david: this is "wall street week." i'm david westin, bringing you

stories of capitalism. this week, the business of defense. the united states is getting its money's worth for military spending. plus, turning the tables on cyber crime. we look at how law enforcement and private firms using technology to track down criminals and even get some money back. and what it takes to put a show on broadway. behind-the-scenes with a star producer and director as they launch their new show, "left on 10th." we start with a story about choice. the choice that most americans are making between two parties, two presidential candidates, two economic choices, and what that choice could mean for global wall street. beginning with the u.s. economy and the battle of inflation from bloomberg international economics and policy correspondent michael mckee. michael: voters face a pretty stark choice. one candidate wants to preserve the status quo, the other wants to completely remake the global

economy. the u.s. came out of the pandemic in better shape than any other country. during joe biden's term in the white house, almost 7 million jobs were created, unemployment fell as low as 3.4%. inflation has fallen back to an annual rate of 2.2%. kamala harris would essentially follow the biden playbook. invest in creating jobs and raising productivity, expand and strengthen the social safety net. taxes would go up on corporate earnings and the rich. inflation was a lot lower when donald trump came into office, coming out of the great financial crisis. up until covid, it averaged just 1.7%. if you leave out the covid year, 6 million jobs were created during his term and unemployment fell to 3.5%.

david: despite inflation and more than 500 basis points of fed rate, american businesses have done well over the last four years. it raises questions of what they look for in the next administration. joshua bolten works for the ceo's as president and ceo of the business round table. joshua: the economy has been pretty good ever since -- since we pulled out of the pandemic. we have had too much inflation, which the fed now seems to be succeeding in bringing under control. but for the most part, the economy has been relatively successful but not nearly as successful as it ought to be, and one reason we haven't been as successful as we ought to be, is that is just much regulation holding back the robust vitality that american business has over the decades historically been able to exercise. so, as our business leaders look to the kinds of policies they want to see in 2025 and beyond,

regardless of who wins the election, they want to see a sensible regulatory environment that lets them do what they do best, which is make money. david: taxes are always on the minds of business leaders, but they have played an especially large role in this campaign when it comes to the 21% corporate tax rate that came from the tax cuts and jobs act under president trump, and that law is up for renewal next year. joshua: the members of the business round table were behind the 2017 tax reform, which was extraordinarily successful in lifting the american economy out of the doldrums we experienced since the great recession. in the two years immediately after the 2017 tax reform, the median household income increased more than it had in the previous 10 years combined. so the members of the business round table are really concerned about keeping that going.

david: the presidential campaigns have also spent a lot of time talking about tariffs, how they work, and what they would mean for u.s. business and the economy. joshua: overwhelmingly, among the membership of my organization, the view is that trade is extremely important to the success of the u.s. economy. some tariffs may be necessary, particularly to counteract unfair trade behavior from some of our trading partners. but broad-based taxes along the lines that president trump has proposed would be very damaging to the u.s. economy and particularly those at the lower end of the income scale. david: the line between economics and geopolitics has become increasingly blurred, whether it is tariffs, export controls, or industrial policy.

richard haass of centerview partners has spent his career on these issues in the government and as president of council of forward relations for 20 years. richard: if you are talking about large across the board tariff increases, a sledgehammer rather than a scalpel, you have to assume there is going to be retaliation. you have the initial effects of the american tariffs raising costs here. it is inflationary and then you have the double down effects when the others retaliate. many of our trading partners aren't going to take it in stride. yes, you could have a trade war under a trump presidency. david: good old-fashioned geopolitical tensions have come back in the last four years, with wars in ukraine and the middle east, and china increasing its presence around taiwan and in the south china sea, which has injected a new degree of uncertainty in the global economy that businesses do not like. is there a potential risk to the national security for putting too much emphasis on economics?

and overlooking the strategic? richard: the short answer to your question is yes. stability is the basis of all else whether the rule of law, balance of power or inside a society or around the world, you can't conduct economic relations, can't make long-term investments without confidence about the rule of law and stability. so i would say of the two, the geopolitics are the more basic. david: when you talk about stability, i, being from bloomberg, think about investment. one of the things investors want is stability. will they get more stability out of one of these candidates than the other, a more certain world in which they can invest? richard: i would think under a kamala harris presidency, and it is dangerous to make predictions about the future, you are more likely to get continuity. the economy is doing well up north of 3% and inflation has been coming down. we had four years of a biden-harris presidency, and the

arrows are heading in the right direction. yes, you have some changes. corporate tax rates and so forth but by and large, continuity would outweigh change. fmr. pres. trump: america first. richard: i think a trump presidency would introduce much greater uncertainty. david: global wall street has watched as the debate over regulation wages between the republican and democratic standard bearers. the one who moves into the oval office in january could have a major impact on the rules governing the finance industry. that is the expertise of of professor kathryn judge of columbia law school. prof. judge: one of the striking features over the past eight years is how little it has changed. when trump came into office, he was the first republican president after the dodd-frank act, and people expect a dramatic change and rollback. we had a little bit of legislative rollback and did have some regulatory rollback. his vice chair in the fed in charge of the matters was effective in terms of the strategy that he put together. that being said, if you talk to

a typical banker, it wasn't a dramatically different environment they were facing, particularly for the large banks, at the end of those three years relative to the beginning. david: the independence of the federal reserve has been much discussed during the u.s. election, though some question how much any president could or would do to undermine that independence. michael: economists say both candidates' plans would adds trillions to the national debt, but the hole would be bigger under trump. interest rates would rise along with the price level as the government had to sell much more debt. the fed might have to start raising rates again, though trump says he will pressure the central bank to keep rates low, which might stir volatility in the markets. all these are campaign promises and some or all may not happen.

