Margaret Peters 0:00

So much for coming today, live and in person, which is great. It's great to see you all here today. Very happy to have Mark Blyth the William R Rhodes 57 this is quite a title. I believe I have the longest title, international economics, Acting Director of climate solutions lab, Professor of International and Public Affairs at the Watson school at Brown I'm not even gonna try Watson Institute for the International Public Affairs at Brown University,

we're very excited to have you here. Mark

has written on all sorts of great books on international monetary policy, on all sorts of different topics of it. And today we're going to learn about climate politics, American power and almighty dollar. So thank you very much. Thank you very much. Thank you all for being here today, sincerely, because, of course, the food and the political theory seminar is falafel, so you settled for the salad over the falafel. So I need to up my game, basically, to make this worthwhile for everyone. So let's go for this. All right.

Mark Blythe 1:03

I actually have a book coming out called inflation, a guide for losers and losers. It's coming up with Norton in May. It's about the distributional politics of inflation, amongst other things, and why we get lots of things wrong about the 1970s any sensible person would come and talk the book they've written. Luckily, not being a sensible person, I'm going to talk about the book I haven't written. So essentially, I'm demoing a bunch of ideas that I want to write into the next book with the Trump administration taking power. And what's happened so quickly over the past four weeks, many of the slides that I put together needed to be updated. Put it that way, they're moving at breathtaking speed, and it is quite clear at this point that I think at least what I call the strategy of carbon dominance, that is stranding green assets through policy is actually what is the sort of policy du jour? I didn't have that on my bingo card a few months ago, but that seems to be where it is. So let's get started with this, and we'll see where it goes. Alright, so I try to keep two things in my head at once. So what's in my head? There's a lot of stuff. But the relevant bit here is an old question, can the United States dollar remain the reserve currency, the dominant trade financing vehicle and the global savings asset, especially when everyone increasingly hates the United States? So question number one,

and what people say about it, is, possibly, it's been a great 35 years so far, especially for corporations in the top 10% so why give up on it now? Second one is, will the rest of the world continue to bankroll bad US behavior? Basically by allowing us to run unlimited deficits on both the trade and bad and current account and the yes, because the lack of alternatives and high levels of trust that require for to forge any alternative. Mean that the US dollar becomes the only game in town and stays that way. That's the standard view of the world you get just now as pretty much it that's the the FT (Financial Times) editorial view, if you want to put it that way. All right. Second thing in my head climate politics. And here's what I mean by this, from about 2015 to 2022 it really seemed as if meaningful climate action was actually now possible. You had a whole bunch of policy moves before we had the IRA that nonetheless pushed in that direction. And climate delayism, which was a strategy under that regime to just delay this inevitable move towards green technologies, has been replaced by straight denialism. So we're back to that position, stranded assets, which was something that was central to the debate on this, basically the idea that through policy or through basically climate change itself, certain assets have become disadvantaged, other will become advantage, and that's going to snowball effect. That was a question of time, rather than politics. And even the central banks and the big asset managers got on board with this. Well, that quickly reversed. There was a revolt in France. You remember the yellow jackets, and the yellow jackets had a phrase which was the following: the elites worry about the end of the world, we have to worry about the end of the month. That was then weaponized by the populist rights and became a sort of anti green rallying cry, which is proven to be surprisingly effective. Denialism is back in the words of the President, Bigly, it

was a joke. There will be jokes throughout, you know, because it's so depressing,

and nobody talks about stranded assets anymore, which is kind of interesting. And also, all the central banks bailed out of the net zero Alliance, and the asset managers bailed out as well. So very quickly that positive trajectory has become a not trajectory, right? So what's the link between the US dollar and what I call an emergent carbon cleavage in politics? And there's two things to sort of bring this up. The first one is the US dollar regime as it stands, which has basically been the sort of monetary engine of American growth and sort of global hegemony for the past 35 years is in the process of being actively disowned by the United States. And the electoral sets of the success of what I call the carbon coalition in the US, which is the forces behind the Republicans at the moment, will effectively Doom it further. So we are actually.

Doing in the business model that we've had for the past 30 years. I'm going to try and make that case. This will have global consequences for decarbonization, possibly not bad ones over the long term. We'll see how it goes.

So the first one is, should we worry about the almighty dollar? Well, let's have a look. Here' s your standard charts, share of foreign exchange reserves over 30 years, pretty stable. It's the blue line at the top. What's the other ones that we've got there? That's a denomination of trade blue, basically dollars, denominates, pretty much everything. And then international debt securities. Everybody likes holding dollars. It's the global savings asset. Nothing much changes. So whenever there's a shock to the system, no matter how small it is. If you read the financial press, the usual suspects get rounded up whenever we talk about this. So the first one is, well, what about the euro and the renminbi as alternatives. And that one immediately falls into a problem we'll unpack, which is, these are export led growth models. And for that to happen, you can't really run big deficits, because it's all about price competitiveness. So you don't want to actually have increasing wages and prices, because then your BMW gets too expensive. RMB invoicing in Asia, well, it's likely to happen, but it's not really threatening to the global order, the one that gets a lot of attention over six months ago and 18 months ago, this BRICS currency, that's going to happen with the SDRs and the Saudis probably not going to happen and not threatening. So that's not going to change it. Synthetic BRICS crypto payments, possible, but relies on a very high degree of trust, and also the Americans acquiescent in the space that they ultimately control. So probably nothing much is going to happen. So why do I think things are going to shift? Let's think about what the global role of the US dollar actually does over time. So starts unintentionally, basically because you've got the Triffin problem in the heart of Bretton Woods, by 1959 there are more dollars being produced than are backed by gold. This is the plot of the movie gold finger. You remember thdat one with James Bond? Right? Irradiate the gold supply destroy the United States currency, right? Go back to that period. By the time that you get to sort of the end of the Bretton Woods period, you've got 1.2 US Dollars outside for every $1 has been produced. And that's continued for the past four years in the Euro markets. Let's see, despite Bretton Woods falling, US denominated trade actually exploded, rather than actually go back to alternative currencies, as the world globalized new industrial country the next, particularly in East Asia, stressed exports with the US and Anglos doing the imports. Those exporters need a savings asset for all the dollars that they're getting in earnings. You've got to turn it into something. The only liquid enough thing, and cash like thing, is the US dollar and US dollar assets. We'll go into this in a little bit more detail in the next slide, this basically ignore enables the US to ignore the current account constraint. It effectively doesn't have one, and that juices demand for exports on the other side of the world. And we've been playing rinse and repeat on that system for the past 30 years.

The people who put this best were Klein and Pettis, and this book has actually become, if you will, the touchstone for the sort of thinking parts of the Republican international monetary regime. They really have nationalized this argument, in a sense. So what do you mean? The US doesn't have a current account constraint. Everybody is a current constraint, right? No. What's the classic problem that we've had under the gold standard? It's the classic problem that you have in the current regime, you have too many exporters. Everybody wants to be an exporter rather than an importer, and to be an import or a scale, you need to have a reserve asset. So there's only one country that can do this, the Brits get away with it to a certain extent. But it's a bit of a joke when you consider the City of London is actually an intermediation point for dollars offshore, rather than anything to do with Sterling. It's really a globalized world of US dollars, so exporters to maintain their competitiveness have to suppress consumption in the exchange rate to earn those US dollars. So that means, when they earn it, ultimately, when they bring all those dollars home, they have an asset liability mismatch on their balance sheet. They don't want those to turn into the domestic currency and go into the domestic market, because then all wages and prices will start to rise, you'll lose your competitiveness and exports. So generally speaking, your central bank will sterilize it, or your commercial banks will turn it into assets. As you are in 2006 that was German banks buying a mortgages and all this sort of stuff is sort of the external side of this balance. Ultimately, you're buying US dollar assets. You don't have a US central bank, you've got lots of liabilities. What's the safest thing you can do? You buy another T bill, and you just rinse and repeat that process. So essentially, you're selling stuff. You get dollars. You don't want the dollars. You turn the dollars into local currency in a way that suppresses consumption. You then take those dollars, turn them into a T bill that's effectively giving us the money back. So we give you a digital certificate bearing 2% and there's this money letting go around, and that brilliant, because what that means is we've got you by the proverbials, because ultimately your export models are completely dependent on us continuing to do this. Now, the upside of this has been the following. The problem with too many exporters means.

