Speaker 1: This is Bloomberg Wall Street Week.
Speaker 2: I mean may not have an overall recession, We're having
Speaker 2: a rolling recession to kind of roll looks pretty strongly
Speaker 2: it is when it comes.
Speaker 1: To jobs, the financial stories that shape our world.
Speaker 2: Three major regional bank failures send shockwaves through the banking system.
Speaker 2: We're all trying to figure out what to make of
Speaker 2: generative AI.
Speaker 1: Through the eyes of the most influential voices.
Speaker 2: Welcome down, Doctor Paul Krugman, Ryan moynihan, Bank of America,
Speaker 2: deebro Lair of the Paulson Institute, well then Hubbard of
Speaker 2: the Columbia Business School.
Speaker 1: Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
Speaker 2: Harvard President leaves a war in the Middle East, stays
Speaker 2: and Santa takes his rally with him on his sleigh.
Speaker 2: This is Bloomberg Wall Street Week. I'm David Weston, this
Speaker 2: week's secial contributor to Larry Summers and the US jobs numbers.
Speaker 3: It's certainly increasingly possible that we'll have that much valleyhed
Speaker 3: soft landing as rare as those who have been historically.
Speaker 2: And David Otter of MIT on what to expect from
Speaker 2: Generative AI.
Speaker 4: Part of that on a game that's so called you
Speaker 4: know AI, give it in will actually be squandered on
Speaker 4: AI defense.
Speaker 2: Global Wall Street got the new year underway this week
Speaker 2: with big changes at the top of Harvard.
Speaker 5: The Harvard Crimson reporting that Claudine Gay will resign today.
Speaker 5: And keep in mind she was Harvard's first black president.
Speaker 5: She just took the post up in July, so this
Speaker 5: is the shortest tenure in Harvard's history, just six months
Speaker 5: and two days.
Speaker 2: While things in the Middle East showed little signs of changing,
Speaker 2: at least for the better.
Speaker 6: I think as events unfold, we're likely to see more escalation,
Speaker 6: stepped up attacks, and as a result, the market's going
Speaker 6: to sort of be dragged back to this Polish Middle
Speaker 6: East risk.
Speaker 2: And Bob Ayer's challenges A Disney stretched into the new
Speaker 2: year as Nelson Pelts continued to challenge his leadership, even
Speaker 2: as another active Blackwells came to his defense.
Speaker 5: This is going to be a really contentious fight I
Speaker 5: think between False and Disney.
Speaker 1: He obviously does definitely want to put himself on the board.
Speaker 5: He definitely wants to see Jay Rizzulu on the board.
Speaker 2: The Federal Reserve released its minutes from the December meeting
Speaker 2: showing a cautious approach, with members talking about the possibility
Speaker 2: of holding for longer than expected, cutting or even raising rates.
Speaker 7: I think we do have to pay a very careful
Speaker 7: attention to that tug of war between what markets are
Speaker 7: seeing in terms of FED easing and whatnot in what
Speaker 7: the macro data are suggesting.
Speaker 2: And then on Friday, US jobs numbers came out stronger
Speaker 2: than expected, pointing to a surprising strength in the economy,
Speaker 2: only to be countered by ISM numbers ninety minutes later
Speaker 2: suggesting some slowing. The markets took all this into account
Speaker 2: and decided that Santa had after all gone back to
Speaker 2: the North Pole and taken his rally with him, with
Speaker 2: the S and P five hundred down one and a
Speaker 2: half percent for the first week of the new year,
Speaker 2: ending at forty six to ninety seven, which is still
Speaker 2: nicely above the forty five hundred number of the bloomer
Speaker 2: El's are predicting for the median. At the year end,
Speaker 2: the NASDAG gave up three and a quarter percent, while
Speaker 2: the yield on the tenure decided to peek its head
Speaker 2: back above four percent, ending the week up over eleven
Speaker 2: basing spoints at four point five to take us through
Speaker 2: the start of the year. Welcome back now, David Bianco,
Speaker 2: he's DWS Chief Investment Officer for the Americas. Welcome back,
Speaker 2: great to have you, happy news.
Speaker 8: Happy new year. That's great to be here for the
Speaker 8: first Friday.
Speaker 2: So Friday was a bit of a whiplash, at least
Speaker 2: for me, because we had those jobs numbers come out.
Speaker 2: The markets seemed to know what to do about that.
Speaker 2: They didn't like it very much, and then the sm
Speaker 2: numbers came out, turn right around. What did we take
Speaker 2: out of this?
