684. He Helped Clean Up the Last Crash. Does He See Another One Coming? | Freakonomics Radio

Former S. E. C. chair Gary Gensler has had a front-row seat to numerous financial booms and busts. How does he feel about America’s massive bet on A. I.? “Something has to give.” You can find the transcript and show notes for this episode on our website here: https://freakonomics.com/podcast/he-helped-clean-up-the-last-crash-does-he-see-another-one-coming/ FOLLOW FREAKONOMICS RADIO: YouTube: https://freak.ws/3yIl6dl Apple Podcasts: https://freak.ws/3yAvQh0 Spotify: https://freak.ws/3TsdCmV ABOUT FREAKONOMICS RADIO: Discover the hidden side of everything with host Stephen J. Dubner, co-author of the Freakonomics books. Each week, Dubner speaks with Nobel laureates and provocateurs, intellectuals and entrepreneurs, and various other underachievers to uncover things you always thought you knew (but didn’t) and things you never thought you wanted to know (but do) — from the economics of sleep to the future of education, from markets for marriage to the surprising utility of wolves. ABOUT THE FREAKONOMICS RADIO NETWORK: Freakonomics began as a book, which led to a blog, a documentary film, more books, a pair of pants, and in 2010, a podcast called Freakonomics Radio. Hosted by Stephen J. Dubner, it’s one of the most popular podcasts in the world, with a reputation for storytelling that is both rigorous and entertaining. Its archive of more than 500 episodes is available, for free, on any podcast app, and the show airs weekly on NPR stations. Freakonomics Radio is now the flagship show of the Freakonomics Radio Network, which includes the podcasts No Stupid Questions, People I (Mostly) Admire, and The Economics of Everyday Things. FREAKONOMICS RADIO NETWORK PODCASTS: Freakonomics Radio: https://freakonomics.com/series/freakonomics-radio/ No Stupid Questions: https://freakonomics.com/series/nsq/ People I (Mostly) Admire: https://freakonomics.com/series/people-i-mostly-admire/ The Economics of Everyday Things: https://freakonomics.com/series/everyday-things/ Special series: https://freakonomics.com/topics/ CONNECT WITH US: [email protected] https://twitter.com/freakonomics https://www.instagram.com/freakonomics/ https://www.facebook.com/freakonomics/ https://www.tiktok.com/@freakonomicsradio https://www.linkedin.com/company/freakonomics-media Subscribe to our newsletter: https://stephendubner.substack.com/subscribe

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:04Stephen J. Dubner?

  The US economy is made up of 20 different sectors, as the government calls them. There is the agriculture sector, manufacturing and construction, healthcare, transportation, and energy. One of these 20 sectors is fundamentally different from the rest. Why? Because it intersects with every other sector with an intensity and at a scale that we have never seen in human history. I am talking about the finance sector. Listen to Gary Gensler.

• 0:35Speaker 01

  Finance is a critical piece of American exceptionalism. We're about 4% or so of the world's population. We're 25% of the world's economy, but we're 50% of the world's capital markets.

• 0:49Stephen J. Dubner?

  It's easy to argue, and some people have, that we are living through the greatest period of wealth creation in history. The financial markets that support this growth are exceedingly complex, and few people understand them as well as Gary Gensler. He spent the first 18 years of his career at the elite investment bank Goldman Sachs. He first got into government work in 1997, when his Goldman elder, Bob Rubin, recruited Gensler to the Treasury Department. After the 2008 financial meltdown, Gensler was asked to help clean up the markets that drove the crash. Barack Obama installed Gensler as chair of the CFTC, the Commodity Futures Trading

• 1:31Stephen J. Dubner?

  Commission, and later, during the Biden administration, Gensler chaired the SEC, the Securities and Exchange Commission. Now, he is a professor at MIT with a specialty in financial booms and busts.

• 1:44Speaker 01

  The debate really is, when do you have these booms that lead to just recessions? And when do you have these booms that lead to real washouts?

• 1:52Stephen J. Dubner?

  I wanted to speak with Gensler about the AI boom in particular.

• 1:56Speaker 01

  That's the big financial risk in the economy right now.

• 2:01Stephen J. Dubner?

  And why is AI such a big risk?

• 2:03Speaker 01

  We have a parlay bet right now. It's that the model companies like OpenAI and Anthropic and so forth, and the hyperscalers like Microsoft and Google, that their capital expenditures will lead to enough revenues. The second part of the parlay bet is that it will also lead to sufficient productivity gains in the economy in the near term. I'm not talking about in 10 and 20 years. In the near term, enough productivity gains to make up for what is going to happen.

• 2:36Stephen J. Dubner?

  So what is going to happen? Today on Freakonomics Radio, we get Gary Gensler to help us sort that out.

• 2:56Speaker 02

  This is Freakonomics Radio, the podcast that explores the hidden side of everything with your host, Stephen Dubner.

• 3:11Stephen J. Dubner?

  All right, let's start with Gary Gensler's birth.

• 3:14Speaker 01

  October of 1957, the same month that the Soviet Union put Sputnik in the air. And the same year, 1957, that you start with artificial intelligence.

• 3:26Stephen J. Dubner?

  Gensler is off by a year on what people consider the birth of modern AI. That was 1956, but that's not his point.

• 3:34Speaker 01

  Few people really think AI is as old as I am or that I'm that young.

• 3:40Stephen J. Dubner?

  And now, Gensler is working at one of the epicenters of the AI revolution.

• 3:45Speaker 01

  I'm not a card-carrying PhD, but MIT saw fit to take this old math guy and make me a professor of the practice. And I guess you don't view me as a competitor, but Simon Johnson and I started this podcast, Power and Consequences.

• 3:59Stephen J. Dubner?

  Oh, I know, I've been listening to it. I like it a great deal.

• 4:02Speaker 01

  Well, thank you. I mean, we just try to do explainers, and we're broadening out and inspired by what we do with students. I think there's an overlap of what we're trying to do. We use data narratives, we use historical narratives a bunch. To me, history helps inform thinking about the present and mostly what it means about the future.

• 4:22Stephen J. Dubner?

  I was wondering if you could just compare how it is for you to navigate three different systems: academia now, government service for a long time, and before that, private sector Goldman Sachs for a long time.

• 4:34Speaker 01

  First, a similarity. I've been blessed by working with people of very high caliber professionalism. The Goldman Sachs merger department in its day was like the Green Beret of M&A bankers working on various campaigns and political efforts, even when we lost, but working with really talented people. And now, my god, the finance group. And my co-podcaster, Simon Johnson, just won the Nobel Prize in Economics two years ago. The similarity, very high level of professionalism and gray matter. There's real differences, though, at Goldman Sachs. I learned about trying to discern value. What's the value proposition of a company? How do you sell it? Helped me in politics also.

