I'd love to hear your thoughts on that.

Okay, so I think there's a few points of disagreement that we might have in there.

So let's start with the first one.

And I'm just gonna lay some of these out and knock them down, then you can lay out.

The first one is your point about austerity.

So this is one where actually the empirical research, and from my perspective, the theoretical research as well, is very strong.

And it goes counter to the consensus into what you've said.

agree.

So I, so I guess there's a long way of saying this, but my question is this: Is Warsh actually mounting some kind of serious intellectual challenge to how central banks understand both risk and uncertainty? Or is he a hawk in sheep's clothing, a hawk with a reform agenda who's found some kind of useful language to dress in because he had to?

That's a good question, especially after the July FOMC.

So look, I think he's been consistent enough in his language and frankly, in his predictions, that we have to accept that he actually does share a lot of the sort of ontology or belief systems that I think you and I and our good friend Dave Dredge all believe that, hey, look, the world is a lot crazier than anything that you can strictly model.

And so you have to...

That doesn't mean throw out the model.

The model is useful.

It helps you train what is the sort of average expectation, right? But you need to accept that all models are wrong.

And take all the time you need to unpack it

But sort of general thoughts on inflation.

Well, you know, this is an area where I have thought that inflation was not under control, that the Fed made a mistake in the last 18 months cutting rates.

This gets in part to my sort of localization view and my more positive view on the US economy than most.

In that vein, I have a much higher view on what would be so-called R star, this idea of where is the neutral real interest rate.

So where the Fed thinks it's somewhere between half and 1%, you know, you have some members of the FOMC that are, you know, like one and a half maybe.

You know, my view is that it's more like 2% to 3% real, right? So then you add a 2% inflation target on that [laughs], you know, Fed funds gotta be above 4% at least, right? And unfortunately, they needed to be restrictive because they allowed inflation expectations to take off, and you could see that.

I mean, let's go back to February.

So what's your view on what they should do this year and what you think they will do this year?

And I'm just curious to hear, like, what was it like in the room as that was happening? What lessons was the institution kind of learning that they didn't appreciate as well before that episode?

Well, my, my concern is that the institution hasn't learned, you know, I think one of the things that you, that prompted you to talk to me about productivity, you had flagged a piece that I had written called missing productivity on my seriously Marvin.

publication, which, you know, I make, I make free to people.

And if you recall, one of the things I showed is you can look at the feds and I'm talking about the fed staff because we have the fed staff, the, you know, formerly green book now teal book forecasts through history all the way up to five years ago.

And then of course we have the, the statement of economic projections, the FOMC themselves, which roughly map on median to the staff, by the way.

Uh, over overlapping with that and through, through to the present.

And if you look at the cumulative forecast errors on those things, what's really amazing is that they perfectly line up with a, the dollar cycle and B capex cycles in the United States and C they are led or they lead rather measured productivity growth.

and the minutes of course from the the meeting came out on on wednesday curious to get your take on these task forces and the members on them and also actually which one of them do you think will be the most impactful or at least have the highest chance of success in being impactful

Yeah.

So I actually do definitely think that China is...

I was sort of framing what started the war around Israel was going to do this anyway, and there was a US-aligned interest to do it.

But in the grand strategy, in the background, I would say this is almost entirely about China.

And secondarily, but still very important, preventing iran from developing into a nuclear armed messianic country i mean let's let's face it the the irgc and and the uh governing structure of iran this is not iran the country but the governing structure is a messianic force that believes that they're acting on god's behalf It's not great to have them armed with missiles that can reach anywhere in the world and nuclear weapons.

So that was, I think, a very important secondary critical issue.

yeah is it something that we will be as i said it will just be this undercurrent that will be there but it's not that important anymore or will there be more important aha moments or shock moments come will come out of this where we all say okay one thing leads to another and and we have to be kind of vigilant you know because this thing is ain't over in that sense if you know what i mean

No, I know exactly what you mean.

And it would be quite cool for you to kind of bring us up to speed with your view on what's actually happening there.

So look, I think this is one of those areas where when we were talking earlier about Donald Trump and the sort of obfuscation of what's going on, I think this is a classic example.

It's really, really difficult to figure out what is actually happening there.

And I think there's still a lot of confusion among people about why did the U.S. even participate in this? What what was going on.

And so, you know, just to give a little background on that in terms of at least what I think happened.

And again, I don't have any insights other than what I draw from the collective picture.

is that, you know, when Marco Rubio first said it, and then the U.S. Secretary of State and President Trump later said a similar sort of thing about, you know, we got into the war because of Israel.

will there be more important aha moments or shock moments will come out of this where we all say, okay, one thing leads to another and we have to be kind of vigilant, you know, because this thing ain't over in that sense, if you know what I mean.

And, uh, whoever was playing Jim Lehrer, the moderator, asked Bush to sum up his campaign in a single word, and he used the word strategery.

Yeah.

And I think that's where the name of the department came from, and it was named ex post after that, that George Bush, to his credit, had a great sense of humor, uh, was willing to poke fun of him- himself, and named his internal political strategy department that Karl Rove headed the Strategery Department.

So look, the point is these guys are all, all very smart.

That doesn't mean that they have the right policies, right? And I do think...

I mean, you have been one of the most eloquent spokespeople out there on, you know, the great strategic mistake that was the Iraq war.

And, you know, I think even George W. Bush recognized that.

the political incentives have been to spend that money elsewhere in Europe and not on defense.