Speaker 9: Well, the week, first week of the year, and not
Speaker 9: a great start. Many investors are calling for us to
Speaker 9: pay attention to the January indicator the first several days,
Speaker 9: first five days of the year. Often investors say that's
Speaker 9: the way the rest of the year will go. Not
Speaker 9: a great start, but it's just a start to the year.
Speaker 9: We'll see how things play out.
Speaker 8: The first data, as.
Speaker 9: You said, key data, job market data for SUMBER and
Speaker 9: the manufacturing and the service ism. The way I see
Speaker 9: it is that the job market is absolutely solid. Another
Speaker 9: month of more than two hundred, tw hundred and sixteen
Speaker 9: thousand jobs created on the establishment survey, and we still
Speaker 9: see strong wage growth, more than four percent.
Speaker 8: Sequentially and year on year.
Speaker 9: And another interesting thing is that not only did the
Speaker 9: unemployment rate stay at three point seven percent, among the
Speaker 9: lowest in many many decades, we saw something interesting where
Speaker 9: it looks like nearly seven hundred thousand people who recently
Speaker 9: entered the labor market decided for whatever reason, to exit it.
Speaker 9: So the participation rate is sixty two point five percent,
Speaker 9: well above the lows during the pandemic, but still below
Speaker 9: the sixty three percent level before the pandemic. It's a
Speaker 9: full employment economy. We're still creating jobs, mostly on the
Speaker 9: service side of the economy. Manufacturing is still weak, but
Speaker 9: it's definitely a full employment economy with no slack in my.
Speaker 2: View, Does that give the FED permission to cut anytime soon?
Speaker 2: And we came out of last year with a lot
Speaker 2: of momentum, basically with anticipated cuts perhaps even early in
Speaker 2: the new year. Given those jobs numbers and the numbers
Speaker 2: we're getting right now, does it give the permission that
Speaker 2: have FED any permission to cut at this point?
Speaker 9: Not yet. I think the disinflation that we've seen during
Speaker 9: twenty twenty three and it more needs to occur in
Speaker 9: twenty twenty four has opened the door to cuts beginning
Speaker 9: in twenty twenty four. We think the first one will
Speaker 9: be in June, and should be no earlier than June,
Speaker 9: and it would just be so odd. There's no historical
Speaker 9: precedent since nineteen sixty of the FED cutting when unemployments
Speaker 9: below four percent. The stock market is basically at all
Speaker 9: time highs.
Speaker 8: There's no reason for them to rush it.
Speaker 9: And the more the markets try to rush the FED
Speaker 9: to cut, the more I think the FED should make
Speaker 9: markets wait.
Speaker 2: Numbers were getting indicate that the fourth quarter was probably
Speaker 2: stronger in growth than a lot of people were anticipated.
Speaker 2: As a product matter, what is driving this economy at
Speaker 2: this point, because it is stronger than most people anticipated,
Speaker 2: stronger than most of the rest of the world at
Speaker 2: this point.
Speaker 9: Well, the fourth quarter, still yet to fully be reported,
Speaker 9: is slower than the third quarter, and we expect the
Speaker 9: first quarter of this year to be even slower. So
Speaker 9: there is a clear slowdown in the job creation on
Speaker 9: the services side. On the consumption side, there is a slowdown,
Speaker 9: but less slowly than anybody would have thought. Including nos,
Speaker 9: consumption stay strong. Lifestyle is sticky. People have a powerful
Speaker 9: we talk about pent up savings, but the wealth effect
Speaker 9: that has come from the stock market, and maybe a
Speaker 9: little bit of confidence that by the spring the housing
Speaker 9: market starts to recover in terms of activity. People feel
Speaker 9: really good about their balance sheets and they have their jobs.
Speaker 2: Let's talk about the nineties. Are we're embarking on a
Speaker 2: time like the nineties and ninety is pretty interesting?
Speaker 3: Yeah.
Speaker 9: At the start of twenty twenty four, I actually find
Speaker 9: myself thinking about the nineteen nineties quite a bit. Some
Speaker 9: are wondering if it's the end of nineteen nineties as
Speaker 9: it was twenty twenty three like nineteen ninety nine, and
Speaker 9: are we going to have a popping of a tech bubble.
