Big Deal: Davos Man Returns; Colombia’s Social Media Smackdown; Is DeepSink AI’s “Sputnik Moment”? 

>> Donald Trump: This is very unusual when you hear a deep seek, when you hear somebody come up with something, we always have the ideas, we're always first. So I would say that's a positive. That could be very much a positive development. Instead of spending billions and billions, you'll spend less and you'll come up with hopefully the same solution.

>> Bill Whalen: It's Tuesday, January 28, 2025. And welcome back to Goodfellows, a Hoover Institution broadcast examining social, economic, political and geopolitical concerns. I'm Bill Whelan, I'm a Hoover distinguished policy fellow moderator. I'd like to introduce you to the stars of our show that would include former presidential national security advisor, Lt Gen. H.R. McMaster and making his long awaited return, the grumpy economist himself, John Cochrane.

John, I turned to you. I had several very distraught friends asking where you were on the last show. It seems when John Cochrane is not on this show, people's universes are fundamentally unsettled. So how are you, my friend?

>> John Cochrane: I'm fine, thank you. I had a tiny little surgery in my tongue which meant I couldn't speak for a week, which for me is just an unmitigated disaster.

But let me say a little vote of thanks for modern medicine. Even tiny little routine things are life changing for our perceptions of life. If you ever think you want to go back and live in a Victorian novel, think twice. HR I thought maybe we could do five minutes on every show talking about various medical ailments, but that kind of be a depressing segment of the show.

>> H.R. McMaster: How about male pattern baldness? We can talk about that maybe.

>> Bill Whalen: Four older guys talking about deterioration.

>> H.R. McMaster: We call it the Hoover Institution Hair club for men. I'm one of the founding members.

>> Bill Whalen: Exactly.

>> Bill Whalen: So here we are. Let me point out that Niall Ferguson is supposedly joining us at some point, so hopefully he will jump in from wherever in the world Niall happens to be.

But gentlemen, let's start with this. As we record, it is exactly one week and one day to Donald Trump taking office as a 47th president. And to me at least, this is through the proverbial drinking out of a fire hose, where what has not happened in the last eight days?

We've had a flurry of executive orders. We have had Trump get into it with, by my count, at least four different nations. When Niall Joyce us, he'll talk about what he saw at the World Economic Forum. We've had all kinds of creativeness on Wall Street. A trillion dollar sell off, John, that I want you to talk to address in terms of artificial Intelligence.

Trump came out to California to talk fires action. So, HR Let me pose it to you this way. Winston Churchill famously complained about being given a pudding without a theme. What is the theme to the truck pudding?

>> H.R. McMaster: Well, I think it's first of all to reverse a lot of what the Biden administration did that he thinks makes no sense, which I think a lot of us would agree maybe makes no sense.

And then to just make good o on kind of his top priorities, where he is utterly consistent right? Border security, reciprocal trade for example, and, and deregulation. So, I mean, all these themes that we heard during the campaign, he's making good on. And of course, what we're seeing is he's a heck of a lot more organized the administration is than it was in 2017.

And so a lot of these executive orders are gonna be contested by the courts and so forth, but you don't really have anything like the initial travel ban in 2017 that just didn't get anywhere. So I think you're seeing a higher level of organization and you're seeing Trump make good on a lot of campaign promises and really focus on the areas where he doesn't really carry any dissonance with him.

I mean, he's really consistent in a lot of these areas.

>> Bill Whalen: John?

>> John Cochrane: Yeah, I think it was Hamilton who said he wanted energy in the executive. Well boy, did we ever get energy in the executive. I do also admire the organization. They seem to know what they're doing.

They parish Internet agencies and know where the bodies are buried. It is an out of the box moment. Trump is showing his willingness to think out of the little verities that have circled around for decades that people pass around without thinking, why don't we buy Greenland? That's a good idea.

Why did nobody ever talk about this in public before? Why don't the Arab countries let people from Gaza in there? There's an idea. Trump's willing to say and think kind of perfectly obvious things. So it's a time of high volatility. There's some bad stuff on the way, but times of high volatility in my asset pricing career can often be great if you can pick the good stuff and hopefully the bad stuff won't get you.

So very interesting time, which I won't give a long lecture now. We have lots to say. And here's Niall to say some more, too.

>> Bill Whalen: Yes, you say David's up like Beetlejuice. And here he is, our friend, historian Sir Niall Ferguson hello, Niall.

>> Niall Ferguson: Please sir I'm sorry I'm late.

>> Bill Whalen: So to catch you up here, I asked John and HR if there was a theme to the Trump pudding in the eight days of his presidency so far your thoughts?

>> Niall Ferguson: And part of the reason I'm late is that there is just so much to contend with.

There hasn't been so much to contend with in the first week of a presidency since Franklin Delano Roosevelt in 1933. And I think we need to recognize that his record for the number of executive orders in the first 100 days is almost certain to be broken by Donald Trump in his second term.

The way I'm thinking about this is it's the new deal, only with the sign changed. Because if you think back to what the New Deal was, it was this radical, transformative response to a terrible depression in which what we think of as the federal government today was largely created.

All those agencies and entities and regulatory bodies, they were all called into being in that first term. Well, Trump's come to power at the end of a boom, and part of his task is to dismantle the New Deal state. That's what the Department of Government Efficiency, in Elon's dreams at least, is going to do.

In the same way that the Roosevelt administration at the beginning was the ultimate isolationist administration that basically shut down American foreign policy. The only thing it did of note was to cut off arms sales to everybody, even countries under attack. And the Trump foreign policy is like the entire opposite of that, where nobody knows what Trump is gonna do from one day to the next, except that it will be to upset both allies and in most cases, adversaries.

