Featuring members of the aspen Economic Strategy group. Big thanks to our society of fellows and community of donors for supporting our programming and your engagement all summer long. We cant do it without you. Thank you so much for your support. [applause] i dont know if they are here yet, but a big thanks to tom and bonnie for their support of the institute and for endowing the fletcher series. [applause] its my pleasure to introduce our speakers and thank them for being here. First, to my immediate right is rob portman. Rob is a former u. S. Senator from ohio, distinguished visiting fellow at the american in Price InstituteAmerican Enterprise institute. His career spans three decades including three president ial administrations and two terms in the United States senate and six terms in the United States house of representatives. Thank you, senator portman, for being with us. [applause] to senator portmans right is cecilia rouse, who previously served as chair of the council of economic advisers between 2021 and 2023. Before that she was dean of the Princeton School of public and international affairs. The drumroll is that we are so proud she has recently been named president of the brookings institution, a role she will assume in 2024, i think. [applause] and to cecilias right is adena friedman. She is chair and ceo of nasdaq. Adena brings more than 20 years of industry leadership and expertise and is credited with contributions to shape nasdaqs strategic transfer mission to a leading company with operations on six continents. Thank you so much, adena, for being here. [applause] and all the way over we are joined by greg ip, the chief economics commentator and deputy economics editor for the wall street journal, and will lead our discussion. Thank you, greg, for being here. [applause] greg thank you to the audience and thank you to the Aspen Institute for hosting us today. We spent a couple of productive days on the theme of building a more resilient economy, and the concept of resilience is important now. Anyone who has children knows what we mean by resilience. You dont try to prevent your children from falling down or ever encountering hardship, you train them to bounce back and thrive. My goodness, have a had a lot of things to bounce back from, starting three years ago with the devastating pandemic and economic crisis to boot. We were barely struggling our way out of that when we were hit with the russian invasion of ukraine, supply chain problems, epic inflation, rapidly rising Interest Rates, severe inflation problem, and early this year a banking crisis. And so economists have been saying for the last year that we were likely going to have a recession. Just this past week, fitch downgraded the Credit Rating of the United States, saying our governance problems and debt problems were not heading for a solution. That is quite the plate to discuss today. What is the way forward, how do we look after those various sharks, but more importantly, how do we make sure we as a society thrive and are resilient in the face of those things resilient as a society, resilient as a political system, resilient as human beings, managers, and employees . Lets start with the framing of where we are. Cecilia, i want to start with you. You were the chair of the council of economic advisers, which meant that you owned the economy for better or worse for two years. I know you dont any longer have that anxiety, but the morning payroll report nonetheless, a cooling from previous months, but good by most standards. The Unemployment Rate still at 3. 5 . What is your assessment of where we are in the economy . Are we solving the inflation problem . Are we going to get by without a recession . What do you think . Cecilia thank you. One of the things i was known for saying at the council of economic advisers is that its very difficult to forecast, and we should all be humble in the face of the data. But what i would say is that this economy, to overuse a word for this recession, is remarkably resilient. As you pointed out, the report today pointed out we had some cooling in an appointment, which was a perp in u nemployment, which was welcome, because it was not possible to sustain Monthly Employment growth of 300,000 jobs. If we were normalized, had a healthy economy with typical turnover, we would have employment growth that was more like 100,000 jobs a month, plus or minus. But we see is some cooling in terms of the employment growth. I think the federal very much welcome that. The Unemployment Rate ticked down to 3. 5 , which is very low. With an Unemployment Rate of 3. 5 , you wouldnt expect employment growth of 387,000. All of that suggests a very resilient economy. Other signs of cooling, we have the jobs opening data this week. Job openings came down slightly. We have a strong labor market. At the same time we had the first estimate of gdp for the second quarter. Came in a little better the next occasions, 2. 4 . That will be revised. It is largely supported by consumer spending, so consumers are spending, which is a good part of our gdp and economic activity. Our economy is really hanging in there very well, even as we see inflation has come down quite substantially the past year. What we have seen is that the easy part of easing of inflation we are working our way through, the easing of supply chains, which there is a lot of data that supply chains have gotten a lot more fluid since the dark days of the pandemic. We also expect that in terms of housing, that that lags in the way we measure inflation. The contemporaneous signs look like that is cooling as well. That said, weve always expected the last couple of last Percentage Points would be the toughest to achieve. The fed reserve is also not going to be complacent. They often strip out the volatile oil and gas and food. Gas