How to Succeed in Business and Politics | Wilbur Ross (39th Secretary of Commerce)

[00:00:07] [SPEAKER_01]: Wilbur Ross the man the myth the legend i'm gonna be honest when in nineteen is nineteen ninety nine i remember i was playing a lot of.

[00:00:16] [SPEAKER_01]: Poker at the may fair poker club in new york city and there's a guy there who work for world war ross and will ross was.

[00:00:26] [SPEAKER_01]: Running huge private equity funds he started his own private equity from w l ross and he had a very.

[00:00:33] [SPEAKER_01]: Just solid unique style of investing and building businesses and i was a little jealous of this guy cuz i wanted to work for world war ross and will ross just been a consistent feature in just.

[00:00:47] [SPEAKER_01]: Building businesses decade after decade and then more recently he was secretary of commerce all four years of trumps administration.

[00:00:54] [SPEAKER_01]: He served the entire four years and he just had a lot he has a lot to say about building businesses and about what's going on with the economy and what do you think about different policies but he has a new book out called risks and returns about his fifty five year career building businesses and being in the government so.

[00:01:13] [SPEAKER_01]: I can't believe i spoke to him here is will ross.

[00:01:21] [SPEAKER_01]: This isn't your average business podcast and he's not your average host this is the james altucher show.

[00:01:37] [SPEAKER_01]: I really enjoyed the book quite a bit you're a personal slice of history.

[00:01:43] [SPEAKER_00]: Oh thank you very much you must read a lot of books so i'm grateful you like this one.

[00:01:49] [SPEAKER_01]: This is so enjoyable because a i've been a follower of your career for so many decades and be just your insights into all the experiences.

[00:01:59] [SPEAKER_01]: You've been through whether running w l ross or your experiences in the whole industry the banking industry and then of course the secretary of commerce and so many other things so it's been a fascinating ride you've been on you found yourself at the center of history so many times.

[00:02:16] [SPEAKER_00]: Yeah i stumbled into a lot of things.

[00:02:20] [SPEAKER_01]: I wanted to ask you like if you could describe specifically i always wonder what does the secretary what does the secretary of commerce actually do like what do you have power over and you describe this in the book but just for our listeners.

[00:02:34] [SPEAKER_00]: Or.

[00:02:36] [SPEAKER_00]: commerce is the very large conglomerate of within the US government we have everything from the census bureau to managing 16 phase satellite.

[00:02:52] [SPEAKER_00]: The national weather service to the patent and trademark bureau to the bureau of economic analysis to the national institute of science and technology.

[00:03:05] [SPEAKER_00]: To minority development aid agencies it just runs the whole gamut and in fact 40% of all the factual material emitted by the federal government comes from commerce.

[00:03:24] [SPEAKER_00]: A lot of those reports that come out 830 Wednesday morning or 830 Friday morning one of those actually come from the bureau of economic analysis in commerce and then on top of all that you have the trade situation both.

[00:03:45] [SPEAKER_00]: A tariff son import and export controls on militarily sensitive products to keep them from going to potential enemies so there's an awful lot of activity it.

[00:04:04] [SPEAKER_00]: Also, as part of all these activities we manage the office of space commerce, which is getting to be a very important activity.

[00:04:16] [SPEAKER_00]: will be I think even more important.

[00:04:20] [SPEAKER_00]: As we go forward.

[00:04:23] [SPEAKER_01]: By the way, I agree right now i'm in a hotel as you might surmise and i'm at midland spaceport in Texas because they're doing a ceremony here celebrating kind of the opening of this new spaceport.

[00:04:37] [SPEAKER_00]: Sure sure well I attended the first real innovation.

[00:04:44] [SPEAKER_00]: That elon musk had contributed to space and that was at the Kennedy Center in Florida few years ago he developed the idea of making reusable the F section of the launch mechanism.

[00:05:04] [SPEAKER_00]: And that's about 70% of the cost, so I was with amazement as the rocket got to about 40,000 feet this part disengage.

[00:05:16] [SPEAKER_00]: landed within a 200 meter circle nice upright not destroyed and the change the whole economics of.

[00:05:27] [SPEAKER_00]: Space launch is so because you can imagine that the most expensive component, you can now use 10 times instead of one time it's a remarkable cost saving and bringing the cost of space down is clearly going to make it very accessible from multiple uses.

[00:05:50] [SPEAKER_01]: You know, but it's interesting you talk a lot in the book about or particularly during your tenure as secretary of commerce about the bureaucracy.

[00:05:58] [SPEAKER_01]: Of government and and often kind of the frustration of dealing with all the red tape and slowdowns is it possible for entrepreneurs and innovators like let's say an elon musk to really.

[00:06:12] [SPEAKER_01]: You know, make the greatest innovations in an area so highly regulated like will there be continual space innovations.

[00:06:21] [SPEAKER_01]: Because this is a heavily regulated area.

[00:06:24] [SPEAKER_00]: Well, a couple of answers to that.

[00:06:28] [SPEAKER_00]: President trump is you know has announced he's thinking about this efficiency Commission to try to help him.

[00:06:38] [SPEAKER_00]: We were federal government and he's talking about most being very, very involved with that I think it's a fascinating idea.

[00:06:49] [SPEAKER_00]: Because if there's anybody who's filled with new ideas new ways to do things more efficiently and certainly one of the leaders is elon musk I had the great pleasure of touring his factory.

