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visit conversationswithtyler.com. Hello

0:26

everyone and welcome back to Conversations

0:28

with Tyler. Today I am

0:31

chatting with Kenneth Rogoff, who is one

0:33

of America's best economists. He

0:35

is a professor at Harvard and

0:37

he has a new book out

0:39

called Our Dollar Your Problem, an

0:42

insider's view of seven turbulent decades

0:44

of global finance and the road

0:46

ahead, can also having extensive experience

0:48

in the IMF and dealing with

0:50

various global crises. Ken,

0:52

welcome! Thank you. It's a

0:55

pleasure to be here, Tyler. Good to speak

0:57

to you. Circa early

0:59

2025, the big

1:01

debate is whether there's such a thing

1:03

as an unsustainable international trade balance. So,

1:07

Orrin Kaff says there is. Michael Pettis

1:09

says there is. Traditional theory is more

1:11

skeptical or agnostic. What's your view? No,

1:14

there's unsustainable debt. There's not particularly

1:17

unsustainable trade deficit. I mean, there's

1:19

Good things about having a trade

1:21

deficit, bad things, but it's a

1:23

result of many factors. So no,

1:26

I wouldn't agree with Pettus on

1:28

that. So what is the mistake

1:30

he and Orrin Cas are making? Well,

1:34

the trade balance depends a

1:36

lot on your savings and

1:38

your investment, these macroeconomic factors.

1:41

If there's an underlying problem, and

1:44

to be fair, when your

1:46

trade deficit's really negative, there

1:48

often is. you know, it

1:50

could be something. I think in the case of

1:52

the United States, when it hit a

1:54

real peak in the

1:56

2005 to 2007, I

1:59

thought there was a problem. I must

2:01

say, I didn't know till very

2:03

close to the event what was

2:06

going on. We weren't regulating well.

2:09

But yeah, I mean, I didn't even know what

2:11

their point is to be honest. I mean, there's

2:13

this mercantilist view. I want to collect all the

2:15

gold in the world. You know, we want to

2:17

be able to buy things. back

2:19

in the day used to have

2:21

to hire an army or navy

2:24

to help fight off invaders and

2:26

such. But today, that's not

2:28

so true. So I

2:30

think the current account deficit, that's a

2:32

broader measure of the deficit. It's

2:35

important. And if it's

2:37

really large, you can probably bet that

2:39

it might go down. But it's not

2:41

something to try to wrestle to the

2:43

ground. There's an

2:45

associated claim I hear, including from Martin

2:48

Wolf, that China

2:50

needs to substitute more into

2:52

consumption to remedy some longer

2:54

term macroeconomic imbalance. Now

2:57

I can see that from a welfare point

2:59

of view, the Chinese oversubsidize investment and might

3:01

be better off consuming more. But is it

3:04

going to boost their growth rate to consume

3:06

more? Well, first of all. They

3:09

subsidize investment like crazy. Of

3:11

course. I mean so investment's

3:14

been 40 % of GDP

3:16

Consumption their different measures, but

3:18

you know 50

3:20

% of GDP maybe we're

3:23

70 % of GDP by

3:25

comparison and it's been very

3:27

imbalanced that it's for a

3:30

command and control economy and

3:32

China's a hybrid economy the central government

3:34

plays a big role Doing

3:36

infrastructure investment subsidizing real estate

3:39

is easy to do and

3:41

they've been doing that for

3:43

a long time and their

3:46

growth has been very imbalanced so

3:48

everybody's been telling them for years

3:50

why don't you build up your

3:52

consumption. But it's

3:55

been hard because they don't have. medical

3:57

care in your old age. They don't

3:59

have social security in their old age.

4:01

They had this one child policy for

4:03

a long time. So there are a

4:05

lot of reasons everyone's had to say

4:07

it. And now their house prices are

4:09

plummeting. And that's for Chinese where a

4:11

lot of their wealth is. So

4:14

I would say it's not a bad idea

4:16

to try a little bit of that, but

4:18

they've dug a very deep hole. It's not

4:21

easy to dig their way out. So

4:23

putting aside the microeconomic distortions, which

4:25

macro model do you use to

4:27

think through the question of whether

4:29

or not China should consume more?

4:31

Do you use the solo model

4:33

or Romer or something else? What's

4:37

your got? Those are nice models, but I

4:39

mean, let's be honest. I mean, they're just

4:41

a piece of things. They do

4:44

tell us that at the end of

4:46

the day, you need to have

4:48

innovation. If you're just

4:50

growing by building more

4:52

machines, by building more

4:54

roads, you run into

4:57

diminishing returns, and you get less

4:59

and less with the output. That's what happened

5:01

to Russia. That's what happened to Japan. That's

5:03

what happened to a lot of Asia. And

5:05

for some reason, people thought that

5:07

wouldn't happen to China. But their

5:09

rate of innovation over the whole

5:11

economy, I'm not talking about the

5:13

highest level, has collapsed by many

5:15

different measures. And the private

5:18

sectors, of course, the root of all

5:20

the innovation. They have oppressed

5:22

the private sector, particularly in the

5:24

last 10 years. And so, you

5:27

know, for them to grow again,

5:29

they need to restore some agency

5:31

to the private sector. We're

5:34

in the midst of some tariff debates

5:36

right now, as you know. And one

5:38

argument I hear sometimes even from the

5:40

anti -tariff people is that if the

5:42

US but higher tariffs on China, while

5:44

the Chinese currency just appreciates the dollar

5:46

strengthens, there isn't that much of a

5:48

net effect. Because arguably they're propping up

5:50

their currency some amount now. Do you

5:53

agree with that? Well,

5:56

what you said is exactly right.

5:58

I mean, so I to a first

6:00

approximation if we put on a I

6:03

don't know whatever it is a 20 %

6:05

tariff it has an effect on our exchange

6:07

rate of making it go up which makes

6:09

our exports more expensive and makes their goods

6:12

less expensive and I mean, I don't really

6:14

get wonky, but if you did it on

6:16

the whole world, you can get wonky. I

6:18

can get wonky with you. Absolutely. If you

6:21

did a 20 % tariff on the whole

6:23

world, to a first approximation, your exchange rate

6:25

goes up 10 % the dollar. And

6:28

so, you know, that rebalances everything.

6:31

That brings the cost of their

6:33

goods back to just a 10 %

6:35

rise. And it makes your exports 10

6:37

% more expensive because the currency appreciate

6:40

it. So that's definitely an effect. Of

6:43

course, they're probably going to

6:45

retaliate and then that cancels it

6:47

out. But do they want

6:49

to retaliate? Don't they prefer the

6:51

outcome where the tariff approaches some

6:53

kind of neutrality? Given that

6:55

they have an overvalued currency right now, they

6:57

could have a decline, basically

7:00

be insulated from the tariff, not have to

7:02

worry about Trump so much anymore. Why

7:04

should they retaliate? They

7:06

have a lot of distortions in their

7:09

economy, but the days when it was

7:11

very clear cut that they had an

7:13

overvalued, Currency, I mean are far gone.

7:16

I mean, but it used to be

7:18

undervalued, right? Those days are very far

7:20

gone. So you're saying that their currency

7:23

now is overvalued. I think And they

7:25

want to bring it down. They have

7:27

all this producer price deflation, right? So

7:30

they should be expansionary on the monetary side

7:32

to have a more predictable path of nominal

7:34

GDP growth, but they're not doing it. So

7:36

probably their currency is a bit too high.

