Dalio's Warning, AI Arms Race, China Powers Ahead, NYC Tax Standoff

[Music] This is Wall Street Week. I'm David Weston bringing you stories of capitalism. The AI race isn't just among companies and countries to get there first. It's also a contest between scientific discovery and making a whole lot of money and Demisa Sabas is trying to win at both. Plus, if we don't watch out, China will end up beating the US in AI by winning the race to bring new power online, including through a dramatic increase in renewables. And even as some governments are trying to attract new business and wealth through favorable taxes, others are going the other way, which has led to a nasty public spat between Ken Griffin and New York's Mayor Memdani. But we begin with the war in Iran, which seems far from over despite President Trump's wishes. But so far, the war hasn't really bothered the debt and equity markets all that much. Bridgewater founder Ray Dalio has spent a career making long-term investments based on his understanding of the geopolitics and the politics of great economic powers like the US being challenged by others. Follow the cash. Follow the money. There's a reaction like wars are bad and wars are bad. But the reality is markets trade was the present value of future cash flows by and large. And so if you've got the cash, follow the cash. So what's happening in the way of changes? What it means for energy in Asia or what it means here and for our cash flows. But the markets are trading on the base of the cash flow. So when we came into this period of time, there was a reaction before we had the earnings reports. There was a reaction that this is a scary thing. Quite often markets will sell off at that time. They did sell off. And then we had great earnings estimates. And the reported earnings were much greater than the actual earnings. So follow the money. At the end of the day, you're exchanging an allum sum payment for a future cash flow and that's what matters. What about those longer term trends? I mean, tectonic plates as they were shifting. Whether it's monetary, whether it's financial, whether it's geopolitical. How does the war on fit into those sort of long-term shifts? Yeah, it's interesting. If you look at the markets, Pearl Harbor comes. Imagine that. And the, not much affects. Initial effect. And then you see the cash flow as a matter of it. But over the period of time, it depends. There are the winners. There are losers. And there are the neutral countries. Okay. Economically, the winners still experience the cost of the war, the debt, like the British Empire had the debt and had its consequences. The losers of the war get wiped out. You change all orders. You change the domestic political order, the international order, the monetary order, and almost everything. The winners are the neutral countries because they profit during the war. The United States made a lot of money in both World War I and World War II in the time when that wasn't in the wars. And then it accumulated a lot of gold and so on. Many entered the period late. So the neutral countries are the ones that end up not being disrupted and end up doing the best. I'm not even sure what it means for the U.S. to win the war in Iran right now. But I think it's clear. Tell me. Okay. The world is looking at, will Iran have this control of the state of Hamas? Will it retain the uranium, the nuclear? And will it also have the power through the missiles and others to inflict harm? Will the United States have the power to fight the war? In other words, with politics and Americans with gas prices and cost of living, we now have a situation where the world is looking at this and defining it, does the United States have the capacity to win the war? And this has huge implications because it means for countries, it means alliances. Why do they have the bases there? The United States has about 750 bases in about 80 countries. And those bases are largely there under the assumption that the United States will turn up and defend them. Right now that perception is changing. So I think winning the war is clear. Iran is perceived as a middle power, not a great power, and can the United States win it or not. And this is now having a big effect in when I go around the world, like in Asia. You know, the United States has been viewed as a counter-vailing force relative to China. Okay. Now it's believed that the United States cannot be relied on to fight that war. We'll not be there with those bases. And this is changing relationships with China too. You're seeing a number of leaders go up to China and essentially have relations, but it's like the tribute system. But also in the region, there's the recognition in their view that there is an environment where the countries in the region have to recognize and respect that power. And so now you're seeing that happen. That tribute system is not an oppressive controlling system. It's much more like there's the more powerful have an obligation to behave well with the less powerful, and the less powerful have an obligation to recognize the more powerful, and they should operate in a harmonious way. You say that as far as we can tell, you can tell. The Chinese by-large think they're doing pretty well in the rivalry with the United States right now. China Inc. is making a ton of money. In other words, if you look at the