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  • Iranian Regime Change? - Unpacking Broad Disagreement Between the Forecasters
    TranscriptThe following transcript is AI-generated and may differ from the original in slight ways.Welcome to the Sentinel podcast, where top forecasters discuss the potential for global catastrophic risks. I'm your host, Rai, and I'm joined today by my co-founder and Sentinel forecaster, Nuno Sempere, Sentinel forecaster Vidur Kapur...Vidur 00:00:44Hello.Rai 00:00:45And Sentinel forecaster Lisa.Lisa 00:00:47Hello.Rai 00:00:48Today we're going to be talking about the possibility of regime change in Iran. Before we go into that, does anyone want to describe why we care about this possibility? Why does it matter for global catastrophic risks?Vidur 00:01:00From my perspective, regime change would reduce the probability of a nuclear detonation in the Middle East over the next decade.While it's possible it could lead to a more extreme, less rational regime, my base case is that it would reduce the risk of a nuclear exchange. That's why it has a bearing on global catastrophic risk.Nuño 00:01:27In addition, Iran is a country of 90 to 92 million people, so regime change there affects a large population.Even if it doesn't lead to a nuclear weapon, we've seen that regime change can destabilize a region. With the change in Afghanistan, for example, terrorist groups in Pakistan could operate more freely.If the Iranian regime falls without a clear successor, the whole region could be destabilized in a way that leads to bad outcomes.Vidur 00:02:03It can also destabilize other regions. The regime changes in Libya and Iraq, for instance, destabilized European politics. So the effects can be felt both within the region and elsewhere.Lisa 00:02:18I'd like to add the flip side. Imagine an Iran that doesn't fund proxies throughout the region.While there would be immediate instability for a few years after regime change, as you've all mentioned, it's also possible that in the longer term, it could increase regional stability. This would mean a potential for less conflict, independent of the risk of nuclear detonations.Rai 00:03:05Let's get to the forecasts. We're forecasting the probability of regime change on two timelines: by the end of August and by the end of the year.Let's go around and get your two probabilities, and then we'll discuss them. Let's start with Nuno.Nuño 00:03:32For the end of the year, I'm in the 10% to 40% range, so I'll put it at 25%. I'm confused because Vidhur and Lisa, who are great forecasters, are at different extremes. To resolve that, I went back to basics and looked at the base rate of regime change.Regime change happens relatively frequently in countries around Iran. In the last 25 years, Afghanistan has switched hands, Syria's regime fell, you could argue Lebanon had a partial regime change, and Iraq was invaded. Based on that, I get a base rate of 2% to 4% per year, which is a good starting point.Of course, recent events increase that probability. But by how much? A 10x increase, from 1-in-50 to 1-in-2, seems like too much. That's how I'm thinking about it.Rai 00:05:15And do you have a forecast for the end of August?Nuño 00:05:17By the end of August is trickier. I'll go with 7%. I'm very uncertain about the timing of a potential collapse.More time allows instability to compound, but I also sense that the critical moment is now, rather than later in the year.Rai 00:05:43What about you, Vidhur?Vidur 00:05:45By the end of August, I'm at 10%, and by the end of the year, I'm at 15%.Rai 00:05:53And Lisa?Lisa 00:05:56I'm struggling a bit because so much is happening so quickly. It's difficult to figure out what's going on, especially since the stance on regime change from Israel and the US seems to shift daily.However, my forecasts are substantially higher than my colleagues'. For August, I would say about 50% to 60%. By the end of the year, 60% to 70%.I see much of that risk as front-loaded. The greatest period of instability is now, in the coming weeks and months, as the regime struggles to adapt after Israel has killed a large number of its leaders in airstrikes and drone attacks.The regime is very repressive, and it takes a lot of effort to maintain control. They seem to be trying to cope by increasing arrests. Another key aspect is Khamenei. It's not clear where he is, and he might be quite ill. I'm not sure he will be living very long, but we can talk more in a few minutes.Rai 00:07:45You should interrogate each other about why you see the probability so differently, especially on such a short timeframe.Lisa 00:07:56I'd like to say more about why I think the probability is so high. A big factor is that Khamenei isn't very present. I keep seeing reports—and I don't know if they're true—that the IRGC and other leaders are withholding information from him and that he's not fully involved in governing.For instance, after the recent ceasefire, he never came out to address the country and claim a glorious victory for Iran. It's just been crickets, which is weird.Nuño 00:08:41How old is he right now?Lisa 00:08:4286.Nuño 00:08:43So that's what, a 5% chance of dying per year? Something in that ballpark.Lisa 00:08:48I think there's something bigger going on here. Israel and the US do not want Iran to acquire nuclear weapons and have gone to great lengths to damage its nuclear program. And yet, regime leaders are doubling down, resuming enrichment, and denying IAEA inspectors access. There was even talk about leaving the Non-Proliferation Treaty.At the same time, Israel has stopped its strikes, and the US goal seemed to be simply dealing with buried nuclear facilities. It's hard for me to understand why they would go to all this trouble to set things back by only a few months or years if the regime is just going to keep pressing forward.One answer I can come up with is that they believe regime change is likely. Perhaps they have intelligence that Khamenei is on his deathbed. That's what I'm wondering. Of course, there are many factors, and nobody wants chaos.Rai 00:10:22When you say setting things back by months to years, you're talking about the nuclear program and enriching uranium to weapons-grade levels, correct?Lisa 00:10:31Yes, and generally, everything that goes into building a nuclear weapon.Rai 00:10:37If the short setback—only a few months to a few years—makes you think this is about regime change, why doesn't it push you toward the conclusion that the strikes were simply ineffective?Why wouldn't that ineffectiveness, intentional or not, be the primary explanation for the short setback, rather than the focus being on regime change?Lisa 00:11:10That's a great question. It's quite possible the strikes were the best they could do and that all they can hope for is to set things back by a few months or years. We could just be doing this on rinse and repeat.However, that strategy would become less effective over time. The more Iran anticipates such strikes, the more they would prepare by building deeper facilities and hiding them better. There's already talk of facilities that weren't hit. Iran could do many things in this cat-and-mouse game to make successive strikes less effective.That's why I would have thought they'd be more likely to push for regime change, or at least a change within the regime. Trump said regime change was on the table, and I believe the Israeli Defense Minister said that Khamenei could no longer exist. It looked like they were going for that.But it's also quite possible this was simply an attempt to address an immediate threat, and now that it's addressed, they're done.Still, we have to look at the regime itself. You can't go through these leadership changes without creating internal chaos. Their stability is weakened. The question then becomes what opposition groups, inside and outside Iran, do to take advantage of this situation and what help they might be getting from countries like Israel or the US. None of us really knows.Nuño 00:13:10I would love to hear from Vidor on the opposing case.Vidur 00:13:13To explain my reasoning, I also started with a base rate. Nunu's rate of 4% to 5% per year isn't far from my own. You can look at two categories of regime change: externally forced and internal.Since World War II, the base rate for an externally forced regime change in Iran is around 1% to 2%. This happened with the 1953 coup sponsored by the US and UK. The base rate for an internal change is also around 1% to 2%, as seen in the 1979 revolution. I'd give an external regime change a 2% chance in the next six months and an internal change a 12% to 13% chance.I'm low on an external regime change now because the US hasn't truly committed. You could interpret Trump's Truth Social post as saying the Iranian people might change their own regime to "make Iran great again," similar to how he views his own election. He later said he's not in favor of it. While the Israeli Defense Minister was aggressive, Netanyahu said the Iranian people might have to rise up themselves, implying Israel won't do it all for them. Neither Trump nor Netanyahu seemed fully committed.Yes, the strikes have destabilized the regime by killing top people, which could lead to an internal regime change. However, these senior people can be replaced. In a country of 90 million, there will be plenty of people willing to take those jobs, despite the elevated risk of death.We also haven't seen the kind of mass protests that would suggest a movement against the regime. We saw protests in 2009-2011, but nothing happened. The only recent protests I'm aware of were student protests against the US and Israeli attacks, which the Prime Minister joined.As Lisa pointed out, it's possible that the Ayatollah dies in the next six months. He is 86 years old, and an American male of that age has about a 5% to 6% chance of dying in that timeframe. You can argue he has better healthcare, but he has also had past health problems.His death could destabilize the regime, but it's also possible that, just as after Khomeini died, they will simply elect a new ayatollah and things will run fairly smoothly.Nuño 00:16:36It's interesting that Vidor, Lisa, and I have different interpretive frameworks. One framework suggests we're seeing the regime fall in real time. We have reasons to think this is the case: the reduction in the number of mosques, not knowing where Khamenei is, and many top commanders being killed.On the other hand, you have the "nothing ever happens" school of thought. If you ask about August, which is just over two months away, it just takes longer for things to happen. A base rate of 5% per year doesn't give you that high of a probability in such a short timeframe.I think Lisa would agree on the base rate but would argue that we now have extremely strong evidence that moves the probability from a few percentage points all the way to 50%. Vidor and other forecasters might disagree. I'm confused and oscillating somewhere in the middle.Lisa 00:17:45It's a very confusing time. But one thing I'll note is that both of your forecasts are elevated above the baseline. We all fundamentally agree that things are different now; the only question is how much.So what has changed? What elevates the risk of regime change above the baseline rate? To me, the highlights are the decapitations of the leadership, specifically targeting the repressive machinery. IRGC commanders and the headquarters for the repressive apparatus within Tehran and around the country have been hit. This is a massive setback for them.Sure, they still have between 125,000 and 190,000 IRGC members and other personnel who know what to do without being told. But how is that organization going to recover? It's possible it fully recovers and they're able to keep a lid on everything.But we are at the tail end of this regime. It's been 46 years. People just aren't interested in going to mosques anymore; two-thirds of the mosques have closed. People really don't want to hear it anymore.They don't want to be told they can't sing and dance in the streets. Women want to walk around without a hijab. Not all of them, of course—nothing is monolithic—but people in general want more freedom than they're getting in this regime.In addition, by becoming a pariah state, the country gave up so much economic growth. Because of years and years of sanctions, their economy is really suffering. Add to that massive amounts of corruption within the highest levels of leadership. People are very disillusioned. On the one hand, this is supposed to be a regime that holds itself to the highest standards, yet here's this ordinary corruption going on.They've also structured their economy and power generation in ways that cripple both the economy and reliable power, especially in winter. There are very large structural problems.Nuño 00:20:41Can you say more about the power generation?Lisa 00:20:44Most of their electricity generation relies on natural gas. They prioritize providing it to households for heating, which makes sense. But in the winter, this creates shortages. If there's enough gas for heating homes, there isn't enough for electricity in major cities.There can be hours, even days, without power, even in major cities. Businesses shut down, schools shut down, and everyone has to stay home from work because their kids are home. It's massively disruptive, and it's getting worse.This is compounded by the regime's price controls on gasoline and the state's control over the energy sector. The IRGC controls a large percentage of the nation's economy. These are really large problems, and they're getting worse every year.There's massive inflation, very close to 40%. People are tired of this. This is not like the Islamic Revolution happened five or ten years ago. This is the tail end of a repressive regime, and people are tired.Rai 00:22:17I want to make a few things from your model explicit and get your sign-off. Do you see most scenarios as the regime toppling under its own weight or changing internally?Lisa 00:22:33In the absence of an external stimulus, my best guess would have been that the regime would last another one to five years.Rai 00:22:42Got it. You can't cleanly separate these factors. Israel will be involved and might accelerate things, but the question is whether they are the driving force. Are they going to be proactive, continually removing people until something happens, or will they be more reactive?So you see them as being more reactive, with a number of structural factors causing the first dominoes to fall.Lisa 00:23:09Yes, but the trouble with an authoritarian regime is that it doesn't allow opposition to grow. So, as we saw in Iraq and Afghanistan, if you remove the group in power, there isn't necessarily another one organically ready to take its place. This will be very difficult for Iran and is the crux of what comes next.As Vidor said, we'll have to see. There will be lots of people willing to step in and take over in some form.One of the key questions is whether the inevitable regime change will come fully from the outside, or if it will be someone within the current government who decides to do something different. They might say, "I'm in charge now. We'll keep these aspects of the regime but get rid of those." There are a lot of options for how this could play out.Nuño 00:24:20One interesting factor is this: you have people willing to step up and die for the continuation of the regime. But do you have people willing to die and put their lives on the line for a revolution?The answer could be no. Religion may inspire a much greater willingness to die for the regime, which makes it more resilient. That doesn't seem unreasonable to me.Lisa 00:24:48The question is, are you willing to throw away your life to fight the regime, or are you willing to die if there's an achievable goal?People wouldn't want to stand up by themselves and fight, but if they thought there was a reasonable chance of success, many would be willing to stand up. It's a question of what the realistic chances of success are.It could also be that people are more willing to stand up for religion than for