Elections, global threats and happy hour with the Riskgaming team

Danny Crichton:

Hey, it's Danny Crichton and this is the Riskgaming Podcast by Lux Capital. It's not every day that we can get our distributed Riskgaming team into one podcast studio. We actually managed to do it from our New York City base and with some drinks to boot. Joining me is Lux's Riskgaming director of programming, Laurence Pevsner, and our researcher, part-time columnist and all-around utility handyman, Michael Magnani. We're going to do a rundown of the world's hotspots and then switch to the threats the world isn't thinking about. Let's just dive right in.

All right, let's dive into this. We are doing a news episode. We're also doing a news episode with a several data from when we record to when we're actually publishing this episode, which in our very slow times when news takes at least a week to go on the Pony Express is totally acceptable. But nonetheless, we're in the midst, almost the end of the year of democracy 2024. A majority of humanity has voted this year, and other than I think Canada might be coming up, there's a few other big countries that... Germany is just going to miss the wire, which we'll get to a little bit later, I think it's coming February, mid-February, but they did announce a date. So we do have the Germans voting as well. But nonetheless, we're at the end of this year of democracy and so we have so many interesting things to talk about because so much has taken place over the last couple of weeks and over the last year.

I want to start out for those who have missed a previous episode, missed our newsletter, basically have missed everything we've done for the last month. We hosted two great run throughs of our DeepFaked and DeepSixed Riskgaming scenario focused on AI and election security, one in New York City with a bunch of founders and tech execs and policy folks, and then down in D.C., Senator Mark Warner, chair, along with a bunch of staffers from Capitol Hill and think tanks.

I'm curious because I've got Laurence here and I've got Michael. Laurence, obviously, you ran the game with me, Michael, you actually got to play for once as opposed to standing at the door and blocking people from attacking me. What was your experience? Because Laurence, this was the first time you actually got to do it and play it. We've talked about it before and in your case you actually got to play it, Michael. What were your expectations? What were your experiences? And then let's talk about what actually took place right after.

Michael Magnani:

Yeah, so I got to play in the game in New York. I was an A-list celebrity coming off a D-list movie. So I was looking to rehab my image and for a good cause that turned out to be a cause that was foreign created. I thought it was really interesting, much as the newsletter said, our post-game recap, the New York crowd was very much running around and connecting and doing that. I forget how you guys described it, where you're connecting, you're a person with someone else that you might've talked to. I thought that was really interesting. A shout-out to my guy, Cole, who was playing the CIA director. He was running around like a headless chicken looking for all the answers. I was working with him. It was really interesting being like, "Oh, you should talk to this person, you should talk to this person." There was a lot of that which you guys said there was not a ton of in the D.C. crowd at all.

Laurence Pevsner:

Yeah, that's exactly right. We've talked about this before, but in D.C. people are much more focused on their own mission, their own goals, what information do I have? Sometimes they were self excluding their information because they thought it wasn't relevant or valuable or other times they just weren't talking to other people when the direct wars didn't line up. "Oh, you're not talking about bombing at polling locations," then you're not of interest to me. Even though the game is designed to demonstrate that there's actually a lot of interconnectivity here, that things that don't seem like they might be related can actually be quite related.

Danny Crichton:

Well, obviously we've talked about this a little bit more, Michael, unique experience. If you want to hear more about this while we're listening, I think we're two or three or four episodes ago we did a full deep dive into all the lessons learned from this game, but always good to get a first-person experience. But now that we've run the American election, the second thing here that's most interesting is we hosted this game projecting the kinds of threats that would happen both before, during and after the American election, and I feel like we got some things right. Laurence, you've been tracking this a little bit. What do we get right and what do we get wrong?

Laurence Pevsner:

Yeah. I mean, one of the major things we got were Russian interference and specifically on the front of bomb threats to polling locations. So we got a confirm from the FBI that from Russian email domains at least, we don't know if those were spoofed or not, there were these false threats. These were not real bomb threats, but they were creating bomb threats in order to cause confusion, sow chaos and suppress the vote and make us trust our democracy less. There were also the IC assessed that there were lots of false articles being posted about potential election fraud that was not real. There were deepfakes.

