What this covers
Viktor Schvetz conducts a long-arc diagnosis of contemporary economic and political order through the lens of two simultaneous revolutions: an information/AI wave he characterizes as roughly 3,000 times more impactful than the Industrial Revolution, and five decades of financialization that has generated what he calls "abundant capital"—5 to 10 times more than the economy needs. The conversation, held with an unnamed host, spans economics, finance, politics, and technology to argue that these forces are collapsing the neoliberal consensus and driving all major societies toward greater state direction of capital, differing mainly in degree and nationalist flavor. The core question Schvetz poses is whether societies will reconcile to this new reality before or after a destabilizing "world on fire."
The material covers several distinct areas. On technology, Schvetz argues that AI need not reach artificial general intelligence to be transformative—cost efficiency and scalability are already collapsing hiring across sectors, and robotics and biotech will soon reshape the physical economy wholesale. On finance and valuation, he contends that abundant capital has destroyed traditional signals: risk premia, cost of capital, and mean reversion have lost their meaning, making central banks backward-looking and unable to locate a neutral rate. On demography and values, he traces a generational shift, claiming younger cohorts born from the early 1990s onward resemble Depression-era survivors more than baby boomers—prioritizing community and state support over individual freedom—and will become electoral majorities around 2025–2032. On geopolitics, he forecasts a hardening split into illiberal Eurasia and the Anglosphere, with capital and labor flowing increasingly within blocks rather than between them. The analysis turns contentious on whether such disruption is avoidable and whether productivity gains justify America's divergent social outcomes—mortality and incarceration rates far worse than peer democracies.
Schvitz argues that the convergence of the information/AI revolution with decades of financialization is producing 'abundant capital' that breaks traditional valuation, eliminates economic cycles and mean reversion, and renders most human labor irrelevant—forcing a worldwide shift away from neoliberalism toward bigger-government, redistributive models, with the central question being whether society reconciles to this before or after a 'world on fire'.
- The information/AI age is a general-purpose technology roughly 3000x the impact of the industrial revolution, disintermediating labor across digital and now physical domains
- Financialization since Volcker created 5-10x more capital than the economy needs, destroying the meaning of risk-free rates, risk premia, weighted average cost of capital, and mean reversion
- Neoliberalism has died and discredited itself, so all major societies are converging toward more state direction of capital ('we are all socialist now'), differing only in degree and nationalism
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The younger generation born from roughly the early 1990s onward are far closer in values to their great-grandparents (Depression/WWII survivors) than to baby boomers—wanting community and support, willing to sacrifice rights, skeptical of democracy—and will become electoral majorities around 2025-2032, at which point they will get the policies they want, as boomers eventually did.
“they are far closer to their greatgrandparents... than to the baby boomer... they want community uh they want support they don't like this idea give me the rope”
Because human self-worth is based on how others perceive our value, and technology is steadily reducing the marginal utility and marginal cost of human labor, this drives a long-term decline in average human economic value that is a recipe for polarization, social dislocation and unhappiness within and between countries.
“that's a recipe for polarization. That's a recipe for social dislocation, unhappiness.”
Rodrik's globalization trilemma holds that you cannot simultaneously have nation states, full free markets/free trade, and local democracy—only two of the three; since we won't abolish nation states and global governance is nearly impossible, globalization must partly reverse because the winners of globalization never compensate the losers within an acceptable timeframe.
“you cannot combine uh nation states um with free markets and a free trade and some form of local politics... You can only combine two out of three”
Universal basic income, supported by figures like Musk and Sergey Brin, is not a giveaway to make people lazy but a 'compensation for irrelevance'—a necessary mechanism to maintain aggregate demand and customers once technology has displaced human labor.
“universal basic income in various forms is not uh it's not um it's not a giveaway... It's a compensation for irrelevance. You're no longer relevant. So that's your compensation for being irrelevant.”
A 1937 compilation of ideas from Mussolini's, Stalin's and New Deal economists shows that across communism, fascism and the New Deal the consensus had shifted from 'whether to plan' to 'how to plan'—and the same is true today: regardless of label, all systems now agree government must become far more involved.
“the question they raised is that uh it's not that we uh that that instead of asking should we plan our economies and our societies but how should we plan not whether how”
Historically, the most disruptive 'world on fire' periods occur when technology and finance change simultaneously alongside other stressors (climate, pandemics, demographics); when all these forces converge in a short period—as in the 1920s-30s and today—the disruption becomes nearly unavoidable.
