Ep68 “Is It Better to Overestimate or Underestimate Your Enemies?” with H.R. McMaster

(piano music) [JULES VAN BINSBERGEN] Welcome to the Lauder Institute at the University of Pennsylvania.

I'm Jules van Binsbergen, director of the institute and a finance professor at the Wharton School.

[JONATHAN BERK] And I'm Jonathan Berk, a finance professor at the Graduate School of Business at Stanford University.

This is the All Else Equal podcast.

(piano and drum music) [JULES VAN BINSBERGEN] Welcome back, everybody.

Today, I think we have an incredibly interesting episode focused on what I think is keeping a lot of people busy and awake at night, and we want to think a little bit about the rising geopolitical tensions that we're witnessing in the world.

And actually, the Lauder Institute has recently really oriented itself towards addressing many of these large geopolitical themes, and so our students are really addressing these themes in class and in their master's theses, and so we thought it would be a good idea in this episode to address some of them.

As we know, the world has really moved from what I would say a unipolar world in which the US was very dominant into a multipolar world where other forces in the world have really grown in strength, both economically and politically.

And so, I think, Jonathan, it's high time for us to have a conversation about this.

[JONATHAN BERK] Well, Jules, I agree with you, and the specific subject I think we should talk about today is the subject of intelligence, because I think there's a wonderful All Else Equal mistake that goes on there.

So let me be more specific.

If you look at the history, have noticed, at least certainly with US intelligence, that we seem to always make the same mistake.

We seem to always overestimate our enemies.

So let me give you some example.

During the Cuban Missile Crisis, the assumption was that Russia had ICBMs that could wipe America out.

In fact, they did not.

We had ICBMs that we could fuel, they were fully fueled and could be, be launched at the push of a button.

Russia's ICBMs needed six hours of fueling before they could be launched, meaning we could easily do a first strike and knock them out.

Then we go to Iraq, we assume they have weapons of mass destruction.

They don't.

We assumed more generally that the Soviet Union was this powerful country where we spent a huge amount of money to counter the threat of the Red Army.

[JULES VAN BINSBERGEN] They can't even invade Ukraine and successfully take over Ukraine.

So I began to think about this.

Here's what I think the all else mistake is.

When we read intelligence, I think we ignore the incentives of the people producing the intelligence.

Let me be specific.

If somebody producing the intelligence underestimates, and we find ourselves in a situation where we are not prepared, they lose their job.

But if, on the other hand, they overestimate, and in the end, we find out, oh, well, you know, the enemy isn't as strong as we thought they were, nobody loses their job.

And that asymmetry, I think, makes them err on the side of overestimating.

[JONATHAN BERK] In several other episodes, we have addressed similar concerns, not with respect to intelligence officers, but for example, in one episode, we talked about the fact that whenever there are warnings for the weather, those warnings are always hugely overstated, because if the weather ends up being better than we thought, then nobody really is losing their job.

But if there's a big storm and people weren't warned for it and something goes bad, then that has large effects for those people.

So I do indeed think that what in statistics we call the type one and the type two error, there's a trade-off between those two errors, and we need to ask the question, what are the relative costs of the two?

But one thing that I'm not sure about, Jonathan, is don't you think there can be substantial costs to overestimating your enemy as well, not just in the short term, but also in the long term?

[JULES VAN BINSBERGEN] Obviously, I mean, we invaded Iraq because we thought they had nuclear weapons.

I don't know how many lives were lost there.

Huge cost to overestimation, but I don't think any intelligence person ever lost their job.

I don't think there was any real cost to why it was that the intelligence got that question so wrong.

[JONATHAN BERK] Then I do think that if we're really studying the whole equilibrium, there's one other thing that we also should do, right?

You have clearly introduced the incentives of one set of agents, but we need to complete the equilibrium, right, because there are also other sides' enemies that are intentionally trying to influence each other's intelligence services.

So is it possible that Saddam Hussein had an incentive to make people believe that he had weapons of mass destruction even when he didn't, just because he thought that that would give him strategic benefits?

I'm not saying that ex post he actually received any strategic benefits from it, but that's not the question.

The question is whether he thought that he would by pretending that he had them.

