1 00:00:03,600 --> 00:00:07,360 Speaker 1: This is Bloomberg Surveillance. There is still the sense in 2 00:00:07,400 --> 00:00:09,760 Speaker 1: the public in the investing community that central banks are 3 00:00:09,800 --> 00:00:12,920 Speaker 1: working somewhat across purposes with one another. The Chinese is 4 00:00:12,960 --> 00:00:15,319 Speaker 1: struggling with trying to keep full of employment, and they're 5 00:00:15,400 --> 00:00:18,759 Speaker 1: terrified about the social unrest it will occur. There is unemployment. 6 00:00:18,840 --> 00:00:21,560 Speaker 1: From this point forward, all the economics can tell you 7 00:00:21,760 --> 00:00:24,919 Speaker 1: that once for the unemployment rate dips down below five percent, 8 00:00:25,120 --> 00:00:28,880 Speaker 1: that wages should pick up. Bloomberg Surveillance your link to 9 00:00:28,920 --> 00:00:33,240 Speaker 1: the world of economics, finance, and investment on Bloomberg Radio. 10 00:00:33,360 --> 00:00:36,440 Speaker 1: Good running everyone, Michael McKee and Tom Keene Bloomberg Surveillance 11 00:00:36,440 --> 00:00:38,839 Speaker 1: in New York City. We welcome all of you across 12 00:00:38,880 --> 00:00:42,000 Speaker 1: the nation of Bloomberg twelve d Boston, Bloomberg eleven three 13 00:00:42,040 --> 00:00:44,880 Speaker 1: oh in a gorgeous New York nine sixty the Bay Area. 14 00:00:45,320 --> 00:00:48,680 Speaker 1: In your early morning, we say good morning, Washington one 15 00:00:48,880 --> 00:00:52,800 Speaker 1: FM Washington and Baltimore Good morning as well. Bloomberg Surveillance 16 00:00:53,240 --> 00:00:57,680 Speaker 1: brought you by CONE Resident Accounting, tax advisory, regulatory changes 17 00:00:58,000 --> 00:01:00,960 Speaker 1: can in picture business. See how the experts at CONE 18 00:01:01,040 --> 00:01:04,640 Speaker 1: RESNC can help you navigate these complexities. Find out more 19 00:01:04,640 --> 00:01:09,679 Speaker 1: at CONE Resnick dot com um looking quickly at a 20 00:01:09,800 --> 00:01:13,600 Speaker 1: snowfall map for New York City. We need to go 21 00:01:13,640 --> 00:01:16,520 Speaker 1: back to the fun Michael McKee and I were doing surveillance. 22 00:01:16,560 --> 00:01:19,880 Speaker 1: It was one of the early years. Eighteen seventy four, 23 00:01:20,600 --> 00:01:24,080 Speaker 1: thirteen and a half inches in April, thirteen and a 24 00:01:24,080 --> 00:01:27,120 Speaker 1: half inches in April. We now go to Rob Caroline 25 00:01:27,720 --> 00:01:30,880 Speaker 1: giving us non hysterical weather coverage. Robert, we're gonna get 26 00:01:30,920 --> 00:01:34,360 Speaker 1: thirteen and a half inches Sunday into Monday. I think 27 00:01:34,360 --> 00:01:36,399 Speaker 1: we've ended up with less than that, Tom and we 28 00:01:36,400 --> 00:01:38,679 Speaker 1: can go back a little less than eighteen seventy four. 29 00:01:38,720 --> 00:01:40,920 Speaker 1: But n we had a storm in April first that 30 00:01:41,040 --> 00:01:43,480 Speaker 1: dumped quite a bit of snow across the Tri state area. 31 00:01:43,840 --> 00:01:45,760 Speaker 1: We've got several pieces with this storm. They all have 32 00:01:45,800 --> 00:01:47,840 Speaker 1: to come together perfectly. I can tell you the models 33 00:01:47,880 --> 00:01:49,440 Speaker 1: that have been coming in the last couple of hours 34 00:01:49,680 --> 00:01:52,880 Speaker 1: are shifting the track further east. The further east