684. He Helped Clean Up the Last Crash. Does He See Another One Coming?

**Stephen Dubner** (0:01)
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The US economy is made up of 20 different sectors, as the government calls them. There's the agriculture sector, manufacturing and construction, health care, transportation and energy. One of these 20 sectors is fundamentally different from the rest. Why? Because it intersects with every other sector with an intensity and at a scale that we have never seen in human history. I am talking about the finance sector. Listen to Gary Gensler.

**Gary Gensler** (2:10)
Finance is a critical piece of American exceptionalism. We are about 4% or so of the world's population.
We are 25% of the world's economy, but we are 50% of the world's capital markets.

**Stephen Dubner** (2:24)
It is easy to argue, and some people have, that we are living through the greatest period of wealth creation in history.
The financial markets that support this growth are exceedingly complex, and few people understand them as well as Gary Gensler. He spent the first 18 years of his career at the elite investment bank Goldman Sachs. He first got into government work in 1999 when his Goldman elder Bob Rubin recruited Gensler to the Treasury Department. After the 2008 financial meltdown, Gensler was asked to help clean up the markets that drove the crash. Barack Obama installed Gensler as chair of the CFTC, the Commodity Futures Trading Commission, and later during the Biden administration, Gensler chaired the SEC, the Securities and Exchange Commission. Now he is a professor at MIT with a specialty in financial booms and busts.

**Gary Gensler** (3:19)
The debate really is, when do you have these booms that lead to just recessions and when do you have these booms that lead to real washouts?

**Stephen Dubner** (3:27)
I wanted to speak with Gensler about the AI boom in particular.

**Gary Gensler** (3:31)
That's the big financial risk in the economy right now.

**Stephen Dubner** (3:35)
And why is AI such a big risk?

**Gary Gensler** (3:38)
We have a parlay bet right now. It's that the model companies like OpenAI and Anthropic and so forth, and the hyperscalers like Microsoft and Google, that their capital expenditures will lead to enough revenues.
The second part of the parlay bet is that it will also lead to sufficient productivity gains in the economy in the near term. I'm not talking about in 10 and 20 years. In the near term, enough productivity gains to make up for what is going to happen.

**Stephen Dubner** (4:11)
So what is going to happen? Today on Freakonomics Radio, we get Gary Gensler to help us sort that out.

**SPEAKER_3** (4:30)
This is Freakonomics Radio, the podcast that explores the hidden side of everything with your host, Stephen Dubner.

**Stephen Dubner** (4:46)
All right. Let's start with Gary Gensler's birth.

**Gary Gensler** (4:49)
October of 1957, the same month that the Soviet Union put Sputnik in the air. And the same year, 1957, that you start with artificial intelligence.

**Stephen Dubner** (5:01)
Gensler is off by a year on what people consider the birth of modern AI. That was 1956, but that's not his point.

**Gary Gensler** (5:09)
Few people really think AI is as old as I am or that I'm that young.

**Stephen Dubner** (5:15)
And now, Gensler is working at one of the epicenters of the AI revolution.

**Gary Gensler** (5:20)
I'm not a card-carrying PhD, but MIT saw fit to take this old math guy and make me a professor of the practice. And I guess you don't view me as a competitor, but Simon Johnson and I started this podcast, Power and Consequences.