prices have been creeping upwards. Food, i think there are some signs that is creeping upwards as well. Russias not cooperating on the blockade of grains leading ukraine is not going to help there. There is a lot of reasons to be vigilant, there is a lot of reasons for optimism. This economy, its possible we will achieve this soft landing, softish landing that the Federal Reserve is aiming for. What i would argue, and what i think many people are anticipating, is that this last little bit is more difficult to achieve than the first cooling of inflation. But on the whole this has been remarkably resilient economy. Greg adena, youve run the stock market, nasdaq stock market. You have great interest in many investors. And you had a great run, up 40 this year, i think. I think its safe to say that your market is betting on a soft landing outcome. What do you think . Is that sustainable, or just to be putting on my stock market reporter hat, is it a bubble . Adena i think we have to frame out the stock market in a couple ways. The market is a predictor of the future. What investors try to do is predict the future of the economy, future of the sector. That manifests in the markets. The second thing you have to look at his history. What has happened over economic cycles in the past, and i have data that looks at the s p 500, and then we will talk about the nasdaq 100 because it has a different dynamic. Goldman sachs put together this really interesting report that looks at four stages of an economic cycle, and the first is despair. The economy is in decline, everyone is really morose and very pessimistic. What you actually find is that earnings stay relatively flat, but the market, the p. E. Multiples, they compress and compress by about 35 . That drives Market Performance down about 35 . Well, you look at 2022 and that usually lasts about 14 months you could argue that 2022 was the year of despair. The next part of the cycle, and this is many cycles they have put together, is the period of hope. In the period of hope, actually, earnings decline, but everyone expects the world to get better. Pe multiples go up about 80 on average. The market ends up up about 60 , because you have declining earnings on multiples. What you actually look at so far this year on a relative basis is last year the markets were down 25 rather than 35 , on average. This year the markets are up 35 s p 500. You could argue there is more to run in terms of that period of hope. And then you have this three to fouryear period of growth, and earnings go up 7. 5 to 10 , market pes actually declined a little bit. The market tends to be relatively flat, interestingly. In the last period is the period of optimism, where everyone is hoping that the period will continue, and it usually lasts about two years where pes go up again and earnings they are still growing but not as high. Really interesting way to frame out where we are. Markets were down when 5 last year and are up 35 this year. In a normal cycle you could argue there is more to go, and then you get into this period of growth, if we can avoid a recession. What is also interesting is last year earnings were actually up a little bit. This year earnings are down, but not as much many layers on the nasdaq 100. Why is the 100 outperforming the general market . That is when you get to a sector view. While the s p has the great Tech Companies, the nasdaq 100 has more concentration of the Tech Companies the market was down 40 last year and is down 35 last year and up 40 this year so far that has to do with the optimism about the future of technology, and also recognition that technology is driving the economy. As we are in this period of hope, you might have more hope on that sector than in other parts of the economy. So that is my explanation. If i were to say what do i think will happen, i think we have a real chance of a soft landing. I do think that technology could have a Significant Impact on the productivity of the country over the future, which will drive more growth. If we can land the ship well right now, we will have a really good run and growth in the economy. Greg just to put you on the spot, do you think the fed has stopped raising Interest Rates . Adena i actually happen to be on the board of the new york fed, and i cant answer that question. [laughter] greg just speaking on behalf of the fed adena i will speak on behalf of adena friedman. I would say that we are near peak rates. What they are looking for is continuation of the trend on downward inflation, some i think they would be thrilled if they could see the kind of job growth while inflation continues to decline. Obviously wage growth is one of the big determinants of that. I am hopeful that we are at a position where we dont have a rebound, because that is the big concern right now. And inflation. Assuming we dont see a rebound in inflation, i think we could be at least i think maybe near peak rates. Greg rob, i want to bring into this discussion, looking beyond the shores of the United States wasnt a lot of the shock last year were abroad, whether it was covid and china a few years ago or the invasion of ukraine and the consequences for commodity prices. I think, like in my reporting, one of the concerns hanging over peoples things are going to get really bad on a global front. You hear about decoupling, derisking, economic cold war with china. If it has not ballooned flying over us, it is opening up a base in cuba or hacking us. The Global Environment and we heard this in our discussions this week is more fraught than we have seen in a long time. How concerned are you about a period of sustained instability in chinau. S. Relations, and what is the outlook for the Global Economy in that context . Rob great questions. First of all, thanks to the Aspen Institute for allowing us to be