David Solomon on AI, Debt, and America’s Future

25:07So I'm one that's in the camp that that's a possibility. But unless you create that on a sustained basis, where you have higher real growth and you control inflation, you know, we're setting ourself up at some point for some big speed bumps. Were you surprised by the deficit spending in the big, beautiful bill? I mean, given the fact that it seemed that it was a priority for this administration to balance the budget, or at least that was the stated goal at the beginning of last year. I'm just wondering, you know, from your time as an executive, you know, watching all of this unfold. Were you surprised by the amount of spending that actually we are signing up for in 26?

25:47I'm not surprised on either side of the aisle. Both sides have been poor fiscal stewards. And it continues because the politics, you know, play well until there's real pressure that forces, you know, a different kind of political discipline. So I'm not surprised. Now, if if this administration can marry it with better growth for a period of time, we we might wind up in a place where the overall debt to GDP looks better or more attractive. But the long term trajectory is both sides of the aisle are not showing an ability to show fiscal discipline. And we haven't yet been able to crack the code of higher growth to justify the spending levels and the debt levels.

26:30And so, you know, these are things that we have to wrestle with. A lot of talk about monetary policy. You know, you'd notice that the policy rates down one percent in 2025, but the 10 year really didn't move. Stayed kind of stuck over the entire year between four point one and four point two percent. You'd notice in 2024, you know, we saw interest rate cuts, but you actually saw a steepening of the curve and long rates moved up a little bit. So, you know, the market is telling you that, you know, proceed with caution. And, you know, I think in the short run, we have a tremendous ability because of the headroom we have because of the dollar to be less concerned about this.

27:09But ultimately, these are issues we're going to have to wrestle with, in my humble opinion. So speaking of rates, the buzz here in Davos isn't about income inequality or climate change. It's about, or the vibe, I would say, is how fed up different European states or nations are with the U.S. administration. And one of the ideas that seems to be getting a lot of chatter is the idea that they would, in a concerted way, as a union or a coordinated way, dump a bunch of U.S. treasuries. Do you think the U.S. is susceptible because of the amount of debt that's held? It's actually only 30. It's 70 percent domestic, but 30 percent of$37 trillion is still a lot of money.

27:49Do you think the U.S. is vulnerable to a foreign nation coordinating and selling our debt? You know, I think at the margin, Scott, you know, you can see moves around treasuries. But vulnerable is a big word and vulnerable to me. And, you know, correct me if you're if you're not thinking about it this way. When you say vulnerable, the fundamental structure of the world is that for, you know, lots of people in the world that have excess reserves, you know, there's not a lot of places they can go. we've obviously seen gold rally but vulnerable would mean you have very very significant moves that change the fundamental structure of the way people think about reserves and the dollar is still a reserve currency I think the chance of that getting offset in the short run because of this political noise even though I hear the frustration too and I think we're going to hear a lot of it this week Scott I think the chance of the short run of that getting really set off in a significant way is very very low But, you know, I think longer term, if we continue to grow the debt, we are not going to have the same latitude to have everyone around the world finance it.

28:58And so ultimately, we ourselves in the United States will have to finance that. You know, to finance that, you have to ask, you know, how does that get attractive? where savers and investors that have been very, very tied to the equity markets, think about the fact that the S &P over the last 40 years is compounded by 11 percent-ish. You know, people have been trained to that are investors and savers to think about equity markets, you know, not, you know, 10-year treasuries or 30-year treasuries of 4 to 5 percent. You know, at what rate do you start shifting savers and investors from the S &P, you know, to longer treasuries?

29:37it's not four or five percent. So that can create pressure over time. But I don't think it happens dramatically in the short run. In the short run, it's marginal. So tariffs threatening to annex other sovereign nations, it feels as if the current administration isn't afraid to kind of run the risk of deglobalization, so to speak. Do you worry that as a global firm that you risk or the administration risks antagonizing other nations and other countries who decide to not only have reciprocal tariffs, not only place more punitive measures on our big tech firms, but decide not to work with U.S. service firms, including Goldman?

30:17You know, at the end of the day, we compete in a big global world. You know, I do think at the margin there can be behavioral changes, but the economy is very globally interconnected. You know, over time, for resilience, for security, people change supply chains, But those shifts, you know, are five, 10 years in the making. Political cycles are shorter and generally, you know, things balance. I hear some noise about some of this stuff, too. I don't see it in the facts at this point in time. We watch it carefully, Scott. But ultimately, the economies are very, very interconnected. It's hard to pull them apart.

