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This is Wall Street Week.

I'm David Weston, bringing you stories of capitalism this time, not for just a week, not for just a year, but stories of the arc of capitalism over the first quarter of the twenty first century.

It's been an especially eventful twenty five years, from Y to K to the Great Financial Crisis to the pandemic, giving us a lot to adjust to and learn from.

Starting with profound changes in the economy, our colleague Michael McKee starts us with an economic overview.

We are fortunate to be alive at this moment in history.

Unemployment was low, the economy is booming.

Never before has our nation enjoyed at once so much prosperity and social progress with so little internal crisis.

Trees don't grow to the sky, and at some point there would have to be a reckoning.

We're in the midst of a serious financial crisis.

Everybody's house was probably overvalued.

Anybody who had a mortgage might have a mortgage problem.

Coming up today does mark the beginning of the end.

By the time we got to the American Recovery Act, it was a question of what would it take to get people spending again and businesses investing again.

The economic recovery appears to be proceeding at a moderate pace, though somewhat more slowly than the Committee had expected.

We got to twenty fifteen and you still had problems because we had a manufacturer recession then brought about by the collapse in oil prices.

The wealth of our middle class has been ripped from their homes and then redistributed all across the world.

A lot of Americans suffered because the factories went away, the businesses went away, and that gave rise to the MAGA movement.

Make America Great Again.

In twenty nineteen, things had started to look better.

The unemployment weight was very low.

Growth was picking up, which is the irony of the pandemic.

Today, I am officially declaring a national emergency.

COVID did shut down the economy, and it shut it down very fast, and we saw that in the largest unemployment rate since the Great Depression.

First is providing checks and pockets and shots and arms.

Inflation started to take hold, and then an inflation psychology started to take hold.

We're very strongly committed to using our tools to get inflation to come down.

It is a situation now where everything seems to combine to make people feel more nervous and more unhappy about their situations.

When it comes to the economy, we always start with the numbers, and for the numbers, we often turn to Torsten Slock, chief economists at Apollo, with the help of people like Harvard's Jason Furman, to interpret those numbers for us.

The first twenty five years in the twenty first century have been eventful for a lot of us, but particularly for economists.

Looking back at you two thousand now and where we are today, what's the biggest change or surprise you've seen?

See?

The thing I'm most surprised about is that the interest rates are so low despite the budget deficit and the debt being what to my two thousand eyes would have been unimaginably high.

So what accounts for that?

Do you think?

What do you think we got wrong in what we would have anticipated.

Look in two thousand, I was working in the Clinton administration.

We balanced the budget three years in a row.

We were on track to fully pay off all the debt.

At the time, I believed in that and thought that was good and important.

Turns out, I think we had a lot more room for borrowing than we ever appreciated at that time.

We're certainly spending when we need to spend it.

Are we saving them when we need to say it?

Yeah?

Look, I think we spent too little on the financial crisis.

I think we spent too much in COVID.

Those were both hard calls to make.

In real time.

It's a much easier call that we shouldn't be running two trillion dollar deficits in a year when the economy's growing perfectly fine.

We have seen a growth in income and wealth inequality.

To what extent is that attributable to some of the things we felt we needed to do to stimulate the economy.

It tended to go, I think, to the people who had capital, and not to people who did not have capital.

I put the last quarter century in context of the last three quarter centuries, and if I had to rank them, the best one in terms of inclusive growth, strong economic growth broadly shared was nineteen fifty to nineteen seventy five.

The worst was actually nineteen seventy five to two thousand, where we had much slower economic growth and an enormous widening of just about every way to measure inequality.

The story from twenty to twenty twenty five is a little bit more complicated and nuanced.

There were some facets of inequality, like wealth inequality have risen, other things like wage inequality has actually been falling for more than a decade now.

There's been stronger wage growth for the median household than there was in the twenty five years before, and so the story is actually a little bit more positive for the last quarter century than it was in the quarter century before, just not as positive as it should and could have been with the right policies.

Twurston, looking back over the first twenty five years of the New Century, let's talk about some major themes, one of which is inflation.

We thought it was all gone away and then it came back well for a.