amount of money that they are making through their export earnings, and the amount of financial assets that they've accumulated, and are accumulated, it's huge. So one talks a lot about trade, but you have to look about money and the quantity of money and their earnings, and their raising of living standards, and how they're competing in various areas. Certainly, AI, but robotics and a number of areas, you would have to say that they are doing very well. We say the post-World War II order, in post-Legiton of the US, is breaking down. Do you say China has a substantial say, if not dictating the next world order? Yes, of course, but that doesn't mean I think you said it well, and not dictating. I think that there will be an evolution. I think that China's rise in relative power that we're talking about is creating a situation that they will create a tribute system type of system. What's important and actually practical about that is it recognizes that there are differences in power. The system that we went through, a tiny country in the United Nations, could have the same vote as a huge country, and it wasn't a practical system. So I think you're going to see it evolve in that region as being a tribute system type of system. I think increasingly we're going to see that in the world. I don't expect China to be an aggressive military power. I think that they. you will see economically Chinese companies competing in the world, you're going to see an acceleration of that. The use of the Remn B as a world currency, you're going to see an acceleration of that. It won't replace the dollar quickly, but it's going to grow quickly for transactions. So you're going to see that kind of operation. You're going to see in negotiations, you're not. you're going to see that you will not be able to push around China. That there will. it will be a force. What does this mean for investors, such as you? I mean investments are made against an order of some sort. There's a predictability, you have a contract, you can enforce them. If in fact there's a breakdown in the world or. what does that say to investors? I think first of all, when we think of investing, we have to think of what is investing for and it's our total life, not just making the most money. So they have to think about diversification very well, right? In other words, they have to think about we're now in a turbulent time. And that means, for example, the value of money could be a risk. What currency is it going to be in? So, and how do you diversify? So for example, now as we have AI having a problem, we're going to see that. a big effect. It's a fantastic technology that's going to have big revolutionary effects. If we look in history of such cases, what we can see is then it also can create bubbles. Also liquidity is very valuable in a very rapidly changing world because uncertainty is so great. Look at the difference in sasks stocks by way of example. Who would yes? Who could know? Liquidity is very valuable. That's right. Diversification is very valuable. When I say diversification, I do include gold in that in terms of money because we do have a question mark in terms of money. These are not tactical moves. In other words, I don't think that the average man should be moving in and out based on what I say or what others say. They should have a strategic asset allocation mix that they buy in large stick to that has the best reward to risk ratio. Coming up, what happens when the world of scientific discovery runs up against the need for hundreds of billions of dollars? The story of Demisis Abbas of DeepMind next. This is a story about passion and profits. The quest for scientific discovery often begins with curiosity, but money and power can follow closely behind. We saw it with the printing press, the nuclear bomb, and now we're seeing it with artificial intelligence. When a technology becomes powerful enough to change the course of humanity, who should benefit most from it? And who has the power to control it? Maybe Demisis Abbas turns out to be the Robert Oppenheimer of the 21st century. Somebody who leads a project like the Manhattan Project brings into the world an incredible technology. It's a massive scientific achievement and is dangerous. And I think the builders of the technology, including Demis, as I got to know him, had that same thought. Sebastian Malibu is a senior fellow at the Council on Foreign Relations and the author most recently of the Infinity Machine. His book chronicles the rise of artificial intelligence through the lens of one of its key players, Demis Hassabas, a Nobel laureate and the co-founder of Google's AI Lab DeepMind. Right from the start, they were thinking, you know, the Manhattan Project was both good and bad and probably going to be the same with AI and we have to be careful. And so right at the beginning of DeepMind's story, Demisis Abbas meets his scientific co-founder Shane Legg at an AI safety lecture in London. And this is 17 years ago. Again, the nuclear analogy is instructive. We have a nuclear non-proliferation treaty for nuclear weapons. It's not completely airtight, but it's better than nothing. And that's what we're going to need to have with artificial intelligence. To get there, some believe that we might need a wake-up call. That's what Nobel laureate Jeffrey Hinton told us late last year here on Wall Street