Kenneth Rogoff on Monetary Moves, Fiscal Gambits, and Classical Chess | Conversations with Tyler
What this covers
Harvard economist Kenneth Rogoff approaches global finance with the same strategic foresight that made him a chess grandmaster. Author of the new book Our Dollar, Your Problem, Rogoff doesn't sugarcoat America's future: he foresees a significant inflation shock within a decade, far more severe than the post-COVID bout. When this second wave hits, he warns, "credibility's really going to be shot."
In this conversation, Ken and Tyler tackle international economic dynamics, unresolved macro puzzles, the state of chess, and more, including whether trade deficits are truly unsustainable, why China's investment-heavy growth model has reached its limits, how currency depreciation neutralizes tariff effects, Pakistan’s IMF bailouts, whether more Latin American countries should dollarize, Japan's deceptively peaceful economic decline, Europe's coming fiscal reckoning, how the US will eventually confront its ballooning debt, the puzzling absence of a recession during our recent disinflation, the potential of phasing out large denomination currency notes, the future relevance of stablecoins, whether America should start a CBDC, Argentina's chances under Milei, who will be the next dominant player in chess, hanging out with Bobby Fischer, drawing out against Magnus Carlsen, and how to save classical chess from excessive computer preparation.
Recorded April 2nd, 2025
Transcript and links: https://conversationswithtyler.com/episodes/kenneth-rogoff/
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Timestamps 00:00:00 - On monetary moves, fiscal gambits, and classical chess 00:02:26 - On China’s macro policy 00:11:34 - On Pakistan’s bailouts 00:13:40 - On dollarizing Latin and Caribbean economies 00:16:26 - On Japan 00:20:12 - On financial repression in the EU 00:24:24 - On the US fiscal position 00:34:08 - On phasing out (some) currency 00:41:04 - On macro puzzles 00:50:01 - On chess
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Rogoff argues that the US faces an unsustainable debt trajectory driven by rising real interest rates and low productivity growth, making a major inflation adjustment and fiscal restructuring inevitable within 5-7 years unless AI produces transformative productivity gains.
- Real interest rates have reverted to long-term historical norms after decades of anomalously low rates, making debt service costs surge
- Productivity growth has stalled across advanced economies despite technological progress, limiting the economic growth needed to service debt
- Political economy dynamics systematically bias governments toward deficit spending regardless of party, perpetuating debt accumulation
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The real interest rate—interest rates adjusted for expected inflation—has regressed toward long-term trend levels after decades at abnormally low levels, representing the most important macroeconomic change in the world, as real rates are now more like early-2000s levels rather than post-2008 levels.
“That is not the norm. there's regression to meet. You know what? It's happened. And suddenly the interest payments start piling up. I I think they've gone uh at least doubled over the last few years. They're on quickly on their way to tripling going up to a trillion dollars. And so suddenly that's it's more than our defense spending. And uh that that's that's really that's the most important macro change in the world that real interest rates appear to have request more towards long-term trend.”
Currency large denomination notes (like $100 bills) are mostly used in the underground economy rather than legitimate transactions, with most use being tax evasion, not just nefarious activities like drug dealing or human trafficking.
“Most of the world's currency is held in these large denomination notes. And, uh, I mean, I've done further work. very little of its used in transactions. I think most of it is in the underground economy. It's used, it's not necessarily nefarious. There's drug dealing, uh, human smuggling and everything, human trafficking, but I think the large majority of it is tax evasion.”
Exchange rates are difficult to model because, with floating rates, financial factors that are hard to understand move exchange rates around a lot, but recent theory and empirics have increasingly coalesced around the idea that exchange rate movements are driven by bank balance sheets, financial frictions, and pricing imperfections rather than by fundamental macroeconomic variables, and much of the movement involves random financial noise.
“Part of it is if you have floating exchange rates, there's a lot of financial factors that are hard to understand that move it around a lot. We're not able to easily identify those factors, but I think more and more theory and pirics has coalesced around, you know, things like bank balance sheets. So can banks arbitrage exchange rates and uh various pricing imperfections. So I think the weight of uh research the past 10 or 15 years has been that uh the exchange rate moves a lot but it's not necessarily moving around the economy with it.”
Javier Milei in Argentina has achieved what had not been done before: balancing the budget, which is necessary when a country is a serial defaulter and must break the borrowing cycle to have any chance at recovery.
“The thing that he's done that I have not seen before is balancing the budget. If you're a big borrower and you keep defaulting, sort of a starting point is figuring out how not to have to borrow money. And uh he's he's managed to do that.”
Political pressures on central banks are important and often overlooked, with too many policymakers assuming that if central banks announce a 2% inflation target, it will automatically hold without considering political economy factors.
“I think people forgotten about political economy. They just think, you know, if the central bank says the inflation rate's 2% on average, it'll be 2% and we go home. And I worked on that early in my life.”
Bank regulation since 2008 has created new arbitrage opportunities and unresolved puzzles, such as the breakdown of covered interest parity, which formerly held reliably and now is frequently violated.
“It's certainly been very surprising to me, uh, of how much bank regulation has created all these arbitrage issues across things that didn't exist. Like in uh my I I I'm I'm not sure this completely unresolved but you know when I was doing my book with Mory Obsfeld we thought of uh what we call covered interest parody as just you know something that holds like you know law.”
The Canadian truckers case (where government froze bank accounts) demonstrates a real risk of government overreach if we eliminate cash and cash-based ways to evade financial control, so the policy choice is not simple but involves balancing evasion costs against control risk.
“Do you worry about the example of the Canadian truckers where it becomes too easy to cut off people's bank accounts and there's too much social power over a lot of people?”
Chess computers have dominated opening preparation so thoroughly that traditional openings have become highly drawish, making it hard for players to win, and this has contributed to Magnus Carlson's decision to stop playing classical chess.
“You mentioned Gesh and the computers have just dominate the preparation. That's why Carlson stopped. Yeah. How are we going to solve that problem then if we don't do Fisher random?”
From the government's perspective, allowing large denomination notes to be used without tax reporting while not collecting the taxes is 'pennywise and pound foolish' because the implicit revenue loss exceeds the benefit of seigniorage.
“I'm looking at from the government's point of view, making money by saying, 'Hey, people love these $100 bills and not figuring out that they're using them not to pay taxes.' I've argued that that's pennywise and pound foolish.”
China's inability to increase household consumption is constrained by lack of medical care insurance, old-age pensions, and social security systems that force precautionary household savings, compounded by prior one-child policy legacy effects.
“it's been hard because they don't have medical, you know, medical care in their old age. They don't have social security in their old age. They had this one child policy for a long time. So, you know, there are a lot of reasons”
The reasons China has struggled to shift toward consumption include lack of old-age medical care, absence of social security for the elderly, prior one-child policy effects, and now plummeting house prices that have eroded Chinese household wealth.
“So everybody's been telling them for years, why don't you build up your consumption? But it's been hard because they don't have medical, you know, medical care in their old age. They don't have social [3:44] security in their old age. They had this one child policy for a long time. So, you know, there are a lot of reasons everyone's had to say it. And now their house prices are plummeting and that's for Chinese where a lot of their wealth is.”
Argentina was one of the richest countries in the world by any measure at the turn of the 20th century (1900) but is now a lower-middle income country with per capita income below Brazil, representing a dramatic long-term decline that reflects persistent policy failures.
“Argentina as you know was one of the richest countries in the world by any measure at the turn of the 20th century you know 1900 now they're lower middle inome country their per capita income's below Brazil which is hard to get your head wrapped around”
Italy's total fertility rate (TFR) is about 1.3 on average, which is very low, and if the country keeps shrinking and the age pyramid gets worse, Italy will face an inescapable trade-off: either immigration or a radical restructuring of the welfare state, because current demographics and spending levels are incompatible.
“If the nation is Italy and I think that the birth rate TFR is about 1.3 on average, are they just going to wake up one morning and say the whole welfare state thing was a mistake and we're getting rid of it? I mean, isn't that the implication? Well, that's a kind of strong statement and they're not going to do that. But, you know, if the country keeps on shrinking, the age pyramid gets worse and worse.”