That surplus countries have to back into a US dollar to Clark like savings asset, neither the EU or China can provide this, because both are surplus countries and need to suppress consumption more US Dollars are made outside, the inside, the inside, outside and inside the US that solves the global liquidity problem and gives the Fed incredible power as the de facto central bank from the world. And the dollar continues to denominate trading crucial commodities, which means that de facto, the United States controls the market and oil, gas, wheat, corn, soy, etc, via US dollar access. It's good to be the king. Now, what does this mean? Means we get endless stuff, TVs, cars, drugs, phones, and we pay for them in dollars that come back to us when they return to us as US dollar financial assets. Rather than the trade deficit being a sign of weakness, it's a sign of huge strength. The weakness lies with the exporters who are importing demand and banking a credit note that we can print it will and the largest and fastest growing in the employer employers in the US are

who's the largest private sector employer in the US?

One company, Walmart, Walmart, correct, 2.4 million. What's the fastest growing by volume civilian employer?

Amazon logistics. Bang on, right. There and there. Now. Why might that be something to be concerned about? Well, what it means is you don't make anything anymore. You are hollowing out your capacity to basically self provision, despite having the world's largest economy. That puts you in a strategically vulnerable position, which was exposed during COVID but also means that the intermediations and linkages between vital sectors are desperately dependent upon the the import of components, etc, that come from second countries. You are extraordinarily vulnerable in this instance. It also means that the sectors that basically don't get hollowed out are not really competitive. So if you think, for example, about Trump's demand that we should buy US cars. Have you been to Italy? If you drove an f1 50 through a small Italian town, you would demolish it,

right? We had the same arguments with General Electric COVID back in the 1980s about, you know, you need to buy General Electric fridges, and you're like, my apartment in Tokyo is smaller than your fridge. This clearly isn't going to work, right? So anyway, the sectors that remain are not globally competitive, and actually de facto rely upon home market protections and non tariff barriers, services sectors, because you get that kind of split whereby 80% are low paid, 20% are high paid. These plateau wage stagnation sets in, because of this, unemployment rises in the import competing sectors, they often don't recover. That's the Midwest story. And you get massive real estate disruption, a real asset disruption is finance rises in its wake, which has been the financialization of the economy. Now here's what I think. This gets interesting both parties, both political parties in the US see the writing on the wall for this. This is not just the Republicans or Democrats. So for the Democrats, the solution was Hamiltonian. And for the Republicans, the solution was a guy called Henry Carey. So let me explain this.

Trump channels, a guy called Henry Carey. He was the main guy who basically said, stick up tariffs, protect your industries. Hamilton was right. This is the way that Hamilton's right. The other the other guys right, who did the that we need infinite industry protection, etc. I was Hamilton, the reporter manufacturer. I got that backwards. Anyway, the US has the highest tariffs in the world. Who hold the 19th century in protecting industry from competition, the tariff was the main Republican policy for the working classes. Sounds hauntingly familiar, but charm this is actually wrong when he gets back to front. But anyway, Biden channels the other side of this one, because if you think about the IRA, what is the IRA? It didn't take down any of the tariffs. Actually added new tariffs to it. It's infant industry protection for green industrialization. So there are basically two sides of the same coin in terms of, if we keep going down this road, we hollow out everything. We become Australia without the beaches. And that's kind of good, so long as you've got a few bits of things to sell to other people. But ultimately we would be the first people that would leave the technological frontier apart from a tech sector which is dubious itself, and then ultimately become a large agricultural exporter and a large commodity exporter. So who wants to do that?

So if you go down that road to get there, to stop this, you have to wean yourself off those cheap imports, because it's great, because you're getting them basically for free. It's not clear that if you do put up the tariffs, you got a problem, because reindustrialization is really hard. The problem reindustrialization is the whole world is de industrializing. So if you're trying to actually re industrialized in that context is hard. The second one is a kind of information loss problem. There's a great book that came out last year by a guy called Dan Davies. It's called the Unaccountability Machine, I totally recommend it. And what he points out is that when governments in particular lose functions, whether they give them to McKinsey or whether they get private as whatever, then you put an informational boundary between you and that activity, because you lose the information flows. They go there. You don't control there anymore. So you basically get sort of over billed and so on and so forth. Is why the pfis and these things fall apart. But more importantly, your capacity to bring it back in is extraordinarily limited, because all the people that knew how to do this are gone. So there's a huge skills and information problem. So you stick up tariffs industry comes back. It's not quite as simple as that. You'd also have to do something that the left really wanted to do for a long time, which is a financial transactions tax to restrict holders of US assets. And that's a tough one to sell on Wall Street. So you know, there's a lot of bumps in the road for this one, it would effectively kill your current consumption based growth model, unless you turn inward focus on tariffs in the home market and double down on what I call carbon led growth. This is where the link to the carbon stuff comes in, right? This is why Scott Besant has that phrase of 3% and 3 million barrels a day. It's basically about lowering the cost of electricity, right across the board, lowering the levelized cost of electricity. It's about all the sort of the consumption goods that are based upon this. And it's also about effectively, indirectly subsidizing what is the business model in the Republican states farms, fuel, fertilizer, food. They're the big carbon users, as well as the people who make their money from this, but to do that, you need to be systematic climate change deniers, right? Because you're protecting the assets that are going to go up in flames. And if you do this over time, it kills us dollar demand. Why? Because what happens if the rest of the world doesn't play this? What happens if the rest of the world moves off oil and you've doubled down as the big carbon producer in your own home market. Ooh. Let's think this one through and see where it goes, shall we? So there's a guy called Charlie Kindleberger. Many of you have done IPE will have come across his famous work on the Great Depression. So here's a little sort of like summary point in the view of Kindleberger. See if this sums up a bit

funny. Basically, Kindleberger was the big sticking point in 1920s was Sterling assets and the value of sterling. They tried to go back in the gold standard. It blew up. It ended badly. It wasn't very good right Now, that didn't work, and they ended up with a huge amount of deflation and unemployment that spread started to be in the Great Depression. Sterling realizes this hegemonic role is gone. USA doesn't step into the breaks with the US dollar the UK reduces to Empire financing. And then in the post war era, to US dollar intermediation versus the euro markets, the US dollars, the parallel. Just now, as you think about if you have a post carbon world emerging in the rest of the world, and you have US dollar assets that are heavily tied to carbon, you've got a lot of risk in that portfolio. How would it manifest itself out? Well, the US decides that hollowing out the economy has to stop at the cost of unlimited imports. Then you can use variously the IRA, which is green industrialization, or straight up tariffs, to build on a carbon basis, to re-industrialize. Rest of the World moves post carbon. Your assets become liabilities at the end of the day, because you can only hold this game on even if you're 20% the world economy and 7% of population and three times as rich as everybody else. It's kind of hard to keep this one going. It's called carbon autarky, and if everybody else moves in the other direction, eventually, there's going to be a hell of a price to pay. But think about the short term payoff in a carbon short world the ROI over two electoral cycles would be absolutely enormous. So you can see where the temptation comes from. So having having to having introduced it, let's have a think a bit harder about carbon politics. So let's start with two basic facts on this climate change doesn't care what you think it's arguing with physics. If you want to preserve modern societies, you have to get off carbon, number one. Number two, modern society is a function of carbon use, unless you de industrialize. So the right panel there is an R square of 997, between burning carbon and growth, right? The key word is carbon is not the burning. If you could swap it out for something else, you could still have growth without it. And we know this because if you look at the right panel, what he's got, the territorial decoupling of emissions. So some countries have managed to do this, but you know the way, the main way they've done this, it's mainly through de industrialization. And the problem with de-industrialization is the following. It's a one shot game with one time gains. Once you've done it, you don't get to do it again. Economic growth is the main way that democracy deals with distributional conflict. Deindustrialized economies grow slower, which increases the distributional trade offs. Countries can avoid slower growth by essentially financializing the crap out of their economies and giving everyone a credit card, but eventually that produces fragilities of the type that we definitely know are there polarization and inequality increases on the back of this, and decarbonization itself becomes more politicized, as does public investment, and that makes decarbonization as a whole harder. So just on its own right there, that's kind of the sticking point that we immediately face. Now, what does this have to do with carbon politics? Top panel, you get this anywhere on the web, right? States putting out the most CO two, and there's your electoral map, right? It's not too much of any I've got, I've actually got a research assistant working on me on a state do a state basis. I've been doing this for the past year, basically trying to map the carbon intensities and carbon dependencies for Republican states. And it's pretty clear that, like these are business models that by a state level that run off of carbon. So if you basically start in Alaska, North Dakota, South Dakota, right? So that's oil and fracking, right? Kansas, Oklahoma, right. So then you've got farms are dependent upon chemically derived fertilizer, etc, right? Also extractions. Then you go to East Texas, right? Run through East Texas, go to the pan handle, which is basically all your plastics and then go up to West Virginia. They're the reddest of red states, and that's what their business model is. Now, when you say decarbonization, when you say green New Deal, what you're basically saying is your assets go to zero.