So I'm thinking of this as I'm in 1933, but it's sort of a negative. It's a mirror image of that transformative hundred days. And I'm struggling to keep up. I think I have a handle on some of it, but it's a full time job keeping track of this.

>> Bill Whalen: I'm glad you mentioned 1933, because we keep getting stories in the press about how this is 1933 redux and it's only a matter of time before he burns down the Reichstag.

>> Niall Ferguson: Yeah, wrong country, right year, wrong country.

>> Bill Whalen: And we had a kerfuffle over Elon Musk, maybe not offering a Nazi salute.

So, John, what are Trump's opponents gonna do for the next four years? Just run around.

>> Niall Ferguson: Can I just interject?

>> Bill Whalen: Yes.

>> Niall Ferguson: Definitely not offering a Nazi slip. I mean, that was one of those things that makes you realize there's a lot of stupidity out there because.

>> Elon Musk: My heart goes out to you.

>> Niall Ferguson: Elon's pretty awkward gestures on stage, which are not ever particularly delightful to watch. Couldn't have resembled less. And that's his salute unless you'd never seen an actual Nazi salute I mean, really.

>> Bill Whalen: Yeah.

>> John Cochrane: Well, I think that's one's a great it kind of answers your question.

An insight into the progressive mind. Let's just think. Take a breath and think. Is it at all possible that Elon Musk is a secret Nazi, and, I mean, a real Hitler loving Nazi? And chose the moment of a speech at the inaugural to reveal to all his friends that we are secret Hitler loving Nazis and to give the signal that it's on.

This is just completely insane, NPR went with it. Now, do they really believe that? Hard to tell, but it is part of the machine, I could see the machine trying to go. Members of Congress repeat it, the media repeats it, is Elon a Nazi? When do we need investigations into Elon's past?

Is there a high school yearbook photo in which he is seen cavorting with somebody who might have descended from some Nazi? Blah, blah, blah, blah, blah, it obviously went nowhere cuz it is so completely ridiculous. But you can see one element of that train trying to get going, and it's an interesting train to watch as it has now crashed and burned.

>> Bill Whalen: Well, HR, what are Trump's opponents gonna do for the next four years? They don't have votes for impeachment, you can only drop play the Nazi card so many times. What are they gonna do?

>> H.R. McMaster: Well, they'll resist anything that they can. I mean, I do think though that it's clear that President Trump has the initiative at this stage.

I think, what he's been able to do is what he's done is actually not surprising, right? Is anybody surprised by any of the executive orders? I mean, the thing with Donald Trump is a lot of politicians, they kinda hide what they're gonna do. They're obscure about their intentions, they're afraid of alienating so portions of their constituency.

But with Trump, I mean, what you see is what you get and, I think, that whereas a lot of people, of course, find what he says or what he does offensive or arresting or upsetting. I mean, I think, a lot of people are just happy that what you see is what you get, and there isn't really an ulterior motive with him.

>> John Cochrane: Half of what Trump's doing is not Roosevelt in a way. Half of what he's doing is cleaning up the mess, the ungodly mess left behind by energy policy, by DEI programs, by you name it. The whole federal bureaucracy is a mess. So cleaning up the mess is a little different than expanding the state in order to deal with an emergency.

Let me offer maybe what his opponents should do. Number one, govern responsibly. It will be lovely if the next election could come along and they could point to San Francisco as a well run blue city, we'll do like this for the rest of the country. And the other is the rule of law question, so we do not elect a king for four years.

I like the policy results, but government by executive order and national emergency is dubious in the long run. The next Democrat will certainly come in and declare a national emergency on climate and gender equity, and here we go again. So, I think, a principled opposition who tries to return to normal process and constrains not just on the policy outcome by whatever means.

>> Donald Trump: But constrains the method could be a useful thing for the country.

>> Bill Whalen: Let's talk about a few things Trump is doing and let's play a game I call Big deal, little deal or no deal at all.

>> Bill Whalen: So item number one, the President signs an executive order calling for a 90 day review of all US foreign aid.

Marco Rubio, our Secretary of State, does indeed issue the freeze, the freeze does not apply to emergency aid. It does not apply to military funding for Israel, but it does apply to military funding for Ukraine. Gentlemen, big deal, little deal, no deal at all.

>> H.R. McMaster: Yeah, I think it's a big deal because when you suspend it, a lot of these programs some of which need to go and are not effective, are hard to restart, right?

Because you have people who are hired, who are delivering whatever that aid or that assistance is. Some of this is has to do with your very successful programs in preventive medicine, for example, the PEPFAR program. So I do think that's a big deal. And again, it's just one of these things where it makes, I think, President Trump feel good to do it.

But if his overall objective is to get rid of programs that don't deliver or to stop giving assistance to people who oppose America's agenda abroad, I mean, I'm all for that. We did a review of this in 2017 to 2018 of all foreign assistance. And we compared foreign assistance to certain countries with the voting records as one of the measures of those countries in the United nations.

And prepared for President Trump options for curtailing assistance to countries who are consistently opposing us. Not only in the UN but in other four and in other ways as well. So, hey, I'm all for the overall objective of getting rid of useless programs or wants to cut against our interests.

But again, this is one of the areas where President Trump's disruptive, right? There's a lot that needs to be disrupted, but sometimes he's so disruptive that he disrupts his own agenda or makes it difficult for us to pursue our interests.

>> Niall Ferguson: It is a big deal, it's a big deal, though, not an entirely in a negative way. I quite like the fact that Marco Rubio's three questions are, does it make America safer? Does it make America stronger? Does it make America more prosperous? And if the answer isn't yes, why are we doing it? And, I think, it will create leverage on a lot of countries, and that could be quite useful.

