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Fareed Zakaria GPS

Why Are Americans Angry? Can America Ride Out a Recession?. Aired 10-11a ET

Aired December 16, 2018 - 10:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

[10:00:21] FAREED ZAKARIA, CNN HOST: This is GPS, the GLOBAL PUBLIC SQUARE. Welcome to all of you in the United States and around the world. I'm Fareed Zakaria.

(BEGIN VIDEOTAPE)

ZAKARIA: Today on the show, confidence. Britain's Conservative Party this week said it had confidence in Prime Minister Theresa May.

THERESA MAY, BRITISH PRIME MINISTER: Whilst I'm grateful for that support, a significant number of colleagues did cast a vote against me.

ZAKARIA: But does anybody have confidence that her Brexit deal will pass? We'll ask two of the smartest Brits I know, Zanny Minton Beddoes and David Miliband.

And anger in America.

LAURA INGRAHAM, FOX NEWS HOST: Now how dare you try to make that argument?

ZAKARIA: It's reached new heights. What is behind it and what will end it?

Charles Duhigg joins me to talk about his "Atlantic" cover story.

Also the massive Marriott Hotel hack. If you're worried about loan hackers using your credit cards, it's worse than you think. The "New York Times" says the American government believes that China was behind it, and it is all about intelligence, a fascinating spy story from David Sanger.

(END VIDEOTAPE)

ZAKARIA: But first, here's my take. For Steve Bannon, the way to create an enduring populist majority is to combine forces on the left and right. That's why he was in Italy earlier this year, where parties representing those two sides joined together in a governing alliance. That's why Bannon hopes to wean some of Bernie Sanders' supporters away from the Democratic Party. But the next place where we might be watching the rise of a new left-right populism is France.

Thus far, the Yellow Vests protests in France have lacked a party structure and leadership, but lists of demands have been circulating. What is striking is that they combine traditional wish lists from the left and right. No wonder then the nearly 90 percent of the people who backed the major far left and far right parties support the movement compared to only 23 percent of people in Macron's centrist coalition.

The Yellow Vest uprising has also spread to Belgium, where the fragile governing coalition has collapsed, largely over the issue of immigration. But there again, the protests have a feel of generalized discontent coming from left and right. Just as in France, America and Britain, it appears also to be a rural backlash against urban elites. The fissure between relatively better educated urbanites and less educated rural populations appears to have become the new dividing line in Western politics.

Everywhere the outsiders feel ignored or looked down on. Everywhere they feel deep resentment toward metropolitan elites. It's part class, part culture, but there is a large element of economics to it, as well.

The Brookings Institution has shown that since the financial crisis of 2008, 72 percent of the gains in employment have accrued to the country's top 53 metropolitan areas. To understand the structural division this causes in America, keep in mind that all U.S. cities together contain 62.7 percent of the population, but occupy just 3.5 percent of the country's land.

This urban rural chasm is true across Western countries. And it is likely to get worse. Research by economists Darren Acemoglu and Pascual Restrepo suggests that the use of robots does, in fact, reduce employment by about six workers for one machine. Further, Acemoglu and Restrepo find that in the U.S., robots have been largely deployed in the Midwestern south. While metro areas usually have rich and growing creative and service industries, rural America is less likely to be home to centers of technology, entertainment, law and finance.

People in these areas are often described as being irrational at the ballot box. In America, they vote for a party that promises tax cuts for the rich and benefit cuts for the working class. That is them. The "New York Times'" Thomas Edsall points out that the 2017 Republican tax law essentially subsidizes companies to automate. In Europe, they adopt contradictory proposals from the left and right. But all this might simply reflect a more generalized anxiety, a blind search for someone, somewhere, who promises these people a better future.

[10:05:05] In his new book, Yuval Harari makes the point that the three most powerful 21st century ideologies -- fascism, communism and democratic capitalism -- put the ordinary person at the center, promising him or her a glorious future. But today we seem to need just a handful of brainiacs who will, with computers and robots, chart the course for the future. So in France, in Britain, in the United States, the ordinary person who doesn't have a fancy degree, who doesn't attend TED talks, who doesn't have capital or connections, will reasonably wonder, where does that leave me? And to that question, no one has a good answer.

For more, go to CNN.com/fareed and read my "Washington Post" column this week. And let's get started.