We were talking earlier about how Senator Warner and others said that deepfakes were the dog that didn't bark. These weren't loud barks, but there were certainly a lot of yips from different deepfakes they're putting out there. There was this fake video of a Tim Walz student that did not exist, was not real, but was coming out there and saying lots of Untrue things about being a student of Tim Walz. There were a whole thing about creating fake overseas ballots and changing voter rolls to favor Kamala Harris. So there was clearly an operation going on here.

I think what we might have missed, although it's still too early and we don't know the full information is most of these threats seem to originate from Russia and in our own game we had multiple different countries trying all kinds of different tactics to influence the election.

Danny Crichton:

Yeah, man, I'd say the things we got wrong, we have Iran, North Korea, China involved in the game a little bit. China to a much less degree, so I think we got that mostly correct. North Korea is much more involved. They did not, as far as we know, doing anything in the election, although they were doing stuff in the Ukraine, putting 10,000 soldiers on the Russian front line. So in some ways they were actually in the headlines, which was what I expected, but they were not involved directly in the election. And then Iran I think had some level of involvement, but it was much less than we anticipated. And then there was this fake threat around India that we threw in here as a red herring, which India was also in the news for quite a bit over the last two, three months with some of their extrajudicial assassinations in Canada and threats in the United States. And so they were in the news, but they did not do anything either. So we got that one right.

Michael Magnani:

Yeah, I believe there was a report that Iran was looking to potentially assassinate Trump. That was the big one from Iran, but otherwise, yeah, there wasn't a ton coming out of Iran. It looked like mostly to be Russia, obviously the fake bomb threats and the deepfakes. Yeah, definitely Russia.

Laurence Pevsner:

Also, the point here is when we're predicting these different countries, we are not actually saying, "Oh, it's going to be Iran who does this and it's going to be Russia who does that." The point is the larger lesson of course, that there will be these kinds of deepfakes, there will be these kinds of interconnected threats. They will sometimes support a particular candidate, sometimes they won't support a particular candidate. It's just to cause a confusion and to undermine democracy.

I think the other thing that we maybe missed or that we didn't see as much of as we thought were home-brewed interference, like grassroots movements to try to overturn the election or to cause some violence at polling sites, things like that. That was something that we had playing out in the game that didn't necessarily take place this time. Although, again, there are some ways in which we don't know actually everything that happened. That intelligence is either intelligence and it's not being leaked or it hasn't leaked yet.

Danny Crichton:

I think the key thing that for me is if you look at the technologies, the technology that exists today, a lot of folks are worried that the news media is disintegrating and declining, and I think there's actually more inoculation than we expect because citizen journalists, people who go to these rallies, they see these candidates. We saw this with say the Trump assassination attempt in Pennsylvania. There are hundreds of videos of what took place, from every angle, from every surface. It's really hard to deepfake and create a scaremongering scandal or a scaremongering crisis when there's so much covered from people who are in the room. And so in some ways, even though the news media is declining, and particularly we've seen some results from major media companies just in the last week, their earnings not doing well in general in the media industry, but there is this general inoculation that comes from just social media, the level of coverage from actual real footage that to me, even with better technology, I'm not sure that we're going to see deepfakes have as much of an impact as people keep seeming to expect.

Laurence Pevsner:

Yeah, and I think this goes to the point, our scenarios were fairly pessimistic overall about our election security, but at the end of the day, we did have a free and fair election that the country agrees on what happened and agrees on the result. And that's quite remarkable. And it actually happened fairly fast.

Danny, we were talking, you were predicting earlier that it was going to be more drawn out and that it would be a challenge to count the ballots and have people agree on where it's going. And that's actually not what happened in this case.

Danny Crichton:

California drew it out at least a week with those mail-in ballots. We finally figured out who won the House. This is a choice, and ultimately I agree 100%. We came to an agreement, everyone figured it out. I will point out that most countries are able to figure this out in about a couple of hours. So our decentralized model in one negative aspect cannot count and do it all nationwide very quickly. On the other hand, it makes it a huge attack service because there's a lot of complication. If you want to attack tens of thousands of different poll places, you want to cyber hack into voting machines. Well, we don't use one voting machine. We use so many different models and there's so many different ways, paper, trails, all digital. Some are uploaded, some are sent on memory cards and special vans. It's so convoluted.

I mean, I'm just curious, if you're in the Russian FSB or maybe the GRU and you're in some unit that has to manage this election, do you realize the amount of staff you'd have to have just to even figure out how the hell this system works?

