-all market.
0:21:39 And there are some aspects of this in which that’s true, right?
0:21:44 Every one of these AIs can go and read all of Wikipedia, but whoever gets the most customers
0:21:48 has more customer chats that they can train on and stuff like that.
0:21:53 If it’s the latter that matters, now we’re in a winner-take-all world, in which case whoever
0:21:56 gets the lead becomes better, in which case they pull ahead, in which case we end up a
0:22:01 monopoly, in which case that company becomes a monopoly provider of AI services, in which
0:22:06 case that company will come to be worth trillions, literally trillions of dollars.
0:22:11 And so you can have the same AI revolution, one where companies are worth trillions and
0:22:12 another where it’s worth zero.
0:22:20 And that’s all about the market structure of the market for AI services, which right now
0:22:22 remains remarkably competitive.
0:22:24 Let me pause there.
0:22:27 That’s the capital market question you asked, Scott.
0:22:30 And then I do want to bite on the labor market question you asked.
0:22:34 I can’t figure out if it’s going to be labor chaos, or this will be like previous technologies
0:22:40 where we have new opportunities, new markets, new businesses that will somewhat backfill and
0:22:42 create a soft landing in the labor market.
0:22:45 So let’s take ATMs and the market for bank tellers.
0:22:50 Go back to the 1960s, and what you would do is you’d walk into a bank, and there was a teller
0:22:52 behind the counter, and you would ask for money, and they would hand it to you.
0:22:55 You’d hand over your passport, and they’d give it back to you.
0:22:59 Then someone figured out a way to automate almost all of their work, and that’s called
0:23:00 an ATM.
0:23:04 And now you don’t walk inside the bank, you go outside the bank, you put your card in,
0:23:04 and it gives you cash.
0:23:10 You might think that this technological revolution, which is literally labor replacing, would have
0:23:13 led to a sharp decline in the number of bank tellers.
0:23:17 In fact, there are as many bank tellers today as there were prior to the ATM.
0:23:20 So that’s an interesting story.
0:23:22 What happened?
0:23:25 Well, the ATM revolution actually was quite slow.
0:23:29 It took a while for them to be deployed everywhere, for older people to trust them, and so on.
0:23:37 And the set of tasks that bank tellers used to do is now fully automated, which is they used
0:23:38 to predominantly count money.
0:23:39 That’s all done.
0:23:40 They don’t count money anymore.
0:23:43 What they’ve done is they’ve moved up the value chain instead.
0:23:47 There are just as many tellers inside the bank, but now what the teller is doing is selling
0:23:50 you a moderately sophisticated financial product.
0:23:55 And so what’s happened is the set of tasks done by the people in the job has evolved.
0:24:00 Where we got rid of the old stuff, and here we could even editorialize and say we got rid
0:24:06 of the boring stuff, the repetitive dehumanizing factory work stuff, and we’ve left them with
0:24:10 much more creative work where they get to look other people in the eye if you’re an optimist
0:24:12 and say, find the right product that fits them.
0:24:15 If you’re a pessimist, say, figure out how to rip off the sucker in front of them.
0:24:19 But either way, they remain fully employed.
0:24:21 So that’s a fascinating case study.
0:24:26 And so the question is, does AI look like ATMs?
0:24:29 Now, there’s lots of other jobs that didn’t survive.
0:24:33 For instance, the word processor got rid of the typing pool.
0:24:36 So every building used to have a floor of typists in it.
0:24:41 I don’t have an assistant at all at the University of Michigan.
0:24:43 I answer all my own emails.
0:24:44 I write my own letters.
0:24:46 And I ignore all my own phone calls.
0:24:51 So the typing pool did get eliminated.
0:24:53 So is AI more like the typing pool or more like the ATM?
0:24:55 And that’s a real question.
0:24:57 Let’s bring this back to Economics 101.
0:25:01 The question is, is this a substitute for labor or is it a compliment?
0:25:03 That would be a natural way of thinking about it.
0:25:08 When we’re trying to justify a new investment to our bosses, I want you to give me X million
0:25:10 dollars so that I can AI this joint.
0:25:16 The easiest story to tell is to go to the boss and say, I’ll get to fire 10 people.
0:25:17 So therefore, I’ll save this much.
0:25:19 Therefore, the ROI is very positive.
0:25:24 And so we have a tendency when we tell stories to focus on the labor saving part.
0:25:26 And that’s because of the bean counters above us in the org.
0:25:33 It’s much harder to say what I’m going to do is I’m going to use AI to supercharge the
0:25:35 productivity of the people already in the office.
0:25:38 Let me make a guess.
0:25:46 My guess is in the background of Prof G markets, the people who make your thumbnails for YouTube
0:25:47 probably use AI.
0:25:52 My guess is that 10 years ago, they did five years ago.
0:25:52 They did not.
0:25:56 My guess is you haven’t stopped employing those people.
0:26:00 What you’ve done is you’ve allowed them to do the boring part a lot more quickly and you’ve
0:26:03 moved them forward into sort of a more high value added part.
0:26:08 Like they just wrote that brilliant question that you just asked me, but you didn’t end up
0:26:12 firing a lot of people because of the AI that Prof G is using in the background.
0:26:16 And that is your assumption for what we are probably going to see next year.
0:26:23 I guess I’m glad that you bring up the typists because I feel like part of the conversation
0:26:31 that is missing oftentimes when we talk about AI, it’s like we know that there is a tangible
0:26:40 positive return on GDP or we know that ultimately as with the ATMs, it could lead to more employment,
0:26:42 more creative jobs.
0:26:49 But I feel like what often gets left behind is there were certainly typists, individual typists,
0:26:55 perhaps even individual bank tellers when the ATM was being brought online, same with the computer.
0:26:58 And those individuals did lose their job.
0:27:02 I mentioned I wanted to use time and I’m glad you brought me back to it.
0:27:07 My better half Betsy Stevenson just wrote a beautiful essay about this in which the speed at which
0:27:12 this transformation occurs basically determines how much it’s pure substitution versus complementarity.
0:27:19 So if slowly I can learn the skills so that AI becomes the cape that gives me superpowers,
0:27:21 then I keep my job.
0:27:27 If I don’t have the time, the skills and the bandwidth, you’re going to fire me and hire a 22-year-old
0:27:29 who can put the cape on straight away.
