The Future of American Dominance

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Let me just say this up front. Predicting the future. is hard. We once made an episode called The Folly of Prediction, episode number 41, if you want to hunt it down. The findings were clear. Most of us are much worse than we think at making predictions, and we're also much more confident than we ought to be. But that doesn't stop us from trying. Look at the huge success of prediction markets like Calchi and PolyMarket. We are always dying to know what might happen next. I am not immune from this desire, you probably aren't either. The one particular temptation is geopolitics. It is so complex and dynamic and important, that it's hard to hold yourself back, even if you know that your prediction is, at best, an educated guess. So you might as well get your geopolitical predictions from someone who is extremely educated in these matters. Something like this. For Reed Zakaria, I work at CNN and write a column for the Washington Post and write books. Zakaria is a foreign policy stud. political scientist by training, journalist by vocation, and longtime member of the Council on Foreign Relations. Which is why we are having him on the show today for a third time. His last appearance was just after Donald Trump had been reelected to the presidency, but before Trump took office. You did make some predictions last time you came on the show. Uh oh. The second Trump administration you said It's not gonna be as bad as people think. This is a country with a lot of checks and balances. You have institutions, you have bureaucracies, you have laws, you have rules. These all can't just be willy-nilly dispensed with. Yeah, I was basically wrong. A few months ago, Trump made one of his most unpredictable moves yet, and possibly one of the most consequential to a joint military strike on Iran with Israel. Farid Zakaria did not think this was a good idea. As he wrote at the time, bomb and hope is not a strategy. So what is the strategy? Today on Freekonomics Radio, we asked Zakaria to look at some of his past predictions. And we force him to make some new ones. about how the war with Iran will end. Whether the US political system is due for an overhaul. and whether globalization is really dying. think that the reports of the death of globalization are Vastly exaggerated. We also ask Zakaria to tell us something important. that he has changed his mind about because in a world that defies expectations. Good to have an open mind. This is Freekonomics Radio, the podcast that explores the hidden side of everything, with your host, Steven Dubner. Ooh This conversation with Farid Zakaria was recorded on May 20th. At the time, negotiations between the US and Iran were very much in flux, and depending on when you're hearing this, they may still be. There's also a lot of flux in DC as well. I started the conversation by asking Zakaria how the second Trump presidency has compared Mainly because the first term and the second term have been so different. We can see in retrospect that Trump didn't expect to win the first time around. got into office in a hurry. was somewhat nervous about the idea of governing and in a way delegated authority. To a series of people. All these people, it turns out as great constraints on Trump. So Gary Cohen Tells us that twice I think Trump wanted to do what he did with Liberation Day tariffs and Persuaded him not to Jim Mattis. pointed out that Trump said he wanted to attack Iran and Maver said that's a really dumb idea and explained why. So I think what happened is for Trump, two things. One, it turned out for him all these people were disloyal in the end, 'cause they distanced themselves or even denounced him after January sixth. And Personal loyalty is absolutely pivotal for Trump. But the second is I think he came to realise That's not how he likes to work. That's not how he likes to run things. You know, I've trolley ran a small real estate company where he made all the decisions. There were no layers of bureaucracy, there's no institutionalizing. And that's much more what he likes. So If you look at the second term, it's all die hard loyalists, people who are slavishly loyal and obedient to him, no matter what they are asked to do. He just likes to wing it, do it on his own. impulsive regime change by jazz improvisation is now one of your recent guests but I exactly exactly regime change by jazz improvisation. Exactly. And so much of it is jazz improvisation, reconciliation with China. By jazz improvisation. Three weeks ago they were the evil empire. Now she is his best friend. It worked in the moment. And I think what you've ended up there for with is a much more ideologically MAGA. In terms of what he has done. And then much more amateur. It's just like throw a bunch of things in the air. See what works. And All of it as a result has been very different from the first term, which surprisingly looks kind of ordered and predictable in comparison. Let's talk about Iran for a bit. Here's something that you wrote recently for Reed. For about fifteen years, many American leaders, including all three presidents in that period believed that the US was too deeply entangled in trying to reorder the societies of the Middle East. They felt the more Pressing challenges included rebuilding America's industrial base and confronting the rise of China, yet here America is once again fighting a war to reorder a society in the greater Middle East. And like in Iraq, Afghanistan, and Libya, this war seems unlikely to turn out quite as its proponents may hope. Why you wrote. Does this keep happening? So I'll bite. Why does this keep happening? I think at a broad structural level it is because the United States And Washington in particular. Are very attached. to the idea of an imperial America that orders the world. exercises the enormous power it has, particularly military power. The two areas where the US is unrivaled. A military and currency. And we have in both cases promiscuously used that power, misused it, abused it, and I worry very much that that will result In the world. Pacifics are important again, as always with Trump. So much is being done by this one person that it's not just broad structural forces, because the truth is the US had learned its lesson from the Middle East and it had moved away. Most importantly by electing Trump, who ran on a platform basically that was centrally about getting foreign wars and getting out of the Middle East and things like that. But I think What happened again, Trump two point though. unleashed, unconstrained, unchecked by people like Jim Mattis and generals who would tell him that this is a bad idea. He fell in love with the kind of arbitrary unilateral power. President has been a good thing. If you notice the thing Trump loves more than anything else is to wield That's why he loves tariffs. I don't like the way the White House is set up. I'm just gonna destroy the East Wing and rebuild it. I am gonna arrest Maduro. You know, when he was asked So who controls Venezuela's oil now? He said me. Trump loves that idea, and so. I think in that context, BB Netanyahu understood how to play Trump. Told him to the effect forty seven years American presidents have tolerated Iran. you can be the one to liberate it. And Trump fell for all this nonsense. important to point out it's happening That is filled with these imperial elites that have gotten very used