Wall Street Week — Warsh’s Waiting Game, EU Merger Rules, Robotic Surgeons

[00:00:00] David Weston: This is Wall Street week. I'm David Weston bringing you stories of capitalism. The European Union is moving toward new merger guidelines to help it develop the sort of tech champions that drive much of U.S. growth. Will they do the trick. Plus Johnson and Johnson finally got approval for its new approach to robotic surgery. Now it needs to do some catching up in a rapidly growing field. And the U.S. leads the world in think tanks. We take a hard look at what they are and what they really accomplish. But we start with the Federal Reserve decision this week addressing persistent inflation rising borrowing costs and a whole lot of uncertainty. Jason Furman is professor of economics at Harvard and served as the chair of President Obama's Council of Economic Advisors. So Jason we got three things out of the Federal Reserve this week. We got a decision not to do anything about rates. We got a statement that didn't change a whole lot from what it before. And then we got a news conference from Chair Warsh [00:01:13] Jason Furman: Warsh. Of the three which was the most important. The dissents were the most important. It's very clear where a lot of members of this [00:01:21] David Weston: committee want rates to go going forward. And in the news conference certainly Chair Warsh was asked about those dissents why they descended why he disagreed with them. I'm not sure we got a clear answer to that question. Do we have a sense from him from the way he thinks about it. [00:01:38] Jason Furman: Why he did not join with the dissents. I don't think we got a clear sense from him. I think he has two. Chair Warsh has two points which I agree with him on. One is you want to look at financial conditions and there's been a lot of tightening on the long end of the curve. Now you need to be a little bit careful. Some of that is in anticipation of what the Fed is going to do. And if the Fed ends up not doing that some of that would end up unwinding. But so far financial conditions at least on the rate side have tightened. And second this really is a different type of inflation than what we had a couple of years ago. It's not the same type of labor market tightness. High wage growth. High price growth. High inflation expectations that we saw in [00:02:25] David Weston: the past. Before we get into exactly what you think is causing the inflation. Let's talk about the low inflation itself. We're often taught the core PC is what the Fed really pays a lot of attention to. That has been rising fairly steadily. So it does give rise to the question which was asked. What are you waiting for? [00:02:44] Jason Furman: Yeah I think that's a totally reasonable question. Inflation is intolerably high. It's been intolerably high for five straight years now. The argument on the other side in terms of what you would be waiting for. The two best arguments are one that rates may be set above neutral already. So there may be a little bit of a foot on the brake pedal. And yes you could debate whether you should be pushing harder on the brake pedal. But maybe and I think arguably and plausibly you are on the brake pedal already. And then the second argument is the transitory one. And I don't think we're going to hear that word from any government official ever again probably for another 50 years before they get over what happened last time they use that word. But implicitly that is what the Dove case is at least at the moment. When it comes to the T word whether we [00:03:42] David Weston: use the word transitory or not. How long is transitory? I mean it's been five years now that we've been over two percent. And there may be different reasons for the over two percent. But as I say it doesn't look to be [00:03:54] Jason Furman: going back to two percent anytime soon. Yeah the different reasons is important. I mean it looked at the end of 2024 as if we were headed back to two percent. It was almost within spitting distance and then it took off again. Why did it take off again? I think in part that was tariffs which probably have added half a point to a percentage point to the inflation rate. And then subsequently the Iran conflict which has added maybe a few tenths more to core PCE a lot more to headline inflation. And so in some sense things were lined up nicely. Now the story in the 1970s was one excuse after another. Each time you had high inflation it might have been different than the year before. So you want to be a little bit careful if you find yourself making excuse after excuse after excuse. But you know tariffs in Iran they really are pretty big things and they raise the price level. They don't permanently raise the inflation rate or at least they shouldn't as long as the Fed is credible. And it raises the question [00:05:04] David Weston: I think whether the cause of inflation can be limited to the specific cause whether it's tariffs or whether it's Iran and energy. When you start there can it spread into other sectors of the economy. [00:05:16] Jason Furman: Yeah that's the most important question and that's what the Fed is trying to figure out right now. And there's a few mechanisms for that. Some of it is direct. You know just the cost of jet fuel goes up so airplane tickets go up. That's not the biggest concern. The big concern is if it gets built into expectations and the way that manifests itself is economy wide wage setting and economy wide price setting. So if you see prices go up faster and that leads to wages going up faster and wages going up faster leads to prices going up faster. And you end up with a sort of persistent cycle. That is so far where I am cautiously optimistic. We're not seeing the wage growth commensurate with this type of inflationary economy again in the way that we saw it a couple of years ago. But that is where we would see the broadening out if it really starts to show up not just in specific prices but across the board prices and especially in wages. Do the numbers coming out of the labor market cut [00:06:18] David Weston: both ways. There was a time not too long ago there was a lot of concern on the Fed that in fact there was a loosening of the labor market. We needed to really keep rates low for that reason. That does not appear to be true now. It's more stable now than it was six nine months ago. Does that give the Fed actually some license to increase to address the inflation question. Yeah it absolutely does. You know the Fed has two [00:06:41] Jason Furman: mandates the employment mandate right now is in better shape than I can almost ever remember. Normally the unemployment rate is either too high and it's coming down or you know maybe it's too low and it's rising quickly or something like that. It's just been amazingly stable. It peaked in November of last year. It's fallen a bit since then. It's basically the same place for the last two and a half years. And it's not clear what would dislodge that unless there was some big exogenous shock to the economy say the AI bubble burst. And