[JULES VAN BINSBERGEN] So as soon as you go, and we have talked about this in earlier episodes as well, right, higher order beliefs become really important here, about what you believe, the other person believes that you believe and so forth.

I think that that is also something that we shouldn't ignore, which is that the other person's signaling.

[JONATHAN BERK] Agreed, but the intelligence community should understand that, and they should take that into account, and I'm saying we just seem to overestimate.

I mean, and to me, the big question about China, how much are we overestimating the Chinese threat, both economically and militarily?

I mean, I don't know.

I mean, you look at the United States, you see how powerful our military is.

You see how powerful our nuclear arsenal is.

There's no other country that has nuclear missiles on submarines that nobody knows where they are.

I mean, you know, at some point, you wonder, Jesus, do we understand how powerful a country is?

I don't know.

[JULES VAN BINSBERGEN] I agree with that, and I think particularly also the economic argument for China's dominance.

If you think about the demographic disaster that they're heading towards with currently 1.4 billion people, and by the end of the century, according to the UN, there will be 620 million people left in China.

You really need to wonder whether in the long term that economic powerhouse that we're so worried about, whether they will still be that powerhouse, say, compared to India, which already is equally large as China and is not expected to decline in population.

So, I do think that some dynamic forward thought here is also very important and not focus too much on what is right in front of people right now, but think a little deeper.

[JONATHAN BERK] Actually, Jules, not to take us off-topic, but I see the same thing with population.

I just sat through a seminar today.

It turns out if you look carefully at the data, India is also dropping.

India also has peaked.

Again, I think that the world is not coming to terms with the fact that the world's population has either peaked or will peak in the next ten years precisely for the same reason.

They see overpopulation as a terrible thing, and they see underpopulation as not bad, when in fact it's the other way around.

I think the economic growth we've been used to is entirely due to population growth, and without that population growth, I think we could be in a very bad shape as far as economic growth is concerned.

Perhaps AI will save us.

[JULES VAN BINSBERGEN] We are full agreement on that, absolutely.

[JONATHAN BERK] I think this is a good time to introduce our guest.

Our guest today is H.R. McMaster.

H.R. McMaster was National Security Advisor.

Before that, he was Lieutenant General in the United States Army, and currently, he's on the faculty at the Hoover Institution.

The reason we invited H.R. to address

this question is because as National Security Advisor, his job was essentially to look at intelligence and figure out what the security and threats were to the United States of America.

And so H.R. dealt with this question on a daily basis.

So with that, H.R., welcome to the show.

[JULES VAN BINSBERGEN] Welcome, H.R.

[HR MCMASTER] Hey, Jonathan, great to be here with you and with Jules.

[JULES VAN BINSBERGEN] It's great to have you.

[JONATHAN BERK] So H.R., a few years ago, I was reading a book on that Cuban missile crisis and the extent to which during that crisis we completely overestimated Russia's capabilities, you know, really struck me, and then I began thinking about it, and it seems like we do this a lot.

We seem to overestimate our enemies.

You know, we knock the Iranian nuclear stuff out, and the next thing we're talking about, "Oh, it wasn't a successful raid."

Is this intentional?

Do you think the intelligence people intentionally overestimate our enemies?

[HR MCMASTER] I don't think it's intentional, Jonathan.

I just think it's because, you know, what we're really good at is counting stuff, weapons, and weapon systems, and what we're not really good about are really two things, paying attention to the qualitative dimension of combat effectiveness if we're talking about assessment of your enemy's military capabilities, and the second thing is intelligence officials oftentimes don't understand our own capabilities very well.

So they're unable to evaluate that enemy set of capabilities in context to and in comparison with our capabilities.

And I think those are the two sources of overestimating, and that's why ultimately commanders are responsible, you know, for, for their intelligence estimates.

They, I mean, they listen to their intelligence officers, but you have to really place what you hear, what you receive from the intelligence community in more of an operational perspective and to be aware of how those capabilities interact with your own.

[JULES VAN BINSBERGEN] H.R., there are always two explanations, right, for when things don't work.

One of them is that it's intentional.

One of them is that people just don't understand it well, but there seems to be a clear trade-off here when we think about what we call Type 1 and Type 2 errors, right?

How bad is it if you overestimated and therefore you did too much or you did too little because you underestimated it?