to the idea. that the United States Should Run the world. Whimsically, arbitrarily. Okay, so if you're an imperial elite, you presumably believe in your imperial power, your military power, your ability to dominate a weaker enemy. When we last spoke for it a couple years ago, you said that Iran was weaker than it appeared. You called it a paper tiger. Yet you've also written recently, Why is the most powerful country on the planet, that's us, unable to get its way with a much smaller, weaker country that has been ravaged by economic sanctions and military strikes. So what is Iran doing well and right from perspective to fend off for the time being at least the United States. Why is their refusal to buckle working so far? Very good question. And this is a case where actually there's no inconsistency in what I was saying. What I was saying earlier and what I've always said about Iran is it's a much weaker country that we make it out. It does not as a result pose any direct threat to the United States. It does not have intercontinental ballistic missiles. It does not have nuclear weapons. Something it's important to point out. It has a nuclear energy program that could, if a series of steps were taken that would be visible and obvious and apparent. maybe produce a few bombs that they would then have to weaponize, then they would have to put them on missiles, and then they would have to be able to figure out how to in an undetected way do all that and then launch them. So the point I was trying to make there, which I still believe is true, is that it's not an industrial powerhouse. It does not pose a threat to the United States. It does not really pose much of a threat to Israel. Given the iron dome which protects Israel from all its missiles. What is true, however, about Iran is two things. One The regime has shown the ability to survive and survive under very adverse circumstances. Remember, this is a regime Right after its birth. was attacked by Iraq in the Iran Iraq War. And that war lasted for eight years. So the regime almost in its DNA has figured out how to survive foreign attacks, and it is set up. in multiple spheres of authority, multiple layers of control for precisely that, and secondly, that it is willing to take an enormous amount of pain. And this is the fundamental miscalculation that the United States has made, just like it made in Vietnam. Which is you may be up against a much weaker party. But if they are willing to take more pain than you are. they will win in the sense that you can't compel them. And that's what's happened in Iran, which is yeah, we've destroy their navy and their air force, as Trump keeps pointing out. goal of destroying all those things was to get them to sign on the dotted line. they are not willing to sign on the dotted line, which means in some very fundamental sense so far they have won. This has been a recurring problem in the United States 'cause we always misunderstand nationalism. And we misunderstand the degree to which You know, you may be talking about a small, weak country, but they have a powerful sense of nationalism and that makes them unwilling to cry, uncle. If you think about Iraq, Iraq is created in nineteen twenty one by the British. Iran has been around for five thousand years. This is one of the places in the world with the oldest and strongest conception of national identity. And you thought two days of bombings and the whole thing would collapse. It was insane. Freed, what do you think Iran looks like? A year from now, who's running it. Who are they fighting with, if anyone, what's their relationship between Iran and the US and maybe Iran and Israel? I think the most likely scenario is that there is some kind of a deal that is arrived at between Iran and the United States, and so What does that look like for Iran? It means first of all, Iran has essentially more from a theocratic regime 'Cause what has happened is by attacking Iran, you consolidated the really tough guys in the regime. The IRGC, the revolutionary guard, and they now call the shots, the new Ayatollah, who is Khameni's son. is very much a creature and a an ally of the Republican Guard, but they now have the real power because he doesn't have the kind of legitimacy and authority that his father did. And so it's become more of a military dictatorship. The regime is maybe more oppressive than it was before. It has in a sense been legitimized by the deal that is made with Donald Trump of all people, right? This is a guy who is in fact negotiating with them. And what they will look for, I think, is a broader resolution of the conflict. Trump is trying to get them to do a kind of quick ceasefire. What they're saying is no, we have this. That you made us. realise we have the ability to close the Strait of Hormos and threaten the world economy. We are not gonna give it up. without some kind of resolution of the broader issues involved, meaning Some kind of understanding that the Islamic Republic is legitimate and is here to state. Along with lifting of oil sanctions, et cetera, et cetera. Some lifting of the sanctions. And Maybe not just the oil sanctions, there are more sanctions involved. probably what happens is also a kind of modus vivendi between Saudi Arabia and Iran. Saudi Arabia's role here has been very interesting. Unlike the UAE. They have not been the warmongers. They have been searching for a diplomatic solution. They've been quietly communicating to the Iranians look Don't hit us. And we won't be belligerent toward you. And for the most part that has been true. The Iranians have hit the Saudis very little. Saudi oil revenues. by the way, are up twenty percent. The UAE's oil revenues are down forty percent. The Iranians are looking, I think, for a final vindication that they are not kind of temporary transient intruder into the Middle East system. Ironically, this foolish attack by Trump might give them this victory that they have always sought. Let's talk just a bit more about the relationship between Iran and its neighbors. I've seen some scholars describe Iran's strategy as triangular coercion, which is an idea that comes out of game theory. The idea being that Iran in order to stymie or be a much more powerful military like the US will attack neutral or neutral ish third parties. Were you surprised to see Iran do that? And what do you think are the ramifications of those attacks, especially on the UAE, let's say? Yeah, I was surprised and I have to confess I initially thought it was a miscalculation by the Iranians. Even the UAE had not been very gung ho about this war. This really was a war that was foisted on us by the zealousness of one individual B. B. Netanyahu who was able to convince Trump. I don't wanna make that sound like some conspiracy theory about Israel. It isn't. It's about literally two people, Trump and Netanyahu. But I thought that the Iranians shouldn't have widened the war. And I still think that the most effective thing they've done has been to shut down the strait of hormone's and not so much this other stuff. did as a result do exactly what that game theory concept tells, which is they hit where they could. Rather than the most logical place. And they realized that these were the softer targets, these were the places they could hit. They hit them very accurately, by the way. There's not a lot of collateral damage and not a lot of missed targets. It tells you this was very strategic and very well planned. I