transcript

Speaker 1:
[00:00] The Atlantic has debuted a first-of-its-kind collaboration with the Seaborne Cruise Line to bring great minds on board their luxury ships. Join us for a 12-day voyage with the Atlantic. Discover the sailing from Montreal to Boston and more at seaborne.com.

Speaker 2:
[00:27] Hello, and welcome to The David Frum Show. I'm David Frum, a staff writer at The Atlantic. If you are viewing this program, you will have immediately noticed that there's something different this week. I am recording this introduction in London, where I'm traveling. We had a change of plan in the show that we were planning, we intended to bring to you this week. We originally had a different theme, a non-Iran theme program, but because of the looming crisis in the peace negotiations and the gathering threat to the world economy, I thought it was urgent this week to talk about the economic fallout of President Trump's Iran War, and I have invited Adam Posen of the Peterson Institute for International Economics to give us a truly global perspective on the worsening, darkening economic outlook for the United States and for the rest of the world. My book this week will be Ask Not, A Study of the Kennedy Family and Isn't the Maltreatment of Kennedy Women, both those born into the family and those married into it. Before either the dialogue with Adam Posen or the book discussion, let me revert to some opening thoughts recorded earlier this week in Washington DC, where I discussed the likelihood of a great swing of partisan balance of power, from Republicans to Democrats at state government, and why this swing of state power may be the most surprising and important outcome of the pending 2026 midterm elections. When the Supreme Court struck down the Roe versus Wade decision protecting abortion rights, and sent the abortion decision back to the states, a lot of people who are concerned for abortion rights understandably shuttered. State government is one of the most conservative branches of the American government, overwhelmingly dominated by Republican legislators. To send something back to the states is to send it for conservatives to govern. You have to be a quite middle-aged person to remember when it was contrary. Republicans have controlled the vast majority of the state governments for a long time. There are 99 state chambers in the United States. Most states have two, Nebraska has one. Of the 99 state chambers, the Republicans have controlled the overwhelming majority since the 2010s. You have to go all the way back to the early Obama years to remember a time when it was otherwise. But the Republican edge has been dwindling for quite some time. More and more of the state races that we're seeing in 2025 and 2026 are witnessing Republican defeats in state contests that Republicans had no business losing at all or close calls where Republicans used to have enormous advantage. If the blue wave that seems to be building in 2026 is as big as it looks like it's going to be, it will affect not only the US House, not only potentially the United States Senate, but state governments as well. It's just for so long it has been so Republican that people, again, unless you're quite middle-aged, cannot imagine that it could ever be otherwise. But it could be otherwise, and it's very possible that after 2026, it will be otherwise. That has a lot of implications for our political philosophy on both the left side and the right side of the political spectrum. Federalism has looked like a thin protection against the abuses at the center of the government, especially in the President Trump and his administration have abused the authority of ICE, and his local police departments have tried to protect the rights of the citizens of their states. I think a lot of people on the liberal side have discovered, maybe the rights of states and the decentralization of power, maybe that's a kind of beneficial thing after all. Maybe the conservatives were right about that. Now, they've been restrained by the sheer partisan imbalance caused often by extreme gerrymandering. But if the gerrymandering is overcome by a civilian political wave, and the state balances right themselves, certainly the idea of sending the abortion decision back to the states, that will look not like a charter for the most conservative people in the country to oppress women, but for moderate and more liberal states to write into their state law, the defense of abortion rights that was removed from federal law. So whatever you used to think about federalism, if you're on the blue side of the ledger, if you're on the liberal side, you may be about to discover the wisdom of the long conservative teaching, that power is most safely entrusted when it is entrusted closest to the people. The best bulwark against the abuse of power by authoritarian leaders at the center is a distribution of power to many leaders in the states and in the localities. Now, my conversation with Adam Posen. But first, a quick break.

Speaker 3:
[04:58] Thank you for joining us. And I'll see you next time. The Drive to Lead, a new series from Range Rover and Atlantic Rethink, explores how influential minds across industry shape the moment with intention and clarity. From sports entrepreneurs to beauty brand founders, join me, Grant Hill and others for a deep look at what it means to be a thought leader today. Watch the films at theatlantic.com/drive to lead.

Speaker 2:
[05:37] Adam Posen is president of the Peterson Institute for International Economics, a position he has held since January 2013. After service at the Federal Reserve Bank of New York in the 1990s, he is appointed by the British Chancellor of the Exchequer as an external voting member of the Bank of England's Monetary Policy Committee, where he advocated activist policy responses to the financial crisis and helped pioneer quantitative easing. He was awarded an honorary CBE by Queen Elizabeth II in 2014, and in 2021, received Japan's Order of the Rising Sun for his contributions to US-Japan relations. Adam, I'm so grateful you were here. Welcome to The David Frum Show.

Speaker 4:
[06:14] Thank you for having me on The David Frum Show, David.

Speaker 2:
[06:18] The reason I was so eager to speak to you at this urgent moment was it looks like peace talks with Iran, between the United States and Iran, or between the United States, Israel and Iran are at an impasse. There's a lot of talking up the prospects of peace by the Trump administration in order to have calm markets, financial markets. So far, I seem to be believing the reassuring talk, but other energy markets are not, and the Asian economies about which you know so much are seem to be plunging into really generational crisis. So would you give us a tour of the world economy as it stands? We are just short of the deadline for the renewal of the ceasefire, where we are today, and where we are likely to be if the ceasefire breaks down as it seems on its way to doing.