7:39

Relative to an optimum? Well, I

7:41

mean, a logical way to do it

7:44

would be to do more expansionary fiscal

7:46

policy, more expansionary monetary policy. We

7:49

don't really try to deal with producer

7:51

price inflation through the exchange rate. I

7:53

mean, exports and imports are important to

7:55

China, but it's also a very big

7:57

economy. There's a lot of stuff, you

7:59

know, like the infrastructure investment and

8:02

other investment that's internal. Sure,

8:04

but if they had higher price inflation, the

8:07

value of the renminbi in real terms would

8:09

fall somewhat, at least for a while, right?

8:12

And that would be better, which means the current rate is

8:14

somewhat higher than it ought to be. I

8:16

mean, they're running a massive surplus to

8:18

the rest of the world. The

8:21

total size of their trade -bound surplus is

8:23

only 2 % of GDP. It's

8:25

not like 10 % the way it was in 2010,

8:28

but They've gotten a lot bigger.

8:30

It's still huge compared to the world. So

8:33

I'm being in crude measures of if

8:35

their exchange rate's overvalued and undervalued. I

8:38

don't think you come to a simple

8:40

answer. The dollar is very rich. I

8:42

mean, so in a sense, everybody seems

8:45

cheap to the dollar right now. I'm

8:48

sure you've experienced that with your anyone

8:50

coming from abroad, even from Japan or

8:52

Switzerland. Oh my gosh, it's so expensive

8:54

here. Feel free to

8:57

give a wonky answer to this one.

8:59

But why do you think it's been

9:01

so hard for economics to develop a

9:04

satisfactory theory of exchange rates? So purchasing

9:06

power parity seems to hold only within

9:08

very broad bands, something like 2x. And

9:11

the rest just seems very murky. Why is that

9:13

so difficult? Well, I

9:16

mean, part of it is if you

9:18

have floating exchange rates, there's a lot

9:20

of financial factors that are hard to

9:22

understand that move it around a lot.

9:25

we're not able to easily

9:27

identify those factors. But

9:29

I think more and more theory empirics

9:32

is coalesced around things

9:34

like bank balance sheets,

9:37

so can banks arbitrage

9:39

exchange rates and various

9:41

pricing imperfections. So

9:44

I think the weight of research the

9:46

past 10 or 15 years has been

9:48

that the exchange rate moves a lot,

9:50

but it's not really moving around the

9:52

economy with it. And we've thought that

9:54

for a long time. But

9:56

I think the general view today, I

9:59

mean, it isn't always true, but that a

10:01

lot of the movements have to

10:03

do with financial frictions and financial

10:05

factors, not some gnomes controlling the

10:08

exchange rate, that there's a lot

10:10

of random noise. But

10:12

do you think we need a

10:14

good theory of both real and

10:16

nominal exchange rates to make reliable

10:19

policy recommendations? If we

10:21

don't really know what the exchange rate will be

10:23

doing and why, doesn't that put us in the

10:25

slightly odd position that we're saying, do this, do

10:27

that, but the most fundamental price variable is a

10:29

mystery to us? As

10:32

you may know, I mean, I think

10:34

my first important paper was showing how

10:36

hard it was to explain exchange rates.

10:38

I'm embarrassed to say it's about 45

10:40

years ago. And I think

10:42

the policy conclusions people drew out of

10:45

that is look at the exchange rate

10:47

when you're trying to figure out what

10:49

policy should be. Look at inflation rate.

10:51

Look at output. I think

10:53

for some countries, they're

10:56

so deep into dollar debt. They're

10:58

so connected with the dollar and trade,

11:00

they do worry about their exchange rate.

11:03

So it sort of depends on if

11:05

you're talking about a big country like

11:07

the United States, or are you talking

11:09

about New Zealand or something like that?

11:12

But I mean, I think generally policymakers

11:14

need to recognize there's a lot of

11:16

noise. So trying to

11:18

target the exchange rate is a fool's

11:21

game. And if

11:23

the Trump administration is trying

11:25

to do it, they might

11:27

get lucky, but it's pure luck.

11:30

So if I take the country of

11:32

Pakistan, I think it's now been through

11:34

maybe 23 or 24 IMF bailouts. That's

11:36

a lot. The problems aren't fixed. So

11:38

we would all say here's ways Pakistan

11:40

could improve. Probably you and I would

11:43

largely agree on those. But just from

11:45

an external point of view, say you're

11:47

dictator of the IMF, you're the dirt

11:49

managing director, you're the board, you're the

11:51

staff. What is it you would actually

11:53

do with Pakistan? I

11:56

mean, that's, you know, the deep.

11:58

Seated problems, the military is very,

12:00

very powerful in the country. The

12:03

military is very corrupt, runs

12:05

a lot of the businesses, has a lot

12:07

of control. So,

12:10

I mean, it really runs deep

12:12

into the institutions in the country.

12:14

It's not something you can like

12:16

airlift some expert like you or

12:18

I and just tell them what

12:20

to do. I mean, believe me,

12:22

there are a lot of very

12:24

smart Pakistani economists who know what

12:26

to do. But do you sign

12:28

off on bailout number 25 when that comes

12:31

along? You're in charge. I

12:33

mean, first of all,

12:36

if you don't sign off on bailout

12:38

number 25, they're going to default on

12:40

bailout number 24. You're rolling over the

12:42

stat all the time. And

12:44

it's very sensitive politically. Pakistan's

12:47

a country that's very, very

12:49

geopolitically important. So you can't

12:51

look at the programs there

12:53

as if you're lending to

12:55

the UK. It's something very

12:58

different. And the amounts are

13:00

small compared to if you're

13:02

lending to the UK. But

13:04

frankly, what I have advised

13:06

on things like Pakistan is just give

13:09

them aid. Don't give loans.

13:11

you're never going to collect the loans.

13:13

You're not seriously meeting their loans. And

13:15

so it sounds great to say, well,

13:17

we just lent the money to Pakistan.

13:20

But I think in general, in money

13:22

we're giving to developing countries, too much

13:24

of it comes in the form of

13:26

loans. And it distorts what we do

13:28

because we don't get them all repaid.

13:32

How many Latin and Caribbean economies

13:34

should dollarize? If you have, right,

13:36

should more? I

13:39

mean, it's a pretty desperate measure

13:41

when you dollarize and there are

13:43

different ways to dollarize. You

13:45

know, when I just came into

13:47

the International Monetary Fund in 2001, Argentina

13:50

had dollarized. They had been dollarized for 10

13:52

years and I said, you know, isn't this

13:54

great? But that was a peg. It wasn't

13:56

real dollars, right? I mean, like El Salvador,

13:59

Ecuador, Paraguay. I mean, actually, you want to

14:01

actually use the dollar, circulate the dollar. Right,

14:03

because that's credible. And those of us,

14:05

whether you like them or not, they've all stuck, right? I

14:08

mean, you can do it. I mean, it has

14:10

its costs. The biggest cost is

14:12

if your banking system runs into trouble,

14:15

you can't bail them out. So

14:17

in most countries, the currency

14:19

that we think of the physical currency

14:21

is just like a little piece of

14:23

the animal. A lot of it, you

14:26

might not think of your checking account

14:28

or your savings account as dollars, but

14:31

they are. That's a lot of the

14:33

money supply. So when you

14:35

say they're just using real dollars, they

14:37

don't have real dollars to back those

14:40

bank accounts. So it can

14:42

work. But you run into

14:44

banking crises. You run into debt

14:46

crises. And then when you're dollarized,

14:48

it's hard to fight it. So

14:50

it's doable. It's absolutely doable. But

14:53

I'm not sure necessarily it's advisable.

14:55

It depends on the alternative. If

14:57

the country's been run into the

15:00

ground for 50 years and you're

15:02

trying to reclaimed territory. It makes

15:04

sense. Why isn't it easy

15:06

for a lot of countries? Say you're Barbados.

