What's your assessment of what's happened here and I suppose is still happening here? And then I guess the big question, we've seen a lot of headlines about it, is this China's AI bubble popping?

Yeah, well, I have three takeaways from this.

One is it was a bubble and kind of similar story to the U.S. And it just, you know, it shouldn't take much convincing.

You often have this issue to take Alan Greenspan's great line, irrational exuberance.

People go, oh, wow, this is fantastic.

It's the best thing ever.

And they just lose sight of any reality.

And I suppose looking at what has happened in China and the smaller tech industry that it does have, what does that tell you about how big the ripple effect might be for the AI bubble in America if slash when it pops?

What do you say to that?

Well, I think that's likely true.

I don't think the banks are tied into AI in the same way they were with the mortgage market.

So we saw virtually all our major banks were on the precipice.

JP Morgan, apparently, had been much more cautious.

But all our major investment banks, many commercial banks, they were very tied into the mortgage market.

And that's historically been the case.

Let's put money into it.

What does it look like when the value of AI data centers and GPUs inside them are potentially reduced as a result of this sort of realization that the profits just aren't going to be where they need to, or the revenue, should I say, isn't going to be where it needs to be?

Yeah, well, we'll see a collapse of a lot of these companies.

The neoclouds are the most vulnerable.

CoreWeave, of course, has been in the news that their stock price, I don't know how much, it fell over 25% last week.

I didn't follow what's done yesterday or thus far today.

I can't say.

I haven't looked recently.

If we jump ahead a bit then, sort of past the initial shock of whenever this realization in the broader markets that the AI industry is going to fall short of the sort of required target of 8.5 billion, what does the industry look like after that sort of shortfall is resolved, if we can summarize it quite simply?

Um, some tech fascists [laughs] are going to lose a whole lot of money." Um, how entangled are the, the neo-clouds and the AI concerns in the rest of the economy at this point?

It's massive.

I mean, it's, it, it, it really is astounding.

I, I've been around long enough.

I followed the tech bubble, the housing bubble.

This is very comparable, maybe larger.

Um, you'd have to really do... get a fine-tooth comb.

Is there any policy playbook for like, you know, uh, an orderly deflation of a, a bubble like the one we're seeing in AI?

Explain what we read about earlier in the week and last week about the Treasury Department, Scott Besson, buying up bonds.

I wish I could.

You know, in all seriousness, he seemed to indicate and he's getting angry at people.

Well, I don't think he's being truthful.

So he's getting angry at people just trying to honestly convey what he's doing.

He seemed to be saying that he was going to look to buy up government bonds to bring down the interest rate.

Treasury has limited ability to do that.

I guess it was Powell that said that he was also less worried about the debt at this point, but that he was concerned about the trajectory that we were on.

What is your bottom line about AI? Is it good, bad, and is it avoidable? Yeah.

Well, several different things.

I mean, there are a lot of good things that can come from it.

I just had to make a graph for me.

It saved me probably 10 minutes.

That was nice.

It wasn't earth shattering or anything, but I was happy to save 10 minutes.

So it's already underway in a way.

So where does that leave some of the fundamental assumptions of the AI industry if customers are already turning away from frontier models?

Well, it, it is a massive problem for the AI industry, and I, I think this is underappreciated.

We get all this talk about the frontier models doing this, doing that, super intelligence, um, all well and good, but what they care about is who's gonna pay for this stuff? And the developments we're seeing, um, including from the, from the, you know, OpenAI and Anthropic, is that the lesser models could do just about everything anyone would want them to do.

There wa- there, there was a big deal made last week that, that, uh, Meta introduced Muse, its, uh, app for, its AI app, and it was downloaded millions of times.

They're celebrating.

It's a free app.

[chuckles] So, so they're not making any money on that, or at least any obvious...

Yeah

They won't even just try it.

Yeah, yeah.

So we call it a session near England because I think it's a lot easier to get an idea of what sort of style of beer it is.

But yeah, I don't know.

It's a nice combo.

It's Citra and Nelson Sauvage.

So it's Nelson on the hot side and Citra cold side.

Does it kind of change the way you approach brewing or is it just back to making, you know, the next beer and hopefully that does really well as well?

And Donald Trump has not only flipped from initially not being for crypto to being not only fully for it, but to closing the government's oversight agencies that looked for criminal use of cryptocurrencies.

