Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Lee.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg John
Speaker 1: gets on the phone on place to say, is Mike Wilson,
Speaker 1: Multin Stanley, chief US equity strategist, might always fantastic to
Speaker 1: catch up with you. Let's just start with that first question,
Speaker 1: how should invest this process? The agreement overnight in Washington,
Speaker 1: d C. Well, good morning to all of you. I
Speaker 1: hope you're doing well in this lockdown. But you know, look,
Speaker 1: I think this is uh, you know, this has been
Speaker 1: expected obviously for the last couple of weeks. We didn't
Speaker 1: know the exact timing over to the size, but I
Speaker 1: think given in the state of Washington over the last
Speaker 1: few years, they got this done pretty quickly. And to
Speaker 1: try and as a series number at least I mentioned
Speaker 1: you know which you've include QUI we've got a six
Speaker 1: trillion dollar stimulus of some you know, some form. You know,
Speaker 1: our estimates are like everybody else, we think the second
Speaker 1: quarter is going to be a bit of a black
Speaker 1: hole on the economy. It's about a trillion dollar hit,
Speaker 1: maybe a trillion two trillion three when all of a
Speaker 1: sudden done, assuming there's a recovery in the back half.
Speaker 1: So you've got about a trillion trillion two hit to
Speaker 1: the economy and you've got a six trillion dollar stimulus.
Speaker 1: I mean, it seems it seems like that's appropriate, and
Speaker 1: it seems like that's gonna be good enough to uh
Speaker 1: kind of put in a low here, which is what
Speaker 1: we've been sort of calling for. It doesn't mean it's
Speaker 1: gonna not be volatile, doesn't mean we're not going to
Speaker 1: read test some of these levels. But stocks have discounted
Speaker 1: a lot of bad news, and we think, you know,
Speaker 1: as we've been saying for the last few weeks, you
Speaker 1: should be you know, averaging in over this period where
Speaker 1: the news is going to be really scary. You know.
Speaker 1: I look, Mike Wilson, and good morning to you and
Speaker 1: to all of Morgan Stanley on lockdown nationwide and indeed
Speaker 1: worldwide as well. Mike Wilson. So much of this is
Speaker 1: about the elasticities of malieabilities of corporations. Can they adjust
Speaker 1: on the income statement to that one trillion dollar hole
Speaker 1: this quarter. Yeah, that's the right question time. I mean,
Speaker 1: here's the way I think about it, which is maybe
Speaker 1: a little bit different than the consensus, which is the government,
Speaker 1: you know, because this is a such a shock. I mean,
Speaker 1: we've never seen anything like this. Okay, let's and John
Speaker 1: you said it right, there's a there's a human toll here.
Speaker 1: It's not just a statistic. Okay. People are going to
Speaker 1: be losing their jobs and some of those jobs are
Speaker 1: gonna be coming back for a while. That is whatever
Speaker 1: sssion is. And so there is a human cost, there's
Speaker 1: an economic cost, and that's typically you know, what happens
Speaker 1: is when you have a when you have a situation,
Speaker 1: as government does step in with easier monetary policy and stimulus.
Speaker 1: And I think in that case, the government is on
Speaker 1: the ball. Now, when we think about it as equity
Speaker 1: strategist and investors, you know, we try to and we
Speaker 1: try to be objective about what's actually going on. And
Speaker 1: here's the way I think about it. So companies are
Speaker 1: basically we're going to go through a full employment cycle
Speaker 1: in a month, meaning typically it takes about two years
Speaker 1: for us to see an unemployment rate go up three
Speaker 1: or four basis points, which is likely what's going to
Speaker 1: happen over the next thirty days. Okay, now that's really
Speaker 1: scary and bad, But at the same time, what it
Speaker 1: really means is that, you know, costs, costs are gonna
Speaker 1: be coming down. I mean, companies are going to be
Speaker 1: getting their house in order, so to speak. And that's
Speaker 1: the bad news. The good news is is that protects margins,
Speaker 1: it protects the cash flow, and the government is really
Speaker 1: stepping in here in a way where you could argue
Speaker 1: they are allowing companies to take those costs off their
Speaker 1: income statement and put it onto the government's balance sheet.
Speaker 1: So it's not gonna be seamless. It's not only there's
Speaker 1: not going to be damaged in that transition, but in
Speaker 1: many ways you're transferring the risk of shareholders to the
Speaker 1: federal government. Mike, this sort of supports the sense that
Speaker 1: you're giving out there a couple of weeks ago that
Speaker 1: we're starting to get to a place where you feel
Speaker 1: comfortable buying, and in fact, uh, you're more bullish and
Speaker 1: you have been in a while on stocks. At the
Speaker 1: same time, if you look at Targets, Chief executive officer,
Speaker 1: he said this today, it's difficult to provide guidance with
Speaker 1: any precision in this environment. America is largely out of business.