The Ukraine military aid question bill, is not quite as clear cut as you made it sound. At least my understanding is that is not impacted, except insofar as it's aid that comes out of State Department Funds, and that is a very small part of the military aid to Ukraine.

So I wouldn't want our listeners to get the impression that Trump just cut Ukraine off, cuz, in fact, he didn't. The real big news that, I think, has caught many people by surprise is that Trump's election victory has not been good news for Vladimir Putin. And bad news for Volodymyr Zelenskyy, but just the opposite, I think, that's a very big deal indeed.

And it makes me more optimistic that we'll see an end to the war that won't be entirely on Putin's terms. Putin's on the back foot. That's clear from Trump's recent truth social statement, but it's also clear from other things that I'm hearing from Ukraine. So let's just make that clear.

>> Bill Whalen: Okay, John?

>> John Cochrane: Military aid, there's two parts. Are we willing to send weapons to people who might even have the cash to buy it from us versus are we willing to give them the cash? The number one question is the first one send them the weapons, especially the Ukrainians and the Israelis, and let's worry about who pays for it later.

Non-military aid is a rat hole, and I do think it needs some way of looking at it. So much ends up in suitcases full of cash that wind up in people's Swiss bank accounts. So much ends up subsidizing our enemies. Most of Hamas was subsidized by us and the Europeans through the United Nations.

So that's really counterproductive in many ways, so stopping and looking at it, reforming it is important.

>> Bill Whalen: All right, next question, the Colombian president refuses to accept US Military flights bringing deportees into his nation. Donald Trump threatens economic sanctions. Colombia's president promptly backs down, gentlemen, big deal, little deal, no deal.

Let me add to that, what happens when Trump starts punching down? A little bit so far, he's gotten the squabbles with Colombia, Denmark, Canada. No offense to these nations, but they're not to be confused with China or Russia, Niall.

>> Niall Ferguson: I think it's part of a big deal.

I mean, the big deal is obviously that there is gonna be a concerted effort to deport illegal immigrants from the United States. And we're told it's gonna be on a larger scale than anything we've seen in recent times. I think it's quite a big deal if you combine it with the closure, or at least much more tight policing of the southern border.

John will explain the economics in a minute. But if one thinks about how this is actually gonna be done, two things need to happen. One, there need to be significant resources voted by Congress for these deportations to happen, otherwise they're not gonna happen. And we'll see how much Congress is prepared to put into this effort.

The other thing that has to happen is that Latin American countries need to cooperate. And if they don't, again, the whole thing becomes impossible. Now, the Colombian case was interesting because the Colombian president made a mistake, which was to pick a fight on social media with Donald Trump.

That didn't last long. And I think that is not a mistake that his Mexican counterpart is ever gonna make. Claudia Sheinbaum is very clearly playing a clever game in making sure that she does not get on the wrong side of President Trump. And I think that's more important, of course, than what goes on with Colombia.

Notice also, the Trump administration seems ready to deal with the most odious regime in the region, the Venezuelan regime of Nicolas Maduro, if it can get cooperation from him with the deportation plan. So I think it's part of a big deal. And John is gonna tell us, if he feels like it, why a sudden change to the US labor market brought about by these radical policies might be a big macro-deal, John.

>> John Cochrane: Well, if we deported a substantial fraction of the over 10 million people working here illegally, that would be difficult for the economy. Both good luck getting anything built, good luck getting your garden clean, but also all sorts of people working other jobs. So the big question is, is it going to be a mass deportation of peaceful, hard working people, or is it gonna be something else?

And I think that's still up in the air. For the moment, this is mostly on the symbolic scale, one plane load. Does Colombia take it or not? So I don't think it's going to go that far as sending 11 million people to other countries. That would be a big shock to the labor market.

A lot of why the US has grown so well is our labor force has grown. There's more people working in the US unlike other places. But so far, we're not really heading in that direction.

>> Bill Whalen: HR.

>> H.R. McMaster: Yeah, I think it's a big deal. Petro too, the president in Colombia, he's a far left ideologue and he's not very popular in his own country.

So I mean, that's somebody, I think, who Trump did use a wrestling term, is pretty appropriate for Trump to elbow-drop. And I just hope he's harder on Maduro. I mean, I'm worried about this deal with Venezuela, and this is what you get with Trump. You get somebody who's tough, right?

But then also he loves a big deal. And he's got a lot of, I think, shady business people in his ear saying, hey man, we need to deal with Venezuela because they wanna make money again in Venezuela. And of course, with the very clear election results that cut against Maduro, him remaining in power, I think Trump wanna make him a prey and really put the screws to him.

Yeah, the Biden administration alleviated the sanctions on Maduro. That didn't work. And so anyway, with Trump, it's a double-edged sword. I think he's tough. He was tough with Petro. I think that was good in this case. I hope he's tough with Maduro as well.

>> Bill Whalen: Let's stick with you, HR.

Trump's also called for NATO countries to increase their defense commitments to 5% of their GDP. Again, I ask, big deal, little deal, no deal at all?

>> H.R. McMaster: Yeah, it's a big deal, because he got results last time when he really hit burn shearing hard. I mean, it was funny like when he set meetings with Chancellor Markowitz.

So Angle. If you love NATO so much, why don't you pay your dues. And you're feeding Putin's ATM with this pipeline, we're over here defending you, how does that make sense? And he was right about that. And of course, Germany's declared the Zeitenwende, but they haven't really done much about it in terms of increases in defense spending.