Don't you think that generally the payoff is very asymmetric in the sense that if we would underestimate our enemy, the penalties and, and the bad stuff that could happen from that are so much worse than overestimating something that we tend to just overestimate generally, particularly for these types of scenarios?

[H.R. MCMASTER] You know, Jules, it's a, it's a great question.

I think it just depends on the circumstances.

I think sometimes overestimating your enemy and then thereby not acting to seize the initiative, not acting to reduce the threat posed by a relatively weak enemy at a point of vulnerability, that can be a big problem, you know?

And I think it's the dynamic, if you want to just use an example, that we saw with Iran for many years.

You know, the Iranian regime was very weak, I thought, ever since, you know, the '80 to '88 war.

But what they did with this really forward defense, they call it a forward defense, but forward offense of using proxies, we fell into the trap of thinking, "Oh, wow, they're really strong," and that we didn't act like we knew what the return address was for so much of this violence, you know, in the, in the Middle East and the threat to Israel and the attacks against our own forces.

I mean, we, the Iranians, are responsible probably for the deaths of 600 American servicemen and women through their use of proxies in Iraq, for example.

This goes back to, you know, the, the Marine Corps barracks bombing in '83 in Lebanon.

I mean, the Khobar Towers attack.

I mean, the, the list is, goes on and on of Iranian attacks against U.S. forces and facilities in the Middle East, and our answer to that was really nothing, you know?

We didn't really impose any costs on them because we thought, "Oh, that could be a catastrophic war."

But this theocratic dictatorship and its military have been extremely weak for the whole history of this Islamist dictatorship in Iran.

[JULES VAN BINSBERGEN] But why did we do it?

I mean, this is my question.

I think this is a pattern.

We overestimate the capabilities of our enemies.

We seem to do it over and over again.

Why do we do this?

(McMaster laughing) [H.R. MCMASTER] Well, you know, there are cases of

[H.R. MCMASTER] Well, you know, there are cases of underestimating your adversaries, you know, and just to make kind of almost a humorous example of this, which shouldn't be humorous at all, you know, we underestimated how tough it would be to annex Canada, twice during the Revolution, and during the War of 1812.

You know, of course, the example people use most frequently is underestimating the North Vietnamese and the Vietnamese communists in the South in Vietnam, and just thinking that that would, you know, could be a faster war or if we just showed up that we could win it readily.

I think that we underestimated the regenerative capacity of the Taliban, after the very successful initial offensives in 2001 and 2000, and 2002, and underestimated them in large measure because our intel community, I think, began almost to sympathize with the Taliban.

[HR MCMASTER] I mean, it was crazy to me the way the Taliban was described as this sort of movement that just emerged naturally, you know, from the mountains, instead of a transnational terrorist organization that was funded by Gulf donors and trained and equipped by Pakistan's Inter-Services Intelligence.

It was, you know, so I think there are examples, Jonathan, of underestimation.

Maybe that's why we think, "Okay, we can't do that again, and we should not underestimate our potential enemies."

[JONATHAN BERK] So, H.R., we're, we're seeing, I think, right now that a lot of wars have proxies involved.

I think that there are actually a lot of proxy wars going on right now that we're even unwilling to acknowledge as such, right?

In s-- in some sense the United States has been supporting Ukraine for quite a while, and so has Europe.

They've been giving Ukraine weapons, and so I don't think any of these parties want to be officially directly in war with Russia, and yet in some sense we are.

This idea of doing war through proxies, is that a relatively new development, or has that always been a strategy that historically has been used, and what are the circumstances in which we should see this and in which we should see more of this than in other circumstances?

[HR MCMASTER] Well, you know, it's always been a strategy.

I mean, this goes back to ancient times and the use of various tribes by Rome, for example, and, you know, there were very few legionnaires, you know, who were operating at the far reaches of the Roman Empire.

You have even in the conquest of North America, the Conquistadors were very small in number, and what they did is they allied with the indigenous forces that had been really abused and repressed by the Aztecs, for example, you know?

So I think there are obviously many, many historical examples of the use of proxies.

But I would say that the US and European support, you know, for Ukraine, that's not a proxy war 'cause Ukraine is actually defending their sovereignty against the brazen aggression of the Russians.