Very long period.

The whole research agenda, and also the statements from the Federal serve was that inflation was not quite at two percent.

It was one point eight one point seven, and so much time were spent in financial markets thinking about how can we get inflation up by that zero point one zero point two percent more?

And all reason that changed dramatically when we found out that inflation was not dead in twenty twenty.

So what is a very important feature of what has happened in the last twenty five years is that inflation can come back under certain circumstances, and this becomes very important when we look into twenty twenty six, nay, other circumstances still here for inflation potentially to begin to move higher next year.

Which leads us to what were the larger forces that kept inflation down and have they gone away?

Well, A very important force that was keeping inflation down was globalization.

It was the case after China entered the WTO twenty five years ago that goods were coming out of China and was holding goods prices down.

At the same time, immigration globally also went up.

That also meant that the cost of labor and wage inflation was also held down.

So those forces were weighing on inflation for literally two decades after two thousand, because we saw inflation therefore simply not move much away from two percent.

COVID again has of course been moving upward pressure on goods prices, and now more recently when we've had restrictions on immigration, we've also begin to see more upward pressure on wage inflation.

So that's also therefore beginning to become an issue looking into next year.

Degalization and restriction immigration could drive wages up.

On the other hand, artificial intelligence seems to be on the brink of really making a difference the other way.

That's true, so AI is of course also a very important development.

Over the last that twenty five years.

We have certainly seen some very significant technological advances.

We've not quite yet seen that show up in wage inflation or even in the unemployment rate.

So therefore there's a lot of discussion about data centers, AI lars, language models, voice recognition, etc.

Part At day of the day, we're not quite yet seeing the productivity gains in the dramatic way that is holding inflation down.

One of the big developments in the last twenty five years has been ways that the US and European economies have diverged.

Stephanie Flanders, Bloomberg's head of Economics and Government, explains just how differently they've developed.

At the beginning of the century, you would have said the big project that the European countries were embarking on was the single currency and a much broader single currency, a much broader collection of countries joining the Euro than had previously been anticipated, and there were lots of risks in that, and we can talk about how they manage that, but I think it's fair to say that ended up being a lot of other things on their plate.

And we saw a financial crisis, we saw COVID, and these were crises that in different ways.

I would say the European governments did not always respond too well, but they did.

You know, as one senior policy maker said, you know, European governments do the right thing when they're all on the window ledge looking down.

The Euro was a very big move.

It came under a lot of siege over the last twenty five years.

I mean, certainly great financial crisis put everything under stress, but then we also had i'll call it the Greek crisis, when there were people literally speculating the Euro might not survive.

I would say in the first few years of the Euro there was a kind of false calm and a sense of great achievement on the part of European leaders that turned out to be also complacency.

They were all borrowing at the same rate, almost not taking into account those differences, and ultimately the imbalances that were caused by that was why you had not just a christ in Greece, but actually a broader Eurozone crisis.

But I would say it's a game of two hearts because the second half the years since the global financial crisis or the Eurozone crisis have been Although they were very painful for countries like Portugal, Greece, Spain, Ireland, they've also that period of crisis and adjustment has produced some convergence.

Are you moving toward something beyond convergence into really coordination on the fiscal side?

Very slowly?

David, I would say we are moving in that direction, and we've seen a little bit more flexibility on that front from German governments in the last few years.

But boy, that has been a very slow process, and I think it is still an area where the politics has yet to really catch up with the economics.

The history of the EU has been getting bigger for the most part for a good long time.

With one notable exception, it got smaller in the first twenty five years with Brexit.

What is that done to the economy of the UK and of Europe.

The deal the UK actually negotiated with the EU turned out to be actually a lot worse than I think any of us would have reasonably expected.

We wouldn't have expected such an extreme version of hard Brexit as they call it, that has ended up.

I mean, the estimates range from five to seven percent of GDP hit at a time when, as you know, all European countries and certainly the UK, have struggled to have very much growth.

I would also say it's affected the capacity of the UK to respond and move forward in other areas because so much effort and political energy was absorbed by that long period after twenty sixteen, after the referendum, trying to negotiate and then trying to pass a deal with the EU.

