Doomsayers, A Doomed China, And . . . President McMaster?

>> Bill Whelan: 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. I'll be your moderator today. And I am pleased to report that we have all three of our GoodFellows in the house today. That would include the historian Neil Ferguson, the economist John Cochran, and the geo-strategist, lieutenant general HR McMaster.

They are Hoover Institution senior fellows, all. Gentlemen, we don't have a guest today, we don't have a central theme, we're doing viewer mail questions. So, I'd first like to start by thanking everybody watching this show who bothered to write into us. If we do not get your question today, do not take it as a personal slight, this is just simply a matter of quantity, not quality.

Too many questions, too little time. So the more I talk, the fewer questions we get, too. So I will shut up and we'll get to the questions. Let's do a twofer to begin, guys. Michael from Washington state writes the following. Given the recent or consistent downturn in the Chinese economy in cold War II, what might you predict would be the crossover point or trigger to China lashing out economically or militarily.

At powers that seek to contain or thwart them in a particularly aggressive manner not normally seen? This dovetails of the question from Anthony in Taiwan, who laments the sad state of the CCP controlled economy. And he asked, quote, I was wondering if you all could weigh on, on whether China goes out with a bang or a fizzle.

Neil, you wanna start off Bangor or fizzle? And what is the tipping point for China?

>> Nial Ferguson: Well, I don't mind starting off. I just gave a lecture in Zurich last night on the subject of mutually assured financial destruction. And the argument of the lecture was that the United States and China have a version of the problem that characterized the first Cold War.

The first Cold War, you had mutually assured nuclear destruction, which, according to the theories of Tom Schelling and others, was supposed to prevent world War III. And maybe it did because World War III didn't happen. But in any event, by the 1960s, it was argued that both sides had such destructive nuclear capability that there really couldn't be World War III, hence assured destruction.

Now, I think we have a different thing in the second Cold War that we're in now, which is that the United States and China can't really afford to have a war. Because of the frailties, the very different frailties of their economic systems and the fact that they're still highly interdependent.

Which is of course the big difference between Cold War I and Cold War II. In Cold War I, there's basically not much economic interaction between the US and the Soviet Union. In Cold War II, there's still a lot of interaction between the US and China. What do we see right now?

China slowing down, disappointing investors. Everybody realizes that the problems are profound, structural, demographic, debt related. The real estate sector is in the tank. John, I'd be interested to hear your thoughts on the idea that this is a little bit like Japan after the 1980s bubble, balance sheet recession in many quarters of the economy.

So I think the big question about China is, do these economic problems make Xi Jinping more likely to take risk geopolitically or less likely? And I think I'm gonna come down on the side of more likely because I think as the economy slows, the CCP has to rely more on nationalism for its legitimacy.

So I think we should assume that a China slowdown might actually increase the risk of a confrontation of the Taiwan. I'll make one last point, I think the US has its own kind of constraints on the economic side. The economy is growing strongly, consumers are still spending. But if you look at the fiscal numbers, they're absolutely terrible.

And the latest revisions of the deficit outlook by the congressional budget offers are absolutely eye poppingly terrible. It's an unsustainable fiscal trajectory the US is on. And so the US cannot afford to do the kind of modernization that I bet HR thinks they should be doing ahead of any showdown with China.

Think of the submarines that are really in need of upgrading. Think of the fact that the surface fleet is so much smaller now than the Chinese surface, we can't afford to do it, why? Because debt interest is gonna absorb a larger number of dollars than the military budget with effect from next year.

It's already practically the same amount of money according to the latest numbers going on debt service. So I argued that that there's mutually assured financial destruction on both sides. In their different ways, these superpowers have serious economic problems.

>> Bill Whelan: John.

>> John Cochrane: Yeah, so we've been talking about China for a while and I'm glad to see that some of the analysis that emerged, not individually but collectively here turned out to be right.

China has this crazy, overbuilt real estate sector. A lot of its local governments are kept afloat by selling land to real estate developers, but that eventually runs out. So they're out of money way too much debt into real estate and now kind of coming to its fizzle. But recessions don't give rise to wars.

And on its own, where I see China headling is fizzle is stagnation, not implosion. And communist regimes can stagnate for a long, long time. And that's really their problem. Remember, China is still quite poor relative to the US. Its issue is long run productivity led growth, not aggregate demand, recessions and so forth.

Now fizzle, when does fissile turn into international thing? Here I'll a little bit defer to my better historian and military colleagues, but as long as they're secure in power, they can stay with a fizzling economy for a long time. What we've seen is countries lash out when they need some external threat in order to solidify their internal power.

That's kind of a political internal question, rather one than one that is driven by economic affairs. Now, as Neil points out, we're in a competition for dysfunction, here, I do put my chips a little on the US. China's got a big problem, how can it let its economy grow and maintain autocratic rule by the Chinese Communist Party?

To which nationalism and lashing out maybe one trick. The US, we are in a rat hole, but the policy response is stop throwing money away into the tunes of hundreds of billions, get out of the way and let the economy really grow. We need simple fiscal reforms. China has this big problem, how do you let a private, open, internationally open economy develop?

Cuz they need ideas from the rest of the world, they need the exports, they need all that stuff while staying in control, that's a real problem. So I forecast fizzle and I think you see geopolitical problems when there's an internal problem or when is the time to grab it.

If the US turns into a fiscal crisis, if the current huge just surge in deficit and a crisis turns into a real problem in the US. The other time that countries lash out is when they see an opportunity that your opponent is really busy with his own problems.

 

>> Bill Whelan: NHR the idea of a crossover point or trigger where China latches up militarily. And my question would that be internal or external driven?

>> H.R McMaster: I don't know, I think our viewer asked the perfect question, right? Does the economic situation that China is facing, the difficulties theyre facing, does that make them more or less aggressive?

And id like to think that Neil is right that of course China would back off because of mutually assured financial destruction. But im thinking Neil back to World War one, right? And Jan Block and Norman Engels work about war no longer being feasible because its not in anybodys economic interest to wage war.

And then of course you had the first world war immediately following that. So I think that when you look at the CCP you have to especially think about what is the ideology and what are the emotions that are driving and constraining those leaders. It didn't make any sense to do zero COVID, economically.