[00:07:04] [SPEAKER_00]: How do you feel a county airport and it's amazing it looks more like a laboratory everybody in white they have the little booties on they have the hair that's on and.

[00:07:20] [SPEAKER_00]: Rockets obviously have a lot of welds to them and it's very important that the welds hole because if you have any kind of a slight blow through it's going to ruin the whole thing.

[00:07:34] [SPEAKER_00]: So he's developed a system where there are two devices they climb up and down inside and outside the rocket one does the welding.

[00:07:45] [SPEAKER_00]: The second one in specs and then if there's a defect it orders the first one to come back it's a totally automated thing.

[00:07:55] [SPEAKER_00]: And so he's been making these rockets with a lot less manpower than they had before and between that and pushing for reusability of key parts he literally has single handedly change the economics of rocketry.

[00:08:18] [SPEAKER_01]: Now what other industries do you think have seen similar innovations in recent years.

[00:08:25] [SPEAKER_00]: Well clearly everything to do with computers with software artificial intelligence now is the new incredible frontier.

[00:08:39] [SPEAKER_00]: In fact I had an interesting experiment with a.

[00:08:44] [SPEAKER_00]: Henry Kissinger's hundreds birthday party was coming up about a year and a half ago and he and Eric Schmidt and just put out a wonderful book about artificial intelligence.

[00:08:58] [SPEAKER_00]: So I get a book yeah so I thought I would give a test the AI in connection with Henry's birthday so I figured AI probably was not very much invented to do poetry.

[00:09:14] [SPEAKER_00]: So I asked the AI to do a poem in honor of Henry's hundreds birthday so there was a pause and then out came the statement I'm not actually very good at poetry.

[00:09:29] [SPEAKER_00]: So it came with a little jumbled thing that didn't amount to much so five minutes later because I wanted to see if it could learn I asked the exact same question this time out came ten lines of poetry was really poetry but at least the last word on the lines right so it was a program.

[00:09:57] [SPEAKER_00]: Five minutes after that I asked them the same question and now out came 30 lines of iambic pentameter so in the space of 15 minutes it went from.

[00:10:12] [SPEAKER_00]: Probably never having been asked to make a poem to writing a poem on a very specific topic.

[00:10:20] [SPEAKER_00]: That work pretty well and that made an incredible impression on me the idea that we had created a device system that was self learning is a real eye opener.

[00:10:37] [SPEAKER_01]: Throughout your career and your career as you mentioned in the book it spans eight decades just even typing that must have made you pause but.

[00:10:48] [SPEAKER_01]: Throughout your career it seems like yes there were parts that were difficult and hard but it seems pretty straightforward like you worked really hard as you mentioned several times you over prepared for every single meeting you went to and.

[00:11:04] [SPEAKER_01]: You seem to go from success to success what would you say was kind of like your biggest failure along the way like a point where you were actually worried about your future.

[00:11:16] [SPEAKER_00]: Well in my very first job after I got out of the military it started out in a very tumultuous and very scary fashion what happened was this.

[00:11:29] [SPEAKER_00]: I had been in our OTC at Yale and then I got a deferment from active duty so I could go straight to Harvard business school.

[00:11:41] [SPEAKER_00]: So after the business school I served in the military and then I got extended in my term because of the Cuban Missile Crisis so it delayed my advent at work at civilian work.

[00:11:58] [SPEAKER_00]: The new employer was a go go money manager called Emory DeVay and he was perfectly willing to extend the job offer until I could finish military but here's what happened that created the turmoil.

[00:12:15] [SPEAKER_00]: Two weeks before I joined the firm Emory died and on his deathbed sold the business to a very wealthy client of his called Robert Winthrop of the Massachusetts Winthrop family.

[00:12:32] [SPEAKER_00]: So it suddenly became Winthrop DeVay so I literally changed employer before I even showed up for work and certainly before I got a first paycheck.

[00:12:45] [SPEAKER_00]: Well couple weeks later in came one of our major clients Jack Torrance who then was the CEO of Campbell Soup and between Jack and the pension fund we had three billion dollars under management from them they were one of our larger accounts.

[00:13:09] [SPEAKER_00]: So the lunch was very nice but he was clearly trying to scope out what was the new group going to be like compared with the very successful performance that the former Emory DeVay had had.

[00:13:26] [SPEAKER_00]: So at one point he said to Mr Winthrop Bob I see we have a lot of Lucky Friday silver mine stock in our accounts can you tell me why?

[00:13:39] [SPEAKER_00]: Well Mr Winthrop was used to being a client not to being put on the spot like that so he turned to me and he said Wilbur do my accounts have Lucky Friday in them?

[00:13:51] [SPEAKER_00]: I said yes sir all of our accounts do because like most money managers you try to have symmetry of your portfolio so then I explained why we were keen on Lucky Friday.

[00:14:05] [SPEAKER_00]: Then Jack Torrance said well thank you very much had enjoyed the lunch the following Monday he pulled the three billion dollars out from under the firm so later that week Mr Winthrop who was then on the board of Citibank was grousing to Dick Perkins who then was the CEO of Citibank.

[00:14:32] [SPEAKER_00]: And he was explaining about this problem that he had bought this firm Perkins said don't worry about it Bob take a few million dollars buy out Sam Milbank he's the big partner in a nice old line firm called Wood Struthers.

