Rattner on Manufacturing, High Cost of US Public Buses, Milan’s Boom

26:00and to set up a bus manufacturing facility here, we welcome them. We're ready and willing to help them to settle here and provide them an understanding of our bus industry. But we think it's critically important as an industry to make sure that we are spending public dollars for goods that are produced here in the U.S. I would love to see companies like Hyundai move into having factories in the U.S. to produce buses. And there are different ways suggested in the paper, in our report, to sort of make that toehold, make that on-ramp easier for them to do that. America wants its public buses. It needs more of them.

26:39And it needs them cheaper. It's not an easy goal and will require changing the way we buy buses and maybe even who makes them. But in the end, it may be the only way we can get what we're paying for. Up next, going to Milan. Not just for the Olympics, not just for the lifestyle, but for the taxes.

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27:42This is a story about finding the right balance, that balance between your bank account and your soul. Last year, we brought you the story of how some people's bank accounts were causing wealthy British to leave their homeland and move to places like Italy. Now, as the world focuses on Milan and the Olympics, it turns out that it's attracting more than just the British and for reasons that go beyond favorable tax treatment. But as our colleague in Europe Lizzie Burden reports, the city is encountering some growing pains. In the upscale Porta Venezia neighborhood of Milan, Rich Ross is right at home.

28:20The former Hollywood executive bought this apartment with his partner in 2021, relocating from Los Angeles. Well, every friend of ours, there are two words, It's why Milan? Like, why Milan? And then when we're here, they say, why here? Ross is one of a number of wealthy foreign individuals now calling Milan home. Data from Henley & Partners estimated Italy added 3 ,600 millionaires last year, the third most in the world, while the UK, France and Germany all recorded net losses. Most of those going to Italy ended up in Milan, with many attracted by the country's flat tax regime, initially 100 ,000 euros, but since raised to 300 ,000.

29:00What brings you back to Italy? The food, obviously. Luigi De Vecchi is one of Europe's top dealmakers. Educated in Rome, he had stints around the world at Goldman and Citi and was hired by Evercourt to return to Italy to lead its expansion through Europe. I think there are many places that have tax havens, but I think there is no doubt that people have taken that into consideration. So many people moved out of London, but also out of Paris. I have friends that have come from all over Europe and actually the US because unfortunately this time people for different reasons decide to move. And Milan, Italy in general, has become a very attractive place.

29:42And do you think that it's a Milan pull factor or is it that London and other European cities are driving people away? I think it's a combination of factors. Milan has clearly benefited from stability. Stability of the Italian government, the current prime minister has been I think the third longest serving prime minister after two Berlusconi governments. But also the mayor in Milan has been around for almost 10 years. So there is a stability even though they come from two different parts of the political equation, that is very important for people to have wanted to spend time in Milan, invest in Milan.

30:29It's not just Evercore. Many financial institutions have expanded their presence in Milan in recent years, a signal that perhaps the city is not just having a tax-inspired moment, but is seeing a more structural shift. We felt that we looked at the data over the last few years. there has been tremendous M &A activity here. Last year was the year of the financial services and so this is probably only the beginning of a wave of deals that is what attracted us. With the influx of affluence comes a range of businesses to accommodate it. Gary Landsberg has been heavily involved in private clubs in London but opened the wild in the former home of fashion executive Santo Versace.

31:11I think, you know, we went after Milan in 2022. We acquired the building. We started to see that there was certainly a shift towards Milan, even before the non-DOM thing was really fully announced. London previously is, you know, is a wonderful international city, but what we're allowing now is cities like Milan to become wonderful international cities. and in environments where the elegance and the chicness of the city has now been enhanced by an amazing expat community. And now Milan is hosting the 2026 Winter Olympics, with events taking place both there and in Cortina, about four hours away in the Alps.

32:01Christophe Duby is the IOC's director of the Olympic Games. They had the games in 2006 in the Piedmont region and Torino. Why do you think they wanted the games in these regions? Because it's a great business for all the good reasons. First, you get that fresh injection of private money into the games organization itself. Sponsorship, ticketing, media rights. This is super beneficial. Then you have all the connected investments to support the games themselves. And here we're speaking about a 4.5 billion economic impact that has to generate as well quite some substantial fiscal revenues, which justifies, by the way, the cost for security, transportation and the others.

32:47So all in all, the equation is a very balanced or, I'd say, very positive one. Yet Milan's rise has opened up problems. Housing prices have surged up about 38 % in the high-end sector between 2020 and 2025, according to real estate firm Knight Frank. And demonstrations broke out in the city ahead of the Olympics, with many fearing the Games will exacerbate cost-of-living concerns, even as the IOC says it'll repurpose the athlete village as student housing. What could derail the momentum that we're seeing in Milan the fastest? I don't think that I see a change of direction in terms of foreigners coming in.