• 5:19Speaker 01

  What was the value in any transactional situation, but also broader strategy? The second thing I learned at Goldman Sachs that has helped me throughout is negotiating skills. They were amongst the best, skillful, courteous negotiators. I took that into the political world. I worked on a lot of legislative initiatives with Paul Sorbanes, that thing called Sorbanes-Oxley. I find my colleagues at MIT are really collaborative. They're always curious if I reach out to them and say, hey, could I stop in? In academia, though, it's not the same level of teamwork that I learned at Goldman Sachs. In politics, you have to always find consensus.

• 6:02Speaker 01

  There's a hierarchy that messaging helps drive the political consensus, and the policy analysis is part of it, but it's kind of third. Whereas in academia, it's in reverse. The analysis seems to come first, and I'm constantly saying, well, what about the political economy? What about, can you get the consensus to move that forward? Importantly, what's your message that you can boil down to six seconds?

• 6:28Stephen J. Dubner?

  In politics, I'm usually surprised and frustrated by the lack of empirical attention paid to even significant things like the way that our government looks at the financial markets. To me, it feels as though the political temperature drives too much decision-making versus empirical thinking driving decision-making. Can you just talk about that for a moment?

• 6:54Speaker 01

  The beauty of the political world is the American public gets to decide. If you can't describe something to the American public with a narrative arc, with a clean, why does it matter to me at my kitchen table? Then it's hard to break through. An example is our unsustainable debt right now. The United States has gotten very comfortable and relaxed in this idea that every year we run federal budget deficits, running around 6% of our gross domestic product. When you add up all of that debt and deficits, we're now at about 100% of our gross domestic product, to put it in dollars, $31 trillion. And that's going to keep growing.

• 7:39Speaker 01

  That's something we haven't had the political consensus, the political will, to address. And I think we lost something. Our first 200 or so years, the capital markets and the political markets were aligned where we couldn't borrow too much. And then something shifted about 40, 50 years ago. The broad bond markets of the world said, well, no, we'll keep buying these dollar assets and keep basically supporting the US government twin deficits. We have trade deficits, and we have the federal government deficits. That would be an example where the analysis says this is unsustainable. Where does it tip over?

• 8:23Speaker 01

  That's the debate, but the political consensus just isn't there.

• 8:27Stephen J. Dubner?

  We asked some of our former guests on the show for questions for you. This is from Jessica Riedel, who's at Brookings now, used to be at Manhattan Institute, so both sides of the divide. She says, do you think that financial markets can absorb $200 trillion in projected budget deficit borrowing over the next 30 years under the current policy baseline without interest rates significantly rising? I would just add, I don't know if interest rates significantly rising is the biggest threat, or as you noted, people are still buying our debt, but that could stop, too.

• 8:59Speaker 01

  The answer to Jessica would be no. I look at something in the capital markets, the spread between two-year borrowing treasury and 10-year borrowing. It's called the yield curve. And something happened over the last 20 or so years that narrowed, meaning the cost of borrowing for 10 years is only 40 to 50 basis points, or a half a percent, greater than for two-year debt, on average. For some time, it was even less. And when I grew up at Goldman Sachs, it usually was in the 80 to 100 basis points. You'd say, well, Gensler, what's 30 or 50 basis points between and amongst friends?

• 9:40Speaker 01

  But the central banks around the globe, plus China's excess savings, pulled that down, and it allowed the United States to lean in. I don't think we'll be allowed to lean in and borrow from the world that $200 trillion without the yield curve steepening, interest rates, real interest rates adjusted for inflation moving up. At some point, there'll be a reckoning.

• 10:10Stephen J. Dubner?

  The Democrats and Republicans have done a wonderful job of accusing each other over the past couple of decades of being the ones to inflate the debt and deficit. But they both pretty much do it. There are a lot of members of Congress who really see this as a significant threat and would like to address it and absolutely are hamstrung by their parties. If they raise a public word about it, politically, they're toast. Do you see any solution to that stalemate?

• 10:38Speaker 01

  It's really hard, and I think the challenge is really the American public itself. We're basically borrowing from the future and we're borrowing from foreigners to spend in the present. If you look at the federal budget in aggregate, it takes in about 17% of our economy, gross domestic product, in revenues, that's the taxes and the tariffs. And we spend about 23% of the economy, six percentage points mismatch. Then you look at that 23% of the economy spending at the federal level and you say, well, what can we adjust? The bulk of it, well over a majority of it, is what in Washington is called entitlements,

• 11:23Speaker 01

  what we all know as Social Security and Medicare and Medicaid, only about 4% of our overall economy, is the discretionary spending, half of which is the Defense Department and half the non-defense department. And so you say, well, can we take this on? Can we fill the deficits? They're running at $1.7 trillion a year right now. Can we fill that with just adjusting the non-defense discretionary? And the answer is no. The arithmetic of it all really runs into the political side.

• 12:00Stephen J. Dubner?

  I was hoping you'd have some magic solution, though.

• 12:02Speaker 01

  We just lost a remarkable public servant, Alan Greenspan. We can debate the pluses and minuses of his career, but one thing he did in the 1980s, he was asked by then-President Ronald Reagan to chair a commission on Social Security reform. Somehow, there was a political consensus at that moment to make some reforms on Social Security, which effectively cut benefits for you and me. They said, all right, retirement age isn't going to be fully at 65. It's going to creep up, and I think now it's closer to 68 if you want full benefits. That political consensus doesn't exist today.

• 12:45Speaker 01

  Some people look to the 1990s and say, what led the federal budget surpluses at that point in time? And did it have some relation to productivity gains? They were coming in the economy with computerization and the internet and so forth. The optimists would say, could that happen here? I think it's far more challenging because we've had some very significant public policy changes since then on the tax side, that we only bring in about 17% of our economy into federal budget revenues. And going into those 1990s, we were closer to 20% of our economy.

• 13:25Speaker 01

  The Bush tax cuts, the Trump tax cuts, both in his first term and his second term, really have changed the whole fiscal picture.

• 13:36Stephen J. Dubner?

  You chaired both the SEC and CFTC. I want to exploit your experience and wisdom in those two areas to talk about the economy now. Let's start with the CFTC. You chaired that from 2009 to 2014. The big headline that I'm aware of is Dodd-Frank, the swaps oversight provisions, central clearing, real-time trade reporting, bringing transparency to a market that hadn't been transparent. But if you could just walk us through what you saw as the hits and then either things you weren't able to accomplish or things that didn't work out the way you'd hoped.