secular regime change.Nuño 00:25:25I'm on board with much of your analysis, but I don't get the timing. Why now? Your analysis seems equally valid if the regime falls three years from now.Lisa 00:25:37The timing is crucial for two reasons. First, they're in massive chaos because of what Israel just did.Second, it looks like Khamenei may be about to die. It's not clear that the full succession apparatus is intact or that it would even be followed. We could see some sort of coup right there.Nuño 00:26:04The Khamenei situation is relatively new, isn't it? From the last couple of days?Lisa 00:26:09We're seeing more speculation about it, but there have been rumors for at least several months. I saw some last year.I don't know the nature of his difficulty right now, but it's possible he was injured in an airstrike by Israel. We don't know. Israel might know, but I don't.Rai 00:26:33Vidor, do you have a sense of where your crux is with Lisa? What do you think she's weighting too heavily?Vidur 00:26:41Lisa is talking about all the problems Iranians are facing, but I think she's weighting them too heavily. Pointing to problems alone doesn't necessarily mean the regime is going to fall.There are also a lot of social media rumors about Khamenei and his whereabouts, and I'm not sure how much we can trust them.Lisa 00:27:13We function better as a group. For those unfamiliar with forecasting, we improve when we challenge and listen to each other, learn new information, and consider different perspectives. This is part of what makes good forecasting.I may not be right, Vidor may not be right, Nuno may not be right, but together, our averages are usually better than individual forecasts. None of us is infallible, and our forecasts are made better by listening to each other.For our listeners, please understand that these disagreements are part of what forecasting is about. Nuno, what are your thoughts?Nuño 00:28:09You have a point that Khamenei not making statements is a signal. At the same time, I recall previous speculation about this a few years ago. Maybe he just doesn't feel the need to be out there all the time, as he's an older man who isn't as energetic.Lisa 00:28:32But he's not even making statements. There's nothing.Vidur 00:28:38He has made statements, or at least statements have been put out in his name over the past day or two. His last public appearance, however, was perhaps six or seven days ago.Lisa 00:28:52The last tweet from his account was: "Those who know the Iranian people and their history know that the Iranian nation isn't a nation that surrenders."Nuño 00:29:02He's tweeting roughly every two days.Lisa 00:29:03You know, roughly.Nuño 00:29:05Here's a tweet from Khamenei from June 18: "The Zionist regime's malicious attack on our country took place at a time when Iranian officials were indirectly engaged in negotiations with the U.S. side. There was no indication on the part of Iran that signaled a military move."It doesn't seem very fiery.Lisa 00:29:27Besides, how many of these are actually written by him? We don't know if he wrote them or even spoke them to be written down by someone else.Vidur 00:29:36Even if he dies, he has reportedly picked his successors. There's a strong possibility the regime will continue. They'll elect a new ayatollah, and everything will be fine for them.Nuño 00:29:55There was a taboo about his direct descendants inheriting the mantle of the Ayatollah. There was also speculation about Khamenei solving this by appointing a very old successor.Lisa 00:30:11It's not done to appoint your son as a successor. You can overcome that by appointing an interim successor who is not likely to live long.There's one possibility who I believe is 96 years old. He would clearly have a limited term, after which Mojtaba, his son, could be chosen.Nuño 00:30:40That would just carry on the instability. Having a 96-year-old as a wartime leader doesn't seem like a great idea.Lisa 00:30:52You also have to ask to what extent that person would actually be leading the country.Rai 00:30:57Lisa, how are you thinking about the weakness of the IRGC? There are two ways to look at it. One is that if the recent damage was going to crack their enforcement, it would have happened already. Since it didn't, that's evidence the regime will last longer.The other way is to see it as a gradual decay. Without their coordination infrastructure, they'll get progressively worse, opening the door for civil unrest and protests. It sounds like you believe in the latter model.Why isn't the lack of immediate collapse evidence that the repressive enforcement is stickier than you think and won't collapse so quickly?Lisa 00:31:51I don't see this as the only thing going on. The state apparatus has been destabilized. That alone might not be enough to topple the regime, but coupled with the potential loss of Khamenei, the combination leads to major destabilization.Reports I'm seeing from Iran suggest increasing crackdowns on the citizenry. This is done from a position of weakness, a recognition that the regime is fragile. You don't crack down on your people if you feel secure.People are fearing thousands of arrests and even executions in the coming months.Rai 00:32:49The crackdown could be done out of fear, but its purpose is also to increase the threshold for collective action. In that, it could be successful.Lisa 00:32:59It could be successful, but it suggests to me that the regime feels threatened. We'll see which way it goes in the coming weeks and months.It's possible that one or more leaders could rise up within Iran, and people could be emboldened to make a change.Alternatively, there could be a massive crackdown. The price of action would be increased to where it's too expensive, and everything would go back to the way it was. Same chairs, different people. That's possible.Nuño 00:33:39If opposition leaders rise up, methodically killing them is a viable method. Putin assassinated Navalny, who was the last in a long line of potential opposition leaders.Lisa 00:33:56And when that was done, there wasn't a massive attack on Putin's regime.Any way we slice it, this is a period of instability for the regime. The only question is how much. You don't think it's very much, but I think it's a lot.Nuño 00:34:11No, I think it's a lot of instability. But when thinking about when it happens, I'm more certain than you are about the next couple of years. I agree that there are cracks in the regime.Another source of uncertainty is the current US-Israel ceasefire. How long will that last? Will Trump change his mind in the next couple of months?Maybe Iran will try to race for a nuke, which would lead to more Israeli attacks and further destabilization. That's another source of uncertainty.Lisa 00:34:44Definitely. I completely agree with that. There's a lot of unpredictability.Vidur 00:34:48I strongly agree. The key uncertainty is how long this ceasefire will last. Who has Trump's ear? Is it the more hawkish neoconservatives, who see this as their chance—after waiting for decades—to get rid of the Iranian regime?Or is it people like JD Vance, who are urging caution and don't want the US to attempt another regime change?Rai 00:35:16Let's do another round of forecasts after this discussion and see if anyone has moved. We'll go in the same order, starting with Nuno. What are your forecasts for regime change in Iran by the end of August and the end of the year?Nuño 00:35:30I'll go up a little bit, but I still think August is very soon. Let's say 5% for August and 20% for the end of the year.Rai 00:35:42Sounds good. Vidur?Vidur 00:35:43I'll go from about 1 in 10 by August to 1 in 9, which is a move from 10% to about 11%. For the end of the year, I was between 1 in 6 and 1 in 7, and I'll now go to 1 in 6. Lisa?Lisa 00:36:00It's a period of such huge volatility. Everything changes every single day.Nuño 00:36:07And that volatility should move you towards 50%, right?Lisa 00:36:09Towards 50%.Rai 00:36:10Nuno, can you say more about that? Theoretically, why should that volatility move her more towards 50%?Nuño 00:36:16If you have a spectrum with regime collapse on one end and the regime continuing on the other, and you're oscillating between factors that pull you significantly toward either side, then any strong reasons you have could be negated by a future factor. You're seeing a lot of wild jumps.Lisa 00:36:38They are very wild jumps, and it's hard to deal with that level of uncertainty. Okay, I'll walk down my forecast. For August, 50%… I can't remember my initial number.Rai 00:36:54I think that was your initial forecast.Nuño 00:36:56Yes, 50%. And you were at 70%—or 65%—by the end of the year.Lisa 00:37:00It was 70%. So, 50% and 70%.Okay, I'll walk my forecast down a bit. For August, I'll go to 45%, and by the end of the year, 65%. It still seems very likely to me, but maybe I'm completely wrong. We will find out. That's one thing about forecasting: there will be an answer.Rai 00:37:24When you update your forecasts, how much of it is based on a specific new piece of information that changed your mind?And how much of it is simply trusting another person's judgment and moving toward the group average out of caution, even if you don't fully understand their reasoning?Lisa 00:37:46I would say it's both. In general, if you have a group of good forecasters and one person's forecast is very different from the others—which is my situation right now—that's a red flag. You should think very carefully about a divergent forecast, because chances are you're missing something.That said, if you have strong justifications and a firm belief, it's reasonable to maintain a divergent forecast.I listen to the specific considerations my fellow forecasters raise, and I very much trust their judgment. That gives weight to what they have to say. One could argue that I should weight their opinions even more highly and lower my forecast further.But it's a dynamic process. Forecasts aren't static; they evolve over time. And that's what good forecasting is.Rai 00:38:53If you converge too much, you're just a pack of conformists. You have to be willing to deviate to some degree.I also want to get your thoughts on the extent of the damage done to Iran's nuclear weapons program. There seems to be wide uncertainty about it. Countries like Israel and the US are claiming victory, while others are doubtful significant damage was done.What evidence do you find convincing? And ultimately, how long do you think Iran would need to rebuild and get back to enriching uranium to weapons-grade levels? Let's start with Nuno.Nuño 00:39:39One specific piece of evidence I've been wondering about is the satellite imagery of Fordo and other facilities being hit with massive bunker-buster bombs. You can see the size of the holes. A bomb that's one meter wide and several meters high creates a hole about five meters wide, with a volcanic-like mound around it that's about 10 meters.What I'm curious about is the depth of the hole. If this bomb is made to burrow into a nuclear bunker, did it actually reach the 90-meter depth where the bunker is located? It's a simple physics question. It's a whole mountain with a small hole. Maybe they hit the wrong place. I just want to know how deep the bomb went, and we don't have great answers.My sense is the Americans know. They can use satellites to observe the difference in light and shadow to calculate the depth of the hole. The Iranians probably know, but I don't. I only know what's being publicly reported. The Iranians are saying it's a surface wound. The Americans are saying it's completely destroyed. I'm uncertain.On top of that, there's meta-level uncertainty. We have satellite images for this one location, but there are other locations. It seems nuclear material was taken out. There are many unknown factors. This is what I've been thinking about. Hopefully, Vidur or Lisa can fill in the blanks.Vidur 00:41:35Many people are saying different things. Trump claims the program has been completely destroyed, Israel says there's a lot of damage, and even Iran has said its facilities were badly damaged. All three of these groups have an incentive to emphasize the damage. Netanyahu wants Trump to think his involvement was worthwhile, Trump wants to justify his attack, and Iran doesn't want to be attacked again.However, a leaked intelligence report suggests the damage wasn't so severe and might have only set Iran back by a matter of months. I think that report is probably directionally correct.But if you look at the satellite imagery of the above-ground facilities, there has clearly been extensive damage. Some of these facilities were quite important—unless we believe they were just decoys and Iran has other facilities to move their uranium to.For instance, at Isfahan, there was damage to metal conversion plants and other facilities crucial for the final stages of building a nuclear weapon. At the Arak facility that Israel bombed, the heavy water reactor, which was under construction and could be used for producing plutonium, was destroyed. So, Iran has definitely suffered a setback.As Nuno mentioned, it's harder to assess the facilities buried deep underground because we lack public information. What Iran and the US seem to acknowledge is that Iran still has highly enriched uranium. This is significant because if they have other facilities and a few hundred kilograms of HEU, they can probably build a nuclear weapon.Even a crude, Hiroshima-style nuclear weapon can be built fairly quickly. You don't need much HEU for a gun-assembly weapon; the Hiroshima bomb used about 64 kilograms. These bombs aren't very efficient—only about one kilogram of uranium in the Hiroshima bomb actually underwent fission—but you can still make a very simple nuclear weapon.There are still stages required to assemble the weapon properly, but as long as they have this HEU and can perhaps enrich it a bit more, they can make something of it.My key uncertainty is this: if they have this stock of highly enriched uranium, do they have other facilities—perhaps not for a sophisticated program, but enough to make a crude nuclear weapon?Lisa 00:45:15The question is, how far back has their nuclear program been set? It's clear the setback is somewhere between months and years, but we can't know for sure at this point. There hasn't been enough time to make assessments.It would be great if IAEA inspectors could be on the ground, but that may never happen. Still, everyone would agree there has been a substantial setback; the question is how much.As Madur says, it might not take them long to assemble a crude nuclear weapon. These risks are still out there.The can has been kicked down the road, but the problem has not been eliminated. It's something we will still have to deal with.Rai 00:46:14Is it possible that these attacks have made it more likely for Iran to pursue a weapon? Do the statements from the US and Israel, playing up their success, create a problem?Or will those past statements be forgotten as Iran gets closer to a nuclear weapon, at which point the motivation for further action will return, regardless of what was said before?Lisa 00:46:38Being attacked certainly gives Iran more motivation and incentive to develop a nuclear weapon. I don't know what the game plan is from here.Would the US and Israel simply conduct more strikes in the future? They seem committed to preventing Iran from developing a nuclear weapon, so that would be the implication.Perhaps they have other ideas beyond airstrikes. We saw the Stuxnet cyberattack disable centrifuges before. I'm not sure where this is going if the regime does not change.Rai 00:47:25Stuxnet did more than just disable the centrifuges, which would have been obvious. It modulated the speed of the rotation slightly and even altered the telemetry, so it didn't look like anything was wrong.Lisa 00:47:41But in the end, they were non-functional.Vidur 00:47:44To your question, Iran has moved to suspend cooperation with the IAEA, so they seem to be becoming more insular and less transparent. I agree with Lisa that this probably increases their desire for a nuclear weapon.The question is, absent