0:27:34 And so the pace of technological adoption, I think, is absolutely central to the extent to which
0:27:36 we can reinvent jobs.
0:27:39 A job is just a social construct, right?
0:27:43 So you’ve got someone who’s working at the fourth floor of the big, tall building in Manhattan.
0:27:46 It used to be the typing pool, but now it’s the typing and scheduling pool.
0:27:50 And then it becomes the typing and scheduling and phone answering pool.
0:27:53 And then it becomes the help me with my ideas as well pool.
0:27:57 And then those jobs, including the people in them, evolve.
0:27:59 Look, all of this is the optimistic story.
0:28:02 I want to come back and give a lot of weight to the pessimistic story.
0:28:05 This is a freaking amazing technology.
0:28:09 And I love being told by people who’ve spent no time with it that I’m wrong, but it is.
0:28:11 It’s a freaking amazing technology.
0:28:17 And it appears to be coming quite quickly, not as quickly as Silicon Valley or much of Wall
0:28:21 Street thinks, but compared to past technological revolutions.
0:28:27 Remember the old expression, the personal computer is everywhere, but in the productivity statistics,
0:28:30 it took 20 years to get a computer on everyone’s desk.
0:28:33 There’s an AI on everyone’s desk within two.
0:28:34 They’re just not using it.
0:28:41 So if we move as quickly as could be, you know, things like coding, coding was difficult because
0:28:42 you had to write in computer code.
0:28:46 Well, AI, you use natural language.
0:28:52 AI is written with APIs that make them modular and plug and play and so on.
0:28:55 So there’s a lot of reasons to believe adoption is going to be very quick.
0:29:01 But the quicker the adoption is, the more collateral damage I suspect there’ll be along the way.
0:29:04 We’ll be right back after the break.
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0:31:27 2025 was a wild year for the tech industry.
0:31:30 AI seemed like it took over everyone’s brains.
0:31:32 It was the only thing anyone wanted to talk about.
0:31:35 NVIDIA became the most valuable company in the world.
0:31:38 We had some huge new video games.
0:31:38 The Switch 2 launched.
0:31:39 A lot of people got it.
0:31:41 There was just a lot going on.
0:31:50 And on The Verge Cast, we are talking about the best, the worst, the most important, the biggest heel turns, all the stuff that happened in 2025.
0:31:55 And making maybe a few predictions about what’s going to happen next year.
0:31:58 All that and more on The Verge Cast, wherever you get podcasts.
0:32:01 This series is presented by Jira by Atlassian.
0:32:13 We’re back with Prof G Markets.
0:32:15 2025 was the year of AI.
0:32:19 I suspect 2026 will be the year of AI as well.
0:32:22 That, to me, is the big question for economists.
0:32:28 To what extent is this new technology going to fundamentally transform the world in which we live?
0:32:32 And it appears that there are some, there’s maybe a fork in the road here.
0:32:34 It could be unbelievably great.
0:32:36 It could also be pretty terrible.
0:32:44 It seems as though it is the administration’s job to figure out how to pave the best path forward.
0:32:53 And I look at what has happened in the past couple of weeks, where Trump has decided an executive order saying,
0:32:56 no, the states are not allowed to regulate their own AI.
0:32:59 We’re going to leave that up to Washington.
0:33:01 The federal government’s going to figure that out.
0:33:04 And then I look, okay, what is the federal government’s AI policy?
0:33:07 And I look online, I try to figure it out.
0:33:08 There is none.
0:33:14 And it seems as though their philosophy is regulation is bad.
0:33:18 It basically means you’re anti-AI or you’re anti-capitalism.
0:33:22 And so we’re just going to say, no, the chains are off.
0:33:23 Let it run its course.
0:33:27 What do you think of that as a strategy?
0:33:28 Do I have that wrong?
0:33:30 And where is that going to lead us?
0:33:32 Coming back to failures of the Trump administration,
0:33:38 the most fundamental failure is that the outrage of the day.
0:33:41 The president was mean about Rob Reiner.
0:33:44 And we’re all pissed about it.
0:33:46 And it’s graceless and it sucks.
0:33:51 Or the president just started the new meme coin.
0:33:53 Or the president just knocked over the East Wing.
0:33:57 None of these are actually about the fundamentals of our future prosperity.
0:34:08 And what they’ve done, though, is they’ve crowded voices, including yours and mine, I’m as guilty as anyone, out of the most important issues of the day.
0:34:25 And from a domestic economic policy perspective, AI is, I think, by any measure, the most important economic change of the day, probably of the decade, and possibly of the first half, likely of the first half of the 21st century.
0:34:42 We need political change, economic change, markets work well, that’s true, work well when we have well-articulated rules of the game that make sure that the profit motive is directed in ways that are pro-social rather than anti-social.
0:34:47 Anti-regulation means we get rid of any of that.
0:34:53 So, people talk a lot about our political marketplace being distorted by deepfakes and the like.
0:34:55 That’s one possibility.
0:34:56 Where is the regulation around that?
0:34:58 A lot of it’s actually come from the firms themselves.
0:35:03 But what’s the pace of adoption?
0:35:07 What’s this going to do to mid-tier white-collar workers?
0:35:10 What is an appropriate welfare state?
0:35:15 That is to say, a social safety net in the world in which jobs may be about to be automated away.
0:35:19 All of these rules of the game really, really matter.
0:35:25 And in the United States, we have made 0.00 progress on them.
0:35:28 Who is the administration’s chief AI economist?
0:35:31 Where’s their working group?
0:35:34 Where are the sociologists thinking about broader social implications?
0:35:36 Where’s the public debate?
0:35:37 Where are the white papers?
0:35:39 Where are the discussions?
0:35:41 Where are the ideas being floated?
0:35:43 Nothing, point, nothing, nothing.
0:35:49 It’s a profound disappointment and an enormous mistake occurring as you and I chatter right now.
0:35:55 I mean, it seems like it’s all up to David Sachs, who is a part-time employee who’s in charge
0:36:04 of AI and crypto and who spends his time investing in AI companies or talking about AI on his podcast
0:36:06 or posting on Twitter.
0:36:09 I’m sure you like the idea of podcasters running the world.
0:36:13 But some of us think it’s actually running the world for a full-time job.
0:36:16 It gets me excited.
0:36:17 That’s great.
