Bond Vigilantes Are Coming Back: Peter Orszag

Zagg is with its chairman and chief executive officer of Lazard that barely describes his contribution to modern retirement in America. Coming out of LSC a number of years ago, he wandered in and got a job and he said, you know what? When we take a new job, we should automatically be in the 401 K of the company. You say, well, that's no big deal. At the time, it was absolutely seismic. He also looked at his economics as well as running the shop at Lazard. Here is a seismic essay from January this year. The risk of higher U.S. inflation in 2026. Research demonstrates that consumer perception of inflation is based on. Here's the grocery part the frequency of purchase of, say, eggs. Inflation rising above 4% by the end of 2026 is plausible and a most likely scenario. You and Adam Posen nailed it. Where do we go from here? Well, I think the important thing about that is not necessarily the kind of victory lap, but instead, why did we say that? And the reason we said that is we are living in a new supply side era where if you want to understand inflation today, you need to look at the supply shocks that happened a year or two ago. And the thought, in fact, I just read a piece of research suggesting, don't worry, the the next few months you'll see a tailing off of inflation because these one time effects will write a road. Okay. But our other point is there going to be continual new supply shocks. So we're living in this era supply side. There are 2.0 in which you're going to be hit by these things on an ongoing basis. And so treating them as a one off thing is a mistake. Our Bloomberg Money audience is hit by at each and every moment and wrapped around personal finance and retirement and, and wealth management. Without getting into the math, is does there need to be a new set of a higher interest rate, what the fancy people call a higher actuarial assumption? Are we shifting in our interest rate now? I definitely think that the interest rate environment is different today than it was 3 or 4 years ago. It's unfortunate, by the way, that we didn't take advantage of that moment when we had, uh, extended moment when we had low rates to extend the maturity of treasuries, which is something that Bob Rubin and Joe Stiglitz and I had called for, um, and said, we have been shortening maturity. That's too bad. But I think we are in a new era in which, frankly, the Biden vigilantes are coming back. Oh, we could, we could. I digress, I know we start talking about the bond market. We can go in a different direction. Getting back to that inflation story that you were just talking about is I inflationary? I mean, there's the buildout, then there's the implementation and then there's the application. And we haven't totally gotten to the mass application yet. Yeah, I think on I the build out is massive, maybe three, 3.5% of GDP, uh, investment, which is larger than railroads, highways, uh, electrification by uh, you know, a significant margin that's also putting upward pressure on interest rates. My own view is I think the I'm a I think we need to separate the technology and the business model here. I'm a huge believer in the technology, I use it. I probably have 70 or 80 agents running as we speak. Um, I'm astonished by how rapidly things are progressing, but because so much of the investment is debt financed, I do think the risk of financial distress in this ecosystem is higher than people appreciate, because when it's debt finance, if token spend instead of doing this just does that. You've got a problem. Mhm. If it were equity finance it's a different thing. But because so much of it is debt financed and that token spend you know going from this to that could come from open weight which we've already talked a lot about, but also from local compute. I think that's the part that people are not appreciating is, uh, the ability to run the models on an air gapped computer. Yeah. Based on local compute, you're not trying to a cloud family shout out, please. My brother's dead on in this local way. He says you're 100% right on local in local computing. So there's so much we don't know yet about how I's going to work and how it's going to affect the economy. One thing we do know is what Tom referenced, which was your work on, um, the research that led to automatic enrolment in, for one case, your view on the Trump accounts, which have now made clear that, uh, those kids under 18 will now be automatically enrolled in these Trump accounts. Is it a good thing? I think that part is a good thing. And the power of inertia and the power of default is very. We all know it from our own lives. If something is even a little difficult. Often you don't do it. Um, and that was the point about enrollment, uh, into, uh, retirement savings plans. And also, if you're going to set up something, uh, for kids, it's better to auto enroll them. I got to get this done. I think a lot of people don't know Lazard. Your stewardship of Lazard here and the way around. And so everywhere he goes, you have to run five miles with Peter or Zach. I mean, every city, if that's one way to wean people out. Jack Lew is on. And, you know, Social Security is going to fall apart here. If I had to pick, you know, Republican, Democrat or whatever to be on Jekyll, you'd be on the short shortlist for that. How close are we to Social Security failing after the presidential election of 28? Uh, both Social Security and Medicare have, uh, looming problems associated with their financing. They will have to be addressed. This is part of an overall fiscal imbalance of 6 to 7% of GDP. And history shows we don't deal with these problems until their, uh, crises. The last Social Security reform did not occur until checks were literally not about to go out the door. That's the part of the Greenspan Commission that people, uh, that people missed it from 1983. You need that forcing event to really focus people's attention. We don't have that forcing event yet. Peter, want to talk to about junior bankers, because I know this is something you think about a lot. For years, private equity was aggressively poaching junior bankers from the investment bank. Citigroup recently cut its investment banking program analyst program to two years from three years, so that these junior bankers can advance faster. What does the environment look like at Lazard now? Are you responding in a similar way? We really, uh. I'm thrilled by the talent we're able to attract to Lazard. I think the most exciting thing for junior bankers today is the opportunity to change the way that we work. So that you have leaner deal teams. Um, we're hiring more managing directors, so there will be more deal teams. But on each deal team, uh, a leaner deal team. I remember early in my career, the most exciting thing was to be able to assume more responsibility as rapidly as you can. And when you have, uh, larger deal teams, it's just a little bit stultifying. The technology will enable us to make the deal teams leaner and to have that upward trajectory and also cultivate and train the characteristics that we think are going to be particularly valuable in our business in the future. The ability to engender trust, the in-person, the soft skills, the softer skills. Um, there's a great book out called Messy Jobs, which goes through the things that are going to be valued versus less valued as I, uh, develops a senior bankers role is definitely a messy job, and we will be training people and cultivating the skills for that. And it's really exciting. I will suggest Peter Orszag dodged the bullet of silly exhaustion in investment banking. How do you deal with the stereotype of the young kids exhausted? This is, I think, a crucial moment for us to weed out all of that inefficiency sitting around to and for no reason. Thank you. I have always believed in working really hard, but when you're working really hard on things that are meaningful and that, uh, you're not just kind of wasting time, it's a much different experience than, you know, literally, uh, something that seems totally inefficient. There's a lot of opportunity to improve the process. There's a lot of opportunity to improve the process. But sometimes you have to go through the process to be able to know what to do. And how are we depriving young people? Well, I think that comes back to the training. I think there are lots of ways of trying to train people, give them that, that. But honestly, the 176 time that you're moving, uh, the boxes around on a PowerPoint slide, you're not learning that much. And so the question becomes, how can we train people? Uh, I'll give you an analogy, which is we have gotten very good at training airplane pilots, including through, uh, simulators and not just real life, uh, experiences. I think the new technology is opening up all sorts of opportunities for us to be able to, again, cultivate the skill sets that we think are valuable, and then make sure there are enough at bats to, uh, give you the experience that you need to spot. That seems off. Uh, we've got to push back on the I on on that output.