Speaker 9: I don't think so, but there's a rest The equity
Speaker 9: market has some tough years. I had given the gains
Speaker 9: of the past few years, and then if you go
Speaker 9: the way back to the early the start of the
Speaker 9: nineteen nineties, nineteen ninety there are some issues on the
Speaker 9: table where inflation not as bad as we had recently,
Speaker 9: but inflation was a problem Greenspan had to do something
Speaker 9: about it in ninety four. But also the deficit was
Speaker 9: a problem in the early nineties, and we have yet
Speaker 9: to do anything about the deficit. And a lot of
Speaker 9: people talk about nineteen ninety five being a good analogy
Speaker 9: for this year because of the soft landing. That may
Speaker 9: be the case, but we have an election this year,
Speaker 9: we have a deficit to deal with, and we have
Speaker 9: plenty of geopolitical concerns that are much more adverse than
Speaker 9: the case in the nineties.
Speaker 2: Call By in nineteen eighty five, we did have the
Speaker 2: Carter tax plan that was starting to address on those
Speaker 2: fiscal questions.
Speaker 8: Clinton, Yeah, Clinton.
Speaker 9: Yeah, Yeah, that's right. So Clinton, to his credit, and
Speaker 9: don't forget, this was a big election issue in nineteen
Speaker 9: ninety two.
Speaker 8: The deficit, And in.
Speaker 9: The middle of nineteen ninety three, Clinton with Congress passed
Speaker 9: tax hikes that took effect in ninety three and played
Speaker 9: off in nineteen ninety four fully and they put together
Speaker 9: a plan to reduce the deficit over the nineteen nineties,
Speaker 9: as they successfully did, and we went to surplus. And
Speaker 9: then in nineteen ninety four, with the midterm elections and
Speaker 9: the Republicans come into power, a lot more was done
Speaker 9: to improve the fiscal situation and improve spending.
Speaker 2: So, David, let's talk about how you're going to make
Speaker 2: money the rest of this year. You've already said that
Speaker 2: you think the evaluations are robust and big tech we
Speaker 2: are there places you think that maybe they're not quite
Speaker 2: as robust, maybe we're missing some things.
Speaker 9: Well, I do scour over the equity market all the
Speaker 9: time to find some the best opportunities. We store are
Speaker 9: bullish on big banks. We see the best value at
Speaker 9: the big banks in the US, and they're doing very
Speaker 9: well the past several weeks as the recession fear.
Speaker 8: As dissipated.
Speaker 9: But I also like big biotech and pharmaceuticals because there
Speaker 9: I see strong long term growth potential that is at
Speaker 9: a very un demanding valuation right now. So tech companies,
Speaker 9: they're great, but the valuations are so demanding that even
Speaker 9: if these companies do wonderful things, they might not live
Speaker 9: up to the expectations of investors, particularly over the short term.
Speaker 9: And I'm looking for companies where there is that big
Speaker 9: upside optionality that investors are not pricing.
Speaker 8: We see that pharmaceuticals and biotech.
Speaker 2: What about pharma schools. What's going on specifical with pharma schools?
Speaker 2: So and for example, Pfizer's had a bit of a struggle, Yeah.
Speaker 8: Yeah, Pfiser's definitely had a bit of a struggle.
Speaker 9: And then on the opposite end you've got names like
Speaker 9: Ela Lilly which are going gangbusters, and then everything in
Speaker 9: between and then the companies are going through We've known
Speaker 9: this a transition period from old on patent drugs to
Speaker 9: the new pipeline.
Speaker 8: It takes time.
Speaker 9: You never know which in the pipeline is going to
Speaker 9: be the hit and when. Like I said, the valuations
Speaker 9: are really on demanding. Now we're going into an election
Speaker 9: year and a lot of investors are shy to buy
Speaker 9: healthcare stocks during an election year. I might be a
Speaker 9: little bit cautious on some managed care prescription drug benefit managers,
Speaker 9: but the innovators in the space, the medicine makers, this
Speaker 9: is what we need, and I hope the policy makers
Speaker 9: allow these companies.
Speaker 8: To reach for the stars.
Speaker 2: Thank you so much. Great to have you with us always,
Speaker 2: as David Bianco of DWS. Coming up, we go over
Speaker 2: those jobs numbers out at the end of the week
Speaker 2: with our special contributor Larry Summers of Harvard. That's next
Speaker 2: on Wall three Week on Bloomberg.
Speaker 1: This is Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio.
Speaker 2: This is Wall Street Week. I'm David Weston. We're now
Speaker 2: joined by our special betur Larry Summers of Harvard's. So, Larry,
Speaker 2: thank you so much for being with us. We got
Speaker 2: those jobs numbers at the end of the week on Friday.