Pakistan's structural problems run deep into its institutions—the military is very powerful and corrupt, runs many businesses, and has extensive control—so external expertise and IMF bailouts cannot fix these problems; instead, Pakistan should receive aid (not loans) because the loans will never be repaid anyway.
“The deep seated problems the military is very very powerful in the country the military is very corrupt uh runs a lot of the businesses has a lot of control so I mean it it really runs deep into the institutions and the country it's not something you can like airlift some uh expert like uh you or I and just tell them what to do... frankly my what I have advised on things like Pakistan is just give them aid. Don't give loans. You're never going to collect the loans. You're not seriously meaning their loans.”
Bank regulation has created massive arbitrage opportunities and broken assumptions that were thought to hold like law; covered interest parity is a key example where borrowing in one country and lending in another with a forward contract should yield the same interest rate, but this no longer holds because banks are prevented from undoing these arbitrages through balance sheet restrictions.
“it's certainly been very surprising to me, uh, of how much bank regulation has created all these arbitrage issues across things that didn't exist. like in uh my I I I'm I'm not sure this completely unresolved but you know when I was doing my book with Mory Obsfeld we thought of uh what we call covered interest parody as just you know something that holds like you know law.”
High tax rates in Europe hold back investment and productivity, and this is a major structural constraint on European growth that is difficult to address without political conflict.
“Oh my god. I mean the the European Europe Europe has very few world beaters uh in terms of tech finance... taxes are very very high in Europe. In fact, so much so that there's no question it holds back uh a lot of investment.”
Attempting to target exchange rates is a fool's game and the Trump administration is trying to do it, so while they might get lucky, success would be pure luck rather than the result of policy control.
“I mean I think generally policy makers need to recognize there's a lot of noise. So trying to target the exchange rate is a fool's game and that the Trump administration's trying to do it uh you know they might get lucky but uh you know it's pure luck.”
For a long time, Rogoff's students and the public did not believe inflation would return, and this was a form of regime extrapolation bias where people assumed low inflation was permanent rather than a product of specific post-2008 conditions.
“My students for a long time just didn't believe there'd ever be inflation again I would teach it they would fall asleep I mean they I would ask you know I I remember asking me a question even to someone who was a research assistant at a big central bank. Uh explain this to me about inflation and she said my generation doesn't ever expect to think about inflation.”
A significant brain drain draws talented people from the UK and Europe to the United States, including tech companies and researchers, exemplified by Deep Mind being a British company that ended up in California.
“I think there's a sucking sound of the United States with the brain drain that we have. You and I both know about Deep Mind, British company, you know, ends up in uh, California. And I think there are many examples like that where when something goes well the US uh sucks them off.”
Europe is discussing wholesale CBDC (among banks) which is completely different from retail CBDC (for consumers), and is less risky and more tractable than retail CBDC.
“Europe's talking about it. But but they're talking about what we call wholesale CBDC which is among the banks and that's a completely different animal.”
There is an alternative theory of debt accumulation (attributed to Alberto Alesina) in which liberal and conservative parties alternate in power, each spending and borrowing based on its preferences, leading to chronic debt growth because neither party controls the next cycle.
“part of the reason debt keeps piling up is we have you know the liberal party the conservative party when the liberal parties in power they know that debt is bad but they know they can spend now and they know they might not control it in the future. So they spend a lot and they borrow. When the conservatives are in power, they cut taxes and build up the debt. So there's I think that's a very powerful very very powerful theory of [33:56] part of why debt builds up is whoever's in power, you know, says don't pay any attention to it.”
Other factors beyond population and productivity—including liquidity, default risk, changing production functions, and globalization—drive real interest rates, and reversion to mean for rates should be assumed as a reasonable long-term principle.
“there are other factors having to do with liquidity default risk, changing nature of the production function, uh, globalization. I mean, I you know, I think there are many variables where assuming there's going to be some reversion to mean is just a pretty good thing to have in the back of your head.”
Fiscal political business cycles operate via different mechanics than monetary cycles: fiscal expansion transfers real resources that benefit current voters even if future generations must repay, so politicians and voters can rationally pursue debt expansion knowing future costs.
“you get the money and society as a whole has to pay it back, but you can come out ahead.”
There is no such thing as an unsustainable international trade deficit; instead, trade deficits result from macroeconomic factors like savings and investment rates, and the underlying problem—when one exists—is unsustainable debt, not the trade imbalance itself.
“No, there's unsustainable debt. There's not particularly an unsustainable uh trade deficit. I mean, there's good things about having a trade deficit, bad things, but it's a result of many factors.”
If the US imposes a 20% tariff on the whole world, to a first approximation the exchange rate appreciates by 10%, which makes US exports 10% more expensive and makes imports roughly 10% more expensive in terms of real costs, approximately offsetting the tariff effect.
“If you did a 20% tariff on the whole world, to a first approximation, your exchange rate goes up 10%. And so, you know, that rebalances everything. That brings the cost of their goods back to just a 10% rise and it makes your exports 10% more expensive because the currency appreciated.”
Japan is now facing trouble because inflation has finally emerged, forcing them to raise interest rates, but they have embedded government debt throughout the economy (in pension systems, banks, postal savings systems), making interest payments increasingly difficult and forcing pension and old age benefit cuts.
“They're in trouble now because uh they're finally having inflation. They're needing to raise interest rates. They've stuffed government debt into every orifice of the economy, into the pension systems, into the banks, into their postal savings uh system, and now uh they're talking about cutting pensions, uh cutting old age benefits because suddenly they're having to make interest payments on the debt and it's hard.”
If you dollarize (use actual US dollars rather than a domestic currency pegged to the dollar), you gain credibility but lose the ability to bail out your banking system if it encounters trouble; dollarization is workable but creates risks during banking or debt crises because you lack a domestic central bank to provide liquidity.
“If your banking system runs into trouble, you can't bail them out. So in most countries, the currency that we think of the physical currency, it's just like a little piece of the animal. A lot of it we, you know, you might not think of your checking account or your savings account as dollars, but they are. That's a lot of the money supply. So when you say they're, you know, just using real dollars, they don't have real dollars to back those bank accounts. So it can work, but you run into banking crises, you run into debt crisis, and then when you're dollarized, it's it's hard to fight it.”
The UK has a structural problem with North-South inequality: the South (particularly London) is rich and doing well, while the North is poor, and the UK has not successfully transitioned manufacturing jobs in the North to high-value alternatives, while the US benefited from a tech revolution.
“They probably have this profound problem of the north and the south. The south is rich and the north is poor and they just have not been able to figure that out. So that you know if you go to London they're doing great and they're still doing great but they've had trouble finding jobs that the manufacturing jobs are going. They haven't figured out how to substitute for them.”
Italy spends a mind-numbingly high 15% of GDP on old-age pensions and support, roughly double what the US spends on comparable benefits, despite having lower per-capita income, making Italian government finances particularly vulnerable to demographic pressure.
“An interesting fact is they spend a mindnumbing 15% of GDP on old age uh pensions and support. Now, I mean, we're half that, you know, all in”
China's rate of innovation across the whole economy has collapsed by many different measures, and the private sector—which is the root of all innovation—has been oppressed, particularly over the last 10 years, so China would need to restore agency to the private sector in order to grow again.
“Their rate of innovation uh over the whole economy, I'm not talking about the highest level, has collapsed by many different measures. And the private sector is of course the root of all the innovation. They have oppressed the private sector particularly in the last 10 years.”
Productivity remains a major unresolved puzzle, particularly in countries like the UK despite strong science, universities, and innovation achievements.
“Of course, the biggest puzzle is productivity. Like if I go to a country like the UK, how do we get productivity? And exchange rates are still a puzzle.”
Rogoff's first important paper showed how hard it was to explain exchange rates (approximately 45 years before this interview), and the policy conclusion economists drew was to focus on inflation and output rather than exchange rates when making policy, though for smaller countries deeply indebted in foreign currencies or highly trade-dependent, exchange rate concerns matter more.
“I mean, I think my first important paper was showing how hard it was to explain exchange rates. Uh, I'm embarrassed to say it's like 45 years ago. And I think the policy conclusions people drew out of that is don't look at the exchange rate when you're, you know, trying to figure out what policy should be. Look at inflation rate. Look at output. Um I think for some countries they're so deep into dollar debt. They're so connected uh with the dollar and trade they do worry about their exchange rate.”