30:51And I'm not a big believer in deglobalization. I am a big believer that as geopolitics and policies shift, that there are marginal changes in the way people think about, you know, the economic structure of their nation. I think we're at a moment where more nationalism is being bred. I don't think that's great. But when you when you step back and talk about big structural changes, they're much harder and they take a long time and they certainly outlive what I'll call shorter political cycles. So the prime minister of our largest trading partner, Canada, has said that they are going to structurally shift away from the U.S., that in some he feels they screwed up being so dependent and integrated into the U.S.

31:33You don't see other – some of the world's largest economies, including China, diversifying from the U.S. as a cyclical issue. I mean, it feels like a structural issue that'll damage us. What do the Goldman chief economists say about this potential structural shift away from trade with the U.S.? There's a lot of noise at the moment around these issues. Some of it's still in the construct of an active negotiation. At the end of the day, the economies are massively intertwined. And while there will be changes at the margin, you know, I don't think our economic teams believe that the long-term structural shifts will be real.

32:10But at the end of the day, I think people, when you get through the noise, people will do what's in their economic interest and there'll be a more balanced result than some of the rhetoric we're hearing right now. But, you know, watch the space. Watch what happens. You know, Canada, for example, a huge trading partner, China, a huge trading partner. I think China's in a place where things are more de-escalated for the next 12 months. We'll see what comes out of that. We obviously have a President Trump visit to China, a Xi visit coming back this way. So there's a roadmap this year to see if there is more progress in that bilateral relationship.

32:45We have to watch USMCA and how that progresses. It's easy to talk about the fact that there's a lot of noise, but it's harder to talk about the long-term consequences because to make real changes is more complicated than simply talking or threatening. The follow-up question would be, what is that line, in your view, for where structural change does come about. I think that's something that's been difficult for me to pass out personally, where, you know, we keep pushing up against that line. And, you know, it's, yes, it's just a post that was on social media, but at the same time, it is actually a threat of military action.

33:24I guess there's a question as to whether it's serious or whether the threat is real. But I think something that I kind of, I don't know how to think about, is what is that line? At what point do we say, oh, no, actually, this is structural, this is long-term, and this isn't something that could be reversed based on the election cycle? You know, I think you're asking a question that's an interesting question, but I don't spend a lot of time trying to figure out where the line is, because I don't think any of us, there's not a line, okay? There's enormous nuance and complexity to the economy. There's enormous nuance and complexity to the individual bilateral relationships, and they change and shift based on the lens of what's going on at any moment in time.

34:10And so, you know, yes, are norms of the way we see certain things challenged? Absolutely. But there's not, I don't, I think you're looking for an answer that doesn't necessarily exist. There's not, there's not a definitive marker that says, okay, the structural economics of the world are now going to permanently shift in a different direction. Everything's at the margin. Everything's nuanced. And, you know, at the moment, we're at a particularly noisy moment. And I think, you know, one of the things we try to spend a lot of time doing at the firm is thinking about what's noise and what substantively matters.

34:46And I just say, and this doesn't mean I like the noise, a lot of what, you know, we're touching on or talking about is noise more than substance. But, you know, the markets have to absorb that. People have to absorb that. And I'm not sitting here saying I have the answers and I know how it plays out. I just think that it's more nuanced. It's more longer term. And the swings, because elections, you know, we move one way to the other. The swings are probably shorter than what's required to make these these long structural changes. What is the same and different about 1999 with e-commerce and 2026 with AI?

35:26What do you think? Is it different this time or does this feel awfully frothy and sort of begging for a correction again? I would frame it a little bit differently just to make a point that these things, when you get one of these super cycles, you know, with tech investment, it can feel frothy and they can run for a long time before ultimately you have a recalibration or a significant pullback. And the analogy I would draw is that Alan Greenspan talked about irrational exuberance in markets, I believe, in the fall of 1996 when the Nasdaq was at 1 ,300. You're now talking about 1999. The Nasdaq ultimately went to 5 ,200 in March of 2000, and then it retreated 85%, you know, over the next 18 months.

36:13So, you know, what I would say is I don't know if we're in 1999 or 1996 or, you know, or in 2000, but when you have these accelerations, you have massive capital formation around forward growth. And by the way, I'm a big bull on the technology, the opportunity, et cetera. At some point, there'll be rebalance and recalibration. I think one of the things I'm watching closely, Scott, is the pace at which enterprises adopt the technology, because that's obviously where a lot of the economics to support the investment come as enterprises adopt the technology. And I think that it's going to be harder and slower for enterprises to adopt.