Speaker 4:
[07:04] David, thank you for having me on. I think the way to understand first what financial markets, particularly the stock market in the US, are telling you is not necessarily that they believe in the ceasefire. It's that they believe that there is a tomorrow eventually. So you might as well buy now. And that, relatively speaking, if the US is bombing the world and creating energy shortages, it's better to park your money in the US. The financial markets are not telling you that they're confident or that there's going to be a ceasefire, that it holds. And so when we look beyond the equity markets, the stock markets in the US, you do see a much more grim picture. The way to think about this is partly a matter of how much our country's dependent on energy from the Middle East and fertilizer from the Middle East and helium from the Middle East. I know you and your listeners are aware now there's a lot of things that go through the Straits of Hormuz. But also what position they are in when they start in terms of how much energy and other key materials they've stockpiled, in terms of how flexible their economies are. And so the short answer is, as usual, the developing world is in deep trouble. Because when there's an energy crisis like this, generally the countries that import energy also import food, also import fertilizers. Very few countries can physically be self-sufficient. And so they are going to be hammered on those prices. But they're also in a situation where, as I just mentioned, money is seeking safety, temporary safety in the US. So that makes their credit conditions harder. And third, money is flowing into the dollar, which again is a risk response, not a long-term vote of confidence in the dollar. And so the developing countries from the large ones like India and Brazil, all the way down to, I don't mean down otherwise, but in size to South Asia, Sub-Saharan Africa, Central America are in deep trouble. They're going to have weakening currencies, higher prices have to raise interest rates.

Speaker 2:
[09:19] So basically, from the point of view of those countries, the United States blew up the world economy, money panics and flowed into the United States, which then profiteered from its own economic actions, blowing up everyone else's economy. But the rest of the world is paying a price that is intensifying. Americans seem to have this idea that it won't touch them. The figure that we are hearing a lot is that 20% of the world's oil comes from the Persian Gulf, but 80% of that flows to Asia or Asian markets. The United States is a relatively small importer from the Persian Gulf. It's on balance, net out, it imports some, it exports other, but net, it's a net exporter of energy. And Donald Trump seems to have, President Trump took from this the idea that therefore the United States wouldn't be affected at all. But if all of America's trading partners or former trading partners are heading into crisis, the crisis blows back. And yet the financial market is happy because they think, well, at least we're the least dirty shirt in the sack of laundry.

Speaker 4:
[10:16] We're the least dirty shirt in the sack of laundry, and someday people will need their dress shirts back again, even if at the moment we don't. But I just want to emphasize two things out of what you just said, David. First is the blowback to the US does come more indirectly. There are advantages to being an energy exporter. We can't lie about that. But in the end, you're going to end up with inflation in the US. We're already on route to that. And it's going to get much worse in my view. Because while we're not going to have shortages, perhaps like Asia or the developing world will, we will have price rises because in the end, Japan and Korea and Germany and the UK, and for that matter China, if this goes on for a while, will spend what they need to get the energy. And that will drive up the prices in the US as well.

Speaker 2:
[11:08] How close are we to either a global recession or to another bout of global inflation like that which we suffered after COVID?

Speaker 4:
[11:15] I think we're very close to another bout of global inflation. I think actually in some ways that's a place where the US is going to be worse off than a lot of the other high-income economies because we didn't quell inflation enough over the last few years since COVID. But I also think that the recession is very imminent in what's called the Global South and in certain parts of the middle-income economies. The one thing which I am a little less gloomy, although the foreign policy doesn't get justified by this, is I do think the US and Western Europe will likely avoid a sharp recession, but that's a small comfort.

Speaker 2:
[12:01] How do the US and Europe escape?

Speaker 4:
[12:04] In the US case, it's primarily as it's been for the last couple of years, that you have a combination of huge corporate investment in artificial intelligence and related industries, and you have steady consumption by not a K-shape, not a small portion of the economy, but by roughly two-thirds of American households. That may weaken, they may decide their income is going down, the world is scary, and they may cut back. We just saw some survey data from the very dependable surveys of small business, the National Federation of Independent Businesses, that suggest their confidence has crashed since the Iran bombings. So it could happen, but probably that's enough of a prop, AI and consumption. In Europe, the case is more they're starting from a better place. They have room to cut interest rates, they don't have inflation yet. And so, they're not going to be happy, but they are going to have more room to offset.

Speaker 2:
[13:09] Well, let me take you to an area that is a specialty of yours, monetary economics. President Trump is trying to put a new chairman of the Federal Reserve Board in place. There's some paralysis about this because the senator, one crucial senator, Tom Tillis of North Carolina, saying, I won't give you a vote on your nominee until you stop the harassment and bogus fake criminal prosecution of Jerome Powell, which may stalemate the opinion. But President Trump desperately wants interest rates cuts in the face of rising price pressure. And Jerome Powell didn't give those cuts to him, not as fast as he wanted anyway. The new chairman may or may not. Is this how you get a stagflation like that which we had in the 70s, which is that you have a downward economy in an inflationary time, and the political authorities press the central bank, give us interest rates cuts, and it doesn't make the economy any better, it just makes the money less valuable.

Speaker 4:
[14:05] Yeah. I mean, you get stagflation, as you said, David, when you take a contractionary shock, and you add on top of it price hikes, and the price hikes generally come when the central bank is perceived to be soft on inflation. And as you indicated, the new chair who's still likely to be Kevin Warsh, the nominee, in a sense is getting a get out of jail free card, because it would be so criminally malpractice to cut rates right now that the vast majority of members of the Federal Open Market Committee have publicly all said, we should sit tight for now. I would be arguing they should be ready to raise rates. But leaving that aside, even some of the ones who President Trump appointed or has promoted and who had been talking about rate cuts are with one exception saying, no, now we gotta worry, we gotta hold off on rate cuts. So they could make a huge mess of this. This could be like Arthur Burns 50 years ago, failing to raise rates and in fact, cutting rates to please a sitting paranoid president. But in a sense, the oil shock makes it less likely that you'll get a committee that agrees to it. So instead, the Fed will be a little behind the curve in my view. And so inflation will get some momentum, but we won't get the full on stagflation. That could get worse, but for now.