think there's a shadow of this war that will persist. One piece of it is that Not only do you know the strait of hormost could be closed at any time, you now realise that liquid fossil fuels. Travelling around the world by tanker. are vulnerable to very cheap asymmetric threats. The most effective weapons in Iran's arsenal were not the ballistic missiles that it built at great cost. It were these thirty thousand dollar and fifteen thousand dollar drones. Well guess what? Pirates can get those drones. we can get those around the Strait of Malacau through which more energy passes than through the Strait of Hormos. I think there's a kind of risk premium that is going to be attached. to liquefied fossil fuels going through tankers everywhere, and that affects the Gulf, obviously, and the economics of the Gulf. The second piece is The Gulf has presented itself as a kind of oasis of stability. The idea has been Welcome to Dubai. You're really not in the Middle East, you're in Switzerland. Well, it's very hard to say you're in Switzerland. when you've gone through this process. And I suspect that that changes the business model a bit. But I wouldn't exaggerate it. The one thing we've seen about tourism After all these crises, whether it's the Iraq war, whether it's Covid. People bounce back. People have short memories. Let's just talk a little bit more about the UAE, especially in contrast to Saudi Arabia. So the UAE left OPEC. seem to be developing more of a rivalry with Saudi Arabia. Also the UAE has been using the Iron Dome system from Israel to defend itself against Iran even though Cooperation with Israel is still taboo among most of the Arab public. So where is the UAE positioning itself? Where does it find itself in a year or three from now, especially in relation to Saudi, Iran, Israel, and the US, let's say? So it's important to understand what the UAE is because it looms large in our imagination. And it is run by a very forward looking very technologically sophisticated, very economically sophisticated regime. So this regime has been able to Invest in all kinds of ways so that The UAE is not really fundamentally an oil economy anymore. It is a vast series of hedge funds. That sit atop a bunch of oil. What it can do. is very different from what Saudi Arabia can do. So it can say, we don't want to be part of Webek because we don't get m most of our revenues from oil anyway. So we want the flexibility to not be part of this cartel and we can set our own standards and we can do more when we want to, we can do less. We can uh get much closer to Israel because we don't really have that large a native population and we keep them very comfortable with all kinds of lavish subsidies anyway, so they're not going to rebel. And we can become part of the Israeli technosphere. and move into advanced industrial economics rather than being stuck in the Middle East. The Saudis on the other hand, Saudi Arabia is a real country. It has whatever, thirty million people. It relies largely on its oil revenues, though even they are modernizing. And I think the crown prince realizes he needs a plan for long term stability. One of the great learnings that has taken place for Saudi Arabia and for the Crown Prince is he came in a young man in a hurry. very hot headed and you know, he goes to war with the Hoodies, he does a blockade on Qatar, he gets angry with the Sunnis in Lebanon. Now It's very different. He's established diplomatic relations with Iran. He's made a rapprochement with the Qataris. He's made up with the the Lebanese. He is looking for stability and peace so that he can enact his domestic modernization vision. But he is a real country with real public opinion and I think it's gonna be much harder for him. To normalise with Israel in the wake of Gaza. I think he'd like to because I think they all like the idea of tying up with Israel economically and technologically. But he's gonna need some movement on the Palestinian issue. Where do you think that moves? Because it's been put on pause during the Iranian war. You said earlier that Israel was not really under threat by Iran, which surprises me because the proxies Hezbollah in the north and Hamas in the south. It certainly I think feels like a constant threat if you're living in Israel. What do you think happens in Gaza over the next one to three years? Is it a Palestinian enclave or is it something totally different? Yeah, what I meant is that Israel is not under existential threat from Iran. And I agree with you. If you're living in Israel it's a life of enormous anxiety and worry and things like that. But you know, we know what the numbers are. over the last twenty years, the number of Israelis they were able to kill Tiny. The Iranians have never even uh tried a major offensive against the Israelis that have again achieved more than But The larger point I think is Israel's political spectrum has shifted so far right. I don't see how you could get minimal concessions on the Palestinian issue. the Saudis would need to be able to make a deal. And why do the Saudis care that much about the Palestinian cause per se? I don't think they really do. I think that certainly the elites in those countries have never really cared very much about the Palestinian cause. But they always believed that the street did, that their public did. that it has a kind of symbolic resonance look these are all Absolute monarchy. who are worried about their legitimacy, worried about their control, and In that context. The Palestinian issue was always a easy way to signal something that the Arab street wanted. But I don't think they care very much, which is why as I say, I think they're all searching for a way to do business with Israel. They need enough symbolically that allows them to do it. And all I'm saying is I think Israel has moved so far on this issue. that the minimum of what the Saudis need would break Netanyahu's coalition right now. So it sounds like you're suggesting just a stalemate for the time being. I think so. I mean it's possible that the Saudis find a creative way around it. maybe what will happen is a more under the radar, quiet cooperation. the way the UAE and Israel are are doing right now. But you notice the Israelis leak that Prime Minister Netanyahu visited the UAE during the war. And within an hour the UAE flatly denied it. My sources tell me in fact he did. Netanyahu did go to the UAE, but the fact that The UAE immediately denied it. tells you that they do not want to seem publicly associated with Israel. How do you see Netanyahu over time as a leader of a country trying to defend itself as a lone democracy in a region where there's hostility directed toward them for a variety of reasons. Look, I think Bibi Netanyahu is one of the most skillful politicians I've ever met. He is incredibly smart, incredibly well read, incredibly learned. He understands how to play the Israeli system, but he also understands almost as well, maybe even better, the American system. It's quite unusual to have that. When he shakes the hand of A monarch in the Middle East or a Putin or a Trump? Is he reliable? most American officials who have dealt with him for an extended period of time would answer that question emphatically. With one word, no. I know that there were administrations that tried very hard to work with him and the biggest problem they had was they felt precisely that he was just unreliable in the sense that he would not live up to his