[00:14:52] [SPEAKER_00]: They'll call it Wood Struthers and Winthrop and you won't be put on the spot again so he did two weeks later we became Wood Struthers and Winthrop.

[00:15:03] [SPEAKER_00]: So now I've changed jobs yet another time and I haven't changed my seat I've gotten one or two paychecks that's about all.

[00:15:12] [SPEAKER_00]: And this was a firm where I didn't know anyone of the new owning firm and had never applied for a job there so it was a little scary.

[00:15:22] [SPEAKER_00]: But.

[00:15:23] [SPEAKER_01]: And so how did you make yourself stand out there so that.

[00:15:27] [SPEAKER_00]: Oh yeah what happened and this is what I mean by there being an opportunity lurking inside a problem.

[00:15:36] [SPEAKER_00]: Wood Struthers decided to disband the venture capital company that we had as one of our activities so they fired the entire staff of it made me a corporate officer I think largely because I was the newest and most expendable person.

[00:15:57] [SPEAKER_00]: And they said if within two years you can liquidate this company and do it without us having to put in any more capital without any litigation and without any bad press will give you a big bonus.

[00:16:15] [SPEAKER_00]: Well that's where I learned how to deal with the stress companies because they range from some very successful ones that we sold for good prices.

[00:16:27] [SPEAKER_00]: To some pretty terrible one that we had to keep alive until we could find some way to resolve them so that's really what gave me the first background in doing distress.

[00:16:43] [SPEAKER_00]: And so it went from being a terrifying experience with all these changes in ownership to being a God given opportunity.

[00:16:54] [SPEAKER_00]: No I could have just I could have just quit because there were other firms that had been willing originally to hire me but I thought no I'll play the hand out let's see how this works and it really set the groundwork for my later career.

[00:17:17] [SPEAKER_01]: Take a quick break if you like this episode I really really appreciate it would mean so much to me please share with your friends and subscribe to the podcast email me at Altature at gmail.com and tell me why you subscribe thanks.

[00:17:40] [SPEAKER_01]: When you were at Ross child and company and you essentially bought out their venture arm and made W.L. Ross your your your venture group and you focused on on distressed and even struggling industries.

[00:17:54] [SPEAKER_01]: You kind of had one pattern which is to take an unloved industry like let's say coal and buy up and put together all the distressed call this is a time when coal was not.

[00:18:10] [SPEAKER_01]: You know was in a hot industry so to speak it wasn't like tech or internet or anything like that and you know you created one of the maybe the largest coal company in the world maybe.

[00:18:23] [SPEAKER_01]: This is a specific you did this for steel you did this for coal you did this for auto parts like maybe describe this strategy and like what and the roll up concept why such a successful concept to create wealth.

[00:18:36] [SPEAKER_00]: Well several things one industries and to go bad as industry because there's usually some sort of cyclical factor or governmental factor.

[00:18:51] [SPEAKER_00]: That comes into play that creates the problem or even just a recession so it gives us time to figure out which industries are likely to go bad.

[00:19:04] [SPEAKER_00]: And to study them so that we can have a game plan or how would you succeed if we did buy something in that industry so the start of it is pre planning before long before we make the investment.

[00:19:23] [SPEAKER_00]: It's usually at least six months sometimes twelve months between when we start to look at an industry and when we put money to work in it.

[00:19:34] [SPEAKER_00]: Meanwhile what will be doing is analyzing the individual companies and what we've noticed over the years is that when companies have been in financial difficulty.

[00:19:48] [SPEAKER_00]: For quite a while they develop a kind of losers mentality if you ask them what's wrong with your business.

[00:19:58] [SPEAKER_00]: They'll always point to some external factor they'll say it's the class action lawyer they'll say it's the union they'll say it's the government.

[00:20:10] [SPEAKER_00]: They'll say it's important they never talk about the things to do with their company that they have within their control and therefore can fix.

[00:20:21] [SPEAKER_00]: So the first thing that happens is when you bring to that situation a different mentality a different mindset one that instead of.

[00:20:33] [SPEAKER_00]: Moaning about things that you can't control a new group that's dedicated to controlling the things that you can control and it may be the last round of expansion went too far.

[00:20:50] [SPEAKER_00]: Often it's that an acquisition wasn't properly researched and it went bad and always involves too much debt.

[00:21:02] [SPEAKER_00]: What give me one dramatic example who is a very well known Canadian shopping center developer called Robert Campo.

[00:21:12] [SPEAKER_00]: And he made a hostile bid for federated department stores which then was a gigantic enterprise.

[00:21:20] [SPEAKER_00]: He paid six billion dollars for the equity of which he borrowed 97%.

[00:21:30] [SPEAKER_00]: So we had 30 million investment in a.

[00:21:34] [SPEAKER_00]: I'm in the six million dollar deal well.

[00:21:40] [SPEAKER_00]: When the recession came he suddenly found out you do a lot better collecting rent than you do paying rent so it went bad.

[00:21:51] [SPEAKER_00]: And that's but was it was going bad so was Woodward and later up so were other chain so that proves the two points one over leverage and two industries tend to go sour as industry.

[00:22:12] [SPEAKER_01]: Right and then sort of buying the kind of like if you if you erase the debt and let's say erase that last acquisition you know rework the debt that that made it you're able to buy these companies start fresh combine them get back end synergies.