Speaker 2:
[15:35] If the Federal Reserve has to increase interest rates to cope with the price increases from the war, is that enough to push the US economy into the inflation, into recession? Or is the AI boom just so strong that nothing will stop it?

Speaker 4:
[15:47] No, if you had to raise rates more than, say, 50 basis points or half a percentage point or 75, once you start getting to those kinds of numbers, you probably could cause a recession. A key thing has shifted on the AI front, which isn't so much the prospects for the returns on AI. It's that the big companies have spent so much money on the investment the last few years that they're now having to borrow to finance their stream of investment. Up until now, the Facebooks, Googles, Apples, Microsofts, all the big ones have been able to largely finance their investment without borrowing because they had so much retained profits they had been sitting on. But once they start having to borrow to finance their investment, they are more sensitive to Fed interest rate hikes. So this is the usual central banker argument, which is you try to be ahead of things so you can raise rates a little bit. So it scares people into behaving in the sense of not raising prices and wages too much, and then you hope you don't have to do a lot of it. If you have to do a lot of interest rate hikes, then usually it causes a recession. Interestingly, surprisingly, in 2022, it didn't, but that was coming out of COVID, so that was kind of weird.

Speaker 2:
[17:09] Well, many people listening to us or watching us will remember the.com bust, which followed a huge wave of investment in the 1990s, in all kinds of infrastructure of the Internet, especially fiber optic cable. There's a huge investment, made the economy go, go, go from 96 to 2000, then boom bust. It wasn't the worst bust in the world. The history of the 19th century United States is railway booms followed by railway busts, and those are big. And those were much bigger booms and then much bigger busts. Every investment boom is followed by a bust sooner or later when people realize, you know what, we've built enough railway track, or we've got enough fiber optic cable for the next 10 years, and let's stop. And it seems like everyone will hit the brakes at the same time and then bang. So if that were to happen in the next few weeks or few months, if that kind of sense of AI has enough money has been spent, and you have these crises all over the world, is that the impetus for a recession?

Speaker 4:
[18:09] Again, I don't want to roll it out, but I am going to be slightly less pessimistic, because usually when you get a recession worthy of the name, rather than just a slowdown, in addition to the fall off of what we call animal spirits, the common sense of a bunch of people, we should be investing a lot right now. Two other things usually happen. You usually have a fragile financial system, as we most certainly did, for example, in the savings and loan crisis in the 80s, or we did obviously in 2007, eight, nine. And that amplifies the cutback. And right now, we don't know fully what's going on in what's called private credit, but it looks like the financial system's pretty secure. The other thing that tends to happen, again, sorry to repeat, but it tends to be a function of how much, how quickly the Fed has to raise rates and is able to get inflation under control. And so that's where I'm more worried that the Fed is going to have to be pretty aggressive to get inflation under control and that'll get you the recession.

Speaker 2:
[19:19] How much harm to the US and world economy did the Trump administration do in 2025 with those tariffs and how much relief is the world economy getting in 2026 from the Supreme Court ruling that the largest bulk of those tariffs turn out to be unconstitutional, illegal, and have to end, and even the money has to be refunded, although the Trump administration is dragging its feet on the refunds.

Speaker 4:
[19:40] Yeah, you covered a lot there. I think, David, the main point is that in a world where the government has arbitrary power in ways that intervening in business life and consumer life that it hadn't for a long time, it's a huge adjustment. And particularly the way the Trump administration did it, that they were bullying and bargaining and threatening China and not doing anything on China and suddenly attacking Japan for no particular reason, and back and forth created this huge air of uncertainty. And that's not an abstract concept. What happened, what we see in the data is starting basically in April last year with April Fool's Liberation Day, is that business investment outside of the AI sector just completely flat lines. And that's been true for the last 12 to 14 months. And if you think about what else was in the Trump economic agenda, there were a lot of things that should have boosted investment. There was the passage of the tax cuts that were favorable to investment. There was deregulation. There was reduced enforcement of regulation. There was reduced energy prices until we got to the Iran bombings. There was a whole list of things that was reversal of what I thought were some very bad Biden policies against mergers and acquisitions and monopolies. And so what you had were all the components for maybe not a sustainable, but at least a short-term investment boom. And none of it happened outside of AI. And it is clearly between the tariffs and the anti-migration policy. You've created, the Trump administration rather, it's created so much uncertainty that people, businesses are just unwilling to take the risk.

Speaker 2:
[21:25] Okay, so they went out in April, they got a bunch of hammers and started hitting themselves in the head.

Speaker 4:
[21:30] Yeah.

Speaker 2:
[21:30] And now it's 2026 and good news, the Supreme Court has taken the hammers away. At least most of them.

Speaker 4:
[21:36] The Supreme Court hasn't taken the hammers away. The Supreme Court has said, don't use the ball peen hammer and give them a band-aid for hitting them, but it hasn't taken all the hammers away.

Speaker 2:
[21:47] Okay, so there's...

Speaker 4:
[21:47] The threat of the hammers is still there, and that's the point. That even if the tariffs get refunded, the threat of tariffs and the behavior of businesses and investors all over the world in respect to... Excuse me, in reaction to the threat, ongoing threat of crazy US economic behavior is real. And so it's good the Supreme Court did this. They were right to draw a limit somewhere on the president's emergency powers, not just because of tariffs. They made the decision on a legal basis, not an economic basis. But it doesn't reassure people, it doesn't reassure long-horizon businesses that the Trump administration won't do something like this again. And they keep saying they will.

