Empire or Republic?: The Choice in ’24

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>> Bill Whalen: It's Tuesday, January 9, 2024, and welcome back to GoodFellows, a Hoover Institution broadcast examining social, economic, political, and geopolitical concerns. I'm Bill Whelan, I'm a Hoover Institution distinguished policy fellow. I'll be your moderator today, which means I have the great honor of introducing the stars of our show, three of my colleagues we jokingly refer to as the GoodFellows.

That would include the historian Niall Ferguson, the economist John Cochrane, the geostrategist, former presidential national security advisor H.R McMaster. They are Hoover Institution's senior fellows. All gentlemen, first day belated, happy 2024, I hope you all had a good holiday break. First, let's turn our attention to the Middle East, and, H.R, I wanna start with you.

Since the last time we did this show, there have been more developments in that corner of the world. Israel's resumed its search and destroy mission against Hamas. Who knows how long that will continue? We've seen us air and drone strikes in Iraq targeting pro-Iran forces, which in turn have been targeting US forces.

We saw a bombing in Iran, which ISIS took credit for. Israel took out a Hamas leader in Lebanon, Hezbollah turned around and fired rockets at Israel. And meanwhile, H.R, we have the situation in the Red Sea with Houthi rebels who are firing drones and attacking ships transiting the Red Sea and the Suez Canal.

They've also fired against US warships which are fired in return. The US now saying that the Houthis, quote, bear the consequences. H.R, further attacks, which sounds to me like a red line being drawn in the Red Sea. H.R, have now laid out military actions to the west of Israel, the north of Israel, the east of Israel, the south of Israel.

As you look at that map, what concerns you most in terms of this war escalating?

>> HR McMaster: Well, it already has escalated, and it's going to escalate more. And I think that's what we're gonna see in this next year, because what you're seeing is on just after the third anniversary of the killing of Qasem Soleimani and Abu Mari al Mohandas in Baghdad, you're seeing the plan that Qasem Soleimani put into place.

You're seeing the activation of the so called ring of fire around Israel. Israel's fighting essentially a five front war in Gaza, in the West bank, in Syria against a proxy army that Iran has assembled there. And it's so Lebanon against Hezbollah and kind of a longer range fight as the Houthis are launching drones and missiles from Yemen that have been supplied, obviously, by the Iranians.

So it's already a five front four for Israel. But what you're seeing is a connection across the region to what Soleimani has done in the so-called forward defense strategy. Which is really a forward offense strategy in an effort to keep the entire Middle East enmeshed in conflict so Iran's neighbors can be perpetually weakened, and Iran can pursue its hegemonic agenda across the region.

That involves pushing the United States out. One of the actions you didn't mention, or maybe you did, Bill, what you went through quickly, it was an excellent summary, is the strike against Iran militia leader in Baghdad. And what you've seen is an intensification of actions on the part of Iranian proxies against US forces across the region, over 100 attacks in the last 90 days.

As well as political actions by an increasingly sectarian Shia-dominated government that's gonna further alienate the Sunni Arab population. And I think lead to a return of large-scale sectarian warfare in Iraq, which Iran I think thinks is in its interest because it keeps that neighbor perpetually weak. The other big threat is to the Kurds and the Kurdish regional government in Iraq.

So I could go on and on about this, but it's going to escalate because, you know, who's gonna escalate it is Iran. And they're continuing to escalate it in large measure because we keep saying every time we do respond, but we don't want it to escalate. Which to Iran is, hey, we've got permission to escalate them with impunity because that's what Iran, the only thing Iran fears is escalation based on our recognition that the return address is Tehran.

So I think what's gonna happen is the Biden administration, despite their deep reluctance to do it, is going to conclude that they have to respond directly against Iran. And I think if they're smart, they'll take advantage of the opportunity to accomplish a range of objectives, which would include setting back their missile and nuclear program at the same time.

But I think that in the next year, I know we're gonna do predictions at the end. I'm telling you, it's not a hard prediction to make, that this war is going to expand horizontally and I think also vertically in terms of US direct action against Iran.

>> Niall Ferguson: I agree with nearly everything that H.R said except the last thing.

I don't think the Biden administration will at any point rise to the challenge that Iran poses, I think they've consistently pursued a policy of appeasement. They embarked on, to my mind, the unhinged strategy of trying to resuscitate the Iran nuclear deal. They did everything to encourage Iran to ease the financial pressure on it, and they are, I think, reaping the predictable harvest.

I dont think theyre about to change and get tough. And I think, as a result, what we should expect in the next couple of months is a showdown between Israel and Hezbollah in Lebanon. And once again, I expect that the US administration will blow hot and cold, it might talk tough, but it won't do anything that really seriously hurts Iran.

And that's gonna leave Israel in quite a weak and vulnerable position, because it will then have presumably the remnants of Hamas still to contend with in Gaza. It will have a very heavily armed Hezbollah in Lebanon, that it will have to deal with instability in the West bank and all the other issues that H.R so eloquently outlined.

So I fear that this ongoing weak strategy of the Biden administration, which will continue throughout this year, will create a very, very unstable situation and one that will be very dangerous for Israel.

>> Bill Whalen: John.

>> John Cochrane: I would add, it seems to be a larger strategy, a larger habit.

Ukraine, well, we don't wanna escalate, we don't wanna provoke. We've basically gone to Putin gets to keep the parts he invaded, and that's stalemated because we didn't want to escalate or provoke here, too. That seems to be the mantra, don't escalate, don't provoke. Even to the point the Houthis shoot missiles into ships in the Red Sea, and we defend against the missiles, but we don't even shoot back to where the missiles were launched.