intervention, how long would that take? We can look at China's nuclear program in the 1960s. It took them a few months to get from enriching enough uranium to assembling a weapon for testing. It's quite possible Iran could do it in a few months if they wanted to.Nuño 00:48:31Meanwhile, Israel would notice and attack again.Vidur 00:48:35If Israel wants to keep attacking, then unless Iran has some extremely secure facilities, Israel and the United States can keep setting them back. That is why our forecast for the probability of a nuclear detonation fell after these US attacks. The US and Israel could keep on top of it if they wanted to.It's also worth noting that the dozen or more nuclear scientists who have been assassinated represent a significant setback for Iran. There aren't many people with that know-how.Iran has said it has the indigenous knowledge to continue, but there are few people in the world who truly understand these things. Even if the procedures are written down, my knowledge of bioweapons development tells me there is a lot of contextual knowledge needed to implement them in a real-world setting. That's an important consideration.Rai 00:49:49The takeaway for listeners is that even though the strikes were not decisive, we are probably in a pattern where Iran's nuclear program can be continually set back. The net effect is either a lowering of nuclear risk or at least not a massive increase from the background level.Nuño 00:50:13You could also have the opposite case. As the regime becomes more unstable, it could make acquiring a nuclear weapon an existential priority, deciding it can only survive if it rushes to build one.The previous stable equilibrium was that they had the ability to rush but chose not to. So you could imagine a probability increase that way.Rai 00:50:36My understanding was that Vido incorporated that desire. Iran could have a ton of desire to pursue a weapon, especially now. With fewer diplomatic off-ramps and no cooperation with the IAEA, they've become polarized—either ditch the program or go for broke.But the limiting factor is whether that increased desire actually translates to an ability to defend the program from Israel or the U.S. How can you defend it?Vidur 00:51:08That's my view, all things considered. However, I do think it's possible that Iran races to a nuclear weapon.We sometimes assume U.S. and Israeli intelligence is omniscient and infallible, but perhaps they've missed something. If so, Iran might have the ability to weaponize quite quickly.Rai 00:51:31Great. Thank you all for taking the time.Lisa 00:51:34Thank you.Rai 00:51:36Thank you very much to our listeners. If you enjoyed this episode, please consider sharing it with someone.Most of the benefit of forecasting comes from influencing decisions, and to do that, we need to grow our reach.If you want to reach out to us, please send an email to [email protected]. Get full access to Sentinel Global Risks Watch at blog.sentinel-team.org/subscribe
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  • Endgames and escalations of the US and Japan's expensive debt problem – Itay Vinik
    Itay Vinik is the cofounder and Chief Investment Officer of Equi, an alternatives investment fund that deeply considers rare market conditions in its investment strategies. He was was the cofounder of a long/short volatility hedge fund which made a famous bet on the 2018 volmageddon event.TranscriptRai 00:00:56Welcome to the Sentinel podcast, where top forecasters discuss ongoing events with a view toward global catastrophic risks. I'm your host Ry, and I'm joined by Sentinel co-founder and forecaster Nuno Sempere, and Sentinel forecaster Lisa.Our guest today is Itay Vinik. Itay is the co-founder and Chief Investment Officer of Equi, an alternatives investment fund that deeply considers rare market conditions in its investment strategies. He was also the co-founder of a long-short volatility hedge fund, which made a famous bet on the 2018 Volmageddon event. Welcome, Itay.Itay 00:01:32Great, thank you.Rai 00:01:33Today, we will discuss recent indications of global economic uncertainty, primarily in sovereign debt markets. This is important because large economic struggles—like sovereign debt crises, austerity, and significant inflation in the world's largest economies—can cause shifts in political power and state capacity. These shifts can ultimately affect the trajectory of technology development, political doctrine, and war.As a recap, weak demand for sovereign bonds sent 30-year US Treasury yields briefly above 5%, German 30-year bond yields to roughly 3%, and Japanese 30-year bond yields to record highs. Many factors were at play: sticky inflation, significant government borrowing in recent years, a costly bill passed by the US House of Representatives, and Moody's recent downgrading of US debt.Persistent debt issues can put a lot of pressure on societies. What types of political shifts might we see in a world where financing this debt is not cheap?Itay, since Sentinel and Equi are both concerned with escalations into longer-tail outcomes, what are some of the more impactful economic issues we might see from here?Itay 00:02:43The "bad outcomes" that can happen include a haircut default-type cycle. In this scenario, if governments let the market operate freely, higher real yields (yields above the inflation rate) would kill long-term investment. There would be less incentive to invest, and capital would flow back into Treasuries. This typically results in deflation, naturally resolving the debt through defaults. Yields would eventually come down, but with devastating economic consequences.The second choice, seemingly more popular with policymakers, is to inflate the debt away. By devaluing money, they effectively "kick the can down the road." These are the two main choices.In my opinion, given the option, policymakers will always choose to kick the can down the road. However, in extreme tail-event scenarios, policymakers might not have that choice. We can discuss that; it's an edge case, but possible.Lisa 00:03:54Itay, could you ever see a scenario with an actual default or a haircut on US Treasuries? Personally, I can't envision that. I'd like to hear your opinion.Itay 00:04:06I don't really foresee that. The US is quite different from the rest of the world because, at least for now, it has the global reserve currency. As long as the US can create the global reserve currency, the likelihood of a default on US Treasuries is minimal.However, in the distant future, if that were not the case, a default would certainly be possible.Lisa 00:04:26Yet, we see the prices of credit default swaps on U.S. Treasuries going up, so apparently not everyone feels that way. You're saying there's very little risk as long as the dollar remains the world's reserve currency, but we're seeing the world start to pull back from the dollar.Personally, when I look out over the next decade, I see a very low risk. Over extremely long time horizons, I think that could change, obviously. But at least for the short to medium-term future, that doesn't look like a serious risk to me.Rai 00:05:06Let's go around to the forecasters and get a preliminary forecast. It's tough to operationalize this for the US, in particular, because they could monetize the debt. But let's try for some fuzzy operationalization of what a US default might entail.Lisa 00:05:17You mean a US default, a straight-up default of some sort?Rai 00:05:22Yes, but does that fully capture our concern? They could technically avoid a default by monetizing the debt. However, if the US monetizes the debt, that's still a scenario we're worried about.Nuño 00:05:33When you say monetizing the debt, what does that mean?Lisa 00:05:36Inflating it away.Nuño 00:05:37Okay.Lisa 00:05:37To me, inflating it away is infinitely less dangerous than investors taking a haircut. That would destroy Treasuries as a safe-haven asset.Itay 00:05:50Consider what we saw this past April: what I call a "triple yazoo" moment, a term coined after the Japanese crash, where the stock market, currency, and bond market crashed simultaneously. That is pretty unusual for the United States. There was also a moment concerning the basis trade, which is how hedge funds lever up with long-dated Treasuries.If you compare this to other crises, like 2008-2009 or 2011, it's different. 2011 is particularly interesting. In August 2011, S&P downgraded US credit for the first time. The stock market crashed 20%, while TLT, a good measure of long-term bonds, went up 15-20%.Contrast that with recent events after "Liberation Day": the US bond market sold off hard, along with stocks and the US dollar. This is an unusual scenario.Lisa 00:06:50I completely agree that was extremely unusual. But we didn't come to the brink of an actual default. To me, an actual default means a "not getting your money back" type of scenario. I'm not talking about merely losing money in the bond market.Itay 00:07:08I'm thinking about the safe-haven aspect and the typical investor mindset where assets are anti-correlated—when one goes up, the other goes down. These correlations broke.Typically, long-end bonds would do well because when stocks crash, the Fed is expected to cut rates and the economy to slow down, meaning bond yields should go lower. We haven't seen that in this recent move, which is concerning because it suggests the bond market is more fragile than usual.And I agree entirely: the risk of an actual US default, US Treasuries taking a haircut, or the US losing its reserve currency status is, at this point and for the foreseeable future, minuscule to non-existent.Nuño 00:08:04I'm less familiar with the numbers, but I'd initially estimate 0.5% or 0.1% a year. Does that seem significantly off, or would you suggest less than 0.1%?Lisa 00:08:16What actual default rate are you considering?Itay 00:08:19It's hard to say, but I'd consider it an edge case, probably around 0.1%.The global financial system's infrastructure and plumbing are fully built on U.S. dollars. Approximately 65% to 70% of all FX reserves are still in U.S. dollars. Furthermore, 80% to 90% of transactions in commodities markets and other infrastructure are conducted in dollars.Saudi Arabia's recent deal with the United States reinforces the petrodollar system, ensuring dollars continue to be used for oil exchange. For example, if a Norwegian company digs for oil in the North Sea and borrows money, they most likely borrow and secure it in dollars.A vast amount of dollar-denominated debt is also held between countries and by emerging markets with U.S. banks. Because this entire system operates in U.S. dollars, replacing it is extremely difficult and will likely take many years.When people discuss the end of the U.S. dollar, the question becomes: what is the alternative? What could replace the vast existing dollar-based infrastructure? Currently, no pure substitute exists. It would be a very slow unwinding of the current system. This is a matter of decades or more, not something in the near term.Nuño 00:09:54Regarding the long or medium term, how do you define those? Is it a couple of years? Five years?Are we looking at 0.1% for five years, or for 50 years? As a trader, what do you mean by long term and medium term?Itay 00:10:11It's somewhat arbitrary, but the longer the time frame, the greater the uncertainty and the higher the probability of unlikely events. For the next five years, I'd estimate 0.1%, increasing thereafter. It probably wouldn't be significantly more for 10 years. Beyond 10 years enters the medium term.Twenty to thirty years from now, all bets are off; it's very difficult to predict. Global reserve currencies have historically lasted between 120 and 200 years. However, things are moving faster now.Before the U.S. dollar, the British pound was the reserve currency, used in transactions. The Netherlands and Spain also had periods where their currencies were dominant. These shifts occur based on the dominant global power of the era.For now, what business or company would agree to transact in, say, the Chinese yuan at scale? Perhaps Russia is compelled to due to sanctions, but widespread adoption by others is unlikely. It's hard to imagine companies widely adopting a substitute for the U.S. dollar.However, we are slowly transitioning from an American-dominated world to a more multipolar one, offering more alternatives and options. But I don't see an immediate systematic threat that could dismantle the current system.That said, high debt levels and bond yields do pose a substantial threat to the economy.Rai 00:11:45We've discussed the U.S., Itay. What are your thoughts on the situation in Japan?What is the impact for Japanese investors and policymakers? What do you foresee?Itay 00:11:59This is a very loaded and complicated topic.In historical context, Japan, the third or fourth largest economy in the world—it fluctuates a bit, and also depends on the exchange rate—is the first to experiment. When I say 'first to experiment,' I'm referring to their early adoption of Keynesian economics, the first quantitative easing (QE) programs, zero interest rate policy, and negative interest rate policy. They were the first to try these because they experienced no growth for long periods.There was a massive boom in the 1980s, arguably the world's biggest bubble. In 1989, the land value of the Imperial Palace in Tokyo was reportedly worth the same as all real estate in California. Things were absolutely crazy. The bubble popped in 1989, which was devastating, and Japan entered the 'lost decade'—a long period of stagnation, lost generation, and numerous issues.Policymakers responded by taking interest rates to zero and injecting money into the economy using quantitative easing, putting them ahead of the West. Japan is also ahead of the West in demographics. They have a falling birth rate; today, it's around 1.1 or 1.2, while the population replacement rate is 2.1.A lot of inflation and economic growth comes from demographics. More people having children leads to more home buying, large purchases, and car sales. For instance, the high inflation in the U.S. in the late 1970s and early 1980s was associated with peak Baby Boomers entering the workforce and household formation age. This demographic shift arguably contributed to inflation. Inflation isn't purely monetary; it can be organic due to increased physical demand for goods.Japan was early to these trends. Some predicted other developed economies would face a Japan-like climate 10 to 20 years later, and we've seen some of that happen.What's happening in Japan today is quite interesting. Since the early 1990s, there has been no inflation, resulting in complete behavioral shifts. Consumers don't rush to spend because they anticipate prices might be lower next month or won't rise.Real estate values are not expected to rise. It's not common to buy land or a house expecting an automatic increase in value. The consumer mindset is quite different there.Thirdly, because Japanese government bonds yielded close to zero for a long time and rates were so low, the yen became a global funding currency. People could borrow in yen and invest elsewhere—the carry trade—expecting a positive yield.What is different this time is that Japan has inflation. I've been a trader for a while, and shorting Japanese government bonds was always known as the 'Widowmaker' trade because it never succeeded. It's notable that the situation is changing now, as that trade never actually worked out before.The Japanese market never imploded because the assumption was that with so much debt and yields at zero for so long, even at extremely low rates, about 15% of all tax revenue was already servicing existing debt a couple of years ago. The idea was that if rates reached a certain level, the portion of tax revenue needed to cover debt would become substantial. At current rates, it might already be 40% to 50%, though I haven't verified this.This is the potential end game of Keynesian economics: reaching a point where you can't continue because there's too much debt. Even small interest rate increases can make it impossible