That's ultimately what that is. So the notion that we can manage this transition, it's going to make those states rather nervous. Because the last big transition we managed was the Midwest, and we managed that one into the grave. And nobody wants to be the next Midwest. And having spoken to Attorney Generals from these states and other people, investors, conferences on this stuff, you find anyone from these states, and they were just three years ago, green New Deal? Over my dead body. We're not doing this. We're already going again to go against ESG. We're going to start doing the campaign. And over the past couple of years, is exactly what we've seen coming out. Go back and think about US politics at the time, when it was meant to be Tweedledum and Tweedledee. What was the one thing that they had in common? Everybody was in the same growth model. There was no difference between the two. 1971, one in five jobs are in the auto sector. Imagine that one in five jobs are in the auto sector and one in three are in input industries towards this. Everybody's part of the same, if you will, growth model. Oil shocks in the 70s and shift to services and outsourcing in the 80s and the 90s concentrates carbon assets in specific states. Those states are now the part of the core of the carbon coalition, as I said, Alaska, North Dakota, South Dakota, Kansas, etc, etc. Farm fuels, fertilizer, feedstock. Midwest, china shop was the policy warning about transitions. Essentially, you can't manage this. You're not going to do it. So when AOC stands up and says, we can take you and turn you into people who will rewild things. It's got zero credibility in these communities whatsoever. So there's a realization that their assets are the ones that are about to be stranded. And the more serious the Democrats got about this over the past decade, the more armed up they got, and the more ready they got to fight this.

There's been some academic literature on this great piece, and I own this couple years ago, the rise of existential politics, carbon forcing assets versus carbon vulnerable assets, is the way that they put it. But essentially what it means is it's zero sum my survival and my assets are zero sum against yours. Why is this significant? Because it means that everything that we've relied upon to square distributional conflict in the West, growth doesn't matter. The growth rate doesn't matter. If I make your assets redundant, you lose it, and then you lose basically 20 to 30% your state level GDP, and you're going to rely on federal transfers to smooth this one out. Nobody's believing that one. So a client climate forcing holders dominate climate vulnerable ones, they become the stranded assets, and vice versa. And this got me thinking about stranded assets, not as something that happens by time or because of climate change. But can you do this by policy? Can this actually be weaponized,

pardon me, or perhaps by building a new carbon coalition in a highly polarized world. You no longer need an encompassing coalition because you don't share the same growth model, you just need a minimum win coalition that takes in your people and just enough to win and polarize, demobilize, keep people out, lower the number of people who are voting, get the contestation level down, and you can effectively win. So in summary of this, the GOP are climate change denialists, not because they're stupid people, but because this is the business models of the states that they've gotten, they don't want to be the next Midwest. No need to build an encompassing coalition. Just minimum winning coalition from carbon heavy states, doubling down on carbon while deregulating everything in sight will produce a lot of growth, at least over a five to 10 year period that reinforces the coalition and proves that this is the right policy. And to make that happen, you need to do more than just anihilism. You need to strand green assets. So this is what I call the politics of carbon dominance. Here's what we thought was happening. There was an assumption that regulation will strand carbon assets over time. So central banks will weight carbon assets different against green assets. Next time you need a bailout, you get a better interest rate on this and so on and so forth. That was the idea was going to happen, the assumption that the state will take on a greater role in financing decarbonization, alongside finance. Private sector finance works on a profit. Two thirds of the stuff you need to do for climate change, there's no profit. Case QED, the state's going to step up.

Do this, there's an assumption that climate change will stand carbon assets. Great example of this Florida. You used to have 16 insurance companies in Florida. Now you've got four state farms about to pull out. That puts an enormous cost on the state fund. It's totally underfunded, and you know, you're going to be repeatedly hit by climate shocks. So you can't insure it. If you can't insure it, you can't get a mortgage because you need an insurance for mortgage. You can't get mortgage insurance, then your house building goes down. If you've already got a house that isn't climate vulnerable in one of those states, it goes through the roof. There's an upside. There's always an upside. But for everybody else, this is a really nasty shock. Rationally, you would think that states will go, Okay, we need to do something about this. We need to do, get off carbon, because that's the final that's the real problem here. And the assumption behind all this is that carbon asset holders are rational and will sell out at a good price for a diversified portfolio, given the risks that they face. Right? That's the way that we thought about it. And it was an assumption that carbon led grief growth models can be retrofitted by policy and made green, right? And we're happy to talk about Texas, 40% share of all renewables, etc. That's all in the chopping block. I'm convinced by this, right? So anyway, let's continue what's actually happening. Well, it turns out you can, through policy, make this a weapon. And how do you do this? Well, you can turn it against decarbonization, because that involves no risk or sacrifice in the short term. Just keep doing what you're doing. In fact, get yourself a bigger SUV. I mean, like, why not? Right? It's totally fine. Just keep going. I mean, I fly internationally, don't you? Let's have champagne for breakfast, right? There's no sacrifice involved, because nobody needs to take a hit insurance. Insurance is optional if you unless you buy most of things, if you're private equity, you're not worried about insurance on your stuff, right? If you are a billionaire financer or a large fund, you're the one taking the risk. You are literally the insurance fund. So if you're heavy carbon, and you know that the world's going to be carbon locked carbon, short, for the next decade pile in you're going to make a fortune. Why would you not do it carbon? Asset holders are not holding it for the biggest payoff. This is what I call the Midwest lesson, nobody wants to be the next Detroit. Thanks very much. And GOP states do not trust the Dems in part because of what happened in the Midwest, anything other than cost. They're doing this at the cost of their assets. And also the Democrats made it quite clear, this is exactly what they're going to do. Why was this? The IRA. We'll get to that in a minute. In a minute. The run up to this, I've been on this couple of I stumbled upon 18 months ago a list of law firms that are all ESG specialists. So every single bill proposal, etc, that's anti carbon this. It was in my inbox in the morning. It was fantastic. So I collected it all, and I just gave it to a research assistant and said, can you sort this out for me? It's amazing what's been going on. This is systematic. Involves ALEC, the people who write legislation for states, all the usual suspects, all the firms that were involved in tobacco denial are the same firms that are being hired to do this stuff. Right? It's incredible. So the first line of the assault started in 22, southern attorney generals banned state pensions from ESG investment Alec funded activists and think tax systematic campaign to take down ESG type proposals, Florida, Oklahoma, Alabama, diverse from Blackrock over ESG. Vanguard leaves the net zero asset managers. BlackRock is being sued by Texas for green investment. Texas taxes renewables. This is my favorite one. 40% of all renewables are in Texas, right? Got that one? Here's the great bit. May last year, Texas Legislature passed two bills, and they're doing more stuff, but these are my favorites from last year. The first one is, next time you want to open up a wind farm or a solar farm, you have to ask everyone within a 25 mile radius what they think of it.

That'll slow you down, right? And the second one is even better. It's pure evil genius. I'm literally going Dr. evil would love this one, right? Which is, it's a rehypothecation tax. So here's your levelized cost of electricity. Green stuff is getting cheaper than carbon, right? So they've got an advantage. There's a question of profitability, but just hold that constant, right? So that goes down, oh, mountain, Texas. Now we've got a tax whereby you see that difference between those two levels. We're going to tax that away and give it to the carbon facility so that everybody has the same cost of electricity because that benefits consumers. You've just killed the profit model of renewables. You know exactly what you're doing.