So, we didn't bring on this war and support the Ukrainians because we had an objective in mind vis-a-vis Russia.

Russia initiated that war.

I think you could say that in some ways China, and our goal there for Ukraine, is status quo ante.

I mean nothing beyond that, you know, not to weaken Russia or to topple Putin.

But I would say that you could make the argument that China is fighting a proxy war against Europe, the United States, and the West by using the Russians, and they're underwriting the entire effort.

They're providing all the equipment, the hardware, the electronics necessary for them to sustain the war-making machine as well as feeding Putin's ATM with energy purchases.

And this is, I, I think, really following on the heels of their announcement of the partnership with No Limits just before the Beijing Olympics and their announcement that this is a new era in international relations, basically saying, "Hey, West, you're over," right?

"we're in charge now.

Get used to it."

And, of course, it didn't work out as they'd planned, right?

I mean, remember, the Russians packed their dress uniforms in their armored vehicles because they thought they would be on parade in Kyiv within days.

So I would say that it's not a proxy war from the US perspective or European perspective in Ukraine.

The support there is to help them defend their sovereignty against the brazen aggression of Russia and, I would say, enabled by the axis of aggressors, including, Jules, you know, North Korean troops, maybe up to 30,000 on their way now, more to fight alongside Russians in Europe, providing 10 million rounds of artillery, the North Koreans are.

[JULES VAN BINSBERGEN] So, sorry, I was confusing, I didn't in any way mean to suggest that Russia wasn't the one started it.

What I more mean is, the option for Europe and the US to directly declare war with Russia has always been on the table, but that card is not played.

Rather, the strategy is to support Ukraine as best as they can in the effort without directly declaring war themselves.

Maybe I'm calling something proxy war that isn't the right definition of a proxy war, but it's still the case that you're using an other intermediate player that's sort of in the middle because you're unwilling yourself to directly declare conflict.

Is that right?

[HR MCMASTER] That's right, and that's why I don't think Ukraine fits into that particular definition, because really the objective is Ukraine's objectives, Ukraine's objective to restore its sovereignty, not beyond that.

Now, if we were using Ukraine to exhaust Russia so that we can maybe make gains somewhere else, then I would say we are using Ukraine as proxies, but I think it's the Ukrainian, you know, war aim that is paramount here, not something that we're trying to achieve through the Ukrainians.

[JULES VAN BINSBERGEN] H.R., are we overestimating or underestimating the Chinese threat, long-term Chinese threat?

I mean, in some sense I look at this and think it's a replay of the same thing.

We're overestimating their capabilities, and we're too focused on this issue.

Is that right, or you would disagree?

[HR MCMASTER] Jonathan, I would say, and this is gonna sound like I'm vacillating here, but I mean, I think it's, we both overestimate and underestimate.

So, what, what I mean is, we underestimate because we haven't made the investments necessary to counter some of China's, I think, very wise military investments, for example.

China has decided not to try to compete with us exactly on our own terms by recreating the kind of stealth you see in the F-35, for example.

What they've done is they've developed a range of capabilities to take apart what they see as our differential advantages.

So offensive cyber, electromagnetic warfare, counter-satellite, tiered and layered air defense, long-range precision strike, undersea and aerial drone swarm capabilities, right?

So, now what we need to do is we need to take that seriously and field the countermeasures to the countermeasures.

And also, you know, this is what's important, I think, in terms of deterrence.

You need forces that are capable of operating in sufficient scale and ample duration to win a war, if a war should occur.

Because it's that, that ability, that's what makes the enemy, your potential enemy think, "Oh, I can't accomplish my objectives through the use of force."

And I think we lack capacity as well in our armed forces and within our alliances to do that.

So, that's where we underestimate.

Where we overestimate, I think, is on their economic prowess, right?

Now, they've got us kind of over a barrel now because of the control of critical supply chains, especially those associated with critical minerals that are necessary for industrial production, defense production, and so forth, car production.

And so we have to take that seriously, and we have to really, again, I think this is where we underestimated for many years, the danger of giving a hostile authoritarian regime coercive power over your economy.

That was an underestimation.

But we overestimate when we see them as economically strong.

They have some real weaknesses at this moment.