It didn't make any sense to crack down on the most productive sector of the economy, the tech sector. But Xi Jinping did it anyway because as John mentioned, the party will continue to prioritize maintaining its exclusive grip on power over what makes sense from an economic and financial perspective.

But I do wanna just go back to Neil's comment. He's so right, I mean, this is about relative economic strength in this competition. And if we don't do something, I think to stop the service on the debt from consuming the discretionary part of the budget where defense is.

We're gonna have a really hard time developing and fielding the countermeasures to some of the new People's Liberation army capabilities. And as Neil mentioned, to be able to develop military capacity so that we could operate in sufficient scale to deter a conflict.

>> John Cochrane: Just quickly, defense though is cheap.

We're throwing trillions of dollars down, complete rat holes of energy policy alone. And a trillion dollars would buy you a lot of stuff, in the defense area. So people keep saying defense is this big problem for the US. Even 3% of GDP, that's not three to 4% of GDP, is not a huge fraction of the government budget.

 

>> Nial Ferguson: Absolutely.

>> H.R McMaster: It was historic low, actually, in context of the cold war and post cold war period even.

>> Bill Whelan: We received several questions relating to the BRICS countries. BRICS, the acronym for Brazil, Russia, India, China and the SS of South Africa, I believe. Frederick from Sweden writes, how will the development of the BRICS block shift the international power balance can the petrodollar survive in this changing climate?

And a question from Ryan in central New York, a question for Neil and John. He writes, BRICS nations recently signaled a shift away from using US dollars for bilateral trades which have already been skirting the western sanctioned efforts on Russia. Is this speeding up the end of the us dollar hegemony or more largely speeding up the transition to a multi polar global order.

HR, why don't you start with the power balance, then Neil and John can step in on the almighty dollar?

>> H.R McMaster: Well, I think this is a trend that we've seen for quite some time. The expansion of BRICS is just another manifestation of China and Russia courting what some people call the global south.

What I hope for is that over time there'll be a recognition that China's expectation of servile relationships with these countries will help them come to the conclusion that it's unwise to bandwagon with Beijing. When BRICS before, well, before BRICS had any inclination to expand, I found it a useful forum because we had India inside of that forum.

And on critical issues, that is important to advance our interests with China, with Russia, the Brazilians at times, or the Indians at times could provide a voice for policies or behavior or to advocate for behavior that was aligned with our interests. So I don't see it as a disaster or anything.

But I think it should be a wake up call that we have to compete more effectively for influence in critical parts of the world.

>> Bill Whelan: Neil and John, what does the future of the dollar look like?

>> Nial Ferguson: Well, I would begin by saying, don't take the BRICS too seriously.

The idea of BRICS started as a Goldman Sachs marketing device. My old friend Jim O'Neal came up with it when they were trying to get their clients to invest in emerging markets. And the BRICS were gonna take over the world, there were these wonderful charts, Jim used to show where they would all overtake the United States at various times.

Well that suddenly seems a lot less persuasive these days. And so the BRICS have morphed into a kind of tool of Chinese propaganda, where the Chinese bring in not only the initial founding countries, Brazil, Russia, India, China. Then they added South Africa, and now the Saudis are getting in on the act.

And it's all really designed to signal a geopolitical reorientation. And journalists love it because they get to add up the GDP of all the BRICS countries and then they add up the G7 GDP, and they say, you see, it's all over for Uncle Sam. But this is all kind of unpersuasive to me.

First of all, there are clearly members of the BRICS playing a double game, India being the obvious example. Somebody described India's approach to international relations as not friendships so much as situationships. And these situationships, of course, change from week to week. This week we're friends with the United States, next week we're friends with China, and you get the general idea, it doesn't add up to a whole lot, I think, when the chips are down.

As for the dollar, I've been reading and writing articles about demise of the dollar for a very long time. And it's still the dominant reserve currency, and it's overwhelmingly the most used currency in international transactions. I mean, the dent that is made in that dominance by increased use of the Chinese currency is really pretty small.

It's not a convertible currency, so not many people would rather have RMB than dollars, you're gonna take RMB if you can't get anything else. So this isn't really a meaningful challenge to the dollar's dominance. And there'll never be another currency called the BRICS currency, that's just a kind of talking point for the brazilian president, Lula.

So I think that that's why I'm not too fazed by the BRICS. John, I don't know you agree with any of that, but can it be skeptical?

>> John Cochrane: Most of it, yeah, I'll agree, first of all, the BRICS, what do these countries have in common? Is a good question worth asking.

Not much, except meekly some vague anti Americanism from the old non aligned movement, especially once Iran is part of the club. What are you guys doing here? There is the serious question of America now not spanging the same. I mean, Wagner has basically colonized a lot of sub Saharan Africa, and we should be able to stop that pretty quickly if we care.

I think a lot of what's going on, and this is why I'm kind of a Ukraine hawk, kind of sitting around saying, who's serious here and who's going to win? And is America gonna be serious? Is America and Europe gonna be serious about how the global arbor works, or should we kind of hedge our bets?

I've seen as kind of a hedge our bets, a dollar first, the dollar remains indomit and likely will. I think we vastly overstate how beneficial it is to the US that the dollar is the reserve currency. If it stops being the reserve currency, it gives us the right to print a few more dollars and send them abroad in return to fund trade deficits for a while.

And first of all, people who talk about dollar dominance, I'm not sure they all understand that Trade deficit, I like trade deficits printing money, sending it abroad and they send us stuff is great. But you have to be a free market economist to think that's a great idea.

That's all it gives us and to a very limited extent so it's really not that important for the US what's really going on I think here is sanctions. What they're creating is a break glass in case of fire not very efficient, but rough and ready way. The US is using debanking sanctions pretty indiscriminately it's a very powerful tool, but it's a powerful tool so long as people don't have an alternative mechanism.

So what I really see them is not building a new trading platform that will undermine dollar dominance and people won't hold treasury bills anymore and won't invoice in dollars. No, that won't happen until it happened to the pound when the US got bigger that won't happen for a long time.

But they are building a way to evade sanctions financially and, well, we've used sanctions a lot of so that's a thing we ought to think about when we use financial sanctions is the incentive it gives to build a rough and ready, not very efficient way of financially busting sanctions.