• 14:14Speaker 01

  Let me say something about both chairing the Commodity Futures Trading Commission and the Securities and Exchange Commission. And we in the United States are one of two large nations that have several market regulators. Japan followed us in the 1940s and did something similar, but one that oversees the securities markets. Securities are things that you buy and sell that issuers, companies raise money with. And then something that around the derivatives markets, financial contracts that derive their value from an underlying, and in the case of the Commodity Futures Trading Commission, initially, they were financial contracts deriving their value from agricultural things, corn, wheat, later, oil, later, interest rates.

• 14:57Speaker 01

  In both jobs, I am proud of and leaned into a field that seems a little geeky to many people, but it was the market structure, or more technically, micro-market structure. I think you can create great public good by the rules of the game. Is a market fair? Does a market have access? How transparent is it? And how much do you promote integrity? Basically, getting rid of fraud and manipulation. Those are the key things of market structure. And if you have really good markets, it benefits somebody just filling up their car with a tank of gas, because behind that, somebody might be hedging the risk of the oil price

• 15:42Speaker 01

  going up or down due to war in the Strait of Hormuz or just due to production cycles. To answer your question of the Commodity Futures Trading Commission, it was a remarkable time to serve. There it was, the 08 financial crisis, 10 million people either losing their jobs, losing their homes, and many, many more people than that, having financial uncertainty at the time. President Obama decided, put together a team and said, we not only have to stabilize the economy, but we also have to put in some reforms to make such failures less likely. Never going to get rid of them completely, but less likely.

• 16:24Speaker 01

  We did work with the rest of the Obama administration, with Tim Geithner, with Mary Shapiro, with congressional colleagues, Barney Frank, who we lost earlier this year, Chris Dodd, Blanche Lincoln, Colin Peterson, these were the relevant chairs of the committees. And we put together provisions to lower the risks and create greater competition in these derivatives markets and what you call swaps markets. I'm proud to say that not only did we get a law passed, but then we were asked to implement various rules. We did 67 different rules. I think 85% of them bipartisan, meaning Republican and Democrats voting together. Almost two-thirds were unanimous.

• 17:09Speaker 01

  And remarkably, 15 or so years later, they haven't been overturned. The big problem in the middle of that crisis, the credit default swap market, the interest swap markets are functioning at lower cost. The interest swap market, a lot lower, spreads, they're called. They're institutional markets. Many of your listeners would go, why is Stephen have this guy on, talking about interest rate markets? But it matters to your mortgage. It matters to your employer. It matters to your auto loan, your student loan, the interest rate markets. I'm very proud of that. I'm proud of one other thing in the enforcement area. We found a bunch of cheats. I don't know what else to call it.

• 17:54Speaker 01

  We found a bunch of people at big banks that were fraudently setting the interest rates. And they would say on a daily basis, this is what we will borrow and lend in the interest rate market called the London Interbank Offer Rate. Now, why did that matter? Many people's mortgages, many people's loans were set in relation to that market. That was called floating rates. Every day, 16, I think it was, banks put in a rate. And we found that a number of them were just lying and others were colluding. And I think we helped clean that market up.

• 18:34Stephen J. Dubner?

  Well, you're talking about, some people may remember that being called the LIBOR scandal, yes?

• 18:38Speaker 01

  That is, the acronym LIBOR stands for London Interbank Offer Rate.

• 18:43Stephen J. Dubner?

  When you were talking about how derivatives went from being on corn futures to derivatives on interest rates, the big picture of the last maybe 30 or 40 years, to me, as a layperson, has been the amount of, let's call it, financial engineering in our economy. Can you just take a step back and describe that development, pros and cons generally? How much of the economy itself, but also the downstream effects, are influenced by really a relatively small handful of people at a relatively small handful of firms who have found new ways to make money that are vastly different from old ways to make money?

• 19:23Speaker 01

  If I could tease apart two pieces of it. One is financial engineering, or you might say, financial innovation, or even technology. And the other is market concentration. Finance, since antiquity, has been coming up with new technologies. In fact, long ago, we humans came up with this thing called money. That's a technology we invented.

• 19:49Stephen J. Dubner?

  It's a good one. Yeah, it's a really good one. Very valuable.

• 19:52Speaker 01

  We went on to do a bunch of stuff on math. And I'm not talking about high-end math, like AI math. I'm talking about like, double-entry bookkeeping. In the 1980s, a firm named Solomon Brothers invented the first interest rate swap. And others invented how you can take loans and sell them in the market called securitizations in the mortgage market and then in the asset-backed securities markets. And now we have, of course, credit default swaps. And more recently, I'm guessing we'll talk about prediction markets as well. One former public servant, who I had the honor to work with closely, Paul Volcker, said at one point in time after the financial crisis that the only technology he thought

• 20:35Speaker 01

  that really benefited the public was the automatic telegraph machine, ATMs. I thought Paul was a little too harsh.

• 20:43Stephen J. Dubner?

  We should also say that in the US especially, corporate governance is a big deal in making markets function the way we want to.

• 20:52Speaker 01

  I think a gold standard in the United States, we are the big market for now. There's a lot of reasons, but part of it is because we set up institutions, the Federal Reserve in 1913, the SEC in the 1930s, the Commodity Futures Trading Commission, on and on. We set up these institutions and they've on the main functioned pretty well, focused on public goods, what's good for the market, access, transparency, fairness, competition and the like.

• 21:25Stephen J. Dubner?

  Let's talk about concentration. We're doing an episode right now on the price of beef in the US, which is really high. And if you look at the concentration in the packers right now, there's only like four major meat packers. But if you go back 130, 150 years, it was the same thing, a different four or five. And so that seems to me as a layperson to be a feature of our capitalism. Maybe it's a good feature, maybe it's a bad feature. I don't know, but I'd love you to talk about the kind of ongoing concentration of markets and in which markets maybe now you see that concentration as problematic.

• 22:02Speaker 01

  It's a feature of finance since antiquity. The Medici's had their day. They did.

• 22:09Stephen J. Dubner?

  They did. They did.

• 22:10Speaker 01

  JP Morgan, the man, not the company, had his day and his son in the late 19th century and early 20th century. I think it's a feature of finance. And then you might go, well, why? It has to do with the economics of networks. Just as Google is a network for search in the United States, or Baidu as the search network in China, just as Amazon has that big network effect. There is a powerful set of economics around the centrality of a handful of either commercial banks, those that collect deposits and make loans,

• 22:51Speaker 01

  or the market makers themselves that they get in the center of the market. One of the key things they get an advantage of when you're in the middle of the market is you get more and better information. There's what economists call an information asymmetry. I have more information than you do. I'm glad to trade with you every day, Stephen, if I have more information than you. You're called the less informed individual. Sometimes I would hear on Wall Street that the broad public were like the slow deer and the Goldman Sachs's or Morgan Stanley were the fast deer. Well, now it's changed. Maybe now it's Citadel or it's Jane Street

• 23:35Speaker 01

  or Jump Trading, firms that are at the center of this capital market. One other thing happens in finance and it's a feature is the borrowing of money and then trying to make money on borrowing money. That's called leverage. Banks do it and when they get into trouble, people want their money back and that's called a run on the bank. Market concentration and leverage and technological waves are all features of finance. When I was born in the 1950s and you said, what was finance's total aggregate part of the US economy? It was maybe 3%.