Speaker 2:
[22:34] One of the challenges that non-specialists, non-economists have in understanding economic events is getting their minds around relative scale. The US economy is enormous. It has a lot of room for governments to do stupid things. Governments are always doing stupid things. And we tend to, as non-economists, react to the scale of the stupidity of the thing, rather than to the scale of the thing. So, you know, you'll hear about some policy, and that sounds pretty dumb, but in the end, the scale of this policy is in the billions of dollars in an economy that is denominated in the tens of trillions of dollars. So, help us understand scale. In terms of the size of the event, how big an event is the energy shock from the Iran War? How big an event was the trade policy? How big are these events? And if they continue, how big are they relative, not only to the United States, but to the world?

Speaker 4:
[23:37] Okay. So, let me try to benchmark. If you think about the US of having an economy of 30 to 33 trillion dollars in national income every year, currently, and normally it grows at a rate of about one and a half percent a year because we have productivity growth and we accumulate some useful structures and capital, and we have now almost zero workforce growth because of no immigration. So, in a normal year, the US economy should be growing by roughly four to four and a half, up to five trillion dollars. Anything below that suggests something is wrong because this is just returns on capital, progress, nothing. You're right about the different sizes of government effects data. There's all kinds of stupid things that don't fundamentally alter that path. Then you get something like the oil shock. The key points about the oil shock are first, it affects the likelihood that the Fed's going to raise rates, and which affects the whole economy at once. It doesn't just affect one sector. Some places are more dependent on credit than others, but it affects everything from home mortgages, to car loans, to business investment, to the price of stocks. That's why it's so powerful, and that's why people care who's at the Fed. So when you create a situation that either makes it difficult for the Fed to do the right thing, makes it confusing and the Fed messes up, or actually creates large inflation so the Fed has to act, you're talking big numbers. So then what happens is you normally get a recession to slow down the inflation. And a recession means growth of, say, minus a half a percent or minus a percent over a full year instead of positive a percent and a half. So you're talking about a swing of, on the order, $6 trillion, which is an enormous, enormous number. If you go from decent inflation, no Fed tightening, to high inflation, Fed tightening, that's the kind of swing you're talking about. If you're looking at the global economy and the trade war, what we emphasize at the Peterson Institute, what other mainstream responsible economists emphasize, is what I tried to convey a minute ago, that the direct effects of the tariffs were bad, but they're somewhere closer to the policy you said about just it's stupid. It affected 10 percent of the value of 18 percent of the economy, and it affected it part by distorting the prices not by wiping out availability. So you're talking about something that takes two or three tenths of a percent of growth in terms of making steel so much more expensive, aluminum so much more expensive, shortages of various goods from China. It's real money. It's in the hundreds of billions of dollars, but it's not an absolutely enormous number. The problem is when you get these things interacting, so the rest of the world is making less money. The rest of the world is more nervous about the dollar. American business is less willing to invest, and investment usually is about 15% of the economy. Investment is usually about 40 or 50, excuse me, 4 to 5 trillion dollars a year. See, I get the numbers confused. And if investment flatlines outside of AI, that means you're only doing 2.5%... 2.5 trillion dollars of investment a year. So arguably, the tariffs ended up costing us a few percent of GDP because we skipped the investment. And more importantly, it costs us down the road because we don't get the benefits of that investment we skipped. So they're different animals. The oil shock is what happens now, what happens over the next two years. The tariffs and the anti-migration policies are a business confidence shock and that spreads over more years.

Speaker 2:
[28:09] So let's focus very specifically on the energy shock. The United States is a net exporter of oil and gas. It imports some primarily from Canada, it exports others. Oil is not one product, it's got many different versions. We're all going to unfortunately have to learn a lot more about this than we knew before February 28th. But Americans have an idea that, at least the president has an idea, that the United States is insulated from the world economy because it doesn't import on net very much. It imports relatively little and it exports more. So the United States is fine. Indeed, a lot of Americans are going to make money because those Americans who do produce and refine and sell oil will enjoy higher prices. So that's good news for people in the fracking industry, that's good news for Texas, or is it?

Speaker 4:
[28:57] It's good news in the short term for a few people. Yeah. It's just like one can say, well, if there's a war, the munitions makers may end up making some money and they end up selling their munitions at higher prices. Is that a justification for putting the whole economy for a ringer? No, it's just something when you're realistically looking at things, you take that into account. So the US does export energy. As you pointed out, David, it's important the different types of petroleum, the different ways of exporting natural gas because it's not totally interchangeable. Certain places are only set up to receive certain kinds of oil and gas. But essentially, you have one global market in natural gas and one global market with a little bit of this differentiation in petroleum for fuel. In the end, if there's a shortage, the countries who have money and need the stuff, meaning Western Europe, Japan, Korea, China, and to a lesser degree, India has enough money because it's so large, they will bid up the price of energy. Some of that becomes a windfall for American producers, but other pieces of that spill out into things like higher food prices, higher helium prices, higher opportunity costs for what you can do with your money. And so at the gas pump, the consumer is still going to be hit. And then again, that brings us back to what are you doing to one small part of the economy versus what are you doing to inflation and then interest rates and then growth overall?

Speaker 2:
[30:47] Well, this is a point that President Trump really seems unable to process because he will simultaneously say, you'll reassure Americans the United States is net self-sufficient in oil and gas, so no problem. And then he will say to the rest of the world, come buy our, you know, we have lots, come buy from us. And then he goes, well, if the money comes in and the oil comes out, then you're going to equilibrate the American price with the price on the rest of the planet. The only way you have the self-sufficiency turns into low prices is if you can somehow stop your export economy. Maybe that's why, and the president does have a very status vision of the economy. Maybe he has in mind something like that. There'll be kind of only import barriers, but export barriers. But the export barriers have to be pretty tough to prevent energy from moving. And if you don't have those kinds of export barriers, if you are selling to other people, then you import their price along with the energy you export. Exactly.