Yeah, there's a few things there.

I mean, first, getting to the SWIFT system, which oversees the exchange, dollar exchanges really throughout the world.

The abuses of that really predate Trump as much as some of us blame Trump for everything.

And that is a real problem because it's not it was not designed to be the United States government.

plaything to punish whoever we don't like.

But it became that.

Okay,

Does it give you any more confidence in the Fed's independence from the president that they did the opposite of what Trump wanted yesterday?

Well, it was striking.

Everyone was looking when he appointed Kevin Walsh because Trump was making a big point of saying, well, whoever I appoint, they're going to lower rates.

And Walsh historically had been an inflation hawk, meaning he'd want high rates.

So the question was, OK, so Trump says, I'm going to appoint someone who wants low rates.

And Walsh comes in there.

And the question I think everyone had was, well, is he going to do what Trump tells him to do? Or is he going to go with whatever his actual sense is about the economy? And this indicated that, well, for now, at least it looks like he's going to go with his sense about the economy.

Can you respond to his messaging? Is this optimism true? Is it just strategic framing?

So does he think we're witnessing a bubble?

Yeah, I mean, to me, it's very hard to see how it's not a bubble.

So we have price to earnings ratios in the stock market.

They're just about the same as what we were at the peak of the tech bubble in the '90s, so around 40 to one.

And it's very hard to see a story where future profits will rise enough to make those stock prices make sense.

So it looks to me very much like we have a bubble very similar to tech bubbles 'cause you have a lot of companies with enormous market capitalizations, uh, things like SpaceX, and SpaceX loses money hand over fist, as does OpenAI, as does Anthropic, and it looks to me like everything's set up for a really big crash.

Could it hit sooner because of a backlash against data centers?

Absolutely.

Right.

That's nuts.

I mean, well, but that's kind of what we're doing in the Social Security debate that we're going, oh, you know, people want to have big cuts of Social Security.

We don't want to do that.

We're moderates.

And that's what they're doing here.

So I think it's really important not to accept their framing of the debate.

Are you worried that this AI bubble, if and when it blows or when it blows, could present yet another risk to the overall financial system?

So am I correct in identifying the fact that the richest man in the world has prevented this government from collecting taxes from the richest Americans, and that is why the debt will continue to climb?

Well, I'll try to be fair to Elon Musk.

He certainly impeded it.

So, I mean, the whole point of the money that Biden had allocated to the IRS was to make it so we can collect taxes.

The Congressional Budget Office estimates that $600 billion a year goes uncollected.

That's almost 2% GDP.

That wouldn't quite balance the budget, but a good chunk of the way towards reducing the deficit is.

So elaborate on why you think that the issue of corruption is at the heart of what threatens our economy and also may be Trump's undoing.

... that would be attributable to that stock.

Yeah.

So, so it's, it's a very concrete measure, you know.

So, uh, there, there's issues how you measure earnings.

We can come to that.

But just, you know, just taking straight up earnings they report, you know.

So, so those were at record highs.

If, if it just has to provide [laughs] enough competition that it puts downward pressure on prices, and then the big US AI concerns can't live up to the valuations, um, that, that are driving their stock prices.

Could you walk us through how you reach that number and what that means?

Yeah, so I'm comparing this to the last budget that we had under president Biden.

So at that time we're spending 860, I think it was 864 billion on the military.

So if you adjusted that for inflation, it'd be a bit over 900 billion today.

So you compare the 1.5 trillion to 900 billion, the increase is 600 billion.

And we have about 130 million households.

That's not a ballpark.

Who who bears the financial burden of what they are trying to opt for?

Um, uh, so the question in my mind is, um, why that? What, what, what, were you just getting anxiety here? Or you, you know?

Well, it was getting anxiety.

Um, give some background.

Back in the '90s, I was, you know, I was an economist.

I'm getting old.

So I was looking at the internet bubble and seeing it grow in '97, '98, '99, going, "This looks like a bubble, and looks like it'll be bad news." And, you know, of course, the bubble did burst.

And, um, there, there's a conventional view, which I'll just say I think is very badly wrong.

And, and it doesn't look like either of those things are on the horizon, but again, why don't you explain your, your thinking about it.

Um, uh, so the question in my mind is, um, why that? What, what, what, were you just getting anxiety here, or you, you know?

Well, it was getting anxiety.

Um, give some background.