“when you have all of those things coming together in a relatively short period of time, uh those periods are incredibly disruptive”
Technological revolutions follow a U-shaped multifactor-productivity curve: when a general-purpose technology arrives, productivity rises in a few niches but the rest of the economy 'dies one cut at a time,' so aggregate productivity falls; only after businesses and society adjust does productivity eventually mushroom across the economy.
“productivity arises rapidly in a select few niches, but the rest of the economy dies one cut at a time and therefore aggregate productivity actually goes down, not up”
Baby boomers' demand for total personal, economic and market freedom (the through-line from 1960s hippies to 1980s investment bankers) brought in Reagan, Thatcher, monetarism and Friedmanite neoliberalism, whose underpinnings are faulty because free markets, true prices and rational behavior mostly don't exist—as Greenspan effectively admitted in 2008.
“there is a direct line from uh flower culture and uh and hippies and yippies on the one side and investment bankers of 1980s. They're the same people. It's they they both wanted freedom.”
The world is splintering into geopolitical blocks, with China's mind-change away from liberalization datable to the 2008-09 GFC (state control of national assets rising from then, five years before Xi)—producing an 'illiberal Eurasia' (China, Russia, Iran, etc.) versus an 'Anglosphere' (US, Canada, UK, Australia, Japan, EU), so capital, goods, labor and ideas will increasingly flow within blocks rather than between them.
“the dividing line to me is around 2008 2009 global financial crisis. This is the time when China concluded liberal way is not the way forward”
The combination of climate stress and a population surge in Africa, the Middle East and Central Asia (heading to ~3 billion, with 1.5-2 billion of working age) means even a fraction migrating would dwarf historical movements like the Mongols or barbarians, so the only humane solution is an 'enlightened Marshall Plan' (~10-15% of GDP, $5tn+) to raise local productivity and prevent mass migration, pandemics and war.
“very soon we will have three billion people residing in those areas which is a whole population of the world only in 1960... if just a fraction of them decide to move uh you're going to have a bigger movements than... Mongols and Turks”
Eras of stability arise when generations agree on a shared socioeconomic model (e.g., 1946-1970, 1980-2010); the present disorder will end only when society agrees on a new model—and humans almost always reach such agreement only after disasters rather than before.
“it will end when we agree what's a new social economic model. Clearly the model of neoliberals are gone.”
Risk has not disappeared but migrated outside the economic and capital-market system into polarization, electoral outcomes, geopolitics, climate and healthcare—domains that portfolio managers and central banks have zero ability to assess, forcing central banks to be backward-looking ('data dependent') because they cannot locate the neutral rate or risk premium.
“the risks are gone. They're not. They just migrated out of a system... Polarization, electoral outcome, geopolitics, climate, healthcare. This is where the risk lie.”
Neoliberalism has died and discredited itself, and as government becomes more involved in directing capital, the differences between Western economies and China are shrinking; the modern political spectrum is no longer freedom vs slavery but how much freedom to sacrifice—so in effect 'we are all socialist now,' the right merely more nationalistic and exclusive than the left.
“we all socialist now everyone um the only difference right is more nationalistic and exclusive uh left is less nationalistic and exclusive but they all socialist”
The difference between deindustrialized Detroit (now one of the poorest US cities) and deindustrialized Melbourne (now rivaling Sydney in wealth) is not race but policy: Australia introduced compulsory superannuation, single-payer Medicare with private options, government-funded forgivable education and TAFE vocational training—so caring for pensions, health, education and trades keeps people less angry and avoids polarization.
“if you take care of pension if you take care of medical if you take care of education if you take care of trading uh then people not as angry and they find other ways of finding their ways through the system”
No general-purpose technology that transforms the world ever progresses without a financial bubble; bubbles are a necessary condition for such technologies to scale and reshape the world.
“no generalpurpose technology that changes the world ever progresses without a bubble. That never happens. You need a bubble for them to progress forward”
The boomers' insistence on perpetual growth and wealth creation regardless of productivity could only be accommodated by relying on asset prices and borrowing—pulling future consumption to the present—so blaming central banks for post-2008 distortions is misplaced: the public demanded it and politics delivered it.