I don't think there's any reason to expect that to happen anytime soon. So yeah the Fed really just needs to worry about the one side of its mandate right now which is inflation. The Fed certainly [00:07:28] David Weston: does not say it moves off of the markets. But the markets are a data point. And one thing that happened in the wake of the news conference was particularly the yield on the 30 year going up to the highest level in 19 years since before the great financial crisis. Is that some information that Kevin Warsh and the members of the [00:07:44] Jason Furman: Fed need to take into account. What does that tell them. What that tells them is that markets to some degree are expecting them to keep their word. A lot of that movement was in the real rate not in expected inflation. It says they expect the Fed to deliver rate hikes as needed to keep inflation under control. In some ways I saw that as a sign of credibility that the Fed would be there to deal with this problem. You know that being said you know I'm not entirely sure of the strategy that you try to keep the markets calm by not speaking and then you deliver some big surprises. In some sense the meeting itself was a surprise we didn't know. You know I expected them to hold but it was much less certain than it often has been in the past. The dissents were a surprise. Some of the communication was a surprise. And so some of this volatility to me seems unnecessary and I hope it's a growing pain not something that's here to stay. Well we'll talk about that [00:08:52] David Weston: communication issue because Chair Warsh from the beginning has made no secret the fact he does not believe in a lot of forward guidance. He thought it might have been necessary. We're coming to the great financial crisis. Don't need it anymore. And so he's moved away from that. But at what point does that really undermine some of the stability in the market. Because as you say then you wait and you get a big surprise. Is this really giving rise to some doubt about his new policy of really cutting back on forward guidance. [00:09:16] Jason Furman: Yeah. Forward guidance was overdone but we don't want to go too far in the other direction. First of all a lot of members of the committee are going to be communicating. So if you don't hear more authoritative communications you'll end up with more noise and confusion. Every time the chair does communicate you can end up with a bigger reaction. And then finally I think most important what the Fed really needs to grapple with which is if it wants to talk less it probably needs to act more. Chair Warsh was relying on the moves in the long end to justify not moving rates. Well part of why the long end is moving is an expectation about what the Fed is going to do in the future. Where does that expectation come from if the Fed doesn't communicate. In a world where the Fed wants to say less you know maybe it's going to actually need to move rates more aggressively. And so it lets its action speak rather than its words. And I haven't seen any willingness to do that. And it's all about that [00:10:21] David Weston: critical word you raised which is credibility of the Fed which is we all need the markets need it the economy it's incredible in the Fed. And some people today are questioning whether they've lost a bit of credibility. What is the danger here particularly as I as not an economist look at this five years over five years or two two percent. You say oh no we're going to get to it. We're going to get to it. You know if if your child said that to you over five years and never did it you'd have some doubts. The Fed is starting with an enormous amount of credibility. Now it doesn't want to be reckless and spend that credibility. [00:10:57] Jason Furman: Fernando Pires: And it doesn't want to be willy-nilly. That would be a real mistake. But you know to me it's amazing. Five years of promising inflation will come down. Having inflation not come down and yet having the market expectation of inflation still be really tame is a testament to the way in which people believe in the Fed. So far Chair Warsh has said all of the right things. He may need to actually start putting his money where his mouth is if he doesn't want to start going into deficit on the credibility bank that the Fed has built up over the years. [00:11:34] Speaker 3: Coming up growth has been slowing down for a long time in Europe. But we've ignored it. But now we cannot ignore it any longer. Now conditions have changed. [00:11:48] David Weston: Mario Draghi urged the European Union to figure out how to get in the tech race. Now the European Commission is trying to move in that direction with new merger guidelines. But are they enough. Mario Draghi. This is a story about keeping up with the Joneses. The United States has led the world in building huge technology companies and attracting enormous capital. Now it's right. Now it's riding the crest of that wave into the revolution that is artificial intelligence. While Europe looks on with envy or at least with a strong desire to try to catch up. Now at the highest levels it's trying to do something about it. [00:12:30] Speaker 3: Growth has been slowing down for a long time in Europe. But we've ignored it. But now we cannot ignore it any longer. Now conditions have changed. [00:12:42] Jason Furman: We need new tech champions in Europe. The fact of the matter is 43 of the largest 50 companies in AI are U.S. based. Europe has won. [00:12:51] David Weston: The quest for Europe to get into the mega tech game is one of the reasons it's now undertaking the biggest revision to its merger rules in over 20 years. And few people know more. And few people know more about the potential impacts for businesses and consumers than Fiona Scott Morton, a professor at the Yale School of Management and a former chief economist at the antitrust division of the U.S. Department of Justice. [00:13:14] Speaker 4: There's been a lot of angst in Europe over growth and the ability of Europe to stay at the technological frontier. And we've had a couple of reports, the letter report and most recently the Draghi report that have really hammered on that and pointed out all the issues in Europe that are holding back Europe from more growth. [00:13:34] David Weston: Scott Morton says the new guidelines, which were published in April and are now under review, aim to change that. [00:13:40] Speaker 4: I think the complaint has been among some parties in Europe that the commission is not favorable enough toward the mergers they would like to do. So this is explicitly laying out how do you come to us with a story for why your merger is really good, why your merger is going to increase innovation, something like that, and explicitly laying out what those factors would be and how you might go about showing them. [00:14:02] Speaker 5: It's a big deal. It's a big deal. It's a big deal because it's been 20 years since there was a revision of the guidelines and it's a good exercise in showing the direction of where competition law is