And H.R, you wanna go right to Iran, but let's just start with how about where those missiles got launched, we send one back, which we're not even doing. And this is part of the larger retreat around the world. Why are the Houthis still there? That was a new one for me in the last week.

We've retreated in Ukraine. We wanna just stop in Israel and not escalate that. Isn't the most effective strategy against escalation. At some point that you gotta fight back and at some point that your objective is to win not just, well, you guys can have the latest one. Let's not escalate it.

And that habit of mind is the thing, the one that I think worries me the most. But it doesn't have to go, HR, you say, go straight to Iraq, and I'm sorry, to Iran, I go, but at least we could start fighting back in the small parts. And it also strikes me this obsession with the nuclear deal, this is something we've talked about many times before.

Why was the negotiation entirely about your nukes, but we're not gonna even talk about your missiles, and we're not gonna even talk about your terrorist activities throughout the Middle East. Perhaps if the negotiations had been, forget about the nukes, but we really, really mad about this stuff, that might have been more productive, HR.

 

>> HR McMaster: Yeah, I agree with all that. And I think what you're seeing is that the perception of weakness is what is actually provocative here. And the Biden administration in addition to not enforcing the sanctions on Iran, which resulted in the transfer of some people, think about $80 billion to Iran, which, guess where that went?

It immediately went to funding their proxy wars and funding groups like the Houthis and Hamas and Palestinian Islamic Jihad and Hezbollah. The Biden administration undesignated the Houthis as a terrorist organization when it came in as part of this effort to revive the nuclear deal by making the Iranians feel as if we're trying to conciliate with one of their proxy forces.

And under really this effort to try to negotiate an end to the war in Yemen. But, of course, this idea that you can just negotiate and you see this with the president's recent statements about Israeli operations in Gaza and get an acceptable outcome without first changing the reality on the ground militarily, it's crazy.

It's a pipe dream. Israel has no option but to destroy Hamas at this stage. And as Niall's has already alluded to. I agree, Niall. I think they've already made a decision. Israeli leaders have already made a decision to reinvade southern Lebanon because I think they've recognized they cannot have a hostile force like Hamas or the much more capable Hezbollah directly on their borders.

And remember, they've already evacuated, I think, about 90,000 people. Is it, Niall and John, out of the border areas with Lebanon? Those are families they want to get back. And the only way to do it really with any degree of security is to strip Hezbollah's capabilities out of southern Lebanon.

And I know the US government's trying to do everything they can to negotiate an alternative to that, but that's not gonna work because of the nature of Hezbollah. Again, it's almost as if we believe that we can negotiate a favorable outcome without imposing costs, as you're suggesting, John, on these adversaries and enemies that go beyond the cost they factor in when they make their decision to conduct these aggressive acts.

 

>> John Cochrane: Teddy Roosevelt said, speak softly and carry a big stick. We're in the speak loudly. I guess we have a big stick, but we left it at home, so it's not going to get used. I do wanna ask you, HR and Niall, the day after our official rhetoric is, back to the two state solution, which I remember from when I first read about it at the age of about 16 in the 1970s.

And the premise that Palestinians have to have their own state before there can be any peace and that that state will be run by either the Palestinian Authority or Hamas or some of the two that we enshrine this terrorist dictatorship as part of it. That seems like going nowhere.

I don't know why we repeat it over and over again, but the day after seems like the day after, the week after, the decade after, seems like a big question that I don't have a good answer to. Do you guys have any sort of good answer to?

>> Niall Ferguson: Well, I think if you talk to Israelis, there's not a great deal of belief left in a two state solution.

In the case of Gaza, there are now plans being discussed that would perhaps resuscitate what's left of the Palestinian Authority. To me, Palestinian Authority is now an oxymoron. It's clear that the IDF has no desire to have some permanent occupation of Gaza. Nobody has a great idea in answer to your question, John, because the one state solution doesn't look viable either.

And so I think we have to recognize that the notion of a day after is itself a rather questionable one because it's not like there will be an end to the conflict if Hamas is destroyed in Gaza, there will then be the question of Hezbollah, and there are questions beyond that.

So I wish a day after war were conceivable at this point, but I must say, I don't think it's conceivable under the present geopolitical dispensation. As long as there is a weak administration in Washington that doesn't have a credible commitment to not just containing but weakening Iran, the Middle East is not gonna have a day after, it's going to be in a permanent state of conflict.

 

>> John Cochrane: Well, the US is not great at giving advice on, we're great at how to invade countries and win wars. Well done, HR. But we're not real great on how to immediately turn it over to a peaceful authority. I think we lost one and a half that way.

But except we did it in Germany and Japan, and that's the only outcome I can see. Israel and as many Arab countries gets together, has a military occupation, cleans it out. It's gonna be accept the problem is, there's gonna be the same people who are funneling hundreds of billions of dollars to Hamas now, are gonna be trying to funnel hundreds of millions of dollars in to keep the terrorist attack going.

So that seems like the only intermediate step, but even that one doesn't seem easy.

>> Niall Ferguson: I would say that the Trump administration, which you served in HR, had a much better strategy. A strategy that was to improve relations between Israel and the Arab states, isolate and penalize Iran, and build a peace in the Middle East in which the Palestinians were not the central question anymore.

And I thought that actually went far better than anybody writing for the New York Times gave it credit for. And one could hope that such a strategy could be resumed in 2025.

>> John Cochrane: I would add, Palestinians quietly get rich. The Palestinians quietly get better. Their life gets quietly better, better jobs in Israel, better exports until they don't need Hamas.

Which is exactly why Hamas blew that all off. I'm sorry, HR, go ahead.

>> HR McMaster: No, I was just gonna say that what's really critical is to trace the grievances of the Palestinian people back to Hamas. And I think if Israel made a big error in the lead up to this, it was the deliberate weakening of the Palestinian Authority through, in some ways, the toleration of Hamas and Gaza.