Wake. Some people say that our best hope is to have AI try to take over and fail. We need something to really scare the s**t out of us. Something like Chernobyl for AI. I'm not sure I agree with that, but that's certainly a possibility. We need something to make people pay more attention to put more resources. So, at present, the big companies aren't going to put like a third of their resources into figuring out how to make it safe. But if it tried to take over and only just failed, maybe they would. Even without an AI uprising, Malibu thinks policymakers have become more aware of the technology's risks, especially in the wake of Anthropics Mythos roll out. Mythos is a dangerous point because already the US Treasury Secretary, the Fedchem and have told the banks, "Listen, your bank accounts are going to be emptied if you don't protect yourself against the system." So, we've had hints of Cuban missile crisis already. I would point out to Jeff Hinton, who I like very much, that before the nuclear and non-proliferating treaty in the '60s, there was the 1950s. And in the 1950s, that's when the IAEA to track all the nuclear material was created in 1956. It was negotiated. So, you know, that was actually ahead of the Cuban missile crisis. Whatever the outcome is for AI, Malibu thinks it will be shaped by the people who create and control it and their individual personalities and motivations. And in Demisasabis' case, he's building something which he himself says is dangerous. Why do you do that? What makes you want to do it? And the answer in his case is scientific curiosity. He is so burningly determined to understand what he calls the fabric of reality. That he expresses that ambition in spiritual language, that to understand nature is to become closer to God. For others, Malibu says it's the ambition for money or power. I think if you look at the other end of the spectrum, you look at Mark Zuckerberg. For him, it's always been really commercial. He wants AI because it will make Instagram and Facebook be more compelling, maybe more addictive. That's what he's motivated by. I think Elon Musk just wants to be the greatest industrialist of all time. So, he wants to do it for that reason. Simon Altman is kind of optunistically riding against something we're making powerful. This is a man who thought of running for governor of California. He's rumored to have thought of a presidential run. So, he wants power. But whether it's power or money or scientific achievement that motivates the world's AI titans, they all have at least one thing in common, the drive to be number one. I remember going to see Demis right after the launch of chat T.P.T. at the end of 2022. And of course, this was the moment when Deep Mind and Demis' service had been the leaders in global AI without dispute for, you know, a decade. And all of a sudden this upstart in California, Simon Altman drops this model. It goes viral and Demis is no longer the leader. So, I guess he and I say, well, how do you feel about this? And he says, Sebastian, they've parked their tanks on the lawn. This is war. You could see that competitive fury in his eyes. And yes, I think most complicated human beings have more than one personality inside them. And in Demis' case, there is the scientist. There is also the furious competitor. There's also the enormous need for money, for capital to compete, for compute, but also for the talent that comes across in your book about how much it costs to really get some of these scientists to come work with you. Does that necessarily take it out of the science and make it fundamentally a commercial phenomenon? Well, it's definitely a commercial phenomenon. And we just saw in the results this week from all the big tech firms that they've expanded, what they say they're going to spend on the computing chips, the infrastructure that they need. This is just going from extremely big to crazy big. So you're totally right, it's commercial and we can't escape that. But it could also be scientific, right? You could have both at the same time. And for what it's worth, Demis' view is that the future path to the kind of AI that can unlock all of science is through these large language models. There's no alternative path where you go in some totally parallel route. So we're going to build these large language models. They're going to get better and better. They're going to become more agentic where they actually take actions. They're going to understand the physical world, that spatial intelligence. And then from that, it will get into the ultimate test, which is suppose you trained an AI and you told it everything that people knew in 1911. Could it then invent by itself general relativity? The tension between the science and the business of AI has come to a head in the ongoing trial between Elon Musk and OpenAI. At the center of the trial is a debate over who should control the chat GPT creator. And the outcome could shake up the corporate models that have underpin the tech industry's explosive AI growth. As of right now, as we speak, it's something like $725 billion dollars this year from the big investors. How does that pencil out? I mean fundamentally what we've got at the moment is an A+ technology with a C-Business model. And the purpose of capital markets is to bridge from today when the technology is great but you're not making money