Looking forward to the next five, ten, twenty five years, what's the best case for Europe if not entirely catching up getting headed in the right direction in terms of closing the gap with the United States and goodness knows China.

So I mean, obviously, in recent weeks we've had talk of, you know, civilization erasure I think was in the Trump administration's national security strategy.

I think we could probably dodge that, but I do think there's a serious kind of question of governability in some of the core economies in terms of growth rates.

I think your best case is sort of you know, certainly no more than one percent, probably more in the kind of half of percent a year range coming up.

We turned from the first quarter of the century in economics to the ways in which China has transformed itself and surprised some of us along the way.

As we continue our review of the first quarter of the twenty first century, we turned to one country that has been a story, well really many stories in and of itself.

Our colleague Endocurrent takes us through China's remarkable transformation.

China joining the WTO in two thousand and one was probably one of the most consequential decisions, not just for China's economy, but for the world economy.

WTO agreement will move China in the right direction, so.

Companies could shift there and both tap into the Chinese market and of course export from China to the rest of the world.

The slowdown is not only in the developed countries.

It will also become a sharp slowdown in the developing countries.

The globment flancial crisis reverberated all around the world.

China is going forward with a half trillion dollars stimulus package.

It will build schools and subways, power plants, and hospitals.

China played a crucial role stepping up, spending that money, generating all of that demand and activity, and in that period China did become the world's second biggest economy.

China will spend forty billion dollars to establish the Silk Road Fine.

The Belton Road positioned China as someone who was willing to invest and a source of new capital at a time when capital was becoming scarcer.

They invested into ports, they invested into rail networks, they invested into motorways.

Well, China has been a victim of its own economic success in so many ways.

As China moved up the value chain, then it became a threat to some of those Western economies that had been doing business with China in the first place.

We had been ripped off by China.

No longer or the doors just opened for free two way trade.

China had the virus under control, so they took opportunity and I really took a leap in terms of electric vehicles and in Lithian batteries in particular.

Clearly that window was when the rest of the world was cut napping.

China was doing just fine.

It wasn't until later when China started to impose restrictions on its real estate sector.

Three estate sector started to slow down.

That you began to see some of the breaks being hit on China's economy.

The problem being that home buyers are afraid to buy homes, worried about distress, developers not being able.

To deliver on the homes a year later.

The slope has been going on for several years now, and I think a house taken some of the gloss off of China's economy for the rest of the world.

I'msani besch Loss of Rock Creek and Elizabeth Economy of the Hoover Institution have spent a good part of the last twenty five years traveling to the Middle Kingdom and coming back to try to make sense of it for us.

They looked back at some of the country's biggest changes and challenges.

Elizabeth, you've been going to China for quite a few years now.

As we look back over the first twenty five years of this century, how has China changed?

The transformation has been extraordinary, of course.

I think if you look back to two thousand, for example, China was an economy of one point two trillion dollars GP per capital is around one thousand dollars, and it was making more bicycles than cars.

It was very much trying to adapt its domestic politics and economics to the demands of the international community.

What we see today is pretty radically different from what we saw in two thousand.

It's GDP per capita now is thirteen thousand dollars.

Of course, it's not making bicycles so much anymore.

As you know, the most EVS electric vehicles in the world and cutting edge electric vehicles, largest manufacturer, consumer and export.

Today you have China saying, you know, we're front and center and we'd like the international community to adapt to us.

So what you have is China no longer being a rule taker but a rule maker.

I know you've just recently been in China.

How does it feel on the ground as it were over there?

It is a tale of two China's in many respects thriving around in Beijing, there's no traffic.

There's a kind of gray pall that seems to have settled over the city.

The economic activity is not what you might expect.

You don't see cranes dotting, you know, the lands escape a lot of new building and enthusiasm.

You don't have the sense of a dynamic economy.

But when you meet with Chinese officials and you meet with you know, Chinese tech leaders, you definitely have a sense of confidence.

And you know, the Chinese officials believe that they have a model that works, and that model is investing in technology.