The debt crisis, which, you know, we've got one of our own, but when you look at their local debt, it's greater than ours.

Their real estate crisis, they're unable to generate the consumer demand.

They have a demographic time bomb ticking away.

They have high youth unemployment.

You know, the crackdown on their tech sector actually had a chilling effect, imagine that, on their ability to generate and finance new, new ideas.

And so in their race to surpass us, they've created some real vulnerabilities.

And so I think when we look at China and maybe as President Trump's about to see Xi Jinping, you know, at the APEC conference, we try to see them as very strong, but actually I think they have some real vulnerabilities.

[JULES VAN BINSBERGEN] So with respect to the demographic time bomb, that, of course, is also going to play itself out economically very interestingly, right?

Because they're at 1.4 billion people right now.

By the end of the century, I think they're expected to have about 650 million people left, according to the UN.

So that's more than a cutting in half.

In terms of young people, in the 1970s, there were 600 million Chinese young people between zero and 24 years old.

By the end of the century, the projection is 100 million young people left.

It's an absolute dramatic shift.

On the other hand, if we think about India, you see quite the opposite trend in the sense that it's just surpassed China in terms of its population, and it's not expected to slow down anytime soon.

By the end of the century, it still will be at 1.4 billion.

What are the strategic considerations, also militarily and economically, with respect to India?

Are people looking at that?

Because that long-term trend seems very important to me.

[H.R. MCMASTER] Hey, Jules, I'm so glad you're asking this question.

I'd love to hear what both of you think about this as well, but I think just because of the scale-- [JULES VAN BINSBERGEN] Yeah.

[H.R. MCMASTER] --you know, that if India succeeds, hey, that's good for the world.

If India fails, it's a catastrophe for the world, I think.

And India has great promise, as you mentioned, you know, with its younger population and the potential associated with it.

It is the world's largest democracy.

It's got its problems and so forth with Hindutva, you know, this kind of Hindu nationalist wing of the BJP now and, and the internal problems associated with that politically.

They do have this desire to hedge because they don't think we're reliable partners, so they're reluctant to join the United States in confronting the two revanchist powers on the original landmass of China and Russia, and we haven't helped that recently, by the way.

But India has, you know, they've got huge problems. I mean, they've got problems with energy security, food security, water security, environmental issues, and these are all interconnected.

I think there should be a major effort on the part of the world's largest economies, I would say, you know, Japan and the United States, foremost among them, also bringing in the EU, to figure out how to solve those problems and do so based on free market incentives.

I think there are alternatives here for energy security for India that can also address, you know, some of their environmental problems, water security, and food security issues, and these are all interconnected right?

I mean, so much of their water insecurity is related to old irrigation systems that are wasteful.

So, in the effort to try to solve their food security problem, they've created a water security problem.

[HR MCMASTER] And then, of course, with the energy security issues, you know, they need to generate much more power, but doing it with coal is not going to help them because of the environmental concerns.

So hey, I just think there's a big opportunity to make India a priority.

[JULES VAN BINSBERGEN] Yeah, I agree.

I actually think we've been on the wrong side of India since Day 1, but that's another story.

H.R., let me come back to this question.

You know, the name of the podcast is All Else Equal, which is you can't hold All Else Equal, meaning you have to worry about the impact of your decisions on the world.

So let's just go back to what I think is one of the greatest intelligence failures of my lifetime, which was the Saddam Hussein and nuclear weapons.

In that situation, why did we get that wrong?

Was it that the decision-makers, the intelligence people felt as if he had nuclear weapons and they said he didn't, that would be a huge mistake, versus if they said he had nuclear weapons and it later turned out he didn't, not such a big cost.

Of course, as you point out, that cost was enormous.

We had a completely needless war.

Why was that mistake made, and also, how should decision-makers use National Security Advisor?

How should you react when you get intelligence knowing these asymmetries?

[HR MCMASTER] Well, what a great question.

You know, I think that what you're getting to now is like, there's an old essay by I think the first head of INR.

His name is escaping me, but it's called The Fate of Facts in the Lives of Men.

And what that essay is about is the tendency for intelligence analysis to mirror, you know, really policy preference.

And I think what you, what you had in this period of time are really two dynamics.

One is this recognition, you know, of the 1% rule.