heading. [00:14:12] David Weston: Ingrid van den Bora is the head of Skadden Arps European competition practice in Brussels. It's firms like hers that are navigating the changes on the front lines. [00:14:22] Speaker 5: What the guidelines do is they set out also for the difficult deals, also for those that may not be so easy to get through. There's a couple of factors that are more developed. A, the commission's going to look at efficiencies in a much more robust way. They call it the theory of benefits in the guidelines. So they're not only looking at what will the harm be to the economy of a transaction potentially, but also what will the benefits be. The second element is that they're going to look at markets on a dynamic way. The key term in the guidelines is dynamic competitive potential of a transaction. And so it's going to be forward looking. One of the examples set out in the guidelines is to say we're going to look at non-European companies and how they may bring product into Europe in the future. Even if they're not doing that today, we're going to look to constraints that may happen in the future. [00:15:13] David Weston: Beyond giving companies explicit leeway to argue for efficiencies or changes in the market to justify their mergers. The new guidelines specifically address the question of startups and provide ways for early investors to reap rewards for taking chances. [00:15:28] Speaker 5: We all know that that's what startup companies need. When you invest, you need to know you have an exit route as well. And that's really what the guidelines are trying to do. So those are a couple areas where very concretely, the guidelines set out some more robust frameworks for companies. Following also in the Draghi report that indicated investment needs confidence, right? And confidence needs to come with the knowledge that there is an exit strategy and an exit route that's possible. [00:15:55] Speaker 4: So if I invent a drug and I want to sell it to a big pharma company, what are going to be the rules about which firm can purchase my startup? And there's various cutoffs according to what market share the startup has or the acquirer has and how big they are and so on. So that's very helpful for investors and founders of small companies that want to plot out their exit strategy, for example. And for innovation, same thing. If I'm going to merge with another firm and I'm going to bring forward an innovation story of benefit that because we're together, we're going to have more innovation. I need to understand what the commission wants to hear to explain that that's going to be the reason why our merger is going to be great. So I think those are perfectly useful things and should help with growth. [00:16:44] David Weston: The new guidelines may make some deals easier or at least more certain, but some think they could fall short in the specifics for one thing in giving more play in the joints. In any set of regulations and particularly competition, there's a balance between certainty and discretion with the regulator. Right. Where do these proposed regulations come out on that sort of barometer? Does it give you more certainty and more clarity or does it increase discretion? Because in reading through them, there's a lot of discretion. There are a lot of factors put into the hopper. [00:17:22] Speaker 5: Yes. Yes. That's a very important point we've been assessing with our clients as well. There's a large efficiencies framework. It's pages and pages. I mean, this is a piece of prose. It's almost 100 pages long. Efficiencies as a core part of that. So it goes on for some while in this document. I think what is important is we'll have to see how the commission will assess it in the first decisions to come under these guidelines and to see how they will set out this framework and implement it in practice. Because I would think initially it may lend itself to a bit of discretion. [00:17:55] David Weston: And although the new guidelines would recognize the need for scale in some sectors to achieve the sort of innovation that Europe seeks, with that scale may also come greater scrutiny. [00:18:05] Speaker 4: The thing that really does come through in the enforcement of mergers is when you need to be that big to participate in an industry successfully, we know there will not be hundreds of competitors. We know right upfront there's going to be one, two, three, four, not that many. So we regulate with that in mind, with this oligopoly, as it's called, kind of theory in mind. And you wouldn't want, for example, Coke to merge with Pepsi. That would leave us with too few drinks choices. It's going to be, it's going to be, it's going to be, it's going to have the same kind of impact on mergers, um, that have similarly few competitors. So if we only have three big clouds, then both conduct and mergers become scrutinized in a way that they would not, if it was restaurants. [00:18:53] David Weston: The guidelines we've seen so far are only a proposed version with the commission now pouring over a raft of comments. But those who know, suspect that the finished product won't be all that different from what we've seen. And that it will be out before the year is over. [00:19:08] Speaker 5: So the consultation period ended, uh, end of last month. We know summers tend to be a quiet period. I don't know if we'll be much more ahead of Q4. What we've been told is Q4, uh, of this year. Um, so we, we may have to wait until then. [00:19:23] David Weston: As you advise clients considering possible deals, uh, does the proposal of these new guidelines affect timing? I mean, do you have companies saying we better get it done now because we know what the old guidelines were. We're not sure what it's going to be. Or on the other side, did they say, you know what, maybe we could wait a little while cause it may be a little bit easier to get it through. [00:19:42] Speaker 5: Yeah. And we've had questions like that, or, or sometimes companies say, well, we'll just not look at these drafts yet because we only want to be dealing with the final product once it's there. Um, and then we'll assess it's kind of similar. We've said, um, repeatedly, but this is already how the commission is analyzing mergers today. We don't think it's going to materially change whether you notify a transaction, uh, say next week versus, um, in November, uh, there may be one or two decisions, uh, that will come out that will reflect efficiency assessments. That would be something to wait for. I think the private bar among practitioners, no one wants to be the guinea pig on a first efficiencies full out assessment. Uh, because it's more discretionary how that will come out and how exactly the commission will now be applying this very robust framework. [00:20:28] David Weston: Whatever the strengths or weaknesses in the new proposed guidelines, it will take some time to see how much they truly change what mergers make it through the European process. [00:20:38] Speaker 4: I don't think these guidelines will be a sea change. I think there'll be a