I visited an EV factory where they're producing three hundred thousand evs in a year and they only have twenty one hundred people on their factory floors, and the factory is spotless.

You could eat off the floor.

It's extraordinary, and they are very confident.

They're confident about their ability to compete with the United States.

They're confident that they're on the right trajectory.

Again, though, I think for the broader, you know swath of Chinese people, you know, consumption is not rebounded, They're not feeling it.

This is very much an economy of haves and have nots, and the haves are moving ahead very aggressively.

One of the things we've seen over the last twenty five years is a migration, first of all, into the middle class from the rural into the urbanet is that.

Continuing think it's one of the interesting things that we haven't seen the middle class continue to expand, and the Chinese are just beginning to wake up to the fact that artificial intelligence and their move toward robotics.

You know, they already have two hundred and fifty thousand robots.

I think we have about ten thousand, you know, in their factories operating.

They're going to put people out of work.

And so one of the factories that we visited was an autonomous vehicle factory, and person who was you know, taking us on the sort of tour of the factory said that they are now being told by the local government that they're going to need to help find jobs for the people that their autonomous vehicles supplant.

At the same time, the local government's not allowing them to charge any more than regular taxi drivers or d D drivers because they don't want those people to go out of work.

So I think they have not figured out how they're going to manage the technological change and the demands for employment.

How much success is China already had in reshaping the international community.

I would say much less than we might anticipate.

It doesn't seem as though much of the rest of the world is interested in trading the current international system for a China led international system.

That being said, if you're looking for Chinese technological influence or economic influence globally, certainly the Belton Road and the Digital Silk Road have been transformative.

You look at Huawei, which has seventy percent of the four G in Africa.

Their satellite system now rivals GPS, so I think they can look at any number of metrics and say we've had a success.

At the same time, of course, there have been protests in virtually every Belton Road country about how China's done business.

Interest and the desire, the willingness to have Chinese investment stems from the fact that they can't get that kind of investment from any other country.

So I think, you know, if we were to go in and really be competitive, for example in Africa, in this idea that we're going to promote our tech stack globally, I think we'd be welcomed.

Do we understand in the West just how far ahead China is getting in some respects in technology and manufacturing.

I think most people think of China as producing consumer goods.

They're toys, you know, basic goods, and that is the way they started.

But today it's a whole other world.

So what is happening is most of us are are reliant on not just their basic ingredients being made, but the new molecules being developed in China.

Ev Cars.

Let's say, the batteries that they are producing are so far ahead than the ones we're producing.

So they are jumping ahead in ways that we did not expect.

They might have less power constraints.

The way they're building nuclear plants, and the way they're using clean energy and renewable energy the opposite of what we're doing.

In the US.

And that's because the government in China is putting so much capital to work alongside the private sector, something that in the most recent past we're not doing.

What is that enormous move forward for China as an economy, as a government, for the people of China.

So if we look at the people of China when this whole process started twenty twenty five years ago, there was hope that were growing fast, double digit growth, a lot of opportunities for people to get new jobs, move from agriculture to industry into cities and get out of that extreme poverty.

And right now, what's happening because of their overcapacity.

Let's say if you're producing ev cars, you might be getting paid less because they have the over capacity.

You're lucky to have a job.

So the situation for the individual may not have got better, but China as a whole continues to do well.

I think one thing that I found very interesting is we in the US always say China should start consuming more, and if they consume more, they will export less.

We will have less of a problem and they will deal with their growth with domestic consumption.

What is very clear with President g but also really maybe people who came before him, they're not interested in domestic consumption.

They're interested in world supremacy, as has become evident.

So you need to do the quantum, you need to do the AI, you need to be ahead on robotics, you need to be ahead on producing things so that you control your own destiny, but potentially you control other people's destiny.

And I think that's what we've missed really realizing ourselves here.

How have Chinese relations with the United States and with the West changed over these twenty five years.

Obviously, when we had the Nixon and the Kissinger period and the opening up and wto it was the West hoping that China would open up to US goods and to a more liberal democratic system.

And as one went to China and you would talk to your Chinese counterparts, it was always a very open dialogue.

What has been very different the last few years is that China has become more closed.