• 24:16Speaker 01

  When I went to Wall Street in 1979, it was maybe 5%. And now it's 8%. You'd say, do we have a better economy? For sure, we have a bigger economy. But I'm saying, do we have a better economy?

• 24:31Stephen J. Dubner?

  Yeah. What's your answer there?

• 24:32Speaker 01

  We have a less equal economy. It's a far higher bit of inequality, wealth and income inequality. It leads to polarization. And there's a lot of political scientists who study the relationship of inequality and polarization. I think finance is a critical piece of the American exceptionalism. I think finance is also the thing that might be right now, leading to this AI boom slash bubble that we're living through right now.

• 25:05Stephen J. Dubner?

  Coming up after the break, does every boom turn into a bubble? I'm Stephen Dubner, speaking with Gary Gensler and this is Freakonomics Radio.

• 25:29Stephen J. Dubner?

  I spoke with Gary Gensler on July 10th. The markets have been a bit choppy since then, but the larger trends are still holding true.

• 25:38Stephen J. Dubner?

  By whatever index or measure you want to look at, US stock market valuation is at an all time high relative to our GDP. I think roughly two and a half times GDP.

• 25:49Speaker 01

  It's hovering right around 235% of our economy. It's called the Warren Buffett index. He just simply takes the value of the stock market and divides by our economy. That's an all time high, depending upon the day. You can look at price earnings ratios in the rearview mirror, where we're about 30 times. You can look out in front of us, the predicted price earnings ratios, not quite the highest. We have been a little higher at times. Or there is a famous economist named Schiller that does a Schiller index, which takes an average of 10 years. We're pretty much at the high there as well. Regardless of all that, what we're having right now in our stock market,

• 26:33Speaker 01

  everybody would agree, is this investment boom in artificial intelligence. Think data centers, think chips, not just computational chips like the graphic processing units of Nvidia, but think memory, Micron, Samsung, this SK Hynix out of Korea. All of that spending has gone up nearly fivefold in three years from about 140 ish billion to 750 billion. To scale it in terms of our economy, just this year in 2026, that's 750 billion is about 2.5% of our gross domestic product. It's estimated next year to go to a little over a trillion.

• 27:17Speaker 01

  All of a sudden it'll be 3% of our gross domestic product. That's more than we've done on nearly any of our general purpose technologies.

• 27:27Stephen J. Dubner?

  I'm curious to know the degree to which that concerns you and for whom especially. For instance, Citadel has data showing that the bottom half of US households now own more than $600 billion in equities and mutual funds, which is an all time high. And that is to a lot of people, really good news because one complaint for a long time has been that the stock markets were mostly an opportunity for middle and upper income people. But when new investors get into a market, whether it's the stock markets or crypto or whatever it may be, that is often one of the preconditions for a bubble.

• 28:07Stephen J. Dubner?

  Talk to me about your assessment of full absolute risk of the markets and for whom.

• 28:14Speaker 01

  It's a risk for the entire economy. Right now, our economy is driven by and large by two things, both related to AI. One is the actual capital expenditure. When you move from the numbers I mentioned, 140 billion to 750 billion, that's 600 billion of more spending in just three years for capital expenditures on these data centers and the like. Secondly, the stock market itself creates a wealth effect, generally for the upper income Americans. I like the figure that Citadel puts out there, but I'd note in aggregate, the US stock market is hovering around $80 trillion.

• 28:57Speaker 01

  So if the bottom 50% of households hold 600 billion, it's less than 1% with all respect.

• 29:05Stephen J. Dubner?

  So when someone like Citadel puts out a number like that, is it marketing essentially?

• 29:10Speaker 01

  As we say in politics, it's messaging. You're going to find the political consensus and then you figure out the analysis. Look, I would say this, the economy is at risk because if the capital spending just plateaus, that takes off growth. If this capital spending goes to a trillion next year and then declines just to a modest 500 billion, that's a shrinking construction, electricity provisions, all the data chips, all of that shrinkage starts to go the other way. And so right now we have this ebullient valuation in the stock market.

• 29:52Speaker 01

  We have it pushing price pressure up from every bit of, every laptop you want to buy, any iPhone you want to buy, even your automobile has in it memory chips. There's only three big memory companies, one of whom just tapped the US market, SK Hynix. And it's pushing pricing up? Pick your favorite general purpose technology. Stephen, there's a question back to you. 200 years, you could start with canals in the 1830s or the internet just 20 some years ago.

• 30:22Stephen J. Dubner?

  I have mine. I'm ready to go.

• 30:24Speaker 01

  All right, all right.

• 30:25Stephen J. Dubner?

  Electricity.

• 30:26Speaker 01

  Ah, good one.

• 30:27Stephen J. Dubner?

  I think it's wildly overlooked generally. Electrification, it's a good and wild story. And it's one of those things that we totally take for granted now.

• 30:36Speaker 01

  Yeah, it was 1880 when Thomas Edison created Edison Electric and built that first electric plant here in Manhattan where I'm recording. And what happened to the stock market? And did we have a recession in the 1890s?

• 30:49Stephen J. Dubner?

  I would guess yes.

• 30:50Speaker 01

  Yeah. And what happened in the 1920s when we really had big utility? And all the utility companies were starting to electrify rural America as well.

• 30:59Stephen J. Dubner?

  I'll say yes again. And I'll say yes to every single one. There's booms and busts.

• 31:05Speaker 01

  Right, right. I'm glad you picked electricity because in electricity's case, we weren't spending 3% of gross domestic product on the capital spend. Railroads, a lot of people picked because it spent so much. After the Civil War, we were just building those railroads. And government policy had made a difference to giving away land for building the railroads. That big boom, we were peaking at 6% or 7% of our gross domestic product spending on railroads. And then the 1870s, we just washed out the economy. Sometimes we peak at 2%, 2.5% to 3% of gross domestic product, like we did in the late 1990s on the internet. I think a lot of it has to do with leverage.

• 31:48Speaker 01

  How much borrowing is in the system?

• 31:51Stephen J. Dubner?

  There's a book, I'm guessing you know, Ken Rogoff and Carmen Reinhart, just after the global financial crisis where you were heavily involved.

• 31:59Speaker 01

  When the cleanup crew.

• 32:00Stephen J. Dubner?