Speaker 1: There's no playbook, and we are writing the script each
Speaker 1: and every day. How bullish can you be? How much
Speaker 1: upside can there be at a time of incredible uncertainty
Speaker 1: and companies laying off workers, the psychological impact of that
Speaker 1: demand and supply destruction destruction, Well, I mean, it's always
Speaker 1: a continuum of risk reward, right. So the way we
Speaker 1: think about it is, you know, it's it's hard to
Speaker 1: get bullish, you know when when all these bad things
Speaker 1: are happening around you at the same time. You know,
Speaker 1: if we're thinking about an investment horizon of twelve months
Speaker 1: or longer, which is the way we think about our process,
Speaker 1: then you know, this is the best risk reward we've
Speaker 1: seen in quite a while. You know, it's ironic. I mean,
Speaker 1: market like, markets top on good news and they bottom
Speaker 1: on bad news. And that's where we are. We're at
Speaker 1: a period of you really really bad news that the
Speaker 1: stock markets crashed. It's crashed in a way like we've
Speaker 1: early seen maybe twice in history nine okay, and it's
Speaker 1: crashing because the economy is crashing, so you know, you
Speaker 1: have to put that all into context. And when we
Speaker 1: step back and we say, okay, we don't think we're
Speaker 1: going to go into a depression. We don't know that,
Speaker 1: but we have to have a view. We think this
Speaker 1: is gonna be a really steep procession. There's gonna be
Speaker 1: tremendous policy response on the other side, and then by
Speaker 1: next year we'll be recovering to some degree. And that's
Speaker 1: what goes into our models and our thought process when
Speaker 1: we think about the twelve month view. So you know,
Speaker 1: that's that's the thought process, that's the math, and you
Speaker 1: know we've done the work. We've pretty presented for people
Speaker 1: to look at, and we think it you know, this
Speaker 1: is this is where it makes sense. You know. One
Speaker 1: last comment on this, which I think is important. You know,
Speaker 1: people don't think about risk reward much when they invest.
Speaker 1: I mean when I say people, I mean the average person.
Speaker 1: I think a lot of you know, strategic strategic as
Speaker 1: allocators do for sure, and when we do that, that's
Speaker 1: one of our jobs here. And if you think about
Speaker 1: the risk reward today, people in December felt like the
Speaker 1: risk reward was more attractive than it is today, and
Speaker 1: that just doesn't mean that the math doesn't compute on that.
Speaker 1: And this is just a remainder that price matters, right,
Speaker 1: Price matters and the upside and price matters on the downside.
Speaker 1: That is the final arbiter of when you should be
Speaker 1: committing capital or removing capital from investments. It's strangely count
Speaker 1: of intuitive, but it's something we keep going back to
Speaker 1: on this program, Mike, that risk appetite seems to be
Speaker 1: positively correlated with the direction of price. Risk cappitite goes
Speaker 1: up as prices arising, goes down as prices are going lower.
Speaker 1: The drawdown we have seen has gone through several phases
Speaker 1: over the last one month alone. The more recent phase
Speaker 1: has been a really ugly one, the liquidation phase, the
Speaker 1: sell everything face. Can you identify some points Mike, which
Speaker 1: kind of signal to you at the moment that we're
Speaker 1: working our way through that we're working our way out
Speaker 1: of that ugly face. Yeah. I was saying credit is
Speaker 1: one area where I mean that's to me that you know,
Speaker 1: the bigger issue over the last three months for markets,
Speaker 1: Uh this you know, I want to sell the wrong way.
Speaker 1: But the bigger issue for markets was the oil price collapse.
Speaker 1: Then it was the virus because that's when the credit
Speaker 1: markets really came include. And the credit markets, you know,
Speaker 1: are incredit critically important for the economy and how kind
Speaker 1: of markets function overall. So they became completely dislocated over
Speaker 1: the last month, and that's when the FED really got
Speaker 1: active as they should and they now have you know,
Speaker 1: intervene and the funding markets in particular. Uh, they've got
Speaker 1: that under control. And then of course they injected capital
Speaker 1: directly into the credit market the Monday, and that you know,
Speaker 1: allowed investment grade credit to start to heal. So the
Speaker 1: credit you know, liquidation looks like you know that that
Speaker 1: could continue in the lowest quality credits, but that's really important.
Speaker 1: So I think we've seen you know, people basically selling
Speaker 1: what they can sell. The other thing, I would argue,
Speaker 1: you know, there was a period of about a week
Speaker 1: or two where it didn't matter what it was. Everything
Speaker 1: was for sale gold right, Uh, you know, high quality bonds,
Speaker 1: low quality styles. I mean, everything was being sold to
Speaker 1: raise money into that liquidation phase was quite clear. What
Speaker 1: I would remind listeners of is that we had the
Speaker 1: reverse situation last Paul. So when everybody, you know, when
Speaker 1: the fed came back in and did que four right.