Gaza was always the argument against any kind of progress toward a statute solution, because Israel quite rightly said, hey, how can we accept the risk of the West Bank also becoming like Gaza? And they couldn't give up security responsibility for the West Bank because of that fear and legitimate concern.

With Hamas gone, what happens is there has to be some political authority there that has a degree of legitimacy and trust of the population, such that the population believes its interests can be advanced through some kind of a political process and representation. And there has to be a legitimate security force that's trusted by the majority of the population.

The IDF can't fulfill that role, they're gonna have to occupy it for a while. I don't think there's any way around it. But there has to be some kind of a multinational peace enforcement force until a Palestinian force could be generated, like the ones that we were on the way to generating in the West Bank.

So I agree, Niall, that I think one way to work on this is to go back to the outside in approach. I think Iran is in our corner on that, in terms of convincing Arab partners in the region that their interests are aligned with us and with Israel in connection with the Iranian threat.

But also what the Trump administration delivered, what Jared Kushner and Jason Greenblatt delivered, was really the last best chance for the Palestinians for a two state solution. Maybe that could be resurrected at some point a decade, I don't know, in the future, but it was much pilloried because the Palestinians didn't participate in it.

But I think it was a deal that could be palatable potentially to the Israelis. And therefore, if the Palestinians say, hey, what has Hamas given us? Theyve given us hell, right? Is there an alternative? Well, Gaza is on the Mediterranean Ocean. Tens and tens of billions of dollars have gone into Gaza, but been diverted into Hamas terrorist infrastructure and capabilities.

So there is an alternative future, and I think that's gonna have to be communicated to the Palestinian people. I've been encouraged, and I know this is just anecdotal, but by some of the stories of Palestinians who are now clearly blaming Hamas. And then also those who have been clearly under the duress of Hamas, like an imam recently who was captured by Hamas because he wouldn't spout their propaganda.

Now, it's a tall order for the IDF, especially after all these casualties in Gaza. But I think that getting more depth at information operations and tracing grievances back to the population, and we have a role in that, too. I think, the United States has a role in that, too and I think that we could do a much better job.

 

>> John Cochrane: Dubai on the Mediterranean.

>> Bill Whalen: Let me end this with a very quick exit question for the three of you. We are nine days into the new year, there is a war in the Middle east, it looks like it's expanding. There is a brutal war in Ukraine that could potentially expand across eastern Europe.

And in a few days, Taiwan chooses a new president, who knows what that brings. Question for the three of you as we move through 2024, is it more fashionable to talk about cold War II or world War III?

>> Niall Ferguson: Well, I'll go first, since I think I pioneered the term Cold War II, I think we're in it.

I think we've kind of gone from the Korean war phase, which I would say is the, the war in Ukraine, quite quickly to the Cuban missile crisis phase. If I am right, the Taiwanese election could furnish a pretext for Xi Jinping to the very least stage a major demonstration of Chinese air and naval power, perhaps even to impose some kind of blockade or partial blockade.

And then we really will be in a 1962 like situation, so I think that`s the right analogy. The reason World War III is a less likely outcome is, as was true during the first Cold War, the consequences of a world war between nuclear armed superpowers are so difficult to fathom.

So horrific to contemplate, that there`s a much greater deterrent to direct war between superpowers than there was in 1914 or 1939. So I think as in 1962, we`re gonna have a showdown over Taiwan at some point. I don't think it will turn into World War III because the costs would just be unacceptably high for both the United States and China.

 

>> Bill Whalen: John, what say you?

>> John Cochrane: Yeah, we're in maybe the phase, the combination Cuban missile crisis and little proxy wars all over the world, which we're not really recognizing our wars. I mean, Ukraine is not about the Ukrainians, it's about us. And I agree with Niall, Some sort of provocation over Taiwan is gonna happen.

If we're not willing to strike back at Houthi rebels firing rockets to ships, I don't see that we would effectively fight a war over Taiwan. So it's one more retreat with the US. But world Niall's when you're fighting with nation states that are faintly rational like China, we're not gonna have an all on nuclear exchange with China.

Something could blow up in the Middle East. A nuclear weapon could well blow up in one of these parts of the world but that's not World War III. Steady retreat of the US in Cold War II is what I'm seeing, sadly.

>> Bill Whalen: H.R, you got the last word.

 

>> HR McMaster: Yeah, I think the perception of weakness is provocative. And I think if you look at the combination of the paltry response to all different forms of Iranian aggression in the Middle east as maybe encouraging to Xi Jinping. As well as kind of the tumult that some people expect in our own elections, at least the vitriolic discourse, partisan discourse associated with our election.

And I'm thinking of another analogy, Niall, I don't know if you'd agree with this. Maybe the Berlin crisis analogy under Kennedy, after the meeting at Munich, when he appears, he appears weak in that meeting and the Kremlin decides to ramp up pressure on West Berlin. And I think that's something that we might see something like that on Taiwan soon after the election, especially if there's a DPP victory.

 

>> John Cochrane: Can I just add, our election is the one to worry about. We are heading into a disastrous chaos of an election, just like lemmings heading over the cliff, unable to stop what is gonna be an absolute disaster. And everybody around the world will, this is a wonderful opportunity if you wanna cause mischief around the world, cuz the US is gonna be tearing itself apart until, for quite a while.

Even after the election, actually, even after the election is when the real legal battles and the resistance and all the rest of it kicks in.

>> Bill Whalen: For the record, I begged general McMaster to run. He continues to say no, so this one's on you, HR. Of your note by the way, we're gonna have Dan Senor on our show in early February.