to some beautiful future when finally you figure out the business model and you do make money. But I think we're running an experiment in the limits of that capital market function because the capital markets are not infinitely deep. So when you have OpenAI, which was spending money like completely crazy and was not attached to one hyper-scaler deep pocketed balance sheet. That was extremely precarious. Is extremely precarious? I said three months ago that I thought there was a 50/50 chance that OpenAI would go bust. Basically, I mean it would be absorbed by another company. And I still believe that. By the summer of next year, there's a half chance that it just runs out of its ability to raise money, has to sell itself. And that's where the hyper-scalers are now. I'll create an equal. because in a Google they can say we're making up more money on search. And maybe genius as well. We've got some revenue coming in for this. And Amazon can say we certainly have the cloud that's helped us in a lot. Then you get to a meta. It's not quite so clear what they have to support this investment. Right, right. And they just seem to be quite clumsy about translating all the money they spend on AI into actual AI results. And we'll see how this plays out. But there was this moment last year in 2025 when they were doing record expenditures on the signing bonuses of AI scientists. Because basically they didn't have much of a team. And the only way they could get a team coming from behind was to just 10x people's salary. And so all the other lads were going nuts. I actually witnessed the head of one of the other companies, pretty much yelling at the meta person saying, "You're draining all our talent. You guys are completely useless. You're never going to build a system that's really powerful because you're hopeless. But you're taking our good people away. And then the Chinese will overtake us and then they'll kill us." That's pretty extreme. If throwing money at a problem is the clumsy solution, and often not the right one, what business model both contains ambition and allows science to flourish? Malabie says some of the big players have tried through their corporate structures, though none has yet proven effective. You know, all of the top three labs have experimented with these governance ideas. And in fact, in my research for this book, I found out about a thing called Project Mario, which was secret to the two. But Project Mario was essentially Demisysaab is saying, "I need safety governance. I need a kind of nonprofit board, which will oversee the powerful AI when I get it." And we can't just have the corporate board of Google deciding how it gets rolled out. That's not democratically legitimate. That's not good for humanity. We need that nonprofit structure to be grafted onto Google. So he's spent three years fighting about that. As we know, in OpenAI, more in the public domain, they began as a nonprofit, and then they grafted on a full profit later, and thought because it's own version of this kind of hybrid, full profit, nonprofit. But the harsh reality is, as you said earlier, you know, this is an extremely expensive technology to build. And so the full profit, capital raising, kind of red and tooth and claw, capital is thing, is going to dominate, because you need money all the time. Is there anything the government can and should be doing now on the safety front? So there are three things. The first thing is, we already have a national AI sort of security monitoring body, but it doesn't have enough resources. It doesn't have the power to veto a model before it's released. We should have one which is like the Food and Drug Administration, which is pro-properly resource that has expert staff. And if the drug is not safe or efficacious, you can ban the release, right? AI is just as dangerous as drugs, so we should have an FDA for AI. Second thing we should do is we should divert more money from just building the model stronger to alignment research where you align the model with human priorities. That's a whole field of engineering. It's getting some resources at the moment, but, you know, obviously it's not in the commercial interest of the companies to invest too much in that. So public policy needs to support the public good of AI alignment. And the third thing is on the international front, because like it or not, the Chinese have very good AI models. So unless we bind in China and other countries like France, which has the AI lab, Mistral and other places, we need everybody to acknowledge, just like we did in the nuclear age, that this is dangerous if it proliferates until the hands of terrorists and so forth. And so we should all come together with agreed, joint, common safety standards. Otherwise, if just one country is safe and the other ones aren't, we haven't made humanity any safer. The invention of the atomic bomb gave humanity a stark warning. It's up to humans to safeguard against technology of immense power in dangering us all. And as the AI battle rages all around us, maybe we can take some lessons from that earlier arms race to limit the potential damage from the next one. Up next, the US is in a race with China to develop AI. But who wins may depend less on the models and chips than it does on how we go about finding the power for all that AI needs. This is a story about taking your eye off the