Speaker 1: We had basically systematic strategies and risk seekers basically putting
Speaker 1: on too much leverage. So these things work both directions,
Speaker 1: and I would I would continue to go back and
Speaker 1: argue at the fourth quarter rally really should not have
Speaker 1: happened to the magnitude that it does, and so it
Speaker 1: cuts both ways, like where he can work both ways,
Speaker 1: and in many respects, this you know, liquidation phase we're
Speaker 1: having is happening because people got two levered and the
Speaker 1: fourth we're on the premise that you know, nothing bad
Speaker 1: was ever going to happen again, Mike, always send my
Speaker 1: best of the team, won't you? And my best of
Speaker 1: you and yours as well, Mike Wilson, that of Morgan Stanley,
Speaker 1: the chief US equity strategy. Now let's do this right now,
Speaker 1: let us bring in our esteem guests. He of course
Speaker 1: uh served his India is their central bank governor, and
Speaker 1: of course is at the Universe of Chicago. But that
Speaker 1: barely describes the social contribution of Rob and Roger and
Speaker 1: his book fault Lines was definitive twelve years ago in
Speaker 1: a financial crisis. And now the third pillar was my
Speaker 1: book of the year last year. The third pillar is
Speaker 1: a primal scream for a return of community. Professor, thank
Speaker 1: you so much at this historic moment for being with us.
Speaker 1: Where is the community known as America. It's it's struggling,
Speaker 1: I mean, like every other country in the world, to
Speaker 1: find the resources to deal with this totally unexpected and
Speaker 1: unanticipated disease uh pandemic. Um. I think we will emerge
Speaker 1: from this stronger. I think you know, people are talking
Speaker 1: about the isolation that this uh pandemic creates, but it
Speaker 1: also creates a sense of togetherness. The package that was
Speaker 1: put together, I guess the word cares is in it.
Speaker 1: It's a way of telling people everywhere in the country
Speaker 1: that you belong in one big hole and that that
Speaker 1: big community the nation cares about you. And of course,
Speaker 1: what would be nice is if that when down to
Speaker 1: the local level and we've got far more local action
Speaker 1: once this pandemic is defeated, Professor. In an audial world,
Speaker 1: we'd have the fiscal support package before we get the
Speaker 1: shut down, to make sure that some of these companies
Speaker 1: don't start folding, don't start laying off people before they
Speaker 1: have a chance to get the money. And that's the
Speaker 1: story in the United States, the sequencing, it's just a
Speaker 1: little bit messy in your India. With one point three
Speaker 1: billion people lockdown for three weeks, what are they doing
Speaker 1: on the fiscal side, on the monty policy side to
Speaker 1: try and cushion what will be a massive blow to
Speaker 1: the economy. It's worse. I mean, governments simply happened to
Speaker 1: come to terms with what is happening. I think in
Speaker 1: India we've got the lockdown first and now they're contemplating
Speaker 1: what they will do on the fiscal side. It's also harder.
Speaker 1: How do you get money to a worker who has
Speaker 1: no formal bank account? Uh And what we're seeing right
Speaker 1: now is the first phase where people are trying to
Speaker 1: come to terms with not going to work. There are
Speaker 1: lots of poor house holes that have absolutely no income,
Speaker 1: no savings, and they also aren't necessarily better off by
Speaker 1: being locked down at home because home is a slum
Speaker 1: where everybody sort of really lives on top of each other.
Speaker 1: So I think India will have to see over the
Speaker 1: next few days whether this is sensible. It can't go
Speaker 1: the same way as the West, but will also have
Speaker 1: to work very quickly in getting money directly to households,
Speaker 1: especially in the urban areas where you know the lockdown
Speaker 1: is going to be far more problematic, and also on
Speaker 1: small and medium sized firms which are already hurting because
Speaker 1: of previous the previous demonetization which reduced informality, as well
Speaker 1: as the rollout of a goods and service tax which
Speaker 1: put great streams on small businesses. But now we have
Speaker 1: the third blow, which is coronavirus, and I don't think
Speaker 1: many small and medium enterprises are prepared to handle it.
Speaker 1: Professor Rice, a really excellent point and something I'd like
Speaker 1: to dig a little bit data on. Hind, every single
Speaker 1: data point we receive in the next month will be
Speaker 1: real economic pain and real psychological pain as well. You've
Speaker 1: brought up the issue of the unbanked, the individuals in
Speaker 1: society that don't have a bank account that one be
Speaker 1: able to cash that check in the same way as well,
Speaker 1: especially in the developed world, what can you do in
Speaker 1: a country like India, in an emerging market where so
Speaker 1: many of societies still do not have bank accounts, Well,
Speaker 1: you you will have to find some way to get
Speaker 1: money to them, and this is where you might have
Speaker 1: to use community resources. Of course, bearing in mind that
Speaker 1: getting a bunch of people together as dangerous at these times.