0:36:20 Can I shift us to tariffs?
0:36:23 Scott, any AI questions here?
0:36:35 And another one of our thesis is that AI, that’s similar to jet transportation or vaccines or the PC, that it’ll have a huge impact on society, but the winners will be all of us.
0:36:43 The very few companies will be able to sequester shareholder value and that it’ll be absorbed or the value will be absorbed by the general public.
0:36:50 What do you think of that thesis and what happens if that’s the case and these companies now represent 40% of the S&P?
0:36:53 People just wake up and say, these are airlines.
0:36:55 And that’s not to say they won’t add huge value.
0:37:02 They’re just not going to make that much money because there seems to be substitutes everywhere, including these open-weight models from China.
0:37:04 What do you think of that thesis?
0:37:05 I think it’s possible.
0:37:10 And it actually, your point, I’m not saying it’s right, but it’s possibly right.
0:37:15 And it reinforces Ed’s point, which is this seems strikingly important.
0:37:21 So, to go back, and it actually speaks to exactly the way I was trying to conceptualize competition in this space, right?
0:37:29 If it turns out to be a competitive model and we end up with an AI gas station on every corner, the price is low, but everyone gets gas.
0:37:34 And that gas could supercharge us to do all sorts of things, which means the companies are worth nothing.
0:37:43 The other possibility is that somewhere deep inside this, there’s some sort of winner-take-all dynamic, and it could be in algorithm development.
0:37:45 It could be in finding the data that go into it.
0:37:47 It could be just in attracting the world’s top scientists.
0:37:51 And then we end up in a monopoly world, and the monopolist eats everything.
0:37:57 And the important thing about that, Scott, is there is a utopian view.
0:38:03 The utopia is it is like airlines, that, you know, everyone can buy a ticket for $400 and get across the country by flying.
0:38:03 Can you believe it?
0:38:04 Flying.
0:38:05 Humans fly.
0:38:09 It’s freaking amazing every time I think about it, right?
0:38:11 And it’s only a few hundred dollars.
0:38:15 I know a few hundred is a lot for people, but it’s still only a few hundred dollars to be like a bird.
0:38:17 That’s crazy, right?
0:38:19 That’s utopia.
0:38:23 And dystopia is we all lose our jobs.
0:38:27 The machine does work for us, and the machine makes Sam Altman richer.
0:38:37 And the important thing is it doesn’t take much in terms of the structure of our economy to flip us from utopia to dystopia.
0:38:41 In the story that I just told, it’s all about the competitive forces within the industry.
0:38:55 Last time I was on your podcast, or maybe the time before, I talked about how differences in ownership, if I gave Ed ownership of his own AI, then Ed could get his job done for him and still enjoy getting paid.
0:39:03 But if I gave Scott the ownership of the AI that could do Ed’s job, then Ed would be unemployed and Scott would be rich.
0:39:10 And so that’s another domain where very small differences in economic parameters move us between utopia and dystopia.
0:39:16 And the point is the pot of gold, which is to say the potential future productivity, the gains here are huge.
0:39:22 So what we got to do is start thinking about how do you compensate the losers?
0:39:24 How do we set it up so that pot of gold is evenly shared?
0:39:39 If that pot of gold is in fact the result of a simple algorithm inhaling the intellectual work that you and I and every other American has done, our data, then how do we set up a data dividend so they get paid for that?
0:39:42 Like so many important issues here.
0:39:43 So Scott, I agree.
0:39:43 It could be incredible.
0:39:45 It could be horrible.
0:39:49 What we need is real work and real regulation.
0:39:52 I read an article this week from the Wall Street Journal.
0:39:55 It said, why everyone got Trump’s tariffs wrong.
0:39:58 That was the headline of the article.
0:40:02 It said, economists missed the mark.
0:40:05 So I read this.
0:40:07 It’s based on your reaction.
0:40:08 It sounds like we agree.
0:40:15 I thought this was a ridiculous article, basically saying that, oh, it turns out that the tariffs were different than what we thought.
0:40:17 Economists thought it was going to be all bad.
0:40:23 It’s like, I thought economists thought the tariffs were going to cause more layoffs and it was going to increase inflation.
0:40:27 We’re at 4.4% highest in four years on the unemployment rate.
0:40:28 We’re at 3% inflation.
0:40:31 We were 2.3% pre-liberation.
0:40:33 The way I look at it, economists were right.
0:40:35 People like yourself.
0:40:40 Sorry if I’m jumping in the line of fire here, but I don’t really understand that.
0:40:42 Your reactions to that article.
0:40:49 I’m overjoyed that you’re frustrated with pointless both-sidesism, which was in the top of that article.
0:40:50 But you read the further down.
0:40:51 It actually wasn’t that bad.
0:40:57 And it’s partly because we lack the ability to have mature and responsible, serious economic discussions.
0:41:01 So I’m pretty sure I’ve even said this on your show.
0:41:09 If we’d gone back and talked about how much inflation will tariffs cause, let’s do the arithmetic together because I know I’ve done this arithmetic 100,000 times.
0:41:11 Imports are 15% of the economy.
0:41:15 If tariffs are 20%, that means the average price level will rise by 3%.
0:41:21 Realize, though, that there’s a lot of holes in the tariff regime, so let’s just call that 2%.
0:41:24 Let’s let that happen slowly over two years.
0:41:36 That would boost inflation by one percentage point in each of two years, which is within the range of the uppy-downiness, statistical noise, hard to figure out, hard to see, that you would see anyway.
0:41:40 And as you point out, it turns out actually kind of that’s what’s happened as well.
0:41:42 Here’s the problem.
0:41:51 If I went on television and I said tariffs are going to raise inflation by a whole percentage point, then you never get invited back.
0:41:58 Now, I try to tell the truth, and actually I’ve had some success at telling the truth, but that’s not a narrative that sells.
0:42:13 So what you have instead is people that don’t understand numbers, and everyone on this podcast does, we understand one percentage point per year is a reasonable baseline, and then we could go to Wall Street guys who have long spreadsheets, and they’ll give us more sophisticated versions.
0:42:24 But then when you go to the next level of the media, all they’re thinking is, well, tariffs are big, and that’s going to cause big inflation.
0:42:26 Oh, my God, the sky’s going to fall.
0:42:28 And so they were sort of led rhetorically.