Speaker 2: They were significally better than expecto. There were some down
Speaker 2: revisions for the prior month. At the same time, IM
Speaker 2: numbers came in a little softer. What do you make
Speaker 2: of these jobs numbers and particularly perhaps the wage numbers, David.
Speaker 3: Look, I think we're in the same kind of pattern
Speaker 3: we've been in for us some time. As of right now,
Speaker 3: the economy looks pretty strong and inflation looks relatively under control,
Speaker 3: but there's a lot going on underneath the surface, and
Speaker 3: there are still substantial risks with my three scenarios paradigm,
Speaker 3: some risk of a downturn. We still keep not seeing
Speaker 3: it at all in the employment numbers. In the data
Speaker 3: on GDP, there's this big gap between total income and
Speaker 3: total output that makes things hard to read, and there's
Speaker 3: some worrying developments some of the business surveys like that
Speaker 3: ism and in some of the credit data. So I
Speaker 3: think it's possible that the economy will go into recession
Speaker 3: in delayed response to monetary policy. That looks less likely
Speaker 3: to me that I might have fought some months ago.
Speaker 3: It's certainly increasingly possible that we'll have that much valuehooed
Speaker 3: soft landing, as rare as those have been historically, and
Speaker 3: I think there's a risk that people are still underestimating
Speaker 3: given the very worrisome fiscal prospect of the country, given
Speaker 3: the recent easing, quite substantial in financial conditions, given still
Speaker 3: tight and the wage numbers again are not running right now,
Speaker 3: today's number not running at a rate that's consistent with
Speaker 3: the two percent inflation target, given the uncertainties in geopolitics
Speaker 3: that could point the problems in supply chains. My gut
Speaker 3: is still that the market is underestimating the inflation risks
Speaker 3: in the current situation, and therefore probably overestimating the amount
Speaker 3: of FED cutting that is going to take place. But
Speaker 3: it's a fairly close call, and the FED is certainly
Speaker 3: doing the right thing by being entirely vigilant and signaling
Speaker 3: that it is very much going to be data dependent
Speaker 3: going forward. Right here, I do read the continued strength
Speaker 3: of the economy in the face of what's happened to rates,
Speaker 3: as suggesting either that the neutral rate has risen substantially,
Speaker 3: or as suggesting that the economy is less sensitive to
Speaker 3: interest rates than we might have thought. Either one of
Speaker 3: those considerations will suggest a bit less urgency to rate
Speaker 3: cutting than many people suppose at the current moment.
Speaker 2: Larry, we had a major development in something that you've
Speaker 2: talked about in this program more than once, and that
Speaker 2: is at Harvard, where you are a tenured professor, were
Speaker 2: president there, but more generally at college campuses that we
Speaker 2: saw the resignation of Cardinay from Harvard as president. I
Speaker 2: wonder what you make of it, now that we're getting,
Speaker 2: perhaps somewhat past the worst of the conflict, what are
Speaker 2: the larger lessons we should learn, what can be done
Speaker 2: in terms of reformation by the universities.
Speaker 3: Otherwise, David, I think this is a time of testing
Speaker 3: for universities, certainly unlike any other, certainly since the Vietnam
Speaker 3: War period, and perhaps even going beyond that. Some of
Speaker 3: our leading universities are under investigation, both from Republicans in
Speaker 3: the House of Representatives and from the Education Department of
Speaker 3: the Biden demonstration. Biden administration. You're seeing a degree of
Speaker 3: divisiveness on campus I haven't seen since I first got
Speaker 3: to the Harvard campus in nineteen seventy five. So I
Speaker 3: think there's going to be a very profound challenge of
Speaker 3: finding a vital center. Universities must stand up to some
Speaker 3: of the vitriolic forces on the populist right that seem
Speaker 3: to be in favor of everything up to book burning
Speaker 3: in support of enforcing some very particular risk vision on universities.
Speaker 3: At the same time, I don't think there's any question
Speaker 3: that they have been threatened from within by stifling orthodoxies
Speaker 3: have led to the cancelation of speakers that have led
Speaker 3: to people being discomforted discomforted by discussing issues like crime,
Speaker 3: like education except in particular prescribed ways. And it's going
Speaker 3: to be the challenge of university leaders to find a
Speaker 3: way between those twin abhorrent polls. I have to say
Speaker 3: that this goes way beyond any individual. I think universities
Speaker 3: have in many cases, including at Harvard, been failed by
Speaker 3: their trustees. At Harvard we call the group the corporation, and.