[00:22:31] [SPEAKER_01]: And ultimately bring them public again as bigger newer companies.

[00:22:36] [SPEAKER_00]: Yeah absolutely that was the exact formula that we use and if you do it carefully it works pretty well because.

[00:22:51] [SPEAKER_00]: You fix fixing the balance sheet is in many ways the easiest part because that's what our bankruptcy courts are set up to do.

[00:23:02] [SPEAKER_00]: American bankruptcy system is relatively unique in the world in that our system is organized to facilitate the conversion of debt to equity and the rehabilitation of a business.

[00:23:18] [SPEAKER_00]: In most countries the bankruptcy code effectively amounts to liquidation so part of the background of why we could do it in the US.

[00:23:31] [SPEAKER_00]: Is our bankruptcy code is very well written it's very effective and it lets you take care of the worst of the problem it doesn't fix the management.

[00:23:45] [SPEAKER_00]: And in fact that's a strange thing i've found it very hard to get the bankrupt companies board of directors to get rid of the CEO that bankrupted the company.

[00:24:00] [SPEAKER_00]: You would think it would be the first thing they would think of because after all he got brought it into bankruptcy.

[00:24:08] [SPEAKER_00]: But it doesn't work that way and i think the reason it doesn't is that we think that boards pick CEOs.

[00:24:18] [SPEAKER_00]: Well in reality especially with big companies the CEOs end up picking the board and the board members are always their golfing buddies or their selling buddies or what have you.

[00:24:32] [SPEAKER_00]: So there's a unique bond between a board and the CEO that makes it hard on an interpersonal basis to fire the guy and i think that's one of the causes of the problem.

[00:24:53] [SPEAKER_01]: I mean you would think that the debt holders like if you're going bankrupt that means your debt holders are knocking at the door you would think the debt holders would insist on and have the power to pick a new CEO.

[00:25:04] [SPEAKER_00]: Well they ultimately do and usually we would be acting on behalf of or in concert with the debt holders and there's one unique thing in bankruptcy.

[00:25:18] [SPEAKER_00]: You can do what is called credit bidding namely a bond take Burlington Mills the textile company its bonds went down to around 25 30 cents.

[00:25:32] [SPEAKER_00]: We bought up a lot of them I became the chair of the unsecured creditors committee and Burlington was resuscitated.

[00:25:43] [SPEAKER_00]: And Warren Buffett realized that so he made a cash bid for it but we were able to bid for it using the bonds at par rather than at the 25 or 30 cents that we had paid.

[00:26:00] [SPEAKER_00]: So obviously we were we positioned ourselves to outbid Buffett and so I ended up in the strange position of having to convince the bankruptcy judge.

[00:26:13] [SPEAKER_00]: The bondholders preferred to take equity in the company rather than cash from Buffett so it was a very unusual set of circumstances that it would only happen because of the American bankruptcy system.

[00:26:32] [SPEAKER_01]: It's interesting you got so much exposure to so many industries through these many years of doing these types of situations and you saw the ups and downs of each industry that it was no wonder in 2017 Donald Trump who was becoming president asked you to be secretary of commerce.

[00:26:52] [SPEAKER_01]: Right I mean and it sounds like you weren't very surprised at this like when he made the call to you it sounds like you weren't very surprised.

[00:26:57] [SPEAKER_00]: No I wasn't very surprised I had known him for years because I and Carl Icahn were on the creditor side of the Trump Taj Mahal bankruptcy the casino in Atlantic City.

[00:27:14] [SPEAKER_00]: No I've known him for 25 years at the time and after that bankruptcy he actually hired me to help him in some other matters so I knew him pretty well.

[00:27:29] [SPEAKER_00]: And the way it came to be that I got actively involved was one morning I was on Squawk Box and at that point in time which was before the primaries most of Wall Street was anti-Trump.

[00:27:46] [SPEAKER_00]: They were either Democrats so they're anti-Trump for that reason or they were Republican and had some other candidate so Squawk Box people asked me well if Trump is the nominee of the Republican Party would you support him.

[00:28:05] [SPEAKER_00]: And they were I think expecting me to say no I said well yes of course I would absolutely so then I explained why and my explanation was that he was the only one of the candidates in my view.

[00:28:21] [SPEAKER_00]: That understood how unhappy and had determined for change middle class and lower middle class Americans were they were sick and tired of having been worked over losing purchasing power for the prior couple of decades.

[00:28:42] [SPEAKER_00]: And I felt that was an enormous societal problem and that since Trump was the only one who even recognized the problem he was the only one who was likely to try to fix it.

[00:28:57] [SPEAKER_00]: So after that announcement I started writing editorial mostly in regional newspapers taking up regional issues and how would Trump deal with them and debating people from the left-leaning think tanks.

[00:29:17] [SPEAKER_00]: So I got pretty structurally involved with the campaign and therefore it wasn't a total surprise when the phone call came.

[00:29:30] [SPEAKER_01]: And so you know a lot of these issues now of course the same issues are rearing their head again in this election which is coming up.

[00:29:38] [SPEAKER_01]: And you know and you've been so involved I'd like to ask you some questions relating to your from what you've learned as your experiences as Secretary of Commerce under Trump.

[00:29:49] [SPEAKER_01]: But first I want to ask a basic question because obviously you mentioned like inflation is a critical issue for the middle class lower middle class and for everybody really.