Back in the '90s, I was, you know, I was an economist.

I'm getting old.

So I was looking at the internet bubble and seeing it grow in '97, '98, '99, going, "This looks like a bubble, and it looks like it'll be bad news." And, you know, of course, the bubble did burst.

And, um, there, there's a conventional view, which I'll just say I think is very badly wrong.

But again, why don't you explain your, your thinking about it?

It's exactly what he just did to our NATO allies who he's been dumping on every possible day, saying that they weren't here to support him on a war that he never justified.

I just want to go back because I don't think we should ever let this drop.

We had a deal with Iran that was preventing them from developing nuclear weapons.

And it wasn't a question of trusting them.

So we should just be 100% clear.

No one was trusting Iran.

I wouldn't trust them.

It's the lack of transparency.

for our listeners who don't know much about it?

Yeah, well, the average check is around $1,500 a month.

So it's not great, but it's the core retirement income for people.

And for a lot of people, it's most of their income.

For about 10% of beneficiaries, it's 90% or more of their income.

And for more than half of beneficiaries, it's more than half their income in retirement.

So it's a really, really big deal for older people, for retirees.

Give us your take on AARP's stance here.

So at what point do you think people will stop believing, or the press, the credulous press, stop printing these ridiculous articles about how Social Security is going to go broke.

Well, there's a strong incentive to do that.

Obviously, there's a big lobby that would like to see the programs at least cut, if not actually privatized.

There is a shortfall facing the Social Security program.

The question is how we think about it.

So you have a designated tax, a 12.4% payroll tax.

It only applies to income below a cap.

That's too prosaic.

You know, even if we aren't economists, we're not wrong to be concerned about this forced inevitability vibe, are we? It, it just doesn't sound like building a better mousetrap.

Well, I think for the most part, it's probably fair to say a lot of the people involved in AI don't know what they're doing.

Um, and, and I'm saying that in all seriousness.

So we get all these stories about AI models that you've probably heard the term, they hallucinate, they make things up.

And, uh, again, I'm not, uh, I shouldn't assign human characteristics to that.

They're not people.

But the point is that they're ill-designed models.

How, how grounded is that, and how meaningful is that in this conversation?

Was there anything in the numbers that did surprise you?

Well, important to realize it goes beyond food and fuel.

Those are the biggest drivers, but you really see it across the board.

I've been focused on medical services because that's been a main driver of inflation for decades, really.

And that did somewhat come under control with the pandemic and the immediate recovery.

But those are up 3.6% year over year.

So we're seeing it in other areas as well.

Wages, however, are not keeping up with inflation, which does not fit my understanding of how a tight labor market is supposed to work.

So as you watch this speech from your vantage point in Oregon, Dean, what stood out for you most?

Well, this is kind of a greatest hit of crazy.

I mean, you know, if I were one of his staffers, all seriousness, I'd be wondering about the man's sanity.

I mean, this is utterly divorced from reality.

I mean, just starting from the word go, that he inherited a mess.

No, he inherited a very strong economy.

That's not my assessment.

So, Dean Baker, what exactly is he talking about? What is President Trump proposing? How is it with the Republicans in control? They have not passed one replacement for the Affordable Care Act in years.

So as you watch this speech from your vantage point in Oregon, Dean, what stood out for you most?

Well, this is kind of a greatest hit of crazy.

I mean, you know, if I were one of his staffers, all seriousness, I'd be wondering about the man's sanity.

I mean, this is utterly divorced from reality.

I mean, just starting from the word go, that he inherited a mess.

No, he inherited a very strong economy.

That's not my assessment.

So, Dean Baker, what exactly is he talking about? What is President Trump proposing? How is it with the Republicans in control? They have not passed one replacement for the Affordable Care Act in years.

So, as you watch this speech, uh, from your vantage point in Oregon, Dean, um, can, what stood out for you most?

most?Well, this is kind of a greatest hit of crazy.

I mean, uh, you know, if I were one of his staffers, in all seriousness, I'd be wondering about the man's sanity.

I mean, this is utterly divorced from reality.

I mean, just starting from the word go that he inherited a mess.

Uh, no, um, he inherited a very strong economy.

That's not my assessment, that's just universal assessment.

So, Dean Baker, what exactly is he talking about? What is President Trump proposing? How is it with the Republicans in control, they have not passed one, um, uh, replacement for the Affordable Care Act in years?