Speaker 10: In many ways it is their job above all to
Speaker 10: maintain a healthy interface between the university and the broader society.
Speaker 2: Larry, if we cast our minds back to November of
Speaker 2: twenty sixteen, there were a lot of concerns about President
Speaker 2: Trump when it became clear that he had been elected,
Speaker 2: and in fact, you remember, the markets really went south,
Speaker 2: very dramatically initially, but then they rebounded. And if you
Speaker 2: look basically on the track record of the Trump presidency,
Speaker 2: just from the point of view of investors as well
Speaker 2: as the economy, it is not a terrible record. I
Speaker 2: think it's fair to say. I mean, the markets did
Speaker 2: reasonably well, there was employment created, there was a GDP growth.
Speaker 2: So is it possible that we might overreact to the
Speaker 2: possibility of a Trump two point zero?
Speaker 3: You know, there's an old saying, fool me once, shame
Speaker 3: on you. Fool me twice, shame on me. That's going
Speaker 3: to be the way the rest of the world is
Speaker 3: going to see it. The rest of the world, which
Speaker 3: has had so much faith in the United States for
Speaker 3: all their resentments, and so many have been so reliant
Speaker 3: for so long, were prepared to see a first TERMP
Speaker 3: term as an aberration. But after ninety one indictments, after
Speaker 3: the events of January sixth, that is not how they
Speaker 3: will see a second term that is not how they
Speaker 3: will ever see America again. That will represent a loss
Speaker 3: of the moral authority that the United States has had
Speaker 3: since it won the Cold War, since it won the
Speaker 3: Second World War, and that will, I think, make for
Speaker 3: a much less stable world.
Speaker 2: Okay, Larry, thank you very much for all those thoughts.
Speaker 2: As our special contribute here on Wall Street Week, he
Speaker 2: is Larry Summers of Harvard. Coming up, twenty twenty four
Speaker 2: may just be the year when we figure out how
Speaker 2: big generative AI could be. We'll talk with an economist
Speaker 2: who's done early important work on what it could mean
Speaker 2: for the labor market, David Otter of MIT. That's next
Speaker 2: on Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio.
Speaker 2: This is Wall Street Week. I'm David Weston. The new
Speaker 2: year will bring with it a presidential election in the
Speaker 2: United States with potentially very different approaches to the economy
Speaker 2: weighing in the balance. Here on Wall Street Week, we're
Speaker 2: going to cover the election by focusing specifically on what
Speaker 2: it could mean for the economy and for investors. So
Speaker 2: we ask Bloomberg International Economics and Policy courspondent Michael McKee
Speaker 2: to start the conversation by laying out what we know
Speaker 2: at this point about the approaches of the two front runners,
Speaker 2: President Biden and former President Trump.
Speaker 11: It's been thirty two years since political strategist James Carvel
Speaker 11: hammered home the idea that when it comes to presidential elections,
Speaker 11: it's the economy stupid. But in twenty twenty four, is
Speaker 11: it entering this election year Compared with election year's past.
Speaker 11: The economy is growing by around four percent, the most
Speaker 11: since two thousand and three, With one exception. Unemployment is
Speaker 11: the lowest it's been entering an election year since nineteen
Speaker 11: sixty eight, when a lot of men were employed by
Speaker 11: the US Army in Vietnam. The exception was twenty twenty,
Speaker 11: when COVID doubled the jobless rate between January and election
Speaker 11: day in November. Inflation is higher than any year since
Speaker 11: two thousand and seven, but it's been cut in half
Speaker 11: over the last twelve months and should be close to
Speaker 11: the election year average by November by the carvill yardstick,
Speaker 11: it's somewhat surprising that President Joe Biden isn't far ahead
Speaker 11: in the polls. It may be that voters haven't shaken
Speaker 11: off the COVID pandemic. Yet they're comparing the economy of
Speaker 11: the past three years to where it was under Trump
Speaker 11: in twenty nineteen, and they're not focused on what Trump
Speaker 11: is promising. Draconian changes. He wants across the board tariff increases,
Speaker 11: which would raise prices for just about everything, threatening inflation.