So I think it's a big deal. I hope we make good on that as well because our military has a huge bow wave of deferred modernization. We have capacity issues and our procurement budget has been going way down. The Biden administration defense budgets were real reductions when adjusted for inflation, and the world's being a more dangerous place.

So I'm thinking of Senator Wicker's report on the defense budget. I hope that Donald Trump overrules the budget hawks in his administration and realizes that you're not gonna solve the deficit problem or the debt problem on the defense budget side. What you'll have is you'll be weak fiscally and you'll be weak militarily as well.

>> Bill Whalen: John, that conversation with NATO includes, yes, another threat of tariffs.

>> John Cochrane: Well, let me, yes, and let's hope that those are threats cuz the whole point of NATO is an alliance. And the whole point of tariffs is, I'm gonna take from you and give to us, which is not a very nice thing to do with your allies.

So let's hope it's just threats. But the spending thing, I think, well, the idea is a nice one. Focusing on how much you spend, especially when you're talking to Europeans, I think is a mistake. You need to focus on what you buy for what you spend. And looking all around us, the squishiness of cost is, I think, one of the great lessons of our time. You can spend billions and billions of dollars on highways in the US or on spaceships from Boeing rather than Elon Musk that just go down big rat holes. And certainly, European welfare states could spend money on a military budget that goes down a rat hole. But then HR might fill us in, how many operational tanks are there in Germany ready to go?

That's the number I wanna know.

>> H.R. McMaster: Like a battalion like, hey, John. Hey, you know who made this point, this is a really good point that you're making, was President Niinistö, the former President of Finland. He gave a talk at Chatham House last week, I recommend it to our listeners.

It's worth reading. And he's a very wise person, I really enjoyed my interactions with him when I was National Security Advisor. And he was great with President Trump. I mean, he really helped President Trump understand better kind of the threat to Europe broadly by the Russian threat to Europe.

And this is pre-reinvasion of Ukraine. But you're absolutely right on this, it's not just how much money you spend, right, it's what you get from that spending.

>> John Cochrane: Because welfare states, we could spend it on diversity coordinators, we could spend it on pensions, we could spend it on veterans' healthcare.

That's all military spending, does no good. I wanna know, are you ready to go? The spending business, he who picks up the bill gets to pick the restaurant, which is something we should remember. If the Europeans start spending their own defense, well, then they get a better right to say when it does and doesn't get used.

Conversely, to the Europeans, I would say, he who picks up the bill decides What restaurant we're going to? And if they want a different policy on Russia and Ukraine than we do, well, then that's why they should want to spend on their own rather than due to our threats.

>> Bill Whalen: Niall, I wanted you to go last because you recently were at the World Economic Forum where you wrote just a brilliant column talking about Davos Man. I want you to tell us who this Davo man is? Who would play him in the movies? But what is the perception of Trump, the second Trump president siege in Davos?

Cuz for me to your comments sounds like things have changed.

>> Niall Ferguson: Well, I'm sure HR has suffered Davos at least once in his career, if not more often, not sure if if John ever accepted the invitation. But the World Economic Forum is well known, I suspect to most of our listeners as the great Bazaar that takes place in Switzerland each January.

When the business elite of the world converge to meet with a smattering of world leaders and academics. Well, according to the conspiracy theories, to lay the foundations for world government, in reality to engage in an enormous number of business meetings in a frenzy of speed dating. I was there, it was a tough choice inauguration Davos. 

I felt the patriotic thing was to go behind enemy lines and see what the globalists were up to rather than to go partying in Washington. I left that to my wife. And what did I find? Well, what a transformation five years ago when I was there on the eve of the pandemic that brought us together as the Goodfellow.

The conversation was not about the pandemic, no one else had noticed. It was about the wickedness of Donald Trump and in particular, his utter irresponsibility on the sacred issue of climate change. Greta Thunberg was also in town five years ago, she was fated, he was hated, it's all over, it's all changed now.

Now the European business leaders, not only privately, but publicly, say, we wish we had Trump here in Europe. We want mega make Europe great again. Can we have musk too? This is what we need, so five years on, there's been a complete vibe shift at Davos. And so, Davos man is now mega man, he wants Europe to get the Trump treatments.

You name it, they're ready to do it, and you can see why. Because Europe has so conspicuously fallen behind the United States in terms of economic performance, technological innovation. And part of the reason is, as has been pointed out at Davos several times, that Europe's regulatory regime discourages innovation, imposes regulation on anything novel.

And also layers on costs in the name of climate change that make German manufacturing simply uncompetitive. So that's the vibe shift and it relates to this defense spending issue too. Because I found myself at one of the Davos sessions having a little bit of a contretemps with Wolfgang Ischinger of the Munich Security Conference.

When he made the absolutely extraordinary suggestion that maybe the Chinese could provide troops if Ukraine needed a security guarantee after a ceasefire. It certainly couldn't be Germans that did it, and I'm afraid this set me off rather. And I'm hoping our producer will provide the clip because it was one of my better forays at Davos in recent years.

>> Niall Ferguson: I spent many years, many years studying German history, I speak German, I know the country well. And I say to my German friends, including you, Wolfgang, if you want to confirm the worst possible impressions that Americans, not just mega Americans. But Americans have of Europe and particularly of Germany, go suggest Chinese troops in Ukraine.

>> Niall Ferguson: Cuz that is the single worst idea I've heard at Davos in 10 years.

>> Bill Whalen: John, why don't you go to Davos?

>> John Cochrane: Well, I haven't been invited to start with and I hate cocktail parties, so I have two reasons. I would go to Davos and I would go skiing, but maybe the slopes will be empty.