ball. Since President Trump came to office the first time, he's been focused on the economic and national security risks posed by one country in particular. Did you say China? China? China! We were losing to China. We want to be China. We're leaving China. In his second term, President Trump has focused on AI as a key area of competition between the two countries. And specifically, the chips needed to drive all those large language models. China and other countries are racing to catch up to America having to do with AI. And we're not going to let them do it. We have the great chips. We have the great everything. And we're going to be fighting them in a very friendly fashion. But while the US is doing what it can to protect its lead in the computer race, there's another contest that it may be losing. The battle to make sure we have the power we need to drive all that AI we're developing. It's fascinating because when you look at AI, there's a huge energy need for the data centers. We all know Hank Paulson from his time running Goldman Sachs and then leading us through the great financial crisis as Treasury Secretary. But he's also devoted much of his career to climate issues and helped lead Goldman Sachs to China over 30 years ago. We have one big advantage on China. And that's it. We have our energy independent, right? And they aren't. But we have a shortage of electricity in this country. The demand is much greater than the supply and it's growing. And so we have a shortage of electricity to power data centers. China, on the other hand, they're investing massively in coal and a lot of things I wouldn't like them to be investing in. But they are investing big time in renewables, solar and wind. They have more renewables than Europe, the UK, the US combined. They're going to have half their energy from renewables. So they've got plenty of electricity. Meanwhile, in our country, utilities can't meet the demand. Electricity prices are spiking up. So ratepayers are putting up their hands and say, no more at the same time we need the electricity. And so the interesting thing is, if you look at the US, all of our electricity, essentially new electricity, the last couple of years, has come from solar and wind. At the same time, the administration is restraining it. So again, I would say that we are ahead of China when it comes to AI. They're investing massively. But I've got to tell you, the biggest potential drag we have is not having enough electricity to power our data centers. Are we disadventaging ourselves? I think we are. Former US ambassador to China, Nick Burns, saw the unprecedented scale of China's energy investment firsthand. I used to travel a lot by train in China because you can see a lot more of the country you can talk to people. The degree to which China is building transmission lines all across the country, and I visited 26 of the provinces, even out to the west, it's staggering. The degree to which they're now controlling the global supply chain in electric vehicles, in lithium batteries, in solar panels, in wind power. They are the world leaders in this, and I think that the United States should be making a similar effort. You know, maybe it's not as cost effective now, but we have to think out to the 2030s and 2040s, and I do think as we consider this big challenge of how we compete with China, and yet not get into a war with China, we have to start planning more long-term as they are doing. The numbers bear out what Hank Paulson and Nick Burns have seen on the ground in China. Since 2021, in just five short years, it has added more power capacity across all energy technologies than the United States has built in its entire history, and that gap is only growing. Over the next five years, China plans to add more than 3.4 terawatts of energy generation capacity, nearly six times as much as the US. They've been developing their electric grid at a rate that is extraordinary. Elizabeth Economy, a China policy expert and senior fellow at the Hoover Institution, says there will be a high cost to falling farther behind. China has made a big bet on renewables and clean energy more broadly. This past year for the very first time, it has more power generation capacity in clean energy than it does in fossil fuel energy. They're not the only ones, Europeans are following suit, but we clearly are moving in the opposite direction, all in on fossil fuels. I think it's important to understand that the bet from the Chinese side is not necessarily just about the health of the Chinese people or the Chinese environment. This is a real economic play for them. They are cognizant of the fact that by 2035, the clean energy market is estimated to be globally, as big as you. $7 trillion and they want to command that market. So they have spent a lot of time over the past several years investing very heavily in renewables. In last year, a trillion dollars in renewable investments. And as a result, they've seen their exports of EV skyrocket. 80% increase in 2025. 40% for battery exports. 