“if you've won a guilty party look yourself in the mirror. It's you. You wanted it and politics delivered exactly what you wanted.”
China's core problem is not overproduction itself but very high national savings rates maintained too long; this forces it to invest and export (a 'squirrel in a wheel' investing ~$9-10 trillion/year, double Japan's GDP), creating excess capacity that pops up everywhere ('whack-a-mole') and exports global disinflation, with the only alternative—domestic dumping—deepening disinflation against 4x debt-to-GDP.
“The problem is very high national saving rates maintained for far too long... the only answer for you is invest and export. And so they become a squirrel in a wheel”
The US labors under a creaking 18th-century constitution full of unresolved ambiguities (state vs federal power, judiciary making policy rather than arbitrating, first-past-the-post enabling big swings on small vote shifts, unaddressed 'rotten boroughs' and gerrymandering); a more rational system is designable but almost impossible to enact, while Europe's overly bureaucratic rules paradoxically make it 'harder to smash' in bad times.
“US is suffering under creaking 18th century constitution where founding fathers uh got to a stage that they didn't know what they want”
We have created 'abundant capital'—5-10x more than the economy needs—and because anything abundant has no value, this generates faulty signals so that spreads and yield curves no longer convey the information they once did; this cannot be unwound because reconstituting sound money would crash house prices and pensions and risk world war.
“we've created what I call abundant capital. We have five 10 times more capital than we need.”
US college-freshman surveys since 1965 show a generational value shift: in the mid-1960s ~30%+ of students enrolled in arts/humanities and prioritized improving the world, but by the late 1980s 27% were in business/finance with 'being better off financially' the top reason for college—reflecting the boomer 'me generation' ethos—now partly reversing among younger students.
“by the time we get to late 80s 27% of all the graduates were business and finance... number one choice for coming to college was to be better off financially rather than anything else.”
AI does not need to reach AGI (which is at least 20 years away, not 2029) to be transformative; its value lies in being flexible, cost-efficient, scalable and 'good enough,' which is already collapsing hiring—e.g., a bank that hired 500 graduates to end with 20-30 will progressively hire 100 to get 10, then 50 to get 2.
“You don't need to be as good. you just need to be good enough. Uh and that's exactly what AI is becoming.”
AI as a general-purpose technology will move beyond manipulating data to transforming the physical world via robotics, automation, 3D printing and biotech—e.g., printed houses in 24 hours for $10-20k displacing 5-10% of the construction labor force, printed aircraft parts replacing 'one factory of the world' (China) with 30,000 distributed factories at very low marginal cost.
“can we, for example, print a house now in 24 hours in the cost of 10 or $20,000? Yes, we can... That means 5 to 10% of the labor force in every country that construction workers will no longer be required.”
The industrial revolution needed humans as its brains, but the information revolution no longer does; China is betting that AI plus quantum computing will eliminate even the need for human inventiveness, which would render moot the historical rule that genuine invention is impossible under a system of unappealable authority.
“China is counting that the combination of AI as well as quantum computing will eliminate the need for even inventiveness”
America's high productivity and competitiveness come bundled with brutal social outcomes—citizens living 5-7 years less than peer developed countries, infant mortality 2-3x higher, maternal mortality 6-8x higher, and incarceration rates ~50x higher (comparable to Turkmenistan, Cuba, Nicaragua)—raising the question of whether such 'deaths and blood' are the necessary price of that productivity.
“citizens live 5 to seven years less than an average developed country... infant mortality is two or three times... female uh mortality during child birth about 6 to eight times higher... incarcerate people at a rate that 50 times more”
The next decade or two could be the most transformative period the human race has experienced since the agricultural revolution, because unlike prior industrial or mercantile revolutions we are changing nearly all relationships—industries, sectors, personal and social relationships—simultaneously rather than just one or two sets.
“the next decade, possibly two decades, probably could be the most transformative that the human race have experienced since arguably agricultural revolution”
Volcker's true legacy is creating the modern financial world: the ratio of financial instruments to GDP rose from roughly 1-1.5x in Volcker's era (when velocity of money was stable, as Friedman assumed) to ~2:1 by the Greenspan put, 3:1 under Bernanke, 5:1 under Yellen, and ~6:1 today—an understated figure ignoring unfunded liabilities and ~$30 trillion of private capital.