>> H.R. McMaster: Hey, the one party to go to the salesforce party. Great music man, great music, I mean, that's what you don't want to miss.

>> Niall Ferguson: I knew you'd been there.

>> John Cochrane: It's not just Trump. Trump is reflecting what you called pretty increasingly the vibes shift, which is what you're seeing at Davos and certainly Davos and Europe.

My sense is Europe has figured out we regulated our economies to death. We are all past peak woke, the great awakening is over and imploding around us, and that's not just Trump. Europe doesn't quite seem to get it as far as energy and climate, as far as I can see.

And the regulatory burden is enormous on companies are still having to file scope 3 emissions every time they sneeze in Europe. So they quite haven't put two to two together on how much they killed their economies on the altar of completely ineffective climate policies. I mean, were this actually doing any good, there might be something to say about it.

They also don't seem to have quite gotten the fiscal discipline. I was interested by Mario Draghi's report that said, hey, we've regulated ourselves to death. The answer is we're going to have the European Union issue hundreds of billions of Euros of bonds and throw them down various industrial policy rat holes.

So has Davos, man, really come around? And second question, you said it, so I'm gonna ask you the question, it's gorgeous. Is what Europe needs really two dozen Javier Miles rather than a Donald Trump?

>> Niall Ferguson: Yeah, that's actually right. I mean, I do think that the idea that you could sort of do Trump on Europe misses the point.

The United States can afford Trump because of the strength that it has accumulated, particularly in the technology domain. But also because of the enormous natural resources that it has at its disposal. Europe doesn't have these advantages, its problems are closer to Argentina's than America's. And so, my recommendation was, in fact, Javier Malay, I think, we probably need 27 of them, wouldn't they, John?

>> John Cochrane: Well, yeah, sorry, I got the number.

>> John Cochrane: And Marshall Evangeline cannot from Brussels issue executive orders the way Trump can. So Europe it doesn't just need one Trump, it needs, if any, a lot of them.

>> Bill Whalen: Niall, mentioned technology that is my opening to ask you guys about Deep Seq, and I want you to run with this for a little while.

So yesterday we had a $1 trillion sell off on Wall Street. DeepSeek, if you're not aware, is a low cost Chinese AI model. This comes right after a $500 billion pledge for Start Gate to do AI for infrastructure here in the United States. John, you wrote eloquently about this in your grumpy Economist blog. So tell us about DeepSeek, and if you wanna put it in this category, a big deal, little deal, no deal at all, feel free to do so.

>> John Cochrane: Big deal.

>> Bill Whalen: Ginormous deal.

>> John Cochrane: Well, if true, so there's always a question of exactly how much did it cost.

But the basic news is speaking of the squishiness of cost AI, the basic idea is computations free. So we'll just throw spaghetti at the ceiling and see what sticks. And then you scale that up to the $100 million and all of a sudden it's not so free anymore.

So that in the grand history of things, huge costs that have been revealed to produce something useful lead to innovation on how do we do it cheaper. This one seemed to be mostly softer, I will also note. That the export controls on advanced chips spurred the Chinese to figure out how to do it without advanced chips.

So much for the effectiveness of the export controls. Good thing we didn't run hundreds of billions of dollars of industrial policy on the US way of doing things before we found out it could be done much cheaper. So this is just wonderful overall, the idea that AI can be done at one tenth the cost.

Now, the stock market felt, let me remind people, the stock market is not the economy. Stock market measures the value of profits, not the value of good things to the economy. So a dramatic fall in the cost of AI means if you Nvidia had the, you know, the patent on the chips that were needed, well, all of a sudden we don't need those chips.

Nvidia's stock goes down, but that's great for the rest of us. That's great for AI users, that's great for the economy. The stock market is not the economy. And so overall, don't measure it that way.

>> Bill Whalen: Niall, Marc Andreessen called this AI Sputnik moment.

>> Niall Ferguson: Yeah, I saw that and I thought it was, it was interesting because we've known for a while that DeepSeek was making significant advances.

It's not quite clear at this point how far they were able to use the most sophisticated semiconductors or whether they were doing it by just piling on the next grade down. I've certainly heard it suggested that there must have been some illicitly obtained, maybe via Singapore. But why is the Sputnik moment the right analogy?

1957, to remind our less historically minded listeners, the Soviets successfully get a satellite up into orbit and didn't do much other than beep. But it was up there and it scared the hell out of Americans in the policy elite and the wider public because the Soviets turned out to be able to do that.

And I think you could certainly say there's something of the Sputnik moments about realizing that the Chinese can do an LLM as good as open AI's best at a 27th of the cost. But what's the real moral of the story? I would say, HR, tell me if you disagree that the Sputnik moment spurred the United States on to win the space race, which it decisively did, landing a man on the moon 12 years later.

And I think the same will be true here. I think we needed a bit of an incentive to get this right. Chinese competition has been the incentive for some years now. I don't think we would be putting nearly as much money into AI if the Chinese weren't competing with us.

And I think if it is the Sputnik moment, the outcome is still likely to be the same that the United States prevails, but not certain. I think it's very important to understand that in this AI race we can't win by technological containment, John, I think you and I agree about this.

We're not gonna win by just hoarding the best GPUs, especially since they're manufactured right next door to China on Taiwan. We're only gonna win if we do better engineering and we can solve some of the physical constraints, the electricity generation challenges that are implicit. There is a quest on here, at least in the minds of the US companies to get to AGI Artificial General Intelligence.

I don't think that's what the Chinese are trying to do. I think the Chinese are just trying to produce a commercial winner in the large language model market. And just as TikTok turned out to be a commercial winner in the social video market, maybe DeepSeek will be a commercial winner, but it is still a case of anything we can do, they can do cheaper at bottom, isn't it?