Michael Magnani:

And not to mention Russia was also busy with elections in Georgia and Moldova too around the same time as the U.S. so it could be a manpower resource issue over there. But I also think it speaks to how far we've come in the U.S. in the last eight years and how we counter some of these things. Now you're seeing the FBI and other agencies publicly say, "Hey, this video is fake. It originated from Russia. Here's the evidence proving why." So we have come to a better point as a country in countering these narratives as opposed to 2016 when it caught us off guard.

Danny Crichton:

All right. So we talked about the election itself, but that leads to the next question because obviously Donald Trump has become the next president putting in place a position to power all across the cabinet, up and down the administration. And so the big question is what's next? In the last newsletter I wrote, or maybe two weeks ago, I talked about mostly from an economic policy perspective of ideally an idealism is maybe not the angle we should all have in this world, but I like to start with idealism. What do we think is next coming up in terms of risks, opportunities that we're seeing both domestically and overseas?

Michael Magnani:

I'll take overseas or I'll start with overseas. I think you're going to see going back to the tit-for-tat trade wars with certain allies, specifically the EU countries like Japan. I think Japan and Korea have maybe done a better job of preparing for this, whereas the Europeans are still so caught off guard, "Oh, this can't happen again." And here it happened again. You saw who Trump nominated to be the trade representative. It's the same one from his first administration. So I think you're going to see a lot of that. A very much more transactional foreign policy when it comes to alliance management, especially with our European allies.

And then the issue of Ukraine, what does the Trump administration do with the war in Ukraine? Trump has said that he wants to propose a peace plan that will end the war. The people he's so far announced for nominations have been a mix of nationalist hawks and then your Quasi-Isolationists. How are they going to come up with a coherent policy for Ukraine in this administration? So I think it's going to be an interesting couple months in that regard and the Europeans should probably get going if they haven't already.

Laurence Pevsner:

I think this speaks to this idea that there's this major tension in the foreign policy community of are they going to be isolationist? Are they going to be hawkish? Or are they going to be some kind of blend in between? Speaks to a larger trend we're seeing not just the United States but around the world. First of all, this election is another example of incumbents losing. The old world order, whether your left or right is being shaken up and new leaders... This year of democracy that we've had has basically been a year of replacing the current leaders and current heads of state and current parties. And so this raises the question of, is the era of neoliberalism over? Are we done with a flatter world where people are trying to free trade and we're trying to create these massive agreements, lots of multilateral engagement? It does seem like we don't know what's going to happen next, but it does seem like it's potential that we lose that entire framework for thinking about the world.

Danny Crichton:

If you look at everything from Reagan onwards, there's been one theme around the "Washington consensus," which is open borders, free trade. America has the best industry. We're coming out of the Soviet Union '89 into the '90s. We are the dominant force economically, and so we just want all these borders to go away because we have exporting markets, we can continue to sell goods, services, products overseas. That worked for a very long period of time. I think it's actually important. Everyone always hates neoliberalism, particularly if you're in the academy, and Michael, you were just there. So hopefully it comes up all the time and there's nothing better than the number of papers that reference neoliberalism without defining it, which is one of my favorite parts of academia. But nonetheless, when I think of it, I think of it as bring China to the World Trade Organization, maintaining rules-based international order, all these great phrases, and it worked.

The country became very rich and that has been a theme even since the 2008 financial crisis. We continue to do this, but people are getting worried about deaths of despair. They were getting worried about fentanyl, they're getting worried about deindustrialization across the American Midwest and the Heartland, up Appalachia. And so there's these greater questions of say, where does things get produced? It actually matters that those supply chains that used to funnel into say Detroit, are now many cases in Canada. In some cases, they're in Mexico and going up through Texas up the highway. And so that is a real radical shift because we didn't care who it was before. We just wanted to make the money. And as long as it was made here and particularly in New York City, NYC, and it was publicly traded, we don't care.

Laurence Pevsner:

I think this is a case where the policy is starting to catch up to the rhetoric for a long time now. When Biden first came into office, he ran on this idea of a foreign policy for the middle class. That was the slogan, that was the framework. It's not clear exactly I served in the Biden administration. It's not entirely clear what that meant. I think there was a genuine conflict within the foreign policy community about and within the Biden administration about what that actually looked like in practice. Then we're going to see that same debate play out within the Trump administration as well. Like we talked about, there are people on both sides of this.