20% for solar panels. This is a real money maker. So I think for the Chinese, as they look out, clean energy is green. It's green for the environment and it's green for money. You make a really interesting point that this has been going on for several years. President Xi did not just wake up yesterday and say, "Let's have a lot of renewables for AI." It started before, really, there was the big push for AI. How much of this is pure commerce rather than development of AI and competition in AI? I mean, on the energy side of it, I don't think that AI is very late to the game. I mean, the Chinese have been beginning with renewables. From beginning of the late 1980s, early 1990s, they were already inviting Western firms in for wind turbines and solar panels and saying, "Sure, we'll give you access to the Chinese market." Now, you just give us some of your advanced technology or set up an R&D center or sometimes they might just illegally appropriate the technology. But one five-year plan after another, renewables have been part of the Chinese plan. And you're right. Exactly. Xi Jinping did not wake up one day and say, "Oh, this really matters." Though China's push into renewables may not have been intended for AI, that's where it could matter most. In the US, power demand is exploding, with consumption from data centers alone expected to triple by 2035, putting even more pressure on a grid already under strain. But instead of racing to close the gap with renewable alternatives, the US is pulling back from a sector China increasingly dominates, accounting for roughly 80% of global technology production in solar and battery tech, and more than 70% in wind. This enormous development of renewables in China didn't come free. They had to spend some money to do it. If the United States wanted to get back in this game and compete on the renewable part, doesn't have the capacity, how much money is involved, how much money has the Chinese government really put into this? I mean, at this point, it's easily over a trillion dollars. It's been billions of dollars every year. As I mentioned, a trillion dollars just last year in clean energy investments. There's not a way that we're going to compete across this spectrum of technologies, solar, wind, nuclear. We're just not going to be able to do that at this point, even in these. China's exports were worth about $76 billion last year, ours. Somewhere around $3 to $4 billion. Don't forget, they're also a country of 1.4 billion people. So roughly 3.5 or 4 times as large as we are. That capacity is much greater as well. But could we get back in the game? I think that was the point of the Biden Administration's Inflation Reduction Act. It was a mix of subsidies and tax incentives. It attracted an enormous amount of foreign investment. It had, I think, a lot of potential to reboot the clean energy sector in the United States. The Trump Administration is not that interested in the clean energy in the renewable sector. So we saw that they rolled back probably 95% of the Inflation Reduction Act. Can the markets make up a good part of the difference about that? Instead of the government giving subsidies or tax breaks incentives on renewables, is it possible the market will take over and say it's just cheaper to get energy from some of the renewables? Well, I think there's always a hurdle when you're introducing a new technology that you have to get over. And that is where the government subsidies or incentives can play an important role. I mean, we see that now with rare earths. And I think the Trump Administration has come around to appreciate that if you're going to compete with China, you're going to have to adopt some elements of their playbook. You're going to have to invest. You're going to have to have a secure market for the new investment, for the new technology that you're developing, right? Because you have to get it over the hurdle from the innovation to the manufacturing, to the deployment and export. And I think that's the full life cycle of new technologies that China has created. It's playbook. And we don't really have a playbook that can compete without a little more government intervention than we've typically been comfortable with. The US and China may be competing hard on AI. And the US may have taken its eye off the ball on energy that's critical in that competition. But there's at least one area where they may find common ground, agreeing on rules to make sure that all this AI being built and powered is as safe as possible. Do we need to work with China on safety for AI? Yeah, obviously we do. It's at some time. But right now, they're an adversary when it comes to military and security. So I think we're going to be forced to do it when we start seeing accidents and bad things happen. And I just want to make sure we're in the lead when we get to that point. I really do. I take a step further and say when President Trump and Xi meet, it's going to be the first of I hope for some meetings. And I'm hoping right now there is, we've got a trade deficit, but we've got a trust deficit big. And I want to close that trust deficit because we need to figure out how we can compete and work together at the same time. And if we don't, the world is going to be a much more dangerous and less prosperous place. So again, I view, and I think a positive is I really do believe President Trump wants to find a way to work with China. And I hope that the Chinese feel the same way. Coming up, don't text you, don't text me, text that guy behind the tree. But what if that guy is Ken Griffin? This is a story about balancing the books. Faced with putting together his first budget, New York City's Mayor Mimdani managed to