Speaker 4:
[31:40] And so the only, and just to take it further, I've been visiting with European officials recently, and they're very worried about President Trump putting export controls on the US., I mean, on US energy and using it for political purposes vis-à-vis Ukraine or Israel or Iran or whatever. And so they're not only saying, oh my God, if we buy from the US., they're going to jack up prices. They're saying, oh my God, we don't want to be dependent on the US., so we got to stockpile energy, we got to switch to other forms of energy, we got to try to cut out the US and buy from elsewhere. And so over the long term, meaning the next few years, the US share of energy markets is going to go down. On top of everything you said, David, which is ultimately unless the president really does go Chinese communist style and set up barriers around the whole US economy, which would be insane and require a huge police presence, it won't work.

Speaker 2:
[32:43] On that point about the European fears, I think you have to have a bit of memory here to understand how amazing this is. Russia escalates the war in Ukraine to a full-scale war in February of 22, and preparatory in order to put pressure on the rest of the world, the month before the war, in the winter of 21, 22, Russia began turning off oil gas exports to Europe. Gas, of course, typically moves through pipelines. That's the cheapest way to move gas. It's a gas. You have to encase it in a pipeline and flow it through. And a pipeline can't go up in a day. The gas has to follow along certain routes, like electricity. You can't just move it, put it in a boat, and move it the way you can with oil. Europe was very dependent on Russian gas. Russia had a big energy crisis in January and February of 22. And a lot of people thought this was going to be a catastrophic event. I wrote a lot about it for The Atlantic. And through amazing acts of both technology and solidarity and planning and self-sacrifice, Europeans actually got through the crisis. But one of the things that helped was the United States under President Biden said, we've got gas in the United States, and we can't build you a pipeline. What you can do is put the gas in a giant machine and smush it and make it into a liquid and then put it in a boat, keep it cold, and move it around the world. And the United States invited the Europeans to invest a lot of money in building plant facilities to receive liquid natural gas from the United States. And everybody thought, what a better world it is when Europe no longer has to depend on authoritarian corrupt non-transparent Russia for pipeline gas and can instead import liquid gas from democratic, reliable, NATO-friendly, Europe-friendly United States. And it turns out, oh, wait, one is almost as bad as the other as a supplier. One is as capricious and arbitrary and corrupt. Well, I shouldn't say as, but that's not true.

Speaker 4:
[34:45] But you go from being oblivious about the risks of depending on Russia.

Speaker 2:
[34:50] You went from thinking you could trust the United States as a supplier to saying, oh, well, it's better than Russia, but it's not good.

Speaker 4:
[34:56] Right. Which is a pretty huge reduction in the dependability of US. You just got to think about this. If I'm a German or, let's leave the French out of it, a British or a Japanese official, and in the Japanese case, I have such a national security dependence on the US that, it's like the kids say, ride or die. I have to stick with it. But if I'm the Germans or other Europeans, I have to, like you said, I can make other adjustments, I can increase the diversity of places I built pipelines with, I can decrease my dependence on natural gas. All these things have costs, all these things take time. But if I'm worried I'm going to be cut off at any moment, then yeah, I'm going to do those things.

Speaker 2:
[35:42] Yeah. Well, maybe when you're thinking about the long-term costs of this war, one of them is changing the way the whole planet thinks about energy supplies. Because I think the way many people would have thought about this problem four years ago, is too much of the world's oil comes from places that are unstable, either because they're unstable themselves like Russia, or because they have bad neighbors like the Persian Gulf. The goal of sound energy policy is one, to get more non-oil and gas energy sources, so those are more predictable and reliable. No one's turning off the wind, no one's turning off the sun. Angela Merkel turned off nuclear, unfortunately, but you can reconstitute an update to nuclear program and be more self-sufficient. Anyway, gas comes from the United States and you can trust them, and gas can come from lots of different places beside the United States. But we now have an image of an energy market in which almost all of those sources look unpredictable. Maybe the conclusion that everybody takes is this is the moment where you do need to make the top choices to reduce dependence on oil and gas, because North America is not to be trusted either.

Speaker 4:
[36:51] But let's follow that logic, David, because it's affecting not just energy immediately right now, but it's affecting a whole host of things, right? So think about Canada. I was in Canada shortly before the election of Mark Carney, 14 months ago, 15 months ago when the fight between Trump and Carney was just starting up. And you had Canadian officials saying, Oh my God, we suddenly realized we're entirely dependent on the US for internet access. All our cables run through the US or through US satellites. It could be turned off by the US at any time. What the bleep do we do? You have people in the UK who are completely dependent on the US for various kinds of military supplies. And, you know, as whatever the pluses and minuses of it, the idea that the UK was this incredibly close ally that was boots on the ground next to us in Afghanistan and Iraq, as well as many other wars, was totally dependent on the US for spare parts and intelligence. And then they see what's happening in Ukraine, and they see what's happening elsewhere. And they see Trump turn from, oh, I love you, I want to have a state dinner, to all the, you're idiots, you got to pay me money. And similarly, so now we've got the so-called Eurofighter, and we've got the joint Italian-Japanese-British development of a fighter plane to be an alternative to the F-35. So it's happening right now in energy. You can't avoid it, it's terrifying. But it's important to understand the US is causing even allies, or one would argue especially allies, to have to rethink their dependence on the US., and that is huge foreign policy as well as economic implications.