15:08

That's a small country. Most of

15:10

your visitors are from the US also. Your

15:13

banking system, you can just buy external

15:15

insurance, right? There's an insurer that can

15:17

cover the Barbados banking system if need

15:19

be. Buy it from China if

15:21

you have to, and then just dollarize. Why aren't

15:23

they just better off? Okay,

15:26

I'm being naive, but is there an insurer

15:28

who's going to bail out the Barbados banking

15:30

system? I mean, I think our

15:32

regulators would make that difficult. Their regulators would

15:34

make it difficult. I mean, you would need

15:37

to have something like that. And there's a

15:39

lot of moral hazards. So you

15:41

really, if you're going to be an insurer,

15:43

you can't just insure you have to have,

15:45

you know, 150 people on shore looking at

15:47

them all the time. I mean, that's not

15:49

easy to do. The only country in the

15:52

world really, which can bail out its banking

15:54

systems, Hong Kong. they have enough

15:56

dollar reserves to bail out

15:58

everything. But that's the problem with

16:00

dollarization. If you're not

16:03

going to have banks, it's great.

16:05

But we want to have lending

16:07

and mortgages and car loans and

16:09

stuff. And it's very

16:11

easy to run into trouble. Why

16:15

did Japan never have a financial crisis?

16:17

So very high debt to GDP ratio.

16:20

Growth rate is... slow

16:22

in per capita terms. It's not as

16:24

bad as it sounds at first, but

16:26

nothing gangbusters. How have they held on?

16:29

Well, they did have a financial

16:32

crisis the mother of all financial

16:34

crises in the 90s. Oh sure,

16:36

but since then and since then

16:38

well have they hung on in

16:40

1990 and even in the early

16:42

90s their per capita GDP was

16:45

80 % of the United States

16:47

and purchasing power parity measures and

16:49

trying to put into common price

16:51

level. But in dollars,

16:53

it was well over 100 %

16:55

of the US. Today, it's

16:57

60 % in those measures. I mean,

16:59

it is not held on in per

17:02

capita terms. It has just, you know,

17:04

not had growth for a long time.

17:06

And they're running into trouble. There's per

17:08

capita growth in Japan. Maybe,

17:10

I don't know. Yeah, but nothing like

17:12

in the United States. I mean, we...

17:14

Well, we've beaten every advanced economy, not

17:16

just Japan. That's fair, but

17:19

they've fallen behind France, the

17:21

UK, Germany. They were ahead of

17:23

all of them. They've fallen far behind. And

17:26

they're in trouble now because

17:28

they're finally having inflation. They're

17:31

needing to raise interest rates. They've

17:33

stuffed government debt into every

17:36

orifice of the economy, into

17:38

the pension systems, into the

17:40

banks, into their postal savings

17:42

system. And now, they're

17:45

talking about cutting pensions, cutting

17:47

old age benefits, because suddenly

17:50

they're having to make interest

17:52

payments on the debt and

17:55

it's harder. So I

17:57

think people who use Japan as

17:59

an example of everything's fine, you

18:02

know, have their head in the sand.

18:04

I mean, it's an example of if

18:06

you're very rich, you can

18:08

go down slowly. But it's not an

18:11

example of how you know, you can

18:13

have fantastic economy with doubt like that

18:15

But why do some places say

18:17

the much earlier UK they have crises

18:20

and Japan Whatever the standard of living

18:22

issues may be right. There's no crisis.

18:24

There's no run on anything. It's quite

18:27

peaceful It is it is a very

18:29

you know society which obviously is Very

18:31

high degree of cohesion and that's a

18:34

tremendous strength of Japan. I just have

18:36

got a side mention if I can

18:38

I mean I I was a

18:40

visitor at the Bank of Japan in

18:43

the early 90s in the middle of

18:45

their meltdown Although I didn't see it

18:47

and I don't think anyone did at

18:50

the time And I had to eat

18:52

at the cafeteria every day and that

18:54

almost the same food that you had

18:57

to eat and it was good But

18:59

now I saw another line once and

19:01

I asked can I go in

19:03

that line? And the people said, oh,

19:06

well, that's if you want a smaller

19:08

portion. I mean, it's a

19:10

very different society than we have.

19:13

But they have a lot of

19:15

financial oppression. Financial oppression is going

19:17

to be part of the solution

19:19

in every advanced country where you

19:22

force banks, insurance companies, pension funds

19:24

to hold more debt. We've done

19:26

that already. And they've

19:28

done it in a big

19:30

way. It's hurt their financial

19:32

intermediation, so it makes lending

19:34

less efficient. And that's part

19:36

of why their growth has

19:38

suffered. So they've done a

19:40

good job becoming sclerotic slowly.

19:43

But I hardly think we would

19:45

want to imitate them, especially if

19:48

we intend to compete with China.

19:51

Is that what the European Union is going to

19:53

do, financial repression? They

19:55

did it already. I

19:57

mean they'll have to do it

20:00

again. They still have all these

20:02

major debt problems Yeah, I mean

20:04

they did it big time after

20:06

the European debt crisis. So just

20:08

a simple fact about that is

20:10

it used to be that say

20:12

Italian debt was held in Germany

20:14

Spanish that was held in Germany

20:16

spread all over now the

20:18

vast majority of the Italian

20:20

banks are holding all the

20:23

Italian bank. Spanish banks are

20:25

holding all the Spanish. Do

20:28

you think that's because they're diversifying?

20:30

No, it's because they're being ordered to do that.

20:33

So they have a lot of financial oppression already.

20:36

They don't have dynamic capital markets

20:38

for a lot of reasons. And

20:41

obviously, they need to remilitarize

20:43

now. You know, Germany has

20:45

a lot of fiscal space, so. They

20:47

can go all out. But especially now

20:49

that interest rates are real interest rates

20:51

are hitting a higher level, they're going

20:53

to have to do it. But I

20:55

think they're going to find they have

20:57

to give things up in order to

20:59

do it because the interest rates aren't

21:01

zero anymore. So you think they'll

21:04

actually cut spending, say in France? I

21:07

mean, I don't disagree

21:09

with you, but it somehow

21:11

feels unimaginable to me. Yeah,

21:14

I mean, many of the European countries

21:16

actually tighten their pension systems a lot

21:19

during the European crisis. They set it

21:21

in place to take place 10 or

21:23

15 years later, not France. Yeah,

21:25

I do. I think this is a

21:27

real existential challenge to the French state.

21:30

I mean, maybe they'll take over

21:32

as the tech capital the world.

21:34

Maybe they'll, you know, find ways

21:37

to solve their problems. But they've

21:39

been free riding off the United

21:41

States. There's no question about that.

21:43

And now they have to spend

21:46

more. I'm not praising Trump's policies.

21:48

Let's not conflate those two things.

21:51

But yes, I think they're going to

21:53

find they have taxes are very, very

21:55

high in Europe. In fact, so much

21:57

so that there's no question it holds

22:00

back a lot of investment. Europe

22:02

has very few world beaters,

22:05

terms of tech, finance.

22:08

The biggest companies set

22:10

aside the Danish company

22:12

that's Ozenpec, they're things

22:14

like Hermes, Prada, sort

22:17

of lifestyle superpower stuff. No,

22:19

I think this is absolutely an existential

22:21

crisis for real. It may lead to

22:23

them becoming more cohesive. It

22:26

may lead to them becoming

22:28

more of a geopolitical power.