Let's get right into a discussion about the gilets jaunes, Brexit and mess that Europe currently finds itself in. Joining me here in New York is David Miliband, the former foreign secretary of the United Kingdom, now the CEO and president of the International Rescue Committee. And Zanny Minton Beddoes joins us from London. She is the editor-in-chief of "The Economist."

Zanny, let me start with you. What is happening? What is going to happen? Theresa May is going to survive this vote. You know, and I assume that means for a while. But the Brexit deal doesn't seem likely to survive, and then what happens?

ZANNY MINTON BEDDOES, EDITOR-IN-CHIEF, THE ECONOMIST: It's chaos. But I think probably the most likely is that she soldiers on, she brings her deal to the House of Commons. It doesn't get through and then the clock keeps ticking. And I imagine that the most likely scenario is that in the end, I think, and I'm sticking my neck out a bit here, but in the end, I think we will end up with a second referendum in this country, because Parliament will be unable to make up its mind.

No majority for anything. So eventually, the question of whether to stay in the European Union or whether to go out on the deal that she has negotiated will be put back to the people. But that's obviously extremely, extremely divisive in a country that's completely divided. Both parties, both main parties, are completely divided, whether you are a Brexiteer or a remainder -- these are the phrases that get bandied around -- is the defining issue in Britain today.

ZAKARIA: And, of course, David Miliband, your mentor politically, Tony Blair, has been long calling for a second referendum. What does this do to British politics? Does it -- as Zanny says, does it sort of up end it completely in a way that it is now arrayed around this sort of open-closed divide rather than the traditional left-right divide?

DAVID MILIBAND: Well, this is obviously a bigger issue than a conventional election. This is a generational decision. I think there is a fundamental question of analysis before we get to what's going to happen. Are the problems simply the result of 40 negotiations? Theresa May has clearly made some shocking and unforced errors in the way she's gone about these negotiations. Early red lines, premature triggering of Article 50 to withdraw Britain from the European Union.

But the truth is, at least to my mind, the problems you're seeing are integral to the whole Brexit promise. The Brexiteers said that you can have frictionalist trade with the European Union while not being in the single market. They said that you could have no border in Northern Ireland and Southern Ireland without being the --

ZAKARIA: In other words, you can have the benefits of European Union membership without the cost?

MILIBAND: Exactly. And what we're seeing on the Irish issue but also more widely is that the sums don't add up for Brexit itself. The Brexit that was promised is not available. And that's why British politics is in uncharted waters. That's why Britain is in danger of sailing into a kind of Bermuda Triangle, whether it's no majority for anything, and we end up crashing out of the European Union on the 29th of March.

ZAKARIA: But I have to get to politics, because, of course, again, if you have the Labour Party divided between the pro-Brexiteers and the remainders, the Tory Party divided between the pro-Brexiteers and remainders, there is an argument that what we need is a new party that will gather together the pro-European, pro-internationalist, pro- Brexit --

MILIBAND: It's quite like that, Fareed. What's --

(CROSSTALK)

ZAKARIA: And let me finish, because you know where I'm going. And lots of people say you should lead it.

MILIBAND: Yes. But the interesting thing is that the Tory Party's tragedy has been to be obsessed with Europe. Labour's tragedy has been to be complacent about Europe. You've got a Tory Party which is led by a remain voting prime minister, so a leave party. Labour is a remaining party, it's actually not very divided, but it's got a skeptic, not to say lever-inclined leader in Jeremy Corbin. And so I think that it's not simply a matter that the parties are both divided and that's why we're stuck. We've got an absence of strategy on the part of both main leaders.

[10:10:05] And I think the center party question or the new party question actually doesn't come into this because the problem is a more fundamental one. And the divisions that Zanny has referred to in British society are in part about the -- you refer to it as the open- close question, which is sometimes reduced to an immigration question. But I think it's more fundamental than that.

Since the financial crisis, the industrialized economies have struggled to give a real offer to their middle classes. And that's at the heart of the issue that Britain faces today. And I'm afraid Europe is the anvil on it.

ZAKARIA: Zanny, put this in broader perspective for us in the, say, European context. And you look at Europe now. Britain is in this chaos that you've so well described. Macron is crippled in France. Italy remains on the verge of a -- you know, of a bank failure, which could then trigger a Eurozone exit. Germany has a lame-duck leader. It does feel as though Europe is sort of falling apart.