Speaker 2:
[38:42] Well, and this maybe goes to the core, your core beliefs and the core work of the Peterson Institute, which is, we've got, we've developed a way of thinking over the past 30 years about the world economy, which is to say, if you could build enough trust between countries, if you could eliminate the kind of state, potentially annihilation of state competition that was the Cold War, and build a world that was more stable and predictable, then you could have more trade, you could have more specialization, you could, and it wouldn't matter that your, the screws came from one place, and the nails came from somewhere else, and the plates came from a third place, and the batteries from somewhere else, and that they were assembled, you could do that all efficiently, capture all of these incredible gains for standard of living. And that was the story of the 1990s. The world got very rich very fast, because it could do business in a more efficient way, because there was less fear of country upon country. And if in the story of the 2020s is, when people use terms like deglobalization, what we really mean is more fear, more fear. And therefore, if we feel fear, we pay a price for insurance. We have to make all our own screw factories, because we are afraid to depend on foreign screw suppliers. I remember this was one of the points that Howard Lecknick used to make. He would hold up the iPhone and complain that little screws at the bottom of the iPhone were made in China, as they were. And so, how do you get little tiny iPhone screws made in America? You need to have a big tariff wall to encourage, and you need to leave it there for a long time to encourage people to invest in building tiny factories to build tiny screws in the United States to go into iPhones. All of that costs money. All of that reduces efficiency. All of that means, instead of one screw factory supplying the entire earth, you have lots and lots of screw factories for each relative economic block, relevant economic block. And we all get poorer faster in the way that we get split basically. Yeah. And this whole thing goes in. I remember seeing this chart that explained the origin of the Great Depression by tracking the shrinkage of world trade between 1929 and 1933 as a kind of inner spiral.

Speaker 4:
[40:55] It's a famous chart by an economic historian named Charles Kindleberger. And what he said was, obviously, the start of the Great Depression was the, going back to things we were talking about a couple of minutes ago, the stock market crash and the Fed reacting in the wrong way and a collapse of the banking system. But then you couldn't get out of it because everybody in the world started cutting off everybody else. And so the lack of trust you were talking about, which obviously had a basis in a lot of things that had geopolitical reasons, not economic reasons, undermined the purchasing power of everybody because the little screws suddenly had to be artisanal, locally developed little screws. And you had to pay people less because you had to get an American or a Brit or a German to screw in the little screws instead of somebody out in the colony somewhere who was paid much less. And so suddenly everything became much more expensive. And everybody cuts back when everything becomes more expensive. And the key point I want to go back to, David, is what you said is the word insurance. So what I argued in Foreign Affairs last fall, I talked about what I called the new economic geography. And the basic point was that the US had been providing all the insurance to allow that kind of commercial integration you were talking about. They provided safety on the seas so you could ship the ship the screws. They provided property rights so everybody knew who was getting what. There was various forms of cheating and the risk of this particular from the Chinese. But basically, the US collected various forms of premium payments from people and provided lots of insurance, including a market in the US you could sell into, including a treasury market that was very liquid. The Trump administration took it from being insurance to being a protection bracket. They walked around cracking their knuckles and telling people, you have a nice economy there would be a shame if anything happened to it. So therefore, you should pay me. And that's a very different business model. And then that leads to people wanting to get out from being in the protection bracket. So it's a very much scarier world, which just reinforces your point that the trust breaks down and then you get these spirals when something bad happens, people pull back more, they pull back more, things get worse.

Speaker 2:
[43:19] Yeah. And you said something that I don't think gets said enough, which is the United States gets benefits from the system, that Donald Trump offers Americans a vision of the world in which he says, okay, the United States provides security, provides all these rules, and that's just what the United States is just being terribly taken advantage of, because what does it get back in return? And as you know, it gets back a lot of things. They're not always advertised because Americans, when they set up this system, which was good for everybody, everyone benefited, and there are many people who benefited more than Americans did, proportionally to the small size.

Speaker 4:
[43:56] But that's not at the expense of Americans. That's the point.

Speaker 2:
[43:58] But they also, the United States didn't like to talk about what it got as benefits, because those are... The best not to draw attention to them, but the fact that countries hold their wealth in United States dollars, which allows the United States government to borrow more cheaply, that's a product of the system. The fact that Americans, by and large, don't need to learn a second language, it would be good if more did, but they don't in a way that people all over the planet have to learn English. Just think of what is the benefit to you to not need to learn a second to spend that time doing something else where you're German or Japanese or even Chinese counterpart. Has to learn some amount of English to function in the world economy.

Speaker 4:
[44:37] No, no, there's a laundry list, and all those you mentioned are very real. And in particular, I just want to emphasize the fact that everybody fell with the exception of a few sanctioned oligarchs, that they could put money into the US Treasury market. And when you want to go get it back, it would be worth the same amount. And no one would discriminate against you, and no one would notice. Was a huge thing that meant that our country and our people were paying much less for our Treasury bills, much less for our government activities. We had, in addition, all the things you mentioned.

Speaker 2:
[45:10] Which fed through, and therefore paying much less for mortgage. I mean, 30-year mortgages are a uniquely American product.

Speaker 4:
[45:17] And similarly, one of the things we got, and to our benefit, was standard setting. So, when there were industries, we didn't necessarily directly control it. But because the US was the provider of insurance and safety, US got to pretty much say, hey, here's this kind of chemical. And you don't like it, that's your business, but this is the way we're gonna decide how things get used. Hey, this is the way for property rights and motion picture agencies. Yes, there's a lot of staff, but we're gonna prosecute it. And most of the world is gonna pay Hollywood and it's time to buy movies. There was just a huge number, and then there were all the things Joseph Nye used to call soft power, all the cultural things that people believed in the US and therefore wanted to buy US cultural products, wanted to pay universities to be educated or to get qualifications, wanted to have the kinds of foods and cars and even cigarettes that the Americans wanted. All of these things went together and so you hit the core point, David. Trump has sold people on the idea that the US was getting ripped off. The US wasn't getting ripped off. It was running a very good business, running an insurance, a non-insurance racket, a genuine insurance company. We were getting premiums. If we thought the premiums were a little low, we could have offered to ask them to slightly increase the premium, but you don't turn from that into being a gangster because then everybody isn't interested in seeing you lose.