0:42:33 They used language as if inflation was going to rise to 6% or 7%.
0:42:39 They never said a number because they don’t know what numbers are, and they spoke about it that way.
0:42:47 There’s also some liberal wish casting here, which is it’s not realistic to expect an enormous effect on inflation, but that’s not the point.
0:42:56 One of the points I’ve tried to make over and over and over again is a tariff-fueled inflation is fundamentally different than the usual inflation we have.
0:43:00 A demand-driven inflation causes prices to go up.
0:43:02 The price of what I produce just went up.
0:43:05 That means I’m more valuable to my boss.
0:43:06 I generate more dollars for him.
0:43:07 He has more dollars.
0:43:13 As a result, probably a year later, my boss will offer me a wage rise, and wages keep up with prices.
0:43:14 I’m frustrated.
0:43:17 It takes my boss a year to get around to it, but I’ll get over it.
0:43:20 When it’s tariffs, costs for the boss have gone up.
0:43:23 What I produce didn’t get more valuable.
0:43:25 He doesn’t have more cash.
0:43:28 There’s no reason for him or her to pay me a penny more.
0:43:32 So prices go up, but my wage never catches up.
0:43:34 So here’s the thing.
0:43:38 The problem isn’t the tariff, and it never has been, that tariffs are going to cause a hyperinflation.
0:43:42 And so they’re going to cause prices to rise without wages keeping up.
0:43:44 And that is immensely more painful.
0:43:50 That fundamentally undermines your real wage, your quality of life, what you can afford forever.
0:43:54 Whereas irregular inflation is just a transitory thing.
0:44:00 And so the frustration here is why can’t we have a mature and serious conversation?
0:44:01 So the effects will be small.
0:44:03 They’ll be persistent.
0:44:08 It’s still a bad idea, but I’m not going to tell you it’s the worst thing I’ve ever heard.
0:44:11 I’ve spent the whole last six months telling you it’s a bad idea.
0:44:12 I really think it’s a bad idea.
0:44:18 It’s because it’s not often that a single president can use their failure to understand economics 101
0:44:26 to cost 340 million people a moderate but not huge amount of money.
0:44:29 So reversing that’s worth it.
0:44:30 But this isn’t World War II either.
0:44:38 This is a pointless policy mistake that is expensive, but not prohibitively so.
0:44:40 We’ll be right back.
0:44:46 And for even more markets content, sign up for our newsletter at profitymarkets.com slash subscribe.
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0:46:43 We’re back with Prof G Markets.
0:46:51 Just going into 2026 here, we’ve seen the inflation rise from 2.3% to 3%.
0:46:56 This episode will come out, we’re recording this just before we get the new inflation report.
0:46:59 So maybe it’ll be higher than 3% by the time this episode is out.
0:47:02 But that’s what we’ve seen.
0:47:07 Meanwhile, we’ve got two-thirds of Americans saying that they think Trump is losing the battle against inflation.
0:47:11 People do not think that he’s handling this very well, which is very interesting in and of itself.
0:47:18 We also got this rate cut in December because we’re trying to battle against the unemployment thing,
0:47:20 which is not very good for the inflation thing.
0:47:24 You mentioned that you see this playing out over one or two years.
0:47:28 What do you think inflation is going to look like in 2026?
0:47:31 Is this all just going to keep getting worse?
0:47:33 Don’t bother ever asking anyone that question.
0:47:37 The single best indicator of the future path of inflation is the Fed’s forecasts.
0:47:40 They beat every single private sector forecaster.
0:47:44 They beat, and they beat the combination of the private sector forecasters.
0:47:48 So my honest answer is whatever Jay Powell says, good enough for me.
0:47:50 What Jay Powell says is we’re not there yet.
0:47:53 Inflation is not coming down anytime soon.
0:47:57 He does say tariff-adjusted inflation might be back to 2% right now.
0:47:59 Meaning inflation without the tariffs.
0:48:01 Problem is we do have tariffs.
0:48:01 Right.
0:48:08 But if you’re trying to get a sense of the underlying speed of things, as I said, I really
0:48:13 don’t think the best way to talk about the effects of tariff is its inflationary impact.
0:48:15 It’s actually its effect on purchasing power.
0:48:21 It’s the reality that there have been many kids will get fewer toys this Christmas, and
0:48:25 that’s because most of our toys come from China, and the tariff rate on China is enormously
0:48:25 high.
0:48:29 Trade with China has been one of the greatest forces lifting.
0:48:31 It’s a very unpopular thing for a center-left guy to say.
0:48:36 Trade with China has been one of the greatest forces lifting the purchasing power of working
0:48:39 class Americans, and that’s getting kneecapped right now.
0:48:42 There’s another side to the coin, though, which is, well, I don’t know if it’s equally
0:48:50 bad, worse, or less bad, but in addition to that 2% over two years, 1% per year, sounds
0:48:56 manageable, but basically what you’re saying is it’s a 1% decrease in just prosperity, full
0:48:56 stop.
0:48:56 Forever.
0:48:58 Or for as long as the tariffs last.
0:49:04 And then the other side is that there’s reciprocal tariffs from nations that counterpunch, and
0:49:11 our markets shrink, which means lower wages, which means, okay, so prices are up, and there’s
0:49:17 less demand for my labor because the market for my products has shrunk because Europe no longer.
0:49:22 Europe’s also implemented tariffs, which has increased the prices and value proposition of my products.
0:49:29 So it just, I’m having a difficult time finding a way, a more elegant way to reduce prosperity,
0:49:35 both on, I don’t know if you call it demand and supply side, but it just doesn’t, I guess
0:49:42 it is that side as bad as the increase in prices, the decrease in our market, the markets for our
0:49:44 products overseas.
0:49:49 When I talked about the effect on consumers, that effect is persistent as long as the tariffs
0:49:50 exist.
0:49:54 So every year the tariffs are there, there’s an effect on, you reduce people’s prosperity by,
0:49:57 and I want to correct you, Scott, at two percentage points, right?
0:50:00 So if you’re a guy who owns $100,000, it’s like you’re earning 98.
0:50:07 I don’t need to throw away $2,000, but I can still feed my kids.
0:50:09 And you’re absolutely right.
0:50:14 What’s totally bizarre is at the moment, the administration is bailing out soybean farmers.