MINTON BEDDOES: Yes. I can see why you say that, although I have to say that politics on your side of the Atlantic doesn't look so great either. And I think that there are actually big themes which are fueling frustration, anger, actually, on both sides of the Atlantic. And we've discussed them on your program before.

Large numbers of people feel left behind, feel that, you know -- are worried about their future, are not happy with the status quo. And I think that there are elements of that in the Brexit debate. There are elements of that, certainly the gilets jaunes, the protests in France, which are driven by sort of the fury of largely less well-off people who feel that, you know, they are being hammered by the system in France.

As you say, Italy is having some of the same. So there's -- that's going on. It's going on across the West, I would say. In the European context, I think there is sort of an added wrinkle, which is that the traditional big tent political parties of the center left and the center right, in many European countries, are now no longer what -- people are so frustrated with them and frustrated at the status that they have. So the rise of the AFD in Germany is the rise of a sort of far right party born of the frustration of people who feel that the center right party no longer stands for what they do.

You have something similar going on in Italy. In the U.K., the creation of new political parties is extremely difficult because we have discussed the post-electoral system which really makes it hard to start a new political force. So here the reason -- David is absolutely right. The two main political parties won a very high share of the votes in the last election but nonetheless they are driven particularly over Brexit, so we have a sort of different manifestation of the same broad themes.

And arguably, you have some of that, actually, in the United States where you have a, you know, completely different Republican Party today than you did a few years ago.

ZAKARIA: All right. Next time on the program, David Miliband will announce his new party.

Next on GPS, China's spy game. Was Beijing behind the hack of some 500 million Marriott guests all in an effort to get a leg up on intelligence? That is what a report in the "New York Times" suggests. I will talk to "Times's" David Sanger about why China wanted to know who was checking in and checking out of hotels.

(COMMERCIAL BREAK)

[10:18:03] ZAKARIA: Two weeks ago, the massive Marriott Hotel conglomerate announced that one of its reservation systems had been hacked. The information of some 500 million guests was at risk, the company said. Names, passport numbers, arrival and departure information and credit card numbers. But according to a fascinating story in the "New York Times," these hackers likely weren't interested in going down to Walmart and buying a TV with your credit card. Their plot was much more sinister.

My next guest, David Sanger, has the lead byline on that story. He's also the author of "The Perfect Weapon: War, Sabotage and Fear in the Cyber Age." A must-read.

David, Marriott has sort of made this out in many ways to be a routine criminal operation. DAVID SANGER, NATIONAL SECURITY CORRESPONDENT, NEW YORK TIMES: That's

right, Fareed. Because we're now all so used to hacks. We're all so used to getting that letter saying we're terribly sorry, we've lost your credit card information. We've lost your health care information. That there is a natural assumption that somebody is, as you say, taking it to Walmart. That's actually not what state-on- state espionage is all about.

What's going on here is that the hack occurred in 2014. We believe, from all of the forensic evidence we've seen, it was done by Chinese intelligence. And it was done around the same time that they were getting into the database of the Office of Personnel Management, the most boring bureaucracy in Washington but the one that held all of the security clearance information about everybody in the United States, 22 million people, who have applied for security clearances.

They were also going into the Anthem Health Care Insurance System. What do you do with this? You put together a giant database of the most important government executives, industrial, scientists, and you've got the security clearance data, their health care data, and with Marriott, you have where they're traveling, with whom and when.

[10:20:04] You know, it's really interesting. Of all that information stolen from Anthem, from Marriott and from the Office of Personnel Management, we've never once seen it being sold on the dark Web. What's that tell you? They want to keep it for themselves.

ZAKARIA: Marriott's response is also -- I mean, explain what's going on here. Because there is potentially a huge bill that comes out of this, because Marriott has said, for example, if your passport information was compromised, we're going to -- we'll pay for the processing of a new passport.

SANGER: With a caveat. The caveat has been, if it's been compromised and we've seen it used in a fraud, we will buy your new passport. New passport in the United States about $110. So you multiply that out by the 360 million passports stolen, many of which were non-American, you get to, as you say, billions and billions of dollars.

ZAKARIA: $30 billion to $40 billion.

SANGER: That's right.

ZAKARIA: That's real money even for Marriott.

SANGER: That's real money. But they haven't said that they would pay for a new passport simply because it was stolen. So what's that tell you? There's a mind frame on this issue at Marriott that says this is about fraud and we'll protect you against fraud, the way your credit card company protects you if your credit card number is stolen. But supposing that what this is really about is tracking you, Fareed, as you move around the world, doing the show, right?