  The cleanup crew, right. And their book was called This Time Is Different: Eight Centuries of Financial Folly. They were talking about that financial crash. Let's use that term now for AI because there are, as with any big new technology that's getting a lot of investment, there are people who claim this time is different. This technology is fundamentally different. The investment around it is different. The consequences if or when parts of it don't go well are also different. I'm guessing you don't feel that way about AI, but I'd love to know.

• 32:31Speaker 01

  Look, I'm an identical twin. I would say Rob and I are different, but we're also a lot similar. So let's just give you context. What's similar is that we have a set of technologies that come along every 20 to 40 years, the last being the internet. And maybe before that, you would say the computer and general electronics and so forth. Before that, automobiles and the highways and the great highway system, all the way back to canals in the 1830s. What you usually have, history tells us, is this investment phase, big capital expenditure phase. We're having that right now.

• 33:13Speaker 01

  It's in the data centers and the chips and the memory and the like. And revenues do not match it. Right now, we have, give or take, 750 billion of spend. And we might have native revenues, if we're being generous this year, 150, maybe 200 billion. So we know something. It's not in equilibrium right now. And we knew that when the internet was building all those cables in the late 1990s as well.

• 33:43Stephen J. Dubner?

  It's never been the case with a big new technology that it is in equilibrium only because a new technology needs an awful lot of startup investment? Or am I wrong there?

• 33:52Speaker 01

  You're correct, but it's also the nature of financial markets. And it's a nature of human incentives. Think about the chief executive officers in any one of these eras. They said, oh, my God, they're building a canal. I got to build a canal. They're building a railroad. I got to build a railroad. And now Mark Zuckerberg can't help himself, right? I mean, he spent 80-plus billion dollars on the metaverse, those goggles. And so Google rightly is saying, if I don't do this spend, I could lose my ad revenues to OpenAI. So there's a fear of missing out, FOMO. But there's also defensiveness.

• 34:32Speaker 01

  I've got to protect my high profit margins I have currently. And so you get an overinvestment that comes from the actual incentive systems right in the moment, financial incentives and FOMO incentives. And you get this enthusiasm and the capital markets support it over and over again, decade after decade. We support these booms. And then at some point in time, it plateaus. And all of a sudden, it's a little bit like that cartoon. You're watching the character run. And all of a sudden, they ran off the cliff and their feet are still moving. And there's not the revenues to support where they are.

• 35:14Speaker 01

  The difference that a lot of people point to is two. One that I think is right, and the second one I worry about. One is they say, listen, there's not as much debt borrowing because a lot of this build is from these big tech companies, the so-called hyperscalers, the Microsofts, the Googles. And they're using their own cash flow. They're not using capital.

• 35:38Stephen J. Dubner?

  They're already public. They've been public a long time and they generate a lot of cash. Yeah.

• 35:42Speaker 01

  And they don't have a lot of debt yet, though they're now tapping the debt markets, right? All of them are doing things that are off-balance-sheet financing. They're also having a lot of other companies called NeoCloud companies, like CoreWeave and others, lease or buy the chips. And then they lease from them. There's a lot of interconnected finance that if we have a crisis, people will look back and say, where's that Freakonomics podcast with Gensler? He mentioned that.

• 36:11Stephen J. Dubner?

  But wait a minute. Sorry to interrupt, but let me ask you this. How do you like that style of ramping up? I'm just trying to gauge your level of concern.

• 36:20Speaker 01

  I think that we have a stock market that is highly valued by any measure. We have a boom in the capital expenditures that will plateau and maybe even decline in the next few years. So when that comes, that's a reversal that you see will happen for all of these chip manufacturers, construction, and so forth. Something has to give. If AI is successful, it's also going to lead to a lot of disruption. It's going to be significant disruption. The S&P 500, a couple hundred of those companies, their valuations kind of need to go down because they've been disrupted by somebody. I'm not predicting which one, but it could be software as a service

• 37:05Speaker 01

  or other service companies and so forth. So somewhere, AI's got to really work out. And I'm an optimist that it will over time work out, but not in the next several years. It will be much slower, I think, in terms of really changing productivity growth.

• 37:22Stephen J. Dubner?

  Let's talk about who loses out in the AI transition, especially when it comes to employment. We saw this with the so-called China shock when US manufacturing jobs were sent overseas. Some predictions say that the net job loss from AI will be much larger. But it strikes me that nobody really knows yet.

• 37:41Speaker 01

  AI needs to be thought of, and I say this to these great students at MIT. I say, you've got to look at the task level, not the job level. What are the tasks of the producers of Freakonomics that they can offload to AI? There's still going to be a human asking the questions, I think, for a while. Stephen, I think you're not an AI agent, are you?

• 38:03Stephen J. Dubner?

  I am not an AI agent just yet. I do find AI helpful in my research, but I'm just using it essentially as a better version of a search engine or maybe a talented and smart assistant who also makes a lot of mistakes.

• 38:19Speaker 01

  Correct, correct. You have to be dubious. You have to really challenge it. You can't offload too much because they'll tell you something that's just not correct. But what tasks will be automated? And then later subsequently, what whole processes will be transformed? Like Henry Ford transformed the factory floor and did that whole assembly line.

• 38:40Stephen J. Dubner?

  And then extending that metaphor, when you create the car, you add mobility and that leads to billions of opportunities that didn't exist. So that's the creative destruction argument that the people that I hang out with, the economists like. But when I raise that argument to AI skeptics, younger and older, they see it more in the this time is different way. There's no way that that's going to happen. So what do you say to that skepticism?

• 39:05Speaker 01

  I feel it. I understand it. There's been skepticism about a lot of different technologies for centuries. There was that old story of the Luddites in the United Kingdom about weaving and millwork. This is more challenging in some ways because to the extent that you concentrate on a winner-take-all or winner-take-most model, if the scaling goes that way, then a lot of the profits and revenues go to that one or two main central models. Then if companies, law firms, consulting firms, software firms are offloading

• 39:47Speaker 01

  and automating tasks, then the worry is, well, does everybody else get paid lower for what they're doing? There's going to be a lot of disruption in the 2030s. I think there'll be a lot of political angst and changes of coalitions around this throughout the 30s and maybe the 40s.

• 40:08Stephen J. Dubner?

  I was hoping you were going somewhere positive with this, but you're saying that what we've got now in terms of uncertainty, let's say, political partisanship, let's say angst, as you put it, you're predicting at least 10, maybe 20 more years.

• 40:22Speaker 01

  I think that we're in a transitional period of time. And we've seen this at other times. In the industrialization of the late 19th century, it was a little bit about electrification. It was a lot about the railroad, a lot about industrialization, moving from the farms to the cities. But that was a period of time. We had the progressive era. It was one of the most dynamic periods of time that we actually broadened the franchise to vote to women by 1920. We did some heinous things on race, though. We went backwards and we even started the Jim Crow era. But the progressive era was one that we did antitrust laws. We set up the Federal Reserve and the Federal Trade Commission. I think the 2030s and 2040s will be a challenging political time.