many business executives say trump has a history of bluster but not following through. with the race as close as it is, however, the world is holding its breath. prof. judge: trump said fed chair is the best job in government. it is possible, under a second trump presidency, it might be the worst job in government. some of his biggest economic initiatives, higher tariffs, limiting immigration, would have an inflationary impact. we know going back to 2019 and late 2020 that he was very vocal with his frustration that chair powell at that time had interest rates where they were and wanted them to be lower. you could imagine a scenario where we are facing significant inflationary pressures and prices are going up, but the fed chair has hesitancy in really tightening interest rates and tightening monetary policy in a way that is necessary to come back that's combat the inflation, because doing so might lose the faith and backing of a second president trump. david: finally, whoever becomes

president in january, it will not be up to them alone to decide the direction of regulatory policy. congress will have a substantial say, both through legislation enacted or blocked and through the senate confirmation process for those who lead key agencies. prof. judge: you can overstate or understate this easily. if you look at significant rule makings, president biden has actually undertaken more significant rule makings than any other recent president. interestingly, president trump is number two. each brought about meaningful changes. that being said, you can look at financial regulation of an area where we haven't seen a significant a change as we would've expected. under president trump, we would see significant deregulation. we did get deregulation, but it was more modest in scope. david: still ahead, the price of

protection. we discuss the changing landscape of u.s. defense spending next on "wall street week." ♪

david: this is a story about getting our money's worth when we really need to when our national defense depends on it. john: we spend an enormous amount of money. and we have the best military in the world. is it sufficient for all of the problems we have? no. david: for over 20 years, john hamre helped oversee defense spending for the u.s. government, rising to be deputy secretary of defense under president clint. now he is president and ceo for the center of strategic and international studies.

john: we do have a fine military, but it's extremely inefficient system that we have to buy things the way we're organized. david: the department of the defense budget for 2024 is edging towards a trillion dollars, more than the next nine countries combined, and amounts to 13% of federal spending or about 3.5% of total u.s. gdp and goes toward everything between pens and note pads to missiles and fighter jets. but for all that it spends, there are plenty of people who believe it may not be enough. amy: as a percentage of gdp, the u.s. government is spending half as much today on defense as we did in the 1980's. we are spending 1/20th as much on defense as we did in the korean war. so the needs are growing, the funding is declining. david: amy zegart is a political scientist and senior fellow at the hoover institution specializing in u.s. national security and defense.

amy: there are two problems, david. we aren't spending enough and we aren't spending wisely enough. we need to spend money on low-cost, high-tech, affordable unmanned systems and other capabilities. david: how much the u.s. spends is one thing. spending it in the right places is quite another. particularly in a world where the very nature of war is changing rapidly, as we have seen most recently in eastern europe. john: we are watching the war in ukraine, and it's opening up entirely new concepts of warfare that we are going to have really figure out, and i don't think we quite yet know how to do that. but we do have a very good system for looking into the future and designing weapons for that future. amy: many americans are familiar with the indiana jones movie, "raiders of the lost ark," that famous scene where there is a machete-wielding guy in the market, and indiana jones takes out a gun, the superior technology, and shoots him. that's been the strategy of the u.s. military for the past 30,

40 years. we will out-engineer the adversaries, and it doesn't matter if we are outnumbered by them. our capabilities will be exquisite, and that is how we are going to win. that is not the battlefield anymore. if we are indiana jones in that marketplace, it is 10,000 machete-wielding guys and some of them have guns too. so indiana jones is going to run out of bullets before he runs out of bad guys to shoot. that is essentially the united states and what we face with the rising threat of china, and taiwan, in the south china sea. the wargames show we have run out of ammunition in a week or two in a fight with china. david: for the u.s. to keep up with changes on the battlefield, it will need more than just new equipment and new technology. it will need to reform the way it procures that equipment and technology, making it more streamlined than what the pentagon does today. amy: i think there is widespread agreement that the procurement process is desperately in need

of modernization and revamping. the procurement process is good at something. it is not good at rapidly developing and fielding capability. david: those trying to do the innovating agree that the process badly needs reform. andy lowery is the ceo of epirus, a defense tech company based south of los angeles. he's working on a system to protect against drones like those used so effectively in ukraine. andy: aircraft, tanks, cars, vehicles, stadiums, refineries, borders. all of these things right now are falling prey to an infiltration of drones. not just flying drones. you have drones on water, drones on land, drones in the air, drones in space. david: lowery's company is one of the many so-called neo-primes helping the defense department make the big shift of huge weapons systems to the new world of innovation and fast scaling.