33:28But what I think is changing, and this is dangerous, is the attitude of the Milanese that has always been an attitude that has been very welcoming. Milanese have something very special compared to other places in Italy. They're very reserved. They're very, the beauty of Milan is hidden. So most of the big palaces have gardens that you cannot see from the outside. And Milanese don't like to show off. So some of the wealthiest families in this town are not people that you would, they drive a Fia Cinquecento, not a Ferrari. And so this influx of foreigners who are very wealthy. Flashy. And sometimes flashy, could create some kind of backlash.

34:17A little bit like what I think London experienced when a lot of too many foreigners came and prices rose and some of the Londoners had to move out. I think that is starting to happen here. I really hope that the authenticity of Milan and of the Milanese will not be lost because of that. Oh, how do you keep that balance? You need to continue to want to attract Italians and therefore prices cannot necessarily start to reach for rents, the prices that we've seen elsewhere, which is a little bit what is happening at a time when salaries have not kept up. Is there any sense of resentment that outsiders are coming in and getting the great properties?

35:03I don't know if there's resentment. I would say there's, I don't know if it's a worriedness. I think it's a curiosity, but it's also a little, the unknown is always very, I guess, a little scary here. But it's also been a city that has a finance capital for Italy and for Europe. It's a city that has a fashion capital for the world. So it's not like they don't, the residents here don't see people come in. It's now every business and people coming to live here and not just come for a weekend, go to a fashion show, or not come for a finance meeting and then go back to London. People come, stay and enjoy.

35:47And I think that's more of a curiosity than a concern. With both mayoral and general elections in Italy next year, voters will get a chance to have their say on the country's tax regime. If the flat tax regime were to be reversed, would people leave as fast as they've come? I think it depends on how much they like pasta. Now, the reality is that I think there is no question that for many people, the tax issue for the very wealthy, it's a real issue. It's an issue for them. It's an issue for their families. It's an issue for their legacy. So I don't think that we can look at that in isolation, but I think it would be a major factor.

36:27Having said that, I have plenty of friends that have come, as I said, over the last few years to Italy, to Milan. they love it, they love the standard of life and so I think that quite a few would stay. Perhaps the true test of a city's growth isn't measured by the arrival of those that have already made it, but by those who are trying to make it. Milan might be a destination for the wealthy, but is it becoming a destination for those looking to get wealthy? I think it's a very good question. There is no doubt that I could not have been able to stay in Italy because I wanted to see the world. I'm often asked this question by my students and by colleagues, young colleagues.

37:08And I think the world has become more complicated. In those days, when I was young, the U.S. for this business was the place to be and to develop a career. I think there is no question that the U.S. remains the most interesting place. But some of the bricks have disappeared. I suppose the question is also, is Milan a place where you do a stint? or is it a place you can really build a career? Listen, there is one thing that is very important about Italy and Europe in general. Unfortunately, here we have a demographic issue. So we have 60 million people today. They're going down to 40 million by the end of this century, which basically means, in theory, we have a big problem.

37:54In practice, whoever stays here not only will find jobs, but will have huge opportunities to blossom. As an American citizen taxed on worldwide income, the flat tax regime doesn't benefit Rich Ross in quite the same way it does many other high net worth individuals. It's like an Olympic event. It's definitely bringing people in. But I think the people come for the finance and then they live for the city. And I think that's kind of unique. They're not sure how much time they're going to be here. and then everyone talks about they want to spend more time here, not less time, less a tax haven and more a place to live.

38:33Not so much, I think, La Dolce Vita, just an easy life that's beautiful and fun and yummy. Old Milan is the arts, fashion and elegance. New Milan is finance, ambitious and cosmopolitan. The real draw might be finding a mix of both. It's balance. I think the Italians understand and have always felt that balance in life is more important than their money and more important than anything. And I think for people coming in, often for monetary reasons, to understand that kind of balance is the curiosity from the outside to the Italian way. Coming up, taking responsibility for the future of AI with David Autor of MIT and Eric Brynjolfsson of Stanford.

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40:22And I'm Tim Stanovic. Subscribe today wherever you get your podcasts.

40:32This is a story about the fault lying not in our stars, but in ourselves, to paraphrase Shakespeare. That artificial intelligence will change our world is without question at this point. But who or what will control that change is more open to debate. David Auther of MIT says it's ultimately up to us. Almost all the conflicts in the AI era are between competing groups of people, not between machines versus people. David Auther is professor of economics at MIT and the co-director of the Labor Studies Program at the National Bureau of Economics Research. He's also emerged as one of the world's leading experts on the impacts of AI on the American worker.

