The podcast discusses the regulations and minimum size threshold for banks to be considered too big to fail, questioning the notion of splitting up banks as a solution.
Concerns are raised about the stability of privately issued stablecoins within the crypto space and the need for better regulations in the increasingly important crypto exchanges.
The importance of strong institutions in sustaining long-term growth and breaking free from the middle-income trap is discussed, citing examples from South Korea and Ireland.
Deep dives
Banking Regulations and the Minimum Size to Fail
The podcast discusses the regulations and minimum size threshold for banks to be considered too big to fail. The speaker highlights the shift in consensus regarding systemic attention to banks, which now starts when total assets reach $250 billion. The implications of the recent financial crisis are examined, questioning the notion of splitting up banks as a solution. Alternative proposals, such as ensuring uninsured deposits and implementing a sensible insurance scheme for small business transaction accounts, are explored to address moral hazard issues and prevent contagion.
The Impact of AI and Stability in the Banking System
The podcast delves into the impact of artificial intelligence (AI) and stability within the banking system. The speaker discusses the surprise evolution and advancement of AI, specifically in the realm of large language models. Concerns are raised about the stability of privately issued stablecoins within the crypto space and the need for better regulations in the increasingly important crypto exchanges. The potential risks associated with central bank digital currencies and the postposing of problems are also examined in relation to AI's effect on the banking system.
The Role of Institutions in Economic Growth and Regional Development
The podcast explores the role of institutions in economic growth and regional development. The importance of strong institutions in sustaining long-term growth and breaking free from the middle-income trap is discussed. Examples from South Korea and Ireland are cited to highlight the impact of education, entrepreneurship, integration with the world economy, and cultural factors in achieving sustained economic progress. The podcast also addresses the issue of regional imbalances in England, focusing on the challenges of revitalizing Northern England and the appeal of London as a magnet for talent.
Impact of Technology on Workers' Wages
The podcast highlights the concern that advancements in technology, such as self-checkout kiosks at supermarkets, may not lead to increased productivity and higher wages for workers. The example of self-checkout kiosks shows that the work is shifted onto consumers rather than making workers more productive. This lack of productivity growth is also linked to widening inequality. The discussion explores the potential trend of wage compression in recent years as a response to this issue.
The Distribution of AI Gains and Market Concentration
The podcast examines the distribution of AI gains and questions if the benefits of AI technology will mainly go to those who design and own the algorithms, rather than the broader population. The conversation raises the possibility that most of the gains from AI could flow to other parties and not necessarily the corporations or individuals creating the algorithms. The podcast also considers the concept of market concentration and its impact on innovation, variety, and pricing in different sectors, showcasing the potential positive outcomes of diverse and competitive markets.
What’s more intense than leading the IMF during a financial crisis? For Simon Johnson, it was co-authoring a book with fellow economist (and past guest) Daron Acemoglu. Written in six months, their book Power and Progress: Our Thousand-Year Struggle Over Technology and Prosperity, argues that widespread prosperity is not the natural consequence of technological progress, but instead only happens when there is a conscious effort to bend the direction and gains from technological advances away from the elite.
Tyler and Simon discuss the ideas in the book and on Simon’s earlier work on finance and banking, including at what size a US bank is small enough to fail, the future of deposit insurance, when we’ll see a central bank digital currency, his top proposal for reforming the IMF, how quickly the Industrial Revolution led to widespread prosperity, whether AI will boost wages, how he changed his mind on the Middle Ages, the key difference in outlook between him and Daron, how he thinks institutions affect growth, how to fix northern England's economic climate, whether the UK should join NAFTA, improving science policy, the Simon Johnson production function, whether MBAs are overrated, the importance of communication, and more.