to cover the debt. Then, more debt must be issued to service existing debt, consuming too much tax revenue and leading to a debt death spiral.Nuño 00:16:37If people borrow money in yen to invest elsewhere, that depresses the value of the yen. How does that play into this?Itay 00:16:45Correct. You're effectively short yen, which is beneficial. If you borrow in yen and its value falls, you pay back less yen on your loan, resulting in a net gain. You're making money in two ways: from the yen's depreciation and from the appreciation of your other investments.For example, if you borrowed yen to buy U.S. Treasuries before the recent rise in yields, you might make 5% on a U.S. bond while borrowing at 1% in Japan. You'd earn 4% on the interest rate differential, plus an extra amount if the yen depreciated, say from 140 to 150 per dollar. Many people have been doing this.Nuño 00:17:33How has the value of the yen been changing recently? Is it becoming more valuable now that interest rates are greater, or how is it changing?Itay 00:17:43The yen appreciated back to the 140 range and is currently around 145. It recently peaked around 160, then strengthened towards 140, and is now at 145.What you're bringing up is actually the bigger risk. One of the biggest risks today is that we don't know the full value and size of this carry trade. We don't fully know how much money was borrowed globally to buy bonds, equities, or even real estate. It's very hard to quantify.Some estimates are a few trillion dollars, possibly higher, depending on how it's tracked. For a known figure, the total Japanese holding of U.S. Treasuries is around 1.7 trillion, I believe.Rai 00:18:42It's about 1 trillion.Itay 00:18:43Okay, so take that as an example. Currently, the difference between a 30-year Japanese bond and a U.S. 30-year bond is not that high. Typically, that spread is 3-4%, but now it's less than 2%.Keep in mind that some Japanese investors, like insurance companies, hedge currency differentials. When hedging, they pay a certain amount, perhaps 100 to 150 basis points. At this point, it may not even make sense for them to buy U.S. Treasuries.A big tail risk is that Japanese investors decide to repatriate their money and buy Japanese bonds. This would cause the yen to appreciate as all that capital flows back into Japan.Lisa 00:19:25The big question for me is: one, how far up will Japanese bond yields go? Two, to what extent does the Bank of Japan want to intervene? And at some point, can they intervene to stop a drastic increase in yields?The Bank of Japan commented yesterday that they would change their future bond offerings, which calmed yields a little bit on long-term Japanese bonds. But what's the future here? How likely is it that things will get radically out of control with Japanese bond yields?I think the Bank of Japan is likely to intervene before that happens, and I believe they still can. However, there's a non-zero risk here of things getting out of control.I also wonder how big the impact of that will be on bond markets globally. I suspect the impact would be substantial but not extreme. I'd be interested to hear your take on that.Itay 00:20:28I generally agree, but the tail risks are extreme here. The idea behind the Austrian school of economics is that when you continue this course of action, you eventually reach the endgame. Based on the Austrian idea, the endgame is reaching a place where you cannot continue because of inflation.They might have to make a choice. Tokyo inflation came out in April at 3.4%, which is still much higher than the Japanese central bank rate. The Bank of Japan may decide to intervene and resume its QE programs.The Bank of Japan already owns over 50% of the entire Japanese government bond market. Before 2024, they had yield curve control.Nuño 00:21:16The Bank of Japan owns 50% of the stock market?Itay 00:21:2054% of the Japanese government bond market.Nuño 00:21:23Of the bond market.Itay 00:21:25Yes. Because of their policy of yield curve control, they wanted to suppress yield on the long end for years. They kept buying bonds at those prices to ensure lower yields on the back end. That's how they kept their rates so low on both the front and long ends of the curve.The problem is, it's almost like nationalizing that market, and that was one reason the yen kept appreciating for so many years. The issue now is if Tokyo has real inflation for the first time in decades—which recent evidence suggests, as their inflation rate is 3.4%—they're running a real risk.They can intervene, and likely will. They can decide not to raise rates anymore or even resume yield curve control. But if they do, they'll sacrifice their currency. The message they send is the yen is going to 200, and they won't be able to stop it, leading to a currency crash. This is because they would need to create an insane amount of yen to make that happen; they will need to print a ton of money.So, they can do it, but they will sacrifice their currency. Currently, they have a hard choice between their currency market and their bond market. They have a very difficult job to walk the line in a way that can save both.In theory, Japanese inflation can go back to 2% and stay there. Their problem was they didn't have inflation at all; it was zero or negative. They want some inflation, but not too much. They finally got what they wanted, but they got too much of it.Lisa 00:23:02They have a complete catch-22. Can you envision a scenario in which yields keep going up and they don't intervene?Itay 00:23:11That would happen if inflation starts spiking out of control in Japan. Consider rice prices and the CPI in Tokyo, which is 3.4%. I was in Japan in March, and people there are still conditioned by decades of deflation.For instance, one person told me he was delaying renting an apartment because the price went up, expecting it to come back down as it always has. The idea of deflation is so ingrained that the concept of persistently rising prices is something many can't comprehend.This makes it very interesting because we'll see if this inflation in Japan is transitory. If it's not, it's a structural shift that's almost unprecedented.To give you an idea, based on data from about two years ago, household savings in Japan are close to 14 or 15 trillion dollars. A massive 55% of that is in cash. Imagine that money starting to move. This reflects a very conservative, deflationary mindset: keep cash because prices will be lower tomorrow.Changes of this magnitude in such an economy could be instrumental. The global implications are also significant. For instance, a much stronger yen could cause asset prices worldwide to sell off aggressively.The tail risks are on both sides: an extreme tail with the yen going to 100 or below, or to 200. It's unlikely to stay within the current range unless the Bank of Japan gets very lucky and stabilizes it.Lisa 00:25:01Is it likely that Japan will face some sort of crisis here? If so, on what timescale might that happen?Itay 00:25:10Historically, I would have said this is something everyone predicts but never happens. It's the well-known 'widow-maker' trade; many traders have tried to short Japanese bonds without success.But now, for the first time I've seen, Japanese yields are genuinely imploding. It's signaling real risk to the market. The longer the time frame, the more real this risk becomes.To give you an idea, consider total debt numbers and country defaults. The statistic is that of 42 countries reaching a debt-to-GDP ratio of 130% or 140% or higher, 41 have defaulted on their debt. Japan is the sole exception; it's the one country that reached that level without defaulting.Rai 00:25:56And Japan is at higher than 260% debt-to-GDP.Itay 00:26:00People have been trying to understand how this is possible. The reason is that much of the Japanese bond market is owned internally—by insurance companies and the public. There are very few outside investors causing significant capital outflows.So, it's hard to say. But there's significant risk on both sides. If inflation persists in Japan, policymakers will have to choose the lesser of two evils: inflation and yen devaluation, or a very difficult economic time.If they experience a recession and stagflation simultaneously, then tariffs couldn't have come at a worse time for them.Lisa 00:26:42We're just piling these impending crises on top of each other.Itay 00:26:48The stock market is still at, or very close to, 6,000 in this recent recovery. So it hasn't cared all that much.Lisa 00:26:56Very true.Nuño 00:26:56If you think about the tax burden in my native Spain, it's significantly higher than in the US. However, nothing is breaking over the short term. This does lead to brain drain and various undesirable effects, but Spain is still limping along.So, why can't the US gradually move its tax burden, hidden or otherwise, to a level corresponding to Spain?Itay 00:27:20Spain's inflation rate is actually not—Nuño 00:27:23No, the tax rate. The tax rate is.Itay 00:27:25Oh, the tax rate is very, very high. If the U.S. increases taxes, you're right, it would potentially close the deficit.Nuño 00:27:33I'm thinking about the combined tax rate: the actual tax rate plus the hidden inflation tax. If you gradually increase your actual tax rate to the levels of Spain, nothing breaks.If you gradually increase your combined tax rate—actual tax plus inflation tax—to that level, where in this process do you get a crisis? Or do you just get progressively worse standards of living?Itay 00:27:58Governments should do something to rein in reckless spending and bring in more revenue. However, there is a concept that has been very hard to anchor: the Laffer curve. This is the idea economists have explored concerning how much tax is the right amount, an age-old question.Nuño 00:28:21Right.Itay 00:28:21The Laffer curve suggests that if you have too much tax, the government collects less money. This is because fewer businesses form, as entrepreneurs start businesses elsewhere to avoid high taxes, leading to less economic activity. Consequently, even with a higher tax rate, the government nets less tax revenue.Conversely, if taxes are too low, economic productivity might boom, but the government collects a smaller percentage of that larger amount. There's an optimal amount, but it's difficult to determine precisely; it's likely a floating, not fixed, number.It is known that the US still enjoys a very strong technological moat. Most innovations and large-scale breakthroughs have been happening in the United States since the 19th century, from the invention of the telephone, electricity, and the light bulb, to modern advancements in AI with companies like Nvidia.The US still provides a very good climate for entrepreneurs and innovation. There would be a substantial risk in trying to remove that, as it's one of the key factors giving the US a massive competitive edge globally.Nuño 00:29:31Great.Itay 00:29:32What we're discussing in this political era of populism is not dissimilar to the 1910s and 1920s. When people's standard of living decreases, there tends to be a movement toward more extreme political parties on both the right and the left.During periods of prosperity and economic stability, public opinion tends to cluster more in the center. This is a politically neutral observation supported by a lot of statistical work.Lisa 00:30:11That's absolutely true. On one hand, when conditions worsen for the population, their politics shift to greater extremes. Yet, this is perhaps when moderation is needed most.When discussing restraining budget deficits and getting budgets under control, as Itay mentioned, there are primarily two levers: taxes versus spending. In the US, we're seeing additional proposals for tax cuts for the rich. The size of these tax cuts is so large they will drastically increase the US budget deficit and debt burden over time, which becomes problematic.There are these trade-offs, and it's up to society as a whole to choose the final outcome. As Itay brings up, unfortunately, the population's choices become more extreme as conditions deteriorate. This leads to a difficult situation and potential tail-end risks.Itay 00:31:30One potentially easier solution is getting a hold of the interest payments. Interest payments are so much greater than any individual tax programs or tax cuts.The US spends roughly 1.2 trillion on servicing the debt. If that number could be cut in half, it would solve many problems.Lisa 00:32:00Instead, interest payments are escalating due to these increasing yields. Then there's the risk posed by the Japanese bond market potentially exacerbating the situation, and the whole carry trade imploding.Itay 00:32:14Ironically, the healthiest thing in the long run might be the most painful in the short run: a recession. If we had an economic downturn now, with a good amount of U.S. treasuries needing to be refinanced, a recession could kill short-term inflationary pressures. This would allow the Fed to lower interest rates.Lisa 00:32:36This is true.Itay 00:32:37The Bank of Japan could also lower interest rates. We would be able to refinance the debt, potentially saving 500 to 600 billion a year and locking in lower coupons for 10, 20, or 30 years. This would solve a lot of problems.Lisa 00:32:51This wouldn't just help the U.S. economy. What happens in the U.S. does not stay in the U.S.; U.S. Treasury yields affect yields all over the world. If U.S. borrowing costs are high, it has a rippling effect globally. This is a worldwide problem because all our economies are linked.However, you will never publicly hear a politician or central banker say they want to see a recession.Itay 00:33:30Hidden under the surface may be a desire among policymakers to trigger a recession. This might sound like a conspiracy theory. If I were the Fed, understanding the mechanics—and the Fed has repeatedly complained about unsustainable US government finances, as Powell recently reiterated—I would keep rates high right now. This is despite some softness in economic surveys, a higher probability of recession, and tariffs.Consider the trade wars with China. The Bank of China significantly reduced rates and is using liquidity measures to fight the trade war. The Fed is doing none of that; it's keeping rates high. While reducing quantitative tightening, it's not truly aiding the US in its trade war, maintaining an apolitical stance, perhaps believing tariffs pose an inflation risk.The longer the Fed keeps real yields positive, thereby sucking liquidity from the economy, the greater the probability of a recession. If I were Powell, I might want to trigger a small recession—one that hopefully doesn't escalate—to allow for rate reductions, assist the fiscal side, and cool potential persistent inflation. This might explain why Powell isn't signaling an imminent easing of policy.Rai 00:35:04If yields stay high, and the U.S., Japan, and potentially others deal with some combination of austerity or currency devaluation, what are the geopolitical implications? Could it potentially affect defense spending, which in turn impacts the balance of power?Itay 00:35:22Interesting question.Nuño 00:35:23The US and its allies would see their ability to coordinate and build further diminish, reducing their willingness and capacity to fight an actual war. Paradoxically, in such a situation, a war might even be seen as a way to kickstart the economy.Itay 00:35:39World War II is an example; it took the US out of the Depression.Nuño 00:35:44In a perverse way, that logic can hold.Lisa 00:35:47Good economically, but not in any other way.Itay 00:35:50War is only stimulative to the economy as long as it's not fought on your own soil.Lisa 00:35:55Exactly.Itay 00:35:57The US benefited so much from World War II because the war was fought across the ocean, allowing the US to become a giant factory for the world.Lisa 00:36:05Right.Rai 00:36:05World War II also allowed for significant capacity build-out. The crucial factor is whether there's exploitable slack in the system, including an industrial base with room for expansion.If an economy is already at its