If you are interested in the Middle East, Israel in particular, I highly recommend its excellent Call Me Back podcast, which I know Niall and H.R have been frequent guests on. So make a note of that. So, gentlemen, let's move on to our second topic, and that is the demise of Claudine Gay.

A day after we recorded our last show, this was with Barry Weiss. In mid December, the Harvard Corporation issued a statement unanimously affirming its support for Claudine Gay, at the time, the school's embattled president. Exactly three weeks later, she offered her resignation out of a job after only 186 days on it, the shortest term president in Harvard history.

By now, you probably know the details. The allegations of plagiarism, her poor performance in front of Congress, not standing up against anti-semitism. We ask this question, the three of you, as you all have taught in universities and well, are familiar with university affairs. Niall, H.R, John, what is the teachable moment here?

 

>> Niall Ferguson: Well, perhaps I should go first, as I spent 12 years of my life. As a Harvard professor, I think the teachable moment should be, this isn't all about Harvard. The crisis in American higher education is coast-to-coast, it's in red states and blue states. There's a major crisis in the way that American universities are run.

Some of us have been talking about it for close to a decade. It took October the 7th and the pusillanimous response of various university presidents, including Claudine Gay, to bring it to the attention of people outside academia. And that was probably the only good thing to come of October the 7th.

I would make a couple of simple points. Getting rid of a university president here, a university president there, doesn't really fix anything, because the ideology that has permeated US universities, you can call it what you like, woke ism or diversity, equity, and inclusion, or anti-racism. Or all the rest of these things, which together constitute a kind of a progressive orthodoxy.

This permeates every level of the educational system, indeed, it extends beyond universities, right down to the humblest primary school. And it's not just in the president's office or the provost's office, it's there in a bureaucracy that every university has allowed to proliferate of Title IX offices, diversity officers, and the rest.

And so, there's a fundamental structural problem that is gonna require much, much more than new presidents at Harvard or MIT, or for that matter, Stanford. It's gonna need a fundamental root and branch transformation of university governance. The second point I would make is, that most people don't fully understand what's wrong with university governance, cuz they don't realize why it's been possible for a minority of very politicized activists to take so much power in academia in a relatively short time.

And that's why I've been so involved in creating a new university in Texas at Austin, to try to show that there's a better way of running a university. And the new constitution that we published at the end of last year shows, what you need to prevent this from happening at all universities is some kind of judicial branch that upholds principles like the Chicago principles.

Or even better principles than those, when a university president, or a bureaucracy, or the tenured faculty decide to go down the woke road. If you don't have something to uphold your principles, it's highly likely that they will be overridden by one or other of those elements. I hope, therefore, the teachable moment is not that Claudine Gay was a bad person or a bad president.

The teachable moment is that American education's broken, and it needs a fundamental restructuring to get fixed.

>> Bill Whalen: John.

>> John Cochrane: Here, here, Niall, let me plug slightly. I wrote two blog posts on this in the last couple of days, and I also very much enjoyed John McWhorter's Op-ed in the New York Times on just what is DEI.

It's beginning to be recognized, but even still, people outside the university, don't really understand how deeply taken over university has been. Our university, Harvard, all the major universities stand at a crossroads. Are we here for meritocracy, search for truth, academic freedom, open debate, understanding how the world works, and passing on those values to the next generation?

Or is the purpose of the university activism in furtherance of a political goal and self-purification? Getting rid of everybody who doesn't like that political goal? That is the question, and that's the deep question, it's the latter, has taken over universities, and it is a cancer in every branch of how they work.

What needs to be done is not just get rid of a president, what needs to be done is to root that out and fix it, or give up and start new institutions. You asked for a teachable moment, and I thought a great one came in the New York Times coverage of exactly how the process.

And it was said is that, after the Harvard Corporation issued a letter supporting Gay, they got together and said, okay, what are we gonna do to fix this now? So there was a discussion, how do we fix this? And Penny Pritzker and Claudine Da agreed that what we'll do is there will be in the spring a big plan to a plan.

So Gay would get together with her staff, lots of staff, to have a plan, to have open office hours, and listening moments where she could demonstrate empathy, entirely internal, lots of bureaucracy, a plan, many memos sent out. This is exactly what's wrong with major universities. And that's why, I actually think Claudine was a great president.

She was exactly what Harvard wanted. She knows how to make plans, to demonstrate empathy, and have listening moments, that's how things used to run. It's just that the job description really needs to change.

>> Bill Whalen: HR, what's your teachable moment?

>> HR McMaster: Well, in the military, war is the great auditor of the institution.

And it was after Vietnam, when officers in the army, in particular, came together to fundamentally reform the institution based on personnel policies and a strategy for the war that was destructive to the army and to his professional military ethic. And it began really with a study of professionalism that was commissioned at the Army War College.

And what you began to see emerge is a coalition of reform-minded officers, who affected a renaissance in the army in the 1970s and into the 1980s. And went from an army that had been really destroyed in areas of discipline, and leader development, and low levels of training, and was really lacking in modernization, and so forth.

And was still a draft force into a very high quality, all volunteer force. So it takes leadership, it takes a coalition of leaders who are determined to affect the kind of root and branch change that Niall has alluded to. And I think that there's an opportunity to at least begin that work now because it's okay now to question these orthodoxies, I mean, it has to be okay.

And of course, the greatest defense by those who don't wanna change a damn thing and wanna continue to capture higher education with these reified philosophies and progressive ideology. Is that, if you questioned it, you were automatically racist, when in fact, this ideology is in itself racist. So I think at least now, maybe more people have permission, or at least, the latitude to question these ideologies without immediately being labeled a racist.