Japan did not avoid financial crisis; it had a severe financial crisis in the 1990s—the mother of all financial crises—and since then, Japan has not held on in per capita terms, falling from 80% of US per capita GDP in 1990 to 60% today, demonstrating that Japan is not a success story but rather an example of a rich country that can decline slowly.
“Well, they did have a financial crisis, the mother of all financial crises in the '9s. Oh, sure. But since then, and since then, well, have they hung on? I mean their uh in 1990 uh and even in the early 90s their per capita GDP was 80% of the United States and purchasing power parody measures you know trying to put into common price level but and in dollars it was well over 100% of the US today it's 60% in those measures I mean it has not held on in per capita terms”
A CBDC system creates a single point of failure: if one screw up occurs, it can paralyze the entire system, so the risks of CBDC failure are concentrated and potentially systemic, making Rogoff skeptical of the benefits.
“And uh you know you you put yourself in a position where one screw up you know can paralyze everything. And it wouldn't be good if we had five stable coins and one of them had a problem.”
Stable coin issuers can be based abroad (Cayman Islands, Estonia), which limits U.S. regulators' practical ability to oversee or enforce rules; this is fundamentally different from domestic banks.
“if someone has a stable coin account you know in the Cayman Islands and they make a transaction with someone [39:08] with a stable coin account in Estonia uh how much say do the US regulators really have over that Well, we don't have much say over that.”
Argentina's prior dollarization attempt (1991-2001) was not true dollarization but a currency peg that eventually collapsed, unlike Ecuador and El Salvador which maintained genuine dollarization with physical U.S. currency.
“when I just came into the International Monetary Fund in 2001, Argentina had dollarized. They had been dollarized for 10 years. And they said, you know, isn't this great? But that was a peg. It wasn't real dollars, right? I mean, like El Salvador, Ecuador, I mean, actually, you want to actually use the dollar, circulate the dollar”
Rogoff is working on political economy topics he explored early in his career, including why central banks should be independent, and he's collaborating with young researchers like Marina Hock at Yale and Pierre Yarrett at Columbia (now on the Council of Economic Advisers) on topics related to central bank independence and political pressures.
“I think people forgotten about political economy. They just think, you know, if the central bank says the inflation rate's 2% on average, it'll be 2% and we go home. And I worked on that early in my life. I wrote the first paper on why you should have an independent central bank. and uh in uh I'm working on it again admittedly with some very talented young people including uh Marina Hock at Yale and Pierre Yarrett who's at Colombia but now actually on the council of economic adviserss”
Purchasing power parity holds only within very broad bands (roughly 2x), and exchange rates move significantly due to financial factors like bank balance sheets and pricing imperfections rather than fundamental economic variables, making exchange rate theory one of economics' most persistent puzzles.
“So, purchasing power parody seems to hold only within very broad bands, something like 2x, and the rest just seems very murky. Why is that so difficult?”
Rogoff's early research showed how difficult it is to explain exchange rates, and policy makers should not try to target exchange rates because it is a fool's game driven by noise; instead they should focus on inflation and output, though small dollarized countries deeply indebted in dollars do have legitimate reasons to monitor exchange rates.
“I mean, I think my first important paper was showing how hard it was to explain exchange rates. Uh, I'm embarrassed to say it's like 45 years ago. And I think the policy conclusions people drew out of that is don't look at the exchange rate when you're, you know, trying to figure out what policy should be. Look at inflation rate. Look at output.”
Italy spends 15% of GDP on old-age pensions and support (double the US), faces a very low fertility rate (1.3 TFR), and cannot escape this fiscal trap through growth alone, as demographic decline will worsen the age pyramid; eventually, welfare state restructuring will be necessary even if politically unimaginable currently.
“they spend a mindnumbing 15% of GDP on old age uh pensions and support. Now, I mean, we're half that, you know, all in and 15% of GDP.”
Dollarization is a desperate measure that countries like El Salvador and Ecuador have successfully adopted, but it carries severe costs: if the banking system runs into trouble, the country cannot bail out banks because they don't control the currency, and most money is bank deposits, not physical currency, making dollarization workable but not necessarily advisable.
“when you say they're, you know, just using real dollars, they don't have real dollars to back those bank accounts. So it can work, but you run into banking crises, you run into debt crisis, and then when you're dollarized, it's it's hard to fight it.”
Political business cycle theory predicts that every politician with power tries to stimulate the economy before elections, and empirically this is overwhelming true, yet the puzzle is why it fools anyone when it should be transparently obvious; Rogoff's 1987 paper modeled this as a signaling problem where voters understand they're being deceived but vote for the incumbent anyway.
“I think there's any question every politician in the world, if they have the power, tries to goose up the economy before it happens. I I think empirically it's overwhelming that it's true. The question is why does it fool anyone?”
Debt accumulates systematically because of partisan politics: liberal parties know debt is bad but spend now because they may lose control later, while conservative parties cut taxes and increase debt through the back door, so whoever's in power uses their time in office to lock in spending while they control the levers.
“part of the reason debt keeps piling up is we have you know the liberal party the conservative party when the liberal parties in power they know that debt is bad but they know they can spend now and they know they might not control it in the future. So they spend a lot and they borrow. When the conservatives are in power, they cut taxes and build up the debt.”
Marijuana legalization in many places may not have happened without a prior cash economy enabling informal transactions and development of cannabis culture, suggesting some degree of tolerance for cash-based evasion can have positive cultural externalities.
“I mean, marijuana is now legal in most places, and maybe the whole culture and society wouldn't have evolved if we didn't have uh if we didn't have a cash economy uh that uh you know, that could pay for that.”
Rogoff expects the US to develop competitive regulated stable coins with lender-of-last-resort provision rather than a CBDC, and this is more likely than CBDC adoption, though he's skeptical even of this outcome.
“We probably are more likely headed towards having competitive stable coins which are regulated, which have some kind of lender of last resort uh than a than a CBDC. I I'm skeptical of that.”
If the US experiences another inflation episode in the future, central bank credibility will be permanently damaged ('fool me twice' dynamic), making it much harder to bring down inflation a second time and preventing the painless disinflation outcome from repeating.
“And to come back to the earlier point about solving our debt if we ever have an inflation, I don't think that's going to happen again when we have a second inflation that time. That time the credibility is really going to be shot.”
Europe has already employed financial repression extensively: Italian and Spanish banks now hold most of their countries' debt (which they do because of regulation, not voluntary diversification), and European regulators have a wide range of tools to force financial institutions to hold debt, which has reduced the dynamism of capital markets.
“It used to be that say Italian debt was held in Germany, Spanish debt was held in Germany spread all over. Now the vast majority of the uh the Italian banks are holding all the Italian bank debt. Spanish banks are holding all the Spanish debt. Do you think that's cuz they're diversifying? No, it's because they're being ordered to do that.”
Europe will face an existential challenge requiring spending cuts, particularly in welfare states and pensions, because real interest rates have risen and are no longer near zero, making the old model of deficit spending unsustainable, and this is a real geopolitical shift away from free-riding on US security guarantees.
“I think this is a real existential challenge to the French state. I mean, maybe they'll come up with maybe they'll take over as the tech capital of the world. Maybe they'll, you know, find ways to solve their problems, but they've been free riding off the United States. There's no question about that. And now they have to spend more. I'm not I'm not praising Trump's policies. Let's let's not conflate those two things. But yes, I think I think they're going to find they're going to be uh they they have taxes are very very high in Europe.”
Much of the US growth advantage over Europe is attributable to the tech sector; if you removed that advantage, US growth would look similar to European growth, suggesting the US success is concentrated and not generalizable.
“The US has had the tech revolution. I mean, if you took that away, we don't look so good anymore. A lot of countries don't seem to have a sucking sound problem, though... And if you took that away, our numbers would look like theirs.”
From an efficiency perspective, price discrimination via allowing cash tax evasion (e.g., paying nannies with $100 bills) has value because it increases labor supply by allowing transactions that wouldn't occur if fully taxed, but large denomination notes are not necessary for this—smaller denominations like $20 bills would work fine.