pick a nasty and very public fight with one of the biggest names on Wall Street. Ken Griffin. New York City has long been known as the City of Opportunity, home of the Statue of Liberty, Broadway, and Wall Street. It's also home to the highest number of billionaires anywhere in the world. The city's new mayor thinks they might be able to help him with his budget problem. When I ran for mayor, I said I was going to tax the rich. Well today, we're taxing the rich. In April, New York City mayor Zoraan Mimdani stood in front of a penthouse on Billionaires Row. A penthouse owned by Citadel CEO Ken Griffin and made him the poster child for a proposed so-called pita tear tax on second homes in the city with an assessed value of $5 million or more. This tax will raise at least $500 million directly for the city. The move triggered some of the other Wall Street leaders to come to Griffin's defense. If your goal is to make New York City financially solvent, what you don't want to do is drive out the Ken Griffin's law. Wall Street and the tax revenues from Wall Street are what enable New York City, all the people in New York City to have a better life. Mimdani originally proposed increasing real estate taxes overall, but thought better of the idea after Governor Hulkel came up with some help from the state budget. So far, however, he's sticking with trying to tax the most valuable second homes in the city. I think Mimdani made a mistake, you know, going after Ken Griffin by name as he trumpeted his success in raising taxes, even though he only got a tiny more so. Wall Street veteran Whitney Tilsen ran for mayor of New York City against Mr. Mimdani last year. What we're talking about is, you know, those pencil towers overlooking Central Park that are dark at night because nobody actually lives there. I do think tone matters and just out there painting billionaires as evil is really dumb, given that 1% of New York City taxpayers account for 47% of the personal income tax paid in New York City. A bunch of billionaires went down to Florida during COVID and that has real budgetary impacts on New York. We should be rolling out a welcome mat for every rich person who wants to live, invest, be here and we're already a very high tax city, depending on how you measure it, probably the highest tax burden of any city in the country. But there's something unique about New York. I tell my rich friends who are thinking of moving, the whole point of being rich is you can live where you want to live. Imposing new taxes on their property may not be the best way to attract wealthy residents, but Steve Fulop, the head of partnership for New York City and the former mayor of Jersey City has even deeper concerns. I think that there is a bigger message with regards to the Ken Griff in conversation. Yeah, it's not great that he was highlighted in that way and in this environment where you of people being the targets of political violence, CEOs being a sat It's inappropriate and that's been covered fairly extensively. Whether it was smart to target a specific Wall Street CEO like Ken Griffin or not, the fact remains that New York City has struggled with years of budget shortfalls. M. Donney's new proposal promises to balance the city's budget, at least in the short term, despite inheriting a $12 billion deficit. But only with that pita tear tax included. It's about the size of the budget, New York, if it were a state, it would be the 13th largest state by population. It would be the third largest state by budget. So he's looking at some real budget cuts and that, of course, affects the unions that are among his biggest supporters. He wants to spend more money as a democratic socialist, so he's sort of caught between a rock and a hard place. The challenge facing M. Donney is made more complicated by the structure of the tax system. Many taxes are the single biggest source of revenue for New York City, accounting for more than 30% of its budget. But those taxes hit residents in very different ways. As an example, even though single-family homes have the highest nominal tax rate, caps on assessment mean they pay the lowest effective rate, putting most of the burden on apartment buildings, condos, and commercial property owners. There are weird anomalies in which someone who is grandfathered into an older building, but very expensive apartment on Park Avenue is paying much lower tax rate than a blue collar person out in one of the outer burrows, right? It's a very different burden on those owners, the middle-class family in Queens versus the billionaire on Central Park South. So you have to come up with some type of other structure. I think the Pieda Territax is a fair idea. Ruth Colp-Haber is a partner at commercial real estate firm Warton Property Advisors. For her, the issue isn't so much the idea of a new real estate tax. It's more a matter of how Mayor M. Donney is going about it. To take for granted an owner such as Ken Griffin, who has contributed in the form of his company, it's going to be 25,000 jobs before he's done and hundreds of millions to hospitals and museums. I mean, this is a guy we want here. And we don't want to antagonize him in any way. Citadel loan has paid tens of millions in taxes. Yes, their employees make a lot of money. And I can understand how some people have a problem with that. Citadel has about 1,300 employees