commitments, not be true to his word. Say one thing to one person and another to another person. But I think that His great strength has been survival. His great strength has been to figure out where the winds of Israeli politics were going and they were blowing right and to be willing to jump onto that to make alliances with these far right parties that no one had been willing to ally with before. He I think in a certain Sense militarily has made Israel more secure? I mean I think the attacks on Hezbollah were a master stroke. I think the first attack on Iran's air defenses were very important in making Israel more secure. But I think that no solution to the Palestinian problem. You have five million Palestinians who are living in a state of colonial occupation. by Israel and he doesn't even want to have a solution to that. And I think that because of that. The other legacy of B B Netanyahu, you would have to say, is enormous military success that has made Israel the superpower of the region at some level. coupled with enormous diplomatic and symbolic isolation. Israel is more isolated in the world than it has ever been, than I can recall, and it is now being isolated even from the United States. B B's legacy, the ultimate legacy might be to have ruptured the relationship between the United States and Israel by turning it into something so partisan. So I think it's very much a mixed legacy. Where do you think that reputation goes in the future? I was talking to someone the other night about when Americans started buying German cars after World War Two, how long it took. There was the same thing for Japanese products. And now we consider German and Japan two of our very, very, very best friends and allies. So reputations of countries certainly change, but it takes a good amount of time. If you were to look at the Middle East, the major players. What do you see that landscape looking like way down the road, ten, twenty, fifty years? I think that if Saudi Arabia And allows itself ten, fifteen years of modernisation and development. emerge as a very, very powerful country just because, you know, it's the only one that has size and wealth. It has enough people. And it is enough of a landmass and can feel enough of an army and ha you know, it can be a kind of multi dimensional power. problem with the UAE, which is extremely high tech and smart and sophisticated, is is just too small. to be a global power of any kind, and the same is true of Qatar. Kuwait is also tiny in comparison. So it's really the Saudis who have that capacity. I think Iran is going to continue to be Don't forget that the Islamic Republic is not just Islamic, it's also sort of socialist. So it's been very, very badly run. when you look at per capita GDP. Iran was Probably ahead of Saudi Arabia. when the Shah was removed, and Iran is now way behind all these countries. We always hear that the majority of Iranians don't want the theocracy and they want a more normalized state. What do you know about that sentiment now? And do you think there's enough sentiment to lead to and Internal change, a regime change by some form other than war? I think this is a very good but very complicated question and I'll begin by saying I don't know. And it's very hard to know. Most of the people who say these things confidently have not been to Iran in forty five years. Much of the Iranian diaspora are like the white Russians after the Russian revolution. They're imagining an Iran that may have existed in nineteen seventy seven, but What I'll say is I've been to Tehran. And the regime is clear very unpopular among the people in Tehran, educated, young, westernized When you talk to older people, even in Tehran, I wasn't allowed to leave Tehran. When you talk to older people, more religious people, there is more support for the regime. And I'll point out one thing which is in neighboring Iraq, which holds free elections. A large part of the Shia population. votes for religious parties. Because the Shia do believe in the fusing of religious and political authority. So it's not inconceivable that there is some part of Iran the older, the more rural, the more religious who have some deference and respect for the idea of mullas in politics. So I mean if I were to put a number I would guess maybe sixty five percent of the country hates the regime, but thirty five percent has some degree of support. I will say this one thing which I'm pretty sure travelling around the world, nobody likes being bombed by foreigners. Nobody likes being bombed by the United States, the superpower of the world. So Whatever the situation was three months ago. I think that the regime has more support now because it's an act of disloyalty to the nation. To support a regime that is being bombed by Americans and Israelis. The central mistake of American foreign policies from nineteen forty five has been. should happen in that country, but country likes being bombed into enlightenment. Coming up after the break, given the war with Iran, why haven't oil prices spiked even more than they have? Also, is the US making its own Brexit? And will Trump too go down in history as the great Grifter administration? the scale of what he's doing and the nakedness, the openness with which it's happening. Breathtaking. I'm Steven Dubner. This is Freakonomics Radio. We'll be right back. Free economics radio is sponsored by Ozempic. Innovation happens through rethinking what's possible, and when it comes to GLP1s, Ozempic Pill does just that. Learn more about Ozempic semiglutide tablets 4 and 9 milligrams by calling 1-833-Ozempic or visit Ozempic.com to view the medication guide and ask your doctor what's possible with FDA approved Ozempic pill. 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Farid, Zakari's most recent book is called Age of Revolutions Progress and Backlash from 1600 to the present. So he takes a long view of geopolitics. I asked him to summarize US foreign policy over recent history and what it will take to break some bad foreign policy habits. The US has to Find a way to Transform amend reform and stabilize the international order that it created after nineteen forty five. I think what people forget is that the international order we created after nineteen forty five Pretty much unique. It's the first time in human history that you have had this eighty year period with no great power wars. where you have allowed a single open international system economically to flourish and expand as communism finally collapsed. has allowed poor countries to grow on a scale that they've never been able to grow before. It has allowed for the introduction of concerns about human rights. It's allowed for the introduction of foreign aid, all these things which really were never part and parcel of the international system before. So I think it's a pretty unusual, extraordinary international arrangement that Franklin Roosevelt conceived Harry Truman and Eisenhower What we have to understand, however, is it's been eighty years, there's been a lot of change. other countries want to be more involved, they want to be more powerful. It has to have That ability, that flexibility, but We shouldn't be trying to do what Trump is trying to do, which is basically abandon it and let it collapse because What will follow will be most likely the law of the jungle, the which is what you've had for most of human history. So I would say that the intelligent reform amendment and repair of