efficient frontier, increasing demand for these non-productive assets becomes problematic, as it diverts investment from other areas.Itay 00:36:30Additionally, I doubt the US currently has the capacity to build anything substantial. For instance, approximately 96-97% of all shipbuilding now occurs in Asia.Lisa 00:36:41It's enormous.Itay 00:36:42Many critical items cannot be built domestically. From a national security perspective, in a potential war with China, the US might hold a paper advantage, but over time, it would face significant logistical and manufacturing challenges.Lisa 00:37:01A modern war between the US and China would involve many factors beyond direct military conflict, such as cyber attacks.Itay 00:37:18Some of that is already happening.Lisa 00:37:21Regarding the impact of unhealthy bond markets and increased government austerity, an obvious consequence is that any government experiencing this would be weaker in addressing crises.Itay 00:37:41Yes.Lisa 00:37:42The U.S., in particular, would be in a weaker position to address global conflicts. Concurrently, the US has signaled less interest in such engagements, so significant changes are underway.If Western economies struggle, addressing a potential conflict in Europe between NATO and Russia would become harder. Similarly, a conflict between the US and China would be more difficult to manage.When economies struggle, growth is hindered, and the capability to address any crisis—be it geopolitical conflict or a new pandemic—diminishes, making solutions more difficult.Itay 00:38:45Furthermore, protectionist policies often lead to increased conflict and isolationism and have historically resulted in hot wars. While we lack a sufficient sample size to definitively predict a hot war, history suggests this deglobalization trend could usher in a 10- to 20-year period of conflict.Lisa 00:39:09More economic integration among countries reduces the risk of conflict. Conversely, more isolationism increases that risk.Itay 00:39:21I recall the democratic peace theory, which posits that two genuine democracies have never gone to war with each other. I believe that theory still holds.Nuño 00:39:33Looking at population pyramids, the US is in a decent position; its pyramid appears reasonably rectangular despite an aging older cohort.In contrast, some European countries, like Spain, grapple with a significant debt burden. Their options include inflating the debt away, increasing taxes, or attempting to raise productivity. These nations face a growing debt burden, an aging population, and fewer young people entering the labor force.This creates a spectrum: Paraguay, for instance, has an approximately 40% debt-to-GDP ratio and a favorable population pyramid. South Korea has less of a debt problem but a very challenging demographic outlook. Some European countries face the worst of both: high debt and poor demographics. Any thoughts on this?Itay 00:40:29It's a huge problem, especially in Europe. As I mentioned, Japan dealt with that problem earlier, with Europe about 10 to 15 years behind. The difference in Europe is that European countries like Spain, Portugal, or Italy don't have independent control over their monetary policy.This lack of control is one reason for the structural pressure on the Euro over many years. In theory, Spain maintains its debt levels without much higher bond yields due to its Eurozone membership and the power of the integrated euro area.Imagine if Spain were on its own with its own currency. Given its debt load, what would its bond yields be? Today, Spain's bond yields are lower than those in the United States.Nuño 00:41:25What are a few possible endgames here?Itay 00:41:28There are many ways this situation could resolve. The demographic challenge, for example, is a major issue. The US doesn't face it to the same extent because it generally accepts large amounts of immigration, which contributes to population growth.Nuño 00:41:43Spain, in particular, does benefit from that because we have a massive Latin American population that is culturally similar enough. Germany, for instance, doesn't have access to such a large pool of German-speaking immigrants.Itay 00:41:56What is the percentage of immigrants in Spain?Nuño 00:41:59Around 20%.Itay 00:42:00That's pretty high; I didn't realize it was that high. Spain might be a little different then.Nuño 00:42:03I also didn't realize until very recently.Itay 00:42:05That's a lot higher than I expected. Most of them are probably from Latin America, speak the language, and integrate well.Nuño 00:42:11They do speak the language.Itay 00:42:12That's pretty great. This immigration could be a good solution for Spain, but it does have a high debt load.Productivity growth will also be substantial. And this brings us to AI; we've gone an hour and a half without mentioning it, so it's time.Nuño 00:42:30AI plays into the factors Lisa was mentioning. If AI is propping up productivity in the United States and elsewhere, that increases the US's strategic advantage in that scenario.Itay 00:42:46AI is the ultimate X-factor. In a more linear world without such technological optionality, demographics would be destiny: an aging, retiring population and insufficient workforce.However, AI might mitigate this. If one person can do the job of ten, the dire population pyramids in Western countries might not be as critical. Perhaps it won't matter as much.Rai 00:43:12Itay, thanks for coming on. Can you tell the audience about Equi and what you're working on?Itay 00:43:17We are a multi-manager absolute return hedge fund. We focus on what we call "absolute return"—creating a consistent outcome not necessarily correlated to market beta or general market movements. This means your financial outcome isn't solely determined by concerns about equities or bond markets.The idea is to create an alternative return stream through absolute return. Our goal with these products is to generate a certain level of return. As a portfolio allocation, it can act as a diversifier, though not strictly a hedge, against global market events.Basic portfolio theory and the efficient frontier suggest that more risk typically yields more return. However, with uncorrelated assets, you can shift that efficient frontier to the left, achieving the same unit of return while reducing risk.We effectively build funds and products that give clients the ability to shift their efficient frontier to the left. We primarily work with accredited investors, qualified purchasers, registered investment advisors, and multi-family offices. We offer a combination of off-the-shelf products and custom solutions built for our clients.Rai 00:44:44Great. Thanks again for coming on.To our listeners: if you enjoyed this episode, please consider sharing it with someone. The primary benefit of forecasting is influencing decisions, and to achieve that, we need to expand our reach.Also, if you'd like to reach out to us about anything, please email us at [email protected]. Get full access to Sentinel Global Risks Watch at blog.sentinel-team.org/subscribe
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  • Scott Eastman – Sentinel Forecaster Introduction
    Scott Eastman has been professionally forecasting for over a decade with major forecasting groups, some of which advise the US intelligence community and executive branch.TranscriptThe transcript is AI-generated and slightly differs from the phrasing used in the recording.Rai Sur00:00:16Scott Eastman has been professionally forecasting for over a decade with major forecasting groups, some of which advise the US Intelligence community and executive branch. He's also one of Sentinel's forecasters. His areas of expertise are geopolitics and epidemiology.One thing I enjoy about talking to Scott is that he has a pretty atypical background. He spent many years painting homes and doing documentary photography. His travels and eclectic interests have brought him in contact with many influential and downtrodden people.Before we get into some of the questions about risks and escalations, I have some lighter questions that I personally want to know the answer to, and I think the audience would enjoy. The first one is: do you have a type of forecasting error that you systematically make, one that took you a long time to correct for, or that still bites you?Scott Eastman00:01:11A basic forecasting error I made frequently in the beginning, and one that still bites me sometimes, is overreacting to the news of the day. It's very easy to get swept up in it. News is often presented as breaking news; everything is urgent, but usually, not much changes.If you wanted to be a good forecaster, in terms of a good Brier score or number, you could simply say status quo. If you said whatever happened yesterday is likely to happen tomorrow, you would mostly be right. This isn't always true for fields like the progress of AI or computers, but even there, following the existing curve would often be correct.It's easy, especially with issues like war, to overreact to a country moving assets or a leader making a statement. So, as a forecaster, it's generally wise to downplay the spikes that occur regularly.However, a challenge is that simply stating 'status quo' isn't very useful, because the goal is to be a *truly useful* forecaster, not just one who is often correct. Pointing out major changes is the difficult part. For example, many didn't foresee the fall of the Soviet Union, though some had a good idea Russia would invade Ukraine.Honestly, most of us don't know with 100% certainty when something will happen. If a rare, eventful occurrence has a 1% forecast from me, and I raise it to 10% and it happens, one could argue I was still wrong, as 10% implies a 90% chance it wouldn't. It's a significant challenge. If I say something has more than a 50% chance in a specific time period, it should be truly meaningful.Basically, overreaction is the biggest thing to avoid.Rai Sur00:03:15Is there an example in the news now where you can feel it tugging at your mind, making you think it's a big deal?Scott Eastman00:03:22A recent example is when the US appeared likely to bomb Iran's nuclear facilities. They may still do so. The US took many preparatory steps: moving B2 bombers to the region and deploying expected aerial and anti-ballistic defenses. These were signals of intent. We knew Israel wanted it bombed, Iran was weakened, and other factors pointed to an imminent strike. But it hasn't happened.This is often the case. While Iran isn't friendly with the West, most leaders are, to some degree, rational. Even if perceived as extremists, they want to preserve their power and their country. If they perceive inaction will lead to a devastating bombing, potentially regime-ending, they will make moves to reduce that likelihood.Often, some forecasters might say an event is extremely likely. For instance, during the Ukraine war, US intelligence reportedly estimated up to a 50% chance of Russia using a nuke within days or weeks. It didn't happen. That estimate was extraordinarily high and concerning.At the time, I spoke with some excellent forecasters. One, who is typically better than me, estimated a 30% chance, which is wildly high for nuclear use. After more discussion with more people, we realized that while current events suggested a high probability, many factors would intervene to lower it. The US strongly opposed it, it would be bad for Russia, and other parties, including China, urged against it, even against testing.Our core group's estimate eventually came down to perhaps 4 or 5%, which is still a very spooky number. This was based not just on current knowledge, but on anticipating all the intervening steps that would occur before such an extreme event, steps not yet apparent.A similar dynamic occurred with Pakistan and India. During a recent conflict, both nuclear powers understood the horrific consequences of escalation. Even in simpler situations, it's human nature to try to survive and avoid conflict.So, without being Pollyannish, optimism about things taking a better path is more often correct than not.Rai Sur00:06:44One way to frame this is distinguishing between forced steps and steps that allow for de-escalation. Perhaps for subsequent steps that could involve de-escalation, we too easily project that they will resemble the current situation.Rai Sur00:07:03What's a forecast you're proud of and one you wish you could forget?Scott Eastman00:07:07One forecast I wish I could forget, and that many of my fellow forecasters also wish they could, is the 2016 election of Donald Trump. This isn't about ideology; it's about not following basic, clear information.The clear basic information was that most polling going into the election showed Hillary Clinton ahead, but within the margin of error. Her lead was consistently within a few points.From the beginning, I don't mind having given her more than a 50% chance of winning, but I do regret giving her around a 90% chance.When candidates are polling very close and then a significant event occurs, it can shift things. Shortly before the election, the Access Hollywood tape emerged, which was detrimental to Trump. However, the subsequent reinvestigation into Clinton's email server—even though nothing new was found—gave some voters another reason to doubt her or decide not to vote.Those events should have been enough to adjust the forecast significantly. If I had predicted a 60% chance for her to win and Trump had won, I would have been comfortable with that. I would have been on the wrong side, perhaps, but I would have appropriately acknowledged the chance of it going the other way. But I didn't, and I should have known better.Sometimes such errors are based on emotions, or on an awareness of living in a bubble where, in my case, Clinton was more popular than Trump. I'm fully aware of that. I remember in 2004, living in a very liberal part of the country where John Kerry had overwhelming support. But I knew the middle of the country is conservative, as I used to live there, so I should have known better.Still, when everyone around you shares one perspective, it's very difficult, even if you diligently follow all the steps of a good forecaster, like considering the other side and various factors. We still get emotional.It's very tough for me to forecast in areas where I have strong personal biases. I try to set them aside, but I don't believe we can ever fully block them.A forecast I am proud of—though 'proud' is a difficult word given the terrible outcome—concerns the Russian invasion of Ukraine. I had many good signals indicating it was likely to happen. I didn't know for certain it would happen or its extent, but well over a month in advance, I forecasted that an invasion was more likely than not.I also believed it was highly probable they would attempt a large-scale invasion, aiming for Kyiv and other major areas, not just confining it to the Donbas region. I care about this particular forecast because it had the potential to be useful.I had spoken with people experienced in refugee situations and had previously worked on refugee flows, including those from Syria during its war. We know that anticipating a refugee crisis two or three months in advance allows for crucial preparations: pre-stocking supplies, readying borders, and mobilizing personnel. These actions can prevent a complete calamity.The war itself wasn't stopped. Ideally, someone could have determined Russia's definitive invasion plans and taken steps to prevent it. While that didn't occur, I believe the forecast provided a valuable heads-up for surrounding countries on managing the impending migration crisis.Rai Sur00:10:45As you became increasingly convinced the invasion would happen, did you find yourself unable to see why it wouldn't, yet still feel some internal reluctance towards that conclusion?Or was it a more fluid realization, where recent events made it clearly inevitable to you?Scott Eastman00:11:07I had an internal dialogue and experienced cognitive dissonance leading up to the Ukraine invasion. Up until that invasion, almost everything Putin had done made sense to me when