0:50:19 And it’s like, no, the rest of us are being taxed.
0:50:20 The rest of us are worse off.
0:50:25 And the soybean farmers, though, because Trump refuses to accept the reality that Americans
0:50:27 pay tariffs that he levies on Americans.
0:50:33 The soybean farmers are getting bailed out partly because they’re collateral damage from
0:50:34 countermeasures from China.
0:50:38 Now, the retaliatory tariffs will continue to hurt us for as long as they’re in place.
0:50:41 So that’s very much like the effect on consumers.
0:50:46 But there’s one more thing I think it’s really worth considering is what’s going on with, so
0:50:52 there are other domains where we have pissed people off in a way that has destroyed American
0:50:54 leadership for at least a generation.
0:50:59 So you and I, Scott, work at an export industry, education.
0:51:04 We have kids come in from all around the world who want to pay $40,000, $50,000, in your case,
0:51:06 $60,000 a year to be blessed by you.
0:51:07 $68,000.
0:51:08 $68,000.
0:51:09 So you’re worth a lot more than I am.
0:51:10 I teach you to the state school.
0:51:13 And I just want to add to that, 95 points of gross margin.
0:51:17 I can’t think of a single product globally that has that price point with those levels of
0:51:18 gross margins.
0:51:19 And let’s think about this.
0:51:20 Are these high-quality jobs?
0:51:22 Let me now interview a professor.
0:51:25 Professor Galloway, does your back ache at the end of the day?
0:51:27 It’s the opposite of dirty and dangerous work.
0:51:30 I mean, Justin, this is the dirty secret.
0:51:35 All the young kids like Ed want to go to work for Google and Bain.
0:51:40 They don’t realize if they have any talent and they go into academia, it’s a fantastic job.
0:51:45 Well, it’s a few zeros less than the paycheck, but it’s immensely joyful.
0:51:50 I believe anyone in economics or finance or at a business school who’s any good, if they’re
0:51:55 making seven figures from different revenue sources, it means they’re not very good.
0:51:56 Fuck.
0:51:59 There’s no…
0:52:00 Yeah, don’t play humble with me, brother.
0:52:01 That’s not…
0:52:05 I see you on MSNBC almost as much as I see 30 Under 30 at Elson.
0:52:10 And I got to tell you, once you get that sweet MSNBC money, it goes straight to my Lamborghini
0:52:10 payments.
0:52:14 I think it’s a great profession, and that’s where you were headed.
0:52:15 I think it’s a great job.
0:52:16 These are beautiful jobs.
0:52:18 These are jobs I want my kids in.
0:52:24 And it has the soft power ROI of people who come and take your class, go home, and they
0:52:28 love America, and they like you, and they like Michigan, and they don’t want to declare war
0:52:31 on us, and they want to send their kids here, and they want to do trade deals with us.
0:52:34 It’s got incredible knock-on effects, I think.
0:52:38 And these are the places that Google’s founded, and the places that Facebook’s founded, and the
0:52:41 places that Microsoft has founded, and on and on the list goes.
0:52:46 These are the places that vaccines are developed, and cancer cures are developed, and on and on
0:52:46 and on and on.
0:52:52 And yes, it’s frustrating that some of our colleagues in the humanities might spend a few moments
0:52:58 to, a few too many moments inspecting the lint in their navels, but that’s not the entire
0:52:59 enterprise.
0:53:07 So, these are great jobs, and these are export jobs, and I personally do everything I can to
0:53:11 help the president close the trade gap, because everyone who comes in and spends $50,000 at the
0:53:15 University of Michigan, and another $20,000 on housing, and so on, is in fact counted as an export.
0:53:22 But I can’t do it, because right now, a kid wants to come in and take a four-year degree, a doctoral
0:53:27 program, for instance, and they’re being told, we will only promise you visas for the next two years.
0:53:28 Yeah, that’s great.
0:53:32 If they’re from a country, no matter what the size of the bank balance is and how much they’re
0:53:38 willing to blow, if they’re from a country that’s a little bit too disfavored by the president,
0:53:40 they can’t get a visa at all.
0:53:47 So, this is an industry that’s being destroyed for no reason, but mine is not the only industry.
0:53:51 No one is coming from Canada or Europe to visit the United States anymore.
0:53:56 We have the Soccer World Cup this year, but we will never have it again under this sort of
0:53:57 regime.
0:54:03 Every scientific society around the world holds an annual World Congress.
0:54:07 Usually, they’re held in the U.S. because we’ve got these big hotels in Las Vegas, and they
0:54:13 generate millions of dollars and, again, soft power, and they can’t hold their conferences
0:54:17 in the United States because we can no longer guarantee people can get across the border.
0:54:22 There are companies that want to start engineering and creating incredible new products, but they
0:54:28 can’t get H-1B visa holders in, and so they’re relocating research and development across the
0:54:28 border to Canada.
0:54:38 So, these are things that just drive me up a wall, but we, we, the American voters,
0:54:45 Trump will end, but we, the American voters, have shown that we will elect someone twice
0:54:51 who will put a ring fence around the United States and refuse to engage with the rest of the world,
0:54:53 and the rest of the world will not forget that.
0:54:59 And so, I’m sure trade with Canada will rise a little in the couple of years after Trump,
0:55:04 but I am absolutely sure that the closeness of that relationship will never be repaired,
0:55:08 which has immediate economic impact before we even start to talk strategic.
0:55:15 So, when we just summarize, like, 2025, if I had to summarize it in maybe two words, it would
0:55:16 be AI and tariffs.
0:55:21 Actually, I want to take tariffs out, and I want to say incompetent governance.
0:55:24 I mean, we have had fools at every level of government.
0:55:31 The idea that Kash Patel is going to help find the guy who gunned down people on Bondi Beach
0:55:32 is absurd on its face.
0:55:33 Kakastocracy.
0:55:37 We have fools and charlatans at every part of our government, and Scott, you said kakastocracy
0:55:41 because you also want to say thieves as well, and you’re absolutely right.
0:55:45 They are tearing down institutions, and the good thing normally is that you can undo what
0:55:49 the last guy did, but the thing is, building takes time and energy and work.
0:55:51 Tearing down’s easy.
0:55:58 And so, none of us know how long it will take to—so it’s been the destruction of American
0:56:04 institutions, and if you want to be melodramatic, and I’m not very good at this, the destruction
0:56:06 of the foundation of American greatness.