As that debate plays out in the U.S., I think we're going to see a, I say bipartisan, not left right agreeing, but it's not necessarily going to be a long left, right lines of what a possible new approach to foreign policy, a more mixed strategy on free trade, say what that actually looks like in practice.

Michael Magnani:

I would say honestly, some of these seeds we thought, "Oh, the first Trump administration might've been a blip, back to neoliberalism with Biden." But sure the facade changed. The Biden administration was a lot better at talking to our allies publicly, but privately we were putting up trade barriers. There was a big foreign policy for the middle class that had a lot of industrial policy. So the seeds that were planted in the Trump administration kind of stuck in the ground there, for lack of a better term, in the Biden administration. So I would personally argue that the era of neoliberalism is most assuredly over now because now you have the behind the scenes stuff, the industrial policy, the trade wars that's been planted for eight years now, and now you're back to the rhetoric that's not so happy-go-lucky with our allies and partners.

Laurence Pevsner:

This is extremely true when it comes to China, right? Everyone understands that the Biden administration's posture on China, especially when it came to tariff policy, really was not a very different from the first Trump administration's policy. In fact, in many ways they extended it and expanded it. And so I think there's a real question about the Trump tariffs more largely applied to a much broader array of things rather than the more targeted focused on certain national security related industries. But that piece of it is a bipartisan piece, for lack of a better word.

Danny Crichton:

I think what you see is two different patterns, and I don't think there's any agreement on the right or left on where to go. One is incrementalism, which I would [inaudible 00:16:11] as the rubric of de-risking. Critical minerals in China would be a perfect example. In some cases, China owns the entire supply chain of critical minerals. And so part of incrementalism is say there should be a U.S. supply chain. Maybe it's not as good, maybe it's not as profitable as the Chinese supply chain, but it exists. And in the case of building it out, you reduce the leverage of China over us and that gives us a little more balance in the relationship.

And then I think there's another group, and I keep running into them mostly on the right, but sometimes on the left, which is the rip the bandaid off, which is put tariffs up a thousand percent, shut off all imports from other countries, or at least from China and a few others, and basically do the damage to the middle class and say like, "Look, everything's going to go up in price. Inflation is going to go up maybe 30, 40% a year and we're just going to have to take it because that will trigger industry to be rebuilt because there will be no substitutes available and in a couple of years, we'll all be happy when all the industry is back in the United States." I do think there is a real tension, it's not even coherent, but I don't think we're going to answer that. Let's walk around the globe. What's interesting to folks when you look at the major hotspots that are going on every season right now?

Michael Magnani:

The German government coalition collapsed. Olaf Scholz's, Social Democrats, the Green Party and the FDP. They formed the traffic light coalition a few years ago, initially very successful, but there was a lot of infighting in the coalition between the FDP on one side and the Socialists or the SPD and the Greens on the other. The one side, the SPD and the Greens wanted to take on more public debt. The FDP did not want to. So Scholz fired Christian Lindner, the head of the FDP who was his finance minister. So that coalition now fell apart, their ruling in minority government until elections in February.

That's part of a larger picture about Germany, how that economy, which is the heart and soul of Europe is faltering. I saw an interesting thing. They haven't achieved any meaningful quarterly GDP growth since about 2021, initially post-COVID, and this is an economy, they're big three, you got automotives, chemicals and industrials all faltering. So this is going to be interesting for Europe. This is going to be interesting with their relations with the U.S. and how this German economy rebounds.

Danny Crichton:

I think one of the biggest challenges in the German economy, and this gets at just what we were talking about with this balance between de-risking versus rip off the band-aid. Germany is ensconced in the global economy and specifically with exports to China. Its auto industry exports, the chemicals industry, the industrials, and China's also a competitor. And so on one hand you could say, "Well, I just want to remove China." That's where the revenues are coming from, right? Germany's GDP would contract dramatically in this trade war with China. And so they're trying to do this sort of de-risk, de-balance, a little bit of strategic autonomy, but there's a limit to how far you can do this.

And so I think the Germans have tried to focus on, well, let's maintain our technological edge because we continue to produce products that no one else can produce, and therefore there is no competition, there are no substitutes, you don't have to compete. Unfortunately, the Chinese have caught up very fast and far faster I think than most German leaders expected. And we do have a game on this, which we talked on the podcast before on China EVs.