Speaker 1: But perhaps funnel money through the post office. You will
Speaker 1: have to accept a fair amount of leakage money going
Speaker 1: to people who don't actually deserve to get that money
Speaker 1: because they've manipulated the system. But that is the price
Speaker 1: you have to pay to keep people from starvation at
Speaker 1: this point. So, I mean, India has many people banked,
Speaker 1: that was one of the achievements over the last few years,
Speaker 1: but there are still some unbanked people, and the way
Speaker 1: to do that might be through community institutions. Professor, India
Speaker 1: and a lot of the developing world have really relied
Speaker 1: on fast growth for their entire ecosystem. I'm just looking
Speaker 1: right now at the growth in the GDP of India
Speaker 1: over the past few years eight percent, eight point three percent,
Speaker 1: seven percent now coming out of i n G saying
Speaker 1: that India's economy is plaised to shrink next quarter and
Speaker 1: the full year expansion is supposed to be perhaps uh
Speaker 1: significantly lower than it has been in a long time.
Speaker 1: How much does that challenge the financial structure right now
Speaker 1: of India and it's just an incredible economic engine in
Speaker 1: the longer term, Well, I think it's a challenge for
Speaker 1: all developing countries which don't have the kind of resources
Speaker 1: than industrial countries. Have remembered that industrial countries are putting
Speaker 1: enormous amounts of wealth to work in questioning the blows
Speaker 1: from this this crisis. Emerging markets and developed in countries
Speaker 1: don't have that spare cushion, and especially when you're running
Speaker 1: already a large fiscal deficit, your debt to GDPs at
Speaker 1: levels which markets already start worrying about, and your inflation
Speaker 1: is not zero, so the printing press can't start up
Speaker 1: as we see with the central banks and industrial countries.
Speaker 1: So e ms and developing countries have to keep in
Speaker 1: mind that they have to maintain some sense of fiscal
Speaker 1: and monetary responsibility even while dealing with this unprecedented crisis.
Speaker 1: And that means that you know they many of them
Speaker 1: are at this point facing capital outflows. So you have
Speaker 1: you can't cut interest rates to zero. You have to
Speaker 1: main interest rates and maintain interest rates at the reasonable level.
Speaker 1: You can't blow out your fiscal depths. That you have
Speaker 1: to be very careful about where you apply resources. And
Speaker 1: of course you really hope that you have the medical
Speaker 1: resources to cope because your medical resolve, also the refraction
Speaker 1: of the ones in industrial countries, and everybody at this
Speaker 1: point is looking for those resources ventilators that are premium
Speaker 1: across the world. So what I think at this point
Speaker 1: emerging markets and developing countries they're looking for is certainly
Speaker 1: trying to make the best of their own situation, but
Speaker 1: also more global cooperation and Professor, I mean, this is
Speaker 1: such an important issue for the entire world because the
Speaker 1: developing nations have been the engine of growth for years
Speaker 1: and I'm wondering what this means extrapolate out into what
Speaker 1: the scenario is given India's precarious situation and frankly that
Speaker 1: of all developing nations right now. Yeah, no, I I
Speaker 1: think for for the next month and a half, countries
Speaker 1: will have to try and get ahead of the of
Speaker 1: the virus. And this is where India's lockdown comes in,
Speaker 1: and it's an attempt to prevent the surge that's happening
Speaker 1: in an variety of other countries and to prepare their
Speaker 1: medical resources for the eventual rise in cases. So this
Speaker 1: is something that every developing country now understands it has
Speaker 1: to do. But of course it would help if there
Speaker 1: were more resources available, especially for the poorest countries in Africa.
Speaker 1: What we know from this virus is there's no point
Speaker 1: eliminating it in the West or in East Asia. If
Speaker 1: it comes back from some other part of the world
Speaker 1: where it's not controlled to some extent. We can't have
Speaker 1: an open world again until we will eliminate this virus everywhere. Professor,
Speaker 1: which we shake its hand this morning, I'm gonna have
Speaker 1: to leave it there. The secret sauce for Lisa Bramo,
Speaker 1: it's John Farrell and I Paul Sweeney Francine liquid is
Speaker 1: we lean over the desk and we actually read the research.
Speaker 1: This is always problematic with Karl Weinberg of high frequency Economics,
Speaker 1: because he has the audacity. At least it tore right
Speaker 1: an international peace, a United States peace, and a China piece.
Speaker 1: I read every word of them on Sunday, and Karl Weinberg,
Speaker 1: what stunned me was, after a mere thirty two years
Speaker 1: of doing this, you decided you couldn't make a forecast.