andy: we have kind of grown comfortable, i would say, in the way we have been fighting this sort of war of deterrence. but now, enter this new age of consumer electronics, highly distributed, highly networked, no one single thing can do that much damage. but when you add hundreds and put them in a swarm configuration, it's the new way that wars are being fought, and it is confounding our defense department. david: he says part of the problem is the size of the defense department itself,

arguing that its scale and procurement system may get in the way of spending money wisely. andy: it is expensive to produce and maintain defense technology because one, it is very low volume. military systems for the most part traditionally have been low volume. they haven't had to produce a lot of them. there is a lot of change and customization to each and every program. that adds a lot of expense. two is we are trying to get the best in breed performance. we don't want to skimp on how high a performance that we get. so performance becomes paramount to building great systems, so it becomes expensive to get the highest level of performance. amy: the most frustrating part of this story is that there are lots of talented, dedicated people that are trying to change this whole process, and they are swimming upstream. the late ash carter, secretary of defense, really started this push for this defense innovation unit in silicon valley. lots of people worried about the direction of spending and the need to actually produce more capabilities on a faster cycle to adapt to the times. members of congress, some of them really care about defense innovation, but members of congress care about getting reelected, and so there are natural electoral incentives for members of congress to protect the jobs they currently have in their district. david: one path to reform spending is doubling down on the

private sector. it has both the capital to deploy and the tolerance for risk taking that innovation demands. john: probably the most important thing is, you know, 50 years ago, the defense department invested in technology that was going to be a definitive winner on the battlefield. we are still locked in that system. but now it's the private sector where there is far more dynamic and innovative developments. but this revolution taking place in digital technology is in the private sector, and we don't know how to bring that into the government. because we want them to slow down and fit our model. well, they're not going to do that.

defense acquisition runs at x and the private sector is moving at 5x. i mean, their development cycles are measured in months. our development cycles are measured in years, almost decades. david: part of the answer to encouraging faster innovation may lie in adding more companies to the mix. since 1990, the number of defense prime contractors has plummeted, going from 13 in some weapons categories to no more than three, and in some categories to one or two. amy: if we were talking in the 1990's, we would have had dozens of big defense companies. that helps competition and innovation. now there are five defense primes. we have had massive consolidation of the defense industry, and that means prices are likely to go up and knowledge gets lost, and innovation is slower than it otherwise would be. do we need more companies in defense? the answer is a resounding yes, we do. david: one reason there is less competition today than the 1990's is the u.s. budget process itself which makes it difficult to invest in new systems and discourages smaller companies from sticking around to find out whether the political winds in washington will blow their way.

amy: the first thing, if i were queen of the world for a day, that congress could do would be to pass an annual budget. most americans hear there is a continuing resolution in congress, and the government has averted a shutdown and isn't that good news. from an innovation perspective, it is terrible news. whenever congress can't reach a budget and we are operating on a continuing resolution, it means the pentagon can spend no new money. that means no new weapons, no new research and development. so if you are a small company, like a startup here in silicon valley, the pentagon is a terrible customer, because congress doesn't pass a budget. thousands of very small companies that are key suppliers in the defense industry have left the defense business in the past decade because of this

cockamamie budget process that congress cannot pass an annual budget and can't fund new innovation in the interim. david: perhaps the most important force driving the nurse at the defense department today is the premium it puts on avoiding risk at all costs. andy: the question is, does it become necessary? are we overflexing on how much risk we are willing to accept? we are willing to accept no risk. when i was a chief engineer of the program at raytheon, it was really bad. they wanted not a single risk of the space program. i would say and i would contend that is what really crippled our space program until spacex came around. is that the zero risk appetite, not controlled risk, eliminate all risk, that is one of the big factors slowing down the dod on

on these programs. john: we live in this world where -- it's got to be perfect every step of the way, and that means we have excessive costs and very slow acquisition. david: rapidly changing technologies could run up against the military complex focused on what is incentive what will be. we are on the verge of a more fundamental shift in the dynamics of warfare. the shift to artificial intelligence. the pentagon's ai-related spending tripled from 2022 to 2023. amy: i think genitive ai, like all technologies has upside and downside risks. one of the benefits of genai is it can come up with things humans never could imagine. from a tactical perspective in battle, that is a good thing. from a strategic perspective, how are we managing conflict between two countries, it can be very dangerous. i worry a lot that we haven't thought through the crisis escalation risks when other

countries are adopting generative ai and not thinking through how it could lead us into situations neither side would want. david: whether it's artificial intelligence or drones or any of the many other changes the pentagon faces, it is more important than ever that we get what we paid for, and looking to the private sector may help show the way. up next, fighting fire with fire. how tech firms and law enforcement team up to combat cybercrime. that's ahead on "wall street week." ♪ ♪♪ ♪♪ ♪♪

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david: this is a story about turning the tables, taking the technology criminals exploit to do wrong and using it to bring them to justice. timea: unfortunately, human trafficking is as prevalent now as in any point in our histor