 

>> Bill Whelan: We have a question from Ben in Kansas, who writes, is it time for the five permanent members of the UN Security Council to let in new members? If so, who? HR.

>> H.R McMaster: No, no. Well, I think because it's already so problematic. Right what can you get done within the Security Council now with China and Russia?

And then I would have been an advocate maybe for India, but as Neil said, India is certainly hedging this is a country that has given space, maybe to some of the Chinese propaganda, but certainly to Russia and has continued onslaught in Ukraine for reasons that are kind of understandable.

But India was kind of the leading candidate for those who were talking about Security Council expansion. So I just think we just have to be realistic about what the Security Council can and cannot get done. There's still a lot you can get done within the United nations on the margins around the Security Council, but it's already kind of moribund.

Based on the nature of the competition with Russia and China.

>> John Cochrane: Shouldn't we kick out some old members of the Security Council like Russia, for example? Why did they actually, the Soviet Union was there how did Russia get to inherit that seat without any questions? But I'll tee up also because I'm sure Neil is ready to go on this one.

Isn't the UN just a completely dysfunctional organization at this point, which needs to either fundamental reform or just give up, which I think we've just kind of given up? Let it trundle along and issue its communiques, but nobody pays much attention anymore.

>> Nial Ferguson: I'm kind of tempted to say that maybe the way to just finish it off is to add a whole bunch of new members to the Security Council, ensuring that absolutely nothing can get done.

I prefer the idea of kicking Russia out as it's in clear violation of international law and its government is perpetrating war crimes in Ukraine. It's quite hard to understand how they can legitimately be on the UN Security Council. So I think I like John's idea. Let's not grow the Security Council let's shrink it minus one.

 

>> Bill Whelan: Well said we had questions directed to individual good fellows Neil, here's one for you. It comes from Nathan in Reno, Nevada. In researching your book Doom, did you come across anything related to the ability of those who foresaw one crisis to predict the next? Or is there a high likely that those who were correct once see indicators of trouble in many things, leading them to predict danger when it is unwarranted to do so?

 

>> Nial Ferguson: That's a great question. And it's the case that I did think a lot about this writing. Doom Cassandras, in fact, do quite well in our society, much better than in ancient Greece, because there's always a market for a prophecy of doom. You will nearly always get your op-ed published if you are predicting an American civil war, another great depression, world war three, and so on.

And so there's a regular torrent of articles like that and there's a good business to be made by predicting a financial crisis every year, because at some point there'll be one, and then you'll be hailed for your prescience. Unfortunately, people who consume that kind of commentary don't keep score.

They tend to forget that the doom monger has been wrong nine years out of ten or 19 years out of 20. And so I think the lesson I learned from writing doom is just as economists have predicted nine out of the last five recessions, so geopoliticians have predicted nine out of the last two world wars.

And I think that should make us all skeptical about doom mongers as a species, doom cells but you'll have noticed that the world hasn't ended yet and there have been way fewer disasters than there have been predictions of disaster.

>> John Cochrane: I would agree with Neil on this one we're living this year right through the absence of the most widely predicted recession pretty much ever.

Confounding conventional wisdom as well as the Cassandras. There's a mech here economics has something to offer. There's a mechanism, there's a reason that crises are hard to predict why is it you can't predict a financial crisis next year? Cuz if there was a scientifically valid to predict way to predict what would happen next year, you would run and get your money out today.

If everybody ran and get their money out today, we'd have the crisis right now so very much like the way stocks are not predictable. And this is a place where we have real, I'll call it scientific evidence, that theory people who do financial economics have looked really hard at the claims that people can predict the stock market, ups, downs, crises, whatever, and the answer is no.

Some people get it right some people get it right many times. But if you do this on the basis of keeping score, which we do, remembering all the people who made false predictions and so forth, there is the amount that people are able to predict the stock market is absolutely next to nothing.

It's very selective it's very interesting my uncle said it would go down it went down, but it's really not there. HR may want to chime in on the predictability of war and international crises, which I think has the same problem Cassandras have mechanisms. The people said financial crisis, they were right they saw fragilities.

The problem is you tend to be right once, and it's hard to integrate that thinking into better predictions.

>> H.R McMaster: Well, I mean, kind of predictable for an historian, I want to say I think one of the keys to forecasting, and there's a book super forecasting years ago. I forget the names of the author, but you know.

Philip Tetlock? Yeah, great book I think it had like six keys to success in forecasting, and one of them appealed to me as a historian, which is to spend twice as much time looking backward as you do forward. And I think oftentimes what happens and I used to have this job of designing the future army, and I looked back at how wrong we had been, oftentimes about just the character of future warfare.

And the conclusion that I came to is that those who were the most wrong about the character of future war neglected continuities in the nature of war and were biased in favor of change. And so the historian Carl Becker, in an address he gave, I think, to the American Historical association in 1938, he said, memory of past and anticipation of future should walk hand in hand in a happy way.

I think that the real key to success, though, to being a forecaster, is to forecast far enough out such that you're long gone by the time, People understand what the reality is. So I think the key, what's important is to make a grounded projection into the near future and to do so based on an understanding of how the recent past produced the present.

 

>> John Cochrane: I know Bill wants to move on, but HR you bring up a really good point, cuz we're trying to do this right now. Here we are dumping on forecasters, and what do the four of us do week after week but try to peer in the future and say, there's gonna be a debt crisis, even though we've been talking about that since 1980 and it hasn't happened yet.

China's gonna invade Taiwan. So the capacity of both individuals to get this right is important, and the capacity of governments and policy institutions to assimilate those information, and at least if not to forecast the future, to understand the risks that you should be hedging in. This is my standard advice for finance is, number one, don't try to say, here's where the market's going take advantage of it.

Make sure that you've got the risks all in a row. I learned this from HR. That's how you run a military campaign. But we shouldn't take it too lightly cuz we're in that business.

>> H.R McMaster: Just quickly on this. There is a methodology you can apply. We're gonna go into it now, but there's a way of thinking about alternative futures that helps you think about indicators, false indicators.

And then I think the way to understand really what the alternative futures are is to remain engaged with it. You can't just make a prediction and then disengage from that problem set. And there's a book by RP Eddie and a co-author on Cassandra's that lays out this kind of methodology that's pretty good as well.

 

>> Bill Whelan: Neil, you want to add something?