22:31

But yes, they're going to have to make

22:33

choices, which they haven't had to make. If

22:36

the nation is Italy, and I think that

22:38

the birth rate at TFR is about 1

22:40

.3 on average, Are they

22:42

just going to wake up one morning and say

22:44

the whole welfare state thing was a mistake and

22:46

we're getting rid of it? I mean, isn't that

22:48

the implication? Well, that's a

22:51

kind of strong statement and they're

22:53

not going to do that, but

22:55

But if the country keeps on

22:57

shrinking the age pyramid gets worse

23:00

and worse Yeah, we all we

23:02

all face we all face this

23:04

issue and hope that innovation and

23:06

growth or something will help but

23:09

Yeah, I know the demographics is

23:11

a problem in every country in

23:13

Italy, as you say, as much

23:15

far, far ahead of the United

23:17

States on the demographics. I mean,

23:20

an interesting fact is they spend

23:22

a mind -numbing 15 % of

23:24

GDP on old age pensions and

23:26

support now. I mean,

23:28

we're half that, you know, all in. and

23:31

15 % of GDP. And

23:34

so, yeah, they have a lot of constraints

23:36

and their tax rates are very high. They're

23:40

not corrupt like in Pakistan, but

23:43

it's not Sweden either. I mean, it's

23:45

got a lot of problems. And

23:48

just predictively, what do you think the United

23:50

States will do with its fiscal position? That

23:54

is a darn good question. I

23:56

mean, looking Way

23:58

forward, I would just we're on

24:00

an unsustainable path. We will

24:03

continue to have our debt balloon. And

24:06

eventually, not necessarily in a

24:08

planned or coherent way, I

24:11

think we're going to have another big inflation

24:13

soon. Next five to seven years, that's

24:16

maybe sooner with what's going on.

24:19

And that's going to bring it down.

24:21

Just like it did under Biden, it

24:23

brought the debt down. But then the

24:25

markets are, you know, Fool me once

24:27

shame on you, you know fool me

24:30

twice. No, we're raising the interest rate

24:32

and Then we'll have to you know

24:34

make choices. I mean, I think in

24:36

the United States a lot of the

24:38

choices I'd start to say it probably

24:40

point towards higher taxation Because we're hardly

24:43

running a welfare state. It's not all

24:45

due respects and I'm not sure I

24:47

have any due respects to doge They're

24:49

not that many things to cut in

24:51

the United States compared to to many

24:54

other countries. So I don't know what

24:56

the choice will be. I mean, I

24:58

probably won't be here. And you might

25:00

not be either when we're making the

25:02

choices. But I think we'll both be

25:05

here. Well, it

25:07

could be. It could happen much sooner.

25:09

I mean, on the other hand, it's

25:11

hard to know what's going through Trump's

25:13

head. So I, you

25:15

know, I presumed he was

25:17

going to blow up the deficit like everybody

25:19

else. We'll see.

25:22

And when you say big inflation, how big

25:24

is big? Well,

25:26

I think this time it'll be,

25:29

so last time we probably had

25:31

a bonus 10 % inflation over

25:33

the 2 % target cumulatively, maybe

25:35

12%. I think this time it'll

25:37

be more in the order cumulatively

25:39

over the 2 % target, 20%,

25:42

25%. I mean, there's going to

25:44

be an adjustment. I

25:46

don't think the debt is going to

25:48

be the sole contribution to that. There

25:50

are many factors. You have

25:52

to impinge on Federal Reserve independence. Probably

25:55

there'll be some shock, you know, which

25:57

will justify it. I don't know how

25:59

it's going to play out. But

26:02

I think I know that for

26:04

years, people have said the US

26:07

debt is unsustainable. But

26:09

it hasn't come to roost

26:11

because we've lived through this

26:13

post financial crisis. post

26:15

-pandemic era of very, very low

26:17

and negative real interest rates. That

26:20

is not the norm. There's regression

26:22

to mean. You know what? It's

26:24

happened. And suddenly,

26:27

the interest payments start piling up.

26:29

I think they've gone at least

26:31

doubled over the last few years.

26:34

They're on quickly on their way to tripling,

26:36

going up to a trillion dollars. And

26:39

so suddenly, it's more than

26:41

our defense spending. That's the

26:43

most important macro change in the

26:45

world that real interest rates appear

26:48

to have regressed more towards long

26:50

-term trend. What's the

26:52

most plausible scenario you can imagine where the

26:55

US does not have to make any major

26:57

adjustment? I'm not saying you're predicting it. I'm

26:59

not saying you think it's very plausible, but

27:01

you have to come up with something. What

27:03

is it? Oh, I don't

27:06

think there's any question. It's

27:08

that the AI revolution turns

27:10

out to, you know, just

27:12

work magically much better than

27:14

we, you know, anyone imagine

27:16

that people like me quietly

27:18

acquiesce to just getting transfers

27:20

from the government instead of

27:22

having jobs. And we just,

27:24

you know, continue to have

27:26

a high income and the

27:28

robot income pays for everything.

27:31

I mean, but AI is absolutely

27:33

the thing which is most likely,

27:35

you know, some kind of technological

27:37

change. You know, other than that,

27:39

the problems in our politics, it's

27:41

in our DNA. We're convinced

27:43

that, you know, we're immortals, and

27:45

we can just do whatever we

27:48

want. That's you go around Washington

27:50

and whatever they say, I think

27:52

that's what they think. And again,

27:55

this key thing. is that real

27:57

interest rates, the interest rate adjusted

27:59

for expected inflation. And I'm

28:01

looking at the long term, they've come

28:03

up and they're not super high, but

28:05

they're more like they were in the

28:08

early 2000s. And I think of reasonable

28:10

projections, they're going to stay around the

28:12

level they are. I'm

28:14

sure you know the classic Paul Samuelson

28:16

paper on overlapping generations model. And in

28:19

that paper, the real interest rate is

28:21

equal to the rate of population growth.

28:23

There's other papers where the real interest

28:26

rate is in broad harmony with the

28:28

rate of productivity growth. If either of

28:30

those models are correct, aren't we okay

28:33

again? Well,

28:35

first of all, if it's population

28:37

growth and productivity alone, then you're

28:39

losing tax dollars at the same

28:41

time you're paying less interest. But

28:44

it turns out those variables don't

28:46

work so well over a longer

28:49

period. I have a paper in

28:51

the American Economic Review just last

28:53

August about this. you look over

28:56

longer time periods, you

28:58

know, just because economists think that those should

29:00

be the dominant variables, it doesn't turn out

29:02

to work that well. And all this stuff,

29:04

there've been a lot of papers by economists

29:07

looking at the decline, it's going

29:09

the real interest rate going down, demographics

29:11

going down, productivity going down, looks great.

29:13

If you look at a longer period,

29:16

there's no there or there. I mean,

29:18

it just doesn't stand up. So I

29:20

think there are other factors having to

29:22

do with liquidity. default

29:24

risk, changing nature of the

29:27

production function, globalization. I

29:30

think there are many variables where

29:32

assuming there's going to be some

29:34

reversion to mean is just a

29:36

pretty good thing to have in

29:38

the back of your head. You

29:41

know, you know, Carmen Reinhardt and I had

29:43

this book this time is different. Very much

29:45

on the theme of people just looking at

29:47

five years or 10 years and think, oh,

29:49

it's just great. it's just going to go

29:52

like this. And I think the

29:54

real interest rates, an example, I would say

29:56

the low inflation is another example. My

29:58

students for a long time just

30:00

didn't believe there'd ever be inflation

30:02

again. I would teach it, they would

30:04

fall asleep. I mean, I remember

30:07

asking a question even to someone who was

30:09

a research assistant at a big central bank,

30:11

explain this to me about inflation. And

30:14

she said, My generation doesn't ever expect

30:16

to think about inflation. We don't have

30:18

it. Let me give you examples of

30:20

this. So no, I would

30:23

suspect we will have high real estate.