clarification. I think they're going to cause firms to think more carefully in a good way about, is their merger going to enhance something like resilience, innovation, help the environment. And so one of the ways that's credited in the, in the guidelines, do something useful and be able to come with an affirmative story of that usefulness. That would be of course great. Um, and that might encourage some, some beneficial mergers, but I don't think we're going to see a big, a big change. [00:21:13] David Weston: If we go back through history, I think it's fair to say there's been something of a dialogue back and forth between Europe regulators and U.S. regulators when it comes to competition slash antitrust. One learns from the other. One gets ahead of the other. Sometimes one is proud of being ahead of the other. Will these regulations as drafted have much influence in other parts of the world, including the United States? [00:21:31] Speaker 4: Well, they definitely will have influence in other parts of the world because most of the world follows Europe on competition law, not the United States. Uh, we're not that good at it, it turns out. Um, but the thing about the United States is we redid our merger guidelines in 2023. So really there's some learning from those 2023 guidelines that you can see in the European revision. And then some things that they're doing that go beyond, um, what the United States did in 2023. I would say there's more on innovation. There's more on these little small firms being acquired. There's more on the theory of benefit. There's a bit less on labor and monopsony because in Europe, labor regulations are so strong. You don't have as big a monopsony problem. [00:22:15] David Weston: When the dust settles, the most important question will be whether the new guidelines are fit for purpose. The purpose of keeping up with, or at least not falling further behind the U.S. Or whether the thing holding the development of European tech champions back has had little to do with competition policy, but turns much more on deeper integration of the European Union itself. [00:22:40] Speaker 4: The argument that there's, that they're putting forward is that that merger will make a bigger firm and therefore make some kind of European champion. That's actually not typically how we've seen the champions in other parts of the world emerge. If you think about Google or Microsoft or IBM back in the day, they didn't come from a merger. They came from very fast growth of an innovative firm. And so a lot of what the Draghi report talks about is not in fact mergers, but is about the barriers to the single market being really effective. If you start up a company in the Netherlands, how quickly can you sell across all 27 member states, 500 million people? If you could do that as fast as can happen in the United States, because we have free commerce between our states, you could grow really fast. [00:23:27] David Weston: Up next, robotic surgery is a rapidly growing segment of health care. Johnson and Johnson got its start helping surgeons 140 years ago. Now it has its own approach to using robots in the operating room. Can it catch up with the leaders in the field? This is a story about losing the race, at least at the beginning. Inventors become household names when they do something for the first time. Thomas Edison and the light bulb, the Wright brothers and the first manned flight. With time, their names have become synonymous with their innovations because of the leaps in technology that made their products viable. Everyone always wants to be first. But can it sometimes pay off to be slower out of the gate? Johnson and Johnson hopes so, at least in the fast growing field of robotic surgery. I want to introduce you to Otava. Last week, Johnson and Johnson got the green light from the FDA to take its robotic surgery device, Otava, to market. It's the latest move by a company whose legacy traces back to the 19th century. Johnson and Johnson and Johnson was founded by three brothers in 1886 when they created ready to use sterile surgical dressings. But the original Johnson brothers could not have anticipated how far surgery would come over the next 140 years. Otava is Rocco DeBarnardes' baby. He has been with the MedTech division of J&J for 14 years. DeBarnardes gave us a first-hand look at what the new platform can do at J&J's campus in Santa Clara. [00:25:11] Speaker 6: The ergonomics was an important element, you know. Definitely, there's an improvement where you move as a surgeon from bedside to behind the console. [00:25:20] David Weston: Meet Otava. J&J has traveled a long road to get to the newly approved version of Otava. Although it has sold robotic systems for other procedures, it started its pursuit of soft tissue robotic surgery 11 years ago when it teamed up with Alphabet to create Verb Surgical, which it ultimately took over. In 2019, the company bought robotics surgery startup Auras Health for $3.4 billion and subsequently invested billions more in the effort. Then came its first version of Otava with six arms, but suffered a $900 million delay before getting approved in a simpler form by the FDA. [00:26:01] Speaker 6: It's not been a linear journey, you know, for us, but, you know, I'm really proud of what we have accomplished, particularly over the last five years, how the technology has evolved and what we're going to be bringing to market anytime soon. We acknowledged that there were some technical challenges at that time, and we went back to the surgeons that I was talking about, and we are very happy with the decision we made at that time. [00:26:30] David Weston: While Johnson & Johnson has been developing its version of soft tissue robotic surgery, others have forged ahead. The leader in the field is Intuitive, whose Da Vinci system was first approved in 2000 for urologic surgical procedures. Global data estimated that Intuitive held around 80% of the market in 2024, with the rest shared by firms like Medtronic and CMR Surgical. J&J knows it's starting from behind in the race, but it believes Otava is a very different kind of competitor, one that will help it move up the leaderboard. As you know well, you're not first into this space. There are other people who are fairly well entrenched. Are you happy with your position of being second or third or fourth? [00:27:14] Speaker 7: Well, first, we're very happy that we're bringing a new category defining innovation to the market. [00:27:20] David Weston: J&J is in charge of the company's surgical technologies, including Otava. That group falls under its Medtech division, which made up a third of Johnson & Johnson's overall revenue in 2025. [00:27:34] Speaker 7: If you look at globally, there is maybe 40 companies with robots, but all of them are either stuck in two different architectures, either modular or boom. And the biggest difference here is our robot is the table. The arms are integrated. You walk into the OR. If they're not deployed, you don't see it. And when it's needed, it comes on. And you'll tell me, is that