this 35 00:01:53,000 --> 00:01:55,520 Speaker 1: storm goes, guys, the less snow will get out of it. 36 00:01:55,720 --> 00:01:58,080 Speaker 1: And since it's still over two days away, I think 37 00:01:58,080 --> 00:02:00,080 Speaker 1: the target is kind of a moving number on how 38 00:02:00,160 --> 00:02:01,920 Speaker 1: much we get. I don't think a question of if 39 00:02:01,960 --> 00:02:03,880 Speaker 1: I think we do see some light snow here. It's 40 00:02:03,920 --> 00:02:06,000 Speaker 1: just gonna be how much ends up fall. Further that 41 00:02:06,040 --> 00:02:07,680 Speaker 1: storm goes out to see, the less we get, but 42 00:02:07,680 --> 00:02:14,079 Speaker 1: it goes out to see somebody gets pounded. No, it's 43 00:02:14,200 --> 00:02:17,160 Speaker 1: our genti in Newfoundland. That's if it goes out to see. 44 00:02:17,160 --> 00:02:19,360 Speaker 1: It ends up catching the eastern side of Newfoundland and 45 00:02:19,400 --> 00:02:21,080 Speaker 1: not a problem for us. But right now our best 46 00:02:21,200 --> 00:02:24,320 Speaker 1: estimate is it gets into the Tristate area around sunrise 47 00:02:24,360 --> 00:02:28,000 Speaker 1: Sunday morning, ends Monday morning, about three to six inches. Boston. 48 00:02:28,040 --> 00:02:30,280 Speaker 1: It starts in the afternoon, it's four to eight inches 49 00:02:30,520 --> 00:02:32,120 Speaker 1: by the time it ends Monday morning. And then for 50 00:02:32,240 --> 00:02:34,040 Speaker 1: d C they just catch a little bit on the 51 00:02:34,080 --> 00:02:36,639 Speaker 1: tail and maybe a slushy inch on the grass late 52 00:02:36,639 --> 00:02:39,600 Speaker 1: Saturday night into Sunday morning went to three inches for Baltimore. 53 00:02:40,160 --> 00:02:42,280 Speaker 1: Rob Carolin will continue to check in with you and 54 00:02:42,600 --> 00:02:46,040 Speaker 1: try to nail down how far east this goes and 55 00:02:46,280 --> 00:02:52,440 Speaker 1: who actually gets the Ben Friedman Mike, and he lives 56 00:02:52,480 --> 00:02:57,840 Speaker 1: in uh in Cambridge. I presume Harvard University professor author 57 00:02:57,919 --> 00:03:01,079 Speaker 1: of this is some definitely something we want to talk 58 00:03:01,080 --> 00:03:04,239 Speaker 1: to him about. The famous book Moral Consequences of Economic Growth, 59 00:03:04,240 --> 00:03:07,080 Speaker 1: which is for the centerpiece of this year's political campaign, 60 00:03:07,560 --> 00:03:12,200 Speaker 1: but also has a new paper out about monetary policy 61 00:03:12,240 --> 00:03:16,079 Speaker 1: and whether the financial crisis has changed the way we 62 00:03:16,160 --> 00:03:20,440 Speaker 1: do monetary policy. Good morning to you, Professor Freeman. Let 63 00:03:20,440 --> 00:03:23,280 Speaker 1: me uh, let me ask you got your snow shovel out. 64 00:03:23,960 --> 00:03:26,640 Speaker 1: I think we're going to need it. It's uh, I 65 00:03:26,639 --> 00:03:28,679 Speaker 1: mean everybody up there talking about the Red Sox that 66 00:03:28,720 --> 00:03:30,760 Speaker 1: all of a sudden you gotta talk about snow again. 