30:25

And by the way, AI will raise

30:27

the interest rate. But productivity, too. the

30:30

case where it goes up with productivity. It

30:32

does raise productivity, but the usual

30:34

thing about demographics is there are

30:36

less people to work with the

30:38

machines, and therefore, the return on

30:40

the machines is lower and the

30:42

interest rate goes down. But

30:45

if the people are being

30:47

substituted for, which is new,

30:50

I mean, we've always found a

30:53

way to reinsert ourselves. You won't

30:55

necessarily, even in a theoretical model,

30:57

like Samuel Sons or Solos, get

31:00

that effect. You

31:02

wrote a famous 1987 paper on

31:05

political business cycle theory. How

31:07

relevant do you think political business cycles have

31:09

been since then? Well, there's

31:11

been a lot of papers on it. I mean, I

31:13

don't think there's any question. Every politician

31:16

in the world, if they have

31:18

the power, tries to goose up

31:20

the economy before it happens. I

31:23

think empirically, it's overwhelming that it's

31:25

true. The question is, why does

31:27

it fool anyone? Everybody should understand

31:30

why that's going on. And

31:32

without going to tales, that paper

31:34

was about the paradox that I

31:36

know you're just making things look

31:38

good. I know you're hiding something from

31:41

me so that you're exaggerating how long

31:43

this can go on, how much

31:45

it's costing, but I'm going to vote

31:47

for you anyway. And so

31:49

that's what that paper was. It

31:52

looked at as a signaling model

31:54

that's getting really wonky. But

31:56

the fiscal versions of political business cycle

31:58

theory, they don't have to fool anyone,

32:00

right? You do get

32:03

the money, and society as a whole has to

32:05

pay it back, but you can come out ahead.

32:09

There's another, I'm going to just

32:11

translate it a little bit from

32:13

my model, one that Alberto Ellisina,

32:15

my late colleague Alberto Ellisina did

32:17

and a number of others that

32:20

said, part of the reason debt

32:22

keeps piling up is we have,

32:24

you know, the liberal party, the

32:26

conservative party, when the liberal parties

32:28

in power, they know that debt

32:30

is bad, but they know they

32:33

can spend now. And they know

32:35

they might not control it in

32:37

the future, so they spend a

32:39

lot and they borrow. When the

32:41

conservatives are in power, they cut

32:43

taxes and build up the debt.

32:46

I think that's a very powerful, very,

32:48

very powerful theory of part of why

32:50

debt builds up is whoever's in power,

32:53

you know, says, don't pay any attention to

32:55

it. And of course, you know, I

32:57

think we end up where we

33:00

are now. In an

33:02

earlier book, you called for the phasing out

33:04

of currency and large denomination bills. Do you

33:06

still want to do this? I

33:09

call out for phasing most

33:12

currency. I'm not phasing

33:14

it all out right away. That takes,

33:16

you know, generation. Well, Sweden's done it.

33:18

I mean, it doesn't take that long

33:20

if people are on board. It's very

33:22

hard to run across currency in Sweden

33:25

today. You're right and they didn't even

33:27

pass laws. You're right. You have to

33:29

travel 150 kilometers to get to an

33:31

ATM machine, but it's not completely phased

33:33

out by any means and it's still

33:35

there. So, first

33:38

of all, we've had enough inflation

33:40

that the $100 bill is now

33:43

a $75 bill, I'll say to

33:45

start with. But, you know,

33:47

most of the world's currencies held in

33:49

these large denomination notes. I

33:52

mean, I done further work, very

33:54

little of it's used in transactions.

33:56

I think most of it is in

33:58

the underground economy. It's

34:01

not necessarily nefarious. There's drug

34:03

dealing, human smuggling and

34:06

everything, human trafficking. But I

34:08

think the large majority of it is tax

34:10

evasion. I mean, lots of people do that.

34:13

Okay, I mean, I'm not

34:15

trying to be holier than

34:17

thou and just say everybody

34:19

does that is evil. But

34:22

I'm looking from the government's point of view, making

34:25

money by saying, hey, people love

34:27

these $100 bills and not figuring

34:29

out that they're using them not

34:31

to pay taxes. I've argued that

34:33

that's pennywise and pound foolish. And

34:36

yeah, that's sort of the core of

34:38

the argument. But from an efficiency point

34:40

of view, don't you want to kind

34:42

of price discrimination in your tax system?

34:44

Just say people pay their nannies with

34:46

$100 bills. They wouldn't hire the nanny

34:49

if they had to pay taxes. Furthermore,

34:51

if the transaction were recorded, they'd have

34:53

to worry about social security issues. It's

34:55

a lot of paperwork and bureaucracy, very

34:57

forbidding for a lot of people. And

35:00

you're just lowering output by not making

35:02

it easy for them to pay the

35:04

nanny with cash. So I do think

35:06

about that, but the questions why we

35:08

need $100 bills for that mean you

35:10

can pay your nanny with 20s and

35:12

they'll be perfectly happy because actually the

35:15

$100 bills are harder to work with,

35:17

you know, for them. So,

35:19

no, I think you want to

35:21

have ways that you can evade

35:24

the law up to a point.

35:26

I mean, marijuana is now legal

35:28

in most places and maybe the

35:30

whole culture and society wouldn't have

35:32

them all. if we didn't have

35:34

a cash economy that could pay

35:37

for that. So again,

35:39

I think it's a question of

35:41

calibration, regulation, where you want

35:43

to put things. Do you

35:45

worry about the example of the Canadian truckers

35:48

where it becomes too easy to cut off

35:50

people's bank accounts and there's too much social

35:52

power over a lot of people? Well,

35:55

again, I'm getting rid

35:58

of the large denomination notes and

36:00

not straightforwardly the

36:02

others and so yeah no we don't

36:04

want to over I absolutely agree there's

36:06

government accesses. The questions you know do

36:08

we have you know we have we

36:10

have drugs that you know help people

36:13

after an operation but it and we

36:15

want to have them but does it

36:17

want to mean mean we want to

36:19

have them freely floating in the economy.

36:22

And also, we can phase out $100

36:24

bills and $50 bills and we can

36:27

change our mind later and decide that

36:29

we overdid it. I don't think we

36:31

would. I think continue to go in

36:33

that direction. But it's a

36:36

matter of costs and benefits. Do

36:38

we also have to ban stablecoins

36:40

then? Because you can make $100,

36:43

$500 transaction in stablecoins. And

36:45

not everyone's used to doing that now, but you

36:47

figure within two years, your AI can do it

36:50

for you if need be. And

36:52

we're just pushing more people into stablecoins. Well,

36:55

absolutely. So in the same book,

36:57

I said we need to regulate

37:00

cryptocurrency. And there are different kinds

37:02

of stablecoins. And it's not clear

37:05

where it's ending up in the

37:07

long run. But I think stablecoins

37:09

eventually have to have some kind

37:12

of parallel revealability. to

37:14

what bank accounts have, not necessarily

37:16

exactly the same, but I know

37:18

that's where we're headed. I think

37:20

the regulators are pretty favorable to

37:23

stablecoins actually on the whole, but

37:25

not if they're being used to

37:27

evade taxes and all kinds of

37:29

regulations. But the issuers can

37:31

be abroad. In that sense, it's quite different

37:33

from domestic banks, from currency. Someone

37:36

has a stablecoin account in the Cayman

37:38

Islands, and they make a transaction with

37:40

someone with a stablecoin account in Estonia.

37:43

How much say do the US regulators really

37:45

have over that? Well,

37:47

we don't have much say over that.

37:49

I mean, you already have that the

37:51

case to some extent with bank accounts,

37:54

and you can mitigate the problem. You

37:56

can't eliminate it. I mean, that's generally

37:58

true of cryptocurrency. You

38:01

can try to regulate it.

38:03

You can't completely eliminate it.

38:05

I mean, probably a lot

38:07

of sanctions evasion. is being

38:09

done with stablecoins and cryptocurrency.