If there's one thing that is changing with the Chinese, because they've always been very careful in how they show their hands to the rest of the world, they are showing more overconfidence than before.

The other thing is that if you sit in China today, who would expect that the US would be recapping its own universities.

It's on research, it's on biotech, is investing less in technology at scale, is not investing in nuclear power, and is not working with its allies.

So in a way that you know, if you're sitting in President G's seat today, you see a lot of potential for China.

Up next.

In the year two thousand, we were caught up in a tech bubble.

Now there's talk of a different bubble altogether, but in some ways bubbles were the least of what the markets had to contend with in the last twenty five years.

The first quarter of the New century brought us a Great financial Crisis, a global pandemic, and several revolutions in the ways markets coped with it all.

Our colleague Romaine Bostik gives us highlights and low lights.

How do we know when irrational exuberance has unduly escalated asset values?

You had a market that hit a peak in early two thousand.

It proceeded to drop by about thirty percent in the span of just a few months.

The big question is hard versus soft landing.

At this point, my expectation is fundamentals will probably get worse before they get better.

The bursting of the housing bubble was a little bit less of a panic and more of an orderly exit.

We've seen triple digit swings in the stock market.

Major financial institutions have teetered on the edge of collapse, and some have failed.

Most people began to sell stocks that were directly tied to the housing market, but eventually that began to spread to other areas of the market that had nothing to do with housing or credit.

By far, the most important thing is their program be successful, because if it's not, those that are going to pay the biggest price are some of the ones we all care about.

The most quantitative easing was the effort by the FED to stabilize the markets.

In fact, it was so ambitious they actually did it three times.

Once they ended QE three back in twenty fourteen, they had to restart it a little bit less than a decade later when the COVID pandemic hit.

If the epidemic become pandemic.

Pandemic, global pandemic, I think there's a panic.

A whole lot of panic.

The COVID pandemic was undoubtedly one of the biggest exogenous shocks for financial markets in modern history.

The market in the span of really about five and a half weeks, plunged twenty to three percent.

This will deliver urgently needed relief to our nations, families, workers and businesses.

We saw inflation headline inflation rates top nine percent, the highest for the modern era.

Game stuff is one of the most compelling asymmetric opportunities in the market today.

Really, I understand hey can disagree with that.

Mean stocks.

The best way to describe the mean stock boom can probably be summed up in one word boredom.

All eyes seem to be on game stock, game stuff to the moon and back gains and game stop.

This has now reached levels of insanity here.

If you're witnessing the French Revolution of finance.

There is a rebellion aspect to it, there's an anti establishment aspect to it.

At this point in twenty twenty five, the vast majority of activity that we see in US public equity markets are actually driven by individual investors rather than institutional investors.

That has a big impact on prices.

It has a big impact on valuations.

As we begin the second quarter of the twenty first century, we're returning to talk of bubbles.

In two thousand it was the tech bubble.

Now people are wondering if we could be building an AI bubble.

Bridgewater founder Ray Dalio has studied the mechanics of bubbles through the years.

I think you have to relate the markets to the geopolitics the politics.

We have a bubble in two thousand and then two thousand and one, you have the international geopolitical problem in terms of nine to eleven, and then the war on terrorism, and so we spend about eight trillion dollars in our wars on terrorism, and we run big budget deficits, and then we come into the period where we get down in two thousand and eight we have the Great Global Financial crisis.

And the Great Global Financial crisis is not just a financial crisis.

It brings over the wealth gap issue, in other words, to occupy Wall Street.

And it also was a shock to the rest of the world.

And in two thousand and eight, very important, that was the first time interest rates hit zero since nineteen thirty three.

And so what happened for the first time since nineteen thirty three is we did quantitative easing.

We printed money and we bought bonds.

That's a marker, and we start to learn that large budget deficits can be monetized.

So we learned about monetization and from that then we drive it down to negative interest rates.

And of course through this all period is the digital technology, the development of all the digital technologies, you know, devices like this, think about this, this is the everything object and the communications and so on.

Very unexpected in many cases in terms of what the effects would be.