“if you go to Paul Walker days, the amount of financial instruments per dollar GDP was around 1 1.5 and was relatively flat... by the time we get to Yelen that was 5:1 today... their number is about 6 to1.”
Markets assign the US (and India) a low equity risk premium because investors reward structural strengths—sound economy and corporate sector—while discounting dysfunctional politics, whereas Europe gets a high risk premium because investors penalize its structural weaknesses without crediting its offsetting strengths.
“what you have in the US is structurally sound economy... but dysfunctional society and politics... You assign a very low-risk premier to us because you reward structural strengths against the weaknesses”
Central banks must keep generating liquidity because asset prices have become a far more significant signal for consumer and business behavior than wages, so any meaningful compression of liquidity immediately flows into economic fundamentals; reported QT is largely a signal, not a true contraction, since other forms of liquidity kept rising throughout.
“asset prices are far more significant signal for consumers and businesses than um than wages”
Because there is no mean reversion, returns become permanently highly concentrated—winners take everything and losers get nothing—but the winners are not a fixed set (not just the Magnificent 7 or 'tech'), since the absence of cycles to widen and revert means concentration is a structural feature.
“the returns are highly concentrated. So in other words, all the winners winnings go to the winners. Losers get nothing. But the winners are not the same people.”
An implosion of Russia would be the worst possible geopolitical outcome, which likely explains why Biden and allies were so controlled about the degree of help they were willing to give Ukraine.
“Implosion of Russia will be the worst possible outcome. And that's probably why uh Joe Biden and the rest of them were so um controlled as to the degree of help that they willing to provide uh to Ukraine.”
The polarization difference between high-tax California and low-tax states like Alabama or Florida is not about competent vs incompetent politicians but about which trade-off each makes; California's failed $20bn homeless spending coexists with it remaining the richest/second-richest state per capita due to network effects, while low-tax states have higher death, incarceration and lower medical-coverage rates.
“it's not um it's not incompetent or competent because if you think of places like Alabama, uh attracting a lot of investments, growing... do you want to live in Alabama? Uh and if you think of average lifespan, they live much less.”
Without a knowable risk-free rate and with risk premia equally unstable (could be 1% in the morning and 5% in the afternoon), there is no reliable weighted average cost of capital, hence no meaningful P/E and no mean reversion—so the analyst's traditional framework of cyclical positioning and standard-deviation-from-mean valuation collapses entirely.
“if you don't have risk free rate and risk premier you have no weighted average cost of capital. That means you don't have a PE. It doesn't exist anymore. And you don't have mean reversion.”
Only government, with its strength and monopoly power, can act as the guardrail to rebalance the capital-labor relationship that technology and finance are reshaping; the system will never self-rebalance as Bessent and Trump expect, so greater state involvement is necessary and not inherently bad.
“Only the government has the strengths and a monopoly power to be the guardrail. Nobody else system by itself is never going to rebalance as much as as much as Scott Basson and Donald Trump think it would.”
Cold war and hot war are economically distinct regimes: a cold war has ~1-2 casualties per 100,000 and defense spending rarely above 5-6% of GDP, while a hot war has ~20+ casualties per 100,000 and military spending of 20-50% of GDP—so we should accept cold war as a reality while focusing on avoiding the leap to hot war.
“In a cold war, the casualties are usually one or two per 100,000... Defense spending very seldom goes above five or 6% of GDP. In a hot war, the casualties are usually 20 or more per 100,000. Uh military spending usually 20 40 sometimes 50% of GDP.”
The only durable solution to inequality-driven youth radicalization is rising productivity combined with the right economic policies (redistribution, corporate and wealth taxes, socialized healthcare)—but in the US these ideas are viewed with deep suspicion even by those they would help, because the US is fundamentally a right-leaning nation with no room for a genuine European-style left party.
“Productivity with the right economic policies can solve the problem. The problem is that it might take quite a while”
Over the next ~10 years AI will be overwhelmingly about replacement and efficiency rather than augmentation, because while academics like Acemoglu describe systems that augment rather than replace humans, ~90% of people lack the capacity to be 'augmented' so augmentation won't work in practice.
“at least initial stages over the next 10 years it's all going to be about replacement and efficiency... 90% of people can't fly. They don't have the wings anyway.”