Speaker 1: What does that feel like? It feels like sailing on
Speaker 1: the ocean without a sale or a rudder. You know,
Speaker 1: we are in unschowed territory as far as the economy
Speaker 1: is concerned. Great example of that is tomorrow's number on
Speaker 1: initial claims for unemployment. Absolutely no idea how that number
Speaker 1: is going to print. It's going to be big, it's
Speaker 1: probably going to be a record. But more than that,
Speaker 1: more detailed than that, no precedent to move on. And
Speaker 1: that's a really important number because we're coming up on
Speaker 1: the employment report in another ten days or so, and
Speaker 1: and that's another number we don't know anything about. We
Speaker 1: really do not know the true state of any major
Speaker 1: economy in the world right now. The shock of this
Speaker 1: is the shock, as Alan Ruskin of Deutsche Bank says,
Speaker 1: of depth and to ration. Is Karl Weinberg more concerned
Speaker 1: about the depth or the duration of what we're living. Yes,
Speaker 1: I'm concerned about both the depth and the duration. And
Speaker 1: it's not a lessing matter. I apologize for lessing at
Speaker 1: it all right. The shock itself, the lockdown is unprecedented.
Speaker 1: The complications of it, you know, no historical precedents to
Speaker 1: agd against them that I can think of making. You know,
Speaker 1: maybe you spoken to someone who has a precedent, but
Speaker 1: I don't. And of course the driving factory, the driver
Speaker 1: is the disease, the virus and nobody really has a
Speaker 1: handle on the medicine or the science of that to
Speaker 1: tell us how long this is gonna last. So we
Speaker 1: are very much a wrong for the ride right now
Speaker 1: and um trying our best just to keep up with
Speaker 1: the news. We're looking forward to some we we're looking
Speaker 1: forward to the survey data for March, but the surveys
Speaker 1: we're seeing seemed to have been taken too early in
Speaker 1: the months to be able to give us a good
Speaker 1: bead on what's happening. So, for instance, markets MR yesterday,
Speaker 1: which are flawed indicators anyhow, but if you just say
Speaker 1: that even they couldn't use a big moves like this.
Speaker 1: They showed that the climb manufacturing activities for the month
Speaker 1: of March, said that you expect that, but February had
Speaker 1: blipped up the levels of the industries. Tell us that
Speaker 1: manufacturing in Europe and Japan and the United States as
Speaker 1: we were was down and marched from federately, but no
Speaker 1: worse than it was less small and last summer level.
Speaker 1: And that's just ridiculous. Well, Carl, No, I mean I
Speaker 1: want to break in and get a sense from you.
Speaker 1: You know, we're talking about how it's unprecedented and how
Speaker 1: We just don't have a sense of of how long,
Speaker 1: how deep. But it's it's it seems like it's really bad.
Speaker 1: We know the virus will eventually be stopped, whether it's
Speaker 1: by a vaccine or whether it's just by herd immunity
Speaker 1: after everybody gets it. This does have an end point,
Speaker 1: we don't know when it is. And the question is
Speaker 1: how quickly can people get their jobs back? Can the
Speaker 1: economy get back up to steam? Is there a precedent
Speaker 1: with the job market destruction and then recreation? And how
Speaker 1: long are short of a time that could take? Well,
Speaker 1: I can't really think of a good one to tell
Speaker 1: you the truth. I need to tend to elevance. You
Speaker 1: want to think about the Japanese uh tsunami in twenty eleven,
Speaker 1: and there are all kinds of things out there that
Speaker 1: are similar, but nothing on such a global scale. The
Speaker 1: really big anomies say, it's not only the duration. If
Speaker 1: you told me the date when this was all going
Speaker 1: to stop, I'd be happy to know it. But what
Speaker 1: I don't know is what's going to break in between. Okay,
Speaker 1: if you shut the economy down for a month or
Speaker 1: a week or three months, and it definitely turns out
Speaker 1: to be some firms are going to sell, and are
Speaker 1: they going to be big or small firms? Are they're
Speaker 1: going to be systemically important? Are they're going to be
Speaker 1: financial system and regularities that they're going to banks that fell?
Speaker 1: Uh is they're going to markets that fail, But we
Speaker 1: don't know what breaks. And that's what I'm going to
Speaker 1: determine the question of whether they're the jobs for people
Speaker 1: when this all ends. Tom, You know, I been thinking
Speaker 1: and talking a lot about this with people. How will
Speaker 1: the world look after this is over? Are you still
Speaker 1: going to go to the Irish pub downstairs from you?
Speaker 1: Of course you will. Will you still come to the
Speaker 1: one up by near me by me? Yeah, of course
Speaker 1: you will, you know. But I do wonder about how
Speaker 1: things are going to change permanently when it comes to
Speaker 1: office space, when it comes to just the landscape of
Speaker 1: what people need to desire. Dr Weinberg then along that line,
Speaker 1: one final question, Carl Weinberg, what does business investment do?
Speaker 1: I mean it's going to take quarters to get that
Speaker 1: inherent confidence back, isn't it? Absolutely? Tom? I just want
Speaker 1: to go back to Lisa's common just now. Tom would
Speaker 1: like to go back to that Irish poke downstairs if
Speaker 1: it were open, and that's really the question. Will be
Speaker 1: Irish probably open. After this will be enterprise called bankrupt.