 

>> Bill Whalen: Question of the three of you, so Harvard, Penn, and Stanford are currently looking for new presidents, do you expect their choices to be more of the same? In other words, someone like Claudine Gay, who is very much a showcase of DEI? Or do you expect the schools to move in a different direction and choose a president who doesn't necessarily drink the Kool Aid?

 

>> Niall Ferguson: Well, that's key, I mean, it'll be a signal of whether the Harvard Corporation is serious about reforming Harvard if it can appoint somebody who is out of this now familiar mold. And I hope that the Stanford trustees are having a similarly broadly framed discussion. Why should the president of a university be an academic?

You can, I think, see a very good example in Florida right now, where a former senator is proving to be really rather effective president. So I think looking outside the academy would be no bad thing. It would also be good if people were considered who were not necessarily signed up.

Liberals, we have, as a director of the Hoover Institution, somebody who really could be one of the great presidents of Stanford. And it's a mystery to me why Condoleezza Rice is not the first choice to be the successor to Mark Tessie Levine. So, yeah, not necessarily academics, people with some real world experience.

Hey, HR, have you considered this possibility as a career move?

>> HR McMaster: Yeah.

>> HR McMaster: Managing the different constituencies of recalcitrant faculty and then also angry alumni and various student organizations.

>> Sure, yes sign me up for that program.

>> Bill Whalen: You've dealt with tougher foods. HR would take the presidency only if he had me to start his car and taste his food.

I think that would be the arrangement.

>> Bill Whalen: John, once you have the last word here, do you, hopefully you think we'll move away from Dei or do you see more of the same?

>> John Cochrane: I don't think so, so you need to not just appoint a president, you need to give that president a mandate

 

>> Bill Whalen: Right.

>> John Cochrane: And so have not seen from the Harvard board has not resigned en masse, and they have not said my God, what I just said about this, what the university wants to do. I gather the Harvard faculty all thought Claudine Gay's shocking letter in the New York Times about all the horrible things that happened to her.

They all thought that was brilliant So the power structures in the university that wanna keep this game going are very, very strong. The people who think we need to really root it out are all outsiders, and they're not even on the boards right now. Yeah, if you look at the committee, the 20 person committee that Stanford has put together to appoint a new president.

That committee is not gonna come up with not even just a name of someone who's faintly conservative, but a mandate to be a president and to fire the DEI office and fire the title IX office. You need mandate because there's so many political structures out there against you and with the faculty against you, the students against you, the bureaucracy against you.

They unionized Everybody against you, and still most of the board of directors against you. I think they're just going to try to appoint someone who can try to make it go away, and the route will continue. The fight will go on But it will not be what we're looking for.

 

>> Bill Whalen: So with two Ivy presidents currently out of a job, that means there is 25% unemployment within the ranks of the eight Ivy League presidencies. Far above the national average for unemployment but John Crocker, why don't we use that as a segue, an awkward segue, if you will, into the economy.

Let's talk about economics for a few minutes. I'd like to turn your attention, John, to something that our goodfellow's friend Tyler Cowen recently wrote, and I'm gonna quote and read it to you. Talking about 2024, this is not slated to be a terrible year, Tyler wrote. We have, in fact, actually licked inflation without a recession, which was a shock to many economists.

The global order is possibly stabilizing somewhat compared to the last twelve months. The U.S. economy is highly innovative in artificial intelligence in the biomedical area, and there's a fair amount to be happy about, Tyler adds. But predictions are tough. Keep in mind that one out of every six years, the US economy, you know, might be in recession there's always a chance of that, but so far so good.

What say you, John?

>> John Cochrane: So I do think we pay too much attention to recessions as opposed to long term growth. It's like it's 1933 all over again. The question for the US is, 20 years from now, do we look like Argentina or 20 years from now, do we grow?

With that said, yes, it's very interesting that we haven't had a recession, the most widely predicted recession ever. I just came back from the social science meetings, the American Economic association meetings. I went to a panel on why was there inflation? Why is it going away? Why wasn't there a recession?

And I can report that nobody knows. Well, everybody knows. I think my presentation was, look, fiscal theory, the price level is working perfectly. I convinced absolutely nobody of that proposition. But I think it's worth everybody understand, if you think there's a technical expertise here, this is an exciting moment to do research in economics because there isn't much consensus.

But the question we're asking is, what's the working out of the dynamics? I don't see a reason for a recession next year. Inflation will probably stick around for a while because deficits are high. The question for economics is the next shock, not sort of what are the dynamics as they work themselves out?

And you can see all sorts of bad things potentially happening in the world. All the bad things we talk about lead to the next shock so a possibility is that it's like late 1975 inflation goes down, we slowly recover, and then the next bad thing happens out of the Middle east.

The longer run question is the race between Tyler's techno-optimism, which I shared. There's all sorts of great new stuff in AI and computing and biology and everything else, and the forces in America that wanna turn us into Argentina in both parties. The forces who want protectionism, regulation, unions, crony capitalism and so forth, which can just stifle that long term growth.

 

>> Bill Whalen: Niall, what are you looking at economically right now?

>> Niall Ferguson: Well, I, first of all, don't agree with Tyler that the global order is stabilizing somewhat.

>> Niall Ferguson: I don't know where he gets that from, I must have missed that. Second point is monetary policy acts with, quote, long and variable lags and I don't think we have passed the point at which we can say there's not gonna be recession.

Indeed, I think it will look very embarrassing indeed for some economists who've shouted that team transitory has triumphed if we now find ourselves with a hard landing. And that's not inconceivable, there are still a whole lot of problems on the balance sheets of American banks. Why did we not have a recession in 2023?