“From an efficiency point of view, don't you want a kind of price discrimination in your tax system? So say people pay their nannies with $100 bills. They wouldn't hire the nanny if they had to pay taxes... the questions why we need $100 bills for that. Um, I mean, you can pay your nanny with 20s and they'll be perfectly happy because actually the $100 bills are harder to work with, you know, uh, for them.”
The post-COVID disinflation (from 8.9% to ~3%) occurred without a major recession, which is puzzling because the conventional view predicted severe recession from such rapid disinflation, and this represents a macro puzzle.
“A standard macro puzzle today we had a disinflation from postcoid inflation. It went from 8.9% to something not too far from 3% and there's no big recession. How do you interpret that?”
Stable coins need to eventually have parallel regulatory requirements to bank accounts—not necessarily identical but comparable—to prevent evasion of taxation and other regulations.
“I think stable coins eventually have to have some kind of parallel revealability to what bank accounts have. Not necessarily exactly the same but I know that's where we're headed.”
Standard macroeconomic models (Samuelson's overlapping generations model and Solow's model) suggest real interest rates should be determined by population growth and productivity growth respectively, but these relationships don't hold empirically over longer time horizons.
“I have a paper in the American Economic Review just last August about this. uh if you look over longer time periods that you know just because economists think that those should be the dominant variables it doesn't turn out to work that well and all this stuff there have been a lot of papers by economists looking at the decline it's going the real interest rate going down demographics going down productivity going down looks great if you look at a longer period there's no [30:13] there there it just doesn't stand up”
Real interest rates (interest rates adjusted for expected inflation, measured on long-term bonds) have reverted toward their long-term historical trend from near-zero post-crisis levels, and are likely to remain at elevated levels, which is the most important macroeconomic change in the world.
“That is not the norm. there's regression to meet. You know what? It's happened. And suddenly the interest payments start piling up. I I think they've gone uh at least doubled over the last few years. They're on quickly on their way to tripling going up to a trillion dollars. And so suddenly that's it's more than our defense spending. And uh that that's that's really that's the most important macro change in the world that real interest rates appear to have request [27:38] more towards long-term trend.”
Rogoff proposes randomizing the first few moves of chess openings: rather than randomize the entire position (Fisher Random), have computer-generated randomization of the first few opening moves creating many playable positions (e.g., 1.b6), allowing preparation while eliminating forced draws and requiring players to actually play chess.
“That we randomize the first few moves of the opening. So some percentage of games through computer randomization would be like 1 B6 and then they start playing. But you do that with many permutations. They're all playable positions. As you well know, no grandmaster game would go 1 before 1 B6. But there's no reason why you can't play from that position. And if you have 500 opening alternatives like that that the players don't control, I just don't think they can, you know, prep that much.”
Rogoff's 1987 paper on political business cycles was about the paradox that voters rationally know politicians are manipulating the economy before elections, yet they vote for them anyway, suggesting voters accept the manipulation or are fooled by it despite understanding it.
“that paper was about the paradox that I know you're just making things look good. I know you're hiding something from me. So that you know, you're exaggerating uh how long this can go on, how much it's costing, but I'm going to [32:52] vote for you anyway.”
Interest payments on the US debt have at least doubled over the last few years and are on their way to tripling, potentially reaching $1 trillion annually, which is more than US defense spending and represents an unsustainable growth trajectory.
“I I think they've gone uh at least doubled over the last few years. They're on quickly on their way to tripling going up to a trillion dollars. And so suddenly that's it's more than our defense spending.”
Argentina inherited large amounts of debt when Milei took over, and they are paying interest on it at relatively low rates through IMF borrowing, but the ultimate resolution of that debt remains unclear.
“Well, I mean, it's counting the interest payments on the IMF. And uh yeah, I mean, he inherited this big debt. They're paying the interest. It's very low interest on the big debt. And I don't know how that's ultimately going to get resolved.”
China subsidizes investment heavily (40% of GDP) while consumption is only about 50% of GDP, compared to the US at 70% consumption, and this imbalance is particularly problematic for a hybrid command-and-control economy because the central government finds infrastructure investment and real estate subsidies easier to direct than building consumption patterns.
“First of all, they subsidize investment like crazy. I mean, so investments been 40% of GDP. Consumption, they're different measures, but you know 50% of GDP maybe uh uh we're 70% of GDP by comparison and it's been very imbalanced.”
Europe lacks tech and finance world-beaters (with the exception of the Danish company Ozanek) and instead specializes in lifestyle luxury brands like Hermès and Prada, which reflects Europe's failure to innovate in high-value sectors and contributes to its slower growth.
“Europe has very few world beaters uh in terms of tech finance. They're the biggest companies set aside the Danish company that's Ozanek. They're things like Hermes, you know, Prada uh sort of lifestyle superpower stuff.”
China has invested 40% of GDP into capital formation while keeping consumption at only ~50% of GDP, compared to the US at 70% consumption, creating a severely imbalanced growth model that has hit diminishing returns because they've suppressed the private sector and innovation has collapsed.
“they subsidize investment like crazy. I mean, so investments been 40% of GDP. Consumption, they're different measures, but you know 50% of GDP maybe uh uh we're 70% of GDP by comparison and it's been very imbalanced.”
Japan did have a financial crisis in the 1990s (the 'mother of all financial crises'), and since then has experienced stagnation: per capita GDP fell from 80% of US levels in 1990 to 60% today, they've fallen behind France, UK, and Germany whom they once exceeded, and now face trouble as inflation forces them to cut pensions and reduce debt-financed benefits because interest payments have become unsustainable.
“Well, they did have a financial crisis, the mother of all financial crises in the '9s.”
The European Union has already engaged in financial repression and will likely need to do so again: since the European debt crisis, Italian banks now hold Italian debt, Spanish banks hold Spanish debt, etc., rather than cross-holding, which was ordered by regulators as deliberate financial repression, and they'll need to intensify this as interest rates stay elevated and they face remilitarization costs.
“So just a simple fact about that is it used to be that say Italian debt was held in Germany, Spanish debt was held in Germany spread all over. Now the vast majority of the uh the Italian banks are holding all the Italian bank debt. Spanish banks are holding all the Spanish debt.”
Most of the world's currency in large denomination notes is not used in legitimate transactions but held in the underground economy, primarily for tax evasion rather than nefarious activities like drug dealing or human trafficking, making the government inefficient for tolerating large-denomination bills and missing out on seigniorage.
“most of it is in the underground economy. It's used, it's not necessarily nefarious. There's drug dealing, uh, human smuggling and everything, human trafficking, but I think the large majority of it is tax evasion.”
Stable coins will eventually need to have some kind of regulatory accountability parallel to bank accounts, though perhaps not identical, and regulators are generally favorable to stable coins as long as they're not used for tax evasion or sanctions violations, but the challenge is that stable coins issued abroad in jurisdictions like the Cayman Islands or Estonia create regulatory arbitrage that the US cannot fully control.
“stable coins eventually have to have some kind of parallel uh revealability to what bank accounts have. Not necessarily exactly the same but I know that's where we're headed.”
UK productivity growth has been surprisingly slow despite having excellent science, great universities, and key roles in vaccine and innovation development, likely due to a combination of brain drain (the 'sucking sound' of the US attracting top talent), severe regional inequality (rich south vs poor north), and manufacturing job loss without adequate replacement.
“They have plenty of science. They have some great universities. They played a key role in developing vaccines, uh, other innovations, and they seem entirely stuck.”
Milei is Argentina's best chance in a long time (though that's a very low bar) because he is the first leader to actually balance the primary budget, which is a logical starting point for a country that keeps defaulting and needs to stop needing to borrow; however, Argentina still faces massive challenges from 80+ years of poor governance and structural problems, and not all of his libertarian vision will necessarily be implemented.
“I hope so. I think he's the best chance that Argentina has had in a long time, which is, you know, a very low bar. The thing that he's done that I have not seen before is balancing the budget.”
Rogoff's foundational work in the 1980s-90s argued that central bank independence is necessary to maintain inflation credibility, because political pressures cause politicians to demand expansionary policy, which creates the political business cycle.
“I wrote the first paper on why you should have an independent central bank”
If AI raises productivity substantially, the usual demographic effect would be lower interest rates (fewer workers to operate machines, lower return on capital), but if AI substitutes for workers rather than complementing them, interest rates could rise instead, adding complexity to standard models.