this international system so that it makes sense for other countries. Now by the way. It does, right? China, for all its desire to quote unquote replace the United States, has grown rich and powerful under this very international system, and it is aware of that. Which is why it is not trying to tear it down. It's actually the second largest supporter of the United Nations now, right? Which is amazing when you think about where Mao's China was only forty years ago. It was a rogue revolutionary power. What we need to do is to make sure that we stabilize a system that has been profoundly good for the United States, made us the pivot of the world. But also been very good for others. Do you think nationalism on average is beating out globalization at the moment, or it's just interrupted it? Not at all. I think that the reports of the death of globalization are Vastly exaggerated. Look at it this way. Trump is as a result of his nationalism. taken the United States and gone from being the most free trade country in the advanced industrial world. to the most protectionist country in the advanced industrial world. We now have the highest tariffs of any advanced industrial country. However If you look The rest of the world they are doing is more free trade, not less. The European Union's response to Trump tariffs was to lower tariffs between Europe and Latin America, lower tariffs between Europe and India. Канада'з рез. to American protectionism has been to lower the tariffs between China and Canada, between Europe and Canada, between India and Canada. Some of these deals haven't been finalized, but what you see is the rest of the world trying to kind of re-globalize. In a different way. Some of them are being wary of too much dependents on China, but what do they do when they think they're too dependent on China? They go to Vietnam, India, Mexico. Last I checked, those are still foreign countries. Right? So it's a very interesting reglobalization. And if you look at the strength of the global economy The ability to withstand Covid, the ability to withstand this oil shock, which is the largest energy shock in the history of the world. It is because of globalization. It's because you can shift sources of production so easily. So I think you're seeing actually the resilience of globalization these days. Are you surprised the oil shock hasn't been even steeper than it's been? Yes, and I think part of it is that markets are very sanguine. And maybe they will be right, but maybe they will be wrong. If you look at Two things one it's this point about the resilience of globalization. There was a lot of things people were able to do to quickly say. for the loss of oil coming out of the Gulf. There was a lot of flak in the market. There was a lot of oil out there in supplies in various ways. That's all running short. And the way you can see it is It's a little technical, but important. The numbers that you hear when people talk about what the price of oil is. is usually futures contracts. In other words, it is contracts for the the future purchase of oil. And that's at about a hundred, hundred and five dollars a barrel. actual price of oil. in Asia today. is a hundred and twenty, a hundred and twenty five dollars a barrel. So Either this crisis is going to blow over and everything is going to get much easier, or what will happen is the traded price will become closer to the real price. And if it goes to one twenty five, Then you suddenly have a recession in many, many, many parts of Asia. probably don't have a recession in the US, but you have a substantial slowdown of the economy and more importantly the Fed will be completely unable to lower rates in a scenario like that. But additionally, the US has been producing a lot more oil and gas over the last ten, twelve, fifteen years generally, but the export numbers from the US in the last couple month have just spiked through the roof, yes? And that's the globalization. That is when you can't get your oil out of the Middle East. There are other places you can get it. The US, Venezuela. Nigeria and that's all very real. But it's important to understand the fact that we produce oil means we don't have a shortage of oil. Price is a global price. So we and the average American suffers as much the increase in price of oil as anybody else. The people who benefit are four American companies. I'm exaggerating. maybe forty American companies, but the oil producers. But the fact that Exxon is making more money doesn't mean that the average American is doing better. Can you explain why our federal government allows sitting politicians to freely trade stocks and companies? over whom they have obvious influence and non public information. It's insane. The broader point to make is most people don't realize this. We have the oldest constitutional system in the world. And that's a glory and we are gonna celebrate the declaration of independence. It's two hundred and fiftieth birthday. But it's also two hundred and fifty years old and it's an ancient Tudor polity and uh constitutional arrangement. And it has many, many gaps and many, many weak spots. One of them, for example, is in most Western democracies today. The investigative judicial function Department of Justice is set apart from and independent of the Prime Minister or President. Whereas in the American system the Attorney General is appointed by and serves at the pleasure of the President. That's not true in almost every European country. And so we have things like that, and one of these is We don't have enough laws that are kind of anti corruption laws in various forms. But the whole nature of our system allows for this kind of institutionalized corruption. Look at the president's stock account, which is mind boggling. I mean he's three thousand seven hundred trades. And in his case it's so naked again that he literally will go visit a company buy its stock and then put out a tweet saying this is a hot company and putting the stock market ticker of the company there. The level of self dealing and grifting, let's call it, in the Trump administration is astonishing to a lot of people, included many people who voted for him. What do you make of it. I'm especially curious if you see parallels to other leaders in Recent or ancient history. I think in today's world the only comparison I can think of in terms of the scale of the dollars involved Probably. I was talking to an Indian friend who's in government and he was saying none of the things Trump is doing would be possible in India anymore. There was a time when India w was very corrupt. And there's still a lot of corruption, but the scale of what he's doing and the nakedness, the openness with which it's happening. breathtaking and I think you'd have to search far and wide to find a place where you could do something like that. If you think about this latest IRS deal where the IRS is forever banned from auditing not just Trump, but his whole family. Or if you think about the two billion dollar investment plus the five hundred million dollar investment that the UA government makes in Trump's basically the Trump Whitcoff Cyber Venture World Financial And then literally a few weeks later. they are granted the coveted license to be able to buy NVIDIA chips and have a big data server, which many countries in the world were vying for. I think there's very, very few examples of this. To me, the really interesting question Is why it's not causing