>> Nial Ferguson: I was gonna say that the key thing, if you're going to try to do what, as John rightly says we do, is do it honestly and keep score. It's something I introduced at Greenmantle, my advisory business, where we basically score every predictive statement that we make in our research at the end of the year.

 

>> Bill Whelan: Yeah.

>> Nial Ferguson: And we begin the year with a set of predictions that we then assess at the end of the year. It's humbling because you're gonna do at best 66%. You might get to 70%, but you will just get stuff wrong. And the problem for so called public intellectuals who just pontificate in op eds is that they don't hold themselves to that kind of account.

And they also fall into the trap that if you get something right and you're hailed for your prescience in the media, then you're strongly tempted to think that you were in fact prescient and that you should keep doing it. And hence the phenomenon of doctor doom. And it's a kind of intellectual trap that some people, I'm not mentioning any names fall into.

So I think the key, and this goes right back to our listener's question, is be honest about it and make sure that the pundits you're reading practice that kind of rigor. Otherwise it just does become a kind of a phony game, as HR says, where you're never held to account for the prophecies that turned out to be wrong.

 

>> H.R McMaster: And it's okay to say, hey, I don't know. I don't know. I mean, there's some things that are just impossible to predict, right?

>> John Cochrane: I also got to add one last thing. Predicting the future is largely about predicting shocks, which is predicting the unknowable. But we largely speaking, actually do know something.

Cause and effect statements are things. Ifs and thens are something we know a lot more about than what's gonna happen in the future. I don't know where the economy is going next year, but I know what happens if you pass a rent control law with great certainty. So we know more.

Don't evaluate intellectuals or our enterprise just by unconditional forecasting what will happen next. We know a lot more about if thens and we know a lot more about risks.

>> Nial Ferguson: I can't resist adding that the superforecasters were terribly wrong about the war in Ukraine. So even the super forecasters felt fall flat on their face periodically cuz history is indeed the realm of uncertainty and the unknowable.

And that's why the game of prediction is in some sense a futile one.

>> Bill Whelan: Okay, John, put on your track shoes. I wanna give you three questions. I want you to sprint for them. Are you ready?

>> John Cochrane: I got to get my famous notepad. The Neil Ferguson notepad.

 

>> Nial Ferguson: Three questions, the rest of us can go home.

>> Bill Whelan: By the way, Neil had his head down at one point. Neil is maybe taking notes too, but, okay.

>> Nial Ferguson: No, never.

>> Bill Whelan: Okay, John, quick questions. Here we go. Question number one, the US Debt is over $30 trillion.

In 2024, the US is projected to pay nearly $800 billion in debt service alone. Question, how does this end? Or alternatively, is now the time to start buying gold?

>> John Cochrane: That's a good question.

>> H.R McMaster: I'm glad you got the math question.

>> John Cochrane: It ends either with ruinously high taxes, big inflation or fiscal consolidation primarily focused on growth.

Good luck. Is now the time to buy gold? No, gold is a terrible way to hedge yourself. If you're worried about inflation, the best thing I can offer is long dated treasury inflation protected securities, which are pretty good unless the US government defaults.

>> Bill Whelan: Good sprint. Well done.

Question number two, is a higher interest rate better for the economy? What can we glean from history?

>> John Cochrane: Like all prices, higher interest rates are sometimes a cause of bad things and sometimes a sign of good things. There's always supply and demand. Higher interest rates are great for savers and not so great for borrowers.

Largely a transfer. An economy that's growing really fast because there's lots of productive opportunities, lots of demand for capital building stuff that's gonna have high interest rates, that's a sign of a good thing. Higher interest rates, they can also choke off. So there's always supply and demand. Nothing is ever per se a good or a bad sign.

Neil, did you want to jump in on the history aspect of that question?

>> Nial Ferguson: I am just loving the concise John Cochran.

>> Bill Whelan: Let's see if John could go for three, a question from Don in Ontario, Canada. I worry about productivity, wealth generated per capita. What are the basic elements that support sustained and increasing productivity, and the elements that lead to decreasing productivity?

 

>> John Cochrane: Productivity is the most important thing and the most important economic question is long run growth. And that comes from long run productivity growth, being able to do more per hour. So that's the right question and the one that we largely ignore. In the long run where it comes from is really better ideas, better ways of doing things which get implemented into better products, processes and usually into new companies and is always disruptive.

Everybody hates growth. People don't like Uber taking over from the taxis. People don't like building factories next door. So that's it is the most important economic question fundamentally it comes from the freedom to innovate and to find and implement better ideas.

>> Bill Whelan: Neil, are you impressed?

>> Nial Ferguson: It's John's productivity which is just blowing me away.

I don't think we've ever witnessed anything quite like this on GoodFellows. I don't know what coffee you're drinking today, John, but I'd love a recommendation.

>> John Cochrane: The Hoover Institution free tea from their tea room, which I highly recommend.

>> Nial Ferguson: Wow, that stuff is.

>> John Cochrane: I thought it's terrible, but it's got the right amount of caffeine in it.

 

>> Bill Whelan: I'm getting some of that.

>> H.R McMaster: I'm gonna get some of that.

>> Bill Whelan: Okay, HR, you're up. We have a question from Del in Crown Point, Indiana. He writes, in Ukraine, what lessons are being learned about weapons and tactics and who is learning them? Similar to the Spanish Civil War being a testing ground for Germany in the 1930s?

 

>> H.R McMaster: Yeah, I think there's tremendous amount of lessons being learned, which have to do a lot with some old lessons and some new ones, right? And I think what we're learning overall is that new form Forms of warfare don't replace the old ones, they're often times additive. And I think that's a headline lesson and then, of course, there are all sorts of lessons involving specific types of weapon systems, ubiquity of drones.

But now we're also seeing the countermeasures to drones for example. Russia's quite considerable electronic warfare capability and GPS jamming, for example, makes drones much less effective. So I think what we're seeing is war and warfare's interactive nature, continuous adaptation and highlighting some of the continuities in the character of warfare as well as some changes.

 

>> Bill Whelan: Niall or John, you wanna jump in on that?

>> Nial Ferguson: Well, I was gonna say to illustrate that point that you made earlier, HR, about the future and the past walking hand in hand. To me, the really striking thing about the war in Ukraine is that it combines elements of the frontier of innovation, particularly the use of drones for reconnaissance as well as attacks with World War I fortifications.