41:15He spoke to us from MIT's campus in Cambridge, Massachusetts. The interest of the creators may very well not be the interest of the end users. We see this with social media, for example, all the time. And so we shouldn't pretend that this is an engineering problem. The problems Otter refers to are at the center of a new series of essays featuring authors like Google's Eric Schmidt and OpenAI CFO Sarah Fryer. Think about that over the next couple of months. Stanford professor Eric Brynjolfsson helped organize the project, which they call the Digitalist Papers. We made a list of people that we thought would be ideal to write about the economic implications, and we had sort of our A-list, our B-list, our C-list, and I was just overjoyed.

41:58We never had to get past the A-list. All of these 22 essays address things that could be really profound. So it's hard to pick and choose, but if you were forced, what are the three or the four that you think really deserve the most attention right now? Oh, you're asking me to choose between my children, but I'll pick out a few. I mean, in the beginning of the volume, we have some people setting the technological landscape. I thought Eric Schmidt did a great job describing what he calls the San Francisco consensus. Later in the volume, people like David Otter and Neil Thompson talk about how it's changing expertise, and some of the sometimes counterintuitive effects that the same technology may upskill one occupation while de-skilling another occupation, depending on how that occupation was configured previously.

42:46Otter says that artificial intelligence is already reshaping the value of human expertise. And in his paper, he lays out a new economic framework to understand which jobs will be affected by AI and how. It's very natural simply to think about what will be automated. and you think, oh, what is exposed? Whatever is exposed to technology will shrivel up and die. But if you think about it for a minute, it can't quite be right because we all use lots and lots of technology and we're not primarily threatened by it. We're very happy to have the GPS on our phone, to have our personal computer. And so many of us are exposed, but of course we also know there's some risks.

43:23So is there such thing as good exposure? Is there such thing as bad exposure? And the way we frame that question is in terms of expertise. Your job has many, many pieces to it. Some of them are what you're essentially really good at. You're a great researcher. You're a fantastic interviewer, reporter. And then there's lots of other parts of your job that are kind of necessary but not really important or essential. If that supporting work is automated by AI or any other technology, you're happy. You're like, oh, great. Now I can really focus on what I'm good at. It makes your expertise more valuable.

43:52It allows you to specialize, to exercise your comparative advantage and strip away all the time waste. On the other hand, if technology can suddenly do the thing that you are most good at, at research, at reporting, at skilled repair, medical diagnosis, then it's really competing with you. Otter says the key lies in what tasks within a job are being automated. Are they high expertise or low? For lawyers, if AI takes over the relatively low expertise job of drafting routine contracts, it may mean that you need fewer lawyers. but those that are left get paid more because the high expertise part of what they do is even more valuable.

44:33There'll be fewer people doing it. Those who remain will be very specialized, right? The language translators who remain working, they will be doing diplomatic documents, legal documents. As technology encroaches, the work that remains will be more specialized, higher paid, but there'll be less of it. On the other side of the coin, what happens when the high expertise tasks get automated? The barriers to entry fall. Employment goes up. Wages go down. Picture drivers and ride-sharing apps. Think of how ride-hailing software changed the taxi driving industry. So taxi driving historically had two components to it.

45:11One was driving a car, which is something most people can do. And the other was knowing your way around, which is something most people did not do, could not have. I certainly don't know my way around anywhere, even wherever I've lived. And ride hailing, sure, it introduces this interface for calling cars and so on, but it also integrated GPS. Suddenly, to be a taxi or chauffeur driver, you don't need to know your way around. You can go to any city that you don't live in and drive Uber immediately because the phone tells you what to do. So this created all kinds of new competition. It commodified the expertise of knowing your way around the place.

45:44I think the evidence suggests that it lowered wages of people in the taxi driving industry. Incumbents did not like it, and understandably so. So with this analysis, what is the most likely consequence for the labor market overall? There are many, many signs that we have a long-term labor shortage. So we're not going to run out of jobs, but that doesn't mean there's nothing to worry about. A world in which everyone is working as a crossing guard is very different from a world in which everyone is working as a medical doctor. In the first case, people are relatively interchangeable. Most people can do that work, and so that's not specialized expertise.

46:15It won't pay well. There might be a lot of people doing it, but employers won't have much incentive to treat them well. On the other hand, if everyone is doing specialized work where what they do is high stakes and it really adds a lot of value, that's a better world. When you talk about what automation has done thus far, sort of pushing people to the extremes, higher, higher pay, fewer people, or lower, lower pay, lots of people. Is it indeterminate what AI could do in equality? That's a great question. I think it is indeterminate. There are two views. One is, it's determinate, but I just don't know.