This coming decade is simultaneously the easiest time in history to become a billionaire and the easiest time to sink into poverty, with extreme return concentration meaning that if you are not in the top 0.1% you are effectively a 'peasant'—a guilded-age dynamic in which ~135,000 US households control most wealth.
“this coming decade is the easiest time to become a billionaire and it's the easiest time to sink into poverty. So make your choices wisely.”
The US economy is now so divided that stripping out AI investment (~$600-700bn) and the wealth effect (the top 0.1% hold ~52% of assets in equities vs ~5% for the bottom 50%) would leave the top 1% of households as the only thing preventing the economy from stagnating, with AI investment and the wealth effect mutually reinforcing.
“if you take out II investment which is currently running at about 600700 billion uh and if you take out the wealth impact... if you take out top 1% of the households uh US economy today will be stagnating”
Because excess capital is now so vast that destroying even a little creates major havoc, any meaningful asset bust (e.g., a dot-com-scale ~$15-20tn US wipeout) would feed directly into investment and consumption, guaranteeing a strong policy response of 'privatizing profits and socializing losses'—and accelerating, technology-shortened business cycles now let us create new bubbles within days rather than years, limiting the depth of any correction.
“we've reached such a level of excess capital uh that by destroying a little bit you're creating major havoc. So you can't afford it.”
Computers and modern finance were both 'born' in the 1970s (finance freed by the end of capital controls) but did not meet until the late 1990s, when their marriage produced new instruments like ETFs.
“both of them were born in 1970s because remember prior to 1970s capital there were capital controls... when information revolution and finance met each other they got married and now there are beautiful children ETFs”
The US is the single most polarized society in the Western world (followed by the UK, then several European countries, then Canada/Japan, with Australia least), and the more polarized a country is the more incompetent its policymaking becomes, which can lead to incompetent policy or even civil war.
“the US is a single most polarized society in the western world. The next one is the UK... the more polarized you are the more incompetent you become”
Excess capital combined with rising geopolitical tension makes increased global military spending nearly inevitable (from ~$2.6-2.7tn today to $3.5-4tn by the early 2030s, already exceeding global R&D), which is investable via defense names—but whether it culminates in actual war depends on the degree of pressure.
“today we're already spending more on military than on R&D on a global basis... 2.6 2.7 trillion today will be at least three and a half 4 trillion by the time we get to early 2000s”
The choice of New York's young, charismatic socialist mayor (Mamdani) over the traditional Cuomo, with everyone under ~45 voting for him and over-45s for Cuomo, exemplifies the generational shift toward acceptance of price/rent controls, free buses and state-supported grocery stores.
“You find anybody above the age of 45 voted for Andrew Ka. Everybody below that pretty much voted for mom daddy.”
Macro analysis becomes self-defeating: the more important macro becomes, the less useful and harder to assess it is, so the right approach is to build a baseline macro 'roof' (assume volatility, stagnation, rising geopolitical pressure) and then invest, with fixed-income/currency managers losing all their moorings while equity managers retain more to work with.
“macro permeates everything but the more important it becomes the less useful it is and the more difficult it will be to assess”
If the economy reached ~5% multifactor productivity growth with zero inflation, everything would normalize—gold would fall to $1,000, government debt would cease to be a problem, and polarization pressures would disappear—but the probability of achieving that in the next 3-5 years is effectively zero.
“5% productivity and zero inflation. If you actually reach that level, everything changes. Uh gold price will be $1,000. Governments have no problem with debt whatsoever.”
Per a McKinsey estimate, the information age affects roughly 300 times the 'waterfront' of areas the industrial revolution did, and proceeds about 10 times faster, yielding an overall impact roughly 3,000 times that of the industrial revolution.
“areas that are impacted about 300 times of the industrial revolution and the speed with which we're progressing is about 10 times faster. So the overall impact therefore is about 3,000 times”
The information age can be dated precisely to 1971 with the first usable computers and the first Intel chips, but it did not propagate until the early 1990s and only became truly disruptive in the late 1990s/early 2000s.
“the information age started in 1971... it really did not propagate until early 1990s and it has did not become really disruptive in any meaningful way until late 1990s earlier 2000s”
Good evening and thanks for coming to the event.
“Hi folks. Uh good evening. Thank you so much for for coming uh this evening.”