67 00:03:31,639 --> 00:03:33,880 Speaker 1: We'd much rather talk about the Red Sox. Have you 68 00:03:33,960 --> 00:03:36,000 Speaker 1: given up yet? On the Red side? Tom has already 69 00:03:36,000 --> 00:03:40,240 Speaker 1: consigned them to last class. That's because you live in 70 00:03:40,240 --> 00:03:43,320 Speaker 1: the wrong city. It's not your fault. And professor, professor 71 00:03:43,360 --> 00:03:45,600 Speaker 1: wonderful to speak to you again. It's been way too long. 72 00:03:45,920 --> 00:03:48,640 Speaker 1: I'm working on a paperback Beach read called The Moral 73 00:03:48,720 --> 00:03:53,800 Speaker 1: Consequences of the Boston Red Sox and the let's take here. 74 00:03:54,120 --> 00:03:56,800 Speaker 1: Let's let's talk about central banks first, because it's a 75 00:03:56,880 --> 00:03:59,520 Speaker 1: very interesting new paper, especially to talk about in a 76 00:03:59,560 --> 00:04:01,760 Speaker 1: week where just about every central bank in the world 77 00:04:02,040 --> 00:04:07,000 Speaker 1: met um. You suggest that you know the response to 78 00:04:07,040 --> 00:04:10,360 Speaker 1: the crisis where we ended up with large scale asset 79 00:04:10,840 --> 00:04:16,040 Speaker 1: purchases um quei as it were, that did work and 80 00:04:16,240 --> 00:04:19,279 Speaker 1: probably will be used again, but the idea of forward 81 00:04:19,279 --> 00:04:22,919 Speaker 1: guidance maybe not so much. That's right. My sense is 82 00:04:22,960 --> 00:04:26,120 Speaker 1: that when they were stuck at the zero lower bound 83 00:04:26,160 --> 00:04:30,279 Speaker 1: and couldn't do monetary policy in the normal way, central 84 00:04:30,279 --> 00:04:34,120 Speaker 1: banks turned to a variety of new devices, most prominently 85 00:04:34,160 --> 00:04:38,200 Speaker 1: two of them quantitative easing and forward guidance. My judgment 86 00:04:38,320 --> 00:04:41,560 Speaker 1: is that quantitative easing worked, and they should continue to 87 00:04:41,640 --> 00:04:46,359 Speaker 1: do that, and moreover, do it both symmetrically, both sides 88 00:04:46,760 --> 00:04:50,760 Speaker 1: sometimes buying bonds and sometimes selling them. And by contrast, 89 00:04:50,839 --> 00:04:55,679 Speaker 1: I think quantitative. I think forward guidance has been largely 90 00:04:55,720 --> 00:04:57,920 Speaker 1: a failure and they should get rid of that as 91 00:04:57,960 --> 00:05:00,360 Speaker 1: soon as they can. And I think the Federal deserves 92 00:05:00,400 --> 00:05:03,479 Speaker 1: action day before yesterday is a good sign. I think 93 00:05:03,920 --> 00:05:07,200 Speaker 1: their attempts to do forward guidance day before yesterday, we're 94 00:05:07,240 --> 00:05:11,080 Speaker 1: simply bollocks ing up markets. Well, the dot plot isn't 95 00:05:11,080 --> 00:05:15,920 Speaker 1: that essentially forward guidance, and it doesn't seem to work. 96 00:05:16,720 --> 00:05:18,800 Speaker 1: I think that's right. I think the problem for for 97 00:05:19,440 --> 00:05:22,480 Speaker 1: central banks trying to do forward guidance is that they 98 00:05:22,520 --> 00:05:26,640 Speaker 1: can never provide as much information as markets want. That's 99 00:05:26,680 --> 00:05:29,640 Speaker 1: because the markets are in different businesses than they are. 100 00:05:29,720 --> 00:05:33,200 Speaker 1: The markets are in the business of trading on speculative 101 00:05:33,240 --> 00:05:35,839 Speaker 1: assets for a profit. There's nothing wrong with that, that's 102 00:05:35,839 --> 00:05:38,800 Speaker 1: what the markets are supposed to do. But that means 103 00:05:38,880 --> 00:05:42,080 Speaker 1: that the markets are always going to be focusing on 104 00:05:42,760 --> 00:05:47,560 Speaker 1: call it the p numbra, the edges of