viewed from what I perceived as his perspective.When he invaded two separatist regions in Georgia, areas that didn't want to be part of Georgia, I thought he was entering an area where he was essentially welcomed. His intervention in Syria was at Bashar Al Assad's request, so he had some support there, even if not universal. When he started his presidency fighting in Grozny, Chechnya, it was a continuation of a pre-existing war. While not necessarily wanted, it was a continuation of conflict.Most of the steps he had taken throughout his career seemed rational from a Russian perspective. Though I'm not Russian, I try to study the person, the country, and their history to gain a deep understanding of how their motivations might differ from mine or those of other countries in the region. This understanding affects my assessment of how much they might be willing to lose to achieve their objectives, such as taking land.However, with the full-scale Ukraine invasion, I thought, "This is going to be a disaster. This one doesn't make sense. This will be a losing deal." I didn't think that about the far eastern part of Ukraine. That region is not just Russian-speaking—as many pro-Ukrainian people are—but more pro-Soviet and less inclined to align with the West. So, I could understand actions in the far east, but trying to take more of the country seemed like a mistake, and it has proven to be one.But he did it anyway. That was the dissonance: in my view, this would be the first time he would make a major international blunder. On the flip side, he was taking all the steps one would expect for an invasion. I became more convinced when they started moving blood supplies, which have a very short shelf life.However, a leader wanting to scare someone to the negotiating table might still do that—take all preparatory steps up to the last minute. So, I still remember being shocked, even though I knew it was very likely. I also thought it would happen after the Olympics. He invaded right after, and we had thought he wouldn't want to upstage Xi Jinping during the Olympics, as he needs Xi, the leader of China, as an ally.Yet, there was still a sinking feeling that this was a mistake, but it was happening. Even though I thought it was likely, up until the last minute, there's always a chance they'll back down. They didn't.Those were the main reasons: primarily, thinking this was a mistake, even from a Russian perspective. They've lost about half the land they originally took. If he had originally said, "I'm going to take the Donbas, this region, and stop there," I would still consider it morally wrong, but militarily and politically, it might not have been a mistake.Rai Sur00:14:15You used to do documentary photography, is that right?Scott Eastman00:14:17Yes.Rai Sur00:14:17What's different about the world when you're walking through it with serious photography equipment? What differences do you notice?Scott Eastman00:14:26As an observer, sometimes I can be a fly on the wall, hopefully unnoticed. When doing documentary photography, I used fairly large cameras, like the Canon EOS-1Ds with large lenses. This meant I wasn't inconspicuous unless at a mass event where people didn't pay attention. In some parts of the world, an expensive camera made me stand out.When I do documentaries, unlike being a tourist, I enjoy deeper interactions. Tourists see beautiful things but generally don't interact extensively with local people. In documentaries, even with just photography, I eventually needed to connect with people, even ordinary individuals. Meeting someone on the street could lead to an invitation to their home. I've spent the night with a Roma family, for example. I end up in closer situations than I would as a tourist.While doing a documentary in a country or region doesn't make me a native or local, I believe I get a closer view of what the place is truly about, beyond just admiring beautiful buildings. When you start talking to people and gain a deeper understanding from them, your perspective changes because you learn what's really important to them.It's also easy as an outsider to discount people, perhaps judging a group as not very smart or wealthy. But you realize many people, whether a farmer or someone else, are wise in their own field and understand their region well. This relates to forecasting in general: if someone becomes a leader, even of a village, they are likely quite clever to have reached and sustained that position.Beyond documentaries, in my own life, I've done all sorts of jobs, from being a part-time janitor during vacations to manual labor. I'm acutely aware that systems need everyone to function.Recently, at a prominent company, a guard said, "I'm just a guard," or someone might say, "I'm just a janitor." But if any of those people fail in their job, there are problems. Each job and each person is important. This isn't just some platitude; it's genuinely true.Through travel and trying to see a whole society—not just attending social events—I've gained a deep view of how places work and how people are.Rai Sur00:17:18There's a lot of hidden knowledge in the world that can't be simply Googled—things like insights gained from meeting people, understanding their intentions, and private conversations. How much of your forecasting edge would you attribute to these tacit, un-Googleable insights versus your ability to aggregate easily accessible public information?Scott Eastman00:17:41I would think that in maybe 80-85% of the forecasts, Google's going to get you a long way, and you're going to be fine because most things do just follow the trends. But there are some times where I feel like if you don't really understand a culture or know somebody who does that you can trust, you're going to miss some really major points.An example of this, a really small event, is Iceland. Iceland is an intensely proud country. They have basically no military, and yet they challenged the British Navy at one point. They got into a dispute over fishing rights, decided to challenge the British Navy, and actually captured some British people. They fouled one of their ships, I think by putting nets or something in the propeller. This is crazy if you think about it. They're a country of 300-and-some-thousand people, and they could get crushed.The same thing happened when they had a financial crisis. Europe was saying, "You've messed up, you need to pay us." All sorts of people had made deposits in their banks, which were getting a high interest rate. They were saying the people of Iceland need to bail them out. And Iceland was like, "No, we're not doing that. You took a risky bet, you lost. Whatever the minimum guarantee is that the bank had, we're going to cover a certain amount of money." They paid that, but they're not going to pay any more. They said, "No, you took a risk, sorry."Some people in Europe were saying, "If you do this, you're going to be ruined because nobody's going to deal with you anymore." And they're like, "No, sorry, we're not going to make our people cover your risky things." Knowing that Iceland had already essentially gone to war with the UK, it's like they're not going to back down on this stuff. They're also in a strategic position in the world, so nobody wants that. The US still needs them. There's enough going on, and it's probably not worth somebody fighting for there. So, they are able to punch way above their weight.Then there are other areas of the world, other countries where, if you know their history—for instance, I find it really difficult as an American to understand why Serbia and Croatia have differences that go back 800 or 1,000 years. But some battle matters intensely to them. Americans don't care about the War of 1812 at all. I don't hear any American going, "We don't like the Brits, they burned down the capital." It's just not an issue.Sometimes, if you do have this local knowledge, it helps a lot to know when something is almost impossible politically for somebody to do. Trying to figure this out with leaders is difficult. You can try to get at some of it by reading biographies if possible. Sometimes, if you know enough about the history of a person, you could understand why they're never, or almost never, going to back down on some issues.I think it helps to travel around, meet people, and be as broadly knowledgeable as possible. Some of that can be gained from reading from the internet, but not just from a simple search.Rai Sur00:20:40Nice. Okay, on a little grimmer topic. According to Our World in Data, the projected number of base deaths in 2030 is 68 million. That assumes no major catastrophes, status quo. As we go through the orders of magnitude of excess deaths on top of that, what are your top theories for what will cause them? Let's go as a spectrum.Scott Eastman00:21:02The easiest way to get a large number of deaths beyond current rates would be massive conflict. I usually try to look at base rates from the past. Big issues in the past include the Cultural Revolution in China, World War I, World War II, which all had mass deaths, and then pandemics.Pandemics normally occur every hundred years, but there's no guarantee that because we just had one, we have another hundred years to go. COVID clearly caused more than 10 million excess deaths. Those are the first things that come to mind.Nuclear war is very low on my list. We've never had a nuclear war since more than one country possessed nuclear bombs. Even with nuclear war, I doubt it would start with countries attacking each other's capitals, as that's a quick endgame. My guess is that even nuclear war wouldn't radically increase that number. I don't want to find out, but it's not so likely.I would first look at naturally caused pandemics or any disease that wipes out far more people than normal. A normal flu year in America may kill 50,000 people, but globally it's much more, as America is a small portion of the world. A really bad flu could cause high numbers. To get into even higher numbers, I consider pandemics.Looking out to 2030, my biggest short-term concerns involve AI, and for me, 2030 is still short-term. Some of my colleagues believe AI will wipe us out before then. I am not in that camp.However, if there's an ability to adapt a virus—and this doesn't necessarily require AI, as countries have attempted to create biological weapons in the past, though largely stopped—that capability will become easier for more people. If that capability becomes easier and isn't contained, it's an area where something could easily escape bounds and kill masses.Most kinetic events, like big bombs or terrorist attacks, affect a limited number of people. If we're talking about 68 million deaths per year, 9/11 killed about 3,000 people. Even the Ukraine war, which is horrible, is still well under a million deaths. The war in Sudan is also awful, but these events aren't changing the overall death numbers significantly. That's why I start thinking about biological issues.I consider it extremely low risk that artificial general intelligence or a singularity would create masses of robots to extinguish us. I think there are too many steps along the way where we could see it happening and try to stop it. It also assumes that AI or robots would consider wiping us out their top priority, which I don't believe. Many steps would have to occur for that to happen.Unlike base rates, AI is an area where we don't have a base rate. We are going into the unknown. In some ways, I feel we're like the world in 1945, or more importantly, when the Soviet Union first got nuclear weapons. If you asked someone in 1950 about the chance the world would not see another nuclear attack by 2025, most people would have thought it absurd; they would have expected a nuclear war before then. They had no priors.With AI, it would be naive to say that because nothing bad happened with nuclear war from 1950 to 2025, we have at least 75 years of no issues. We simply don't know.We can use our best judgment and try to figure out scenarios. One way to look at the future is to create scenarios and ask what's likely, and if something is likely, what are the probable counters?We're in an area where I find it foolish when someone says, "I know this is going to happen," or "We're going to be extinguished by 2032," or "Everything will be fine in 2032." I think we don't have enough knowledge to make a very confident call.Rai Sur00:25:27I know you're interested in the shorter-term impacts of AI and how those could butterfly out to affect many other aspects of society. Could you say more about these short-term impacts and how you think they might play out?Scott Eastman00:25:42It's strange when I think about short-term impacts because we've experienced many technologies in the past that transformed society, such as the printing press, personal computers, and steam engines. Industrialization brought significant changes.However, with AI, the change is incredibly rapid compared to past transformations. Much of this impact will be on high-skilled, cerebral jobs.Consider the practice of law. Many years ago, a friend worked on a massive law case, possibly the Microsoft antitrust case, which required document discovery. Traditionally, hundreds of lawyers would manually review emails for relevance.Now, technology would scan and identify relevant documents with very few lawyers, as you must disclose all evidence to the opposing side. If this reduces the need from, say, 700 lawyers to just 10, that's a significant reduction in the number of lawyers required.Does this mean we'll need fewer lawyers, or will the cost of legal services decrease, leading to more lawsuits as people find it cheaper to file them? I've represented my own company in small claims court, and AI could simplify case preparation by finding relevant precedents.I'm unsure how much AI will eliminate jobs versus creating new applications for those skills. For instance, AI speeds up programming, meaning fewer humans are needed for the same amount of code.Perhaps we'll create more beautiful, complex programs or use programming in more capacities than before. I suspect we'll need fewer programmers five to ten years from now, but I don't know how far-reaching these societal changes will be.A major concern is job loss. I find the idea of a minimum wage funded by a tax on AI, where everyone receives a basic income, somewhat unconvincing.Historically, when have companies willingly distributed large sums of money to help the general populace? A government could, of course, impose a tax, and that revenue might sustain us.Rai Sur00:28:32A plausible scenario is that if the alternative to providing support is significant social unrest, the private sector, which benefits from automation, might contribute some of its gains. There's an incentive to placate a large number of people as automation progresses and eliminates more jobs, to prevent their operations from being curtailed by significant social disapproval.Scott Eastman00:29:09Where people decide to start bombing data centers, for example.Rai Sur00:29:14Or just using democracy to...Scott Eastman00:29:17...change the system or shut it down. I can see that. However, if AI is as transformative as many believe, reaching a point where half the jobs are redundant, we would need to subsidize half the population who have little to no work. That would be uncharted territory.We currently have social safety nets in the US and Europe, with ongoing discussions about their appropriate level. I'm doubtful they would be enough to maintain a high standard of living.I'm also concerned about meaning. Even a basic job, like cleaning toilets or washing floors, provides a sense of accomplishment. I've done such work, and at the end of a few days, I could see a difference; I had done something.I'd rather do that than sit at home, receive money, and immerse myself in VR, games, or alternate realities. While I enjoy those things somewhat, I want my life to have purpose beyond mere enjoyment.I believe most people need a reason to wake up and do something meaningful, perhaps helping others, which is part of being human. If that is largely taken away, it