Speaker 1 29:28

Trump hates windmills. I mean, you know, let's continue. So does, sort of weirdly the head of the ASD, Alice Gradle, or whatever her name is, Vidal, I think it is. And so does Sarah vaginet. So weird thing about Germans on the left and the right, they hate windmills. I don't understand what this is. Maybe it's the Dutch thing. Maybe because

Mark Blythe 29:48

the historically, the rivalry in football has always been, sorry, I'm going too far.

So why are they doing this again? It's the defense of these carbon heavy business models. The transition is the end of.

Your assets, so they will resist it. This is the existential side of the politics. So round two of this is just beginning, and what does it look like now? Well, carbon majors and carbon states are perfectly happy to pick up Biden's new licenses while mass funding delialism for the next round through local and national GOP programs and think tax. APIX, which is the oil lobby in the United States, is focused on reversing climate investment as actively writing policy across the country through Alec to make that happen. The new SEC is likely to outlaw ESG, so that one's just gone up, because it's part of the woke thing, as it were, right out of Paris, all the usual stuff. Interesting now, defunding NASA and NOAA AP are explicit policy goals. That's your that's your carbon frontier for state investment, right? You're going after these institutions. The key nominees are, I'm saying, tied to the Climate Lobby. That doesn't even do it justice. The key nominees are the Climate Lobby. That's pretty much what's happening. The Climate Lobby is cooperating with the GOP on state legislative bills that dovetail with national policies. So the notion that, oh, it doesn't matter if we do the federal level, because we still got X. No, X doesn't get to do that either. California, Massachusetts, might be a couple of holdouts, but the rest of it is very much in play. And defunding the IRA by civil service reform, which is self Schedule F and D and doji to avoid breaches of contract. So this is how you get out the IRA, where they end up in court, right? So the Republicans have got formal in this, after the failure, after the period of reconstruction, after the Civil War, lots of taxes were

meant to be raised in the south, and those taxes were then meant to be redistributed, and that was going to be the sort of the redress mechanism for reconstruction, and it never happened. Now, part of it had to do with national politics and all the weird presidencies that happened around that time, but a large part of it was the south said, "Let's defund the state". So if you don't have a tax collector, you can't collect any taxes. So if we just fire everybody who's a civil servant and shut down the state, which is why institutional density in the south is so much less than it is in other parts of the country, you can't do anything. That Schedule F, that's project 2025 that's exactly what they're doing. They know exactly what they're doing with this stuff. Doji is the terrorism version of Schedule F, so if you're a 55 year old senior administrator at the EPA, you've got a defined benefit pension at 80% your last salary, you paid off your mortgage, you live in Bethesda, and you have to deal with these lunatics. You're out now, here's a good example of this, the office in between treasury and Ira and the IRA that pays out the tax credits that are at the bottom, the IRA, three people. Three senior civil servants who all look like me. It's not that easy to shut that down. I mean, it's incredibly easy to shut that down. So Hyundai doesn't have to, like, not get the 100 and 50 billion or whatever it is. It's just that it's there. But we just can't make it happen because we've made chaos in the state. This is pretty much what they're doing by design. So anyway, this will be the undoing of IRA support, particularly in the Republican states. Now to go back to the earlier point I mentioned, this is because the Democrats telegraphed that this is exactly what they were going to do. This is when it became the biggest own goal you could possibly imagine. So why? Because the IRA design principles are designed to basically say the carbon asset holders, you're screwed. Why

break the carbon coalition? Look where all the money is going. It's going into Republican states. It's going into highly targeted parts of Republican states. You've got 70% of the money is all going into Republican states rather than the blue states. And it's not just random.

Here we go. Of the top 10 largest announced clean energy manufacturing investments following the RA nine fellow states that voted GOP are Democrat by less than 1% margin in 2020

prior to 2025 the GOP had not won the presidential popular vote since 2004 and stayed in power through gerrymandering districts and base mobilization in carbon states. And those folks are getting older and they're dying. You're facing a structural problem. How do you go over the structural problem? Well, if you're on the Democratic side, it's anopportunity, because if I can flip North Carolina with green investment, if I can get Arizona in play, these people never get elected again. So it becomes doubly existential. It's not just the assets, it's your ability to protect those assets in national politics, because everything's decided by a 1 to 2% margin. If I can make that a 3% home advantage, you don't get to play ball anymore. Closing off that possibility is why you have a carbon dominance strategy, which is why the IRA is going to be defunded despite non carbon interests in GOP states. It's simply not worth the rest of my habit. And I follow the Texas legislators, is my Bellwether on this. They're just ramping up salami. That's one little bill at a time, disadvantage in green investment and re advantage in carbon investment. Now let's bring this out to the rest of the world and try and bring some bring us to a bit of a close. So what if US tarrifs force rebalancing? Go back to the original thing about the exporters and the importers. Don't want to hallow out

All your own economy. You put up the tariffs, right? You do this sort of stuff. What does that mean for the rest of the world? And my argument is not a lot, because we massively overestimate the importance of United States, and it's just not that important. Dominant theory of collective action and climate politics is that without leadership, the US leadership, the transition will fail. That's wrong. The US left Kyoto and climate change cooperation accelerated precisely because the US wasn't at the table. And exactly the same thing through happen in Paris as well. The dominant idea is that US has to lead on this one. Actually, even if Trump does his worst and doubles down on carbon, US emissions are still falling. And that's actually not where the action is. The action is in China, the action is in Indonesia. The action is in India. That's where all the stuff is finally going to be played out. So you can deny, you can delay, you can protect your local business model. But is it really going to matter if the rest of the world continues to do this? So what happens if the US exits over this domestic carbon asset struggle and the rest of the world continues. Well, number one, climate change is already a crisis in China. That's basically a map of summer temperatures, where it's red, that's wet bulb temperatures, 35 degrees, 90% humidity, plus, if you're not in air conditioning for over three hours, you start to lose the ability to cool your body. That's serious. The solution to that is not to add more AC. The solution to that is to lower the temperature and stop putting stuff out into the atmosphere. China knows this. They're heavily dependent upon coal. We know this. They're still opening coal mines. They are actually, however, the only place that opens up coal mines to make polysilicon so that they can shut down the coal mine once they build the polysilicon. We don't really do that sort of stuff. G band Belt and Road coal investment still driving growth, but the volume of clean tech that's been installed is absolutely astonishing. Because of that, they dominate Global Green Tech supply chains, and they install more solar each year than the rest of the world combined. So nobody else cares. Double down on carbon, you're losing your relevance. Oh, and by the way, the CCP, the Chinese Communist Party, has no climate change deniers. That's not a badge of office. You don't get in if you're one of those. The EU used to be serious about this because it thought it could have its own green tech industry. And the way it thought about this is this panel on the right that shows where you get your rare earths from that you need for clean tech. But then it shows the refining capacity, China, China, China, China, China. And people massively underestimate how difficult mining is finding. It is tough. Five years to open it, five years to make it operational, 10 years and billions of dollars to get it online, and you're in Europe. What everyone says you want to put a mine here, but I'm having pizza. So that's never gonna happen. You have like NIMBY problems on crack. So if that's the case, what are you gonna do? Well, you can fail on your own terms. The Germans tried to do this. You wanted everyone to have a heat pump and a ton at a total. Then, of course, you're speaking to the Germans again. You can always rediscover balanced budgets forever and save yourself to death, with the result that you get right wing populism. The next generation EU, 800 billion all the stuff the pandemic. 400 million of it hasn't been spent. The rest of it was largely wasted. Italy did it on a home renovation scheme that actually made houses less efficient rather than more efficient. So wait, go there the ECB is shit scared of anything that interferes with market neutrality, which means anything to do with green bonds is just off the table. But look at what the EU is getting done to it now by our fearless leader. They are right in the crosshairs. They understand the American security blankets gone. They understand the fact that they're not going to get preferential trade access, that their growth models that are based on exports running a surplus against the world are over. So what you're going to do? Well, you can't remain dependent on exports to China indefinitely in the US. Even in the short term, you're going to have to rebalance internally. How do you do this? Defense expenditures, military Keynesian is going to be a big one of that. But so is investing in climate tech, and that's also going to mean getting closer to China. Why? Because you can't get close to the EU the Americans for the next 10 years, because they tariff the crap out of you and think you're a retirement home, so you're going to have to go elsewhere. So the EU is beginning. You saw there's a there's a memorandum of cooperation between the EU and China, signed in 2019 shelved, has actually been brought out last week, dusted off and re established, so they're already making the first moves on this. Why is this? Post 2025, aggressive US policy in China and tariffs on Europe pushes the EU together with China on green investments globally in the long term. Why would I say that Jonas Nan's book on this collaborative advantage, basically makes the following point, countries with leading edge export sectors can adapt to green tech easier. That basically is the Europeans and the German auto complex, plus China, essentially. The size of the domestic carbon coalition is much smaller. You don't have states like Oklahoma. You don't have.