“The usual thing about demographics is there less people to work with the machines and therefore the return on the machines is lower and the interest rate goes down. But if the people are being substituted for which is new, I mean we've always found a way to reinsert ourselves um you won't necessarily even in a theoretical model like Samuelson's or Solos get that effect.”
Political dysfunction is part of the US DNA: politicians believe the US is effectively immortal and can do whatever it wants regardless of fiscal constraints, which is a core reason why fiscal adjustment has been deferred so long.
“The problem in our politics it's in our DNA. We're convinced that you know we're uh immortals and we can just do whatever we want. That's you go around Washington and whatever they say. I think that's what they think.”
Rogoff agrees with Tyler's concern about overreach and proposes phasing out only large denomination notes (not all currency), and the policy can be reversed later if it proves problematic, suggesting the change is not irreversible.
“Well, again, um you know, I'm getting rid of the large denomination notes and not straightforwardly the others. And so, yeah, no, we don't want to over I I absolutely agree. There's government excesses... I think it's a matter of and and also we can phase out $100 bills and $50 bills and we can change our mind later, you know, and decide that we overdid it.”
In the United States, many of the policy choices likely point toward higher taxation because the US is not running a traditional welfare state like European countries, leaving limited room for cuts compared to other advanced economies.
“I mean, I think in the United States, a lot of the choices, I'm sorry to say it, probably point towards higher taxation because we're hardly running a welfare state. It's not uh all uh due respects and I'm not sure I have any due respects to Doge. Um there not that many things to cut in the United States compared to to many other countries.”
Japan has high social cohesion and that is a tremendous strength, which helps explain why Japan avoided financial runs and crises despite high debt—social trust matters for financial stability.
“It is it is a very uh you know society which uh obviously's very high degree of cohesion and that's a tremendous strength of Japan.”
People often use standard macroeconomic models without recognizing the political economy dimension: they assume if the central bank announces 2% inflation, it will be 2%, overlooking the political pressures that drive central bank behavior.
“I think people forgotten about political economy. They just think, you know, if the central bank says the [1:01:41] inflation rate's 2% on average, it'll be 2% and we go home. And I worked on that early in my life.”
There is no such thing as an unsustainable international trade deficit, only unsustainable debt; trade deficits result from macroeconomic factors like savings and investment, not from structural trade imbalances that must be corrected.
“No, there's unsustainable debt. There's not particularly an unsustainable uh trade deficit. I mean, there's good things about having a trade deficit, bad things, but it's a result of many factors.”
Rogoff was not confident that disinflation would be painless and did not predict a soft landing as aggressively as others (like Larry Summers), but he does not believe the disinflation was caused primarily by supply shocks.
“Well, I I think it is a big puzzle is the first thing to say. I mean, I'm not going to claim I thought that was going to be painless bringing the inflation rate down. I don't think I was out there quite at the Larry Summers level banging on the table, you know, saying that there had to be a big recession. Um I certainly do not buy the idea was all supply shocks.”
Central bank credibility was remarkably preserved during the post-COVID inflation shock: inflation expectations (both professional and consumer) moved less than the spike in actual inflation would predict, suggesting the Fed's commitment to 2% target was largely believed.
“The credibility is rem it's it's remarkable I mean if you look at inflation expectations they moved a little bit I mean I'm talking about the professional the the uh consumer ones moved a little more but considering what just happened that inflation expectations didn't move more. It's remarkable.”
Supply chain problems cause prices to go up, so when supply chains normalize, prices should come down regardless of monetary factors, but inflation didn't fall when supply chains recovered, so supply shocks cannot explain all the inflation.
“So there are these people who say, 'Oh, it was just the supply chain. Uh you know, we couldn't have uh the shipping lanes were closed and all that stuff.' And as soon as the supply chains were back, inflation was down. Excuse me. The supply chain uh problems make the price go up. When they go away, the price should come down. It did not.”
A 20% tariff on the whole world would cause the dollar exchange rate to appreciate by approximately 10%, which would rebalance by making US exports 10% more expensive and foreign goods only 10% more expensive (rather than 20%), thus largely neutralizing the tariff's intended effect in a floating exchange rate system.
“if you did a 20% tariff on the whole world, to a first approximation, your exchange rate goes up 10%. the dollar. And so, you know, that rebalances everything. That brings the cost of their goods back to just a 10% rise and it makes your exports 10% more expensive because the currency appreciated.”
In the 2005–2007 period, the US trade deficit did reach an unsustainable level, but this was not because trade deficits are inherently unsustainable—it was because the underlying financial system was badly regulated and asset bubbles were inflating.
“I mean, there's good things about having a trade deficit, bad things, but it's a result of many factors. So, no, I I wouldn't agree with Pettis uh on that. So, what is the [1:08] mistake he and Orin Cass are making? Well, the trade balance uh depends a lot on your savings, your investment, these macroeconomic factors. if there's an underlying problem and to be fair when your trade deficit's really negative there often is uh you know it could be something I think in the case of the United States when it hit a real peak in the 2005 to 2007 I thought there was a [1:39] problem”
The US should not be the first to issue a CBDC (Central Bank Digital Currency) because the US is currently winning in the global financial system, so why change the rules when you're ahead; the benefits of CBDC for the US are not clear compared to the risks.
“Let me put it this way. I don't think we should be the first to try this. Right now we're on top. I mean I kind of think we peaked but that's another question. We're winning. Why do you want to change the rules of the game when we're winning?”
Smaller countries like Latvia or Singapore are better candidates to pioneer CBDC than the US, allowing the US to observe outcomes and learn before considering its own CBDC.
“I tend to think that's something for uh you know Latvia or Singapore to try and not necessarily the US. Maybe in 50 years to be fair Europe's talking about it.”
Sweden has effectively phased out large-denomination currency without legislation; market forces moved people to digital payments, though ATMs still exist.
“It doesn't take that long if people are on board. It's very hard to run across currency in Sweden today. You're right. They didn't even pass laws. You You're right. you have to travel 150 km to get to an ATM machine, but it's not completely phased out by any means.”
Assuming reversion to the mean is just 'a pretty good thing to have in the back of your head' when making forecasts, given the tendency for people to extrapolate near-term trends.
“I mean, I think there are many variables where assuming there's going to be some reversion to mean is just a pretty good thing to have in the back of your head.”
European countries actually did implement significant pension system tightening during the European debt crisis, with the adjustments scheduled to take effect 10-15 years later, but France did not follow this pattern.
“many of the European countries actually tighten their pension systems a lot during the European crisis. They set it in place to take place 10 or 15 years later. Not France.”
China's house prices are plummeting, which represents a major loss to Chinese households for whom residential real estate constitutes the majority of their wealth holdings.
“now their house prices are plummeting and that's for Chinese where a lot of their wealth is”
Argentina's IMF borrowing in April 2025 of $20 million is consistent with Milei's balanced budget because the borrowing is being used to pay interest on existing IMF debt, and the budget balance is measured on a primary basis (before interest payments), which is why Argentina can run a primary surplus while still borrowing.
“Well, I mean, it's counting the interest payments on the IMF. And uh yeah, I mean, he inherited this big debt. They're paying the interest. It's very low interest on the big debt.”
The days when China had a clearly overvalued currency are far gone; China's currency may actually be somewhat overvalued today, but it is not overvalued in the clear-cut way it was in the past, and the relationship between the renminbi and the real economy is now ambiguous.
“They have all this producer price. They have all this producer price deflation, right? So they should be expansionary on the monetary side to have a more predictable path of nominal GDP growth, but they're not doing it. So probably their currency is a bit too high. Well, I mean, a a logical way to do it would be to do more expansionary fiscal policy, more expansionary monetary policy... I'm sure to be undervalued, right? Th those days are very far gone.”
The United States is on an unsustainable fiscal path and will eventually—not necessarily in a planned or coherent way—experience another big inflation in the next 5-7 years (or sooner with current conditions), which will bring down the real debt burden just as it did under Biden.
“Looking way forward, I would just say we're on an unsustainable path. We will continue to have our debt balloon. And eventually, not necessarily in a planned or coherent way, I think we're going to have another big inflation, uh, soon, next 5 to seven years. That's, uh, maybe sooner with what's going on. And that's going to bring it down that just like it did under Biden.”