 

>> John Cochrane: This isn't really like Sputnik cuz that was a throw billions of dollars at it and we turned out to have more billions of dollars than the Soviets did. This is a cost race. This is an efficiency race. It's sort of like Chinese manufacturing was the first down and it's very important that it's open source.

I'm not quite sure why they made it open source. I think that was to all the natural security hysteria that would go from anything involving China. But, if you don't like it censorship, fine, it's open source, take out the censorship, build a new one. They shared all that intellectual property with us for free so that the advantage that they'll have from the programming is not gonna last very long at all.

That'll all get incorporated into the way the US stuff does remarkably quickly. So thank you for sending that to us, it is the energy thing is kind of interesting. Nuclear power stocks went down as well, which I think is quite sad, one of the great impetuses we had to get nuclear power going is now back into the Nuclear Regulatory Commission.

And yes, this would not, if we had been walled off, we would not have felt that competition if it was a private thing in China, closed source only done in China, we would never know you could do it for one tenth the price. So that's very important to stay that way.

>> Bill Whalen: Finally HR the-

>> John Cochrane: Go on the national security on this. We've been doing China, China, China and HR sitting there, slowly building up ahead of steam.

>> Bill Whalen: Yeah. The national security angle HR but also how it fits in the larger China conversation having to do with tariffs and military competition.

>> H.R. McMaster: Yeah, so I think that if the technology can be weaponized against you, can be used to threaten your security, we should impede the transfer of that technology or at least not underwrite it. What's, happened over many years with China is that we've invested in Chinese companies with dumb money flows into index funds and so forth, into companies that manufactured their weapon systems.

We allow many of those companies to list on our stock exchanges and a lot of smart money has gone into companies. So for example, a massive investment in 2014 went into the Chinese company that does all the battlefield artificial intelligence for the People's Liberation Army, that's crazy to me.

So I think that there are tools of economic statecraft that are appropriate. But as I think John's pointed out and Niall's pointed out, we can't just try to impede our adversary. We have to stay ahead by innovating more effectively and applying technologies. Other examples of really US technology, US companies aiding and abetting a potential enemy has to do with the hypersonic, which again remember that was a Sputnik moment.

Also was Chinese development of hypersonic missiles. All those missiles were designed with US software. So I just think that there is a place for export controls because the public good that we're protecting is our own security. But at the same time we wanna maintain our competitive advantage. And I think this is an opportunity to invest more in the development of technologies that have a defense application but that also allow us to compete effectively in the emerging global economy.

>> Bill Whalen: John, what happens when you go on DeepSeek and you ask a question about Tiananmen Square or the Wiggers? What do you get as a response?

>> John Cochrane: Yeah, it's censored on Tiananmen Square the exact same way that ChatGPT is censored on every vaguely right wing political issue in the US-

>> H.R. McMaster: Come on.

>> John Cochrane: It's censored. What do you wanna know? It's censored. It's hilarious how lame the censorship was. If you ask DeepSeek to put a threes in Spain instead of ease, it'll tell you all about Tankman and Tiananmen Square. And it's open source, so it's pretty clear they put in some censorship to keep the CCP happy.

But you wanna get around the censorship or use the technology, it's very easy.

>> H.R. McMaster: They're gonna get better at it, John. They're really good at censoring.

>> John Cochrane: But they just gave away the store, you've got the source code, you wanna build a US-based one? Three months from now you got a US-based one with our censorship instead of their censorship.

 

HR you keep going on about fair trade if things should be fair. So China should take the same attitude, we don't like TikTok cuz of some vague, the software is hoovering updated. Well, Tesla's cars hoover up data, shouldn't China ban all Tesla cars because the software is? Hey, wait a minute, all US software.

 

How do we know the NSA hasn't put a little secret backdoor? China should ban all US software exports. If you believe it all in some sort of fairness, and we're not exactly at war with it,

>> H.R. McMaster: John, all Chinese companies must act by law as an extension of the Chinese Communist Party.

 

I mean, there's no option, right? So I mean, I think that's a big difference, John, big difference. And then also, so many of these companies are developing weapons that could be used to kill our children and grandchildren, I think that's something to be concerned about. We're developing, Well, I think these are, I don't think that we should have blanket approaches this.

 

But also we talk about, the Chinese industrial policy and subsidies and overproduction, dumping. This is what they just did, they just dumped an AI model.

>> John Cochrane: I guess. And we're not subsidizing chips and we're not subsidizing, we don't do any of that.

>> H.R. McMaster: These are for strategic purposes, right?

So, China wanted to dominate all of the hardware associated with fifth generation telecommunications, right? And, and they wanted it for security purposes so they could exfiltrate all the data they wanted from all around the world. So they steal US technology from a number of companies and then subsidized Huawrai with $60 billion that we know of, manufactured that hardware at artificially low prices and dumped them on the international market.

So that the only two remaining alternatives to that company were on life support Ericsson and Nokia. So I think that that kind of behavior is something that calls for the application of tariffs, for example. So, I know we're never gonna agree on this completely, but I thought that in some cases, right?

In some cases where the public good that you're protecting is national security, then you don't I mean, then it's appropriate.

>> John Cochrane: If it's well and clearly defined and not just China, China, China, but let's put off the larger discussion. I just wanted to add one great piece of technological news that my computer lit up while we were talking.

Boom, the American supersonic airplane company just broke the speed of sound with the first private supersonic aircraft. So your time to fly to DC back and forth again might just get cut in half. Let's talk about wonders of private sector.