[00:30:00] [SPEAKER_01]: This is a basic question but I'm everybody asks it what does it mean when the government quote unquote prints money.

[00:30:09] [SPEAKER_01]: What are they printing how does that work?

[00:30:11] [SPEAKER_00]: Well how it works is the simply an issue bond and that takes money that creates money.

[00:30:24] [SPEAKER_00]: The Federal Reserve lends banks against their deposit and then you have deposits so as you have deficit spending you literally are pumping cash into the economy.

[00:30:40] [SPEAKER_00]: And one of the reasons probably the major reason why we had the rampant inflation that we recently have had is that the government pump too much money in.

[00:30:55] [SPEAKER_00]: When you pump in too much money and especially if you give it to people who are unemployed.

[00:31:04] [SPEAKER_00]: And therefore this is their income and that's largely what was being done what happens is you create demand.

[00:31:13] [SPEAKER_00]: But since they're not working you don't create any countervailing supply well with anything if you have more demand than supply.

[00:31:25] [SPEAKER_00]: The way the gap is bridge is prices go up and that's exactly what happened the prices went up at the end of the day inflation is really a monetary supply issue more than it is anything else.

[00:31:44] [SPEAKER_00]: No it also breeds wage increases and commodity price increases but fundamentally it's a money supply issue.

[00:31:55] [SPEAKER_01]: So when you say the banks or the Federal Reserve lends money to the banks do the banks have to take it or I guess if the money is being offered to them they just take it because it's the take it.

[00:32:06] [SPEAKER_00]: But the with the Federal Reserve policies setting the prices of borrowing and the whole series of regulatory actions.

[00:32:18] [SPEAKER_00]: The reserve requirement namely what percentage of deposit you have to keep either on hand with the Federal Reserve or in cash.

[00:32:28] [SPEAKER_00]: The whole bunch of tools that the Federal Reserve has to facilitate the change in policy that it wants.

[00:32:39] [SPEAKER_00]: One of the problems with our system is that you have two components to monetary supply one is the Federal Reserve's action.

[00:32:50] [SPEAKER_00]: But the other is fiscal policy which is the rest of the government the Fed is an independent entity and so it does not operate in synchronization.

[00:33:07] [SPEAKER_00]: With the federal government and so what you had happening during the early stages of the post COVID inflation.

[00:33:16] [SPEAKER_00]: What you had happening was at the same time as fiscal policy was operating at enormous deficits trillion dollar deficit.

[00:33:29] [SPEAKER_00]: The Fed was making money less expensive and thereby in a sense creating demand for money.

[00:33:39] [SPEAKER_00]: And the combination of those two factors is what led to the runaway inflation.

[00:33:48] [SPEAKER_00]: More recently the Fed has been in a more temperate monetary policy of interest rates and interest rate factors.

[00:34:00] [SPEAKER_00]: But the federal government has continued spending and that's why it's been so hard getting inflation down.

[00:34:12] [SPEAKER_00]: The Fed as it started raising rates was effectively contracting their part of it.

[00:34:20] [SPEAKER_00]: But with the federal government spraying out still more money it overwhelmed initially the actions of the Fed.

[00:34:31] [SPEAKER_01]: I see so and do you think the Fed raising rates the way they have do you think that's I mean it looks like that's put inflation somewhat under control.

[00:34:41] [SPEAKER_00]: Yes but the federal government still is running huge deficit if you're running trillion plus dollar deficit.

[00:34:52] [SPEAKER_00]: That's a trillion dollars more money coming into the equation each year that's an awfully big number.

[00:35:02] [SPEAKER_00]: And so what would have been much more effective would have been to tamp down on the deficit spending at the same time as the Fed was coming in.

[00:35:13] [SPEAKER_00]: That would meant that they wouldn't have had to raise rates as much as they did.

[00:35:20] [SPEAKER_00]: And the danger with them lowering rates and I have no doubt that they will lower rates starting at their meeting around the 19th 20th of September.

[00:35:33] [SPEAKER_00]: I there's no doubt in my mind that they'll start lowering but if the federal government operates a bigger and bigger deficit it could very well overwhelm the.

[00:35:50] [SPEAKER_00]: Benefits that the higher rate and the monetary supply had caused and you could have inflation resume again so you could have a very.

[00:36:04] [SPEAKER_00]: What is the situation where they saw part of the problem but they didn't permanently solve.

[00:36:28] [SPEAKER_01]: So what what will be the outcome in the sense that you're there's thirty five trillion dollars in debt right now the US which.

[00:36:36] [SPEAKER_01]: I don't know if that's a big number or small number relative to the size of the US economy but what is the ultimate solution like how does.

[00:36:44] [SPEAKER_01]: The US ultimately pay down this debt or do we just pay it down through.

[00:36:50] [SPEAKER_01]: You know gradual inflation through the years so that that becomes less and less meaningful.

[00:36:56] [SPEAKER_00]: No the way we can pay it down is with more rapid economic growth.

[00:37:03] [SPEAKER_00]: If the economy is only growing at two percent a year in real terms.

[00:37:09] [SPEAKER_00]: And if the budget deficit is much more than two percent which it is it's running up around four or five percent then you have the inflationary problem.

[00:37:24] [SPEAKER_00]: But the way to solve that is right now about thirty seven percent of the working age population neither has a job nor does it want a job it's not seeking a job.

[00:37:43] [SPEAKER_00]: If the way the money were.