The post-pandemic inflation, while bringing inflation down from 8.9% to ~3%, likely created cumulative inflation of ~10-12% above the 2% target that effectively reduced debt in real terms.
“Last time we probably had a bonus 10% inflation uh over the 2% target cumulatively maybe 12%”
China's currency is currently somewhat overvalued, and they should pursue more expansionary fiscal and monetary policy rather than trying to address this through exchange rate manipulation or tariffs, because the currency overvaluation reflects their high producer price deflation and insufficient demand stimulus.
“So you're saying that their currency now is overvalued and they want to bring it down. They have all this producer price deflation, right? So they should be expansionary on the monetary side to have a more predictable path of nominal GDP growth, but they're not doing it.”
The US is on an unsustainable fiscal path where debt will continue to balloon, and within 5-7 years (sooner with current policy) a major inflation is likely to occur, which will reduce real debt but damage credibility; after that, markets will demand higher real interest rates making it hard to finance debt, forcing difficult choices primarily toward higher taxation rather than cutting spending.
“I mean, looking way forward, I would just say we're on an unsustainable path. We will continue to have our debt balloon. And eventually, not necessarily in a planned or coherent way, I think we're going to have another big inflation, uh, soon, next 5 to seven years.”
The recent disinflation from 8.9% to near 3% without a major recession is a significant puzzle because it contradicts expectations of either credible commitment via rational expectations or supply-side explanations; credibility was real but insufficient to explain the painless disinflation, and supply shocks alone cannot explain it because supply improvements should reduce prices only temporarily.
“A standard macro puzzle today we had a disinflation from postcoid inflation. It went from 8.9% to something not too far from 3% and there's no big recession. How do you interpret that?”
The most plausible scenario where the US avoids major fiscal adjustment is if the AI revolution delivers transformative productivity gains that allow people to receive government transfers instead of wages and still maintain high incomes, with AI and robots effectively paying for everything.
“Oh, I don't think there's any question. It's that the AI revolution uh turns out to uh you know just work magically much better than we you know anyone imagine that uh people like me quietly acquies to just getting transfers from the government instead of having jobs and we just you know continue to have a high income and the robot income pays for everything.”
Rogoff's book with Carmen Reinhardt, 'This Time Is Different', is built on the theme that people extrapolate 5-10 year trends and think they will continue indefinitely, missing structural breaks and reversion to longer-term patterns.
“So so you know you know Carmen Reinhardt and I had this book this time is different very much on [30:45] the theme of people just looking at five years or 10 years and think oh it's just great it's just going to go like this”
Europe's competitiveness crisis may lead to greater geopolitical cohesion and military power but will force Europe to make hard choices previously avoided, potentially leading to a more unified political project or fragmentation.
“It may lead to them becoming more cohesive. It may lead to them becoming more more of a geopolitical power, but yes, they're going to have to make choices which they haven't had to make.”
Germany and the Netherlands have been less dynamic than the U.S. but have not suffered the same level of brain drain or regional inequality because they are not English-speaking and thus less attractive to U.S. tech talent recruitment.
“It's still the case that uh those countries have hardly been, you know, uh models of dynamism, Germany and the Netherlands. They, you're right, they've been able to keep people more uh partly because they're not English-speaking.”
The IMF should stop lending to countries like Pakistan (which has had 23-24 bailouts) and instead provide aid grants, because structural institutional problems (military control, corruption) cannot be fixed through conditionality and the loans are never fully repaid anyway, making aid more honest than pretending at repayment.
“frankly my what I have advised on things like Pakistan is just give them aid. Don't give loans. You're never going to collect the loans. You're not seriously meaning their loans.”
Hong Kong is the only country in the world that can truly bail out its entire banking system because it has enough dollar reserves; this is why dollarization, which forecloses lender-of-last-resort functions, is a dangerous strategy.
“the only country in the world really which can bail out its banking systems, Hong Kong. They have enough dollar reserves to bail out everything.”
The dollar is very strong and rich right now, making almost all other currencies appear cheap to the dollar, which is why visitors from abroad—even from wealthy places like Japan or Switzerland—report that the United States is extremely expensive.
“The dollar is very rich. I mean, so in a sense, everybody seems cheap to the dollar right now. I'm sure you've experienced that with your anyone coming from abroad, even from Japan or Switzerland. Oh my gosh, it's so expensive here.”
Marijuana legalization may have depended on a functioning cash economy that allowed the underground market to operate during prohibition, suggesting that some regulatory arbitrage (not enforcing rules on informal transactions) can have positive cultural and social effects; this supports calibrating currency policy carefully rather than eliminating cash entirely.
“I mean, marijuana is now legal in most places, and maybe the whole culture and society wouldn't have evolved if we didn't have uh if we didn't have a cash economy uh that uh you know, that could pay for that.”
The IMF cannot refuse a 25th Pakistan bailout because default on the 24th bailout would follow, creating political contagion; therefore, bailouts must continue even knowing they won't fix the underlying problem.
“I mean uh first of all, if you don't sign off on bailout number 25, they're going to default on bailout number 24. You're rolling over this debt uh all the time. And it's, you know, very sensitive politically.”
Pakistan is geopolitically important enough that the IMF must consider it differently from creditworthiness alone; the amounts are small compared to lending to the UK, but the political sensitivity requires continued support.
“Pakistan's a country that's very very geopolitically important. So you can't you can't look at the programs there as if you're lending to the UK. It's something very different and the [13:07] amounts are small compared to if you're lending to the UK.”
A small country like Barbados could in theory avoid banking crises by buying external insurance for its banking system, but regulators would not permit it due to moral hazard and the fact that effective insurance requires on-site supervision, not just capital reserves.
“I mean, I think our regulators would make that difficult, their regulators would make it difficult. I mean, you would need to have something and there's a lot of moral hazards. So, you really, if you're going to be an insurer, you can't just insure. You have to have, you know, 150 people on shore uh looking at them all the time.”
We would not want to imitate Japan's model, especially if we intend to compete with China, because financial repression suppresses growth and innovation that are necessary for geopolitical competition.
“So it makes lending less efficient and that's, you know, part of why their growth has suffered. So they've done a good job doing a slow becoming sclerotic slowly, but I I hardly think we would want to imitate them, especially if we intend to compete with China.”
Central banks must balance costs and benefits of policy tools, much like the pharmaceutical analogy: opioids help after surgery but there's a cost to free-floating in the economy; the answer is regulation and calibration, not prohibition or unlimited access.
“we do now with bank, you already have that the case to some extent with bank accounts and you know, you can uh you can mitigate the problem. You can't eliminate it. I mean, that's generally true of cryptocurrency. Um, you can, you know, try to try to regulate it. You can't completely eliminate it. I mean probably a lot of [39:38] sanctions evasion is being done with stable coins and cryptocurrency and clearly we have not been able to touch that.”
Government overreach in freezing bank accounts (such as the Canadian trucker convoy case) is a real concern; there is a tradeoff between enabling legitimate informal transactions and preventing government abuse, which should be handled through calibration and regulation rather than eliminating cash entirely.
“Do you worry about the example of the [37:05] Canadian truckers where it becomes too easy to cut off people's bank accounts and there's too much social power over a lot of people? Well, again, um you know, I'm getting rid of the large denomination notes and not straightforwardly the others. And so, yeah, no, we don't want to over I I absolutely agree. There's government excesses. the questions, you know, do we have, you know, we have we have drugs uh that uh you know, help [37:35] people after an operation, but it and we want to have them, but does it want to mean mean we want to have them freely floating in the economy? So, no, I I think it's a matter of”
Europe faces an existential challenge, particularly France: they have been free-riding off US security guarantees, now must increase defense spending, and face a structural tax burden and lack of dynamic capital markets that will force difficult choices on spending and pensions that they haven't had to make before.
“I think this is a real existential challenge to the French state. I mean, maybe they'll come up with maybe they'll take over as the tech capital of the world. Maybe they'll, you know, find ways to solve their problems, but they've been free riding off the United States. There's no question about that. And now they have to spend more.”