Its trench warfare, the Russians have dug themselves in and made it very hard for the Ukrainians to stage a successful counteroffensive. And its a perfect illustration of that point that you made HR. I'm on my way to Ukraine later this week, and I will be very interested to hear what the mood is because its hard to escape the sense that they haven't been able to achieve the decisive breakthrough that many people were hoping for.

There's a small breakthrough thats been reported this week, but its hard for me to see that that will suffice because if there's only one, the Russians will be able to deploy reserves. So its striking to me how much all the novelty, particularly in the use of drones, has coincided with almost a return to the war of 100 years ago.

 

>> John Cochrane: Well, this is a great chance for me to ask. Bill asked us to each prepare a question for the other one, so this was my question for HR anyway. Yes, Ukraine is very interesting. Now it is trench warfare without air power, so we're back to 1913, 1914, sorry, 1914, trench warfare, which is, it's not clear that's going to be repeated.

There's peculiarities of this one that doesn't have air power, but we are seeing the drone warfare that seems to be very new. And there was a Wall Street Journal article just a couple days ago saying, we were talking about military procurement, that our military is, its claim was the next naval war is gonna be the war of the naval drones.

And that the big battleships and aircraft carriers are gonna be just completely useless and sitting darks. And it's not that we're not spending enough money, we're spending money on completely the wrong things. So in this new drone warfare, and particularly how it affects the Navy, which I know it's never gonna affect the tank, right?

But that seems to be incredibly lethal, there's nowhere to hide anymore on the battlefield. That seems to change the way things are gonna run pretty fundamentally and in ways that maybe our military isn't thinking about.

>> H.R McMaster: Yeah, well, I think this was kind of predictable. Back in the early 90s, I wrote a white paper for the chief of armor in the army.

And one of the lines in it was that in the future, all forces will have to operate as if they were in visual range of the enemy based on the increased transparency of the battlefield. Which will put a big emphasis on being able to operate broadly dispersed and employ traditional countermeasures, dispersion, concealment, intermingled with civilian populations, but then be able to concentrate rapidly.

So you need a high degree of mobility. There are all sorts of other implications, obviously, for the development of future forces. But I think what you're gonna see, John, again, is this kind of combination of old and new. Aircraft carriers may still have a role in projecting aircraft into areas along lines of communication, but they're gonna have to operate outside of these sort of anti-access air denial bubbles.

You're gonna have to try to jam enemy satellites or disable enemy satellites or other ways of locating that aircraft carrier and then to be able to disrupt the kill chain associated with that. So it's gonna be this continuous interaction, integration of these drones, which now are not experimental anymore.

They're being employed by the US Navy, the Australian Navy, undersea drones. But they'll be in combination with some of the old and so for the tank, for example, I think every tank should have multiple unmanned systems that it can operate from that platform. They can provide early warning of enemy activity that can help that force move quickly with mobile, protected firepower, which is what a tank is.

So that'll exist in some form, it won't look like the current tank, but so you can employ mobile protected firepower quickly by moving rapidly between reconnoitered areas. Rather than what the Russians did, which was lead with their nose and drive their tank down a road until it got blown up.

So I think it's gonna be these combinations of capabilities you're gonna see on air, sea, land, aerospace, cyberspace. But the pace of change is accelerating.

>> John Cochrane: And Ben we need to invest in that change. Let me ask HR a quick another question while we're in Ukraine. Was it a mistake to pause over the winter?

One thing I learned from military history is no matter how tired you are, you should always pursue the retreating enemy. And it sounds like stopping and waiting for the winter for Ukraine to get its act together was, in fact, a big mistake. Do you think so?

>> H.R McMaster: I think it was a mistake to wait, to give them the capabilities that they were gonna need for a sustained counter offensive.

But really, both sides kind of culminated after the summer, and the Russians got overextended. The Ukrainians conducted that massive counterattack may, June, and so forth, which reclaimed 22,000, I think, or so square kilometers of territory. But then that crunched down the Russian lines, and the Ukrainians were unable to develop the combat power to penetrate those defenses.

So I just don't think it was feasible. And those who were saying, we're really disappointed in Ukrainian offensive, I think it was kind of predictable. It's hard, it's really hard to penetrate that kind of prepared defense. And what you're seeing is the effect of electronic warfare, as I mentioned, plus artillery.

And these fortifications need more combined arms capabilities. They need more mobility assets, combat engineering, which I think we talked about a few shows ago.

>> Bill Whelan: Okay, one more question for HR comes from Jake in Michigan. He writes, General McMaster, I'm a proud veteran US Army, the 75th Ranger Regiment in Operation Enduring Freedom.

After the completion of my service, I was blessed with the opportunity of receiving my BA in history, studying under Victor Davis Hanson, and encountering your excellent book, Battlegrounds. The conclusion of your book not only profoundly moved me, but offered a compelling reminder to young Americans like myself that Americans have and can overcome any obstacle in our path.

What is your advice for a 30 year old like me for reinvigorating a love and duty of country into my fellow millennials?

>> H.R McMaster: I mean, I think talk to them about the rewards of service. We have this crazy narrative out there today that portrays the military as, like, extremist or woke, it's neither of those, right?

The military is committed to supporting, defending the constitution of the United States. And what is so rewarding about that kind of service together is your ability to come together in an organization that really takes on the bonds of the family based on common purpose and mutual trust and respect.

And being part of this kind of family in which the man or woman next to you is willing to give everything, including their own lives, for you. So I think a lot of times these days, you see portrayed popular culture that veterans are fragile, traumatized human beings. When, in fact, veterans like this member of our audience goes on to make tremendous contributions to our society.

After they leave uniform, we have a great veterans fellowship here, at Hoover. I'm telling you, readers ought to check it out, because what these are are veterans who have decided to continue to contribute, to America in other ways. And then Hoover offers its resources to help them crystallize their idea, and implement their programs.

And so I would just say, talk to young people about the rewards of military service, encourage them to volunteer. I mean I think that, in no other walk of life, can you take on more responsibility at a younger age, and you dont have to serve for a full career like I did, man, like 34 years.