States like Alaska, anywhere in Europe, they're all import dependent. Even India is actually a great case in this one, right? So although the whole thing's run by a Danny in a Barney and all the other people named with an A who are billionaire industrialists, right? They actually quite serious about green tech as well. They own all the coal mines. But they also want to do this stuff as well. What you also get in India is the proliferation of micro grids, because these Chinese panels have become so cheap that essentially villages are just setting them up and then networking with the next village themselves. So you're getting this whole proliferation. And India is super important here. India has always been oil imports. 1991 the place nearly went bankrupt running a foreign exchange. The whole thing, that was the whole move to reform and open them up the economy. It's oil. They don't have any. They consume loads of it. They have every incentive to move in a green direction. So you've got basically the growth node of the world economy, which is primarily at this point, East and South Asia. It's not Western Europe, it's not the United States. And they are going in that direction, and nothing is going to stop it. So what is the US sit in this well, we're pretty good at innovation, but we stop at IPOs when we were still able to do those and exits, and that's all about to be crushed by policy. So if you assume the US gets two electoral cycles that are carbon dominant, the US risks becoming dependent on green tech made elsewhere once the party's over, which is really bad news. Or alternatively, we literally just become this, like Island carbon usage while everybody else has moved on. And why is it a problem? Because that's a long term dollar killer. Now you want to wean yourself off the dollar dependency. You don't want to have a catastrophic at the end of the week. If you do this strategy, there's no soft landing. You're accelerating towards the redundancy of the dollar. What's the short term take home, starting in 2025, years, doubles down on carbon dominance and radical new regulation. Short term ROI on domestic investment and carbon goes through the roof. I'm totally long carbon. I owe nothing but oil companies for the next three years. And that's not true, but you could, and you make a lot of money. Short Term green tech valuations crash because, like, why would you invest in this? Because you've been to get advantage by policy. The EU

side with China and the green transition is shifts to decarbonization Tech with the rest of the world US dollars already hollowing out us productive capacity, such that both sides are calling for reshoring.Carbon dominance will give you one version of that, and that means that the US wins short term, but no longer wants to play or can't play, hedge fund to the rest of the world. Longer town, take home on this one in a carbon shop world, the US doubles down on carbon assets. Roi increases. Problem, new supply. You're not the only people who can pump oil. And there's a huge amount of oil about to come on the market. The Guyana field is enormous. Indonesia has got two giant gas fields, and everybody's going to use this at the same time. The only way you can keep this working in the US is if you do exactly what they've already done with Canada. You're a main importer of Canadian oil, but you still put a 10% tariff on it. Why? Because you're protecting your domestic producers. You're isolating yourself from the oil market for the rest of the world. As

far as the rest of all concerned, we love gas LNG, but it's a transition fuel. It's not actually meant to be forever. A really good example of this is the Galveston docks, where you bulk up on the LNG and send it to Europe. The contracts that the Americans originally gave to the Europeans were for docks that had a life of 25 years, the Europeans agreed only to have 15 years on the lease for the docks.

Different last March going on in terms of time frames, China, next year will install twice the rest of world solar capacity in one time, 100 more wind. So that's just a done deal already. If interest rates remain high, EU states will start to own their own power infrastructure, because there's no alternative to doing this. Auto mode of gas demand could peak by 2031 in which case, why are you pumping oil? And what happens if 10 years out from now, oil demand collapses, re industrialization fails, and the US is basically a carbon commodity producer in a post carbon world. Have you heard of Argentina?

No, it's a bold prediction, and I'm probably pushing it a bit far, but the way I like to work is push it far, come back to a sensible point. So that's what I'm thinking about. That's what I think I want to write a book about. Super interested in hearing what you gotta say about it. Thank you.

Margaret Peters 44:21

All right. Well, thank you so much for the fascinating presentation. I learned a lot that was really depressing.

And now I'm going to start off with one question, and then I bet, like everybody's question so to that. So my first question is, in

an alternative world where Kamala Harris had won, is there a way to move the US back to manufacturing and to green tech without killing dollar dominance or

Unknown Speaker 44:53

just possibly even doing it right?

Mark Blythe 44:54

Yes, but this is where the micro politics of leftism in America and the green transition get really complex and interesting, right? So if you really wanted to do this, you're never going to compete Chinese solar. Like, forget it. Like, look, in Germany, they're using them as fence posts. They're so cheap, right? So the idea that the United States would manufacture this stuff is just ludicrous, and yet that's kind of the stuff that you're trying to do, right? Similarly, with EVs. Has anybody been in a BYD? I want one like, I mean, these things are amazing, right? Because they're built native to be electric cars. Have you been in a Volkswagen ID four? It's like someone took a 1974 Ddub bus and put a large lead weight in the middle of it and gave you an underpowered engine. It's crap, right? So again, our auto manufacturers are terrible, right? Our big three. Add them together, the half the market cap of Toyota, they essentially make light trucks, which are an average of 5000, 6000 pounds, like it was just we're garbage at this stuff. What we're really good at is breakthrough technologies. Now what we should be doing and what wouldn't be on the Democratic agenda, because the only acceptable forms of green investment are wind and solar. Geothermal. It's a huge amount you can do. 50% the energy comes from there. 50% comes from there. We don't tap any of it. There's really two companies, one in Palo Alto, one in Boston, Massachusetts, that do this. Elon Musk, boring company has nothing to do with trains. It's really about deep, boring technology at pressure, so that you can chuck a turbine down in a coal mine, plus two kilometers get super heated steam. You're already connected to the grid. This stuff isn't that hard to do if you put some muscle behind it, right? The other one, small nuclear reactors. We should have a Marshall Plan for small nukes, and if we had that would be 40% of the way solving the industrial capacity problem. But the Democrats are unable to do this. Traditionally, you would think that Republicans would be the people who'd be all over this, but they decided they hate the state too much. So the ability to actually get those investments and those leading edge technologies through has just collapsed because you're just hacking away the state. So in the alternate universe, I'm not sure the Democrats could have got us there, because of this ideological objections. Is how I think about it.

Margaret Peters 47:09

All right, I'll take a list, and so I'm gonna start because I saw Bruce's hand first. So we'll go around this. So I feel like what you have described is more of a story of the fall of the United States, or, like the diminishing of the United States, but that's about the dollar and the reason I'm going there is because I'm thinking about a whole path dependency, right? So say, okay,

Mark Blythe 47:36

US is all in an oil, but we are all in the US dollar, right? The RMB or the SDRs don't provide the same amount of liquidity and benchmarks, right, right? So I'm trading in US dollars. No matter where I am, I take a bunch of US dollars and show up in the DRC, they'll take it, yeah, RMB, not necessarily. So like this, I feel like what you're describing is a situation where the US dollar is going to be significantly stronger than what the US will be as a state. So I don't think it's going to be an Argentinian problem. It's probably going to be a unique problem of sorts, historically, like, essentially, the US dollar now occupies the weird position of gold, which is it's only available because we fix it and we like to transact it. It's more useful than gold.

I think that everything you say is right. I put two things in there that complicate the picture. Do you think the Fed will still be independent in four years?

Because it's very important, right? If it's not, then the ability to do swap lines act as a global lender of last resort and actually surprise sufficient committed liquidity and back up the Euro dollar market, which is 1.2x the domestic dollar supply, then that comes into question that will unravel double supremacy faster than anything. Now, will there be costs of adjustment in the fact that you don't have the debt of liquidity in other currencies? Yes, but you know what, when we had 1977 and we came off gold, and we finally went to a determined flow financial markets went how many forms of hedging would you like? How many forward swaps, options, future swaps, in puts, calls? Would you like? Because we can manufacture them all, and that's how we do global finance. I actually think if this happened in some way, shape or form, what you would get is a brick synthetic crypto. So you basically pool the debt of the ones that have got pretty good credit ratings. You dump it into a kind of, like virtual space, like the Euro markets. You offshore it. You put it in Singapore, and we'll call it an offshore space. You give it a kind of, let's say, bis type structure, or something like this, some kind of legal structure. And then you basically just issue some kind of crypto that's tied to the like, a massive sort of, like an intra country stable coin. And if you simply use that as your unit of accounting, unit of exchange, rather than savings asset, we use a domestic currency as a savings asset. You could imagine that would be wanting to do it. Now, the costs of doing this are huge, right? The 1

Technical things is huge. But if the United States literally, have we done and said, Oh yeah, the Fed that shits done, I think things would move really, really fast.