AI will raise real interest rates (not lower them) because it increases productivity and capital returns, contradicting the demographic argument that fewer workers means lower returns on machines; standard models like Samuelson's don't necessarily capture this substitution effect, making high real rates likely even with AI productivity gains.
“AI will raise the interest rate um demographic. Well well comes up with productivity. It it does raise productivity, but the usual thing about demographics is there less people to work with the machines and therefore the return on the machines is lower and the interest rate goes down.”
Europe has very few world-beating companies in tech and finance, with most major firms being luxury/lifestyle brands (Hermès, Prada), while the highest-performing firms are in small nations (Danish Ørsted), reflecting a structural lack of dynamism in the European economy compared to the US.
“Europe Europe has very few world beaters uh in terms of tech finance. They're the biggest companies set aside the Danish company that's Ozanek. They're things like Hermes, you know, Prada uh sort of lifestyle superpower stuff.”
US superior growth relative to Germany, UK, and other advanced economies is substantially driven by the tech sector; without the tech revolution, US growth would look similar to these other countries, suggesting that growth leadership is contingent on maintaining tech sector dominance rather than indicating fundamental economic superiority.
“lot of the difference in how we've done is our tech sector. That's been a lot of the innovation uh going through the economy. And I don't want to sound like I'm drunk with what's going on with our tax sector and how it affects other things, but if you took that away, our numbers would look like theirs.”
The relationship between real interest rates and productivity or population growth does not hold empirically over longer periods despite theoretical expectations; Rogoff published a paper in the American Economic Review in August 2023 showing that these variables don't work well as explanatory factors, suggesting other factors like liquidity, default risk, and changing production function characteristics matter more.
“I have a paper in the American Economic Review just last August about this. uh if you look over longer time periods that you know just because economists think that those should be the dominant variables it doesn't turn out to work that well”
Rogoff endorses Tyler's proposal of randomized opening positions as much better than Fisher Random; Tyler explicitly gets Rogoff's endorsement.
“I I love that idea. And yeah, it creates some randomness and what initial positions you get, but I I love that idea. I mean, that that sounds much better to me. I would much you know [1:00:39] I have to say as a player I played like that because I I was very isolated in the United States. I wasn't following all the opening innovations. So I played all kinds of openings to be unpredictable.”
The US should not issue a CBDC (central bank digital currency) because the US is currently winning the global financial system and changing the rules of the game when you're winning is unwise; the currency itself is less important than treasury bill markets and interest rate setting, and having a single CBDC creates tail risk where one operational failure could paralyze everything.
“Let me put it this way. I don't think we should be the first to try this. Right now we're on top. I mean I kind of think we peaked but that's another question. We're winning. Why do you want to change the rules of the game when we're winning?”
While phasing out large-denomination currency would reduce tax evasion, price discrimination in taxation (via cash payments to workers like nannies without recorded transactions) may improve efficiency by lowering barriers to legal informal employment; however, smaller denominations ($20 bills) can serve this purpose, so large bills ($100+) are not necessary for efficiency.
“don't you want a kind of price discrimination in your tax system? So say people pay their nannies with $100 bills. They wouldn't hire the nanny if they had to pay taxes.”
The best calculator Rogoff played against was a Yugoslav player named Lubie (ranked 2nd or 3rd), who beat Rogoff at age 16; Lubie demonstrated 15+ move calculations that Rogoff, despite trying to find the best line, could not match, suggesting calculation depth as a distinct skill from overall play strength.
“So, uh, the best calculator I ever [54:53] played was actually a Yuguslaw player reached second or third named Lubie, and he beat me. I don't know. I was 16 years old, and uh, to try to salvage some ego, I I said, "Well, what did you what if I did this? What were you going to do?" And I showed him my best. I thought it was just like a great variation. I don't remember how long, 10 moves. And he goes, "Mhm. Mhm. Yeah, but then I do this. Actually, it's this. And he goes something 15 moves. And I I never played [55:25] Fischer.”
In the Carlson game, Rogoff played a Ruy Lopez Spanish opening that Carlson had been using frequently but that Rogoff had not prepared for; Carlson played the Breier defense (his usual move) but Rogoff managed to find a good position.
“uh he led me up white we played a Ruy Lopez Spanish opening which he had been playing all the time he he played a variation I looked I hadn't prepared I mean it's just what he was playing all the time did he play the brier like he used to do he played the brier no that's right he played the brier and I didn't I didn't [57:29] even know that he played it at the time”
The best over-the-board calculator Rogoff personally faced was a Yugoslav player (Lubie, ranked second or third) who defeated Rogoff at age 16 and demonstrated calculation depths (~15 moves) exceeding Rogoff's best variations (~10 moves).
“the best calculator I ever played was actually a Yuguslaw player reached second or third named Lubie, and he beat me. I don't know. I was 16 years old, and uh, to try to salvage some ego, I I said, 'Well, what did you what if I did this? What were you going to do?' And I showed him my best. I thought it was just like a great variation. I don't remember how long, 10 moves. And he goes, 'Mhm. Mhm. Yeah, but then I do this. Actually, it's this. And he goes something 15 moves.”
The only plausible scenario where the US avoids major fiscal adjustment is if AI produces a genuine productivity revolution that transforms the economy sufficiently to sustain high incomes and allow people to receive government transfers without working, with robot-generated income paying for everything.
“Oh, I don't think there's any question. It's that the AI revolution uh turns out to uh you know just work magically much better than we you know anyone imagine that uh people like me quietly acquies to just getting transfers from the government instead of having jobs and we just you know continue to have a high income and the robot income pays for everything.”
If Rogoff played Magnus 10,000-20,000 times, Magnus would nearly certainly win, illustrating the difference between drawing once (due to opponent error) and sustained relative strength.
“If I did it 10,000, 20,000 times more, I don't think it would happen. I mean, you know, I'm not saying I would have won. I think I would have lost if he kept playing.”
Rogoff is also working on China, including comparisons between China and Japan, drawing on long-term expertise in both economies.
“I'm also working on China it's an area I've been working on for a long time uh so I have some thoughts about uh compar comparing China and Japan for example.”
Argentina's recent IMF bailout of $20 million contradicts claims of a balanced budget, suggesting the budget is not actually balanced even by Argentina's own accounting.
“But h has he balanced the budget? I know he announced a balanced budget, but this is April 2025 and they [49:09] just borrowed $20 million from the IMF. It doesn't sound like a very balanced budget.”
Rogoff notes that playing with opening randomization when everyone does it is easier than doing it alone because it becomes the norm; it's like every game is between two players using the randomized system.
“But it if everyone does it, it's easier to do. It's like every game is between two Ken Reagan is one way to put it.”
Magnus Carlson draws a distinction between players who are incredible calculators (like Gukesh) and players who are incredible at evaluation (like himself), suggesting different chess cognition styles exist at elite levels.
“When Magnus spoke with Lex Freiedman, he drew a distinction between players who were incredible calculators. He called Gukesh one of those and players who were incredible with evaluation and he called himself one of those. He thinks he's actually not the best calculator.”
Rogoff never played Bobby Fischer competitively, though Fischer wrote an article about Rogoff once.
“I never played [55:25] Fischer. He wrote an article about me once, as you know.”
In the 2005-2007 period, the U.S. trade deficit hit a real peak and Rogoff believed there was an underlying problem, though he did not know until very close to the financial crisis what was actually driving it and the regulatory failures involved.
“I mean, uh I'm sure to be undervalued, right? Th those days are very far gone. So you're saying that their currency now is overvalued and they want to bring it down. They have all this producer price. They have all this producer price deflation, right? So [7:20] they should be expansionary on the monetary side to have a more predictable path of nominal GDP growth, but they're not doing it. So probably their currency is a bit too high.”
Bobby Fischer was weak at rook endings (weak for someone of his caliber) and locked himself in a hotel room for 3 months to study only rook endings to eliminate this weakness, demonstrating extraordinary intensity and commitment.
“He actually used to be weak at rook endings. Weak for somebody like that. Yeah. So he locked himself in a room for 3 months and did nothing but study rook endings and got to be very good. He got a hotel. He told us about it. Got a hotel room, you know, with no no view.”
Bobby Fischer was without question the greatest over-the-board analyst because he lacked the preparation infrastructure that the Russians had (coaches, teams, communication) but still dominated through over-the-board analysis, making his achievement more impressive than Kasparov or Carlson.