I think the answer to that has to be that all that money got thrown at households in the pandemic, left them with a lot of spending power. And that spending power propelled the US economy through the rate hikes of 2022 23 in ways that almost all economists underestimated.

But that doesn't mean that this goes on indefinitely. The slowdown is there. It's already palpable in at least some of the data and at some point, you've spent down all that money that you got handed by the government. So I'm not ready to declare that the recession alert is over.

I also am not ready to declare that inflation has been licked to quote Tyler, really, it really would only take one other major shock that might, for example, propel oil prices upwards for that not to be true. So I think it's way too early for the famous team transitory to declare victory and say by transitory we meant somewhat more than a year.

And I'm gonna watch the US economy with great interest in the coming quarters because I don't think it's by any means guaranteed that Jerome Powell gets the soft landing.

>> Bill Whalen: Yeah, HR, I note that the president of the United States has given two speeches in recent days, one in Valley Forge, which is near and dear to your heart as a Pennsylvanian, he didn't talk about the economy.

What did he talk about threats to democracy.

>> HR McMaster: Right, well, I think that one of the biggest Threats to Democracy is a reduction of confidence, confidence in our institutions and confidence in our government to actually advance our citizens interests. And I think that you don't re-instill confidence by being as partisan and I know it's an election.

As he was, and I just wish that, really, the candidates in both parties will, at some stage get to the politics of addition and focus on the big issues. I mean, the big economic issues, I think have we have agency over them. And the shocks that Niall mentioned we might suffer could be lessened by a real emphasis on making our supply chains more resilient, not through protectionist measures, but just prudent measures to recognize that single points of failure and supply chains that run through hostile authoritarian regimes are dangerous to our economy.

And we see that with the disruption of shipping the Bab al-Mandab, as well, the need for resilience and supply chains, and then what Niall alluded to as well, which is energy security, what the Trump administration called energy dominance, to ensure that we could withstand shocks to the global energy markets and, and had our own degree of agency so that OPEC didn't matter and that Vladimir Putin and others couldn't use energy supplies for coercive purposes.

So I think energy and supply chain are related to our national security. And that's the kind of speech id like to hear, is a vision for how whoever the candidate is, going to strengthen the nation, restore peace, which is where we are now, and promote American prosperity and growth, John?

 

>> John Cochrane: You brought up the threat to democracy thing, which is the new. What that means is in the person of Donald Trump. And I think there's a great threat to democracy, but it's not just the person of Donald Trump. And this is my big worry for the year, is that what democracy is about, the number one thing democracy is about is a peaceful transfer of power, conferring legitimacy on the winner.

Losers lick their wounds, know that they're not going to get hounded out of their jobs and businesses and thrown in jail. Come back and try the next time. And the tit for tat of illegitimacy from both sides is, I think, the threat to democracy, and that comes from misuse of the justice system to hound political opponents.

Now, Democrats will say, it's terrible. Every single one of the 92 indictments is exactly justified. And Republicans look at that and say, this is turning into Pakistan, where you got to seize control of the Justice Department to win an election. It is clear to me that the strategies that both parties have in place is to declare the winner of the election illegitimate, which then justifies horrible misbehavior on all sorts of reins.

And that's the threat to democracy. One particular person, and just vote Democrat and everything will be fine.

>> HR McMaster: Hey, John, I totally agree with that. I really think that when you look at the way foreign threats jump onto this. Our own self destructive behavior. Russia doesn't care who wins our election next year as long as a large number of Americans doubt the legitimacy of the result.

I think in terms of weaponization of the judicial system, judicial branch. Bill Barr's essay that he had in the free press last week said, hey, I oppose Trump, but I also oppose excluding him from ballots was really well crafted.

>> John Cochrane: Can you imagine how Trump supporters are going to go if they lose the election and he was excluded from the ballot?

They're going to say we was robbed with perhaps some reason. And of course, there's on the other side, too, Trump. What he did after the last election was to declare it illegitimate, which emboldened his support, is in all sorts of horrible behavior.

>> HR McMaster: Which is what Nancy Pelosi did after 2016, right?

 

>> John Cochrane: It's been going after George Bush, the George Bush election. Large sections of the Democratic Party still say that election was stolen by the Supreme Court. And that's why the Supreme Court's illegitimate and all the structures are legitimate. This is a very dangerous game to play, and it's escalating on both sides.

 

>> Bill Whalen: So, Niall, James Carville famously said 32 years ago about the election, it's the economy, stupid. And it sounds like from HR and John are saying that, no, it's not the economy. It's Donald Trump and democracy. Can you, Niall, give me an example of an economic event, either in America or the globe, that would turn attention away from the Trump democracy matter and make it more of a referendum on economics?

 

>> Niall Ferguson: I think it is the economy in the sense that the Biden strategy was to run on Bidenomics. And then they noticed in the polling that despite objectively quite strong economic numbers, in terms of low unemployment rate and falling inflation rate, the public still says the economy sucks.

And I think if the public continues to feel that the economy under Biden has been inferior to the economy, economy under Trump, that will be a very significant reason why Donald Trump could win. After all, if you just look at a very interesting measure, which is real, that is inflation adjusted household income, it flatlined from 1999 to 2016, rose 9% under Trump, and has gone down under Biden, mainly because of inflation.

So I still think it's about the economy this election and the attempt to make it about democracy, is partly a pivot away from a strategy that wasn't working for the Biden campaign.

>> Bill Whalen: HR?

>> John Cochrane: I would add to that the remarkable sagacity of the American voter here. The economy is strong, unemployment is low,we didn't have a recession.

Things are about as they were in February 2020. And so what's the complaining about? Well, the Biden administration is claiming credit for springtime. Basically, they took over in January and it got warmer and said, look how much warmer it got while we were in charge. And then Bidenomics consists of trillions of dollars down, innumerable rat holes, a regulatory expansion like we've never seen.