[00:37:50] [SPEAKER_00]: That encouraging people to work then you could have a big increase in supply which would help offset the big increase in demand from the money.

[00:38:02] [SPEAKER_00]: But when you just keep piling more money into the hands of people who are not working and don't want to work.

[00:38:13] [SPEAKER_00]: That's when you create the worst part of inflation because you're only stimulating demand and not supply.

[00:38:22] [SPEAKER_01]: And so how do you incentivize like politically once people start getting checks they don't want to stop getting checks like politically how do you incentivize people to work.

[00:38:36] [SPEAKER_00]: Well that's the conundrum that used to be in the early days.

[00:38:43] [SPEAKER_00]: Unemployment insurance unemployment payments were time limited you could only be on them for a certain amount of time.

[00:38:52] [SPEAKER_00]: And they were limited in a map so you never had the situation where they were relatively permanent and in this case of the payments in the after covid.

[00:39:08] [SPEAKER_00]: Many of the low income people got more pay literally more pay not working than they ever had made when they were work.

[00:39:19] [SPEAKER_00]: Well that's crazy it's a disincentive to work and it has led to an antipathy toward work on the part of many people in the population.

[00:39:35] [SPEAKER_00]: There's a reddit site that had six million subscribers and I went on it it was dedicated to anti work.

[00:39:46] [SPEAKER_00]: Believe it or not with six million subscribers and there were some pathetic things on it one guy had posted.

[00:39:56] [SPEAKER_00]: I just can't force myself to go to work anymore well the notion that work is an aberration work is something unnatural work is something that you have to be forced to do it's the total antithesis of the American dream.

[00:40:17] [SPEAKER_00]: And then it's a very destructive thing.

[00:40:21] [SPEAKER_00]: We need more labor force participation and that requires training both for high tech jobs and for non high tech there are shortages.

[00:40:36] [SPEAKER_00]: I am a lot of categories of workers not as many shortages as they used to be but still quite a lot and we still have low workforce participation down around 62 63% well that means that.

[00:40:57] [SPEAKER_00]: 37% or thereabouts of the working age population has no interest in having a job so the other 60 odd percent has to subsidize the 30 odd percent it won't work it's crazy.

[00:41:18] [SPEAKER_01]: Yes it seems like you know again you always wanna you always wanna tax the behaviors you don't like and.

[00:41:29] [SPEAKER_01]: Incentivize the pay behaviors you do like so for instance to get more people to work you could lower taxes on income tax and.

[00:41:38] [SPEAKER_01]: You know for people who don't work you could have maybe a higher sales tax for instance it was a little harder to spend and.

[00:41:45] [SPEAKER_01]: But but it's politically unsavory to institute social policy like politician maybe a you know our political system is not really set up to have pain as a prescription.

[00:41:59] [SPEAKER_00]: Well I think it depends on the party it doesn't have to be pain for example it used to be that your unemployment benefits were limited to 70 or 80% of what your prior pay actually had been.

[00:42:18] [SPEAKER_00]: So that had built in an incentive to get a job because well you had some money coming in it wasn't as much money as before so you couldn't just sit back and say I don't have to do anything.

[00:42:34] [SPEAKER_00]: So simply making the unemployment payment more proportionate to what the fellow had earned before would help also not giving.

[00:42:50] [SPEAKER_00]: These subsidies to people who had never had a job somebody who's never had a job but who's getting some of these payments whether it's for child care whatever it is.

[00:43:02] [SPEAKER_00]: It's an unnatural situation but it's a disincentive to find a job and think about it if you could make twice as much or half again as much.

[00:43:15] [SPEAKER_00]: Doing nothing as working eight or nine hours a day you would be foolish to go to work you're better off just to sit home watch TV.

[00:43:26] [SPEAKER_00]: Do whatever and make more money so the it isn't that we have to have a huge disincentive the current system for many people has been the best job they ever had was no job.

[00:43:46] [SPEAKER_01]: I want to switch tracks slightly to other things you did as as commerce secretary a lot of it had to do with with trade one thing I always get worried about is and you talk about this in the book.

[00:44:00] [SPEAKER_01]: You know the world's reliance on so called rare earth minerals is very significant like you need rare earth minerals to power the electric grid to make semiconductors to do so many things that are fundamental to how society operates on a daily basis and China.

[00:44:19] [SPEAKER_01]: Is the number one source of these rare earth minerals in terms of the production and the cleansing of the rare earth minerals once they're sourced.

[00:44:27] [SPEAKER_01]: How like given that China is sort of an economic enemy and perhaps more to us how do you how do you solve this problem like China can just say to us hey US stay out of her way or you get no more rare earth minerals no more lithium no more beryllium whatever it is you're cut out.

[00:44:47] [SPEAKER_00]: Right well we are in a very dangerous situation and also in semiconductors same idea.

[00:44:57] [SPEAKER_00]: In both cases particularly rare earth China has driven the cost of refining the ore and getting the rare earth into a usable form they've cut the cost of doing that to the point where it's not economical.

[00:45:16] [SPEAKER_00]: They've been subsidizing it so I believe we have to subsidize our industry in doing it simply as a matter of national security.

[00:45:28] [SPEAKER_00]: Because we have plenty of rare earth in the ground it isn't that they are only in China in fact they're most importantly not in China.