“But he was a staff. He was way above everybody in his generation. He did not have the prep that the Russians had. He worked on his own. He was not working with a team. the Russians had all this communication and coaches and everything. And by the way, you know, I was representing the US in the World Junior Championships and things like that. It was it was a big disadvantage that you didn't have a trainer, a coach, you know, organizing information. Fischer was doing that at the highest level. So, he must have been by far the best over the board player uh then.”
Rogoff met Bobby Fischer at the 1969 US Junior Championship, where Fischer came every day for 10 days and analyzed with Rogoff and other junior players, demonstrating generosity and mentorship.
“When I met him he uh came every day to the uh 1969 US Junior Championship over 10 days and he sat and he analyzed with us and the first thing we just thought what's he doing with us? Why is he wasting his time with us?”
Rogoff has seen Kasparov write about Karpov, saying he doesn't know how Karpov does it—Karpov just knows where to put the pieces—whereas Kasparov himself had to calculate more, suggesting Karpov had superior evaluation and intuition compared to Kasparov's calculation-based style.
“Well, I think I think it's an interesting question. It's funny because I've seen him write about Karpov, who I did play, uh, and he said, 'I don't know how Karpov does it. He just knows where to put the pieces. He just knows where everything goes, and he's not having to calculate like I do.' And between his great nemesis was Karpoff. And between the two of them, he was the calculator.”
The dollar is currently very strong globally, making prices in the US expensive for foreign visitors; this strength is driven partly by financial demand but also reflects US productivity advantages, particularly in technology.
“The dollar is very rich. I mean, so in a sense, everybody seems cheap to the dollar right now. I'm sure you've experienced that with your anyone coming from abroad, even from Japan or Switzerland. Oh my gosh, it's so expensive here.”
Fischer was superior in over-the-board analysis compared to later greats like Kasparov, possibly because he lacked the team preparation that Russian players had and had to develop unique analytical skills; however, Kasparov and Carlsen were also phenomenal calculators, making it difficult to definitively rank them on calculation ability alone.
“Fischer was doing that at the highest level. So, he must have been by far the best over the board player uh then. but not a player. I mean, just someone if you would sit down with them at the board and show them your game.”
Rogoff drew Magnus Carlsen in a speed chess game in 2012; Carlsen played a Ruy Lopez Spanish opening that Rogoff hadn't prepared for, Rogoff found a winning advantage after Carlsen made an overly aggressive move, but Rogoff believes Carlsen would have won if the game continued since Rogoff eventually faced a choice between repeating moves (draw) or continuing to likely lose.
“he led me up white we played a Ruy Lopez Spanish opening which he had been playing all the time he he played a variation I looked I hadn't prepared I mean it's just what he was playing all the time”
Bobby Fischer was generous to spend time analyzing chess with junior players at the 1969 US Junior Championship, demonstrating an intensity and commitment to mastery that included locking himself in a hotel room for 3 months to study rook endings where he was weak, showing fertile imagination on moves 4-5 that junior players hadn't conceived of.
“when I met him he he uh came every day to the uh 1969 US Junior Championship over 10 days and he sat and he analyzed with us and the first thing we just thought what's he doing with us? Why is he wasting his time with us? We just thought he was so generous.”
Fisher Random chess is something Rogoff dislikes and would not choose, though he respects it, because the positions are often weird and improbable, and he prefers classical chess where positions look natural and he can understand what's happening.
“I don't like it, frankly. But what's your opinion? I'm with you, Tyler. I mean, I I mean, I can I I take joy from classical chess. I love watching a beautiful uh classical chess game. I can relate to it, you know? I I mean, I'm hardwired to think about it. And Fisher random chess. I It's a little bit like looking at problems. I respect chess problems, but the positions are often weird and improbable.”
Bobby Fischer demonstrated fertile imagination in chess analysis, suggesting ideas on moves 4-5 that Rogoff had not considered and that may not have been objectively better than Rogoff's moves but showed exceptional creative capacity.
“Just the imagination of there was this and we're talking about on move four, on move five of just things that wouldn't occur to me. And part of the Fiser legend was that at least supposedly he was the greatest over the board analyst of any chess player. Well, Gary Kasparov was no fool and same as Cas same as Carlson. I mean, I don't know. But he was he was a staff. He was way above everybody in his generation.”
Rogoff drew Magnus Carlson in a game of speed chess in 2012 (approximately that year), an outcome that was unlikely and reflected chance rather than Rogoff's current ability given he had been out of practice.
“Well, sort of what I tell people is if you were a professional golfer once and you play three holes with somebody, anything can happen. uh you know the law of large numbers but you know going more into it uh he led me up white we played a Ruy Lopez Spanish opening which he had been playing all the time he he played a variation I looked I hadn't prepared”
Rogoff opposes Fisher Random chess as the future of competitive chess because he finds classical positions have inherent meaning he can understand, whereas Fisher Random positions often feel weird and improbable like chess problems; even though computers have dominated classical chess preparation, the solution is not to abandon classical chess but to randomize the opening through controlled computer selection of playable starting positions.
“I don't like it, frankly. I mean, I can I I take joy from classical chess. I love watching a beautiful uh classical chess game. I can relate to it, you know?”
Gukesh is not yet the dominant chess player and is not ahead of Nakamura or Caruana, much less Magnus Carlson, though he is ambitious and talented and it would be fabulous for chess if he eventually achieves dominance.
“Well, he's not even nearly first now even among, you know, others. I mean, there's a number of Indian players who are very good. I I wouldn't put him ahead of Nakamura or Carowana, uh, much less Carlson, but he's ambitious. He's talented.”
Gukesh is not yet a dominant chess player and likely won't be the next dominant player; while ambitious and talented, he ranks below Carlsen, is not ahead of Nakamura or Caruana, and has a long way to go to join the historical tier of Kasparov, Fischer, and Carlsen.
“He's not even nearly first now even among, you know, others. I mean, there's a number of Indian players who are very good. I I wouldn't put him ahead of Nakamura or Carowana, uh, much less Carlson”
Rogoff was a chess grandmaster in his youth and is being asked to compare contemporary chess players' strengths; he played against top players of his era and retains insights into chess talent.
“Once a grandmaster, always a grandmaster. So, you can't just say you don't know.”
Ding Liren (whom Gukesh beat) is an 'uber talent' but had mental health problems during the match, which affected his performance, suggesting Gukesh's victory may have benefited from Ding's psychological state.
“Ding is an uber talent, the person he beat, but clearly had all sorts of mental uh problems in the match. I mean, he's been depressed and you could see him sort of losing it in some games.”
Rogoff experienced a 'mini renaissance' in his research that has given him confidence in new ideas and joy in his work, as he worked on his recent book and feels that while he's not sure others agree, his intellectual productivity has renewed.
“The part of what was so great about the book is I had sort of I would describe a mini renaissance in my research and I'm able at least I feel that way. I mean I don't know if the rest of the world thinks that but it it gives me joy sort of to have some confidence about you know some of some of the ideas”
Rogoff expressed uncertainty about Trump's actual fiscal policy intentions despite his pre-election assumption that Trump would pursue large deficit-increasing policies, noting 'I don't know what's going through Trump's head.'
“I mean, uh, so but on the other hand, I mean, I I it's hard to know what's going through Trump's head. So I I, you know, I I presumed he was going to blow up the deficit like everybody else. We'll see.”
Rogoff's future research agenda includes continuing work on political economy and central bank independence, as he was one of the first to write papers arguing for independent central banks and now works on understanding why political pressures remain important in practice; he is also researching China's development trajectory and comparisons with Japan.
“like any academic, I already have my next few years of projects. Uh some of them, frankly, you know, grow out of the book. Uh I I think people forgotten about political economy. They just think, you know, if the central bank says the inflation rate's 2% on average, it'll be 2% and we go home.”
Rogoff experienced a 'mini renaissance' in his research during the writing of his book, feeling renewed confidence in his ideas and intellectual contributions, suggesting that the book project reignited his research energy and productivity.
“I would describe a mini renaissance in my research and I'm able at least I feel that way. I mean I don't know if the rest of the world thinks that but it it gives me joy sort of to have some confidence about you know some of some of the ideas”