Trump protectionism, the one thing they seem to like about Trump is we'll ban Chinese electric vehicles. And so what about the fact that about carbon and everything's going to be made unions in the US, people can see through that. They can see that the actions of Bidenomics are bad for the economy, even though the economy is reasonably good.

So you don't get to just take credit for the return of summer. You take credit for your actions, and they can see these actions are not helpful.

>> Bill Whalen: HR?

>> HR McMaster: Well, I think there could be an international incident, obviously, involving us forces who are now committed in the Middle east, and then also that could lead to supply chain disruption, as we're already seeing in the Bob Ellman Dev and the Suez Canal.

But I think a flashpoint that is potentially much more dangerous even than Taiwan is in the South China Sea. And after the San Francisco summit, there was a little bit of a back off by the PLA on aggressive behavior there. But I think that there's really a high chance of an incident in the South China Sea that might focus Americans away from the current issues under discussion and more toward national security.

 

>> John Cochrane: It's only the economy, stupid, if people have faith in the fundamental institutions of America, which they did in the 1990s. But when people see that, Republicans see the Justice Department being used to protect Hunter Biden and kick Trump off ballots and try to put him in jail so he can't get reelected again, democrats see at the January 6 events, and somehow they think of that as an insurrection and.

When people have lost faith in the FDA and the CDC and the institutions of society, when the fundamental institutions of your country are in doubt, people care more about that than adjusted household income.

>> Bill Whalen: Niall, I have seen pundits say up a very unpopular choice between Joe Biden and Donald Trump that this is the doom election.

Please tell me that you copyrighted that word.

>> Niall Ferguson: Yeah, I wish I could claim that I did but of course, doom is always gonna be there. It's always good in the headline and so I don't get any royalties from this being the doom election. Though I do hope sales of my book available from all good booksellers and paperback will benefit.

There has to be some silver lining to this massive cloud. By the way, my view of the 2024 is very simple. It's a choice, empire or republic, cuz you can choose to strengthen the United States against its foreign enemies. If you vote for Donald Trump, I think that you almost certainly achieve that, but you probably lose the constitution along the way, or you can vote for Biden or maybe somebody else that they switch in and you can probably save the Constitution, but you probably lose american primacy.

So that's the choice as I see it. Not a great one to confront the voters with.

>> John Cochrane: Can you explain how you think Trump is the danger to the Constitution, and also how you think that Republicans are more hawkish on defense than Democrats right now?

>> Niall Ferguson: So the key thing about what Trump would offer is what I would characterize as a credible madman theory.

Our adversaries were much more deterred by Donald Trump. Whether you look at Iran, Russia, or China and their behavior, there's no question in my mind that he credibly worried them. He also made good decisions in his appointments, such as HR McMaster. They might not be such good decisions in a second Trump term but if you go around the world and ask world leaders who intimidates you more, Donald Trump or Joe Biden, it's a pretty clear cut case.

The problem is that Donald Trump revealed himself, and not only on January 6th, 2021, but more generally, as indifferent to constitutional norms. And I think a reelection of Donald Trump would signal a fundamental decay in the electorate's commitment to the Constitution. So that seems to me to be the fundamental problem of Trump's return.

He's narrowly ahead with the prediction markets. He seems highly likely to get the nomination. If he gets the nomination and Biden is the candidate, it's gonna be a very close run thing. But I think even with all the legal attacks, there's gonna be a substantial section of the public that says in the swing states, you know what?

We're gonna go with Trump. He's a stronger figure than Joe Biden. On the other side, it's clear that the the political norms of Washington, not all of them great, you get plenty of bad ones, you get the deep state, you get administrative bureaucracy, but you get a fundamental adherence to the Constitution and a retreat from american primacy with a democratic candidate.

In that sense, I think it's a very awful choice. And we can and should hope that between now and November, something will happen to make it something other than the choice of 2020. But at this point, my base case is Trump v Biden, Empire or Republic.

>> Bill Whalen: It is, and the choices begin next Monday in Iowa.

And just think, guys we're only ten months away from this election, so I'm sure we'll be revisiting it. Let's move on to the lightning round.

>> Lightning round.

>> Bill Whalen: So I don't know if the three of you are fans of New Year's resolutions or not, but that can't stop us from making a few rank predictions.

And let me begin with this question to the three of you. There are several world leaders who begin 2024 on rather Rocky footing. Joe Biden, who we've talked about, BB Netanyahu, Vladimir Putin, Volodymyr Zelenskyy, I'd like the three of you to tell me which of those four leaders is most likely to last past 2024 and which of those four is the least likely to survive 2024.

 

>> Niall Ferguson: Putin most likely, Netanyahu least likely.

>> Bill Whalen: Okay, John.

>> John Cochrane: Putin seems to have some staying power, I guess Netanyahu works in a democracy, so it's harder.

>> Bill Whalen: Okay, HR.

>> HR McMaster: Yeah, I agree with Niall, but I would say that those less likely to survive 2024 are Hamas leaders.

 

>> John Cochrane: There's one I hope survives. I'm really enjoying Argentina's new president, Javier Milei. I follow him on YouTube, he gives better economics lectures than any economist I've ever seen. They translate the Spanish down below. He's an absolute delight. I'm sure the forces against him are arrayed, so good luck to him.

But at least as far as explaining economics clearly to his electorate, I think it's been fun to watch.

>> Niall Ferguson: I agree with that.

>> John Cochrane: And I hope he survives.

>> Bill Whalen: Is he MAGA, make Argentina great again?

>> John Cochrane: That's what his policies will do if he gets to put them in.

