Speaker 1: This is Bloomberg Surveillance. There is still the sense in
Speaker 1: the public in the investing community that central banks are
Speaker 1: working somewhat across purposes with one another. The Chinese is
Speaker 1: struggling with trying to keep full of employment, and they're
Speaker 1: terrified about the social unrest it will occur. There is unemployment.
Speaker 1: From this point forward, all the economics can tell you
Speaker 1: that once for the unemployment rate dips down below five percent,
Speaker 1: that wages should pick up. Bloomberg Surveillance your link to
Speaker 1: the world of economics, finance, and investment on Bloomberg Radio.
Speaker 1: Good running everyone, Michael McKee and Tom Keene Bloomberg Surveillance
Speaker 1: in New York City. We welcome all of you across
Speaker 1: the nation of Bloomberg twelve d Boston, Bloomberg eleven three
Speaker 1: oh in a gorgeous New York nine sixty the Bay Area.
Speaker 1: In your early morning, we say good morning, Washington one
Speaker 1: FM Washington and Baltimore Good morning as well. Bloomberg Surveillance
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Speaker 1: at CONE Resnick dot com um looking quickly at a
Speaker 1: snowfall map for New York City. We need to go
Speaker 1: back to the fun Michael McKee and I were doing surveillance.
Speaker 1: It was one of the early years. Eighteen seventy four,
Speaker 1: thirteen and a half inches in April, thirteen and a
Speaker 1: half inches in April. We now go to Rob Caroline
Speaker 1: giving us non hysterical weather coverage. Robert, we're gonna get
Speaker 1: thirteen and a half inches Sunday into Monday. I think
Speaker 1: we've ended up with less than that, Tom and we
Speaker 1: can go back a little less than eighteen seventy four.
Speaker 1: But n we had a storm in April first that
Speaker 1: dumped quite a bit of snow across the Tri state area.
Speaker 1: We've got several pieces with this storm. They all have
Speaker 1: to come together perfectly. I can tell you the models
Speaker 1: that have been coming in the last couple of hours
Speaker 1: are shifting the track further east. The further east this
Speaker 1: storm goes, guys, the less snow will get out of it.
Speaker 1: And since it's still over two days away, I think
Speaker 1: the target is kind of a moving number on how
Speaker 1: much we get. I don't think a question of if
Speaker 1: I think we do see some light snow here. It's
Speaker 1: just gonna be how much ends up fall. Further that
Speaker 1: storm goes out to see, the less we get, but
Speaker 1: it goes out to see somebody gets pounded. No, it's
Speaker 1: our genti in Newfoundland. That's if it goes out to see.
Speaker 1: It ends up catching the eastern side of Newfoundland and
Speaker 1: not a problem for us. But right now our best
Speaker 1: estimate is it gets into the Tristate area around sunrise
Speaker 1: Sunday morning, ends Monday morning, about three to six inches. Boston.
Speaker 1: It starts in the afternoon, it's four to eight inches
Speaker 1: by the time it ends Monday morning. And then for
Speaker 1: d C they just catch a little bit on the
Speaker 1: tail and maybe a slushy inch on the grass late
Speaker 1: Saturday night into Sunday morning went to three inches for Baltimore.
Speaker 1: Rob Carolin will continue to check in with you and
Speaker 1: try to nail down how far east this goes and
Speaker 1: who actually gets the Ben Friedman Mike, and he lives
Speaker 1: in uh in Cambridge. I presume Harvard University professor author
Speaker 1: of this is some definitely something we want to talk
Speaker 1: to him about. The famous book Moral Consequences of Economic Growth,
Speaker 1: which is for the centerpiece of this year's political campaign,
Speaker 1: but also has a new paper out about monetary policy
Speaker 1: and whether the financial crisis has changed the way we
Speaker 1: do monetary policy. Good morning to you, Professor Freeman. Let
Speaker 1: me uh, let me ask you got your snow shovel out.
Speaker 1: I think we're going to need it. It's uh, I
Speaker 1: mean everybody up there talking about the Red Sox that
Speaker 1: all of a sudden you gotta talk about snow again.
Speaker 1: We'd much rather talk about the Red Sox. Have you
Speaker 1: given up yet? On the Red side? Tom has already
Speaker 1: consigned them to last class. That's because you live in
Speaker 1: the wrong city. It's not your fault. And professor, professor
Speaker 1: wonderful to speak to you again. It's been way too long.
Speaker 1: I'm working on a paperback Beach read called The Moral
Speaker 1: Consequences of the Boston Red Sox and the let's take here.