0:56:08 So, those were our themes for 2025.
0:56:17 If you had to make predictions or just overall thoughts on the kinds of themes that you think
0:56:23 are going to drive the story of the economy and of economics in 2026, what do you think
0:56:23 they’ll be?
0:56:26 I agree AI is going to continue to be wildly important.
0:56:30 Maybe we’ll actually figure out where we’re at once we’ve got all these data centers.
0:56:36 Maybe we’ll figure out if there was some froth at the edge or if it was a bubble or what was
0:56:36 going on there.
0:56:41 We’ll get a stronger sense of what the rest of the world’s going to do, given us.
0:56:46 If you remember in the wake of the COVID pandemic, there were these new words like onshoring and
0:56:46 friendshoring.
0:56:50 We don’t hear those words in America anymore, but you hear them in every other capital around
0:56:56 the world, which is countries are trying to reduce their—including explicitly, Mark
0:56:58 China has set explicit quantitative targets.
0:57:03 They’re trying to reduce their exposure to the United States, and we’ll see how enduring
0:57:08 those changes turn out to be if there’s going to be, for instance, large-scale trade deals
0:57:11 or closer alignments that exclude the United States.
0:57:16 Many people look forward to 2026 and say, well, it’s going to be the midterm.
0:57:18 Some of the destruction will stop.
0:57:22 But here’s where I’m a little less optimistic.
0:57:26 Nothing Trump has done apart from his budget went through Congress.
0:57:28 He has had no interest in Congress.
0:57:32 So even if Congress were to flip, what would happen?
0:57:36 They’d have investigations and discover that the guy was destroying American institutions,
0:57:38 which you can already read about in the newspaper.
0:57:44 So the fact that it’s—you know, it could be—you know, past administrations have said,
0:57:45 oh, we don’t have the House.
0:57:47 How much can we do with executive action?
0:57:51 And they managed to find a flurry of activity for three months, and then they get to the bottom
0:57:52 of their playbook and there’s nothing left to do.
0:57:57 It is possible he’s picked the last executive action, Apple, off the ground, and there’s
0:57:58 no more that will fall.
0:58:06 Although the creativity of these guys and their disdain for standard legal interpretations
0:58:09 means a year in, they’re still going at it.
0:58:12 And they don’t look like they’re slowing anytime soon.
0:58:16 Remember, the West Wing, that got destroyed just by bringing in bulldozers.
0:58:17 The East Wing, sorry.
0:58:20 I don’t actually care about that building.
0:58:22 I think it’s a metaphor.
0:58:25 And that metaphor, I think, speaks very, very loudly.
0:58:31 So I, you know, look, the honest thing to admit is none of us know.
0:58:36 The second most honest thing to admit is whatever you saw happening last year is probably your
0:58:37 best bet for what’s going to happen next year.
0:58:42 And then the third rule of thumb is everyone who has a complicated story for what will play
0:58:46 out next year is a little bit too cute and a little bit too clever because the world is
0:58:50 more complicated than that, which just means go short everyone else’s prediction.
0:58:58 If the next or someone running for president said, give me a country or benchmarks or role models
0:59:05 for really thoughtful economic policy and fantastic economic advisors, Fed chiefs, what countries
0:59:06 or regions do you point to?
0:59:09 Historically, I would have spoken about the United States.
0:59:12 And that’s because I would have looked at personnel and the quality of our debate.
0:59:18 The quality of American economists, whether you love them or not, is extraordinary and
0:59:20 the vibrancy of our debate.
0:59:24 And part of the reason our debate is so vibrant and so well-informed and so keenly debated is
0:59:30 because this is such a big country and there are so many people debating it, so many more
0:59:31 than my native country of Australia.
0:59:35 So I would have said, based on personnel, let’s look to the U.S.
0:59:39 And it turns out that you need to go a step further beyond that because if the people are
0:59:40 here but the institutions aren’t, you’re screwed.
0:59:45 So then the standard centre-left answer is always look to the Nordic countries.
0:59:54 You know, they have healthy welfare states and a real commitment to looking after each other.
0:59:59 There are deep questions about how much one can apply that to the United States.
1:00:02 Those questions are these are often ethnically homogenous countries.
1:00:06 And if everyone looks like each other, no wonder they can all look out for each other.
1:00:10 I’m not sure I’m that pessimistic about our ability to be race-blind.
1:00:12 But maybe I should be.
1:00:17 So then that leaves me with some boring countries that I happen to love.
1:00:23 One is Australia, where we get a lot of things wrong, but a tolerable number of things wrong.
1:00:25 We have a very strong two-party system.
1:00:27 We have a profound commitment to democracy.
1:00:31 Actually, I’m going to plug something, if I may.
1:00:34 I was just back in Australia a couple of months ago.
1:00:38 I gave – they have like the big annual public lecture series.
1:00:41 It’s meant to go to someone fancy, but they chose me instead.
1:00:43 And it was a great honour.
1:00:45 It was called the Boyer Lectures.
1:00:49 And I actually gave a speech entitled, Australia is freaking amazing.
1:00:55 That speech is a love letter to the underlying institutions that recognise the mistakes that we make,
1:00:59 but says fundamentally we are all in favour of democracy, for instance.
1:01:01 We don’t have gerrymandering in Australia.
1:01:06 We have an independent electoral organisation that draws the districts.
1:01:09 And everyone trusts them to do the right thing, and they do the right thing because everyone trusts them.
1:01:11 We vote on a Saturday.
1:01:12 We have compulsory voting.
1:01:16 We have preferential voting so that everyone’s vote counts.
1:01:20 The speech is this intense love letter.
1:01:24 We have an independent public service that talks without fear or favour.
1:01:27 But it’s not just Australia.
1:01:33 Australia was actually a mishmash of British institutions, American institutions, and our own colonial history.
1:01:41 You see a similar mishmash, for instance, in Canada as well, which strikes me as a relatively well-run, coherent economy.
1:01:49 We have, you know, you actually see it, over the last, this week we had a tragic shooting at Brown University
1:01:52 that led to an outpouring of thoughts and prayers and nothing else.
1:02:00 And we had a tragic shooting in Sydney, in Bondi Beach, which has now led immediately to a meeting of National Cabinet,
1:02:05 which is the equivalent of every governor meeting with the Prime Minister, to change gun laws.