My plan was to serve five, I did a bonus 29, you dont have to do that. So I think, talking about the rewards and the last thing id like to say to this viewer is rangers lead the way.

>> Bill Whelan: Well said, lets stick with two questions about Ukraine, Jurgis, Lithuania writes, if Donald Trump wins the presidential election in 2024, how would us foreign policy towards NATO change?

For example would you see a risk that us might not comply with or might interpret differently? Article 5 of the NATO Treaty, and Barrett in Austin Texas writes, does the death of Prigozhin change anything in geopolitical strategic terms? He adds by the way John Cochranes loved the show I've about John Cochrane's fiscal tome to round out my Goodfellows bibliography.

O'Neill what about at Pergotian? What changes?

>> Nial Ferguson: Well, we said when the mutiny attempt happened, that this was a mafia state, and since Pregozhin failed to rally other Mafiosi to the mutiny, was pretty predictable, that he would meet with a sticky end. And Putin waited two months, and on the two month Mark he rather spectacularly took Pregozhin out.

That reasserts Putin's authority as the Capo dei Capi, and ensures that anybody who is contemplating similar insurrection has been deterred. It's kind of an open and shut case I think, the interesting point that is worth pondering is why he waited two months. And I think the answer to that is that the complexity of the Wagner Group, it's operations that extend as John mentioned earlier.

All the way into, Africa, leading to coups and instability in a bunch of African countries, took a while, I think, for Putin to figure out, enough to be able to take it over and take out progression. It hasnt had, major implications I think for the conduct of the war, any hope that this would cause a crisis of morale amongst Russian troops I think has, long since dissipated.

And so we're left with a war of attrition, that is very hard for Ukraine to win without the kind of air power that you would need to make a success, the kind of offensive that they're conducting.

>> Bill Whelan: HR you're as close as we come on the show to a resident Trump whisperer so, why would Trump treat NATO differently in a second Trump term?

 

>> H.R McMaster: I don't know, I don't know, I mean, I think so much of his approach toward allies make sense, but then he engages in contradictory behavior. For example, hes all about burden sharing, which is good, and he was right, I think, to complain that, certain countries were free riding Germany in particular, others.

But then, at the same time, he doesnt recognize sometimes the value of alliances for burden sharing. So I dont know, I think its just hard to predict and I dont really know how, enough about how his thinking evolved after I left in 2018, but I would be concerned about it.

I do think that this is what is keeping Putin hopeful, is this idea that the transatlantic community and NATO and the us relations with the EU will fragment. Because he believes we're fundamentally weak, decadent and everything already. And so he just thinks he can wait us out, for us to collapse in terms of at least the willingness to support Ukraine.

 

>> John Cochrane: Let me make two comments, precocion, what I see here is the Russian state taking over this Mafia Empire. Especially in the third world, which has essentially colonized these countries, put its soldiers in, and taking raw materials out, and that's a nice business for Putin. It's too bad Putin couldn't arrange a nice Russian orthodox baptism to be at while the plane went down, that would have really made the point even better.

Trump.

>> H.R McMaster: What he was doing John, he was pinning medals on Russian soldiers.

>> John Cochrane: He did I'm sorry, I didn't know that, thats good.

>> H.R McMaster: At that moment, so there was a choreographed moment like, the baptism of the godfather.

>> Speaker 5: Do you renounce Satan?

>> Speaker 6: I renounce.

>> John Cochrane: I didn't know that, fantastic, we just need a good musical score on right there.

 

>> Bill Whelan: All differences have been settled.

>> John Cochrane: Trump and NATO, I think if you think about what happens after, if Trump gets elected, his personal policy preferences regarding NATO, are the least important issue, especially in foreign policy. If it's Trump versus Biden, I said it last time, but I'm going to keep saying this over and over again.

We are headed for constitutional crisis, especially if it's Trump, the democrats, first of all, it's gonna to be litigated. This one's gonna to go to the Supreme Court no matter what, every single, ballot is gonna to be litigated. The chance that the Democrats, say well we lost this one, Trump is president.

He gets to do foreign policy and do what he wants, the heck with that, it's gonna to be the entire institutional apparatus of the government. The Democratic Party, feels with some reason, that Trump would be completely illegitimate, no matter what fraction of the vote he gets. And they will treat him like that ,it gonna be scorched earth warfare in Washington.

The last thing anyone's gonna to be paying attention to is, Trump's statements about how we interpret article five of NATO.

>> Bill Whelan: Neil here's one I wanna you to take on from Clive in Seattle, presidents and leadership in both the democratic and republican parties in the US are getting older.

Compared with European countries being led by much younger leadership, the US seems at odds with its peers. Is this just a phase that major countries go through? Is it a bug in the US system? Will the US revert to younger leadership?

>> Nial Ferguson: It will, I think revert to younger leadership, and the sooner the better.

I think the public is conscious, including many Democrats, that the President Biden, is really much too old to be in the most demanding job in the world, which I think the president of the United States, is. Why has this happened? My friend at Princeton Harold James wrote a great essay in 2020, which I may have quoted before on Goodfellas, about late Soviet America.

And I like this idea, because it captures some of the institutional sclerosis that can happen to any political system. If elites become too entrenched, if there are no good mechanisms for propelling people into retirement. I mean look at the difficulty of getting Dianne Feinstein to retire from the seat she occupies for the Senate, I think this is a dangerous path to go down.

It's dangerous because the evidence of Biden's senility, of course adds to the risk that in a rerun of Trump v Biden. The Democrats lose, they must be aware that they're running a big risk in doing this. And I noticed Nancy Pelosi jumping to the defense of Joe Biden and arguing that age was no bar.

Well, it takes one to no one, doesn't it? You come to the UK and the politicians are all younger than us, including recent prime ministers and you can see that that has some risks too. I think Liz Truss fell victim to her own inexperience when she was very briefly and ignominiously prime minister.

So I don't wanna say I'm a believer in the cult of youth, it just seems to me that the US needs a new generation. And that generation is there in Congress, it's there in political and public life. And it's been kept, as it were in the wings, by the baby boomers who just aren't ready to accept that it's time to focus on their golf game and their grandchildren.

I wish that some of those listening, get this message across because we could have a very different election in 2024. Let's imagine it's Newsom versus DeSantis, I think that would be a refreshing contest if we could only have it.