• 41:07Speaker 01

  I think that the American public is going to rise to the challenge and say, we need to change some of the imbalances that are in society. And I hope you ask me about China.

• 41:21Stephen J. Dubner?

  Coming up after the break, what about China? I'm Stephen Dubner in conversation with Gary Gensler, and this is Freakonomics Radio. We will be right back.

• 41:41Stephen J. Dubner?

  Gary Gensler is former Chair of both the Securities and Exchange Commission and the Commodity Futures Trading Commission. Before that, he was a partner at Goldman Sachs. And now he is a professor at MIT. We're talking about how the AI boom may play out. And that depends on who wins the AI race.

• 42:00Speaker 01

  China and the US are in the lead right now. China and the US have different approaches. We're spending really significant. We're spending probably seven times as much as China this year on building those data centers. And yet their models are only maybe four to nine months behind us. There's a lot of price pressure in the US. Our companies in the US are saying, well, if you want to use OpenAI or Anthropic, we have to charge you. And at some point in time, we have to pay our bondholders and our stockholders. China might be four or nine months behind, but it's good enough. Like, when you do your searches for Freakonomics, I don't know if you're looking at the budget for how much it's costing you.

• 42:45Speaker 01

  But if you thought, I can do almost as good a search for half the price, you might say, I'll use a DeepSeek model from China, or a Moonshot model, or Alibaba Quen model. We're in an interesting time where we may have put a lot of cards on this thing as a nation, but we'll have the Maseratis and the Ferraris of AI. And they're going to be building the Volkswagens. And the Volkswagens will sell a lot. Well, just think about it. In China, they have a pretty darn good electronic vehicle.

• 43:22Stephen J. Dubner?

  They do. It's taken over most of the world, except for the US, yes?

• 43:26Speaker 01

  Yes, BYD. And so is that where we're going to be on this AI front in two or four or five years? Where we get some commoditization of good enough AI for most tasks? China is also ahead on industrial robotics. So I think that's going to play out significantly as well.

• 43:51Stephen J. Dubner?

  Have you ever heard of an exercise called a pre-mortem, Gary? This was invented by a guy named Gary Klein, who's a psychologist.

• 43:58Speaker 01

  He's got a great first name.

• 44:02Stephen J. Dubner?

  I agree. So the pre-mortem asks, let's say you work at a firm and you're launching a new product. You're the CEO and you say, I think we're doing great. I want to make sure it succeeds, but I also want to take out an insurance policy. Let's get together, everybody who knows really what's going on here. And imagine that our product came out and failed. And let's try to identify the causes right now. And if you can successfully do that, then maybe you can amend them and the launch can be successful. So if I were to ask you, Gary Gensler, to conduct a pre-mortem, imagining that there is a massive market correction in the US. Let's just call it 20%. What would be the causes?

• 44:46Stephen J. Dubner?

  We've got private credit looking wobbly. It could be an AI collapse. I'll let you fill in the rest. But if you had to face that dark scenario, what would be the the causes? And then let's say, what would be the consequences, too?

• 45:00Speaker 01

  My friend, 20% is not the dark consequence. There's a lot of room between us right now at a stock market that's 236% of gross domestic product. And the average of the last 25 years is maybe 110 or 120%.

• 45:19Stephen J. Dubner?

  Okay, you want to take it to 50% then?

• 45:21Speaker 01

  I'm just saying that, what did you want to do a pre-mortem on? Look, the consequential underpinning of the economy and the capital markets right now is this AI investment. I don't think many people will disagree with that. Where there's debate is how that's going to play out. On your pre-mortem, if the market had a correction, so to speak, and it was off, whether it's your 20% or more, it's likely to be that folks look at this and say, the revenues and the profits aren't there. The companies are still there, but the revenues and the profits. When you think some of these tech companies have profit margins,

• 46:06Speaker 01

  that's the gross profits divided by their revenues. But profit margins in the 50% to 80% range. I mean, the memory companies and Nvidia are in that 70% to 80% range. And a number of them have moved their pricing for their chips, particularly the memory companies, up four and five fold over the last year. This is not like 4% or 5% inflation. It's like 300%. There's remarkable innovation going on. There's remarkable technological advances going on. Your pre-mortem, it would be, well, gross margins collapse at these companies.

• 46:50Speaker 01

  Their pricing pressures right now are going on because there's this huge demand factor. And then you see the chip companies, the data centers are rushing to build new factories, new plants, new laboratories. Your pre-mortem would say, well, there's not enough revenues to support all that. And there's an adjustment. And how does it spill through to the private credit field? How does it spill through to these NeoCloud companies? There would be some breakage. And I go back to Warren Buffett. He says, you really find out who's been swimming with their trunks off when the tide goes out. We'd find out who was swimming with their trunks off.

• 47:34Speaker 01

  But it would be, where is the leverage? Which companies not just have to retrench, but actually go into some bankruptcy? There will be some, somewhere. I think for the economy writ large, the spending, the consumption would come off a bit. The high net worth individual consumption would come off. One last thing, I think, is if AI continues to be successful, and if the Anthropics and the OpenAIs can charge more, the Googles and Metas can charge more, more and more US companies are going to turn to the Chinese models and say, I'm going to go to the good enough model.

• 48:15Speaker 01

  I'm going to go to the Volkswagen of AI, not the Maserati of AI. Most of our economy does not buy the frontier desk chair for their office.

• 48:29Stephen J. Dubner?

  The automobile, whatever you name it. You live in a place like New York City, you think everybody drives a BMW.

• 48:34Speaker 01

  But that's not what all the Uber drivers are driving, right? You need the production model of AI mentality. Hundreds of companies in 2026 are already turning to their technology buy. And they're going, look, we've got to lean into AI, but we've also got to manage the costs right now. Let's do what the technologies call orchestration. I don't want vendor lock-in. I don't want to be dominated by somebody that can charge a lot more.

• 49:05Stephen J. Dubner?

  Before AI was all the rage, especially in the markets, crypto was not all the rage, but there was a lot of rage. Positive and negative rage, let's call it. And you, when you were running the SEC, were very involved in crypto regulation. You declared the industry the Wild West. And you launched enforcement actions against a bunch of firms, Coinbase, Binance, and others. I'd love you to talk about the work that you did toward crypto regulation during the Biden administration. And then what, to me, as a layperson, would appear to be a pretty total washout by the Trump administration, overruling and undoing. I've also got a question here from someone who's been on the show before, Brendan Ballew.

• 49:50Stephen J. Dubner?