Speaker 1: That's the key to the future. Well, I don't know
Speaker 1: the answering. I just saw it on Twitter somebody saying
Speaker 1: Department of Labor just issuing some documents to help out
Speaker 1: businesses moments ago. Carl Weinberg, thank you so much and
Speaker 1: we value immensely your research pieces the Weinberg Global look
Speaker 1: about ten pages long, and his wonderful US work as
Speaker 1: well with John Sylvia helping out there, and of course
Speaker 1: the view of China from high frequency economics. It is
Speaker 1: a labor economy. It is an economy of jobless claims
Speaker 1: tomorrow some estimating one million, one and a half million
Speaker 1: is a Bloomberg survey, two million, even three million, maybe
Speaker 1: not in one week, but spread out over fourteen days.
Speaker 1: These are numbers, folks, that no one has ever perceived.
Speaker 1: Academics think about this public that Cherniva is it barred.
Speaker 1: She's professor of economics and far more importantly an important
Speaker 1: book coming out, The Case for a Job Guarantee. That's
Speaker 1: a controversial title professor as well. With this legislation, Are
Speaker 1: we any closer to a job guarantee? Good morning, Tom
Speaker 1: and Paul. No, we are not close to a job guarantee.
Speaker 1: And I am looking at the provisions and I actually
Speaker 1: don't see anything specific specifically targeted to the labor market.
Speaker 1: We have some emergency measures that I think you're trying
Speaker 1: to stop the hemorrhage, and you know there's good measures,
Speaker 1: but we need we need to keep a laser sharp
Speaker 1: and focus on jobs. Right. We have we have atomized
Speaker 1: our labor economy over X number of years. I've said
Speaker 1: this on the show, Folks on Labor Day, I always
Speaker 1: try to read some labor chapter in a book. I
Speaker 1: read Paul Samuelson from another time in place on labor
Speaker 1: in America. I mean, it's gone, isn't it? Puffly? Now?
Speaker 1: I mean there really is no labor representation? Am I
Speaker 1: right on that this is true? There's no strong labor representation,
Speaker 1: And we are putting labor on the back burner. And
Speaker 1: we will not come out of this uh moment without
Speaker 1: some bold, big programs to restore jobs and incomes. And
Speaker 1: we just can't think in the conventional ways. You know,
Speaker 1: we're looking at potentially quarter to unemployment rates of thirty
Speaker 1: if we listened to the St. Louis FED, that is
Speaker 1: greater than what we had seen in the Great Depression.
Speaker 1: And there is only one solution to a problem like this,
Speaker 1: and that is direct employment, bold, big public investments. So
Speaker 1: publicly looking at the trade the fiscal stimulus plan just
Speaker 1: emerging from Congress, what are some of the key highlights
Speaker 1: for you as it relates to getting people back to work.
Speaker 1: What I am seeing is a lot of focus on
Speaker 1: income support, which is the right thing to do at
Speaker 1: this moment, some strength and of unemployment insurance and this
Speaker 1: one time payment which probably will go for rent and
Speaker 1: food for the amount of April. But that is it.
Speaker 1: And unemployment insurance is not a pro job creation policy.
Speaker 1: It's a policy that stops sort of the floor from
Speaker 1: you know, falling from underneath us. And so what we
Speaker 1: need is to start thinking about how to return jobs back. Uh.
Speaker 1: Once unemployment developed, it has this terrible, terrible way of
Speaker 1: self perpetuating. Because um, we tried this last time during
Speaker 1: the two thousand and eight Great Financial Crisis, we strengthen
Speaker 1: unemployment insurance. We could have done better, but we It
Speaker 1: took us ten years to bring unemployment down to its
Speaker 1: historic lows. So we cannot afford to wait this long
Speaker 1: or potentially longer unless we do some direct job creation. So, Professor,
Speaker 1: a lot of Wall Street economers are scrambling to come
Speaker 1: out with GDP forecasts, and I think, you know, many
Speaker 1: of them kind of I think incorporate kind of a
Speaker 1: V shaped recovery, a sharp sharp decline in two q
Speaker 1: GDP followed by pretty you know, solid bounce back in
Speaker 1: queues three and four. How do you view how this
Speaker 1: might unfold? Yeah, Paul, I think you absolutely correct. All
Speaker 1: of these provisions right now now are designed to patch
Speaker 1: us over for a couple of months. So whether these
Speaker 1: a loan guarantees, you know, various all of the various
Speaker 1: policies are with the short term under the assumption that
Speaker 1: people will happily return back oh work, but that that
Speaker 1: ship has sailed in some sense, because even if if
Speaker 1: a lot of business is reopened, we already have plenty
Speaker 1: of off and loss of income which will kind of
Speaker 1: ripple through the economy, and folks, even if they get
Speaker 1: alone to pass them over for a couple of months,
Speaker 1: if the customers are not returning in big numbers, we
Speaker 1: will see the problems down the line, professor, one final
Speaker 1: question that it's too short a time to talk to you.