1:02:10 I mean, just to press pause there, it was a single-bolt action and a shotgun.
1:02:14 It could have been 150 people, not 15, had that taken place in America.
1:02:18 And you guys have this terrible habit of having a mass shooting every 27 years.
1:02:20 We have one every 27 hours.
1:02:25 I mean, it’s just, I said this and I’m not just kissing your ass, Justin.
1:02:31 I’m like, can we put the management team from Australia, can we do a hostile takeover Australia and have their management team run our,
1:02:38 I mean, you have really well-run government, you’re super, I forget what it’s called, super return fund.
1:02:40 Superannuation.
1:02:49 I mean, it’s just, it feels like bodily autonomy, you know, not this, this, like, these cudgel issues around transgender rights,
1:02:52 an elected populace that isn’t 130 years old.
1:02:54 And the social media laws.
1:02:55 The social media laws.
1:03:08 Now, granted, you’ve kind of been, or Australia’s kind of been, I don’t know, China’s, I think it’s good to be regionally, resource rich and regionally located or proximity to China, but they’ve done an amazing job.
1:03:16 What about places like, and I agree with you on Northern Europe, but what about places like, and it’s a different model, but a Singapore?
1:03:19 And I’m curious if you think China’s a well-run economy.
1:03:22 So, first of all, I want to summarize everything you just said, Scott, is hugging Australia.
1:03:23 And you should.
1:03:25 Great huggers.
1:03:25 There you go.
1:03:27 True story.
1:03:33 I love hugging and I’m actually quite affectionate and I don’t do it at work anymore because I’m so much older than everybody else.
1:03:35 I don’t want to creep anybody out.
1:03:40 But as soon as, as soon as I, someone’s worked with me for two or three years, I become a, I become a hugger.
1:03:41 I was just back home.
1:03:46 I have a group of men who I, we all get together and discuss life.
1:03:57 And one of my mates, Dan, taught me, he just learned, he went to a retreat and he said, what you want to do is you want to hug someone and then hold it for the full breath in and then out.
1:03:58 It was beautiful.
1:04:01 I’m just saying, Scott, next time you hug, do the full breath cycle, nice and slow.
1:04:05 The other person will feel your chest expand and contract.
1:04:07 It will feel oddly long and no one’s sure why.
1:04:09 Make sure you’ve got consent.
1:04:15 But, uh, I took hug 101 from my mate, Dan, and it was a good hug.
1:04:15 He gave me a great hug.
1:04:18 This is not where I was expecting to go.
1:04:19 This is more important.
1:04:20 It is.
1:04:22 I, I hundred percent agree with you, Justin.
1:04:22 All right.
1:04:25 Last question, Ed, and then we’re going to, and then we’re going to hug it out.
1:04:30 I guess we’ve talked about our outlook for 2026 a little bit.
1:04:36 I guess my question would be, it’s been a little bit depressing episode.
1:04:37 I mean, we ended on hugs.
1:04:38 We ended on hugs.
1:04:40 We’ll end on another nice note.
1:04:43 What are you most optimistic about in 2026?
1:04:45 What do you think could go right this year?
1:04:47 So I want to continue the hug.
1:04:53 Um, Scott, one of the things you’ve been talking a lot about is the role of masculinity in men.
1:04:57 This group I belong to in Australia, it’s quite beautiful.
1:05:05 Every Wednesday you meet on the beach and you work out for 20 minutes because men are not very good without some endorphins or alcohol.
1:05:10 Then we gather in a circle and we talk deeply.
1:05:13 We talk about what’s going on with our lives.
1:05:17 And the other men in the circle have learned their job is to listen.
1:05:22 And then we all run in the ocean, even in the middle of winter.
1:05:25 And then we all go for coffee.
1:05:25 That’s nice.
1:05:28 And then my mate, Dan, teaches me how to hug.
1:05:31 Why do I tell that story?
1:05:37 When I look around, I can’t tell what’s me aging versus what’s the world changing because both happen at the same time.
1:05:42 But when I look around, I see people who are interested and excited to reinvent masculinity.
1:05:44 Men who hug.
1:05:53 And that fills me with tremendous excitement because there are so many toxic things associated with masculinity.
1:05:57 But those who are out there trying to reinvent it, I tip my hat to you.
1:06:07 Justin Wolfers is a professor of public policy and economics at the University of Michigan and a regular contributor to, I think, every TV network in the world right now.
1:06:09 Justin, can you make it stop?
1:06:12 I can’t turn on the TV without seeing you.
1:06:15 I just want to teach the world economics.
1:06:18 And the problem is people keep raising questions.
1:06:19 There you go.
1:06:26 We appreciate your contribution to the Prop2Pod over the last 2025 and look forward to seeing more of you in 26.
1:06:27 100%.
1:06:28 Thanks, Justin.
1:06:29 Happy holidays.
1:06:29 Thanks, Justin.
1:06:30 This is great.
1:06:31 Thanks to both of you.
1:06:31 Take care.
1:06:42 What do you think, Ed?
1:06:43 He’s always the best.
1:06:46 I’m waiting for the Justin Wolfers podcast.
1:06:51 I mean, our research associate, Dan Chalon, put it best the other day.
1:06:55 He said, every minute spent not podcasting, he’s losing money.
1:06:57 It’s just very true.
1:06:57 Yeah.
1:06:59 He’s one of those guys, though, that I don’t understand.
1:07:03 And that is he’s more interested in self-actualization and purpose and meaning than money.
1:07:06 So I can’t really relate to guys like that.
1:07:06 Yeah.
1:07:07 Yeah.
1:07:09 I don’t trust him.
1:07:13 He’s one of those I want to add value and be happy kind of people that I don’t understand.
1:07:15 Yeah.
1:07:18 I’m like, academia is a platform to make serious bank.
1:07:19 And he’s like, what?
1:07:21 I just teach kids and do research.
1:07:27 I’m like, I’m like, advise Monty Burns on the next nuclear power plant.
1:07:30 Actually, 25 has been a big year for him.
1:07:32 I had never heard of him at the beginning of 25.
1:07:34 And now he’s everywhere.
1:07:42 What did you make of what he said about the year and the grade on this administration so far?