You may say, I don't want the Chinese tracking me. I need a new passport so that it's harder for them to track me. And in that case, so far, at least, Marriott isn't interested in paying for your passport or that of 360 million other people.

ZAKARIA: And what is the U.S. government's response to this?

SANGER: The U.S. government's response is, don't worry. With a passport number alone, somebody can't engage in the fraud. So they're sort of taking the same position that Marriott is. That's been consistent across the Obama administration and the Trump administration. When the Chinese went into the Office of Personnel Management, you may remember that President Obama did not call out the Chinese on this. They also didn't call out the Russians when they went into the State Department, the White House and the Joint Chiefs of Staff.

Now that is changing. We're now seeing more countries deciding to call out the offenders here. But, you know, of all of the different complaints that you've heard the president make about China, tariffs, the Huawei case, the arrest obviously of an executive, you have not heard the president stand up and say, we're not going to tolerate intelligence operations against hotels. Why not? Because we do it, too.

We go into foreign hotel systems, American intelligence agencies, into foreign airlines, into all kinds of databases, foreign cell phones, to go track terrorists, other suspects. And so the U.S. doesn't really want a rule that would prohibit this.

ZAKARIA: It does seem like, from the Chinese point of view, this is a smart asymmetrical, low-cost way to engage in a certain kind of cyber warfare. You know, if you compare it to building another aircraft carrier, America has, what, 11. China has one. And people keep saying well, the Chinese are, you know, not interest in a global role because look they're not building another aircraft carrier. What they're doing is this, which is much smarter.

SANGER: That's right. It's dirt cheap by comparison to building big military systems. They're building their big military systems, too. It's not as if they've exactly been scrimping on that. But this is far more useful if you're trying to go winnow out those people you're most interested in. You start with the 500 million. You compare it with the 22 million you've got from OPM. Then you're down to maybe two million people you're seriously interested in. And maybe 200,000 people in the U.S. government and private industry who you're fascinated by.

And what helps you do this? The big data computing systems that they're investing in a lot and that we are, as well. But you wouldn't know what to do with this data 10 years ago. Now you can correlate it and sift it, and figure out who is a spy, who's an executive, who's traveling with whom, who do I have blackmail material on.

ZAKARIA: This is fascinating stuff, David. This is the new Cold War. You've been writing about it superbly. We will surely be coming back to you to get the next episode -- the next chapter in this story. Thank you.

SANGER: Great to be with you, Fareed. ZAKARIA: Next on GPS, you might remember earlier this year, I talked

to the U.N.'s special repertoire on poverty after he issued a scathing report on America's treatment of its poor. Well, he's done it again for another Western country. The results are equally grim. Find out what country is in his sights now when we come back.

(COMMERCIAL BREAK)

[10:28:44] ZAKARIA: Now for our "What in the World" segment.

(BEGIN VIDEO CLIP)

MAY: Does this house want to deliver Brexit?

(END VIDEO CLIP)

ZAKARIA: All eyes have been on Brexit these days. But there is another crisis brewing in Britain, one that might prove even more damaging. Eight years ago, the United Kingdom instituted an austerity policy, a series of deep cuts to public spending to respond to a large and growing budget deficit. The results were the subject of a report released recently by Philip Austin, the U.N. Special Repertoire on Extreme Poverty.

Austin exhaustively catalogs the toll these policies took and his numbers astound. Homelessness shot up 60 percent between 2011 and 2017. The number of rough sleepers, livery people who are compelled to sleep outdoors has increased between 2010 and 2016 by 134 percent. And the majority of those in poverty in Britain, nearly 60 percent of them, belong to households in which at least one person works, so we are not just talking about the unemployed.

Not surprisingly, these policies will likely widen inequality. The bottom fifth of earners in the U.K. will lose on average one tenth of their incomes by 2022, according to the Equality and Human Rights Commission. That's a far larger proportion than higher income earners, some of whom will actually benefit from changes in tax policy.

ZAKARIA: The pruning to the local authorities has been most visible. Facing their own budget cuts, local councils have slashed spending on services by 19 percent since 2010. In a press conference, Alston excoriated the government for these developments.