38:12

And clearly, we have not been able to touch that.

38:16

Should the US issue a

38:18

CBDC, a digital coin? Let

38:20

me put it this way. I don't think

38:23

we should be the first to try this.

38:25

Right now, we're on top. I mean,

38:28

I kind of think we peed, but

38:30

that's another question. We're winning.

38:32

Why do you want to change the

38:34

rules of the game when we're winning?

38:36

Because it's not about the currency. It's

38:38

about treasury bills. It's about the interest

38:40

payment. It's about market clearing. And

38:43

also, we're so big, we

38:45

probably are more likely

38:47

headed towards having competitive

38:49

stablecoins, which are regulated,

38:51

which have some kind of lender

38:54

of last resort than a CBDC.

38:57

I'm skeptical about it. you

38:59

put yourself in a position where

39:01

one screw -up can paralyze everything.

39:04

And it wouldn't be good if

39:06

we had five stablecoins and one

39:08

of them had a problem. But

39:10

I tend to think that's something

39:12

for Latvia or Singapore to try

39:14

and not necessarily the US, maybe

39:17

in 50 years. To

39:19

be fair, Europe's talking about it. But

39:21

they're talking about what we call a

39:23

wholesale CBDC, which is among the banks.

39:26

And that's a completely different animal. A

39:29

standard macro puzzle today, we had

39:31

a disinflation from post COVID inflation.

39:33

It went from 8 .9 %

39:35

to something not too far from

39:37

3%. And there's no big recession.

39:39

How do you interpret that? Were the

39:41

rational expectations people write that it was credible and

39:43

we just did it? Or the people who say

39:45

it was all supply shocks, are they right? Or

39:47

it's a big puzzle to me. What do you

39:50

think? Well,

39:52

I think it is a big puzzle. It's the

39:54

first thing to say. I mean, I'm not gonna

39:56

claim I thought that was going

39:58

to be painless bringing the inflation rate down.

40:00

I don't think I was out there quite

40:02

at the Larry Summers level, banging on the

40:04

table, saying that there had to be a

40:06

big recession. I certainly do

40:09

not buy the idea was all supply

40:11

shocks. That's just nonsense. So

40:13

there are these people who say, oh,

40:15

it was just the supply chain, the

40:17

shipping lanes were closed and all that

40:19

stuff. And as soon as the supply

40:21

chains were back, inflation was down. Excuse

40:23

me, the supply chain problems make the

40:25

price go up. when they go away,

40:28

the price should come down. It did

40:30

not. And so there

40:32

clearly was, you know, even in

40:34

countries which didn't do as much

40:36

macro stimulus as we did, they

40:38

did a lot. And they all,

40:40

of course, kept their monetary policy

40:42

easy. But yeah, I mean,

40:44

the credibility is remarkable. I

40:47

mean, if you look at inflation expectations, they

40:50

moved a little bit. I mean, I'm

40:52

talking about the professional the consumer

40:55

ones moved a little more, but

40:57

consider what just happened. That

41:00

inflation expectations didn't move more. It's remarkable.

41:02

And to come back to the earlier point

41:05

about solving our debt, if we ever have

41:07

an inflation, I don't think that's

41:09

going to happen again. When we have a

41:11

second inflation, that time the

41:13

credibility is really going to be shot. What

41:16

else do you think of as an

41:18

unresolved puzzle in macro besides the disinflation?

41:22

Boy, that's a really good. thing because

41:24

I think about research questions all the

41:26

time. It's certainly been

41:28

very surprising to me of

41:31

how much bank regulation has

41:33

created all these arbitrage issues

41:35

across things that didn't exist.

41:38

I'm not sure this completely

41:40

unresolved, but when I was

41:42

doing my book with Mori

41:45

Absel, we thought of what

41:47

we call covered interest parity

41:49

as just something that holds.

41:52

you know, law. In other words, if

41:55

you borrow in one country and you

41:57

borrow in another country but do some

41:59

kind of forward contract undo it, you

42:01

get the same interest rate. It's not

42:04

true anymore. And I think

42:06

there's just a range of these puzzles that

42:08

have come up since the crisis. I

42:11

suppose another one would be, you know,

42:13

what kind of inflation rate do we

42:15

really want to have? There's a lot

42:17

of debate about that. There are people

42:19

who say, it shouldn't be

42:21

2%, it should be 4%, some

42:23

people it should be 0%. I

42:25

think that's a big question. Do

42:28

you have any guess on the covered

42:31

interest parity issue because that bugs me

42:33

all the time? Do you think it's

42:35

an institutional friction or there's some kind

42:38

of unmeasured risk that we're not seeing

42:40

or picking up or something else? I

42:42

mean it seems to be that the

42:45

banks are prevented from undoing it that

42:47

we have some of these regulations for

42:49

example that just restrict the size of

42:52

your balance sheet and the banks used

42:54

to just be able to freely borrow

42:56

and lend and undo things to borrow

42:58

in one currency land in the other

43:01

currency. That's how you'd undo it. But

43:03

there's just been a range of puzzles

43:05

like that. And of course, the biggest

43:08

puzzle is productivity. Like, if

43:10

I go to a country like the UK, how

43:12

do we get productivity? And exchange rates are

43:14

still a puzzle. I mean, you

43:17

asked a question about it before, but we

43:19

don't have a good, you know, fully

43:21

satisfactory explanation of them. You'll

43:24

be doing a book tour in the

43:26

UK soon. Why is their growth, their

43:28

productivity growth been so slow? Again,

43:31

we might admit this is a puzzle,

43:33

but it surprised me. They have plenty

43:35

of science. They have some great universities.

43:37

They played a key role in developing

43:39

vaccines, other innovations, and

43:42

they seem entirely stuck. Well,

43:45

I mean, it's been a generalized problem

43:48

in Europe, although you think they'd been

43:50

doing better. I think

43:52

part of it is this sucking sound

43:54

of the United States with the brain

43:56

drain that we have. You

43:58

and I both know about DeepMind. British

44:01

company, you know, ends

44:03

up in California. And

44:06

I think there are many examples like that

44:08

where when something goes well, the

44:10

US sucks them off. Probably

44:13

they have this profound problem of

44:15

the North and the South. The

44:17

South is rich and the North

44:19

is poor. And they just

44:21

have not been able to figure that

44:24

out. So that, you know, if you

44:26

go to London, they're doing great. And

44:28

they're still doing great. But they've had

44:30

trouble finding jobs that the manufacturing jobs

44:32

are going, they haven't figured

44:34

out how to substitute for them. The US

44:37

has had the tech revolution. I mean, if

44:39

you took that away, we don't

44:41

look so good anymore. A

44:43

lot of countries don't seem to

44:45

have a sucking sound problem, though.

44:47

So the talented people in northern

44:50

UK go to southern UK. But

44:52

you look at Germany, the Netherlands, you don't

44:54

see the same thing happening in those places.

44:57

Is it because London is so good that

44:59

the country as a whole grows more slowly?

45:01

Is that a kind of curse for the

45:03

aggregate number? You

45:06

know, it's still the case

45:08

that those countries have

45:11

hardly been models of dynamism,

45:13

Germany and the Netherlands. You're

45:16

right. They've been able to keep people

45:18

more partly because they're not English speaking.