You know, Vice President Cheney said, "If there's a, a 1% chance that a hostile regime can get the most destructive weapons on Earth, we have to act against it."

And you have to remember that this is in the context of post-911.

So you had this kind of policy preference in the national security strategy at the time, really brought preventive war, right?

Preventive war was one of the aspects of it.

So you have a policy preference, but then also you have to remember, you're interacting with an imperfect, you know, data set, right, with a lot of noise out there.

You know, I'm thinking of Roberta Wohlstetter's book, Warning and Decision, which is great, about like the intelligence failure of Pearl Harbor.

She said, "We have to consider is not only what you know in retrospect to have been the right indicators, but you have to see it in context of all the noise that's out there."

And some of the noise associated with Saddam's WMD programs, or Weapons of Mass Destruction programs, was Saddam wanted us to believe that he had a program.

He actually thought this was the best way to prevent the United States from attacking, when in fact he just didn't realize that he was doing a really good job of convincing us to attack in 2003.

So how do you deal with it?

I think you have to just be in a constant conversation with the intelligence community.

You have to challenge them.

I never took a briefing and was passive.

I would always have follow-up questions for my briefers to come back to.

And they also need to know what are the questions you want to answer, so that they can do the diligence across the multiple intelligence disciplines and come back to you.

One of my first intelligence questions I had answered was I wanted an, an appraisal, an assessment of the situation in Afghanistan and in South Asia broadly.

You know, wha-- what was happening with the relative strength and weaknesses of the Taliban.

You know, the 27 or so jihadist terrorist organizations in, in the border region.

How did that play into broader regional security?

So I get this paper, and I think it was delusional about like the nature of the Taliban.

It depicted the Taliban as an organization that was totally separate, you know, from other terrorist organizations, when we know they were intertwined, you know, with the Haqqani network and Al-Qaeda and other groups.

And then also it sort of alluded to the fact that, you know, the Taliban would share power.

In their next incarnation as a member of a coalition government in Afghanistan, that they would be more benign.

So I wrote across the top of the paper, Jonathan, "Did we outsource this paper to the Taliban?"

(all laughing) And sent it back to them.

You know, I'm like, "What Afghanistan are you writing about?"

So I think you have to challenge the intelligence community.

You have to be in a constant dialogue with them, and then I think you get better results, better products.

[JONATHAN BERK] Well, so there's another thing that you're bringing up that I think is really important, which is that all the physical parts of war are always accompanied by information wars as well.

And everybody's strategically releasing information and trying to manipulate the reporting on both sides.

For example, if you think about the conflict in the Middle East right now, there's a lot of information war that's going on, as much as there is an actual war going on.

And so the question indeed is, to what extent is the intelligence community sensitive to these information wars, and are they gonna fall for the things that, that really were propaganda wars rather than actual information?

And how do you tell the two apart?

[HR MCMASTER] Gosh, this is really good because I mean, this is really the old Soviet method of maskirovka, right?

And this is nothing new obviously either.

Look at how the Japanese deceived us deliberately to kind of mask their intentions in terms of Pearl Harbor and this intrepidal offensive in the Pacific, you know.

Look at how the Soviet Union and Nazi Germany, you know, masked their intentions with the Molotov-Ribbentrop Pact and, and then extinguished the country of, of Poland.

You know, Nazi Germany's deception of the Soviet Union just prior to Barbarossa, and so this is nothing new.

You know, there are all these examples, right?

And so I think that what's really important is to understand these new techniques of misinformation and disinformation, apply new analytical tools that can identify these influence campaigns or what some people are calling, I think usefully now, cognitive warfare.

And the number one sort of way to inoculate yourself against this is education, right?

And then there are also technical ways to do this as well, being able to identify, you know, how messages evolve, you know, who are propagating those messages, which bots and trolls, for example, are moving those up in people's feeds so they're exposed to them.

This is sort of the, the biggest concern I have about TikTok, for example, is that a lot of people just focus on like, "Well, they're, they're getting our teenagers' data," and even President Trump will kind of dismiss it, "Well, you know, what are they gonna do with our teenagers' data?"

Well, that's not what we should be concerned about.

What we should be concerned about is how TikTok is shifting people's perception, and this is what we have to be more cognizant about.