36:53And the perception of how quickly that will come, you know, might actually turn out to disappoint a little bit. That could create a recalibration. I'm not suggesting that the recalibration has to look like, you know, the Nasdaq recalibration of 2000 and 2001. You know, and remember also here, a lot of the capital that's getting invested is coming from massive companies that have extraordinary cash flow and earnings. And they might not get reasonable returns on that capital, but that's very, very different because that's out of their free cash flow. So when you look at the big hyperscalers and they, you know, the top four spent, you know,$400 billion last year, you know, it would be a shame if they don't get reasonable returns on that.

37:33But the market impact on that is different than what we were looking at when you were looking at, you know, the Internet expansion. And, you know, all the capital was coming directly from public markets. So similarities, differences. You know, I do think we have a tendency to look ahead with optimism. And ultimately, that requires recalibrations on valuation. I'm sure, you know, there will be some of that around this. But it's hard to say whether we're in 1996 or, you know, we're 1999. We'll be right back. And for even more markets content, sign up for our newsletter at profgmarkets.com slash subscribe.

38:22We're back with Prof G Markets. I'm just going to shift us away from AI and the economy. I want to talk about you, David. You're the CEO of a company that employs 46 ,000 people, that manages$2 trillion in assets. That is very rare. We don't often interview CEOs like yourself. that's a level of responsibility that none of us have experienced. Just at a personal level, what is that like? Does that weigh on you? What does your day-to-day look like? Do you ever wake up and think, you know, how did I get here? I appreciate the question, and it's certainly fair to say that there are lots of days, you know, where I've woken up and said, how did I get here?

39:11I certainly saw myself as a very unlikely candidate to steward this firm. And I think I use the word steward because I think it's an important word. The firm's been around for over 155 years. You know, I've been running it, you know, for I'm a May 8th year. But but I'm a steward of a great institution. And my job is to do everything I can with the broad leadership team to leave this organization stronger than we found it as a leadership team. So the next leaders can steward it, you know, further along. And there aren't a lot of organizations, you know, that make it under one name, you know, for 150 plus years.

39:46And so that's a tremendous responsibility. I would say these jobs are not easy. I think anyone that winds up in one of these jobs has certain skills and preparation the day they get the job, but they continue to grow and have more skills and better preparation as they go through the fire and, you know, and make mistakes and, and, you know, turn left when they should turn right and, you know, jump up when they should sit down. I mean, it's, you know, you're learning every day and I certainly feel much better equipped to, you know, to to handle some of the responsibilities today than I did eight years ago.

40:19But that's, you know, that's true, I think, with anybody that steps into one of these jobs. You try to surround yourself with great people. You try to listen. I'm blessed to have an extraordinary team at Goldman Sachs, an extraordinary leadership team that's been incredibly stable over the course of the last five, six years. We work together to steward the firm and, you know, we try to be as nimble and as flexible to adapt to what the world throws at you. I think one of the things I'd also highlight that's changed over the last 10, 15 years, the visibility of these jobs is very different than it was 15, 20 years ago in terms of the transparency and everything you say, everything you do, you know, the scrutiny.

40:59It's a different standard. But I feel very, very lucky to have had this opportunity. I've learned a lot. I feel good about what we're doing. I'm sure there'll be more bumps before I'm done and the board moves on to who's ever next. But it's an incredible privilege. You know, 47 ,000 extraordinary people work for Goldman Sachs. We have access to the most interesting people in the world. You learn every day. And it's an incredible organization that I feel fortunate to steward. Something I didn't know before this interview, you actually, and correct me if this is wrong, but I read that you applied to the Goldman Analyst Program and you were rejected not once, but twice.

41:39This is when you were just starting out on Wall Street. Supposedly, one partner described you as, quote, not Goldman Sachs material. You are now CEO of Goldman Sachs. Just looking back, what do you think you got right? How did you end up in this position? I I guess I'm sort of restating the question, but what is there that young people can learn about your rise as someone who was rejected from this company and now you're running it? I applied the first time when I was graduating from Hamilton College and I got a very quick letter back, no thank you, but I got a lot of those. I mean, I think I remember I got, back in the early 1980s when you applied for jobs, you wrote formal letters, sent your resume, applied for a job.

42:24You got a rejection letter back. I got a lot of those. I was very fortunate to get a job at the Irving Trust Company in a credit training program in 1984. And that kind of set me down in this path. I was very lucky to be recruited to join Goldman Sachs in 1999. I really thought it was an opportunity to work for the best financial firm in the world. I think I've worked very hard over a long period of time, but the real reason that I'm sitting in the seat is a confluence of things, a big portion of which is just luck and serendipity. I mean, one of the things you might have heard me say before is, you know, if if if the leadership of the firm had transitioned at a different time, I wouldn't be running the firm.