outrage. Even with his base, there is an interesting answer there. That for a whole part of America. that has not benefited that much from the last thirty years of enormous growth and prosperity. they look at the last thirty or forty years that in many ways could be described as the rise of meritocracy and the rise of markets and the rise of a certain kind of Fair system that was Anybody could come from anywhere and if they somehow did well on Wall Street or did well in Silicon Valley, they became rich. There's a whole segment of America that looks at that and says, You know what? I don't know about all that. It just feels fixed to me. Somehow you guys all get into these fancy colleges. Somehow you guys all get fast tracked for these fancy jobs. Somehow. You guys will all end up with IPOs. I'm not saying it's right or wrong, but I'm saying there's a very powerful feeling among the have nots. That the haves have gotten to where they have. connections and self dealing and internal promoting and As a result, they look at it and say, The system's fixed and corrupt anyway. Trump is doing it openly, nakedly. In a sense it's worse, but we don't care. Everyone was doing it. And that feeling I think is what in a strange way has allowed Trump to get away with what otherwise is a staggeringly open level of corruption. Putting Trump himself and his family aside for a moment, do you feel the US is in let's call it a secular decline? No, I think that the astonishing thing about the United States, and I often try to explain this to my European friends, is country of enormous variety, variation. It's a ragged country. By which I mean, yes, the subways look dirty and the highways look like they've got too many potholes on them, and yes, we have no high speed rail. And yet Look at the AI. Look at the technology companies in general. Look at the cutting edge of biotech. Look at pharma. The US is at the same time the most advanced country in the world by far. And the country with the worst infant mortality statistics in the developed world. You have to be able to understand that contradiction. The simplest number I can give you is US's percentage share of world GDP. in nineteen eighty, when Ronald Reagan was inaugurated, was twenty five percent. Since then you have had the massive rise of the rest, as I call it, the emerging markets. China gone from essentially zero percent of global GDP to fifteen percent roughly. India has gone to I think three or four percent. All this massive shift in power. Do you know what the US's percentage share of world GDP today is? I'm guessing twenty five percent. Twenty five percent. We have managed to maintain our market share. And the reason is There are enormous parts of uh the US that are incredibly productive. And in general, we are a much more supple, flexible economy. The things that Trump often rails against the fact that we have lead manufacturing decline so that we could let services and technology and all that boom. That's the flip side. But as a result, the US is astonishingly productive, astonishingly advanced in many areas. It does, however, have that feature that there are many measures by which it is among the worst, if not the worst, in the advanced industrial world. So considering there's been so much chaos, considering there's been so much, let's call it anti-democratic action at the federal level, considering that Trump and his family administration have self-dealt a lot. you still say the U S isn't in secular decline. Walk me through in your mind, not the fantasy version that you would like to happen, perhaps. But the real version that you think will happen politically for this country. can't give you a pure prediction because so much of it depends on what human beings do. There's human agency here. So I'll give you What is my Hopeful prediction? but not entirely divorced from reality. So Trump's very unpopular, which tells Probably he will lose the midterms or there will be some setback. Probably I would Again, this is hopeful prediction. Probably MAGA does not get reelected in twenty twenty eight. And there is some kind of pendulum swing away from it. And I think a lot depends on how big it is, because that will determine how much people interpret it as a repudiation of Maga. On the other hand, the Democratic Party is not winning any approval rating wars either. No, it isn't, but on the generic ballot it's doing much better. It's leading by a lot. So let's assume that there is some repudiation which allows For some tightening of ethics laws. One of the things we've realized is there's just too much Leeway in the executive power for corruption and abuse of authority. And then probably, as with post watergate reforms, you need another round of these reforms. Meanwhile, the US economy continues to do what it's doing very well. I think China, while very powerful and extraordinarily impressive, has its own problems. It has demographic collapse. It has Huge debt problems. There is too much government direction of the economy, which will have its own shortfalls. So you look at that and you say, Who's the competition, right? Japan is in total demographic decline, Europe is turned into a museum, India is still too small to be a a viable competitor. So the US remains the least dirty shirt in the laundry pile. And I think we continue in exactly this kind of Chaotic. Fashion. John Kenneth Goldbrecht said in The Affluence Society, which was published in the early nineteen sixties, I think. He said the mark of the United States is private affluence and public squalor. And you know what? I mean if it was true in the early nineteen sixties, maybe people are hoping for a transformation. But we'll always be this ragged, uneven country. But I don't see a collapse. I think that for that to happen You'd need a lot more to go a lot worse. Galbraith was not just a well-regarded economist, he was also one of the most realistic. especially when it came to predicting the future. The only function of economic forecasting, he once said. is to make astrology look respectable. I'm Steven Dubner. This is Free Economics Radio. We will be right back to finish up our conversation with Farid Zakari. Freakonomics Radio is sponsored by Granola. You are in back to back meetings all day. You're trying to stay present, but you're also worried you will forget the decision, the action item, the important next step. That's where Granola comes in. Granola is an AI powered notepad for meetings. You jot down rough notes like you always do, and in the background, Granola transcribes and turns them into clear, useful notes when the meeting ends. No bots joining your calls, no distractions, just a clean notepad that helps you focus. During or after the call, you can chat with your notes, ask Granola to pull out action items to help you negotiate, write a follow-up email, or even coach you using recipes, which are pre-made prompts. Head to grinola.ai slash freakonomics and get three months free with the code freakonomics. That's grinola.ai slash freeconomics and get three months free with code freekonomics. Freakonomics Radio is sponsored by Ozempic. Innovation happens through rethinking what's possible, and when it comes to GLP 1s, Ozempic Pill does just that. Lear more about Ozempic semiglutide tablets 4 and 9 milligrams by calling 1833 Ozempic or visit Ozempic.com to view the medication guide and ask your doctor what's possible with FDA approved Ozempic pill. Freakonomics Radio