a big deal? I can tell you, when I started my career in J&J, I remember the first day I was in OR. And I felt, without even noticing it, there is tension and friction between the surgical team and the machines. And I've always had this idea that we can do better and we should do better. And I believe we did. [00:28:16] David Weston: Johnson & Johnson believes it has a better way to address robotic soft tissue surgery, one that will appeal particularly where space in the operating room is at a premium. But it also sees the overall robotic surgery market as being in its early stages, providing an opportunity for its product to grow as the market does. [00:28:36] Speaker 6: Robotic surgery, if you look at the total addressable market, the way we look at it, has 8% penetration around the world. It's a fast-growing segment of the market, definitely one that we see more and more adoption for. And there is more and more company like us willing to contribute and bring meaningful solutions to market. [00:29:00] Speaker 8: One of the big benefits of the robot is that it is collecting a lot of the surgeon information. [00:29:08] David Weston: Dr. Christy Hawley is an assistant professor of surgery at the University of Colorado and just recently led the department's annual robotic acute care surgery course. [00:29:18] Speaker 8: Robotic surgery definitely adds another element of complexity to general surgery training. The resident physicians are being asked to not only learn open operations and laparoscopic operations with straight sticks, but now they are also being asked to learn how to operate on a robotic console. At my institution, I'm the director of robotic surgery education for about 80 general surgery residents. And so really thinking about how to train them on the platform is challenging. [00:29:53] David Weston: Another challenge for robotic surgery is the misnomer of the role of the robots. Dr. Hawley says they don't perform surgeries on their own. They are meant to be used by human surgeons. [00:30:05] Speaker 8: I often get asked whether robots are going to take over our jobs as surgeons, and I believe that would be very difficult to accomplish. Being a surgeon involves patient selection, diagnosing a patient, and ensuring that you've built that trust with a patient to go to the operating room. But I also think that there's the possibility of these robots performing components of the operation. I'll give you one example. A simple task like suturing. If a program was able to actually see different pieces of tissue, and you as a surgeon sitting at the console say, "I'd like to suture this to this and point to the robot and show it," then maybe it's possible that that component of the operation could be done by a robot. But that's certainly not something that's going on today. So I wouldn't say that every surgery necessarily should be robotic. I think it takes a very well-trained surgeon in both robotic surgery, laparoscopy, and open operations to decide patient selection. So which patient is going to benefit from the robotic platform for what type of surgery. [00:31:17] David Weston: Robotic surgery may not be right for every procedure, but where it is used, Dr. Hawley says it fills a gap for both patients and the hospitals that use the new technology. [00:31:28] Speaker 8: There have been multiple studies showing that laparoscopic and minimally invasive surgery do have many benefits to patients. One of the biggest benefits is decreased pain. As you can imagine, an open operation requires a large incision and can be very painful. So if you have less pain, you can recover more quickly, go back to work more quickly, and get out of the hospital faster. And so one piece is that minimally invasive surgery can actually decrease your hospital length of stay, which is very important to both patients and hospital administrators. Overall, when choosing robotic surgery specifically, it really depends on patient selection, the operative team you have available, if the platform is available in your center, and of course, how well the surgeon is trained on the robotic platform. If I do not have a resident, I'm an academic surgeon, and so we have residents in our operating room to help us operate as the attending surgeon. And it's very beneficial that if a resident is not available on the robotic platform, there are less needs for assistance. It's a lot easier to just place the ports on your own and then operate robotically. I have spoke to many surgeons in the community or in rural settings who don't have surgical trainees, or their systems really can't afford surgical assist. And so the robotic platform can be another way to make us more autonomous and be able to rely on ourselves to perform operations in totality. [00:33:11] David Weston: Johnson & Johnson is hopeful not just that it can catch up in robotic soft tissue surgery, but that it can make a large and successful business of it. That will require further FDA approvals for specific procedures down the road. But Johnson & Johnson is confident that those will be forthcoming. [00:33:27] Speaker 7: The FDA have been incredible partners on this journey. We've been back and forth with them. The people at the FDA have been incredible professionals from day one. They're trying to do what's best for patients and for healthcare. And from our perspective is we're trying to move with precision and with speed. Our intention is to be a leader in surgical robotics. And to do that, we need incredible technology innovation, which we have. Then our next submission we announced was in inguinal hernia. And subsequently after that, we're going to have multiple submissions to be able to bring, again, multiple geographies and multiple specialties. And that's what we're planning to do. If you just take one step back and understand that we chose to come to the U.S. first for a couple of reasons. One, it's the largest robotic market. Two, it's a sign of confidence of our program and how differentiated it is that it can take something that's been there for a while. As you know, surgical robotics is not new. Otava is. And that's why we're coming here first. And hopefully we'll expand quickly after that to key markets like Japan and Europe. [00:34:30] David Weston: So give me a sense, again, in success, how big this could be for Johnson & Johnson. How do you measure that? First of all, start with you're starting in the United States. What is the potential of the United States as opposed to outside the United States? [00:34:41] Speaker 7: I mean, as I said, it's incredibly exciting for us, for J&J. In terms of, from a financial perspective, we expect this to be material towards the end of the decade. As the saying goes, the pioneer takes the arrows, but the settler takes the land. Sometimes we're not first. But when it's said and done, we're best. We brought innovation that no one can really match. And what excites me here is that this is still early and we're bringing something that's completely differentiated. And it's going to help us take robotic surgery to the