Laurence Pevsner:

Yeah, so I was just going to plug that we're about to be launching our Powering Up game, and we really model this exact problem. We have several CEOs of automotive companies, one that's based in China, one that's based in Europe, and frankly really Germany is the model there. And then one that's based in the U.S. When we play out these games, you really do see the challenge that both the U.S. and especially Europe face when trying to establish these markets that, as you said, is one of their main driving industries.

I also think that very important to this idea of the German economy, they're also feeling pressure on their defense budget. Germany traditionally has had a very low defense budget. They started to raise it in response to the war against Ukraine. And now especially if there's this belief that perhaps the U.S. might lower or cut off funding entirely, there's actually wide base support in Germany for raising the defense budget, which obviously for historical reasons has been quite controversial, but they're talking about 3 to 5% here, which is a huge percentage compared to where they were before. And that is not going to be easy at a moment when they're struggling economically.

Danny Crichton:

I think when we look at a lot of the potential for a Riskgaming scenario, the German situation is a good example. You see this new poll that came out in the last week or two that show that the German population 3 to 5% for the defense budget, up from a traditional 1.5%, it's a huge jump, but the German people also don't want debt and they don't want a government that is going further and further in debt.

Michael Magnani:

And they have a constitutional mandate that they can't have any debt. That's why the coalition fell apart.

Danny Crichton:

Right. With the FDP trying to hold it up. And so this is a good example of like, okay, if you ask someone do they want more libraries? They're like, "Yes." Do you want more social security? "Yes." Do we want more defense? "Yes." Do you want lower taxes? "Yes, yes, yes." And how does that all work together? And I think that's what we'd always try to do with a lot of our Riskgaming scenarios is bring people who are around those issues to say, "Look, what you've just said is you want all the above and real life has consequences, trade-offs, hard decisions to make, and we increasingly don't make them." And I think the pressure point here, there's both this article that we were talking about as a group in the Financial Times, there's also a new book out, which I particularly love the title called Kaput, on the German Economy.

But they both get at this challenge of, look, Germany has serious structural challenges. It needs to make very hard decisions and it needs to make them very, very fast. And unfortunately on one hand there's all these kinds of constitutional constraints, cultural constraints, and the other piece, it's also just the coalition building where Germany's political economy is very focused on consensus building and coalition building, which is why even when the election is held in February, depending on the outcome, generally speaking, it can take up to 6 to 12 months to actually get a government in place and the government needs to make those decisions much, much faster. And so to me, that's the tension always. This is another version of speed versus coalition or consensus building, where do you draw the line there?

Michael Magnani:

Yeah. Right now, the leader in the polls is the traditional center-right party, the CDU and their sister party, the CSU. This was the party of Merkel, but they're probably not going to win an outright majority. They're going to have to build a coalition. They've already ruled out building a coalition with the AfD, the far-right party, Alternative für Deutschland. So who would their partner be? They tried a grand coalition the last time around that didn't really work out. Would they partner up with the Greens who have become this center-left hawkish social spending party? We really don't know. It's definitely going to be an interesting time there.

Danny Crichton:

All right. So let's open up our globe again and spin it around. Laurence or Michael, where are we going next?

Laurence Pevsner:

I think we should talk about Ukraine itself. If Germany and the U.S. and there's this tension of whether we're going to be able to keep funding the Ukraine war, there's a real open question about is that war going to end in two months? Is it going to end in two weeks? Is it going to end in two years? Is going to end in two decades? We really don't know what the future is. And I think that basically all of what happens in Europe depends on that war.

Michael Magnani:

Yeah, it's definitely, this gets back to what we were discussing with the nationalist hawks versus the isolationists in the Trump designated administration. People like Mike Waltz who was just announced as his national security advisor, which is not a Senate confirmable position. He recently had a piece in the Economist along with Matthew Cronin from the Atlantic Council, talking about how they really need to unshackle the restrictions on Ukraine in terms of shipping weapons there. And also the ability for the Ukrainians to use long-term fires into Russia to hit valid military targets, which the Biden administration and the Germans for that matter have not allowed them to do. Is this for a more advantageous position on this theoretical peace plan in Ukraine? Maybe weaken Russia a bit, bring them to the table. I don't know. But this is going to be, I feel like a perennial in-fight between your more traditional Republican hawks who see Russia as an enemy and the isolationists who just want the U.S. to retreat from the world, stop paying Ukraine all this money as they say.