>> Bill Whalen: Let us ponder for a second what happens to Niall Ferguson's world if there's access to supersonic aircraft.

>> John Cochrane: Or hypersonic.

>> Niall Ferguson: Well, I must admit I'm almost at the point of renouncing travel or secretly hoping for another pandemic so that I don't have to go to Davos next year. Perish the thought to be serious for a minute, can I just remind us all that Sputnik moments cut both ways.

It is less than 10 years since China was supposedly having a Sputnik moment when AlphaGo defeated China's greatest player of the board game go. And if you think about the history of AI, that was the moment that Xi Jinping and co realized, we've got to do AI. So the thing about Sputnik moments is interesting is that they actually are, if you think about it, a mistake from the vantage point of the person who initiates.

If you give your adversary a Sputnik moment, they may turn around and up their game. I think we should, we should try and do fewer Sputnik moments, that's my conclusion.

>> Bill Whalen: All right, gentlemen, onto the lightning round. All right, three questions for you this week. The first one, I'd like each of you to name one story that or one development that did not get the attention it deserved HR you go first.

The Philadelphia Eagles do not count.

>> H.R. McMaster: Well, this goes to something Niall said earlier. I think Russia is in a very weak position, Putin's in a very weak position economically. But I think one of the stories that it didn't get enough attention is that North Korea is pulling their troops out of the Kursk area because they're suffering such significant losses.

And as I mentioned before, you know, all armies have breaking points, and I think the time is now to be tough on the Kremlin and supportive of Ukraine. So Donald Trump can go in to any kind of a negotiation in a position of strength. I think the opportunity is there, if President Trump wants to take it.

>> Niall Ferguson: Well, I wanna give a shout out to Christopher Caldwell for a terrific new piece in the Free Press. The headline, the biggest policy change of the century, and he makes the point that most people have barely noticed that last Tuesday, President Trump repealed affirmative action by executive order.

That undoes half century of social engineering, and that is indeed a much bigger deal than you would think if you'd been tracking this in the mainstream media.

>> Bill Whalen: John?

>> John Cochrane: Yeah, which of the many? I'll just choose that the as long as we're on AI that Trump turned canceled Biden's AI executive order, which means we will not kill AI in its infancy.

The way Europe is going, part of that we're not gonna follow them down to committing suicide on our economy.

>> Bill Whalen: All right, gentlemen, Donald Trump last week revoked security protection for John Bolton and Mike Pompeo and Anthony Fauci. He also revoked the security clearances of 51 intelligence officials who had claimed that Hunter Biden's laptop was a Russian ruse, your thoughts on the matter HR?

>> H.R. McMaster: Well, I think it's unfortunate, okay? Unless, who knows what else President Trump did, I hope what he did is in advance of doing that. Got a message to Ayatollah and the RGC. If any harm is done to any of these individuals, you're essentially committing suicide. I mean, that would have been a good message to give him in advance of pulling the security, but these are people who are at risk or they wouldn't have had security, and I think it's regrettable.

>> Bill Whalen: John.

>> John Cochrane: Well, security clearance versus the security protection are two separate. I don't want people gunned down in the streets removing the security clearance for an egregious political act from security, people who are supposed to not do such things. That's the lightest punishment that I could imagine.

Yeah, if you're gonna behave like that, you shouldn't have access to any national secrets, that seems the least he could do.

>> Bill Whalen: Niall, your thoughts, keeping in mind that security protection is very personal for you.

>> Niall Ferguson: Yeah, I have to say this is one of these vindictive acts that I can't endorse, especially as Mike Pompeo and John Bolton have been threatened by the Iranian government.

I mean, there's no question that they are threatened by a hostile foreign power. And I'd say the thing that I find most puzzling about this aspect of the past week is that it's part of a surprisingly dovish stance towards Tehran and I really was not expecting. And I don't like the specifics of leaving Mike Pompeo and John Bolton, who are distinguished public servants, exposed like this, but I also don't like the strangely dovish, Tilt towards Iran, it makes no sense to me.

I think there was a coherent strategy that was available which was to take on the axis of authoritarian powers and take advantage of Iran's weakness. But it's the Tucker Carlson tendency, getting at least some part of what it wants. It's not getting what it wants on Russia, at least not so far.

So they seem to have decided to turn their attention to the Middle east and make arguments that are not only pro Iranian, but anti Israel. And I find that a very questionable policy turn, I hope it won't last. I'm fairly sure it won't last because it makes no sense.

>> H.R. McMaster: I could see it coming, Niall. I mean, I tell the story in the book about the summer of 2017 when President Trump wanted to talk with Iranis. I told him, hey, you're wasting your time, I mean, and the Iranians know this too, right? The Iranians are on the ropes, they want Donald Trump to help them get off the ropes.

And that jackass Serif, was just on Fareed Zakaria's program in Davos, and then published an op ed in foreign affairs, and it's the same line. The same line from the Iranians. Well, if you're just nicer to us, welcome us back into the international order and,

>> Niall Ferguson: We'll stop trying to assassinate people on your soil.

No, I'm totally with you, HR, I think this is a really bad turn of events. I'm just hoping that it won't last because it's hard to see that there really can be any lasting deal between Tehran and Washington. And I think there are plenty of people in Tehran who don't wanna do it because, I mean, there's a division right in Tehran as much as there is in Washington.

I think the national security strategy of the new Trump administration right now is like a free for all between multiple factions. The China first people are fighting with the, let's modify Tehran. People who are fighting with the let's focus on deportation people who are fighting on. Who are fighting with the, we got to worry about the economy people.

I mean, it's got a lot more complicated than it was at Mar a Lago when he was just king. Now it's the federal government and the full bureaucratic turf war is underway, and may the best faction win.