Speaker 1: Would love to have you on again. Is the basic
Speaker 1: idea of an individualistic almost Lackey in America. And as
Speaker 1: somebody said brilliantly in essay this week, this is a
Speaker 1: hobbsy in crisis. We've gone back to natural man and
Speaker 1: natural law and all that of another time and place.
Speaker 1: How do we recapture the collectivism of labor? I don't
Speaker 1: see any evidence the mood is out there. No, you're
Speaker 1: you may be right, but I fear that the economic
Speaker 1: pain is ahead of us, and we will be once
Speaker 1: again engaged in this conversation. What we do, we would
Speaker 1: do wrong? Could we have prepared better? Can we stabilize
Speaker 1: the foundations of the economy and the foundations of the
Speaker 1: labor market? Working people? We need good jobs and good incomes.
Speaker 1: And I hope that we start this conversation as em
Speaker 1: as possible so we don't have to go through yet
Speaker 1: another very very protracted downturn. Polinare pablinnatured, thank you so
Speaker 1: much with Bard today with a really out of consensus
Speaker 1: view there for so many on global Wall Street right now,
Speaker 1: A gentleman who is expert at labor economics, and he
Speaker 1: has the ultimate accolade of a polarized Washington. He writes
Speaker 1: for the Center on Budget and Policy Priorities. Of course,
Speaker 1: has been iconic in his public support of Vice President
Speaker 1: Biden the last go around. UH And Jared Bernstein joins
Speaker 1: us right now. He is a liberal who Conservatives are
Speaker 1: compelled to read at each and every moment. Jared, wonderful day.
Speaker 1: Have you with us today? Can you explain the reticence
Speaker 1: of Senate Republicans to get this bill done? I mean,
Speaker 1: it seems like the compromise is supposed to benefit eleven
Speaker 1: pages of America, two trillion dollars in all. Explain the
Speaker 1: Washington reticence to assist their electorate. Yeah, I think I
Speaker 1: can do that. It took way too long for members
Speaker 1: of Congress to recognize urgency. That was clear to any
Speaker 1: of us who've been watching markets and other economic indicators.
Speaker 1: And unfortunately, one of the things that happens in this
Speaker 1: kind of situation is that you have the Christmas tree problem.
Speaker 1: Members of Congress see a big bill coming down the
Speaker 1: pipe that has to pass, and they think they have
Speaker 1: leverage to put stuff on it, but doesn't belong there.
Speaker 1: I will say though, that for this Congress, it looks
Speaker 1: like they did ultimately act pretty quickly, and uh, the
Speaker 1: deal should be perhaps later today. The Senate and the
Speaker 1: White House are in agreement. Now it's all about the House,
Speaker 1: and what I'm hearing on the ground is that the
Speaker 1: House is uh are going to join on pretty quickly.
Speaker 1: So Jared, it's interesting here. Do you think this deal
Speaker 1: two trillion dollars, obviously a huge number, really jumps out
Speaker 1: at people. Is it enough? Or do you think this
Speaker 1: is just the first in a series of fiscal stimulus
Speaker 1: plans that will be needed to keep this economy, you know,
Speaker 1: from going too far south. It is the largest stimulus
Speaker 1: I believe we've ever heard of. It's of g d
Speaker 1: p uh and it's uh. And yes, we will definitely
Speaker 1: need more trips to the well. Uh. This is actually
Speaker 1: the third trip there. There's been two other stimulus bills
Speaker 1: so far. The first one was a narrow one directed
Speaker 1: at health crisis. The second one was a small stimulus.
Speaker 1: This is a big stimulus, but we're going to need
Speaker 1: more trips to the weather. At least two things left
Speaker 1: out of this bill. First of all, it has nothing
Speaker 1: on state fiscal release that turns out to be critically important.
Speaker 1: It was important last time in a shallower down turn.
Speaker 1: And secondly, uh the uh the bill um has just
Speaker 1: one time payments to households. Those are going to be
Speaker 1: very useful, but I think we'll have to do more
Speaker 1: than one round of that. So Jared, there's you know.
Speaker 1: I'm going to ask you to look into your crystal ball,
Speaker 1: your g DP crystal ball. How do you think g
Speaker 1: d P is going to play out over the next
Speaker 1: several quarters. I think Wall Street, many on Wall Street
Speaker 1: are looking for a V type, some are looking for
Speaker 1: a U type of recovery, and some are just flat
Speaker 1: out saying this is an L type recovery. And we'll
Speaker 1: get back to you whether you know this thing turns up. Well,
Speaker 1: here's how I would explain that. You think think of
Speaker 1: the V or the U or the is having two parts,
Speaker 1: one part down in one part either upper sideways. The
Speaker 1: down part. Economists can explain to you, and I will.
Speaker 1: The up part epidemiologists can explain to you, and they will,
Speaker 1: or at least they will when they have the data.