Speaker 2:
[46:49] Well, this is, as we moved in, this is the vision that most haunts me about how American power ends. Because the story of, ever since there is kind of a world system, going back 500 years or so, that at any given moment, there's a strongest power. And once it was the Hobbsburgs who were based in Spain and Austria, and then it was the Bourbons based in France and other people, the different number one powers. But the number one power was stronger than any other power, was never stronger than all the other powers. And what would happen was anyone emerged as the strongest power, all the other powers would combine to tear down the strongest power because they perceived it as a threat to each of them in turn. And the coalition against the strongest power would always win, and the strongest power would always lose because the combined strength of the powers two through ten was greater than the power of number one. And when the United States emerged as the world's strongest power, and you can date that whenever you want, but 1945 conveniently, when the United States emerged as the world's strongest power, it cracked this puzzle by saying, well, what if we use our power in ways that are not threatening to power as two through ten? But at least, actually, in those days, power number two, deeply threatening to power number two, the Soviet Union, but three through ten, the power protects you. And so three through ten combined with one against two, instead of two through ten combining the other against number one. And the United States, through this generous system, also bought itself safety against envy and attack. And the thing I worry about most is when Donald Trump says the United States is going to behave more like a traditional great power, that he doesn't think through, and that means he is going to unleash the kind of reaction that is traditionally unleashed by the world's great power when it acts alone. That is, it frightens people and causes them to combine with one another. Now, China, for the moment, remains such a bad global actor that I don't think they're going to have a lot of success getting people to combine with them against the United States, but that depends on American behavior as much as it depends on Chinese behavior. If American behavior continues to be not only unpredictable, but often kind of predatory and even sinister, you're marching down the path that the Hobbsburgs and the Burmins took before the United States.

Speaker 4:
[49:05] Basically, yes. And it starts being seen in the economic sphere before the military sphere because so many countries depended on exactly what you said, David, that the US wasn't a direct threat to them, that sometimes we were liked, sometimes we were not liked, but nobody viewed us, I shouldn't say nobody, none of the powers three through 10 viewed us as a genuine direct threat. And now at a minimum, people are saying, no, I have to ensure against the possibility the US does pull out the rough gun from under me in terms of support for NATO or in terms of availability of natural gas or in terms of kill switches and the technology we buy. And once you start doing that, it starts unraveling down the path you're talking about. And I agree with you, that's when the US ends up not only in trouble, but we end up losing the reason why we want the US to be okay. Because then we become just another exploitive bullying government.

Speaker 2:
[50:10] The Americans of the period from the end of the Second World War to the Great Recession, let's say, I think did understand this. And some understood it more self-consciously and articulately than others. But most people sort of sensed it. Because when you think, why did we know that for those period? Because there was this kind of memory of the trauma of the Great Depression and the two world wars and how all of this was caused by the fear of one country against another, and that if only you could find some way to a world system where there is more trust and mutual benefit, you wouldn't have to suffer what people suffered from 1914 to 1945. You would have the better world they enjoyed from 1945 onward. And passage of time, people forget those lessons. And I worry, is there any way that we can learn these lessons without the trauma? Can we read a book or something? Or do we have to go through, do we have to suffer directly in order to gain wisdom?

Speaker 4:
[51:03] I fear we're in the latter situation. There are an awful lot of books out there, some of them even quite good, well-written, others boring. There are an awful lot of books out there making this point. And there's, I don't know if it's a majority of people, but there's a politically effective plurality of people who have this politics of resentment convinced that the US was not gaining in its enlightened self-interest from the way it behaved after World War II through the last 10 years. And I think that's wrong. And I think fear of China is causing us, it's part of this. But going back to where you started, we need a world where it's number one and numbers three through ten, facing together against China in to the degree that's necessary. And not a world where numbers three through ten or for that matter three through 90 say, well, I don't really want to choose between US or China because they're both bad. Those are bad outcomes.

Speaker 2:
[52:09] Last question for you on the way out. What is our best case scenario of exit from the Iran conflict? What could happen? What do we hope for?

Speaker 4:
[52:19] I mean, combining the national security economics, the best case scenario is Trump declares victory. And somehow domestically in Iran, they get enough control on the dispersed revolutionary guard corps to reduce the threat of anybody shooting missiles at ships in the Persian Gulf. And within a couple of weeks, shipping goes back to normal and energy prices start coming down, though they don't come down the full way. That's the best case scenario.

Speaker 2:
[52:53] And the wars legacy is in Iran that has fewer offensive weapons, but the price of oil is higher.

Speaker 4:
[52:59] Fewer offensive weapons, but everybody, except the US, feels they have to self-provision. And that can be the UAE and Saudi and the other states in the region saying, I don't want to be dragging a war by the US, so I'm going to start hedging my bets more. It can be people in Europe and East Asia saying, I don't want to be dependent on the US for energy, so some of that's good, I'll become more efficient. Some of that's bad, I'm going to stockpile huge amounts of energy. And then you get a bunch of developing countries going back to where we opened, which are like, hey, the US just did this and caused a major recession and a huge decline in purchasing power and energy for my people for no clear reason. Why did you do this to me? So it's not a good legacy. Even before you get to the foreign policy, it's not a good legacy.

Speaker 2:
[53:59] And we don't have to specify the worst-case scenarios because why depress everybody? Yeah, the best-case scenario is bad enough. Adam Posen, thank you so much for making time for me.

Speaker 4:
[54:07] Thank you for having me on The David Frum Podcast.