>> Bill Whelan: Is it that simple, John? Or a bit to boomers not getting off the stage?

 

>> John Cochrane: Well I would add that, what I want is competent leaders, I don't really care about their age. I would rather they weren't senile but, the problem with America is incompetent leaders, not so much their age. Remember Ronald Reagan had this great line about, I will forgive my opponent's youth and inexperience when asked about his age.

 

>> Ronald Reagan: I will not make age an issue of this campaign, I am not going to exploit for political purposes my opponent's youth and inexperience.

>> John Cochrane: So there is something to experience when people are still there, but what we desperately need is get back to competent. And the republican debate was, most of them seem completely competent, now, we need to expect of our leaders, mind the store, just keep this thing afloat would be good enough right now.

I think that would be nice, as opposed to the way things go and I think part of the problem there, it's a structural problem. Why are we picking leaders that nobody wants? And we're headed down this completely predictable disaster right now and I think a lot of it is in the rules of the game.

I'm an economist, so I look at the rules of the game and when political parties were strong, they would not have allowed the kind of people who end up in general elections to win with their nomination. And that goes for congressional as well as presidential elections, so that, I think one of those many unintended consequences of what sounded like good reforms.

Is that we end up with parties being forced to choose people that they know are both bad at what they're gonna do, bad at governance. Too old in many occasions and more extreme than what voters actually want.

>> Nial Ferguson: Just a quick fact, for those interested, the average age of Fortune 500 CEO's is 57.

 

>> Bill Whelan: Okay HR, what about treating the political system like the military system?

>> H.R McMaster: Well yeah, I mean, there is sort of a restriction on age in the military for good reason, just because physically, you've got to be able to keep up. And after World War I and the disasters and generalship there, I'm thinking of JFC Fuller's pamphlet, generalship is diseases and their cure.

Which I recommend to our viewers because it's extremely well written, maybe we need a pamphlet like that. But as John said, the most important thing is competence, when I think about generalship, one of my favorite characters in military history is Blucher. The Prussian cavalry commander who in his 70s, rides into battle and saves the day at Waterloo.

Now, he was a phenomenal guy, he got a hot garlic oil rubbed down every night, after being on horseback all day. But he was still an effective cavalry commander at a quite an advanced age for that time.

>> John Cochrane: Yeah, we can think of all sorts of young politicians who would be complete disasters, so let's not.

 

>> H.R McMaster: Maybe they all need a rub down?

>> John Cochrane: Garlic oil rub down, I gotta try that, I cried this morning really left me a little sore.

>> John Cochrane: My wife, I don't think is gonna go for it.

>> Nial Ferguson: You never know, John.

>> Bill Whelan: All right, on that lovely non academic note, let us now shift to the lightning round.

 

>> Speaker 8: Lightning round.

>> John Cochrane: This was the lightning round.

>> Nial Ferguson: Dan Cochran go even faster.

>> Bill Whelan: Here we go guys, lightning round questions, here we go. We begin with probably the most polarizing question we got in this batch, it comes from Tyler Nottingham, England. He writes, how is HR so charismatic?

What is the secret to staying so positive?

>> H.R McMaster: What's the alternative? I mean, and I think hey, we do have agency over our lives and in these difficult situations and I just happen to, I've seen a lot of bad in the world. I've seen a lot of evil in the world, but I've also seen good triumph over that evil, when people are determined to fight against it.

So, I think so much the narrative today is about loss of sense of agency and hey, I'm all about actively trying to build a better future so, and I've seen it work.

>> Bill Whelan: All right, Ewan in Scotland writes, could the Goodfellows give the suggestion of a novel or work of fiction that highlights a great challenge to the free and open societies of the West?

Neil?

>> Nial Ferguson: Well Greenmantle, is of course, a remarkable work of John Buchan's, the successors of the better known thirty nine steps. And it's based on a real story which Buchan knew about during World War I when he worked for British military intelligence. So that was the German plot to unleash jihad against the British and French empires and rouse up the Muslim populations of those empires.

The Germans really tried to do this, and it's a remarkable story, in Buchan's telling is also a ripping yarn, so I recommend Green Mountain.

>> Bill Whelan: John, HR?

>> John Cochrane: The obvious one is 1984, which still is a good read, somebody needs to update 1984 for today's political, especially with the fascinating language bubbling up from the progressive left all the time.

 

>> Bill Whelan: HR?

>> H.R McMaster: I think so much of what we talk about is leadership and what makes an effective leader, I think it does come down to your base motivation and your sense of duty. So, I like Anton Myrer, Once An Eagle, I mean it's hard to beat it.

It's an epic tale of really, protagonists and antagonists who are motivated differently. One is trying to climb the ladder, while the other is just trying to do his duty. This is Sam Damon as the positive example, not a man without flaws but an effective leader. And Courtney Massengale, what a great name, for someone who's trying to advance his own interests at others expense, so Once An Eagle.

 

>> Bill Whelan: All right, David in Wooster UK writes, what is the best historical novel you've ever read? Goodfellow to disqualify from their own work here, HR what is the best historical novel you've ever read?

>> H.R McMaster: I've read a lot of them and Michener, I love Michener's novels. So I learned quite yet and maybe it's not all correct and everything, but also, I don't think you can beat the Flashman series, I mean honestly, because they're historically accurate.

And they're so damn funny, I mean honestly, you'll just find yourself laughing out loud, because it follows this cad through all of these historical events and situations, and he is completely not, A well-motivated leader, but then is so bad in pursuing his own interests that he winds up appearing as a hero.

I mean, it's a phenomenal series, begin with Flashman, then read Flash for Freedom, and it's just, they're all phenomenal.

>> Nial Ferguson: George Macdonald Fraser, the author of Glasgow academical like my good self, I'll throw in the greatest historical novel, Waverly by Walter Scott. The original historical novel, really, about the 1745 Jacobite rising, and then War and Peace, which I used to always ask the students, Arvid, who had read War and Peace.

And there was a time when you'd usually get a good number of hands, and then latterly, almost nobody had read it. But War and Peace is the great historical novel, and I still regard it as one of the formative influences of my life.

>> H.R McMaster: Hey, just quickly on, George McDonnell Frazier, the author of the Flashman Series, also read his memoir of Fighting in Burma, quartered safe out here.