might be fine; perhaps we won't need to work for money and will engage in activities like philosophy groups. Regardless, it will be a challenge.Rai Sur00:31:12Besides unemployment, another short-term uncertainty with AI is its effect on the social realm: relationships and how people interact. Do you have thoughts on what we might see and the risks involved if these effects were to escalate?Scott Eastman00:31:32There are many challenges with this. One is that an AI can respond in the way you want, controlled by the company that wrote it. It's in their interest to maintain our engagement with the AI. If we disengage or spend less time per day, the algorithm might be changed to re-engage us.There may also be an underlying agenda. For instance, authoritarian countries, or any country, might want their society to behave in certain ways. The AI company simply wants you to stay engaged and buy products or whatever generates revenue.A key challenge for me, as someone old-fashioned, is that human-to-human relations remain important, not just human-to-AI or human-to-robot interactions. If an AI consistently responds in a way I prefer, and then I deal with a human who is sometimes difficult, I might question why I'd interact with that challenging human. When my bot is always friendly and provides good, useful information, tolerance for human inadequacies or outbursts could become very low.I find this not only with AI but also when dealing with high-level forecasters. I enjoy interacting with them because they are typically skilled conversationalists who engage in high-level discussions without personal attacks, even with differing views. This leads to great intellectual conversations.Conversely, when I talk with people who lack these skills, I sometimes feel disinclined to engage in what might seem like unproductive conversations. The same could happen with AI if it consistently provides excellent information.For instance, I have a friend who is a brilliant astrophysicist, and I greatly enjoy our conversations, even though I'm not an expert in the field. However, if I could ask an AI like Gemini a question, it might already provide answers as good as his in many areas. I'd still prefer talking to my friend due to my preference for human interaction, but eventually, one might wonder why consult a human guru when the computer offers comparable expertise.The prospect of AI intentionally swaying us is frightening. I've seen U.S. and European elections significantly skewed by algorithms promoting specific candidates or viewpoints. This can affect personal relationships, social cohesion, and politics; it's alarming how detrimental this could become.At the same time, people growing up with this technology are becoming accustomed to challenging authority, which can be positive. When I was growing up—I'm over 50—we had limited news sources: a few major TV stations, a local newspaper, and perhaps The New York Times for some families. We all drew from the same core body of knowledge, and most people accepted news reports as true without question, then discussed them.Now, people question if content is AI-generated, if what they see is real, if a video is authentic, or if they're interacting with a real person or AI. This leads to a decay of trust in some ways, but it also fosters a healthy skepticism, encouraging people to seek multiple sources and verify information.It's not entirely negative. In the right hands, this technology can make us more perceptive and questioning, hopefully in constructive ways, though it can also go the other way.Rai Sur00:36:01What other aspects do you find underrated, especially concerning Sentinel's coverage?Scott Eastman00:36:08One thing that is easy to ignore is climate change. Most of us are aware of it and accept that it's real, and that humans are having a major effect on it. But it's not something that changes day by day. Even when a massive event like a huge hurricane or forest fires happens, it's still not global at one moment. So, it's easy to keep that as never the main issue of the day.Even at Sentinel, where there is a goal to look at pressing issues, including some of the longer-term issues, it's not always rising to the top.I've lived in different areas of the world where it's either intensely clear that climate change is a pressing issue and even the next decade is scary, or where it seems really distant. If you live in an area that gets plenty of water and where temperature extremes are not bad, it might not feel urgent. If you're in a place that doesn't get over 100 degrees Fahrenheit, or 38 degrees Celsius, in the summer, and someone tells you the Earth is going to raise another one or two degrees, it might sound good.But if you're living in Arizona or large parts of the United States that now have smoke for much of the summer, even if you're pretty far east but there are massive fires in the west and you need to wear a mask for a month, it feels a lot more real. This is obviously even more so for areas hit by hurricanes.We know climate change affects wars. There's big concern across sub-Saharan Africa and Central America that as there's more drought and famine, there will be migrations. Migrations, or just scarcity, often tend to lead to conflict and human suffering. That is really concerning.A challenge is that science increasingly has some ability to counter global warming. I've been on projects looking at how we can try to engineer our way out of climate change, to reverse it. There are some ways to make progress, but those are also scary. If you try to bioengineer something to be more reflective or cover rocks with something to absorb CO2, anything on a large enough scale to have an effect would be a massive experiment that may have unintended consequences.Some science-positive people, and I'm generally science-positive or human-positive, say that eventually we will come up with a lot of solutions. We have already made many positive moves, like windmills, solar panels, electric cars, and I'm still not against all nuclear power. We've gotten better in many areas.However, I am still deeply concerned about climate change and how we deal with it. It's also one of the areas where we have the most ability to positively affect it. If taken on as a priority, it could be an economic driver, not just a negative. That's an area we sometimes skip, depending on the administration. Even in a relatively liberal administration, it's usually not the number one thing we're dealing with.Rai Sur00:39:47A common operationalization of climate change is the change in average temperatures, in degrees Celsius. But that doesn't really seem to give us a good intuition for how climate change could then affect other conflicts or create instability.Do you have any ideas for specific operationalizations of climate change that might be closer to those kinds of impacts? This could help us make bright lines in the sand and reliably look at them, so we have a way to coordinate around when it's important to mention climate change.Scott Eastman00:40:26One would be if we can quantify famines and deaths from famine that we can separate out from normal cycles. Even in the 1970s or 80s, though climate change was already happening, there were still famines, for example, bad years in Ethiopia. But if you could try to figure out migrations and famines that you could relate specifically to climate change.One of the challenges with this is it's really hard to say this specific storm or this specific spike in temperature this year is only because of climate change. We know temperatures are going up, but attributing a specific event solely to climate change is difficult.For example, in the Western United States, we're starting to get "atmospheric rivers." In the past, a big rainstorm might last an hour or two. Now, you might have a cloud parked over a city for 60 hours, dumping a year's worth of rain. That's not normal, and these are becoming pretty common in California. Depending on where they park, they can cause mass flooding and destruction.This year in the Los Angeles area, there were mass fires. If you have mass fires followed by atmospheric rivers, you get mudslides. You could look at how many houses are destroyed as a result of extreme weather compared to an average year. If you just took the United States, where there's lots of data, and looked at housing units historically, year by year, how much has been taken out and how much is it going forward? That may be a factor.But I still don't think it's going to make everyone care. The people in the areas hit hardest will care. But if you're living in Norway, even if many people there are compassionate and want to help, it's probably not going to personally affect you very much. The same for someone living in Germany, which is another country that seems to care about climate change but is a pretty green, relatively cool country. People living in England, I work with a lot of them, and I don't think they're having the same feeling of urgency as someone living in the southwest of the United States.So I'm not sure how you actually make somebody care when it's not in their backyard.Rai Sur00:42:53What's something that I should be asking you about?Scott Eastman00:42:56One of the goals of forecasting is to give people a heads-up about what we need to be looking at—things we can do something about. This might be because we're curious and care about global events, or because they are immediate concerns.It's a huge challenge because some important areas are not currently forecasted. For example, an erosion of democracy matters to me, though I don't know how to forecast it. In countries where freedom of speech and the ability to make change are quashed, we have less resilience and ability to react. Hopefully, authoritarian countries have benevolent governments that address problems, but I'm less confident in that.I'm concerned with issues of democracy and how we, and our information, become increasingly siloed. Beyond our sentinel reports highlighting global issues, we should also consider how to change our own thinking. This includes how we process and seek information, and how we step outside our comfort zones to consider views that disagree with our own.This is important for us to do. It's not a direct forecast, like predicting conflict in Sudan next week, but rather understanding how our thinking influences our future.Rai Sur00:44:31That's what I hope to do with this podcast: provide the background color for things that can't be neatly put into a line item. For instance, concerns about the erosion of democracy still factor into your world models and your outlook on the future.That's a great place to wrap it. Thank you, Scott, for coming on.To the listeners. If you enjoy this episode, please consider sharing it with someone. Most of the benefit of forecasting comes from influencing decisions, and to do that, we need to grow our reach.Also, if you want to reach out to us about anything, please send us an email at [email protected]. Get full access to Sentinel Global Risks Watch at blog.sentinel-team.org/subscribe
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  • The Risk of Nuclear War Between India and Pakistan
    Nuño Sempere, Vidur Kapur, and Lisa discuss the possibility of nuclear escalation between India and Pakistan.Timestamps(00:16:00) - Intro(00:43:00) - Background on the conflict(02:26:13) - Direct forecasts of nuclear weapons use(15:45:10) - The role of other nations(20:26:09) - What if Pakistan collapses?(22:45:16) - Russia's incentives in global conflicts(25:40:08) - What are the forecasters looking out for next?(29:28:06) - OutroTranscriptThe transcript is AI-generated and slightly differs from the phrasing used in the recording.Rai Sur00:00:16Welcome to the Sentinel podcast, where top forecasters discuss ongoing events with a view towards better understanding global catastrophic risk. Today, we'll be talking about the recent military escalation between two nuclear weapons states, India and Pakistan. I'm your host, Rai, and I'm joined by three of Sentinel's world-class forecasters: Nuño Sempere, who's also my co-founder at Sentinel; Lisa, also known by her forecasting moniker, Be Like Water; and Vidur Kapur. The situation is evolving rapidly, and we are recording this on Wednesday, May 7th.To ground the discussion, the focus will be on nuclear risk, as Sentinel is concerned with escalations in the long tail of extremely bad outcomes. Most of that risk here is nuclear.About two weeks ago, a terrorist attack in Jammu and Kashmir, a contested territory on the India-Pakistan border, killed 27 people (mostly Hindus) and injured 20 others. This caused an immediate diplomatic breakdown that has since escalated to military action at a scale not seen since the last Indo-Pakistani war in 1999.India's nuclear program conducted its first nuclear test in 1974, and Pakistan had theirs in 1998, but neither has tested a weapon since 1998. The countries have very different nuclear doctrines. India committed to a no-first-use doctrine in 1998, meaning they pledged not to use nuclear weapons proactively. Pakistan, however, affirmed as recently as this conflict that it expressly does not have a no-first-use doctrine. With a significantly weaker conventional military, Pakistan uses the threat of nuclear first use as a deterrent.Regarding their nuclear arsenals: India and Pakistan both possess numerous warheads and missiles capable of covering each other's entire territories. As of 2013, Pakistan stated it would need to assemble a nuclear-armed missile from parts stored in different locations, though it's unclear if this remains true. India has new missiles that can be permanently mated with warheads and stored ready for use. It's unclear if any of these missiles are currently mated to nuclear warheads.With that background established, I'm curious where you all are starting on this question. What's your rough estimate of the probability of at least one nuclear weapon being launched by either India or Pakistan in the next 365 days? How are you arriving at that, and what are you considering? Let's start with Nuno.Nuño Sempere00:02:44Before this recent escalation, I was at approximately 0.1%. I arrived at that by decomposing the question into: first, the chances of a significant escalation, and second, conditional on that escalation, the chances of a nuke being used.In our forecast a week ago, we defined the threshold for significant escalation as 1,000 deaths. This is much higher than the 27 deaths seen so far. However, India's response seems more kinetic than I expected.If I was previously at a 12% chance of significant escalation and a 1% chance of nuclear use conditional on that, my estimate for hitting that 1,000-death threshold might now be around 15% to 20%. This brings my overall estimate from 0.1% to perhaps 0.2%.Overall, I believe it's still unlikely because both sides really don't want it. However, there's a dynamic where both sides are uncertain, capable of making mistakes, and could start on a path they cannot stop.Rai Sur00:03:58Vidur, what about you?Vidur Kapur00:03:59There are a few different ways to approach this question. One is, like Nuno, to take this in stages. You could look at the probability of a significant escalation—for example, 1,000 military fatalities within the next 12 months—and then, conditional on that, the probability of nuclear weapon use.For me, I'm now at around 20% for 1,000 military fatalities within the next 12 months. Conditional on that, I'm at possibly around 2% to 3% for actual nuclear weapon use.This puts me a fair bit higher than Nuno, at around 0.4% to 0.6% overall. Taking the average, I estimate a 0.5% chance of nuclear weapon use by either India or Pakistan within the next 12 months.Rai Sur00:05:11It might be good to contextualize this second part: where the nuclear use percentages come from.Vidur Kapur00:05:16Absolutely.Rai Sur00:05:17There seems to be a range of numbers most forecasters coalesce around for nuclear weapon use. How do you arrive at those figures? What's their origin?Vidur Kapur00:05:29The second part is to determine the base rate for nuclear