(BEGIN VIDEO CLIP)

PHILIP ALSTON, U.N. SPECIAL RAPPORTEUR ON EXTREME POVERTY AND HUMAN RIGHTS: It's a totally mechanical economic analysis that ignores the damage that I think is being done to the fabric of British society.

(END VIDEO CLIP)

ZAKARIA: Then there is the related phenomenon, the massive sell-off of public land. It's notoriously difficult to calculate how much land, but the political economist Brett Christophers takes a stab at it in a new book. He estimates that as much as half of the government's 1979 land holdings have now been sold.

Britain did have budgetary problems, and the government is entitled to raise money from its assets, but there is always a price. In this case, the loss of parks, school yards and public housing. The future looks grim. Theresa May has suggested that austerity will end once Brexit is enacted, but the truth is that Brexit will likely cost Britain economically.

Alston says the poor stand to lose billions in poverty funds from the E.U., and 900,000 people could fall into poverty if welfare benefits don't adjust to post-Brexit inflation. Then there's the blow to economic growth that Brexit will almost undoubtedly entail since Britain will lose preferential access to its biggest market.

Across the Western world, many are feeling left out, and people without education are finding it hard to get good jobs. Spending less on those very people is not likely to make Britain great again.

Next on "GPS," Trump is angry. Schumer is angry. America is angry. And what is behind all this anger?

Charles Duhigg joins me about his Atlantic cover story.

(voice over): Don't forget, if you miss a show, go to cnn.com/fareed for a link to my iTunes podcast.

(COMMERCIAL BREAK)

ZAKARIA: Why are we so angry? That is what the cover of the latest issue of The Atlantic asks, provocatively. And it is an important question, one that people across America have been asking themselves, surely.

The intrepid reporter who dug deep into the question was Charles Duhigg. He says, indeed, anger seems to be the dominant emotion in America today, and he joins me now.

So, Charles, we all have this sense, you know, and partly it's the election of Trump, who clearly, kind of, seemed angry and fed up and enraged in his rallies. But in a sense, the big question is, why does it work? Why is it that it taps into something?

Is it your sense that we are, in fact, more angry as a country than we have been?

DUHIGG: Absolutely. Absolutely, over the last decade, in particular. And the important thing to realize is, this is something Trump took advantage of, but he is the symptom, not the cause, of what's going on.

You know, it's interesting because, in many ways, we think of anger as a negative emotion. But a number of years ago, in the late 1970s, a researcher at the University of Massachusetts-Amherst sent out a survey to an entire town asking them to talk about the last time they had been angry. And one of my favorite respondents was a woman who said that her

husband had recently purchased a new car and had shown it to his mistress before bringing it home and showing it to her. And she was livid, absolutely furious. But what she found was that, when she expressed her anger to her husband, they had a productive conversation. They ended up coming up with a resolution, which was he could keep the mistress but he had to put his wife as first priority.

And this is what Averill (ph), the researcher, found, is that anger is actually a very positive emotion. It tends to help resolve rather than exacerbate tensions. When we shout something in anger, it's the densest form of communication available to us. And it tends to force the other person to listen and to help us come up with a solution.

So anger isn't a bad thing; it's a good thing, until it's in the hands of someone like Trump.

ZAKARIA: You talk about a case where a debt collection -- again, it turns out to be a good idea, if you have debts, to get angry?

DUHIGG: That's exactly right -- although it can be used against you. And this is what we're seeing right now, is that this anger -- the good anger, the anger that helps us communicate with each other, can be easily manipulated.

So you mentioned there's a researcher named Bob Sutton at Stanford, who's a wonderful researcher. And at one point he asked a debt collection agency to help him -- let him take part in their training. And he actually called up debtors and would try and get -- get funds from them.

And what he found was that, when they would train debt collectors, what they would do is they would tell them, if someone gets on the phone and they owe you money and they're friendly or they're calm, get them angry; shout at them; get them all riled up. And then as soon as they're in a fit, that's when you say to them, "Well, look, I didn't mean to upset you; let's work this out; let's find some resolution. Because if I can get you worked up, I know that your instinct is that you want some resolution. You want that good anger to lead to a catharsis, and I can take advantage of that."

And that's exactly what's happening right now with, for instance, President Trump, or political consultants on both sides of the aisle. When consultants and campaigns try and make us angry, it's no longer today to try and resolve problems. It's because they know that this perpetual rage will propel us into the voting booths. It will propel us to donate money. But it won't necessarily make us happier.