So right now, this is predicated on, like, two things, right? A, the Fed stops being independent. And two, they realize, like, I mean, this is what we talked about. Like, you know, if you cut out University endowments Silicon Valley is going to blow up right, right? If they realize the fuck up in a shorter time frame that it takes for them to develop a faster crypto, because Bitcoin, that takes, what, 10 minutes make a transaction. So it's like, that is the only thing is, everything is on this single

Yeah, no, there's huge uncertainties. And it's absolutely like, I say I'm pushing an argument to its extreme. I don't actually think this is exactly what's going to happen, but there's two directions of travel. One is the one off the dollar, right? That as a consumption economy and basically being everybody's credit instrument. And the second one is we're turning against any form of green transition. So I just interest in how these two vectors are going to play out, because those things are both in play.

I think you might just end up with a Federal Reserve that becomes alike right now we think of as the Federal Reserve. States, not calling it Federal Reserve the world, but I think what you're describing is more like you're gonna have a Federal Reserve of a world of sorts.

Could well be.

Unknown Speaker 51:21

you too. And then

Unknown Speaker 51:24

this very close

Unknown Speaker 51:29

to my research.

Audience 51:32

One question is, how do you see the relationship between inflation and this politics between carbon and the other 10, because you see inflation states if you are working in the Heavy Industries, for energy industry, impression, especially in the case of cost impression, means you have more profitable. You are more profitable under cost communication, you can, if you're working in the oil or gas industry, that's a means you're more profitable. Yes, I feel if you but also, in case of current Republican support base, many of them are like, linear degree for and for customers. So inflation harm them in terms of, you know, the attribute of the consumers, yeah, I think this like and also even within oil and gas industries, like, if you are working like shale gas, then the more oil.

Speaker 2 52:33

But if you, if you, if your carbon asset is more like traditional from like coal, then you means one more and more. This policy of expanding oil means more and more.

Mark Blythe 52:47

Yeah, you'll price out a coal genetic

Speaker 3 52:51

then, depending on how to deal right with this impression.

Mark Blythe 52:56

So take the last point. First, West Virginia is the most coal dependent state outside of Montana, right? Montana is probably the most when you adjust for population.

If you look at this on a state level basis, it's not just coal, it's the fact that coal jobs pay incredibly well. And where you have coal, you have gas, even if it's just to get out of the coal mine. So you have the gas industry involved, and then you have the pipeline and say, well, so they're not as separate as assets. I mean, there's, there's sort of like basins of attraction for different asset mixes in different areas. Fracking is a really good example on this one, right? So the cost of fracking, the break even, is really on, on, really unclear, because the way that you do this stuff, rather than having one drill, and it costs this much to pump it, you have 10 or 12 holes, and you can vary between them. You can vary, but it's a variable cost, rather than a fixed cost. For pulling this out. If you adjust the external price of oil relative to your fracking cost, you can pump this at five if you really want to right. So if the objective is to keep this in the game right, you can do it. The point about oil and gas workers earning more and sort of being less carbons, you know, less inflation. Less inflation, said was really, really good. My favorite statistic on this, there's a paper that's published by UMass Amherst last year, the end of last year, 2024 and they did this big exercise of calculating how much excess profit us carbon majors made in 2022

and the answer was $220 billion

of which 55% of the distributions went to the top 1% in the form of share appreciation and dividends. So 3.3 million people who own most of those shares ended up getting more than enough to offset any inflation costs that they had from their consumption basket, which is really small, because they happen to be loaded. So the distributional politics of this absolutely fascinating. Everything he says, completely correct

Audience 54:51

What about brics countries? What do you see as how they're progressing, how strong they are, and how they can change the cap?

Mark Blythe 55:00

The state you described. So it depends where you are and like that set of the brics, and who's the brics and who's not in the brics. A really interesting one is Indonesia, right? So Indonesia basically wants to stop being a palm oil exporter. Wants to get into nickel batteries, etc, do all this sort of stuff. They are one of the fastest industrializing spaces in the world, still, despite the fact that in aggregate, things on deindustrializing per capita GDP growth has been really strong in Indonesia for the past decade. It's the major point of Chinese foreign investment at this point. So, you know, they've got an approach to this, which is essentially, on the one hand, if America drops out, why should we bother? Because we've got higher costs and we basically have to do more to get rich. On the other hand, they've got far better adaptive capacity to actually install really, really cheap tech, keep green tech and hard tech from the rest of the world. So they're possible, but mixed in incentives, this is very different from Brazil. So Brazil has opened a giant oil refinery, like the world the South, the Global South, biggest oil refinery opened up in Brazil last year. Part of the problem is that they've never really had enough refining capacity, and they've got around that they're doing ethanol for a long time and adding that as an adder, but that gets against sort of, you know, growing crops versus growing fuel, etc. So they decide to build this giant thing so that they can basically wean themselves off of important refined products. That, in theory, lowers the cost of production for what stuff that they want to do. Then you get your own domestic solar industry, and you get your own domestic one, and then you start to do that, and you basically copy the Chinese strategy of swapping carbon for non carbon. This is all contingent on Lula staying in power. Bolsonaro doesn't get prosecuted and comes back that's all dead. They go 100% carbon with the US. Argentina has been held back because the Senate would give Milei exactly what he wants. But he's an absolute carbon champion as well an extreme carbon champion. So it's extremely mixed in terms of the tragic of that bag of what the brics says and what they could do in that space.

Audience 56:56

So you said quite a few times the road is in de industrializing. Said, for me, that's coming out of left field. Could you be more specific? Are you going to could you list off a bunch of countries, or whatever? Yeah, where did that come from?

Mark Blythe 57:09

So the basic insight from a Harvard economist called Danny Roderick. And Danny basically said, Everybody's trying to industrialize, but there's a sort of flaw in the plan. Just as everyone can't be an exporter, there has to be somebody being an importer, right when you're doing this type of work, either the price is going to collapse if you're in a sector that everybody else is doing, it becomes unprofitable, or you have to find a technological fix that allows you to produce below the marginal cost of the next producer. So what does that mean? It means you automate things, so producing more and more and more stuff, but we're actually doing it with less and less and less industry and less and less people. And where you find this an extremist is not the United States. The United States loves to say technological skill bias change and robots eat all the jobs. Simply not true. We don't have enough robots. Just couldn't have been the ones who do it. Go to South Korea, go to Sweden, bizarrely, right? Really, really high uptake of industrial robots, higher penetration of industrial sector per component of GDP, higher output, well, less employment. That's the key thing, that employment is shrinking. So we're making more and more stuff with less and less people on a global level, and at the same time, there's another slide I could show I got, usually, a picture of a Volkswagen GTI from 1978

which you're probably old like me, old enough to remember when this first came out. The GTI was a brilliant car, right? And it came in 78 its original price in UK, about $16,000 10,000 pounds, right? And a wicked, brilliant little thing and drive now it's $34,000 for the base model, if you control for inflation and think about the quality adjustment, airbags, ABS, computer, everything is in that car. You're getting three times as much car for two thirds of the price. So the net effect of everybody industrialization. Everybody industrializes. Everybody makes a car that creates a competitive environment, where every car gets better and relatively cheaper, but the number of people making cars is planting. So that's what it's meant by de industrialization in that way. All right, back in that corner here, Hi.

Audience 59:11

Thanks for this presentation. So my question is around AI innovation and the data centers that will have to come online to power it. So I'm curious how you think that fits in, especially within the context of Texas, particular being one of the four markets that have been designated your mark for data center development. Do you think that these are going to continue to be reliant on carbon?

We see a lot of European examples of repurposing energy to be able to power these

How do you think that that factors into the mix?

Mark Blythe 59:47

I'm going to say my most outrageous thing. I think it's another hype bubble, and those data centers will never be built. The first one being the capacities involved are impossible to engineer on the same time scale that.