Speaker 11: Remember when the US raises tariff's, Americans, not foreigners pay
Speaker 11: the difference. Trump is talking about massive deportation of illegal aliens,
Speaker 11: which would hit the labor market hard. On employment, particularly
Speaker 11: in lower wage service sectors, would rise. He would renew
Speaker 11: and expand tax cuts expiring in twenty twenty five, increasing
Speaker 11: the deficit. The good news for President Biden is the
Speaker 11: economic outlook remains bright. If inflation keeps falling, interest rates
Speaker 11: are expected to follow, and that would stimulate faster growth
Speaker 11: and higher stock prices. The Biden camp is betting people
Speaker 11: will notice. The bad news is this year it may
Speaker 11: not be the economy stupid and Wall Street may not care.
Speaker 11: The S and P five hundre it rose twenty four
Speaker 11: percent under Biden last year, but it rose twenty nine
Speaker 11: percent under Trump in twenty nineteen, so this election may
Speaker 11: turn not on pocketbook issues, but personalities. Not that personalities
Speaker 11: are all bad. The nineteen ninety two election brought Larry
Speaker 11: Summers into government.
Speaker 2: David, the generative Artificial intelligence was one of the hottest
Speaker 2: topics for investors in twenty twenty three and looks to
Speaker 2: be the same in twenty twenty four. There's much we
Speaker 2: don't know about what it could ultimately mean, including about
Speaker 2: the effect on productivity and growth in the labor market.
Speaker 2: David Otter, he is MIT Professor of Economics, has done
Speaker 2: some of the earliest seminal work on this subject, and
Speaker 2: we welcome now to Wall Street Week. So Professor, thanks
Speaker 2: so much for being with us. As I say, it's
Speaker 2: really early going and we don't know a lot. But
Speaker 2: what do we think we might know about productivity and growth,
Speaker 2: because that's what investors seem to be most interested in.
Speaker 4: Thanks very much for inviting me. What you said is correct.
Speaker 4: We don't know very much about the pro TV consequences.
Speaker 4: It's easy to project enormous potential gains, but we would
Speaker 4: have made the same projection about the computer era of
Speaker 4: the last four years, and in fact growth has been
Speaker 4: relatively disappointing, especially for the last fifteen years. So I
Speaker 4: think there's enormous upside potential, but sometimes that potential doesn't
Speaker 4: turn into reality, and you know, we will spend some
Speaker 4: of the productivity of AI dealing with the problems that
Speaker 4: AI creates, including hoscination, including vulnerabilities, cyber attacks, and so
Speaker 4: part of that gain that so called you know, AI
Speaker 4: dividend will actually be squandered on AI defense.
Speaker 2: Talking about productivity and growth them is sort of talking
Speaker 2: about whether the pie gets bigger overall? What about how
Speaker 2: we divide up the pie that is distributionally, particularly in
Speaker 2: the labor market, because you've done some work there based
Speaker 2: on past history, but what we think might happen with jobs,
Speaker 2: who gets better jobs, who gets worse jobs.
Speaker 4: So the period we're concluding now, the computer era, the
Speaker 4: traditional computer era, has been one of rising inequality, and
Speaker 4: we think that computing has had a lot to do
Speaker 4: with that because it's been very complementary to decision makers,
Speaker 4: you know, to lawyers and doctors and marketers and people
Speaker 4: who basically use information and analysis to make high stakes,
Speaker 4: one off decisions. It's displaced a lot of workers from
Speaker 4: production work, from office work, and sort of pushed them
Speaker 4: down into less expert jobs in food service, cleaning, security, entertainment, recreation,
Speaker 4: and those are socially valuable work, but it's paid poorly
Speaker 4: because it doesn't require specialized expertise. And so computing, as
Speaker 4: we understand it has actually not been that great for
Speaker 4: growth and really created a lot of inquality. I think
Speaker 4: AI has the potential to work quite quite differently.
Speaker 2: As you talk, it sounds to me there's another distributional
Speaker 2: potential effect here people, for example, receiving medical care, which
Speaker 2: is far from equally divided in this country, and goodness
Speaker 2: knows around the world. Is the potential that more people
Speaker 2: will have access to better healthcare in the United States
Speaker 2: and around the world.
Speaker 4: It's a great question. So I do think there's a
Speaker 4: lot of super expensive services that or expenses specifically because
Speaker 4: they're provided by highly paid experts. So that would be
Speaker 4: in education, that would be in healthcare, that would be
Speaker 4: in architecture and design, that would be in software development,
Speaker 4: and AI could make those things more accessible. I think
Speaker 4: that's going to have that has potentially enormous benefits both
Speaker 4: in rich industrialized countries like the United States and potentially
Speaker 4: even more so in the developing world, where that type
Speaker 4: of expertise is even more scarce. How we do that,
Speaker 4: of course, depends a lot on our institutions, right, So
Speaker 4: the good scenario is the price of medical care comes down,
Speaker 4: it becomes more broadly available that we allocate it more efficiently.