ZAKARIA: So what does research tell us about how you can end the cycle of uncontrolled anger?

DUHIGG: Well, there's a really interesting series of studies that come out of Israel, right? And Israel is, kind of, an interesting place, because they have been living with anger for many years. And the conventional wisdom on how you resolve this was something known as the contact hypothesis, which basically said, if you take people who are angry at each other and you put them in a room together and you allow them to speak civilly, they'll eventually figure out how to get along. They'll humanize each other.

And the researchers in Israel said, "Well, that -- anyone who came up with that theory has never been to Jerusalem before, right?"

(LAUGHTER)

There's a lot of evidence that it doesn't necessarily work. So what they did is they went to a suburb of Tel Aviv, a very right-wing suburb, and they started putting up ads. And these ads didn't say you should be less angry at the Palestinians. They instead said you should be more angry; our anger is actually our strength. They would say things like, "Without war, we cannot have heroes. So we need more wars to create heroes." Right? "Without battles, we can't prove that we're moral, so it's good to have battles to prove we're moral" -- things that were outrageous and extreme.

But the citizens of that suburb, they didn't see them as extreme. What they saw them as was these extremist, distasteful ads. What they found was that, after putting up those ads in an advertising campaign for about six weeks, six months later, the most right-wing members of that community actually were much more tolerant. Right? It takes a recognition that this anger has become a burden, that it's leading us to a bad place.

And if you think about the last two years in particular, if anything, the opposite has occurred. There's been a celebration of anger. But what we need to recognize is that there is that line in the sand. There is moral outrage that leads to progress. And then there is the desire for retribution and vengeance. That is a downward spiral that hurts nations, hurts communities, hurts people.

And if you point that out to folks and say, "Look, you know that it feels bad to enjoy schadenfreude. You know that it feels bad to cheer for someone else's misfortune. Listen to that instinct." That's how, as a nation, we return to a place of sanity, where we say "Embrace the good anger, but turn your back on the rage that's destructive."

ZAKARIA: Well, I think it's going to be a while before we have somebody in the White House who is going to listen to this.

(LAUGHTER)

But it's a fascinating set of research you point to.

DUHIGG: Thanks so much.

ZAKARIA: Next on "GPS," are we on the verge of a recession? And if so, how will the United States fare?

It is something my next guest is very worried about. He's someone you will want to listen to. Ray Dalio, the founder of the world's largest hedge fund, in a moment.

(COMMERCIAL BREAK) ZAKARIA: The volatility in stock markets has caused many people to wonder, are we on the brink of another recession?

Many economists believe we are due for one. The U.S. economy has been growing for 114 months, making this nearly the longest period of expansion in American history. So will the U.S. be able to ride out the next recession?

Many of the measures that governments can take to weather these recessions are already in place. My next guest sees that as a big problem, especially when you throw into the mix the current political climate in America and around the world.

Ray Dalio is the founder of Bridgewater Associates, the world's largest hedge fund. He is also the author of "Principles for Navigating Big Debt Crises."

(BEGIN VIDEOTAPE)

ZAKARIA: Your concern is, we already have a lot of debt. And we are in economic good times. When the times get tougher, usually what happens is you take on more debt. And you -- the central bank lowers interest rates. But we don't have that much room to maneuver. Is that what you're saying?

DALIO: That's correct. At the same time as we have populism, we have more conflict internally, and we're having more conflict externally than we used to. The idea of populists is that there's a disenfranchised population. Basically, for a large percent of the population, that wealth gap, which is very similar to the '30s, the top one-tenth of 1 percent of the population's net worth is equal to the bottom 90 percent combined.

That sense and that sense of disenfranchisement causes populism. Populism, which we're seeing pervasive around the world, is a strong individual to get control of that, and then you have more nationalism. You have more militarism. You have those types of things. And then you have conflict externally.

We have in the form of China a competitor, a rising competitor. And that creates also external tensions on the game of, you know, who is going to be the world power?

ZAKARIA: Let's talk about that, because I know you've focused a lot of your thinking about this. What kind of competitor is China for the United States? How should we think about it?

DALIO: I think that China economically is about the same size as the United States right now. It's a larger percentage of world trade. It is a rival, a competitor, certainly, in technologies. And because their growth rate is faster than U.S. growth rate, it will be bigger than the United States.