Talking about, it's simply impossible do it, even if you have LNG right now. And the classic business school model is, is it better? Is it cheaper to what you have to add? Is it scalable, and is it available? And the answer is, it's not available. You just can't do it. Second thing is, I'm old. And the great thing about being old is I've seen so many hype bubbles. We were talking about this earlier today with the graduate students, right back in 2000 2010 there was a book was published by very serious people from Harvard Business School called the race against the machine. And it was big data before we had AI, Big Data, and big data was going to change everything right? And they confidently predicted the 60% of all jobs would be automated by 2020 then Oxford business school, not want to be outdone by Harvard. They had their own one in 2015

and they predicted 40% of all jobs. Then the OECD came and said, Look, calm down, lads, we'll do the numbers. And they said, 20% of all jobs. Actual numbers zero. Right? Nothing happened, right? So what is the AI? You took big data with even faster chips because you figured out parallel processing with GPUs could do large language model training, and then you basically stuck even bigger data sets on that, and you basically took Google and gave it an LLM in such a way that we all flipped out because we thought it passed the Turing test. That's it. Is it useful? Maybe we'll see use case still unproven and deep seek showed you could do it for 5 million, and they're going to give the whole thing out as open source if you're holding in video stock. Now's a good time to sell. I don't think any of the stuff's coming online.

So in the forex market, what I've observed particularly is that, you know, you have the majors, the majors being the Canadian dollar, US dollar, this was Frank, yeah, and the Australian dollar, no,

don't forget the British pound. Don't forget about.

Audience 1:01:56

Very little emphasis is made on the yen. And you think that Yen is just because what I have observed is, when the dollar depreciates, you know, the safe haven is the yen, yeah. And then it is not so much the British dollar, the Canadian dollar. When gold goes up, the Australian dollar goes up, because that's the resource re linking . So where do you see the function of yen, and can it be a safe haven in the future?

Mark Blythe 1:02:20

It's a very interesting question. I haven't really thought it through the way I tend to think about the Yen is less of a safety asset as more of something that's inflation proof because the domestic economy has such a hard time generating inflation. So if you think about it as an inflation hedge against uncertainty, then those flows would make sense. The second thing is, a structurally low inflation, you get structurally low inflation, you get structurally low interest rates. So you've had a yen carry trade going on forever, particularly between Australia and other places that have structurally higher rates. So I think those factors are in there. What we forget about Japan is the scale. This is a big place. It's a big economy. They also make every now and again, amazing technological breakthroughs, like the new solar film that they basically developed, which, if you can get this to scale, literally, you could literally paper all of Tokyo on it, and you don't worry about electricity again. So these types of things are sort of, you know why you should always keep your eye on Japan, in that sense. But I don't have a sense of that Japan ever wanting to be a reserve currency, in part because of the structure of the economy, the fact you got a ton of old people, it's pretty deflationary. You give them money, they save everything, they put it back into Japanese bonds, and you have this huge bond market, which is perfectly sustainable that any monetarist would be throwing themselves off a building at the level of debt.

But the export. And if you're an exporter, there's a limit on how much currency you can put out there, and you have to have the gross GDP to back it up in terms of consumption if you want to balance that current account over the long term. So I think that Smart Money uses yen as a hedge and an inflation hedge, but it doesn't really have a global role in the same way this guy used to be with Mitty. What do you think of that? Yeah.

So the funny thing is, right now that, like, unlike the past, for like, 20 years, we are experiencing the big impression because of the our dependence on the fossil fuel info right here. Other kind of carbon for this comes in, and I'm not sure how the load of the end as a hedge can be,

but once it stops being a low inflation, yeah, that's very good. That's very good. But I don't really have an answer, but it's a great question.

Audience 1:04:30

So in this space, in terms of what's gonna happen in the United States, so kind of like, the United States, kind of, like, pull back that, literally, like, drop the game in the market, because everybody else is gonna, like, adapt to green economy. But what do you think is gonna happen in the rest of the world? Is the rest of the world gonna be better off or not? And that's one thing, and there. The thing in, what do you think it's going to be the net effect on actual emissions? Because then, if the United States will, you know, like, double down on carbon, and then still going to produce carbon. But as you showed, well, China, somebody working on this, probably everybody else is working on, like, trying to reduce emissions. So like, if we think about, like, a big goal of, like, reducing emission as a whole. And what do you think is gonna be an effect? And like to add on to that,

you also painted on different scenarios of what could happen on this depending on whatever happens on, like, well, international politics in terms of, for example, Brazil,

everybody else you know. So there's like, a weird in between, where we are in a like scenario, where, like, there are multiple other scenarios that, like, add to this combination. And so could you speak to that a little bit?

Mark Blythe 1:05:53

So actually, long term, I'm an optimist, believe it or not, because I do think things get better when the US gets out of the way. Like quite seriously. It's just simpler, because we will try and do things in the most complicated back ass, wrong, silly way possible, guarding all of our interests and making little progress at the same time. So my favorite example of this is ESG. ESG does absolutely nothing for carbon emissions. It's a complete box checking exercise, the logic of which is that a small or medium sized Spanish multinational called Zara the sources leather from five different countries, if it follows scope three emissions and fills in all these forms to tell us where the piece of leather on the bottom of the skirt comes from, somehow that's going to impact carbon emissions. It's just absolute rubbish. I mean, I appreciate the intent, but like, if the Republicans kill it, nobody will cry, except ESG consultants, right? This is useless, right? So we do useless stuff. We're really good at doing useless stuff. In terms of doing substantive stuff. It's really about sort of two big countries, primarily India and primarily China. I'd be bullish on China's ability to do this, because there's no carbon denialists, and they understand the risks, and they basically are already dominating supply chains. I'm bullish on India because I think at the end of the day, they understand that the major constraint on Indian growth has always been oil, and if you can solve that problem, that was a hell of a long way to basically pushing up per capita GDP, solving a lot of end use problems. You go to Latin America, these are all small emitters. These, like Brazilian electricity, is incredibly clean already. Argentina hardly emits anything once you get outside of Buenos Aires, right? So I think Argentina's emissions are equivalent to Belgium. You can't find Belgium unless you're looking for it, right? So Africa have incredibly small emissions. So if you can solve these big places which really aren't the United States, then I think we're fine as a species. So I'm actually quite bullish on this one in that regard, in terms of where this actually ends up. I mean, these are sort of, as you said, there's a multiple equilibrium situation here. You can end up lots of different places, right? Different places, right? Most of them are kind of chaotic equilibrium, in the sense that there's a lot of volatility and shifts whereby the courts actually don't get completely defenstrated. They manage to defend a few things. There might be a change of government. At some point they might want to rebuild the EPA. My concern on this is this information boundary problem that once you hollow out state capacity, it's incredibly hard to rebuild it, even if you want to, and if you want to spend all your legislative time in the United States, which is essentially two years, right, trying to rebuild massive government bureaucracies. Just imagine how that gets played. So, you know, be easy to destroy, really hard to rebuild. So either you get the sort of like cleaner break, which runs this way, whether you like it or not, or you get a kind of like chaotic epolar where we get two thirds there and 1/3 back. And that actually might be worse than actually just going the floor.

Audience 1:09:02

It seems like the piece you're most pessimistic about is us voters.

Mark Blythe 1:09:07

Yes, strangely, yeah, I never thought about it like that, but that's, yeah, that's a good point.

Audience 1:09:13

And maybe you don't care about this, but I'm wondering what you think this means for democracy worldwide.

Mark Blythe 1:09:19

Well, if I didn't care about it, I'd be an awful person. I'd like to think I'm not an awful person.

What this means for democracy worldwide? It's really interesting one, the one part that I agree with Vance never thought I'd say that sounds when he was telling off the Europeans as the following, when you erect firewalls, you're telling people in a democracy that because they have the opinions they have, their votes don't count. They shouldn't count because they're morally wrong. They're bad people, and we're never going to work with you if you want to undermine a democracy that will do it faster than any carbon politics. So you know it's already on the ropes.