is sponsored by TalkAboutP.com. Let's talk about Peirone's disease or PD. It's not widely talked about and some men may feel reluctant to bring it up, but it's more common than you would think. PD can happen when scar tissue builds up under the skin of the penis, causing a curve with a bump during an erection that for some men may lead to pain during intimacy and impact mental health. A trusted urology specialist can help diagnose PD and walk you through your options including non-surgical treatment. Visit Talk About PD.com. Let's talk about American electoral politics for just one minute. It doesn't take a lot to be dissatisfied with the current electoral political system in the US. Most people are pretty dissatisfied with many, many elements of it. The way that primaries drive the races, the way that Congress has standstills and partisan friction and so on. So there have been many, many, many versions of gentle reform. What about a more radical reform? What do you think of the ancient Athenian model of sortition, which is a form of democracy with representatives chosen by lottery? This is how we choose our jurors today. I've always thought of this idea as a crazy old idea, like how would that possibly work? But I actually sat on a jury recently, Fareen, and I was really moved and impressed with how twelve people who didn't know each other and probably wouldn't spend any time together outside of the jury room came together with a common cause and they weren't specialists. They weren't chosen for their expertise in any area that the jury was engaging in. They were just chosen because they happened to live in a place where they were required to serve jury duty. And the idea being that rather than electing people who manage to win an election because of their personality or money or background, you're choosing actual representatives. I know that sounds Crazy, probably even to a political scientist like you, but I'm curious to know what you think of it. No, I'm actually a big supporter of the idea theoretically, and I'll tell you why. It it solves one of the poor existential problems of political science or of governance. Which is the people who want to exercise power over you are by definition. The ones you don't want exercising power. Same for co-op boards, by the way, in New York City. Exactly. Exactly. And the more complicated and messy and expensive the political process becomes, the more It becomes subject to virulent personal attacks, right? So how do you solve that problem, which is the there's a huge what economists would call selection bias? Problem. As you say, the ancient Greeks had this system which is you randomly pick people. And you let them run it. Now. There are issues of what would it mean to run something, what would it mean to have that political power, because there's a lot of very technical stuff that happens in government. And you'd need probably a much more activated civil service than we now have. Exactly. And so you'd have to have some combination of political control, but also administrative efficiency. Now let's assume that that radical a change will never happen. Are there pieces of that idea that you see as possible amendments to the way that we run our elections now? I think the primary system is frankly a very bad idea. It is unique to America. Most people don't realise this. You're gonna give the people the choice at the election. party itself should be able to make its own internal choice as to who it wants to choose. problem with leaving it to democracy as the primary process does. is that in those kind of democratic contests, eighty percent of people don't participate. So you're getting the rule of the most fanatical, most obsessed, most ideological, often richest Members of the public. Totally non representative. And if you think about what the old system was that is often caricatured. people call it the smoke filled rooms, right? Which is the ultimate negative thing you can say nowadays is to imply that there were cigarettes involved anywhere. I think there were cigars. It's okay. And what were these smoke filled rooms? They were filled with Mayors and aldermen and senators and congressmen and governors. In other words, chose the candidates were themselves elected officials who had a lot of experience getting elected by the general public, not just by the Democrats, not just by the Republicans, but in general elections. And so they had a tendency to try to find viable candidates for the center. Now when you have the extreme fringe on the left and the extreme fringe on the right, choosing through a primary and when you have social media. So if the primary voter is ten percent of the Republican Party or ten percent of the Democratic Party and the most extreme, the people active on Twitter are ten percent of that ten percent. It's the most crazy people sitting in their mom's basements firing away angry tweets. The whole system is geared towards the extreme rather than the center. I I would abolish the primary system entirely. I would do something about money in politics. And I would end redistricting. And I think that those three things are all Perfectly within the realm of possibility. Economists now have enough data to measure a lot of the downstream effects of Brexit for Britain. And they're not very good as you could imagine, but Rather than being just political conversation, they're actually empirical arguments. Those same economists say that when you look at the Trump presidency and what it's doing to our standing in the global economy, that it's gonna take a while. It's gonna take or 10 years before the effects can at least be fully measured the way that the Brexit effects have been measured. When that time comes, what do you think those effects look like? So I think m it's gonna be not nearly as bad as Brexit. The US economy is much stronger, more resilient. First of all, most important thing to remember. We are not a trading economy. One of the reasons that Trump's crazy tariffs and I'm totally opposed to them. One of the reasons they haven't had that much negative effect on the US economy is the American economy is a domestic economy. I mean in the the Brexit case, it was just like insane. Like forty percent of British exports went to the European Union. And they said, Let's make this much more expensive and complicated and put lots of barriers. So The second piece is the Trump administration has been very pro business in a regulatory sense, and I think that the left tends to forget It's a huge boost to businesses. plant and machinery and investments fast. It's a huge boon to business to have licenses happen fast for the SEC to take its foot off the brake as much as it has. Now there are dangers, obviously, things can blow up. But for the most part, if you just look at something like housing, right? Why is it that Texas is able to both build many, many, many more houses, but also build much more green technology? Than New York or California. It's because it has a lower regulatory burden and a faster regulatory process. So all of that is really important. The thing I worry about, the ticking time bomb for the United States is Trump has turned out to be somebody who, like many Republicans before him, talks a good game about the debt and deficit when he's campaigning and actually runs it up massively when in office. We are now running deficits that are in the six, seven percent of And it's gonna go up to eight and nine as the