Laurence Pevsner:

And there are real tactical considerations happening on the ground right now in Ukraine. Look, on the one hand, October was the deadliest month in the entire war for the Russians according to the Ukrainians. They lost an average of 1,500, dead or injured every day in October. That is just astounding. That's 700K total combatants. Meanwhile, they've also assembled 50,000 troops, including those troops from the DPRK region in an attempt to take back Kursk. This to me indicates that Putin understands this to be a pivotal moment in the war. The election certainly has something to do with that. There's also the actual fighting happening on the ground, whether there will be more supplies, won't be, whether there'll be a surge of supplies, but then a deadline, Putin can see those deadlines just like everybody else. I really think this is an open question right now.

Michael Magnani:

Yeah, and the ability for the Russians to basically be recruiting 25,000 new soldiers a month, and that's not through conscription, that's through volunteering and losing that amount. They're able to replenish this manpower. And that's the edge Russia has in the long-term that Ukraine doesn't have. Ukraine hasn't introduced conscription to anybody under the age of 27, I believe, because they're worried about such a small population of men there and losing them for the future. So Ukraine's on the other side of the long-term manpower debate, the Russian economy hasn't been hit as hard as I think many people expected. And part of that is because they're just spending a ton of money to keep it afloat.

They're spending about 8% officially on just paying out whether it's money to dead families or to pay for volunteers. They're giving them, like I saw something like the equivalent of 150,000 a year or 150,000 rubles per month, which for Russians is exponentially more than they would make, especially from some of these really poor regions. So they're in the driver's seat in this. Now that gets back to the whole, what is the Trump administration going to do? Will they try to unshackle Ukraine a little bit to try and negate some of that leverage that Russia currently has to get them to the table? I really don't know.

Danny Crichton:

I don't know either. Look, if I were coming from a negotiation risk gaining perspective, the number one thing you're trying to do is bring food to the table and you need to get leverage. And today the United States has no leverage. Macron has come out in the last few weeks, particularly post Trump's election and said, "Europe really needs to bring this back, its destiny in its own hands." And so that's partly refunding defense. It's also getting more involved in Ukraine. It's also loosening, to Michael's point, some of the German and also French constraints on Ukraine where we said, "Look, you can't do X." Well, we're not going to open the spigot and say, well, you have the material in hand. Why don't we just let you use it and see if that drives more attention. Now I think as you're pointing out, there's not a material personnel, Russia has no blockage, right? It's also getting all these weapons from North Korea. North Korea has become a pivotal supplier of arms to Russia,

Michael Magnani:

Iran as well.

Danny Crichton:

Iran as well. And so unfortunately, this war is not just helping Russia and trying to drive its economy, it's actually helping to invent some industrial base of many of the worst enemies of the United States. To me, that's the secondary effect here that is very, very dangerous. And so I just think you do have to try to create more leverage. I think you can do that by unshackling Ukraine a little bit, letting them to use the equipment they already have. There's more sanctions you can do. You be more aggressive on some of this stuff.

And then there's China, and I do think if we want to spin around the globe, that's maybe where we end up for today. But the biggest leverage point here is Beijing. It has the biggest leverage around North Korea. It is one of the only countries with leverage over Iran. It certainly has leverage over Russia to some degree, although less so than those other two. And so to what degree can we use the trade war in the U.S.-China context as a means of putting leverage on Russia and Ukraine? That to me is what's going to be very, very interesting in the next administration.

Laurence Pevsner:

Yeah. From my time-serving at the UN, we found that one of the big challenges, if you're trying to corral votes, say on a Russia vote, it takes away your energy from trying to counter Chinese influence at the UN. And so you can really only pick a couple of these battles or fights. And I do think that Chinese see it as they're not necessarily for or against the war, but they see it as an advantage. Okay, if the Western powers are very distracted trying to work out the theater in Europe, China is still going to keep talking to Africa, talking to Latin America, building up their relationships and their debt there. The idea is that we want to be playing in all these places at once, but really we can only focus on so many things at once.