 

>> Bill Whalen: Okay, second lightning round question, in the current wars in Israel and Ukraine, which is more likely to be ongoing at the end of 2024.

>> Niall Ferguson: Both.

>> John Cochrane: Both.

>> HR McMaster: Both.

>> Bill Whalen: Okay, so no scenario that either one can end in 2024.

>> Niall Ferguson: It's highly unlikely that these situations are resolved this year.

 

>> HR McMaster: You could say that the war in the Middle East has been going on since 1979.

>> Bill Whalen: Okay.

>> John Cochrane: Or in 1935.

>> Bill Whalen: The online publication Politico got in the prediction business, and it offered the following four predictions. I want you guys to tell me which of these four is most likely.

Prediction number one, Russian mothers revolt over the high Russian casualty rate. Prediction two, war breaks out with China. Prediction three, 1968-like riots at major party conventions here in America. And number four, signs of extraterrestrial intelligence.

>> Niall Ferguson: They're terrible predictions. They're all incredibly unlikely.

>> John Cochrane: Agreed. And the thing that happens is the one that you don't expect.

 

>> Bill Whalen: HR?

>> HR McMaster: Yeah, I think there are a lot of predictions you could make that are much more likely than any of these, but I think there will be growing opposition to Putin in Russia, because I do think that even though the economy's doing okay now and I defer to Niall and John on this, all the fixes that Putin's put in, he's running out of and the casualty figures are pretty astounding.

And there have been some protests. So I think of all those, the first is likely. Now, will that be enough to unseat him, as Cockin tells us, right? He said, hey, authoritarian regimes don't need to be that strong. They just need to be stronger than the organized opposition.

 

>> HR McMaster: So it may not result in a change of government, but I do think there's going to be growing opposition to Putin.

>> John Cochrane: They fall when they lose the will. North Korea's economy is doing a whole lot worse than Russia's economy, and they're still in power.

>> HR McMaster: Yeah.

 

>> Niall Ferguson: A more interesting prediction might have been signs of artificial general intelligence. There are certainly people in the AI world who would love us to find those signs, Sam Altman among them. But I wouldn't bet any money on AGI in 2024.

>> John Cochrane: It's the hangover morning of the AI thing, and people are sort of discovering it's not quite as snazzy as really cool, but not quite as snazzy as it looked.

 

>> Bill Whalen: Question for the panel 2024 is a leap year, meaning there's an extra day in February. If the three of you had nothing planned for February 29th, how would you spend it?

>> Niall Ferguson: If only I looked at my calendar and I'm already committed to giving a lecture that day in London.

So, I would like my February 29th back, but I don't seem likely to get it.

>> Bill Whalen: John, is February 29th flying weather?

>> John Cochrane: I hope so, or skiing weather or whatever, but I'm an economist, I always optimize. So, if I'm living my life, right, I would spend February 29th exactly the way I spend every other day.

 

>> Bill Whalen: HR, how would you spend the 29th?

>> HR McMaster: Hey, I'm really looking forward to not writing a book, and more time with grandkids, so I would allocate it to grandchildren.

>> Bill Whalen: Okay, final question, King Charles has started a new royal tradition. Niall, as you're probably aware, he is spending January in Scotland.

Question for the panel, which of you would choose to vacation in Scotland in January, especially if you had Caribbean Islands at your disposal?

>> Niall Ferguson: Well, I've heard many people pledge to undergo dry January. This is wet January, if you opt for Scotland in January, you are choosing to be very wet indeed.

This might be a bet on climate change, though. After all, King Charles has long been concerned about the environment, and maybe he's seeing what the rest of us are missing. That Scotland is gonna cease to be a rain soaked bog and will become one of the great vacation destinations of the future, and maybe that's the thinking here.

 

>> Bill Whalen: All right, John.

>> John Cochrane: Well, no matter how much you think of climate change as a urgent catastrophe right now, it's not gonna happen during this year's vacation by Prince Charles. This shows you what you have to do, even if you're the King of England, which you have to do in order to buck up political support among those troublesome Scots up north rather than go to somewhere nice for your well deserved vacation.

 

>> Bill Whalen: HR, you're an sup guy, I mentioned you're going to the Caribbean, you're probably building a palace in the Caribbean.

>> HR McMaster: Hey, I do prefer the warmer climates, but I do enjoy Scotland, but I'm gonna wait for the Six Nations rugby tournament before I visit.

>> Niall Ferguson: See you there, HR.

 

>> Bill Whalen: So, there you go, John, the show begins. First show of the year, rugby reference already, but we didn't bring up Arsenal soccer, did we, Niall?

>> Niall Ferguson: Please don't intrude on private grief.

>> Bill Whalen: To be continued. Gentlemen, thanks for coming on the first show of the year. We'll be doing another show later this month, and I would like to alert our viewers to this being what we call a mailbag show, meaning we'll be taking your questions and reading them.

So, if you have a question for Niall, you have a question for John, a question for HR, a question for the group, send it to us, and send it to the following web address, which is Hoover.org/AskGoodFellows. Let me repeat that as Hoover.org/AskGoodFellows. We're recording again later this month, so start sending them in now and let us get to them.

We look forward to your questions, they're always great and it's a fun show for us to do. So, with that, we're gonna conclude today's proceedings. On behalf of my colleagues, Niall Ferguson, John Cochrane, HR McMaster, all of us here at the Hoover Institution, hope your 2024 is off to a good start.

And thanks for watching, we'll see you soon.

>> Bill Whalen: Which means I have the great honor of introducing the stars of our show, our GoodFellows, as we jokingly refer to them. That would include the economist Niall Ferguson, excuse me, the historian Niall Ferguson, sorry, Niall. Off to a rough start in 2024, already.