whatever information 105 00:05:47,680 --> 00:05:51,400 Speaker 1: set is provided, and the central banks are chasing a 106 00:05:51,480 --> 00:05:55,080 Speaker 1: will of the whisp as they think that by providing 107 00:05:55,320 --> 00:06:00,039 Speaker 1: a little more information and expanding the area of in 108 00:06:00,040 --> 00:06:04,839 Speaker 1: formation they provide, they can then alleviate or ease market 109 00:06:04,960 --> 00:06:09,719 Speaker 1: uncertainty because if they expand the information set they provide, 110 00:06:10,080 --> 00:06:13,160 Speaker 1: then there's a new pre number, a new boundary of 111 00:06:13,160 --> 00:06:16,440 Speaker 1: where the uncertainty is around that, and if they keep going, 112 00:06:16,480 --> 00:06:19,359 Speaker 1: they'll just create more and more problems for themselves. So 113 00:06:19,640 --> 00:06:21,479 Speaker 1: I wish they would get out of the business of 114 00:06:21,520 --> 00:06:25,520 Speaker 1: forward guidance, simply do what they do and explain to 115 00:06:25,560 --> 00:06:28,159 Speaker 1: the best of their ability why they just did what 116 00:06:28,279 --> 00:06:32,240 Speaker 1: they did without speculating on their own future actions. Leave 117 00:06:32,279 --> 00:06:35,880 Speaker 1: the markets to speculate. That's what they're good at. Now. 118 00:06:36,920 --> 00:06:40,440 Speaker 1: The most interesting part of this to me is um 119 00:06:40,520 --> 00:06:43,919 Speaker 1: your view of the permanent what maybe a permanent change 120 00:06:44,440 --> 00:06:47,960 Speaker 1: in the conceptual part of monetary policy, and that is 121 00:06:48,279 --> 00:06:51,880 Speaker 1: um that we always used to look at central bank liabilities, 122 00:06:52,279 --> 00:06:54,840 Speaker 1: but now it's the asset side of the ballot sheet 123 00:06:55,080 --> 00:06:59,840 Speaker 1: that matters for stimulating growth. Yes, I think that's just right. 124 00:07:00,320 --> 00:07:03,320 Speaker 1: For many, many years, of course, everybody knew that the 125 00:07:03,360 --> 00:07:07,039 Speaker 1: central bank had a balance sheet with both assets and liabilities, 126 00:07:07,320 --> 00:07:10,280 Speaker 1: but the focus was on what they were doing with 127 00:07:10,360 --> 00:07:16,160 Speaker 1: their liabilities, namely providing reserves to the banking system. And 128 00:07:16,440 --> 00:07:19,800 Speaker 1: in the years that we've had since the crisis, the 129 00:07:20,040 --> 00:07:23,000 Speaker 1: entire focus of attention has shifted to the other side 130 00:07:23,000 --> 00:07:26,160 Speaker 1: of the balance sheet has been what they were buying 131 00:07:26,640 --> 00:07:29,960 Speaker 1: in their asset portfolio. Now, of course, their balance sheet 132 00:07:30,000 --> 00:07:33,400 Speaker 1: has to balance just like anybody else's, and so idiots 133 00:07:33,520 --> 00:07:39,440 Speaker 1: true that as they were adding assets, they were adding liabilities, 134 00:07:40,000 --> 00:07:44,480 Speaker 1: and some economists and other people continued to focus on 135 00:07:44,520 --> 00:07:49,320 Speaker 1: the liabilities and that led them into terrible, terrible mistakes. 