[00:45:42] [SPEAKER_00]: U.s. has been big raw material supplied for rare earth so does Canada so does Australia.

[00:45:52] [SPEAKER_00]: What we need is to create a mechanism whereby the defense department or somebody will pay more for rare earth if they come from the US.

[00:46:05] [SPEAKER_00]: Then if they come from elsewhere and once we do that it won't matter that China is subsidizing it will offset their subsidy.

[00:46:18] [SPEAKER_01]: Now when you were commerce secretary did you have opportunity to do that were we able to make progress on that.

[00:46:24] [SPEAKER_00]: Well we tried I actually can be the minister is from Canada and Australia together with the other day and others from our government.

[00:46:37] [SPEAKER_00]: Where the end of our administration trying to work out a system whereby all three of us would contribute to subsidies but we ran out of time in the administration.

[00:46:51] [SPEAKER_00]: Before we could implement anything and the new administration is not so keen on rare earth because the environmentalist don't like them.

[00:47:07] [SPEAKER_00]: The process of making rare earth into usable material is a little bit of a polluted process but i just think it's essential.

[00:47:20] [SPEAKER_00]: From national security same thing with semiconductors we are the world's largest consumer of semiconductors but we import something like 70% of all the semiconductors we use.

[00:47:37] [SPEAKER_00]: The semiconductors are in every advanced weapon every plane you couldn't even find your way to your friends house if the GPS one out GPS runs on semiconductor your garage door wouldn't open.

[00:47:55] [SPEAKER_00]: Probably your car doors wouldn't open so we need to become self sufficient in each of these key areas and I think it would be money better spent subsidizing semiconductors and subsidizing.

[00:48:16] [SPEAKER_00]: Rare earth production and refining what better spent doing that than paying people not to work because then you'd be solving a serious problem in the economy.

[00:48:31] [SPEAKER_00]: Meanwhile to the degree you built up those two industries you'd be creating jobs so you would have a much better solution because now you would have some supply increments coming in not just the demand increment coming in from subsidizing people not working.

[00:48:55] [SPEAKER_01]: I'm assuming there's a lot of smart people on both sides of the political divide how come let's say in the current administration and i'm not necessarily criticizing them but how come some of these smart people don't speak up and say hey we could be in trouble.

[00:49:15] [SPEAKER_01]: If just for one day China decides to cut off rare earth minerals to us that's disaster like clearly everybody knows there's a problem what do they think is the solution to this problem.

[00:49:28] [SPEAKER_00]: Well they're talking about solution but the problem with this administration is a lot of their social policy issues interfere with economic issues.

[00:49:43] [SPEAKER_00]: I'll give you an example Elon Musk Tesla was the real pioneer of electric vehicles in this country and is still the leader.

[00:49:56] [SPEAKER_00]: Well that's a good thing government likes that but this administration will not grant tax credit to people who buy Tesla cars instead of Ford or GM and the reason is Tesla is non-union.

[00:50:16] [SPEAKER_00]: Well there's a clear example of social policy namely a policy being pro-union interfering with an ecological policy which is to encourage electric vehicles and so what happens is the policy objectives of the democrats are so complicated and so mutually contradictory that they get in the way of each other.

[00:50:47] [SPEAKER_01]: And even though the rising potentially national security disaster of not having any new semiconductors that doesn't kind of get like what happens if that gets mentioned in congress or people just shut down or what happens.

[00:51:03] [SPEAKER_00]: Well it took years I was one of the pioneers of the so-called chip sack and it finally did get passed under the new administration we were not able to get it through under the Trump administration.

[00:51:21] [SPEAKER_00]: But what did the democrats do they granted the 50 billion 50 billion that we were requesting to get state-of-the-art semiconductors brought in made in this country.

[00:51:37] [SPEAKER_00]: But they added to it 450 billion dollars of other provisions that had nothing to do with semiconductors nothing whatsoever so they took a 50 billion dollar idea that did address the real needs we have for semiconductors.

[00:52:02] [SPEAKER_00]: But put on top of it 450 of what I view as very inflationary money.

[00:52:11] [SPEAKER_01]: You know one of the things that's kind of remarkable about your tenure as secretary of commerce is that you were there for the full four years.

[00:52:20] [SPEAKER_01]: I don't know of any other cabinet official that I could think of and I could have researched this but I don't off the top of my head I can't think of any other cabinet official that lasted all four years.

[00:52:30] [SPEAKER_00]: Well there were a couple Steve Mnuchin being one.

[00:52:35] [SPEAKER_01]: Yes Steve Mnuchin and but what do you think contributed to your longevity there like what did you disagree with President Trump on but you move forward despite that.

[00:52:49] [SPEAKER_00]: Right well first of all I knew him better both Steve and I knew him better than most of the other cabinet secretaries because we both knew him from the commercial world.

[00:53:03] [SPEAKER_00]: And as a result we were able to I was able to pierce through the style issues the personality issues that bother some people and focus on substance.

[00:53:19] [SPEAKER_00]: So that was one thing a lot of these people didn't know Trump and he is a complicated personality he's a demanding personality.

[00:53:30] [SPEAKER_00]: He's a very powerful personality so that's hard for some people to live with but worse than that because he didn't have a big historic cadre of senior people that he could trust.

[00:53:50] [SPEAKER_00]: A lot of the people who initially came into the administration did not agree with all of his policies some of the economic people totally disagreed with our tariff policies for example.