Speaker 4: The bad scenario is basically, if you're wealthy, you see
Speaker 4: a highly paid doctor, and if you're not wealthy, you
Speaker 4: see a machine. So we shouldn't count on the technology
Speaker 4: to solve our problems for us. It opens possibilities, but
Speaker 4: how we use them is really a societal choice. And
Speaker 4: just to give you a very stark example of this,
Speaker 4: you know, in the nineteen forties scientists figure out how
Speaker 4: to harness controlled nuclear fission that has two really powerful uses.
Speaker 4: One is for energy generation and the other is for
Speaker 4: a nuclear weapons. North Korea is a country that has
Speaker 4: lots and lots offensive nuclear weapons, but no nuclear power plants. Japan,
Speaker 4: the only country against which offensive nuclear weapons has ever
Speaker 4: been used, has no nuclear weapons and dozens of nuclear
Speaker 4: power plants. So AI is a bit like nuclear energy,
Speaker 4: but in some ways more powerful and certainly more applicable.
Speaker 4: We can use it for really good things and for
Speaker 4: really destructive things, and already both of those are current.
Speaker 2: And finally, Professor, let's come back to where we started.
Speaker 2: The uncertainty about AI right now, because one of the
Speaker 2: things I've learned from you and from others is this
Speaker 2: is not just a matter of degree, but perhaps of kind.
Speaker 2: That is to say, basically, with automation, people who are
Speaker 2: really expert in this know how it works. They know
Speaker 2: what the rules are that the computers are following AI
Speaker 2: generative AI, as I understand, we literally don't know how
Speaker 2: it works and never will know how it works. It
Speaker 2: does know how it works itself. What does that say
Speaker 2: about our ability to predict where it's going and how
Speaker 2: to manage it?
Speaker 4: So your point is nexcellent one. Just to slightly clarify,
Speaker 4: we understand, or you know, computer scientist understand mathematically what
Speaker 4: it's doing. But in any given instance, it's like a child.
Speaker 4: It's learned some lessons. What it will actually you know,
Speaker 4: it's read some things and encounters some things. What will
Speaker 4: actually do on any given occasion is extremely hard to predict.
Speaker 4: You'd have to know everything it's ever been exposed to.
Speaker 4: So that makes it actually a lot like human experts
Speaker 4: in some ways, because we ourselves a unpredictable in the sense.
Speaker 4: But it means that when we interact with AI, we
Speaker 4: need to learn how to treat it not as authoritative
Speaker 4: but as a guide or support to decision making, and
Speaker 4: that's really critical a professor.
Speaker 2: Does that necessarily lead to regulation, that is to say,
Speaker 2: the government telling us when we should and shouldn't use
Speaker 2: AI because we don't want to use it the wrong way?
Speaker 4: I think it leads to a couple of types of regulation.
Speaker 4: One of them is safety regulation. But we're actually pretty
Speaker 4: good at that. You can't buy our toaster of and
Speaker 4: that doesn't meet energy standards and fire proofness standards. And
Speaker 4: so when we're using AI and specific applications like in
Speaker 4: aircraft or in medicine or in cars, the government should
Speaker 4: and I think will regulate that and so absolutely. But
Speaker 4: there's two other forms of regulation that I think we
Speaker 4: are much harder. One is AI you know desperately, you know,
Speaker 4: chips away or let me say, but differently, AI really
Speaker 4: threatens the foundation of our intellectual property system or our
Speaker 4: copyright laws. They just weren't built in anticipation of machines
Speaker 4: that would absorb and then memorize and not exactly reproduce
Speaker 4: but pretty much replicate what's already there. So that's an issue,
Speaker 4: and I really think there's a real threat to you know,
Speaker 4: to newspapers to create, to illustrators, to artists, to actors.
Speaker 4: That needs to be negotiated and set properly in law,
Speaker 4: in bargaining. And we've already seen the screenwriters skill do that,
Speaker 4: the actors skill do that. But that's only the very beginning.
Speaker 2: Professor, Thank you so much for joining us on Wall Street.
Speaker 1: MAK really appreciate.
Speaker 2: That's David, author of MIT.
Speaker 1: Coming up.