Michael Magnani:

Yeah, I completely agree. I think China's an interesting one, and when you pair them with North Korea and Iran too, going back to what is this administration going to do, not just about the war in Ukraine, but about what's going on in the world, painting these four, I know the acronym CRANKs has been thrown around, but painting these four as this new axis of, I'm not even going to say the Bush term. This new axis of something will really help you get on board maybe some of these more skeptical members when it comes to maybe Russia-Ukraine policy or just the United States role in the world in general. If you say it as, "Hey, Iran," which you really care about, which you're really hawkish about, they're helping Russia in this case, China's helping them. Kind of getting people to coalesce around this idea that these are all of our enemies and they're all interrelated and you can't just focus on one, you have to focus on them all. That might be a way that you get this incoming administration to carry out a more coherent policy.

Laurence Pevsner:

And this is a consequence of having a democracy versus autocracy framework. If that is the way that you divide up the world, then you will divide up the world that way and suddenly the autocracies will start banding together, which has not always been the case. We didn't always have this strong relationship between China and Russia that's now starting to exist. Like the CRANK idea, the axis of evil that you were referencing earlier maybe wasn't as real 20 years ago as it is now. As a consequence, if you focus on that, then you're not necessarily going to be able to develop the nuanced relationships and be able to pit some of these countries against each other.

Michael Magnani:

Yeah, I would definitely say you push them closer in a lot of these ways. Russia and China historically have always had war games about each other. They fought brief border conflicts in the past, but they've definitely become closer than ever in the last couple of years.

Danny Crichton:

All right, so we've done into this around the world tour. Hopefully we can solve Ukraine, hopefully we just solve all the world's problems, Germany. That's why you listen to the podcast. We solve all of them. But I think this would not be a Riskgaming podcast on current issues with the whole crew here without doing the long tail of risks. So risks that we aren't thinking about that are not on the front pages but are on... D65 COVID, whatever the case may be. And I'm going to draw attention to decentralized finance because the Trump's election, obviously crypto has gone back into the Ether all of a sudden. And not just Ethereum, but Bitcoin hit an all time high in the last couple of days, passing 90,000 and maybe even more by the time that this podcast goes out.

Polymarket became this betting market where people around the world were betting on the outcome of the presidential election. We've now learned live as we were recording this, that the Polymarket CEO's phone and devices have been taken by the FBI. So that'll be interesting. By the time you listen to this, we'll actually know this story, but we do not know the story now. But my point being is there's clearly more and more networking around decentralized finance outside of the bounds of the U.S. economy, outside of the bounds of the Federal Reserve, any money laundering and your customer laws.

And so we're seeing this increasingly, not just with terrorism financing, which was the issue 10 years ago, but even nation state actors now are moving money very, very, very quickly. We just did a podcast recently, a recording with one focused on the gig economy of Russian sabotage in Europe. In this particular example, people are getting cryptocurrency, paying $500 to go burn down a [inaudible 00:31:44] building. I feel like we're just not getting enough attention to the fact that there are almost no controls right now in the world to stop money from going from good people to bad people, bad people to bad people, whatever the case may be. And that's going to be a huge risk going into 2025.

Laurence Pevsner:

Yeah, and this is a really interesting threat you raised because part of the promise of cryptocurrency originally was supposed to be that it was all supposed to be public, right? There's this idea that, oh, we would have a public record of where money was, who was getting it. You'd always know. But in fact, it actually seems like it's happening the exact opposite effect, that these things are really hard to trace. And the way that in it, for example, bringing it back to our deepfake scenario, we modeled what it would look like for the DPRK to try to make a buck off of the election and they would do it through crypto.

Michael Magnani:

Right. Yeah. North Korea was the pioneers of using or stealing crypto in order to get much needed foreign currencies in their central bank.

Danny Crichton:

By the way, we're still continuing to see that story. So I think WIRED has published a couple of good pieces, but a lot of companies actually hire software engineers in other countries, which actually are screens for North Korean software engineers in Pyongyang and elsewhere in North Korea. And so people are actually paying often with cryptocurrency, but not necessarily, it can be with traditional payment rails, but you don't actually know where your money is going to. So again, I think this is a huge risk. I think there's some contagion issues around this in terms of financial stability, not just the criminality aspect of it. And I think it's massively underreported in the press today, but Laurence, what's your threat?