[00:54:05] [SPEAKER_00]: So there were some errors inevitably made by picking people who had good resumes but weren't real Trumpers in the beginning and that resulted both in a lot of turnover and in a lot of leaks.

[00:54:26] [SPEAKER_00]: Because the non Trump policy people used leaks as a way to try to dissuade him from taking policy actions that he wanted to do.

[00:54:40] [SPEAKER_00]: So there was a set of structural issues that arose and I think now that he's been in Washington he knows how Washington works.

[00:54:51] [SPEAKER_00]: And he knows a lot more people who have the skills needed for the administration I believe he will have a very good cabinet and a lot less turmoil because it won't be these incorrect personnel selection that occurred the first time.

[00:55:13] [SPEAKER_01]: Do you want to go back as Secretary of Commerce?

[00:55:14] [SPEAKER_00]: Oh it's a little too early to divide up the spoils but let's first get him re-elected I think it's very important that he be re-elected.

[00:55:26] [SPEAKER_00]: Because I think go back to the four years that he was there the world was a safer place for lots of reasons.

[00:55:38] [SPEAKER_00]: The Chinese, the Russians, the Iranians were a little bit frightened of Trump and therefore they did not act up nearly to the degree that they have with the current administration.

[00:55:54] [SPEAKER_00]: Because with Trump there was the significant danger that if they did push too hard he would unleash a powerful thing on them.

[00:56:06] [SPEAKER_00]: Whereas this administration it under reacts it under reacted to the spy balloon.

[00:56:13] [SPEAKER_00]: It under reacted to China building up intelligence operations in Cuba.

[00:56:22] [SPEAKER_00]: It under reacted to Russia putting a nuclear submarine in the port of Havana.

[00:56:30] [SPEAKER_00]: It under reacted to the Houthis disrupting world trade in the Red Sea.

[00:56:36] [SPEAKER_00]: It under reacted to attacks on our bases in the mid-east.

[00:56:42] [SPEAKER_00]: It under reacted to a lot of things and one of the things I learned when I was a kid was that to have a bully which a lot of these other countries are bullies.

[00:56:55] [SPEAKER_00]: To have a bully you need a willing victim and Trump was obviously not a willing victim.

[00:57:02] [SPEAKER_00]: And unfortunately I think Biden's administration is being viewed as a willing victim and that's why they have more trouble.

[00:57:15] [SPEAKER_01]: If Trump was, assuming Trump's elected, how do you think he would, he implies that he would end the Gaza situation in a day.

[00:57:24] [SPEAKER_01]: How do you think he would end that?

[00:57:27] [SPEAKER_00]: Well I don't want to second guess the detail but he did have a more peaceful world when he was in office than we've had since.

[00:57:41] [SPEAKER_00]: That's a fact, it's something nobody can refute.

[00:57:47] [SPEAKER_00]: And it is also the case that he would, he was a very very good negotiator.

[00:57:54] [SPEAKER_00]: This administration has not been very good at negotiating.

[00:58:00] [SPEAKER_00]: Remember they were willing to pay $6 billion to Iran to release a few hostages.

[00:58:07] [SPEAKER_00]: Well I'm all for getting hostages released but when you have a mentality that pays the captor of the hostages, pays them $6 billion,

[00:58:21] [SPEAKER_00]: all you're really doing is encouraging them to take more hostages.

[00:58:26] [SPEAKER_00]: So an ill considered policy.

[00:58:30] [SPEAKER_00]: Similarly with Iran, this country kept begging Iran to go back to the nuclear treaty,

[00:58:38] [SPEAKER_00]: which was a terrible treaty even when it was in effect.

[00:58:42] [SPEAKER_00]: It did not provide for adequate inspection.

[00:58:48] [SPEAKER_00]: We under that treaty had to give Iran 30 days notice that we wanted to inspect a facility

[00:58:56] [SPEAKER_00]: and Iran could say no.

[00:58:59] [SPEAKER_00]: Well what kind of a treaty is that to hold down nuclear proliferation?

[00:59:05] [SPEAKER_00]: And the very fact that a gigantic powerful nation like the US repeatedly was begging Iran to negotiate with them is nuts.

[00:59:18] [SPEAKER_00]: That's not how you stay the number one power in the world.

[00:59:23] [SPEAKER_00]: So I think just correcting some of the process mistakes that the Biden administration has been making,

[00:59:32] [SPEAKER_00]: just by correcting those mistakes you'll improve our situation.

[00:59:38] [SPEAKER_01]: Well Wilbur Ross, former Secretary of Commerce, very successful investor, entrepreneur, author of the great new book

[00:59:48] [SPEAKER_01]: Risks and Returns where you really provide such an education on the things you've learned from every aspect of your career.

[00:59:54] [SPEAKER_01]: Like I came out of reading that book with so much more understanding of the economy, wealth building, and economics,

[01:00:02] [SPEAKER_01]: and the mechanics of being a high official for the most powerful government in the world.

[01:00:08] [SPEAKER_01]: I highly recommend it.

[01:00:10] [SPEAKER_01]: Thank you so much for appearing on the show and answering my very naive and simple questions.

[01:00:17] [SPEAKER_01]: I really appreciate it.

[01:00:19] [SPEAKER_00]: No, you did a very good job x-raying me so I appreciate it.

[01:00:24] [SPEAKER_01]: Thank you.