136 00:07:49,360 --> 00:07:53,200 Speaker 1: You may remember that for years after central banks started 137 00:07:53,360 --> 00:07:59,560 Speaker 1: on quantitative easing, many economists were talking about huge inflations, 138 00:07:59,600 --> 00:08:05,520 Speaker 1: even heightener inflations. People were following old fashioned models and saying, look, 139 00:08:05,560 --> 00:08:09,239 Speaker 1: the fellow Reserve is increasing the size of its balance 140 00:08:09,320 --> 00:08:12,840 Speaker 1: sheet by a factor of five. That means that the 141 00:08:12,880 --> 00:08:15,200 Speaker 1: price of everything you buy at the drug store is 142 00:08:15,200 --> 00:08:20,440 Speaker 1: going to multiply by five. Well, talk about classic economic mistakes. 143 00:08:20,520 --> 00:08:23,960 Speaker 1: That's about the biggest mistakes that anybody's made in my lifetime, 144 00:08:24,520 --> 00:08:28,960 Speaker 1: in my profession. And the reason, just to be clear, 145 00:08:29,040 --> 00:08:31,720 Speaker 1: the reason is that those people were focusing on the 146 00:08:32,240 --> 00:08:35,600 Speaker 1: liability side of the central banks balance sheet, which really 147 00:08:35,640 --> 00:08:39,560 Speaker 1: doesn't matter anymore, instead of thinking about the assets. In 148 00:08:39,640 --> 00:08:42,839 Speaker 1: two thousand seven, roughly you did a panel at n 149 00:08:42,920 --> 00:08:46,880 Speaker 1: the Er with Alan Meltzer, Stephen Goldfeld, and importantly with 150 00:08:47,000 --> 00:08:51,160 Speaker 1: Robert Gordon. All of our listeners, but particularly those wedded 151 00:08:51,200 --> 00:08:55,959 Speaker 1: to economics, demand that we understand from Benjamin Friedman your 152 00:08:56,040 --> 00:09:00,800 Speaker 1: interpretation of Robert Gordon's Future of America. His book is 153 00:09:00,840 --> 00:09:04,079 Speaker 1: front and center now is your book was a decade ago? 154 00:09:04,160 --> 00:09:08,840 Speaker 1: Do you agree with the cautious optimism of America's future 155 00:09:08,920 --> 00:09:12,720 Speaker 1: that we see from the professor from Northwestern That's an 156 00:09:12,760 --> 00:09:17,800 Speaker 1: interesting interpretation you just suggested. I think Bob's outlook for 157 00:09:17,960 --> 00:09:23,280 Speaker 1: the future economic growth of America is not optimistic for 158 00:09:23,360 --> 00:09:26,040 Speaker 1: your listeners who haven't read the book, and I hope 159 00:09:26,080 --> 00:09:30,760 Speaker 1: everybody will because it's a wonderful book. Bob reviews the 160 00:09:31,160 --> 00:09:35,040 Speaker 1: history of the growth of the American economy since the 161 00:09:35,080 --> 00:09:39,199 Speaker 1: Civil War. He says that the great era of American 162 00:09:39,200 --> 00:09:43,560 Speaker 1: economic growth was from eighteen seventy to nineteen seventy. We've 163 00:09:43,559 --> 00:09:47,920 Speaker 1: been slowing down ever since then, and his assessment is 164 00:09:47,960 --> 00:09:51,280 Speaker 1: that going forward from two thousand sixteen, we're going to 165 00:09:51,320 --> 00:09:55,920 Speaker 1: be slowing down even more. I don't know. I think 166 00:09:55,960 --> 00:10:00,200 Speaker 1: the real issue is technology. And I'm I'm always mind 167 00:10:00,200 --> 00:10:02,160 Speaker 1: that in the part of the country where I live, 168 00:10:03,080 --> 00:10:05,600 Speaker 1: a hundred and fifty or so years ago, right at 169 00:10:05,640 --> 00:10:08,120 Speaker 1: the right at the beginning of the period Bob Gordon 170 00:10:08,240 --> 00:10:11,160 Speaker 1: was writing about, people were talking, believe it or not, 171 00:10:11,240 --> 00:10:14,040 Speaker 1: about running out of oil. And you know what that meant. 