Laurence Pevsner:

My threat would be another food security crisis and one that both could be global or even just national. At the start of the war in Ukraine, we were already starting to see a food security crisis, both with the Black Sea Grain deal that fell apart eventually, but also understanding that both Ukraine and Russia were supplied much of the world's wheat and other food products. And there was a banding together, a multilateral effort to try to overcome this. But we're still seeing threats of famine in Sudan, and I think that the conversation has shifted away from food security. People feel, "Oh, okay, that threat didn't quite happen as badly as we thought it would," and people have moved on, but just because it was solved for half a minute a year ago doesn't mean that it's going to not rear its ugly head. Again, this will be especially true if we start to pull funding from the World Food Program, which I highly suspect that the next administration will. I mean, that is the major coordinating force for making sure we not just stop famines, but even identify them in the first place.

Danny Crichton:

I'm looking at orange prices in the EU, up 10% just this month alone due to supply and disease constraints. Look, climate change, combination of additional viruses. We're seeing this in grains, we're seeing this with avian influenza, which as of today is spread around the world, but it's been very low levels. There's been a little bit of human transmission, which has gotten media attention. But ultimately to top it, you oftentimes have to call whole hoards of chickens. And chicken is one of the most crucial meats and protein products globally for the human diet. And so if that were to expand much more dramatically, you could imagine a vastly different world, massive inflation to try to respond to that. And that's a really different place to be.

Laurence Pevsner:

Yeah. The other thing I'll say about this is in an economy where we put much higher tariff of stuff, United States does rely on other countries to get our food, and we don't quite have the infrastructure to completely rely on our own food supply if necessary. It might be a really great thing for farmers in our country to be able to produce more food for us, but I don't think this is something that we've really modeled out if we're actually going to have the kinds of tariffs that the Trump administration's been talking about.

Danny Crichton:

I can tell you if my avocado toast isn't coming in from Mexico, I'm going to be very, very disappointed.

Michael Magnani:

Get ready for soybean toast.

Danny Crichton:

Yeah.

Michael Magnani:

The U.S.'s greatest agricultural export.

Danny Crichton:

The fastest move to the Trump administration. I don't even know, where would we go? Who's the avocado toast party anymore? All right, so Michael, what is your risk?

Michael Magnani:

Yeah, mine is military logistics as we continue to pivot towards Indo-Pacific, and I actually do think the military and the forgotten folks at transportation command are thinking about this issue, but I don't think a lot of the public or politicians are. Indo-Pacific is a giant space. This is not the global war on terror where we had air supremacy, air superiority. We could fly in a Burger King to Baghdad like that famous picture of the Burger King coming out of the C-5 or whatever. It's going to be hard to resupply our soldiers on the front lines in the first island chain or the second island chain, and they're very isolated on these little islands. So Military Sealift Command has shrunk a lot where we're retiring a lot of ships. This is not an issue that people think about, but is one that is necessary if we were to either deter or win a future conflict in the Indo-Pacific.

Danny Crichton:

I completely agree. I also think if you look at what we're actually talking about, it's the interrelations between multiple countries, very densely interconnected economies. You look at decentralized finance, you look at food security, you look at military logistics. It's not a America first problem. And I think that this is going to be the biggest tension for the Trump administration going forward. This is ultimately the great risk for the country is it's great to be America first, where Americans here, we would like us to be first and to do well.

Unfortunately, part of building America first is also helping allies and partners who help us do well, and we help them as well and is a win-win as opposed to a win-lose. I do think that there's the greatest risk in the world. It's misidentifying that we are still in a globally interconnected economy, that even if we're in the post-neoliberalism world, even if countries like Russia are sabotaging elections a little bit here and there, the reality is we're on a very small planet and there's 8 billion people going on to 10 billion, and everyone's right next door to each other. And so it's very, very hard for issues that are happening overseas to not affect us and vice versa.

Laurence Pevsner:

Yeah, the summary risk here is when you swing one way that you miss what you just lost. So if we're going to ditch free trade, if we're going to ditch multilateralism, well, we thought those were good ideas for a reason, and even if the country feels that we went too far in some of those respects, or if the world is maybe not quite as interconnected or not quite as flat as we thought it was going to be, that doesn't mean that there isn't a lot of free trade going on right now. It doesn't mean there isn't a lot of interconnectivity that's been very important. And if you throw the baby out with the water, well, what's going to happen?

Danny Crichton:

Well, on that notice, Michael, Laurence, thank you so much for joining us.

Laurence Pevsner:

Thank you for having us.

Michael Magnani:

Thanks, Danny.

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