  Brendan wrote a book about private equity a couple of years ago, former DOJ. He said, many of Gensler's regulations were enjoined by courts, and that'll only become more common as more of the federal judiciary is appointed by President Trump. Even if a Democrat gets elected president in a world where Congress remains dysfunctional and averse to regulating finance, and where courts are eager to stop new regulations, what are the institutions that will rein in either private equity or crypto, et cetera? So I want to know what it's like for you to see how crypto has been, obviously, embraced by the Trump administration and Trump personally benefiting from his own crypto adventures. That's kind of one part of it, whether you want to talk about that as a grift or not.

• 50:34Stephen J. Dubner?

  But I'm also curious to hear, you talk about what happens when well-constructed regulation gets undone in a heartbeat when there's a new administration?

• 50:43Speaker 01

  I think there's a mix of questions in there, my friend.

• 50:45Stephen J. Dubner?

  I'm sorry, I have a wandering mind.

• 50:47Speaker 01

  One is, we live in a functioning democracy. And I think it's a really positive thing that when the American people speak and they elect a new lead, a president, a new Congress, that policy can shift. That's the American public's right, and that's a good thing. You also asked about the courts and how does it feel? I think the courts have shifted, and that's a market in itself. I used to say to my colleagues, we have to think about not where the puck is, but where the puck is going, that famous Wayne Gretzky quote. In the courts, the puck was moving, very much so during the Biden administration, really for the last 20 years.

• 51:30Speaker 01

  But it shifted a fair amount in terms of constraining what the administrative state and the executive branch can do in terms of using the laws to promote public good. I think Brendan is a little bit unfair, if I might say this. I think that of the 40 or 45 or so regulations that we did while I was proud to be Chair of the SEC, while a handful of them were challenged in court, and we did lose a number down in the Fifth Circuit. It's a handful, and I would not have wished to have lost them, particularly as it relates to transparency and private equity, which I think you mentioned.

• 52:13Speaker 01

  The private capital markets, we were trying to get more transparency to those pension funds and endowments that were investing in private alternative investments, like private equity. And the Fifth Circuit down in Texas and Mississippi said, no. They didn't think that we had had that authority under the Dodd-Frank Act to just provide transparency to the limited partners. There were two or three other cases that unrelated to those crypto fields. The last part that you asked about, I say this, all the capital markets since antiquity, now and into the future, trade on a mix of fundamentals and sentiment.

• 52:56Speaker 01

  But now you get to some markets that feel nearly entirely sentiment and not much fundamentals. Those are usually those markets that are not sustained in valuation. You might think, I was going to go to tulip bulbs. I didn't need to go to tulip bulbs. I could go to meme stocks of some sort. So what is it that supports the valuation of thousands upon thousands of crypto assets? If you're an investor, you really have to think long and hard. Well, what supports the valuation? Maybe there's one or two of these things that persist for some time because there's nearly eight billion people in the world.

• 53:38Speaker 01

  And Satoshi Nakamoto, who wrote that seminal paper, the Bitcoin White Paper, whomever Satoshi Nakamoto was, came up with an interesting ledger system. That's what it is, a database system called blockchain technology. But I would note, I don't know of any financial firm, I don't know of any crypto firm that uses the blockchain technology to keep their books and records. It is used to move this asset in a permissionless way around the globe. And in some cases, that creates an economic benefit of avoiding sanctions. It creates an economic benefit to some who want to avoid any money laundering laws and gun running.

• 54:23Stephen J. Dubner?

  Its advocates say it also prevents friction and profiteering from the banking system. I assume you're not sympathetic to that argument.

• 54:31Speaker 01

  I think that it hasn't proved out to be that beneficial. Are there frictions in the banking system? Yes. All you have to do is look at the stock market and say, what's the valuation of Visa and Mastercard? And why are they trading somewhere between $400 and $700 billion of market cap each? So there's economic rents. There is market concentration in the US payment system and the Chinese payment system, the Indian payment system are cheaper to do commercial payments than in the United States. But we have a very efficient payment system when it comes to paying our mortgages, being paid. I'm guessing, Stephen, you're not paid in bags of gold, are you?

• 55:16Stephen J. Dubner?

  Only in December. The rest of the year, I'm getting regular crypto payments.

• 55:21Speaker 01

  Oh.

• 55:22Stephen J. Dubner?

  No, no, no, no. Yes, I'm not paid. I've never been paid in a bag of gold. I'm open to the possibility.

• 55:28Speaker 01

  I assume that you get paid in digital dollars, bank account dollars.

• 55:33Stephen J. Dubner?

  I do, I love them.

• 55:34Speaker 01

  They spend really well.

• 55:36Stephen J. Dubner?

  They're clean and easy and they go everywhere. Yeah.

• 55:39Speaker 01

  They go everywhere. It's a very efficient system.

• 55:42Stephen J. Dubner?

  They're the type O of currencies.

• 55:44Speaker 01

  We have seen this debate and Jamie Dimon has gotten some publicity recently on it. And I think he's right to raise these points. If you have something that is purportedly backed by US dollars, stable coins, if they're well-regulated, maybe will be backed by US dollars. In the case of Tether, I'm not sure. I think close to 20% of its backing is not dollars, but it's Bitcoin and investments and alternative investments and things. But this debate, well, what happens if you have a US dollar-backed digital dollar that doesn't have the same rules and doesn't comply with any money laundering laws and the like?

• 56:28Speaker 01

  Will that destabilize the US banking system? And will it disintermediate the banking system? That's playing out right now and it's a fascinating political debate. But I think as an economic point of view, I would say if that three or so hundred billion dollars of stable coins grew, as Secretary of the Treasury Scott Besen said, to two trillion, it's going to take something away from the US banking system.

• 56:54Stephen J. Dubner?

  And the person who would be signing that legislation has his own financial stake in crypto. When you've got that kind of behavior coming out of the White House itself, what does that do to public trust?

• 57:06Speaker 01

  Well, you have challenges in terms of public confidence in their elected leaders, Congress, the executive branch, the president themselves, and the president and elected leaders' families and colleagues. We have serious enough differences on policy. We have serious enough differences on how to take our great nation forward. And what we were talking about earlier about how do we do that in a world that has so much inequality and polarization? And then you layer onto it an additional sense that some individuals, and in this case, the president himself and his family are taking economic gains out of it.

• 57:49Speaker 01

  Whether it's insider trading or not, you just think about the disclosures that you referenced earlier about the very large gains. The numbers are publicly reported, $1.4 billion of profit to the president, as disclosed on his financial disclosure forms, in crypto.

• 58:08Stephen J. Dubner?

  Crypto alone. And we should say, there's someone on the other side of those bets.

• 58:12Speaker 01

  Look, I mean, most of the field doesn't have fundamentals.