Speaker 1: The down part is baked in the cake and it's
Speaker 1: going to be double digits, and it's probably happening as
Speaker 1: we speak that has double a double digit GDP decline
Speaker 1: with a negative handle. Uh. And then the up part,
Speaker 1: whether it's a v is a matter of when containment occurs. Uh.
Speaker 1: No question. There will be lots of pent up demand,
Speaker 1: you know, air airplane trips and conferences that many will
Speaker 1: be rescheduled. People will go on vacations and back to restaurants.
Speaker 1: So I I think Trump is correct when he says
Speaker 1: there's pent up demand. The question is how intact will
Speaker 1: the economy be on the other side of this such
Speaker 1: that it can absorb and reflect that to men. I mean, Jared,
Speaker 1: this is all well and great, but I want you
Speaker 1: to explain. I want you to go all Dean Baker
Speaker 1: on me right now. And so there's a whole left
Speaker 1: feeling that, you know, life will go and there's a
Speaker 1: conservative ethos which many of our listeners and viewers share.
Speaker 1: There's this conservative ethos, Oh, no, we're giving it away.
Speaker 1: Isn't anything we spent now paid back in ongoing g
Speaker 1: d P over quarters and indeed years. I mean we're
Speaker 1: going to get the money back eventually, right, Yes. And
Speaker 1: I think the notion that you can somehow pivot from
Speaker 1: where we are now to a better economy by easter
Speaker 1: is completely nonsense. I mean, as I've said, the second
Speaker 1: quarter is a deep recession baked in the case. That's
Speaker 1: not just me, that's everybody. And uh the idea that
Speaker 1: you can um punt on containment efforts only means a
Speaker 1: much larger economic problem down the road. So yeah, I
Speaker 1: think we're going to have to just do what the
Speaker 1: uh what the health experts are telling us and recognize
Speaker 1: and keep that the key to your questions, tom if
Speaker 1: making sure that we have an economy that can bounce
Speaker 1: back at the other side of this. That's why the
Speaker 1: eight hundred plus billion in this in this bill we're
Speaker 1: talking about to help preserve small and large business is
Speaker 1: very important. But I remember this is really important, folks.
Speaker 1: In A E. A and two thousand nine, the American
Speaker 1: Economic Association Olivier Blanchard, the giant of French economics, working
Speaker 1: with the I m F, working out of M I T.
Speaker 1: Professor Blanchard got up Jared and he put up a
Speaker 1: chart and he said, you know, there's been a real crash,
Speaker 1: but here's the run rate to get back and someday
Speaker 1: we'll get back. I mean those laws are still in place.
Speaker 1: If we spend ten percent of GDP now and seven
Speaker 1: percent of g d P in eight weeks or eight months, whatever,
Speaker 1: we're gonna get it back down the road. Right Listen, Tom, Yes, right,
Speaker 1: I totally agree with you. But here's the thing you
Speaker 1: have to appreciate. I'm sure you do. You think, and
Speaker 1: I think medium and long term. Sounds like you're thinking
Speaker 1: long term. Politicians think in very very short term. Uh So,
Speaker 1: when you're talking about Trump, who feels like his and
Speaker 1: I think correctly, feels like his electoral prospects are very
Speaker 1: much damaged by what's going on, he's thinking in terms
Speaker 1: of weeks, not seven eight years to make up an
Speaker 1: outcoat gasp that, yes, eventually we'll make up. So, Jared,
Speaker 1: I guess the one of the next issues is as
Speaker 1: we pass through what's coming out of Congress right now
Speaker 1: in terms of the two trillion dollar fiscal stimulus plan,
Speaker 1: what is what does Congress need to focus on next?
Speaker 1: Do you think from a from a stimulus perspective, Well,
Speaker 1: that's a great question. A couple of things. First of all,
Speaker 1: state fiscal relief is essential, and it's not in this bill.
Speaker 1: American states have to balance their budgets, and given the
Speaker 1: demands on their unemployment insurance system, UH, they're going to
Speaker 1: be facing a big time. Secondly, there will need to
Speaker 1: be another trip to the well to help support households
Speaker 1: who are losing paychecks week by week. And also it's
Speaker 1: important to note that in this bill, it is true
Speaker 1: that low income households are eligible for these checks, but
Speaker 1: many of them don't file federal tax returns just because
Speaker 1: their income isn't high enough, and that means that they
Speaker 1: won't get those checks unless they file. That's the way
Speaker 1: the thing is set up, so they're going to need
Speaker 1: to They're gonna need to file in order to get
Speaker 1: their checks. Jared Bernstein, thank you so much for the
Speaker 1: Center and Budget and Policy Priorities. Can't say enough about
Speaker 1: his work. Really compelling reading always from Professor Bernstein. Thanks
Speaker 1: for listening to the Bloomberg Surveillance podcast. Subscribe and listen
Speaker 1: to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform
Speaker 1: you prefer. I'm on Twitter at Tom Keane before the podcast.
Speaker 1: You can always catch us worldwide. I'm Bloomberg Radio