future. [00:35:13] David Weston: Up next, the U.S. leads the world in think tanks, those nonprofit idea generators. But what do they really do and do they make a true difference? This is a story about return on a different kind of investment, an investment not in plants and equipment, but in ideas. We hardly go through a day without getting a new report or policy proposal from a think tank, from the Council on Foreign Relations or Rand or Heritage or Brookings, all supported by wealthy individuals and corporations. But do they make a real difference? And how do we tell? For that matter, how do they tell? [00:35:55] Speaker 9: I've been intensely interested in this question, what I call the business of ideas. [00:36:00] David Weston: Carolyn Elkins studies think tanks at Harvard Business School. [00:36:04] Speaker 9: How do ideas get formulated? How do they make it in the marketplace? How do we value them? And more importantly, what influence and impact do they have on the society in which we live? [00:36:13] David Weston: Elkins says that there are between 8,000 and 10,000 nonprofit organizations worldwide that deal in the business of ideas. And the U.S. has 20 percent of them. The five biggest think tanks in the U.S. brought in roughly $1.3 billion in their latest reported fiscal years. But their rise has been a long time in the making. [00:36:34] Speaker 9: They go back, you know, really all the way into, at least in the United States, into the second industrial revolution. And they really take off after World War I. Brookings is among the first. And then we have the Council on Foreign Relations. And then we see another uptick again in these think tanks in the post-Second World War period. And that's when we have institutes like the Aspen Institute coming into fruition. A lot of them focusing on, you know, sort of big sort of geopolitical problems like the Randa Corporation and others. And these think tanks were really meant to bridge this kind of research for research's sake, which is really what universities were doing, with practical implementation, decision makers. [00:37:12] David Weston: One of the most prominent of these nonprofit idea generators is the Aspen Institute. Dan Porterfield took over leadership of the Institute in 2018 and has just stepped down to become CEO of the Jack Kent Cook Foundation. [00:37:27] Speaker 10: There's a lot of different models for being a so-called think tank. Many think tanks that are well known, like the Brookings Institute or the American Enterprise Institute, assemble scholars who then write reports that are meant to be very relevant about issues facing our country or the world. In the case of the Aspen Institute, we're less of a think tank than a do tank. We don't sit around and go up to Capitol Hill. We don't have any lobbying at the Aspen Institute. We don't tell the government what it should do. We're more likely to build the table around which many players sit so they together can sort out how to frame and address a problem. [00:38:01] David Weston: When you went to lead the Aspen Institute, what did you feel you needed to accomplish? What were your goals? [00:38:07] Speaker 10: Probably two big things to start. The first was that the Aspen Institute, led by Walter Isaacson, had taken off as an organization, had seeded many fantastic programs in leadership or in collective problem solving around the country. And part of my responsibility as CEO was to develop an enterprise strategy so that the collection of programs would fit well together and so that they all would benefit from a robust and sustainable enterprise. The second part of my work when I started was to figure out ways that we could get younger as an organization to be more relevant to a changing world. Looking back at it now, what do you feel like you did accomplish? We have a stronger understanding of our identity. We have more cooperation and collaboration across the organization. We're able to propose bigger concepts for bigger donations for bigger impact because we're using all of our enterprise muscles. That's one thing. The second thing is I think we developed a logic in the institution to compete confidently to go make a difference. And of course, these are challenging times because there's so many events that have happened even in the eight years I've been CEO that you wouldn't have predicted in our society from a pandemic to the killing of George Floyd to more. And so I think that competing confidently means taking all of those moments of societal anxiety and difficulty and disagreement and saying, OK, this is our moment to contribute and to lead by bringing people together, by using our strength in the service of what society needs. [00:39:46] David Weston: All worthy goals for Aspen and for others. But can one measure progress toward them? Elkins says her study of organizations like the Aspen Institute has convinced her that there are ways to measure success even in the generation of ideas. [00:40:01] Speaker 9: We can optimize and the way in which we measure that is we have all kinds of ways that we can count. The very basis of Aspen, the PEPC's vision was to create a good society, to cultivate human flourishing. And I think it's one of the things that we're looking at in society today. How do we cultivate empathy? How do we cultivate judgment? How do we cultivate ethics? How do we cultivate leadership? And by the way, I should say these are precisely the things that folks like Sam Altman will tell us AI won't do for us. So it's very difficult in some ways to measure it, other than to say they're very good at it. And I would measure it in perhaps in one way that does actually come to mind. What are the kinds of people? Who can they bring around the table? I know of no one that has the kind of convening power that Aspen has. People trust the Institute to have closed doors, Chatham House rules to discuss not just thorny issues, but issues that really are impacting society everywhere from Vivian Schiller's work in media. And I love the way she approaches problem solving, which is precisely how Aspen in general does, which is, is this an important problem or question that we should be answering? [00:41:13] David Weston: Another way to measure success is by what others in the field say about the work and whether they step up to share the burden. Romy Drucker is director of the education program at the Walton Family Foundation, which has given millions of dollars to the Aspen Institute. [00:41:28] Speaker 11: The Walton Family Foundation recently conducted a study in partnership with Gallup about opportunity and what's going to help opportunity flourish in America. And there were some really interesting findings, including that most Americans are really excited to invest in their communities to give back. But the number one obstacle they cited was who's going to listen to them. No one is there to really receive their ideas to help uplift them. I think when we think about think tanks and forums that are convening people and ideas and resources around new ideas and innovation, it's