45:21

But again, a lot of the difference in

45:23

how we've done is our tech sector. That's

45:26

been a lot of the innovation going through

45:28

the economy. And I don't want to sound

45:30

like I'm drunk with what's going on with

45:32

our tech sector and how it affects other

45:35

things. But if you took that away, our

45:37

numbers would look like theirs. Is

45:40

Malay going to make it succeed in

45:42

Argentina? What does it depend upon? Well,

45:45

I hope so. I think he's the

45:47

best chance that Argentina has had in

45:50

a long time, which is fair to

45:52

say a very low bar. The

45:55

thing that he's done that I

45:57

have not seen before is balancing

45:59

the budget. If you're a

46:01

big borrower and you keep defaulting, sort of

46:03

a starting point. is figuring out how not

46:06

to have to borrow money. He's

46:08

managed to do that. I mean,

46:10

I don't know that all his

46:12

libertarian visions necessarily will come to

46:14

pass. You know, he's provided

46:16

some stability for the inflation number. Argentina,

46:21

as you know, was one of the

46:23

richest countries in the world by any

46:25

measure at the turn of the 20th

46:27

century in 1900. Now, they're

46:29

lower middle income country. They're per

46:32

capita incomes below Brazil, which is

46:34

hard to get your head wrapped

46:36

around. So, I

46:38

mean, I think there are many

46:41

reasons, but certainly, you know, perinism,

46:43

socialism has not done well by

46:45

Argentina. But has he balanced

46:47

the budget? I know he announced a

46:49

balanced budget, but this is April 2025

46:51

and they just borrowed $20 million from

46:54

the IMF. It doesn't sound like a

46:56

very balanced budget. Well, I

46:58

mean, it's counting the interest payments on

47:00

the IMF. And yeah, I mean, he

47:03

inherited this big debt. They're paying the

47:05

interest. It's very low interest on the

47:08

big debt. And I don't know how

47:10

that's ultimately going to get resolved. I

47:12

mean, they have a lot of problems

47:15

ahead. You know, there's a

47:17

lot of strength in Argentina if they can

47:19

grow again. I don't want to sound, you

47:21

know, panglossian about

47:23

Argentina. But goodness,

47:25

they had inflation of 200 %

47:27

when he took over. The economy

47:29

was in free fall. So

47:32

look, you know, there's no

47:34

magic wand you can wave

47:36

over the last 80, 90

47:38

years of Argentina and make

47:41

everything right. Okay,

47:43

some chess questions. Once a grandmaster,

47:45

always a grandmaster, so you can't

47:47

just say you don't know. Do

47:49

cash the next dominant chess player?

47:52

Or will he be first to monkey equals? Well,

47:54

he's not even nearly first, now,

47:57

even among... know, others. I mean,

47:59

there's a number of Indian players

48:01

who are very good. I wouldn't

48:03

put him ahead of Nakamura or

48:06

Karawana much less Carlson, but he's

48:08

ambitious. He's talented. I

48:10

wish him the best. I mean, it's

48:12

wonderful that he won, but I mean,

48:14

he's got a long ways to go

48:16

to be Casperot, Fisher, Carlson. It'd be

48:18

fabulous for Chas if he does that.

48:21

I don't see it yet. Do you? Well,

48:24

Nakamura. Karawana in five years

48:26

they'll be out of the scene, maybe

48:28

before then. Carlson is already in a

48:30

sense out of the scene. I

48:33

think he has a 30 or 40

48:35

% chance of being not a truly

48:37

dominant player, but say the way Anand

48:39

or Kramnik were at their peak. You

48:42

know, one of the top two or three

48:44

very consistently and world champion for some number

48:46

of cycles. Not the way Kasparov

48:48

was, but something quite impressive. I'm close to it.

48:50

Well, it may be fantastic. Yeah, yeah. Okay, I

48:53

thought you were asking a different question. No, the

48:55

next, not the current dominant, but is he the

48:57

player? No, he could

48:59

absolutely, I mean, Anand and Kramnick were

49:01

amazing, and he could absolutely do that.

49:04

I mean, he's close to having done

49:06

it. If he met, he'll have a

49:08

much more difficult challenger next time, I

49:10

would suspect. I mean, Ding

49:13

is an uber talent, the person he

49:15

beat. but clearly had all

49:17

sorts of mental problems in the match.

49:19

I mean, he's been depressed and you

49:21

could see him sort of losing it

49:23

in some games. What

49:25

were your impressions of Bobby Fisher when you

49:27

met him? Well,

49:30

I mean, he was amazing. First

49:33

of all, when I met him,

49:35

he came every day to the

49:38

1969 US Junior Championship over 10

49:40

days. And he sat and he

49:42

analyzed with us. And the first thing was just

49:44

that. What's he doing with us? Why is he

49:46

wasting his time with us? We just thought he

49:48

was so generous. But obviously,

49:51

his absolute intensity, his

49:54

commitment, I don't know if you

49:56

remember, it's hard to imagine.

49:58

But he actually used to be weak

50:00

at rock endings, weak for somebody like

50:02

that. So he locked himself

50:05

in a room for three months and

50:07

did nothing. but study rock endings and

50:09

got to be very good. He got

50:11

a hotel, he told us about it,

50:14

got a hotel room, you know, with

50:16

no, no view. And then, you know,

50:18

certainly some of the ideas he showed,

50:21

I still think about it. I won

50:23

a game and he went over it

50:25

with me against Steve Spencer. It was

50:27

the last game of the tournament, which

50:30

I won. And he showed me his

50:32

ideas as like I Hadn't

50:34

thought of any of them, you know, it

50:36

was just the his fertile I don't know

50:39

if they were better to be completely honest

50:41

Then what I played I mean, of course,

50:43

he's much better than me But I mean

50:45

just the imagination of there was this then

50:47

we're talking about on move for on move

50:49

five of just things that wouldn't occur to

50:51

me And part of the Fisher legend was

50:54

that at least supposedly he was the greatest

50:56

over -the -board analyst of any chess player

50:59

Well, Gary Kasparov was so fool

51:01

and same as Carlson, I mean,

51:04

I don't know. But he

51:06

was way above everybody in his generation.

51:08

He did not have the prep that

51:10

the Russians had. He worked on his

51:13

own. he was not working with a

51:15

team. The Russians had all this communication

51:17

and coaches and everything. And by the

51:20

way, you know, I was representing the

51:22

U .S. and the World Junior Championships

51:24

and things like that. Everybody was a

51:27

big disadvantage that you didn't have a

51:29

trainer or a coach, you know, organizing

51:31

information. Fisher was doing that

51:33

at the highest level. So he must have

51:35

been by far the best over the board

51:38

player then. But not the

51:40

player. I mean, does someone, if you would

51:42

sit down with them at the board and

51:44

show them your game, The claim I've heard

51:46

is that Fisher was a more astute analyst,

51:48

even than Kasparov. Kasparov might have been the

51:51

better player, but just willing

51:53

to put his entire mental energy into

51:55

over -the -board analysis, sitting there. I

51:57

think that's part of the Fisher legend.

52:00

I mean, it's part of the legend.

52:02

I mean, he was amazing. I played

52:05

against really all the top players then,

52:07

with the exception of Spassky. And,

52:09

you know, they were all phenomenal,

52:11

but they weren't all equally good

52:13

calculators. So the best

52:15

calculator I ever played was actually

52:18

a Yugoslav player reached second or

52:20

third named Lubejevic. And he

52:22

beat me. I don't know. I was 16 years

52:24

old. And to try to

52:26

salvage some ego, I said, well, what

52:28

did you, what if I did this?

52:30

What were you going to do? And

52:32

I showed him my best. I thought

52:34

it was just like a great variation.

52:36

I don't remember how long, 10 moves.

52:39

And he goes, mm -hmm, mm -hmm. Yeah,

52:41

but then I do this. Actually,

52:43

it's this. And he goes, something 15

52:45

moves. I never played Fisher. He wrote

52:47

an article about me once, as you

52:49

know, but I never played him.