172 00:10:14,080 --> 00:10:16,559 Speaker 1: That meant that the nice people down in Nantucket and 173 00:10:16,640 --> 00:10:20,040 Speaker 1: New Bedford, We're going to run out of whales to catch, 174 00:10:20,720 --> 00:10:24,559 Speaker 1: because it wasn't until eighteen sixty nine that anybody understood 175 00:10:24,600 --> 00:10:27,320 Speaker 1: you could pull petroleum out of the ground. So we 176 00:10:27,440 --> 00:10:30,320 Speaker 1: just we just don't know. And there there are all 177 00:10:30,360 --> 00:10:34,920 Speaker 1: of these technological inventions that come along and new discoveries, 178 00:10:35,200 --> 00:10:39,520 Speaker 1: and I don't have any better way of gauging the 179 00:10:39,559 --> 00:10:42,640 Speaker 1: pace of them than anybody else. Bob, Bob is pessimistic. 180 00:10:42,720 --> 00:10:45,080 Speaker 1: I think I'm more of a pestimist. Let's come back 181 00:10:45,200 --> 00:10:52,640 Speaker 1: with Benjamin Friedman of Harvard University. We got to check 182 00:10:52,679 --> 00:10:54,280 Speaker 1: it with Michael Barr. Now I get the latest World 183 00:10:54,320 --> 00:10:56,839 Speaker 1: of National Hines. Michael, mind Tom, thank you very much. 184 00:10:56,880 --> 00:11:00,120 Speaker 1: North Korea fired a medium range ballistic missile into the sea. 185 00:11:00,280 --> 00:11:04,240 Speaker 1: The test violated multiple U N Security Council resolutions at 186 00:11:04,280 --> 00:11:08,040 Speaker 1: vanned North Korea from engaging in any ballistic and nuclear 187 00:11:08,080 --> 00:11:12,760 Speaker 1: activities Launch game as North Korea condemned ongoing annual South 188 00:11:12,840 --> 00:11:16,400 Speaker 1: Korean U S military drills. Bernie Sanders says he still 189 00:11:16,400 --> 00:11:18,880 Speaker 1: believes there is a way to win the Democratic presidential 190 00:11:18,880 --> 00:11:22,679 Speaker 1: nomination despite Hillary Clinton's lead of more than three hundred 191 00:11:22,720 --> 00:11:26,880 Speaker 1: committed delegates. He's predicting the upcoming races in several Western states, 192 00:11:26,920 --> 00:11:30,640 Speaker 1: including Arizona and Washington, will offer him a chance to 193 00:11:30,720 --> 00:11:34,160 Speaker 1: catch up. Russia is urging the U S Prod, Syria's 194 00:11:34,160 --> 00:11:37,120 Speaker 1: main opposition group, to show a willingness to compromise at 195 00:11:37,120 --> 00:11:40,360 Speaker 1: peace talks with president of SA's regime. Russia this week 196 00:11:40,400 --> 00:11:44,400 Speaker 1: announced a surprise pull out most of its forces from Syria. 197 00:11:44,640 --> 00:11:47,760 Speaker 1: Global News twenty four hours a day, powered by our 198 00:11:48,160 --> 00:11:50,840 Speaker 1: journalists more than a hundred fifty news bureaus from around 199 00:11:50,840 --> 00:11:52,880 Speaker 1: the world. I'm Mike Labar, Mike Tom and I Canna 200 00:11:52,880 --> 00:11:55,760 Speaker 1: thank you so much on the future of America. Coming up. 201 00:11:55,800 --> 00:12:00,880 Speaker 1: Benjamin Friedman of Harvard University on America's dearth of productivity. 202 00:12:01,320 --> 00:12:07,120 Speaker 1: This is Bloomberg's surveillance. This news update brought to you 203 00:12:07,120 --> 00:12:09,240 Speaker 1: by the New York Community Trust, where donors like you 204 00:12:09,520 --> 00:12:11,319 Speaker 1: helped them make New York better.