I mean, a phenomenal memoir, and again, his sense of humor is tremendous. I mean, just quickly he tells this great story about General Slim, and General Slim is giving a pep talk to the soldiers right before an offensive. And he hears shouting from the crowd, we'll be right behind you general, and Slim laughs, and he goes, I'm gonna be way behind you guys.

So revealed Slim's character, but another not fiction in this case, but anything George Macdonald Fraser writes is phenomenal.

>> Bill Whelan: John Cochran, proud amateur historian.

>> John Cochrane: Noonan wrote a nice editorial last weekend on the joys of rereading War and Peace, which I thought was very good. I'll put in my two, which may just show you what I happened to have read.

I really enjoyed the Hilary Mantell series on Thomas Cromwell, painted a very interesting picture of the person and the time. And of course, the Patrick O'Brien series, starting with master and commander, is absolutely lovely, Forbes putting you so beautifully in the mentality of the people. There's one particularly great scene, he goes on and on about describing a gripping encounter between British and French ships and all the things he did.

And then he has the guy be court martialed, and he has the transcript of the court martial, which is so dry, and I can see an author showing off. What he's telling you is, this is the kind of stuff I read to research this thing and look at how I can turn this.

We did this, and then for two days we rode the ships and then turned it into this wonderful, wonderful description, so those I love. For what I love about historic history and historical novels, putting you in the mentality of people at the time and how they saw the world and how they understood it, how it works.

 

>> Bill Whelan: All right, a question from Josh in Sydney, he writes, each one of the goodfellows is a highly articulate and accomplished speaker? What is their routine for preparing for speeches or interviews and clarifying their thinking on topics, and do they still feel nerves when delivering keynotes? Well, John, you did the Bradley Prize recently, did you have butterflies when you did that?

 

>> John Cochrane: That one. I was given seven minutes to say everything I have to say about the world, so I actually worked hard on that one. Whereas normally I wing it, one of the great ways to become a good public speaker is teach. And when I started, I had notes and blah, blah, very confused, and by the time you do this for 30 years, tell me what we're talking about, tell me who the audience is, tell me how much time I got, give me five minutes, I'm ready to go.

 

>> Bill Whelan: All right, HR?

>> H.R McMaster: I think reading and listening to others, you learn a lot and then be prepared, but then don't over prepare yourself with a script. And if you know your subject, outline it, think about your audience, what is your audience interested in? What would be valuable for them to hear?

And I do think that teaching has helped quite a bit, in terms of trying to compress understanding of complex events and developments and trends into a succinct presentation. I think, or even a short essay is an important skill that you have to develop over time.

>> John Cochrane: HR has said it, think about your audience, who are they, what do they know, what do they believe, that's the key to communicating with them.

 

>> Bill Whelan: Professor Ferguson.

>> Nial Ferguson: I will never be as powerful and charismatic a speaker as my wife, Ayaan Hirsi Ali. And she gets far more nervous about speaking than I do, which is odd considering that she nearly always gets a standing ovation. And I've distilled it down partly through observing her to three maxims, make him laugh, make him cry, and make him stand up and cheer, that's the key to a good speech, I just wish I could give one.

 

>> H.R McMaster: I wouldn't sell yourself short.

>> Bill Whelan: Well done, all right, guys, the last question since we began the lightning round with asking the question, how is HR so charismatic? Let us end on another HR note. Robert in Colorado writes, would John and Neil be willing to serve in a future president McMaster administration?

And he's been so kind as to give you two your appointments, John, you will be Director of the Consumer Financial Protection Bureau, Neil, you're the Secretary of Defense.

>> John Cochrane: If I were, I would serve happily for HR, in that or any roll, the first day of my tenure at the CFPB, I would disband the CFPB and fire everybody.

So, then HR either has to find a job for me the second day or send me back home to Hoover to get back to writing.

>> H.R McMaster: Hey, can I just tell you quickly, when Mick Mulvaney took over that organization, he brought in a whole bunch of donuts and everything, completely disarmed everybody.

Because that was his intention too, is to neuter it or eliminate it.

>> Bill Whelan: All right, now let us ponder a world in which Neil Ferguson is running the Pentagon.

>> Nial Ferguson: Yeah, it's a terrifying thought, I would serve HR in any role that he offered me, including making the coffee.

I think the daunting thing about the Pentagon is the sheer scale of the bureaucracy. And I'm not sure that with my notorious lack of military proficiency, would be a particularly credible secretary of defense. So, I would plead for another assignment, I'm thinking that I'd probably be a better shot at the job you had HR, which is national security advisor.

So, if it's all right with you, I'll dock the Pentagon, you need somebody with some ribbons on the chest to strip that thing down and run it efficiently. I'll just sit in the White House giving you advice that you can ignore, mister president.

>> Bill Whelan: Well, I just want to be a fly on the wall and be there for the Cochrane and Ferguson confirmation hearings.

 

>> H.R McMaster: And just so we know, we're talking about historical fiction, this is future fiction, because this is not gonna happen.

>> Bill Whelan: Okay, so you're pulling a Sherman on us, you're not running?

>> H.R McMaster: No.

>> Bill Whelan: Okay, well, gentlemen, thats concludes our mailbag episode, again, I'd like to apologize to everyone out there who wrote and whose question we didn't get to.

That includes Jeff in Nevada, who wanted to talk about the justice system. Jeff, we're doing a show later this month with Eugene Volek, who's a law professor and blogger. So we'll be talking about the supreme court and other judicial matters such as the 14th Amendment. Brendan in Washington, DC desperately wants to know, we're gonna have Steve Kotkin on the show, the answer, Brendan, is mid-October.

 

>> Bill Whelan: Matt and Huntsville, Alabama wanted to talk about Ridley Scott's film Napoleon. We thought we would save that, Matt, until December when our guest will be the esteemed Lord Andrew Roberts, who has written several books on Napoleon, so stay tuned for that. On behalf of the Good Fellows, Neil Ferguson, John Cochran, HR McMaster, all of us here at the Hoover Institution, we hope you enjoyed today's show.

Thanks as always for watching and we will see you soon, until then, take care, and again, thanks for watching.

>> Speaker 9: If you enjoyed this show and are interested in watching more content featuring HR McMaster, watch battlegrounds also available at hoover.org.