>> John Cochrane: And the same is true of economic policy. But let me ask you guys, so maybe it's just that my, what?

Twitter's algorithm sends me, X, sorry, X's algorithm sends me. But there is a good possibility that both Russia and Iran are on the edge of collapse. And this is the moment where just a little bit being harder might push it under. But also, I wonder whether our intelligence agencies are capable of knowing that.

One of the topics that we talked about today potentially was the CIA finally figuring out that Wuhan just maybe did come from a lab leak after all. Something perfectly obvious to anyone who reads even mainstream media for three years. Not giving me great confidence that these guys are on the secret, just how weak things are inside Russia or Iran and how one little coup d'eras might be the moment to do it.

>> Niall Ferguson: Yeah, I mean, I certainly think the Iranian economy is very vulnerable. And indeed, as they have barely functioning air defenses at this point, they're vulnerable in other ways too.

>> John Cochrane: Absolutely vulnerable, everybody hates them.

>> Niall Ferguson: Yeah, and the Russian story is interesting because it's clear that the Putin's war economy is really reaching breaking point financially. He also has been taking casualties that I'm sure HR would agree are absolutely unsustainable.

>> H.R. McMaster: Unsustainable, 30, 000 at least a month, right? Some days, 1500, 1800 a day.

>> Niall Ferguson: US was losing at peak, this many men in Vietnam in a year. So it is a hard for me to see how Putin can sustain the current war effort.

He will need some kind of ceasefire soon. And that, I think, is one reason why Trump may have foreign policy success in this area if he keeps the pressure up and indeed increase the pressure.

>> John Cochrane: Sky high interest rates, a wave of bankruptcies potentially coming, effectively most of the economy diverted to military uses. This cannot go on very well.

>> H.R. McMaster: Yeah, 47% equivalent to GDP in defense.

>> John Cochrane: Okay, thank you for the number.

>> H.R. McMaster: Yeah, I think it's 30% inflation now, really tight labor market, sitting on piles of cash you can't convert or use, so, yeah, it's pretty grim.

>> Niall Ferguson: So this is why, John, I think the implication of your question is the smart strategy would be to lean on all the authoritarian powers and not to cut any of them slack at this point.

Whereas, leaning on Canada, Denmark, etc, that feels like you're leaning on the wrong people.

>> John Cochrane: Yeah, if it's,-

>> Niall Ferguson: Russia and Iran,-

>> John Cochrane: Absolutely. Actually implementing tariffs on the EU, Canada and Mexico would be a terrible idea and drive the Latin Americans into the arms of China, cleaning up some of the mess that we've left sitting around, even with Canada.

And on the other end, we still have tariffs on lumber from Canada. That kind of stuff's ridiculous, I would hope we would clean that up. The Denmark thing's interesting, Greenland would be a great buy for the US and Denmark doesn't seem to know what to do with it. But that could be handled much more politely, I agree.

>> Bill Whalen: All right, speaking of terrible ideas, or at least what Niall Ferguson considers a terrible ideal, the super bowl fast approaches. So, Eagle Super Fan HR McMaster, where are you gonna be on Sunday the 9th? Are you gonna be at the game hosting a party or does business take you elsewhere?

>> H.R. McMaster: I think we'll be traveling, but hopefully it'll be in front of a television by the time game time, so, yeah, go Eagles.

>> Bill Whalen: All right, John, it runs from about 3 o'clock to 7 o'clock in the afternoon, California time, where are you gonna be, my friend?

>> John Cochrane: I love super bowl weekend cuz everybody stays home and watches tv.

I will either be at a normally crowded restaurant or I will be on the slopes of my favorite Sugar bowl ski resort, depending on the day, enjoying everybody else not being there.

>> Bill Whalen: And Niall, it kicks off at about 11:30 PM London time, is this a cure for insomnia?

>> Niall Ferguson: I just want HR's team to win.

>> John Cochrane: Whichever one that was.

>> Niall Ferguson: I'm now taking an uncomplicated view of American football. I can't seem to make it go away, so I'm with HR, okay, I'm with the Eagles.

>> H.R. McMaster: And, how does Scotland look for the six nations, Six nations is coming up in.

>> Niall Ferguson: Well, Bill shared with me a particularly moving scene from the dressing room after Scotland beat England in a recent calc. It would, I'm sure, gladden the hearts of our viewers to hear the Victoria Scotland team sing. We're a few weeks out from Scotland, England at Twickenham, February 21st.

I'm taking my youngest son, Campbell, for his first ever rugby international and that will be one of the highlights of the year. But yeah, we'll talk about that nearer the time, anything with an oval ball is all right by me, whether forward passes are allowed or not.

>> Bill Whalen: Niall, if you believe the guy has a sense of humor, your son is going to fall in love with an NFL team much the way he fell in love with the NBA team.

And he's gonna have to drag you to an NFL game in London.

>> Niall Ferguson: It's fine, let a thousand Anglo American sports flourish. Whether the ball is round or oval, large or small, sports are part of what have made us great. And so I've just decided to make my peace with all these different sports.

>> Bill Whalen: Gentlemen, we're gonna leave it there, great conversation. What a busy eight days it's been, and it's only just begun. On behalf of the good fellows, Sir Niall Ferguson, John Cochrane, Lt Gen. H.R. McMaster, all of us here at the Hoover Institution, we hope you enjoyed this conversation.

We hope you follow us regularly on YouTube, please subscribe if you wouldn't mind, and stay tuned for our next show, which will be, as I mentioned, in early February, not long after the Super Bowl. Till then, take care, thanks again for watching.