And then twenty sixteen the change, the big change in the world order and the big change domestically, the beginning of populism and Donald Trump being elected president and so we have this greater polarity left and right that reflects the wealth gap differences, and then that meant a big change in the relationship with China, in other words, recognizing that there's a great power conflict, and that great power conflict goes from globalization to nationalism and the change in that world order.

And of course at the time, in order to be stimulative, there's the printing of money and buying a lot of debt, which drives interest rates down to be negative in some places and certainly real interest rates to be negative.

And now what that does is it causes the leveraging up of assets, in other words, private equity, the emergence of private markets, venture capital, private equity, all being leveraged up.

At that point we begin to have the tightening.

We're beginning to feel that effects, the deterioration of the venture capital market and the private equity market, and the fragility associated with that.

So now we have an economy where so much of it since really twenty twenty, large budget deficits and necessarily demonetization of that, large gaps in wealth and values, and in populism, a great power conflict.

Acts of nature, droughts, floods, and pandemics have been a major force in history, and that certainly was the factor in terms of seeing not only the pandemic but also climate change and its effects.

Right, some of the major developments of the last twenty five years, you're real, he referred to, like the Great Financial Crisis two thousand and eight and the pandemic of twenty twenty have caused the government the United States but also other governments to play more active role in the markets.

Some people have said they've gone from being a referee to actually being a player in the game.

What are the consequences of that for financial markets?

That's always been the case in times of great conflict.

If you look at when there's great geopolitical conflict, there becomes the necessity to go from a consumer based economy to a more directed economy of how do you use the resources.

If people just get rich and buy expensive things like expanse of handbags and so on, and it's not directed, you're not going to have the country be competitive.

In the AI world, you have to build infrastructure, you have to build sources of energy.

So there has always been at similar times the bringing in industrial policies as we call them, in order to create that direction.

And so, for example, in AI and related technologies, quantum computing and the like.

It's quite typical in history to see what's now happening in terms of the competition, or let's call it the tech war between the United States and China, because the tech war is also related to the military war.

Whoever wins is going to win everything, right.

What about geography over the last twenty five years in terms of financial markets, where have there been surprises in some regions growing a lot, maybe unexpectedly, or others diminishing.

I think, for example, of the contrast between the Middle East on the one hand, where you've been very active.

In Europe, it has to do with immigration and migration.

There's been a dramatic change in the population and the politics of what it means that it's become even cultural.

So I would say, you know, the movements of people, or even the changes in the numbers that demographics.

In other words, Europe, the United States, China, A number of these countries, which generally speaking, what we would think of as the developed world for the most part, although it includes China, have declining populations and in the emerging world, the Global South as we come, they have growing populations that want to migrate, and that's connected to climate change, because as climate change creates greater heat and so on in these areas, it drives migraine.

And so as we're looking at the migration and the immigration issues, they become greater issues.

I think if you just look at the administration's new report on its strategic objectives and the way it views the world, you can see that there are even cultural issues.

In other words, which are the areas that maintain their culture or do they have migration issues?

So these are geopolitical issues that are all connected.

I suspect if we talked to you twenty five years ago, you would have predicted China would be a major force.

Would you predicted that the Gulf, the Saudi Arabia and the surrounding countries would become as prominent as they have.

Basically, all you need is three things to happen to have a successful country.

First, educate your children well so that they can be productive and earn incomes and that they're civil with each other.

And then second, if they come out to a country where people could work well to be productive and that there are financial resources like the capital markets to be able to be productive and everybody earn and in other words, the basics earn more than you spend, and have more assets than liabilities.

If you're financially sound and productive and civil with each other, that's key.

And then stay out of wars, stay out of internal conflicts.

That when you have that internal conflict or an internal war of sorts or an international war, that's a problem.

So some of these places I can see that over.

Maybe now I see it better then I saw maybe twenty five years ago.

Coming up as we draw it to the end of the first quarter of the century.

In some ways it's all been about tech one way or the other, from Y two K to dot com to AI.

What did we learn from the innovation and the turbulence The last twenty five years have brought us the smartphone, streaming video and elon musk, not to mention that AI and whatever it has in store.