Speaker 2: Why pay for the cow when you can get the
Speaker 2: milk for free? Just ask Michigan coach Jim Harbaugh. That's
Speaker 2: next down Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio.
Speaker 2: Finally, one more thought. They say you get what you
Speaker 2: pay for. According to Wikipedia, it's an expression of the
Speaker 2: so called common law of business balance, though no one
Speaker 2: seems to know exactly where it came from. One follower
Speaker 2: of this supposed rule of business balance is Warren Buffett,
Speaker 2: at least after his partner Charlie Munger persuaded him it
Speaker 2: was better to pay a fair price for a great
Speaker 2: company than to pay a great price. For just a
Speaker 2: fair company, and his Messrs Buffett and Munger proved paying
Speaker 2: up for great assets and talent most of the time
Speaker 2: is the way to go, like for those who stepped
Speaker 2: up in twenty twenty three and paid full price for
Speaker 2: big tech stocks when others were insisting they were overvalued.
Speaker 2: As we know, in the end, the Magnificent seven proved
Speaker 2: to be worth every penny, at least in twenty twenty three.
Speaker 4: I think a lot of these names have a lot
Speaker 4: of growth in.
Speaker 9: Them over the long term.
Speaker 12: However, in the short term profit taking happens, it's good
Speaker 12: to lock in some of those great returns that we
Speaker 12: saw in twenty twenty three.
Speaker 2: And one of the big tech companies that certainly got
Speaker 2: what it paid for was Microsoft with its thirteen billion
Speaker 2: dollar investment in open Ai, which despite a bit of
Speaker 2: trouble along the way, is now valued at something like
Speaker 2: one hundred billion dollars. We continue to be committed to
Speaker 2: open Ai, and we continue to be committed to Sam
Speaker 2: and Greg and the team, or in respect your where
Speaker 2: they are. Hollywood writers did their best last year to
Speaker 2: show us all that if we want their best creative output,
Speaker 2: the students will have to pay full value, and in
Speaker 2: the end they made their point.
Speaker 3: This deal is the very best deal that could be
Speaker 3: negotiated at this time, even with the use of all
Speaker 3: the leverage that we generated from having a strike for
Speaker 3: one hundred and eighteen days.
Speaker 2: And while we were in Hollywood, Warner Brothers didn't scrimp
Speaker 2: when it put together the Barbie Movie, as the budget
Speaker 2: ballooned to one hundred and forty five million dollars and
Speaker 2: it certainly got what it paid for and then some,
Speaker 2: with global box office receipts somewhere north of one point
Speaker 2: four billion dollars. Of course, paying top dollar doesn't always
Speaker 2: guarantee you'll make money on the deal. Just ask Elon Musk,
Speaker 2: who paid forty four billion dollars for Twitter, renamed it
Speaker 2: X and now admits it's worth about half that. While
Speaker 2: others think he may be optimistic.
Speaker 7: We've just seen a huge erasure of value from X
Speaker 7: since Elon took over.
Speaker 2: And at this point it's far from certain whether Steve
Speaker 2: Cohen will get his money's worth from the Mets, what
Speaker 2: with a two point four billion dollar price to egg,
Speaker 2: the hundreds of millions he's committed to the largest payroll
Speaker 2: in Major League Baseball and his plan to put another
Speaker 2: eight billion dollars into developing fifty acres around City Field.
Speaker 2: Now it's the Los Angeles Dodgers, and to hope their
Speaker 2: new star pitcher, Shohei Otani will be worth their record
Speaker 2: seven hundred million dollars, they've promised to pay him, Which
Speaker 2: takes us to the one place left, at least in sports,
Speaker 2: where you can have a multi billion dollar business and
Speaker 2: effectively not pay at all for those doing the real work.
Speaker 2: College football, where players give their all throughout the fall
Speaker 2: every Saturday, risking life and limb for exactly zero pay,
Speaker 2: something that Michigan coach Jim Harbaugh says has to change.
Speaker 12: What I don't understand is how the NCAA television networks, conferences, universities,
Speaker 12: and coaches can continue to pull in millions and in
Speaker 12: some cases billions of dollars in revenue off the efforts
Speaker 12: of college student athletes across the country without providing enough
Speaker 12: opportunity to share in the ever increase in revenues.
Speaker 2: Now, let's see whether Hawballs players win that national champceanship
Speaker 2: on Monday, even without pay Go Blue. That does it.
Speaker 2: For this episode of Wall Street Week, I'm David Weston
Speaker 2: see you next week.