weapons use in a conflict. In the past 80 years, coinciding with the 80th anniversary of the end of World War II, there has been essentially one instance of nuclear weapon use in conflict—the two bombs in Japan, which I count as one event. This gives a base rate of 1 in 80, or about 1.25%.Looking closer, when the United States used nuclear weapons, it was the sole nuclear state. Japan couldn't retaliate as it lacked nuclear weapons, possessing only a crude program. The Soviet Union, Germany, and Britain also didn't have them at that time. This suggests the probability of nuclear use in the modern age is lower than 1.25% because states are hesitant to break the norm against their use.In the India-Pakistan case, both have nuclear weapons, meaning mutual use would cause immense destruction on both sides. This might push the probability lower. However, Pakistan's military doctrines suggest a willingness to use nuclear weapons under certain circumstances. One scenario involves a battlefield commander using tactical nuclear weapons, which Pakistan possesses. Doctrines indicate a willingness to use them, especially against an existential threat to Pakistan.One could also imagine a general, in the fog of war, deploying tactical nuclear weapons to halt an Indian advance. If India made an incursion, a general, perhaps misinformed about broader Indian gains, might panic and use them. This specific scenario is concerning and pushes my estimate higher than 1.25%.Generally, the ongoing conflict itself suggests a higher probability. If India and Pakistan were at peace, nuclear use would be unlikely, barring an accident. But with an active conflict and reports of downed Indian jets, we should consider a rate higher than 1.25%, possibly 2% to 3%.We also know that former Secretary of State Mike Pompeo stated in his memoir that during the 2019 India-Pakistan escalation, both countries were very close to using nuclear weapons. While he might have exaggerated for his memoir, it's another data point suggesting these countries are among those most liable to use nuclear weapons in a conflict scenario.Nuño Sempere00:09:25Fedor, that 1.25% is for all countries collectively. What share of that risk do you assign specifically to India and Pakistan? Considering the large number of nuclear states, the base rate per year for a state *not* using nuclear weapons is quite high.Conversely, there have been events close to nuclear weapon use. North Korea's nuclear tests to deter the US are an example. More recently, Russia's seizure of the Zaporizhzhia nuclear plant could also be considered, potentially expanding the reference class. What are your thoughts on this, especially regarding the share of the 1.25% attributable to India and Pakistan?Vidur Kapur00:10:22My estimate of 0.4% to 0.6% implies a significant share for India and Pakistan. Much of the remaining risk, in my view, currently lies with Russia in Ukraine, as Russia has explicitly discussed using nuclear weapons. In autumn 2022, Western policymakers were very concerned about Russian nuclear use; the British Prime Minister was reportedly monitoring weather patterns due to fears of nuclear fallout. So, Russia and Ukraine account for a large share.However, aside from these two, it's justifiable for India and Pakistan to represent a substantial portion of the nuclear risk within the next year, given their current conflict. As we speak, Indian pilots may be hospitalized due to downed fighter jets. Indian officials have briefed The New York Times and The Hindu that at least three fighter jets are down.While they don't constitute the entire risk, they justifiably form a major part of the nuclear risk for the coming year.Rai Sur00:11:44Lisa, what are your thoughts here?Lisa00:11:46My forecast for nuclear weapon usage risk aligns closely with Nuno's, around 0.1% to 0.2%. I'll say 0.2% due to recent escalation. However, my overall view is that because both are nuclear powers, the risk of them ever using nuclear weapons is extremely low; the consequences are too high. An incredible escalation would be necessary before we'd see nuclear weapons used.Consider Ukraine versus Russia: despite numerous threats of Russian nuclear use contingent on Ukrainian actions, it hasn't happened. No rational country wants to use nuclear weapons in almost any scenario. Therefore, the risk is extremely small.Most of the current risk, in my opinion, stems from accidents or misunderstandings. For instance, if one country inaccurately perceived the other's actions, it might lead to a misjudgment and nuclear use. This is the most likely path to nuclear weapon use in this conflict.Another factor is the significant imbalance in country size, military size, and military budgets. Pakistan spends $10 billion annually on defense, while India spends $81 billion. Due to this asymmetry and other reasons, neither side wants this conflict to escalate. They will likely try to de-escalate after responses that satisfy domestic political needs.This is my framework: events have occurred, and each side must respond to some degree, but neither wants an uncontrolled escalation. I don't see a substantial risk of this escalating to actual nuclear war.Vidur Kapur00:14:18A counterargument is that in the Russia-Ukraine scenario, while both sides really, really hate each other, Ukraine was held back. The United States supplied many of Ukraine's weapons and calibrated its support to avoid nuclear escalation. President Biden recently acknowledged in a BBC interview his deep concern about World War III and nuclear escalation, stating he didn't want to "play roulette."With India and Pakistan, you have two sides that really hate each other, and emotions run high. Neither side wants nuclear escalation. However, if mistakes occur, or events deviate from plans, such as fighter jets being shot down, it creates an incentive to respond more forcefully.While the chance of this leading to nuclear escalation is very small, if fighter jets are shot down, India might feel compelled to respond even more strongly. Pakistan already feels the need to respond to airstrikes on its territory. This could escalate because both sides feel the need to save face, perceiving themselves as losers in the scenario, and there's no one effectively holding them back.The United States might intervene, but it is currently preoccupied with other crises like Gaza, Iran, and Ukraine. This creates a potential path toward nuclear escalation, driven by the need to save face and heightened emotions.Lisa00:16:19Vidur, your point about the role of other powers is excellent. In the India-Pakistan case, no single power is directly restraining either country as we've seen with Russia-Ukraine.However, another angle to consider is that other powers are implicitly backing India and Pakistan. If the India-Pakistan conflict escalated, we must wonder if it would draw in China, the US, and Russia. I believe these powers are already implicitly involved.Rai Sur00:17:07Let's discuss other powers and the potential for de-escalation.Vidhur, you mentioned the US might have its hands full. It's unclear to me how many foreign crises the US can manage simultaneously. You implied this might not be on their radar due to existing commitments. Given current US engagements, how involved do you think they are, and how much will they try to de-escalate this situation?The same question applies to other countries: What are their interests, and how much attention are they paying?Vidur Kapur00:17:45It's an interesting question how much a country can take on at once. In the US case, several factors are relevant. Sometimes, the same top personnel handle multiple conflicts, so a drive from top leadership to achieve resolution makes a significant difference in negotiations.Disinterestedness could play a role. If top leaders, for instance, are too occupied with other priorities to focus on this, it might slip under the radar. However, you're right; the US government has many employees, and diplomats can often proceed without constant top-level direction. Still, central leadership matters in government.I'm also curious about Lisa's points on Russia, China, and potential US involvement. I agree they are implicitly funding and selling arms to India and Pakistan.Lisa00:19:11Exactly, they are already involved in a sense. If things escalated, I wonder if the United States would implicitly back India—though Pakistan has been an ally, albeit to a lesser extent—and if China, which sells arms to Pakistan, would implicitly back Pakistan.As in all conflicts, there's a broader context and potential for wider involvement. All major powers, in addition to India and Pakistan, would prefer this conflict not to escalate. Nobody wants escalation.Fundamentally, India and Pakistan don't want to solve this problem now. It's too large and won't be resolved overnight or through military tit-for-tat. This is a conflict that will likely continue and simmer for a long time, with occasional flare-ups. I foresee it continuing this way for many years.Nuño Sempere00:20:25Beyond international dynamics, another factor is Pakistan's internal situation. The Pakistani state and military appear reasonably weak. The Kashmir conflict began, in part, because they couldn't effectively suppress rebels wanting to annex Indian Kashmir. Additionally, rebels in Balochistan are killing police and staging attacks.Considering a scenario where the India-Pakistan conflict reaches 1,000 deaths, is my 1% probability of further escalation too low? Is there, perhaps, a 2% chance of Pakistan collapsing? If so, where are the nuclear weapons physically located? Are they in the capital or more spread out? Is there a chance a rebel group could acquire a nuclear weapon?For example, Bangladesh seceded from Pakistan with India's help. Could something similar happen with Balochistan? I'm not certain about the distribution of nuclear weapons within Pakistan, but this uncertainty might be a reason to increase my conditional probabilities of escalation.Lisa00:21:45To me, the overriding concern is the mutual assured destruction doctrine, which seems to supersede everything else.Nuño Sempere00:21:57I agree with that overriding logic, but it assumes the current Pakistani state is in control. If I'm considering 1% or 2% probability scenarios, I might need to condition on that assumption being incorrect.The Pakistani military opposed Imran Khan, who was popular. Could protests arise, combining various dissatisfied groups? If I consider the chances of the Pakistani government falling within a year, does that probability reach 1%? I'm honestly not sure.Lisa00:22:33In a sense, what you're describing is the risk of nuclear proliferation. There's a non-zero risk associated with that concern.Nuño Sempere00:22:44Another factor on the international stage is that the US and China don't want to see nuclear weapons used. However, Russia's calculus is a bit more complicated. Russia, to some extent, benefits from chaos, particularly if it captures some US attention. It is also more integrated with North Korea and Iran.It would also benefit from a war involving Israel, as this would divert US attention from the front in Ukraine. If the US were decisively on Pakistan's side, Russia might benefit from supporting India, creating another front. What are your thoughts on that?Lisa00:23:28I completely agree that Russia likes to sow chaos everywhere. The more chaos there is, and the more other powers are occupied dealing with it, the more Russia can do whatever it wants in the international domain.However, even Russia doesn't want nuclear war. It doesn't take many nuclear bombs being dropped to plunge the world into a nuclear winter and crisis. Things can get out of hand quickly. Even Russia doesn't want that level of chaos.While it might be in Russia's interest to let this situation fester, I don't see that as a factor leading to nuclear escalation beyond the general risk inherent in allowing chaos. I don't view it as a major factor increasing the risk of actual nuclear war, though Russia does indeed love chaos.Nuño Sempere00:24:27I don't see that as a major factor either. It doesn't have to be a large nuclear weapon resulting in nuclear winter. A small tactical weapon could be used. However, you wouldn't want to bomb a region you consider your own.Lisa00:24:50From my point of view, there's a very tiny chance this could escalate out of control. Vidur sees a higher potential risk. Nuno, you and I are at very similar probabilities, though you might be edging slightly higher than I am that something could go out of control. Vidur is perhaps looking at broader possibilities for how this conflict could go.We always have to ask this question when nuclear-armed powers are involved; it's a reasonable question. We are concerned with the potential for catastrophic events, but I believe we would all agree that the overall chance here is very low.Nuño Sempere00:25:37Agreed.Vidur Kapur00:25:38Yes.Rai Sur00:25:39It's good to know that the absolute risk of nuclear weapon use is quite low in all your opinions. What are you looking out for now? What developments would make you significantly update your assessment?You mentioned the thousand-uniform-death line you forecasted. Are there other indicators in that realm, or what else are you considering?Lisa00:25:59For me, I'd be watching how much this escalates conventionally. If we saw a thousand military deaths, it would be clear the conflict is escalating.However, even then, I wouldn't substantially increase my personal estimate of nuclear war risk. I might go up by 0.1% because any conflict increases risk. Even with a thousand total military deaths on both sides, I would still expect the conflict to escalate conventionally and not move to nuclear.Vidur Kapur00:26:35I'm also looking for military deaths, particularly since we've mainly seen civilian deaths so far. I'm watching how prisoners of war are treated, if any are taken. For instance, if Indian pilots are captured, how are they treated? Will they be sent back to India or detained? And how would India respond?I’m observing the extent of Pakistan's retaliation, or its expected retaliation, against India. Airstrikes would likely be used, though we've already seen artillery. Will they escalate, or respond in kind, doing something similar to India's actions? If a Pakistani jet is shot down, what happens then?There's also a tail risk from social media. A lot of information and rumors circulate, which has always been true in war, but social media amplifies it. People believe what they see on social media, which can exacerbate situations and potentially lead to poor decision-making. I'm watching whether anything big and sensational is reported on social media and how policymakers grapple with that.Nuño Sempere00:28:09I'm also observing the strength of the Pakistani state relative to terrorist groups in its territory. A big warning sign would be either side changing its military doctrine on nuclear weapons. Russia, for example, changed its doctrine a few times during the war in Ukraine to make deployment easier; that would be a significant warning.I'll also watch how much independence both sides grant their commanders in operations. If India, or Pakistan, grants commanders full military independence, they could potentially use nuclear weapons.I’m still monitoring whether Balochistan will make a play for independence amidst chaos and confusion. Afghanistan has been supporting Islamic resistance or terrorist groups in the region, so I'm curious how that develops.A possibility is that the situation calms down, but the Pakistani state doesn't effectively assert itself against terrorist groups in the region, leading to a repeat of what we've seen for the last couple of decades. These are a few things on my mind.Rai Sur00:29:26I think that's a great place to wrap up. Thank you, everyone.To our listeners, I hope you enjoyed this discussion. If you have any feedback, please send it to [email protected]. We will see you next time. Get full access to Sentinel Global Risks Watch at blog.sentinel-team.org/subscribe
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