52:51

But of course, I could well imagine it

52:54

would be the same. But I'm not sure

52:56

I could tell the difference with Kasparov, Carlson,

52:58

you know, at that level. When

53:00

Magnus spoke with Lex Friedman, he

53:03

drew a distinction between players who

53:05

were incredible calculators. He called Goukache

53:07

one of those, and players who

53:09

were incredible with evaluation. And

53:11

he called himself one of those. He thinks

53:13

he's actually not the best calculator. Do

53:16

you broadly agree with that distinction? Well,

53:19

I think it's an interesting question. It's

53:21

funny, because I've seen him write about

53:23

Karpov, who I did play, and he

53:25

said, I don't know how Karpov does

53:28

it. He just knows where to put

53:30

the pieces. He just knows where everything

53:32

goes. And he's not having to calculate

53:34

like I do. And between his great

53:36

nemesis was Karpov. And between the two

53:38

of them, he was the calculator and

53:40

Karpov was no slouch, but Kasparov was

53:43

better. I think maybe as

53:45

Gary gets older, you know,

53:47

I mean, your comparative advantage as a

53:49

calculator is probably at your peak at

53:51

a younger age. And Gary, you know,

53:53

developed other tools. But I'm

53:55

going to He was really good at

53:57

both. I so I But I would

54:00

have put Casper up as a calculator

54:02

like a fierce calculator Now you must

54:04

have been out of practice, but I

54:06

believe you drew Magnus in a game

54:08

of speed chess in 2012. Is that

54:10

the correct year? Yeah, it

54:12

really it really happened. How did it happen?

54:14

What's what's the story? Well

54:17

sort of what I tell people

54:19

is if you were a professional

54:21

golfer once and you play three

54:23

holes with somebody anything can

54:26

happen, you know, the law of large numbers.

54:29

But, you know, going more into it,

54:31

he led me up white. We played

54:33

a Ruy Lopez Spanish opening, which he

54:35

had been playing all the time. He

54:37

played a variation. I looked, I hadn't

54:39

prepared. I mean, it's just what he

54:42

was playing all Did he play the Briar like he used

54:44

to do? He played the Briar. No, that's right. He played

54:46

the Briar. And I didn't. I didn't

54:48

even know that he played it at the time. I

54:50

mean, he played a lot of things. I didn't know

54:52

he was playing that. And so I

54:54

knew where the pieces go. I knew what I

54:56

was trying to do and where the pieces go.

54:59

And at one point, he

55:01

made an overly aggressive move

55:03

that just was a big

55:06

mistake. And I saw it.

55:08

And I got a winning advantage.

55:11

It wasn't an easy winning advantage.

55:13

I'm convinced that if he had continued the

55:16

game, he would have won. But at some

55:18

point he had a choice of repeating moves

55:20

and he was losing. And

55:22

so, you know, he just repeated moves. I'm

55:24

not saying I would have won. I think

55:26

I would have lost if he kept playing,

55:28

but it just happened. I did it 10

55:30

,000, 20 ,000 times more. I don't think

55:33

it would happen. What do

55:35

you think of Fisher Random as the future

55:37

of chess? Because that seems to be what

55:39

Magnus wants. I don't like it, frankly, but

55:41

what's your opinion? I'm with you, Tyler. I

55:44

mean... mean, I take joy

55:46

from classical chess. I love

55:48

watching a beautiful classical chess

55:50

game. I can relate to

55:52

it. I mean, I'm hardwired

55:54

to think about it. And

55:56

fish or random chess, I mean, it's

55:58

a little bit like looking at problems.

56:00

I respect chess problems, but the positions

56:03

are often weird and improbable. I

56:05

just have trouble relating to fish

56:07

or random chess. I hope I

56:09

change. I'm just speaking from my

56:11

age, but I'm so invested. in

56:13

classical chess. I love classical

56:16

chess. I think about classical chess

56:18

all the time. I

56:20

don't know, why don't you like

56:22

it? With classical chess,

56:25

not every game, but most games, I feel I

56:27

can look at the board and have a decent

56:29

idea what's going on. And I might be wrong,

56:31

but even then, I can figure out exposed why

56:33

I was wrong. With Fisher Random,

56:36

I don't have that sense unless it

56:38

evolves back into a classical looking like

56:40

position. So from a spectator's point of

56:42

view, why should I care? That's how I would

56:44

put it. Yeah. I

56:47

mean, we're on the same page

56:49

on that. But on the other

56:51

hand, you mentioned Gukesh and the

56:53

computers have just dominated the preparation.

56:55

That's why Carlson stopped. He's

56:57

in West Fendall. Yeah. How are we going to solve that

56:59

problem then? If we don't do Fisher random, what

57:02

is your proposed solution? Because I have one. I'll tell

57:04

you mine, but you tell me yours. Tell

57:06

me yours. That we randomize the

57:08

first few moves of the opening.

57:11

So some percentage of games, through

57:13

computer randomization, would be like 1B4,

57:15

1B6, and then they start playing.

57:18

But you do that with many

57:20

permutations. They're all playable positions. As

57:22

you well know, no Grandmaster game

57:24

would go 1B4, 1B6. But

57:26

there's no reason why you can't play from

57:28

that position. And if you have 500 opening

57:31

alternatives like that that the players don't control,

57:33

I just don't think they can prep that much.

57:35

The Berlin, the Marshall, the whatever, all these force

57:38

draws, I think they actually have to play chess.

57:41

I love that idea. And yeah, it

57:43

creates some randomness in what initial positions

57:45

you get. But I love that idea.

57:47

I mean, that sounds much better to

57:49

me. I would much. I have to say

57:51

as a player, I played like

57:54

that because I was very isolated in

57:56

the United States. I wasn't following all

57:58

the opening innovations. So I

58:00

played all kinds of openings to be unpredictable.

58:04

But if everyone does it, it's easier to do.

58:06

It's like every game is between two Ken Reagan's

58:08

is one way to put it. Yeah,

58:11

no, no. I like your idea. I

58:13

think it's a great idea. I endorse

58:16

it. Thank you. Final question for you,

58:18

for our listeners. Your book's

58:20

coming out. It's on very important

58:22

issues of currencies, international trade, international

58:25

finance. It draws upon

58:27

a lifetime of your learning and

58:29

practice and advising. What is

58:31

it you think you'll do next? Well,

58:34

I have a lot, you know, like any academic, I

58:36

already have my next. Few years

58:38

of projects some of them right frankly,

58:40

you know grow out of the book.

58:42

I think people forgotten about political economy

58:45

They just think you know if the

58:47

central bank says the inflation rates 2

58:49

% on average It'll be 2 %

58:51

and we go home and I worked

58:53

on that early in my life I

58:55

wrote the first paper on why you

58:57

should have an independent central bank And

59:00

I'm working on it again, admittedly

59:02

with some very talented young

59:04

people, including Marina Halleck at

59:06

Yale and Pierre Yarra, who's at

59:09

Columbia, but now actually on the

59:11

Council of Economic Advisers, and just

59:14

thinking that. No, the political

59:16

pressures are important. So that's an

59:18

important topic. I'm also working

59:20

on China as an area I've been

59:22

working on for a long time. So

59:24

I have some thoughts about comparing China

59:27

and Japan, for example. But

59:29

I have a lot of things I'm excited about. The

59:31

part of what was so great about

59:33

the book is I had sort of,

59:36

I would describe a mini renaissance in

59:38

my research and I'm able, at

59:40

least I feel that way. I mean,

59:42

the rest of the world thinks that,

59:45

but it It gives me joy to

59:47

have some confidence about some of the

59:49

ideas, although as you say, there's much

59:51

more to it. Again, everyone,

59:53

Ken's new and excellent book is Our

59:56

Dollar, Your Problem. Ken Rogoff, thank you

59:58

very much. Thank

1:00:00

you. Thanks

1:00:05

for listening to Conversations with Tyler.

1:00:07

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