And then there are -- so there is competition. Competition means conflict. We use the term "war." My concern is that the war, whether we're talking about a trade war, or we're talking about a capital war, or we're talking about a cold war, or a hot war, is an exchange of harms, one to another. In other words, it's a process in which...

ZAKARIA: We promise to harm them; they promise to harm us.

DALIO: Yes, that back and forth of "I will harm you until you give in," and you go back and forth, is to me a dangerous path.

ZAKARIA: But it seems to me what you're describing is that you're concerned that we really are at a kind of fundamental inflexion point. Because you're describing a circumstance where we have a lot of debt; we may go into recession. That means you might have to take on more debt. The world might be de-globalizing; supply chains might be de- linking. There might even be conflict, not just trade conflict. And, of course, we're not in an atmosphere of great cooperation, either domestically or internationally.

DALIO: That's right. We created a conflict gauge, various ways of measuring different conflicts. And the conflict gauge now is the highest, really, since the war -- war years. Because the internal conflict...

ZAKARIA: Since World War II?

DALIO: Yeah. Because there is more polarity, more conflict internally of a sort -- it's not strikes. It's not demonstrations. It has to do with decision-making and the nature of that decision-making and the differences in values. Those -- that kind of conflict...

ZAKARIA: The polarization.

DALIO: The polarization and the nature of things like likelihood of crossing party lines, likelihood of having bipartisan. And that's not just for the United States. If you look at Brazil; if you look in Mexico; and if you look in many countries right now worldwide, you see that there's more political extremism, less desire -- less compromise, and that type of conflict.

ZAKARIA: And all that translates negatively for the economy?

DALIO: It's a -- it's a negative for the economy, and it's -- you know, it's innate. I would rather the word "negotiation" be used than the word "war" be used.

ZAKARIA: Ray Dalio, pleasure to have you on.

DALIO: Thank you for having me.

(END VIDEOTAPE)

ZAKARIA: And we will be back.

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ZAKARIA: The French philosopher Regis Debray said there is more power in rock music, videos and blue jeans than in the entire Red Army. And he wasn't the only one to see the strength of sartorial symbols. It brings me to my question. What item of clothing have Egyptian

authorities restricted sales of this week, skinny jeans, keffiyeh scarves, yellow safety vests or leather jackets? Stay tuned and we'll tell you the correct answer.

My book of the week is "Cultural Evolution" by Ronald Inglehart. If you've noticed that people seem to be voting more on the basis of their cultural identity than economic ones, this book explains that deep and powerful trend better than any other I have read -- really brilliant work.

And now for the last look. As we near the end of 2018, it's easy to reflect on events of the year and worry that the world is in a state of constant chaos.

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PRESIDENT DONALD J. TRUMP: Gridlock, poverty, chaos.

Total disaster.

Everything is going wrong.

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ZAKARIA: Well, there is one surprising area where everything isn't going wrong, the global fight against terror. For the third consecutive year in a row, deaths from terrorism have fallen, according to a new report from the Institute for Economics and Peace. The number of deaths from terrorism around the world in 2017 dropped 27 percent from the prior year to 18,814.

To put this in perspective, that number was less than half the number of firearm deaths, including gun suicides, in just the United States that same year, according to the CDC.

While ISIS remained the deadliest group in the world, the group's fatal attacks reached their lowest point in four years. But there is one surprising indicator that does seem to be rising, terror from extreme far-right groups.

The Global Terrorism Index found that, between 2013 and 2017, deaths related to far-right terrorists increased in North America and Western Europe. Most of the attacks were carried out by, quote, "lone actors" with far-right white nationalists or anti-Muslim beliefs. This is perhaps a reminder to celebrate those global improvements while continuing to remain vigilant.

After all, the report stresses that new threats continue to emerge. Of the 169 terrorist groups responsible for a death in 2017, 42 were new groups that had not caused deaths in prior years.

The answer to my "GPS" challenge is C. Yellow safety vests, like the ones worn by France's gilets jaunes protesters, have been subjected to sales restrictions in Egypt as the government frets over potential copycat protests leading up to the eighth anniversary of Hosni Mubarak's overthrow during the Arab Spring.

The BBC reports authorities have quietly instructed safety equipment dealers to report customers who try to buy the garment and that dealers may only sell to verified companies with police approval. Thanks to all of you for being part of my program this week. I will see you next week.