Speaker 2:
[54:18] Thanks so much to Adam Posen for joining me today, and now my book talk as recorded earlier in Washington, DC. The book for discussion this week is on a related topic. The book is Ask Not, The Kennedys and the Women They Destroyed by Maureen Callahan, published in 2024. Ask Not is a heart-rending collective portrait of three generations of women born into or married into the Kennedy family, and the tragic fates that often overtook them. We meet, for example, Rosemary Kennedy, the daughter of Joe Kennedy, the sister of President Kennedy and Senator Bobby Antony Kennedy, was locked away in an institution for all of her life. We meet Jacqueline Kennedy, who was so betrayed during her lifetime by President Kennedy, and then traduced after his death for her second marriage to Aristotle and Assas. We meet Mary Richardson Kennedy, the wife of Bobby Kennedy Jr., who was driven to suicide. We meet Carolyn Bessette, the wife of John Kennedy Jr., who along with her sister died in a plane crash, caused by her husband's carelessness. We meet Joan Kennedy, the wife of Ted Kennedy. We meet the young women in the White House of President John F. Kennedy, who were preyed upon in a way that often came to the verge of rape by a president who seemed to regard the women around him as his entitlement, his right, his prerogative, with no regard for them or for his oath to his wife Jacqueline Kennedy. And maybe most excruciatingly of all, we meet Mary Jo Kopeckne, the brilliant young aide to Robert Kennedy, so important to his 1968 presidential drive, who made the mistake of getting into an automobile with Senator Kennedy in 1969. Ted Kennedy drove the car off a bridge, flipped it over. He made good his own escape, but left Mary Jo Kopeckne while Kennedy made no effort to gain help to save her life, a life that might have been saved had he acted in a speedier and less selfish manner. The book also serves as a collective portrait of the Kennedy men, of the common themes. We meet the same kind of behaviors again and again and again, and they remain relevant to our own time because one of those men is in the cabinet of President Trump. Ask Not is an exquisitely researched book and excruciatingly written. It is a powerful book and it often hurts to read because the stories are so heartrending, especially those of the very youngest women, some of them still alive, who are trying to make sense out of what happened to them, of how they were used and how they were betrayed. The book, you might have thought, would have gotten a big response at this time when we are increasingly alive to the rights of women and increasingly prone not to blame women for the way that they are taken advantage of by rapacious men. It didn't get that response, or it seems to me, I don't want to do an injustice to the book, but scanning the reviews, it didn't get the response it might have, because there's a strong whiff of conservative politics about as-not. Maureen Callahan, the author, is a columnist for The Daily Mail, and she made one of her very first media appearances to promote the book on the Megyn Kelly podcast, where Megyn Kelly gloated over the unquestionably terrible behavior of the Kennedy family. I think a lot of people might have thought, it's strange in the year 2024 to be paying so much attention to the Kennedys, when with President Trump, we have a civilly adjudicated sexual assailant in the White House with cases of credibly attested sexual assault allegations against them over many, many years. I think that's an impulse that I can understand, but that needs to be put aside. I don't tell a story about this. On the night that Congressman Eric Swalwell resigned from the House, I happened to be in a Trump-friendly space, where there were a lot of television sets. The space was noisy, so I couldn't hear what was on the television sets, but I didn't need to, because I could see the gloating faces of the Fox News host in the 8 o'clock hour, as they devoted the first quarter of an hour of the newscast to Swalwell and his fall. You would not know from watching the program that a Republican congressman, Tony Gonzalez, had resigned that same day over his own and heinous allegations of sexual misconduct. And of course, you would never know that Fox News had defended President Trump against credible allegation after credible allegation, going back for many years of his outrageous behavior. There was a strong mood of, this is one for our team, our team has scored one, we nailed one of the other guys, we brought them down, yay us, boo them. And the question I found myself thinking about is, is the fair and decent treatment of women, is that a matter of morality or is that a matter of convenience? Is that an important part of how we judge people in public life or not? If it is, then like cheating on your taxes, like drunk driving, like any other kind of moral outrage, it's something that needs to be assessed equally to all people. And without regard to whether or not our team or their team is the affected party. That's not how we often do it, but it's the way we should do it. It should be possible to say, you know what, the Kennedys and the Trumps, both bad. And not bad in every respect. I mean, who would deny that the Kennedy family did make great and important contributions to the politics of this country? And not that there was not much to admire, especially in President Kennedy and Bobby Kennedy, less so in Robert Kennedy Jr., about whom there's not much to admire. But it is important to note in the ledger the terrible things they did and the terrible suffering that they inflicted on people they purported to care about or on people they just used and tossed away. And if you're going to do that for them, you can do it equally for everybody. Thanks so much for joining me today on The David Frum Program. Thanks for watching and listening. As ever, the best way to support the work of this program, if you're minded to do it, is by subscribing to The Atlantic where you can see the work of myself and all of my colleagues. I hope you will consider liking and sharing this podcast on social media. It does propitiate the algorithm gods. If you press that little button, it really makes a difference to bring the work of the show to more and more people. Thank you so much for watching and listening this week. See you next week on The David Frum Show. Bye bye. This episode of The David Frum Show was produced by Nathaniel Frum and edited by Andrea Valdez. It was engineered by Dave Grime. Our theme is by Andrew Edwards. Claudine Abayed is the Executive Producer of Atlantic Audio, and Andrea Valdez is our Managing Editor.

Speaker 5:
[61:02] The developments that we are seeing in AI, this would be maybe the most fundamental thing ever really to happen.

Speaker 6:
[61:10] What's next for AI, and what does it mean for us?

Speaker 5:
[61:13] Values are getting exported through software. We need to have this conversation on how those values get exported.

Speaker 6:
[61:20] Join Atlantic CEO Nicholas Thompson for the most interesting thing in AI, brought to you by Atlantic Rethink, the Atlantic's creative marketing studio, now on YouTube and wherever you get your podcasts.