Our colleague Caroline Hide guides us on our journey in tech.

Y two K, the Millennium Bug, the accident that never happened.

We suddenly had this fear that as the celebration moved from ninety nine to zero zero, computer systems wouldn't work.

But hundreds of millions of dollars were spent putting plans in places there.

Will be some y two K glitches somewhere.

We went from wired to wireless in many shapes and forms of.

The MARC, the iPod, and now the iPhone.

We're able to be connected.

We're able to be understanding indeed how to communicate, but also we could then interact with the Internet at the same time.

Two thousand and seven, streaming who hits the big time with Netflix offering not just DVDs through the post, but a streaming bundle too.

We could improve our service offer the best of DVD and the best of online.

Combine those and then it's a huge opportunity.

We're seeing an evolution in social media that really dovetailed with the turning of the millennium.

Facebook was born a specific time in place a college campus the web.

Facebook made a significant pivot in twenty twenty one.

I am proud to announce that starting today, our company is now Meta three two one.

L Muss, who came in with SpaceX born in two thousand and two and so swiftly within six years he had already got a privately owned, privately built spacecraft into orbit.

People are now talking about putting data centers into space.

AI AI, AI AI AI AI.

Everyone now remembers the end of twenty twenty two when just very quietly, a not for profit OpenAI introduced chatchipt and the crowd went wild.

I think it takes like unique human arrogance to believe that AI cannot supersede humans.

And it's now that we're seeing IBMSA.

By twenty twenty nine, we will have in the hands of corporates a really useful quantum computer that will solve real world problems.

For more on the evolution of technology over the first quarter of the twenty first century, I spoke to former IBM President and CEO Sam Palmasano and Moffatt, Nathan's and partner and senior analyst, Craig Moffatt.

Take us back to two thousand.

How the world looked in two thousand and how differently it looks today in technology?

Well, it's incredible.

In two thousand, at that point in time, I wasn't CEO yet, okay, and I was running the hardware business that BEM and that was so A semiconductors.

It was storage, mainframes, PC and all those sorts of things.

And basically the dominant architecture for development, for research and development was we called it the Wintel doopoly.

Windows plus Intel.

They were the dominant for client server, and client server had become the alternative to the mainframe because you could do a lot of the applications in the client server environment that you didn't have to run this big centralized computing environment.

So that was what we That's the world we lived in.

The Internet was just getting started.

Actually, the Internet started in the late seventies and people again didn't realize what was happening.

Is because it was basically the research laboratories passing technical journals to each they're in the standard format.

That's how it began.

But all the things that made it the Internet as it is today had to be built up.

What do you see converging right now in tech for example AI?

What it could make possible in various areas over the next twenty five years.

I don't think we have any idea, but I can tell you some of the stuff we're working on.

I don't think anyone has.

It's just like the early days of the Internet.

Did anybody think that this would get to where you can't live without your smartphone?

I was part of the industry.

Nobody saw that.

I mean, we did see opportunities, but we never thought of uber or GPS or those kinds of things operating on your phone, And I think, what's going to happen here?

There are people I know today that are building they call companies without any people we're invested in when it's building an AI bank bank without people.

I think in other areas, which we've done a lot of work on drug discovery, you're just seeing the beginning of that.

I think if you can take very complex cases of disease or drugs and forget these big data centers, connect that with a quantum computer, with the knowledge within the AI systems and the data structures and the volume of that data and all those case histories and things that could be significant, that could be a significant breakthrough.

When are we going to see quantum computers really be usable and how transformational could they be?

Where it's a defined space that it's not a general purpose computer.

And I think that's where that when people are talking about it being ready by twenty twenty nine, I believe that'll be the use cases at that point in time.

It won't be what you can do in a cloud today, or which you could run and historically in the mainframe, which is large general purpose systems to do all kinds of work, manage all kinds of variables, and those sorts of things.

It will be very defined.

Now, the benefit of that is you'll have the general purpose systems feed the quantum machine.

The quantum machine will do it stuff that can do very very well, and then pass it back.

A lot of changes in a lot of places, but certainly in the telecommunications area.