here again this year, i think both adena and cecilia very well summarized what we heard, which is relative optimism, and that the economy is remarkably resilient, given all the shocks including our relationship with china. He talked decoupling you talk about decoupling, in other was steve asking, it kind of depends what you are talking about. Gwyneth paltrow famously said about her divorce was a conscious uncoupling. [laughter] i hope we are not getting divorced from china because it is not a good idea for the economy. But im going to plagiarize from her a little bit and suggest that the best way to go forward is conscious strategic derisking. What do i mean by that . I think that is what is happening. The private sector is starting to friendsource, go to other countries that are more friendly than us, vietnam, indonesia, thailand, mexico for that matter. They are derisking by not being so dependent on china. As we saw during the pandemic, it had negative consequences for the question is what is strategic and what is not. This is where, going back to the famous actress again, being conscious about this. As we are determining how we deal with china, we have to be careful to divide what is a nationals agouti risk from a National Security risk from Strategic Risk like divisional intelligence or Artificial Intelligence or quantum computing, and every thing else. Last year china sent us more exports than ever. Some people think lets just cut off entirely from china, and why not. I brought this with me, which is the aspen Economic Strategy group water bottle, which all of us received. Where its made. We are going to cut off Water Bottles and toys, it will have an impact on the cost of products people find that walmart, a find at walmart, and those are not strategic. On the other hand, over the last couple decades in particular, we have kind of ignored the threat from china, including the theft of our intellectual property, which helped to grow the economy but also the rise of their military. We kind of ignored some of the Human Rights Concerns with the uighurs and others. We ignore the trade imbalances because china, as you know, is not a market economy, and they have more and more Stateowned Enterprises now. For a while they pushed Economic Reforms and there were fewer, and now there are more. And they subsidize heavily and sometimes sell below the cost, which is dumping. That is not fair to american workers. We have to deal with these issues, and that doesnt even get into the issue of taiwan and what is going on there, what happened in hong kong, or other issues like the military aggression in the South China Sea that worries so many regional neighbors. There has to be balance here where, given our engagement with china, which is significant, the water bottling sample, and so many other products that we continue to have a healthy trade relationship, on a more level Playing Field so they are not subsidizing unfairly or otherwise not following rules of International Trade. But with regard to these products and services that are of strategic interest to us, we have to go in with their eyes open and determine what is strategic and what is not. That is not easy. You might think a toy or water bottle, thats easy. Military commercial technology, do we help their military, that is easy. That should be in the category of us derisking. But how about robotics . Where does that land . These are all challenges, we talked about this the last couple days, and frankly, some of the smartest economists in the country are there not including me, but these two. And we didnt have any answers. When you get down to it, we need to have engagement with china, dialogue with china. They are the second largest economy in the world, may become the largest economy in the world in the next couple decades. We need to have a healthy relationship, but we also need to do so without naivete. We have to know that we are dealing with the issues we talked about earlier. Im hopeful that with the increased dialogue we have seen in the last couple months that we can get back on a more normal track here, but at the same time, again, have a conscious strategic derisking. The private sector is doing a lot of that on its own. The government can play a role in terms of these strategic goods and technologies. Greg i want to stick with you for a second, rob, because you talked about steps we need to take to derisk. One of the phrases you hear a lot these days is duster a policy. Industrial policy. It is shorthand for we choose which industries are strategic and put Government Resources into those, subsidies, tax breaks, production. Traditionally we have not done that in the United States, but now we are starting to do it. We passed the chips and science act, building fabrication plants in the United States. But you also hear talk that we need to go beyond that. Electric vehicles, renewable technology. People say we need a chips act for steel and aluminum and all sorts of other things. What is your view . Is industrial policy a good thing or bad thing . Are we doing the right amount, or too much . Rob in general i would be very cautious. The government typically does not make good decisions in terms of what the greatest and best technology might be. We see plenty of examples of that around the world. I even think china is suffering from that. They are a nonmarket economy, we understand that. They have done extremely well the last couple decades since getting into the dub eto and china wto and china with the trade relationship. But theyve made some wrong decisions and they are suffering from that. You have to be cautious. On the other hand, getting back to the earlier discussion, if something is of Strategic Value to us, we have to be willing to take some steps in order to be able to ensure that the United States has the