Not just because of this right. Second thing is, when you do industrial transformations at scale, and this is the biggest possible transformation that the world's ever attempted to undertake, to use the truism of political economy that, well, there's winners and losers. It doesn't even begin to describe what's at stake in this. In order to get there, will governments have to basically be coercive. Yes, will there have to be deliberate asset Stranding? Yes, you're seeing it on the other side of people realizing that and beginning to protect themselves from that possibility. So I think that sort of, if you mean bi electoral democracy, shouldn't tear in competition, etc, the very thin version of it. Yeah. I mean, you can have that in Hungary, and it still looks reasonable, right? If you mean deep democracy that's in trouble anyway, because we're actually run by two sets of oligarchical cliques. I mean, my favorite example was the Democrats, but I was on, did a radio show in Boston and like, what about the Trump cabinet? It's filled with billionaires. I was like, All right, what's the name of the main democratic think tank and a policy holding vessel in DC, Center for American Progress. What's the conference room on the top? The Eric Schmidt conference room. We've got the nice billionaires. You have the fucker billionaires, right? I'm so my view of democracy is certainly already jaundiced. I would hope that through this transition, we can renew a sense of community. We can renew a sense of collective action. We can awake, become aware of the fact that we have deep common interest and a lot is at stake. And through that, we can get a better version of the shit, version of democracy that, frankly, we have at the moment.

Audience 1:11:38

Yeah, I'm interested you. You laid out a very sound logic for why carbon related industries in these GOP states would be invested in this denialism. What do you think are the sort of distributional or material impacts on the average worker in these states, given that most Americans are employed in what, like service or something, right? Farmers are like, 1% 2% of Americans? Yeah, absolutely.

Mark Blythe 1:11:58

But farming output is still 8% of GDP. So it's very important constituencies. The Farm Bill is life and death for seven states. One way to think about this is the following. There's a brilliant report that came out by a policy think tank a few months ago, and you check it out in Google, it's totally worth it, right? It's called the great transformation. And what it does is it looks at zip code level areas that are dependent on government transfers for one quarter or more of their income. In 1990 that was 9% of American zip codes and Medicare, Medicaid, Social Security, et cetera, and it was pretty much scattered all over the country. There was no clustering. Now it's 54%

and 80% of those are in Republican districts, and you're hacking away at the state. So you would think that, like, unless you've got a real taste for ideological self harm, that you know, there'll be a backlash to this, and there probably will be on the other side of this West Virginia. Average wage in West Virginia, $34,000

average, right? This is the low wage state, once you cut off the top 10 percentiles or not, people who are working in the labor market, right? Low wages. When you get to oil and gas, it's 84,000 to 120,000

and the spillover from those jobs is absolutely enormous to every other aspect of the economy, including waitressing, including house building. So it's not the numbers or the centrality, in that sense, it's the dependency, the locking that these industries have, and how they have these, as they used to say in development economics, forward and backward linkages to the rest of the local economy. That's really important. But it totally cuts against the first thing that I said was you have these functioning models. But actually, if you're outside of that kind of growth coalition, inside that functioning model, you're dependent on transfers, and they're hacking away at the state like nobody's business. So I don't know how that one's going to play out, but that's sort of the parameter set of it working for thinking about ISU

Audience 1:14:01

Adrian, I'm just running a hypothetical situation, because a lot of this assumes that, yes, the US will move forward with, like, investing in carbon. But do you not think that the US incidents would use like that? Maybe it's dollar number or any other sort of economic tool in the way that fans went to the next year conference and just like trying to manipulate, like meeting, like AFD, I could easily imagine a world where, like, far right, like governments all across the board in western democracies also have that problem, oh yeah, the EU and so I could easily see maybe EU could also backtrack on a lot of

Mark Blythe 1:14:39

Yeah, Absolutely, if they, if they get power. And the interesting one is the, you know, partly, I railed against the cordon sanitaire for Raiden democracy, but when you have a cordon sanitaire, they don't get power, right? So to question how long the firewall stands up in France, it's a real issue that the National Front, will actually finally get power right. The AFD is 22% max stuck in Eastern Germany is not going to win. The German election will always be second, and they are basically beyond the pale for Marine Le Pen. So you know, again, there's limitless but there's no doubt that this is a transatlantic strategy, right? The American American Energy Secretary appeared on video at a conference three days ago in the in London, which was sort of like the National conservative conference or whatever it was, and he railed against net zero targets in the UK, and said that this is stupidest thing ever, and you've got carbon advantage with the North Sea oil. Why don't you use it whatever this is, clearly a trans now tilting at windmills. They all hate windmills. My fight, my fine my favorite one on this is, who is Trump actually comfortable with? Like, think about, like, the talks over Ukraine. Where does he go? He goes to a carbon autocracy to talk with another carbon autocrat.

The script writes itself. So, yeah, they're in it together. This is a transnational project. This was just the leading edge of the transnational project.

Audience 1:16:03

I guess, going off that, would you say that because Europe doesn't have like, a dependency, you say a lot of the southern states do on the economics of oil and fracking, like Europe imports most of them. You think it would be tougher for something like that to occur in Europe, like this sort of political class that relies on

Mark Blythe 1:16:20

Exactly. So I'll give an example. In the UK, there's UK politics in the moment is sort of like. I didn't have a despair of the United States. I just looked to Britain because it's like the definition of a comedy shit show, right? So the guy who brought you Brexit is now the leading candidate to take his party. I mean, you can't script this. I mean, it's just beyond absurd, right? So Farage's Party have this project. There was a whole controversy over what labor tried to do with farms, because farms in the UK became like 5x their value over a 10 year period because they were being used as a tax dodge. So they were like, Let's get down on it. Suddenly, the right mobilize. It's like you're killing family farmers and all this. But, and they mishandled it as they usually is, sorry, whatever, right? So the whole thing like this shit in a handbag, right? But nonetheless, what actually happened was the Reform got on top of this and said, We need to worry about food security. And we're going to do a deal where, if you are just had this farm, and it's just like a tax dodge, come after you, but if you have that farm, even as a tax Dodge, and you grow food, you're all right, we'll give you a big tax credit. If you put up a solar farm, we're going to double tax you. So just right there, just straight in, so that they're literally in the micro linkages of all this stuff all the time. Y

eah. Sorry, that study, you mentioned the great trans transformation.

Yeah, exactly. Yeah. So I read again. My first of our book was called great transformations, and I was ripping off Carl polyani's The great transformation. So anything called the Great Transformation, I'm like, Oh, bravo. I mean, just, just on the pun value on the title. I mean, I just like, I think that's fantastic. And then I read it and went, oh shit, this is important. So yeah, but it's really worth looking at, and they've got great geo located maps and stuff like that. That shows you what the concentration is. It's really great.

Margaret Peters 1:18:06

All right, I'll end with one last question for you. All right, if we're not going to build anything any longer, what is everybody going to do, and are we going to finally get to, you know, the magic land that Keynes promised me, where none of us would have to work, and we'd all just like, live and like, live our lives. And I could just go garden all day.

Mark Blythe 1:18:25

The minute we open source all the tech stuff and make sure there are no moats and castles and they can't have digital monopolies. Yes, all right, let's get them.

Margaret Peters 1:18:34

Yeah, let's all go garden every day. Man, that sounds like my middle age dream.

Mark Blythe 1:18:40

No. And the serious side of this is like the I had a student who worked on this topic a couple years ago. He did got a job at BU you wrote about regimes of competition across the 20th century, looking at France and the United States. And basically what he convinced me of is that when you have periods of really strong anti trust and you have high degree of competition, wages go up. This is not bad for workers, right, in any situation, right? At least really good. It's better for labor. Marketability is bad for social everything, every indicator, almost. And what we allow to happen is this kind of sclerosis and agglomeration of more and more market concentration. And I'm really a sort of like Lena Khan fan in this one, in the sense that I think that a huge amount of problems could be done by just busting these things up. So you know, if you will, the sort of the liberal in me really wants to see that continue. And I think if we did that, and we particularly did that to tech sector, like there would be huge social benefits, which precisely why they defected to the Republicans and basically went full Maga because they knew damn well that's the direction of travel, and all of their profits depend upon artificial monopoly. That's where they're there.

Speaker 9 1:19:51

All right. Well, thank you so much for coming and presenting, and thanks everybody for coming out on a Friday. Yeah, thanks.

Mark Blythe 1:20:00

And you could have had the falafel.

So I'm very grateful.

Unknown Speaker 1:20:06

I.

Transcribed by https://otter.ai