in the city. And Griffin is now saying he'll move at least some of them to Miami and take another look at a huge new office tower on Park Avenue. Not only has he committed to a 60% ownership of this development, but he's committed to being the anchor tenant, meaning he's going to take like half the space in the building. This is a major commitment. If he pulls out from that, the message that is going to go out, literally to the world is, New York is not a good place to do business. It would be a disaster. This wouldn't be the first time Griffin made good on a promise like that. Citadel wants employed more than a thousand employees in its 50,000 square foot office building in Chicago. We need to look to history and what happened in 2022 with Ken Griffin in Chicago, with Governor Pritzker. And Ken Griffin was building his business in Chicago. There was politics gone involved. Ken Griffin wasn't happy about the crime situation in Chicago. And he left. Thus far, most of what we've heard about to address the budget gap has been about raising more revenue. But Philip thinks it's not fundamentally a question of how much the city is taking in. I think at the core of the problem is that you have a spending problem unless of a revenue problem. You've tried it hammer home repeatedly. Where did New York City go in the wrong direction with their budget? There was a time not too long ago that they had balanced budgets. Remember they were doing okay? Is it because the spending just grew too much or the growth of the overall economy slowed down? I mean, look, it's complicated because you have a lot of things simultaneously happening. So you had costs, COVID, go through the roof. You have tariffs, you have wages and union contracts that have increased fairly significantly. You've had very progressive mayors that have layered on additional social service. So all those things kind of come together, but a pragmatic person would look at it and say, the city budget has grown significantly faster than the rate of inflation. And that is a question mark on why. But putting that aside for a second, what we've tried to say is we should be thoughtful about the program overall and whether it achieves the outcome that you want to achieve. If the PTA tax goes forward and if it's $500 million, that's still way short of where we need to be. I mean, the estimates are over $5 billion. So if you'd want, if you've got to be mayor, where would you look for the other four and a half plus billion dollars? I found it very difficult and I tried to really get down into the weeds. I mean, you can see $5 million to build a public restroom in a park is 10 times too much. We pay six times as much as any city in the world to construct one mile of subway. So you can see those examples. Just the school budget is 37% of our $118 billion budget. I have been very involved in charter schools and educational form over the years and I know there's a lot of fat in there, you know, dead people on the payroll and that kind of thing. So I think I might start with just sort of a 1 or 2% across the board cut and that sort of gets you in $118 billion budget. That gets you a bunch of the way there and then negotiate from there. Balancing the books on a New York City budget is never easy and it's not surprising that there's a range of ideas about how to come up with a few billion dollars to make it work with or without calling out specific CEOs and their penthouse apartments. But the one thing most everyone agrees on is that we need to get the balance right to ensure that New York City remains a magnet for talented young workers and the companies that employ them. The best asset here, which is very hard to replicate, okay, is New York City brand is very, very special and two, it is the most desirable place for young people to want to be, okay. That is a very, very special thing. Now, you have AI that uncertainty around jobs and the affordability on housing. So those are two things that go directly at that young person who wants to live here. So that is a challenge. And then you also have places like use Texas as an example. So JP Morgan today has more jobs in Texas than they do in New York. It's a crazy thing to think about. 10 years ago that was the case. So the trend is moving in a bad direction. Goldman Sachs trend in the bad direction. Why? It's bigger than taxes. Texas has been very deliberate with their strategy on how they're going to track jobs. So they changed their court systems entirely to replicate Delaware to make it more corporate friendly. They're starting a Texas stock exchange to have better access to the capital markets than they have incentives and they have leadership that talks about embracing their big corporate communities. You need to build a lot more housing, not just low income or affordable housing, but it all trickles through. We need to build more housing for young professionals who can afford to pay more. Look, when Amazon came and wanted to put their headquarters here, you want a mayor who invites Jeff Bezos and the Amazon executives to Gracie Manchin sits down with all the key people from the city and rolls out the welcome mat. So some of it's just sort of messaging and signaling and being a champion for business in the city. That does it for us here at Wall Street Week. I'm David Weston. See you next week for more stories of capitalism.