46:49I can't see that far ahead. I think a better answer, the one that I believe in, is we have a lot of choice about this. Choice is a theme that comes up often in the digitalist papers. And Stanford's Brynjolfsson says making the right choice depends on having the right information. Given your sophisticated understanding of transformative AI, are you more confident about the upside from AI today than you were a year ago? I'm confident that the capabilities are breathtaking and they're going to get better. I'm confident that the productivity benefits are there to be had, but we need to work harder at it.

47:23I'm worried that we're not going to do it in a way that creates widely shared prosperity. So it's a mixed bag, but ultimately there's no predetermined future. There are many, many ways for us to use AI. It's an incredibly flexible, malleable plastic technology. You could use it to try to automate people out of existence. You could also use it to collaborate with people to make them more effective. But I also think that it depends on how we invest, how we build out those technologies, right? You know, China runs the world's largest surveillance state, the world's largest, you know, real-time censorship apparatus.

48:00And it does that with AI. But that doesn't mean that's what AI does, right? That's an investment in building out a capability. But you could also use that capability to say, we're going to make health care more accessible and less error-prone. or we're going to make education more affordable and more engaging. So we have a lot of choice about how we build out this technology. It doesn't build itself, and it takes a lot of investment to make it good. Think of the billions and billions of dollars that have gone into self-driving cars. AI didn't wake up one morning and say, I'm going to drive cars, right?

48:31That was a huge, huge decision by many, many companies to build out that capacity. So it's very unlikely that we will achieve things we don't set out to do, but what we will achieve depends on what we prioritize. China made the decision about surveillance. It came from the top down. It didn't come from the bottom up. If there is this choice when it comes to AI in the United States, in the Western world, does the government have to have a substantial role in that or can we trust the markets to get to the right answer? Well, unfortunately, I think it would be better if the public had more democratic control in this, but it's very difficult to do because AI, unlike many other technologies, is almost entirely private sector.

49:09It's not that I think the private sector has evil intentions with AI, but its objectives are much around reducing labor costs, right? People want to automate. But we have a collective interest in employment and in the labor market working. So I don't think the incentives of the private sector are ideally aligned for developing the technology in the direction that would be most socially beneficial. That's not a criticism. That's just a configuration of market forces. Otter says it might come down to the government to keep labor markets working and to ensure that AI transforms society for the better.

49:42The alternative might not be pretty. The bad scenario is one where the value of human expertise is just liquidated very rapidly. And that would create enormous problems for society. And it wouldn't create problems of lack of material wealth. We'd have tons and tons of productivity and resources. but it would create a huge problem for distribution, for identity, and for our democracy. Most of our income distribution depends on labor, the value of labor. That's how most of us get our income. So if all of a sudden labor were devalued by machinery, most of us would have nothing to sell to the market and therefore no way to capture all the resources that are being created.

50:22Democracy depends on the idea that most people in the society are both claimants on the society and contributors to the society. And how do we contribute? We contribute with our work and we contribute with our taxation. And so if all of a sudden we had nothing to contribute from a market sense, I don't mean from a moral sense, because our labor wasn't any more valuable, but we were just claimants and we said, well, give me my UBI, I think that would be extremely just a fundamental existential threat to the way our democracy works. I don't know how many of your viewers have seen the movie Wall-E.

50:56WALL-E's a future where robots are doing all the work and people just float around in kind of hovering armchairs. They weigh 300 pounds. They watch holographic TV and drink big gulps. They're just sloths sitting in lounge chairs. And it looks horrible. But whenever I watch a movie, I think, well, that's the good scenario. That's the scenario where they've actually figured out the income distribution problem and then they just sit around doing nothing. It doesn't look fun, but at least they're not at war with one another. However, I don't think that's the likely scenario. I think in a world in which all the resources were generated by machinery and only a few people own that, you know, they're the owners of the AI companies, whatever, we would have a very unequal and very fractious society.

51:39And that's how most of human history has been. So this is not just a dystopian fantasy. So I think we want to preserve the labor market because we want to preserve democracy. We don't have really great alternative models of this at present. And so that's another reason to want to use this AI opportunity well. And it is a huge opportunity. It gives us the ability to make progress on climate, on nutrition, on education, on health care, on ending world poverty and dealing with disease, right? We have so many huge technological and social challenges that we can make faster progress on with better tools.

52:17So there's huge upside, but there's real risk. That does it for us here at Wall Street. week. I'm David West and see you next week for more stories of capitalism.

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