There are some companies that are working on this that I think is really encouraging.

There are companies that do like really good forensic work on how social media is being used for nefarious purposes.

There are companies now that can actually see the degree to which these efforts are succeeding or failing.

Finland and other countries who have been on the frontline of Russian, you know, what they call active measures have been very good at developing techniques.

There's a center of excellence for countering hybrid warfare in Finland that has a lot of really good techniques.

Estonia has inoculated their society a little bit against this.

But hey, you've gotta think like your enemy and know how they're trying to play you, right?

And this happens at the highest levels of diplomacy, for example.

Putin's great at this, by the way.

He's great at manipulating world leaders.

I mean, look at what he did to Angela Merkel for so many years, right?

She was gonna be the person who was gonna convince him to come in from the cold, you know.

And this would be a really good idea to make Germany and Europe dependent on Russian gas, you know, because they'll see the economic benefit and, you know, he just resurrected all the interdependence theory nonsense right?

So, you know, he strung her along for a long time and he's had very good success with a whole series of American presidents by playing to their egos, knowing what message would sell to them.

So, somebody who's in a position like National Security Advisor and the team that you draw on of expertise, you've gotta warn a president about that.

You know, you've gotta say, "Hey, this is how this guy's trying to play you.

Don't be a chump."

You know?

I mean, "Here's how he's going to try to appeal to your desire to get something big done."

You know, nuclear arms reduction, this is what Putin's using these days, right?

Other issues that he can put on the table.

They're gonna use flattery, they're going to use a sense of aggrievement, express sympathy for your source of aggrievement, like, "You're not treated fairly and I'm not treated fairly either."

You know, and they're gonna portray other alternatives as weak and the two of you can get so much done together.

I mean, these are kind of the, the ways that I've seen people like Putin try to manipulate a US president and it's really important to inoculate them against that by just kind of laying it out and saying, "Hey, here's how this guy's gonna try to manipulate you."

You know, and, "Here's how this effort at your level relates to a really sophisticated campaign to accomplish their objectives through information warfare or cognitive warfare."

[JONATHAN BERK] Amazing.

You know, it's not directly related, but I think at a national level, we've had that attitude to China.

We've had this view that somehow either when China gets wealthy, there'll be this epiphany.

And they'll all of a sudden want to become Westerners.

[HR MCMASTER] Yeah.

Think about how arrogant that is, you know?

[JONATHAN BERK] Unbelievable.

[HR MCMASTER] And it's really not China, it's the Chinese Communist Party, right, we thought would change them.

And this, we're talking about a party that killed more of their own people than Hitler and Stalin combined, you know?

And then we assumed that we were in this post-ideological era, especially in the '90s, right?

The arc of history had guaranteed the primacy of our free and open societies over these authoritarian systems. We thought that Xi Jinping was, you know, the Diet Coke of communism, you know?

And when, when in fact, you know, it's a Leninist system, you know?

And they're determined not only to maintain their exclusive grip on power, but to displace the United States internationally and to rewrite the rules of international discourse in favor of their authoritarian form of governance and in favor of their statist mercantilist economic model.

[JONATHAN BERK] You know, I mean, I think we have the same view, but my view is China for 2,000 years has been a centrally controlled oligarchy dictatorship where they've, the central authority has maintained all power under all circumstances.

And the idea that they're going to suddenly change after 2,000 years is a little naive.

[H.R. MCMASTER] Absolutely, yeah.

And they're getting pretty good at promoting this kind of form of authoritarian governance, you know, the Safe Cities Initiatives and the way they're helping other dictatorships, you know, from Zimbabwe to Venezuela around the world.

[JONATHAN BERK] Well, H.R., I'm sensitive to the fact that we only have a half an hour of your time and we've used it.

Thank you so much again for coming on the show.

[H.R. MCMASTER] It was wonderful, HR.

Thank you.

Always a privilege to be with you guys.

Thanks for having me.

(gentle instrumental music) [JONATHAN BERK] Thanks for listening to 'All Else Equal Podcast.'

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The All Else Equal Podcast is a joint production of the Lauder Institute at the University of Pennsylvania and The Graduate School of Business at Stanford University, and is produced by University FM.

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