1:07:49 I mean, I think my big takeaway, and, you know, I think we all probably just agree with this,
1:07:55 but the extent of the damage, which we haven’t seen yet, I feel like everyone’s looking at the
1:07:57 year and being like, oh, it’s fine.
1:07:59 You know, maybe Trump’s crazy.
1:08:00 Maybe he’s doing some crazy stuff.
1:08:02 But look, the economy is OK.
1:08:08 And then we interestingly then justify his ridiculous policies because we look at what’s
1:08:12 happened in the past, you know, six months as evidence that it’s fine.
1:08:18 My big takeaway is like, this is going to show up years from now, perhaps even decades.
1:08:21 And it’s going to be extremely damaging.
1:08:23 I just want to get your reactions to what he said.
1:08:27 You know, Biden lets in a quarter of a million people in one month by just raising their hand
1:08:28 and saying asylum.
1:08:33 I think that’s, you know, running into a wall headfirst, you break your nose.
1:08:34 Your nose is going to heal.
1:08:35 You can repair.
1:08:43 I feel as if what Trump is doing is exposing the nation to radiation and you’re not going
1:08:44 to feel anything.
1:08:46 But in 20 years, the nation’s going to have leukemia.
1:08:53 And that is not bringing in human capital, the most talented human capital, forcing our
1:08:57 trading partners to develop new supply chain routes around the U.S.
1:09:00 There’s the next president, whether it’s J.D.
1:09:04 Vance or Governor Newsom or Shapiro or pick your Democratic candidate.
1:09:08 There’s no way they’re going to be able to repair this shit for years.
1:09:10 They’re going to be like, go back to Canada and say, we’re sorry.
1:09:11 And I’m like, sorry.
1:09:14 We have new trade relationships with South Korea and Brazil and China, and it’s working
1:09:15 out really well.
1:09:25 And so what he said that I, you know, this is, it’s like if you ask ChatGPT, how would I
1:09:25 undermine?
1:09:29 If I were the devil, Jonathan Haidt asked us, if I were going to try and destroy American
1:09:30 youth, what would I do?
1:09:35 And he said, you would do it with dance videos and, you know, and TikToks.
1:09:36 And it basically describes social media.
1:09:41 And I feel as if you said, okay, I really want to fuck America over the medium and the
1:09:42 long term.
1:09:52 It would be, okay, massive deficits that reallocates money to the wealthiest 1%, a series of economic
1:09:57 policies that destroy trade relationships that took decades to build.
1:10:02 You know, we got a check there, discourage the best and brightest from coming to America
1:10:04 to build companies and do medical research.
1:10:06 Check, did that.
1:10:12 I just feel as if it’s almost sort of in a weird way, like elegant, the way they are figuring
1:10:19 out a way to create a legacy of, of a lack of prosperity.
1:10:25 And the strange thing is, is that we’re transferring all this money to the 1%.
1:10:30 And I don’t think what people have come to fully recognize is that the 1% no longer really have
1:10:33 a vested interest in the United States.
1:10:36 And there’s this notion that they should be smarter because people are going to show up
1:10:39 with pontoons or, no, I’m sorry, pitchforks and lanterns.
1:10:47 About five years before that happens, they’re piecing out to Dubai, Milan, London, somewhere
1:10:47 else.
1:10:52 The thing about the 1%, especially the 0.1%, is they’re really mobile.
1:10:55 You know, France gets angry at rich people, imposes a wealth tax.
1:10:59 Bernardo can have a really nice life having a place in Brussels and spending time in the
1:11:01 south of France or in Capri.
1:11:07 The really wealthy will take advantage of the monetization of everything and the flow, this
1:11:12 massive income inequality and this regulatory policy that’s like, or government or economic
1:11:15 policy that’s just say, try and figure out a way to put as much money in the winner’s pockets,
1:11:16 the 1%.
1:11:22 And then when the 1% are sitting on a decaying, a country of decaying rights, decaying infrastructure,
1:11:29 decaying education, polarization, anger, they’ll just peace out to a beautiful place somewhere
1:11:32 else and buy their rights and buy their freedoms.
1:11:37 So there’s something, I feel like America, to a certain extent, is kind of being a little
1:11:39 bit hollowed out from the inside out.
1:11:45 And then where I try to be optimistic is what Heather Cox Richardson says, and that she says
1:11:52 that America has faced a lot of these kind of constitutional crises or really, I don’t know
1:11:56 what depraves the right word, but moments where the metal of our constitution has been tested
1:12:02 and we’ve always bounced back even stronger, whether it was slave owners controlling the
1:12:08 nation, whether it was the Great Depression, whether it was interning Japanese families.
1:12:13 But the thing I worry about is that the people with all the capital are going to peace out to
1:12:18 another nation and that we’re not going to, they’re going to leave behind them a polarized
1:12:21 society with a dearth of resources.
1:12:28 So I’m still, you know, like Warren Buffett said, you never want to, you never want to
1:12:29 bet against America.
1:12:33 But I just think he, Trump is exposing the nation to radiation.
1:12:38 And even if it doesn’t feel that bad right now, it’s going to, it’s going to hurt people,
1:12:39 you know, a lot of people.
1:12:43 The real impact of Trump won’t be felt till after he’s dead.
1:12:43 Yeah.
1:12:48 I think that’s sort of the big question that I had is when is it all going to come due?
1:12:53 Whether it’s AI and the bubble behavior that we’re seeing, whether it’s the tariffs, whether
1:12:59 it’s the deficit spending, whether it’s ruining our reputation on the global stage as a reliable
1:13:06 trade partner and an ally, all of these things are obviously, as he puts, destructive inputs.
1:13:09 And the question is, when do you start to see it in the outputs?
1:13:15 I don’t know the answer to that question, but I guess the question that I’m thinking about
1:13:18 going into the year is, will it come due in 2026?
1:13:20 Is that a possibility?
1:13:23 I fear it might be.
1:13:32 This episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin
1:13:32 Spencer.
1:13:36 Our research team is Dan Jelan, Isabella Kinsel, Chris Nodonoghue and Mia Silverio.
1:13:40 Drew Burrows is our technical director and Catherine Dillon is our executive producer.
1:13:43 Thank you for listening to Prof2 Markets from Prof2 Media.
1:13:49 If you like what you heard, give us a follow and join us on Monday for our annual Ask Me Anything
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