about overcoming that barrier. I think what's been really powerful about Aspen is their unwavering commitment to fostering a dialogue across lines of difference as well as intergenerational change. You will find in every conversation at Aspen differing perspectives. You will find an openness to disagreement. We are a foundation that believes in evaluation and we have our own way of measuring ROI. And so we want to see not just powerful convening, but ideas that make their way into the zeitgeist. And we have tools to measure that. So we work with our partners to develop those outcome measures. And if we're going to push for systems change and bulls ideas, we have to have clear goals. This is one of the things about philanthropy where sometimes, you know, we are working in a gray area in terms of social impact. [00:43:11] David Weston: And financial support from wealthy individuals and foundations in itself can be an indicator of success. Recently, the Bezos Family Foundation created a center for rising generations at Aspen, contributing $186 million and leading others like the Walton Family Foundation to join in. [00:43:29] Speaker 11: This is a critical step in Aspen elevating its commitment to young people, believing in them as future shapers, investing in their leadership skills. We think that bringing together all of Aspen's youth work under one umbrella is going to be a really powerful signal about what it's going to take for both Aspen as an institution itself to evolve, but also for it to evolve its influence in the world. [00:44:01] David Weston: While think tanks like the Aspen Institute focus on goals that may be hard to put numbers to, like the free exchange of ideas, others are driven by more specific, measurable results. The last 50 years have seen the rise of the explicitly partisan think tank devoted to getting things done in Washington. [00:44:20] Speaker 9: Since the '60s and '70s, what we have really seen is a shift in them becoming much more political. And then we have Ed Fulner in the basement of Congress. He was just a young sort of staffer, I believe, at the time, and frustrated by the fact that the American Enterprise Institute refused to release its report on, I think it was supersonic jets, to the Senate, because it didn't want to influence policy. And at that point, we see a real turn, certainly with the Heritage Foundation and others saying, actually, what we want to do is to really influence policy in a particular political direction. And we see that coming to fruition, as we know, in the '80s, when the Reagan administration adopts the Heritage Report as the Bible of the Reagan administration, adopting two-thirds of its 2,000 recommendations. It was extraordinary. And they really have played a very large role in shaping American society. [00:45:08] David Weston: Recently, the Heritage Foundation has made a name for itself with its Project 2025 blueprint for the second Trump administration, something Mr. Trump disavowed during his campaign, but much of which has since come to fruition. There's no denying the impact of the Heritage Foundation's approach and its demonstrable successes. But Elkins says there remains an important role for organizations like the Aspen Institute. [00:45:31] Speaker 9: I felt very strongly that that institute has the potential of playing an outside role in society. I've sort of borne witness to the fact that we have moved away from sort of exploring ideas just for the sake of exploring ideas to being really quantified metrics, being asked all the time, sort of what we call sort of the audit culture, which is in some ways reflective of this kind of culture of efficiency that we all live in. And in many ways, the Aspen Institute, their direction isn't necessarily headed that way. What they're asking, as I said, is the question, what makes for great human flourishing? And so what that means is they're not looking to sort of necessarily change policy directly or at being prescriptive about policy. What they're looking to do is to cultivate a good society. [00:46:16] David Weston: But accomplishing even the most important goals requires resources and difficult decisions about where to direct those resources. Perhaps the most important job of a CEO of a for-profit company is allocating capital. It strikes me, you're allocating capital as well if you're running the Aspen Institute. It's money, but it's also time and talent. When you decide, yes, we're going to do something like the Bezos Initiative, or we're going to cut back perhaps another place. So how do you decide how to allocate that capital? It's a big deal. [00:46:46] Speaker 10: Make sure you have a clear purpose statement so people know what it is you do and what you don't do. We worked with a consulting company, SY Partners, from here in New York to really drill down over the course of six months. Why are we here? What is the reason this institute even exists? But that allocation of capital of time, talent and resources is critical because an organization can't do everything and it shouldn't try. [00:47:15] David Weston: Next, Jason Furman on what Adam Smith would say about regulating artificial intelligence. The world is facing a major transition to artificial intelligence, with some predicting Nirvana and others fearing disaster. 250 years ago, Adam Smith advocated for the role of markets to improve the lives of all citizens, but also recognize the need for government to structure those markets. Harvard's Jason Furman has worked on getting that balance right, both as an economist at Harvard and as President Obama's senior economic advisor. Artificial intelligence, the investment in it, the expectation of it, is driving the markets and even parts of the economy at this point. One of the questions is, do we just let them play, let them go as far as they want, as fast as they want, or do we have some regulation? I mean, Adam Smith is known for the wealth nations and is thought as a free marketeer. But as you've written, there was another book he wrote on moral settlements that also said, you've got to do this for the good of everybody. Where do we get the balance? [00:48:24] Jason Furman: Yeah, it's funny. When I think of AI, in some ways I almost start with morality. You know, not what's it going to do to economic growth, what's it going to do to inflation, but what's it going to do to our sense of meaning and purpose and how we think of ourselves as human beings. It's a technology that has incredible upsides in every dimension, but it also has very big downsides in every dimension. And for me, the trick is figuring out, you know, what we can do to take more of those upsides and mitigate more of those downsides. Now, that may sound like an obvious principle, but putting into action is very difficult and complex and varies from domain to domain, even within AI itself. [00:49:14] David Weston: And some would say that although the principle is obvious and terribly important, the application has not been particularly well done in recent years. As someone would say, with the