Give us your perspective about that twenty five years.

What did it look like year two thousand.

It's quite interesting if you think back to that period for a number of reasons.

One is, people talk about it as the bursting of the dot com bubble, But the bursting of the dot com bubble in reality wasn't terribly consequential.

There wasn't a lot of market cap involved.

There weren't all that many jobs involved.

The bursting of the telecom bubble was much more significant, and it set in motion things that have lasted and echoed for twenty five years.

I think you can make a case that the jobs lost and the potential for a really serious recession coming out of the bursting of the telecom bubble was why Alan Greenspan and the FED cut rates aggressively to forestall a recession that ultimately inflated real estate prices and arguably was one of the main precipitates of the bursting of the housing bubble that created the Great Recession of twenty ten.

On the other hand, it created a tremendous amount of telecom capacity that continues to benefit us to this day, and the connectivity and the cost of connectivity that fell so precipitously because of the overbuilding of the late nineteen nineties had really really salutary effects for the tech economy for another two decades.

The obvious question that everybody struggling with today is what are the echoes between that period and today's potential bubble in AI?

And if the bubble bursts, the most important question is, really will the capacity that's being built all these data centers, for example, but also the power that supports them and the facilities themselves.

Will those facilities actually have a long useful life, a long enough useful life to have a benefit even if the bubble bursts, or are are they such short lived assets that unfortunately it simply brings all the pain of the bursting of a bubble without any of the benefits.

When we think about the so called bubble in the year two thousand, often people thinking of things like pets dot com.

Yeah, but there was also fiber optic which got really overbuilt access capacity.

But without that fiber optic cable would we have many of the services we have.

No, you're exactly right.

It really turned out to be tremendously beneficial to the tech economy.

There was a genuine capacity shortage going into the late nineteen nineties, and what happened was Wall Street, in the way that it does, figured the way to solve this problem is to fund new companies and new innovation.

New entrants created this extraordinary overhang of capacity.

So there was this massive excess capacity.

The marginal costs of any telecom business are essentially zero, and so it didn't take a genius to figure out the debt service from all these new entrance was going to be impossible to satisfy.

You were going to have a wave of bankruptcies that would create this enormous crash.

We never would have had Netflix without the enormous capacity that had been created in the telecom bubble, and Netflix was able to take advantage of essentially free transport to build a business that today is sort of dominant in the entertainments well.

And streaming is all the rage right now, given even some of the deals we're seeing going on or trying to go on.

I remember back in the day going from twisted pair to cable seemed like a really big step forward.

Coaxial cable, as you said, really took off as the transmission medium to the home.

That lasted for another really two decades, and it's only been in the last five years that you've seen real pressure on that because and by the way, I would argue, we're all we're back into telecom fiber bubble this time in FTTH as it's called, or fiber to the home.

Home overbuilding by not just AT and T and Front Tier and Verizon and the big companies, but by a host of privately funded private equity companies are building in markets where the density simply isn't high enough anymore to support the returns.

And it looks to us like you're going to have yet another bubble bursting, not anywhere near the size of nineteen ninety nine, but we suspect that bubble will burst.

Looking back, you know what we thought we saw in technology in two thousand, twenty twenty five, looking out, what do you see?

AI?

Is by far the most important and dramatic technology innovation of our lifetimes.

It's not even close, And we're really struggling to figure out what it's going to do to societies.

You know that.

I hear people say, well, of course, you know, the Industrial Revolution was tremendously beneficial to human productivity and humankind, But we had two hundred years to adjust to the Industrial Revolution, to figure out what are the right things to teach in colleges or schools of at the time, and for society to adjust.

This is a revolution that's happening in a decade.

We've never seen anything like that, and I think the next ten years are therefore the hardest to predict of anything I've ever seen in my lifetime.

Just how is society going to respond to what is certainly the case that huge numbers of jobs are going to be replaceable by AI.

To try to figure out how will society try to adjust to something this profound that comes this quickly, It is an incredibly difficult question or set of questions to answer.

That does it for us?

Here at Wall Street Week, I'm David Weston.

See you next week for more stories of capitalism.