• 58:17Stephen J. Dubner?

  Let me ask you two questions, though, about insider trading. First of all, I don't understand why elected officials in DC and elsewhere, who may have access to private information based on their job and who may have the ability to influence market moves, why they are allowed to buy and sell stocks the way they are. Does that make sense to you? And did you ever try to do anything about that?

• 58:43Speaker 01

  I think it would be a good thing if Congress moved ahead to build greater confidence in our governance system and democracy and said, individual members and their staffs not be able to buy and sell individual stocks.

• 58:59Stephen J. Dubner?

  I mean, to me, that sounds like a no-brainer.

• 59:02Speaker 01

  I would note, Stephen, that it is against the law for a member of Congress or their staff to trade on material, non-public information. That's against the law. It is a challenge. Where does the blurry line go? If you have a member of Congress or their staff who's working on an investigation and they have material, non-public information, they know, okay, I can't trade on that. But what if they're just meeting with executives of a company? If they're working on legislation that might influence the profits of that sector or that company? It would just be positive for the American public to say, aha, I have better confidence there.

• 59:46Speaker 01

  I think it would be a good thing to have, while it's a, all three branches, judiciary, executive and legislative, plus their staffs, not be trading in prediction markets. I saw recently that Goldman Sachs said that their staff can't trade in prediction markets, except for sports, apparently.

• 1:00:06Stephen J. Dubner?

  One argument in favor of prediction markets historically, this comes from the academic side, Robin Hanson in particular, George Mason University, has been making this argument for a long time, which is that stock markets typically prohibit insider trading, but prediction markets, if you can set it up in a way that allows and even exploits insider trading, it makes the market more efficient, that it gets better information into the markets for everybody. What do you make of that argument in defense of prediction markets?

• 1:00:36Speaker 01

  I have heard it. It's been debated in one form or another for decades. I think that it fails to recognize that there's a big cost to that. Robin's argument and those that make that argument, they're saying, the markets will incentivize people to get information out there faster. An insider at Apple or Google will get that information out there because they will profit from it. But what I think is the cost, and a very real, serious cost, is trust in the markets. There's a concept in economics around public goods. How do you create a broad public good? In this case, I'm talking about trust in the market, that if I participate in the market,

• 1:01:21Speaker 01

  it's a somewhat level playing field. I know that others might spend more money on their research, even you, Stephen, you're running a media company, so you might have more. Information than I, but you don't have an inside look inside those companies. Those that say, let's financialize information and let's say there's no prohibition on insider trading. They fail to take in that that will have a cost to our overall capital markets and our overall capital markets will have less trust in them. And then everybody trying to raise money in those capital markets will probably get a slightly lower price earnings ratio.

• 1:02:06Speaker 01

  Literally, the cost of capital will go up. Now, for individuals, it's also like a raw deal. You mean, somebody else is going to have an inside scoop as to whether the president's going to bomb Venezuela tomorrow? That's just, to me, undermines capital markets.

• 1:02:23Stephen J. Dubner?

  I recently spoke with an economist who runs an institute that's focused on what he calls bringing the economy to the people. He argues essentially that an economy that generates wealth mostly for the upper end of the income distribution just isn't a good economy. Do you feel that the economy is either unbalanced or too strongly weighted against what people used to think of as accomplishing the American dream, rising up? Do you think that's in danger?

• 1:02:52Speaker 01

  The United States is still one of the most innovative, dynamic economies of the world, but it's shifting. The inequality issue that you just raised is a real challenge. It influences the power dynamics in our political decision making. And if you keep tipping towards the elite or the people that have more wealth and they can change the rules of the game, then that tips more towards their favor and you get more polarization in society. We've seen this as a nation. We went through the Gilded Age in the late 19th century, and then we had a progressive era.

• 1:03:35Speaker 01

  And even Teddy Roosevelt, a Republican, said, ah, ah, ah, I've got to be a bit of a populist. The current president, President Trump, I think in part, got elected both terms by tapping into some of those concerns of the broad public. Now, I think his policies have not aligned with his rhetoric, but I think that he understands that the public feels the system isn't working for them.

• 1:04:03Stephen J. Dubner?

  If in the future, there's need for a big cleanup, and let's say there's maybe a Democrat in the White House, are you up for another round of cleanup duty or have you had your turn?

• 1:04:12Speaker 01

  Oh, God, is a big, great country of 350 million people.

• 1:04:17Stephen J. Dubner?

  They can find somebody else.

• 1:04:19Speaker 01

  I would say this for anybody listening. If you have a chance in your country, your city, your state to serve, it's a remarkable thing to feel that you can do something for your community. It could be at your church or your synagogue or your mosque as well, your local school. I think there's just something remarkable about it.

• 1:04:40Stephen J. Dubner?

  That again was Gary Gensler. His podcast with Nobel laureate Simon Johnson is called Power and Consequences. And Gensler just added one more title to his resume, friend of the court. In his first ever amicus brief, Gensler urged a court to reject the legal position of the CFTC, the agency he once ran.

• 1:05:04Speaker 01

  This will end up debated and discussed amongst nine individuals in a small conference room in Washington, DC, and that's called the Supreme Court. None of us will be in the room.

• 1:05:15Stephen J. Dubner?

  What is this controversial case? It involves the prediction market Kalshi, which argues that the CFTC has the authority to allow what is essentially sports betting. Gensler says it doesn't. We are working on an episode about prediction markets, so you will hear from Gary Gensler again sometime in the next month or two. We'll also hear from the CEO of Kalshi, Tarek Mansour. Every time there's a new financial instrument, it's like, oh, gambling in the stock market. People used to call grain futures gambling. That is coming up soon on Freakonomics Radio. Until then, take care of yourself and, if you can, someone else, too. Also, I hope you'll check out the new TV talk show we're making.

• 1:05:57Stephen J. Dubner?

  It's called Better in Person, and you can find it on the Freakonomics YouTube channel, also on Apple Podcasts. Freakonomics Radio is produced by Renbud Radio. You can find our entire archive on any podcast app. It's also at Freakonomics.com, where we publish transcripts and show notes. This episode was produced by Teo Jacobs. It was edited by Pete Madden and mixed by Jake Loomis with help from Jeremy Johnson. The Freakonomics Radio Network staff also includes Augusta Chapman, Dalvin Abouajie, Eleanor Osborne, Ellen Frankman, Elsa Hernandez, Gabriel Roth, and Alaria Montenacort. Our theme song is Mr. Fortune by The Hitchhikers, and our composer is Luis Guerra. As always, thank you for listening. I appreciate me will sit down there one day.

• 1:06:42Speaker 01

  Just let me know. You just have to go through my book or that's me.

• 1:06:45Speaker 02

  The Freakonomics Radio Network, the hidden side of everything.