43:04I mean, one of the things I you know, I can point to Lloyd Blankfein. I mean, this is well known, you know, Lloyd Blankfein had cancer in 2015, and he stepped back, you know, to deal with his treatments for a period of time. You know, he chose to step back, but to stay at the firm, someone else might have decided, you know what, I have to deal with this and I'm going to step away. If Lloyd had stepped away in 2015, someone else, probably Gary Cohn, probably would be running the firm. It wouldn't be me. And so, you know, the fact that the transition occurred in 2018, I happened to be one of the right people at that moment, at that time in the right place.

43:40But if it had been 2012, if it had been 2015, by the way, if it had been 2022, I mean, it wouldn't have been me either. So it's, you know, these things are a journey of hard work. There are lots of people at Goldman Sachs that are capable of running the firm. And then it's a confluence of, you know, luck and timing that goes with the hard work that that allowed me to wind up in the seat. But I'm I'm very cognizant of the fact that a lot of it is luck and serendipity. Beyond the professional stuff, what advice would you give to your younger self about being I won't even say being a good friend, being a better friend, being a better partner and being a better father?

44:17I, you know, I think the thing you learn as you, you go through life is that, um, you know, it's a marathon, not a sprint. It's never a straight line. Um, lots of things, you're going to get knocked down and, you know, bumped around. And at the end of the day, there are certain things that I think are true North for me. True North has always been first and foremost, my family, my two daughters, you know, true, true North always. It's always been, I can't say that I always got the balance perfectly. Right. You know, every step of the way, every day. But it's always been true north. And, you know, after that, my friends, I'm very blessed to have an extraordinary group of friends, many of whom I've been friendly with, you know, for, you know, 25, 35, 45, 50 years or more.

45:04And, you know, keeping those people, you know, in your life, investing in those relationships because life gets busy and you go in different directions. But, you know, keeping the compass pointed at true north, taking a long-term view, understanding that you're going to get knocked down, but you get up, you learn from the experience, you dust yourself off and, you know, you just do the best you can do. And life throws a lot of things at you that are out of your control, but be patient, take a long-term view, keep the compass pointed at your loved ones, your family, your friends, and, you know, do the right thing.

45:39If you keep that stuff in balance, there'll be ups and downs. But, you know, I think there's lots of joy, you know, that comes out of the kind of the success of a job. Well done is to do it and to do it well and to have the personal satisfaction for raising a family, for building a career, for having success. And also when you fail from learning from the failing and being able, you know, to kind of look ahead and and take the learnings and do even better and constantly try to self-improve. Scott's question is really about how you advise yourself self, you know, your younger self, I'd be interested to hear your advice for young people right now, given the environment we're in.

46:22I think one of the biggest things that young people are probably worried about is AI and the potential for AI to take your job. Yes, we'll probably be working with AI, but it could be disruptive in the short term. I think, you know, young people are also worried about affordability issues, the cost of housing, etc. What would be your advice to a young person who's just starting out right now, given the environs and the things that we should be thinking about? You know, on that question, one of the things I just reflect on that I just think is interesting, when I graduated in 1984, we were worried about affordability.

46:57We were worried about getting jobs. I remember when I graduated, a very significant portion of, if I looked at the people I graduated from school with did not have jobs in the summer after we graduated. um you know we all went out into the world and we figured out how we're going to make a dollar how we're going to participate you know it wasn't it wasn't so simple that everybody had jobs and you know the world was the world was different you know then and the expectations were um you know were different so you know when i when i look at young people today i mean a couple of pieces of advice that are simple i still think that hard work matters i still think commitment and sacrifice matters.

47:36I still think showing up, being present and building connectivity and relationships with people directly matters. I think understanding that nothing comes easy and anything that's worthwhile in life requires hard work, investment, commitment and sticking with it for a period of time. I think all of that matters. So, you know, my advice is as you come out of school and you're looking at the world, find a place where you can get engaged, find a place when you can learn, where you can apply skills that you think you're good at. Understand there are going to be bumps and it's not going to work perfectly, but stick with it.

48:14Show up, be present, try to outwork people around you, try to be more committed than people around you, compete and compete, you know, to do the best you can, compete to learn, to win. And if you do that and you do it over time, chances are that good things will happen. But these issues that people worry about, we were worrying about them, you know, 40, 50 years ago. I'm not saying they're exactly the same, but it is very natural to come out of school and worry about those things. And you've got to go out and look forward. I'm very optimistic about the world. Sure, there are lots of problems, but I do think that it is a wonderful time to be alive.