China shock, with the imports, like in autos and the Rust Belt, what happened there? We didn't properly deal with the dislocation of human beings. And more recently, in social media, which really came on. Big new innovation has done what many people think has done a lot of harm. What are the questions, at least, we should be asking this time to make sure we don't get it wrong? [00:49:42] Jason Furman: The first important question when it comes to AI is how much are you trying to get the technology to solve the problem versus how much you're changing other things outside the technology to maybe even clean up the mess that the technology creates. So let's take one example, which I think is pretty clear, which is bioweapons. We're not going to say it is OK for AI systems to help people make bioweapons and that we're just going to distribute gas masks and stockpile vaccines. That's not a remotely acceptable answer. We should have regulation that stops the technology from doing that in the first place. Let's take something at the other extreme that I deal with as a professor. AIs can help students cheat on their homework. There is no technological solution that the AI companies can do for that. You can't tell the models that they can't answer questions because you don't know if the question is coming from a student or a citizen or whoever else. There we need to solve the problem outside of AI. For example, switching away from problem sets and take home exams and more to in-person exams and extra instructional time. When it comes to job loss, what is it like? Is it like a bioweapon that you should stop the AI from doing it in the first place? Or is it like AI helping a student cheat where the AI might lead to job loss, but instead we need to do things like help people find jobs or compensate them or give them wage subsidies or something else? I think that's probably closer to the second that we can't really tell the AI companies you can't replace jobs. We have to figure out what to do in our economic system to clean up after any mess they might create. [00:51:30] David Weston: We had the China shock in this country. I know about because I'm from Flint, Michigan. We felt it in Flint, Michigan pretty powerfully. There was a lot of talk about training and putting some federal money toward it. And there was some of that done, but I think most people agree not nearly enough. Does it make sense politically to tax the AI companies and use that money to help in the job transition? [00:51:50] Jason Furman: Look, I think we need to redo our tax system so that we do have enough money to finance this transition. As a card carrying economist, I'm in favor of broad base and low rates. So I would deal with corporate taxation as a whole capital taxation as a whole. And I wouldn't target any particular company or industry. The only argument in my mind for targeting a particular [00:52:15] David Weston: company or industry is if you think they create what I would call a negative externality. AI is global and the United States or any given country could go and try to have certain regulations. But it really goes around the globe. Can there be meaningful regulation without a multilateral approach? I just don't think there's going to be a multilateral approach. What we could hope for is a little bit of convergence [00:52:42] Jason Furman: where the different countries are talking to each other. And I think it's really important that the United States and China are talking to each other about this topic. And we put in place some types of rules and China puts in place some types of rules and those rules are somewhat similar to each other. Not saying that that's definitely going to happen. That's what I hope happens. But the idea that we have some global super regulator is to me just a pipe dream that we shouldn't waste any time on. But some convergence in regulation I think is a possibility. I mean, I've been to China. I've talked to government officials there about AI. They do actually have a lot of the same worries that we have in the United States. They have a big youth unemployment problem. They don't want to make that worse with AI. They certainly don't want AIs to be bio weapons and to kill everyone in China or everyone in the United States. And so, you know, I think there is some common problem we're all dealing with that I hope we can have a conversation to figure out how to collectively come up with better answers to. [00:53:47] David Weston: When you talk about the United States and China with respect to AI, there's a lot of coverage about who's ahead, who's behind, what we need to do to stay ahead. How important is it that one side win that battle, that race? [00:53:59] Jason Furman: First of all, I don't love the race metaphor because I don't think it's ever going to end. You know, some people think, you know, you get a few years, you got recursive self-improvement and that's it. Whoever's there first wins. But, you know, there's two really important things here. One is the technology I expect to continue to progress. But second, being a couple months behind might actually become less important over time, not more important over time, which is to say, as the capabilities improve, it'll matter for certain things that are really important, like cybersecurity and war. And that's why it's important for us to try to stay ahead to the best extent possible. But for most other applications in our businesses or our personal lives, I think we're going to find that using a cheap model that is six months old, one year old, maybe even two years old, will have way, way more enough power for anything that we need in our day to day lives. So in some sense, the cutting edge is going to be about solving a smaller and smaller set of problems, while the follow on stuff will be way more than capable enough for almost everything else. [00:55:11] David Weston: And finally, Jason, come back to where you started, that for you, in many ways, the moral question is the most important question about AI. I'm not sure that we as a people, government or however you count, are good at dealing with moral questions. I mean, despite Adam Smith's being a moral philosopher and starting there, how can we get our arms around moral questions as a society? [00:55:34] Jason Furman: You know, David, I don't know the answer to that. But part of the answer to that, and I'm a believer that no one person in one government has the answer, is to have more of the conversation and to make sure our conversation isn't just is AI a bubble that's about to burst? What's AI doing to jobs? But that everywhere, whether it's in universities on conversations here on Bloomberg or, you know, our day to day conversations, that we're all thinking hard about this issue because collectively something could come out of that conversation in a way that no one person, certainly not this person that you're talking to today knows the answer. [00:56:14] David Weston: That does it for us here at Wall Street Week. I'm David Weston. See you next week for more stories of capitalism.