baby boomers retire. We have only run These kinds of deficits during World War Two. I mean, it was really nineteen forty two, forty three, forty four, maybe three years. We have never seen This kind of spending. There was that one short spike during Covid spending. That was like World War Two spending, but briefly. Exactly. But then it that that spending came down very fast. And I worry that it's happening at the very same time that we have been abusing the power of the dollar. At a time when The Chinese are trying to figure out can they make the Remind be more of a reserve currency. The Europeans are asking themselves, Can we find an alternative to the SWIFT payment system so the US can't impose these secondary sanctions on us. time that crypto is and stable coins may become Some kind of a challenge. So You're running these crazy deficits that require the rest of the world to buy enormous amounts of your debt. And yet you're making it so that your currency may not be as secure. And I don't think it's going to be replaced anytime soon, but we don't have that much experience with these things. Is it possible that the dollar is not replaced, but there's some competition that comes from a combination of those things, the Remin B, stablecoin. Things like that. Who knows? It's a very dangerous bet to assume that everybody else is going to fumble and stumble and we will be able to run Deficits of the kind that no superpower has ever run. When you look historically, do you find that great powers tend to decline mostly because of internal or external forces? It's usually a combination in the sense that historically it has been External forces that bankrupt you internally. Look at Britain. Britain was trying to fight two world wars and run a global empire. And the costs of all that eventually just bankruptted the country. If you look before that, and you look at France and the Habsburgs. Almost always it's Been external expansionism. which has ultimately a huge price internally and often involving debt. And things like that. I guess compared to those countries, the US is still relatively small scale when it comes to foreign invasion, colonialism, et cetera. Correct, correct. There's a percentage of GDP in some cases, particularly if you go back to the Habsburgs and the French. In those days the state was a night watchman state. So It wasn't spending money on social security and Medicare. It basically was spending on wars. But What worries me is Neil Ferguson has this line that if a country becomes a great power starts spending more on interest payments on its debt. than on its defense budget. It doesn't stay a great power for long. And he says if you look back in history, there's no exceptions to that rule. Well, the United States has begun to spend more on interest payments on its debt than it has on its defense budget. How can you best explain why the US economy has remained so dominant and dynamic for such a long time. There are other countries that invent things. There are other countries that do very well in some sectors and sometimes export them. But if you look at them as engines of prosperity for their populations and for shareholders and so on, the US is really unparalleled. I think there are three broad factors. One is enormous natural advantages. The United States Geographically. Built to be rich. By which I mean it has the most fertile agricultural land in the world. that agricultural land sits next to these extraordinarily navigable waterways, the Mississippi River, the Saint Lawrence River system. When you look at the coastline of the United States, it has I believe three of the best deep water ports in the world. There's extraordinary forests, there's extraordinary natural resources, oil. We sort of have everything and people sometimes forget this. There was a very very good book. Peter Zahan called the accidental superpower, which makes this point very powerfully. I think that's one bucket. The second is we have broadly speaking the most market friendly system. Of any large economy. Probably Singapore and Switzerland are better, but of any large economy which tends to have a political tendency toward a certain kind of statism and anti market forces. Probably the best. And I think the third is immigration, because what immigration does is it gives you and I mean historic immigration over the last two hundred and fifty years. gives you people who have an insatiable drive for success. I often when talking to businessmen when I make the point about immigration, I I tell them all, you've all been incredibly successful. Now let me ask you. Put up your hands, those of you Who think your children are as driven to succeed as you are. I have literally never had a hand go up. And the reason is children rationally react to the circumstances that they are in, the poor person in Mexico who's crossing the Mexican border on pain of death so that they can come and wash your dishes, that person has drive. And we've had that for two hundred and fifty years. You talk about selection bias, those are people who wanted to be somewhere more than the others around them or found a way to get there. Exactly. And then you and the high end part is the particularly dramatic part. We think that America's lead in the sciences is some kind of natural God given thing. Well it happened If you think about it historically. It's a very unusual recent thing in nineteen thirty three. Germany had won more Nobel Prizes in science than Britain and the United States put together. But what happens after thirty three? Is Europe gets consumed in the conflagration of World War Two? all the smart Europeans, particularly the smart European Jews, who were a absolutely central part of the scientific revolution in Europe. move to the United States. And the state in the US after World War two starts funding science on a massive scale inspired by the Manhattan Project. Those were all completely unusual circumstances, and that's what produced the US dominance. And by the way, you might th notice all three h of those forces are waning. We now have a real competitor in China in the way that we didn't because Europe had been destroyed. We don't have the exodus of Jews and if you can add to it the Indians and the Chinese in the sixties and seventies, that is slowing because of the immigration crackdowns. And finally the government is cutting spending on basic science. So that's a part that in the long term. That worries me a lot. Last question. Tell me something, anything. that you, Farid Zakaria, believed for a long time to be true, but realized that you were wrong, something important that you changed your mind about. probably the central one in terms of my worldview is. I thought that as China liberalized its economy, it would liberalize its politics. And the reason I thought that is It's been true for every country in the world, really. One of the few iron laws of political science is that as countries become Richer not counting oil rich states. Once they get past seven thousand dollars per capita GDP. There almost all democracies. In fact, there's almost no case of democratic regression. Why did that happen? I think because two things. One, China is unusual in that it has a political system that is so It's not a dictatorship in the conventional sense of the word. The communist party is so deeply infiltrated into the entire society. And secondly, human agency the Chinese watched the collapse of the Soviet Union.