48:53And there's lots of exciting stuff that's going to happen in the next, you know, 5, 10, 15, 20 years, that this generation will play an enormous part in them. David Solomon is the chairman of the board of directors and chief executive officer of Goldman Sachs. Previously, he served as the firm's president, chief operating officer, co-head of the investment banking division and global head of the financing group. He joined Goldman Sachs as a partner in 1999. David, thank you so much. Really appreciate your time. Yeah, David, I'll see you tomorrow. And just to sign off, when I wrote a piece on WeWork and I was critical of Goldman and David reached out and said, let's have breakfast.

49:29We had breakfast. And by the end of the breakfast, I transferred all of my assets to Goldman Sachs. David just reeks of credibility and honesty. Really appreciate your time, David. Thank you both. Appreciate you having me.

49:52Ed, what do you think? I think I really like the guy. That's sort of my reaction. Very charming, very likable, all the things you want in a CEO. And, you know, you got to think that job is just impossible. The thing he said at the end there about publicity and visibility, the fact that everyone is watching your every word. I mean, he comes on this podcast and he knows that if he says anything, that is, you know, slightly off color or, you know, too doomer or anything that is even remotely hyperbolic, that's just a headline. That's like an article right there. And, you know, I just think that's a crazy position to be in as a human being.

50:36Every time you speak, people have their pen to paper, they're waiting for something that you say, and they know that you're just a walking story. um so to be personable and engaging and magnanimous despite those circumstances i mean maybe i'm just being story i because this is the ceo colman sachs but i think it's pretty impressive what do you think well first off they're all likable yeah um you have to be to get to that point you have to just create allies along the way and also there's no upside for him doing this podcast. I cornered him at a restaurant, like all great CEOs, and I'm a client of Goldman.

51:16He pretends to like me. So I kind of cornered him and said, you need to come on the pod. And he kind of hummed and hawed and looked for an excuse. And he wasn't that quick on his feet. And he said, sure, I'd love to. I mean, I could just tell it was like, oh, fuck. The whole meeting start. But it's a true story. When I had breakfast with him, by the end of the breakfast, I'm like, okay, I'm transferring all my assets to Goldman. He's very smart, very likable. And being CEO of Goldman Sachs is a little bit like being president of the United States in the sense that, one, it's a very demanding job, but two, you not only have to be the right person, you have to be the right person at the moment.

51:50And he referenced this. So many moons have to line up because I know I was a good friend who was a vice chairman there who was supposed to be the next CEO and didn't get it. I have another friend who was on the CEO track there. Literally, I bet a third of the firm wakes up in the morning, looks in the mirror and says, hello, Mr. or Mrs. CEO of Goldman Sachs. You have, at Goldman, you have this alchemy, this concentration of the most ambitious, successful people on the planet. And their career has been nothing but an upward trajectory. And then the pyramid gets very crowded at the top, very fast.

52:26The thing Goldman does really well that McKinsey does well is they clear out a lot of senior people. They have a compensation schematic where it almost becomes lucrative to leave. And they like that because they want to create enough upward mobility for young talent such that they don't get stuck and think, oh, you know, the only reason Bob's here is because he's been here 30 years. At Goldman, there's very few people that are very senior just because they've been there a long time. They are very good at clearing out kind of the dry wood, if you will. they also have this other interesting at least i don't know i assume they still do they have a lot of co-heads of things because they want to make sure nobody has that much leverage they have co-heads of europe or they used to anyways used to have co-heads of investment banking that way when lisa walks in and says you're fucked without me they're like no lisa bob's also the co-head of europe and we're going to be just fine but it's an incredible firm with an incredible culture and to kind of be the CEO there.

53:27You're just, I would imagine his inbox is never empty. It's, you know, Jamie, Diamond, I don't know who the CEO of Morgan Stanley is right now. Ted Peck, right? Yeah, and then Very Impressive Woman Run City. Jane Fraser, yeah. You would find, well, you could have any of them on. They're all super impressive and all super likable. That's just, that's just, you know, kind of like us, Ed. Kind of like us. I got a question for you. Yeah. Would you want to be the CEO of Goldman Sachs? Not in a million years. Really? Yeah. I'd like the money. I'll take that. Here's the thing about running a services company.

54:02I run much smaller services companies. And once we have someone who's a CFO or someone in HR, I make someone else the CEO. The services companies, Goldman's in the business, but Goldman's a services company. They're outstanding companies to work, to manage and lead, except for two things. the employees and the clients. Other than that, they're outstanding places to lead.

54:51kids on Monday.

55:24In love, love, love, love