Speaker 1: Let's let's talk about central banks first, because it's a
Speaker 1: very interesting new paper, especially to talk about in a
Speaker 1: week where just about every central bank in the world
Speaker 1: met um. You suggest that you know the response to
Speaker 1: the crisis where we ended up with large scale asset
Speaker 1: purchases um quei as it were, that did work and
Speaker 1: probably will be used again, but the idea of forward
Speaker 1: guidance maybe not so much. That's right. My sense is
Speaker 1: that when they were stuck at the zero lower bound
Speaker 1: and couldn't do monetary policy in the normal way, central
Speaker 1: banks turned to a variety of new devices, most prominently
Speaker 1: two of them quantitative easing and forward guidance. My judgment
Speaker 1: is that quantitative easing worked, and they should continue to
Speaker 1: do that, and moreover, do it both symmetrically, both sides
Speaker 1: sometimes buying bonds and sometimes selling them. And by contrast,
Speaker 1: I think quantitative. I think forward guidance has been largely
Speaker 1: a failure and they should get rid of that as
Speaker 1: soon as they can. And I think the Federal deserves
Speaker 1: action day before yesterday is a good sign. I think
Speaker 1: their attempts to do forward guidance day before yesterday, we're
Speaker 1: simply bollocks ing up markets. Well, the dot plot isn't
Speaker 1: that essentially forward guidance, and it doesn't seem to work.
Speaker 1: I think that's right. I think the problem for for
Speaker 1: central banks trying to do forward guidance is that they
Speaker 1: can never provide as much information as markets want. That's
Speaker 1: because the markets are in different businesses than they are.
Speaker 1: The markets are in the business of trading on speculative
Speaker 1: assets for a profit. There's nothing wrong with that, that's
Speaker 1: what the markets are supposed to do. But that means
Speaker 1: that the markets are always going to be focusing on
Speaker 1: call it the p numbra, the edges of whatever information
Speaker 1: set is provided, and the central banks are chasing a
Speaker 1: will of the whisp as they think that by providing
Speaker 1: a little more information and expanding the area of in
Speaker 1: formation they provide, they can then alleviate or ease market
Speaker 1: uncertainty because if they expand the information set they provide,
Speaker 1: then there's a new pre number, a new boundary of
Speaker 1: where the uncertainty is around that, and if they keep going,
Speaker 1: they'll just create more and more problems for themselves. So
Speaker 1: I wish they would get out of the business of
Speaker 1: forward guidance, simply do what they do and explain to
Speaker 1: the best of their ability why they just did what
Speaker 1: they did without speculating on their own future actions. Leave
Speaker 1: the markets to speculate. That's what they're good at. Now.
Speaker 1: The most interesting part of this to me is um
Speaker 1: your view of the permanent what maybe a permanent change
Speaker 1: in the conceptual part of monetary policy, and that is
Speaker 1: um that we always used to look at central bank liabilities,
Speaker 1: but now it's the asset side of the ballot sheet
Speaker 1: that matters for stimulating growth. Yes, I think that's just right.
Speaker 1: For many, many years, of course, everybody knew that the
Speaker 1: central bank had a balance sheet with both assets and liabilities,
Speaker 1: but the focus was on what they were doing with
Speaker 1: their liabilities, namely providing reserves to the banking system. And
Speaker 1: in the years that we've had since the crisis, the
Speaker 1: entire focus of attention has shifted to the other side
Speaker 1: of the balance sheet has been what they were buying
Speaker 1: in their asset portfolio. Now, of course, their balance sheet
Speaker 1: has to balance just like anybody else's, and so idiots
Speaker 1: true that as they were adding assets, they were adding liabilities,
Speaker 1: and some economists and other people continued to focus on
Speaker 1: the liabilities and that led them into terrible, terrible mistakes.
Speaker 1: You may remember that for years after central banks started
Speaker 1: on quantitative easing, many economists were talking about huge inflations,
Speaker 1: even heightener inflations. People were following old fashioned models and saying, look,
Speaker 1: the fellow Reserve is increasing the size of its balance
Speaker 1: sheet by a factor of five. That means that the
Speaker 1: price of everything you buy at the drug store is
Speaker 1: going to multiply by five. Well, talk about classic economic mistakes.
Speaker 1: That's about the biggest mistakes that anybody's made in my lifetime,
Speaker 1: in my profession. And the reason, just to be clear,
Speaker 1: the reason is that those people were focusing on the
Speaker 1: liability side of the central banks balance sheet, which really
Speaker 1: doesn't matter anymore, instead of thinking about the assets. In
Speaker 1: two thousand seven, roughly you did a panel at n
Speaker 1: the Er with Alan Meltzer, Stephen Goldfeld, and importantly with
Speaker 1: Robert Gordon. All of our listeners, but particularly those wedded
Speaker 1: to economics, demand that we understand from Benjamin Friedman your
Speaker 1: interpretation of Robert Gordon's Future of America. His book is
Speaker 1: front and center now is your book was a decade ago?
Speaker 1: Do you agree with the cautious optimism of America's future
Speaker 1: that we see from the professor from Northwestern That's an
Speaker 1: interesting interpretation you just suggested. I think Bob's outlook for
Speaker 1: the future economic growth of America is not optimistic for
Speaker 1: your listeners who haven't read the book, and I hope
Speaker 1: everybody will because it's a wonderful book. Bob reviews the
Speaker 1: history of the growth of the American economy since the
Speaker 1: Civil War. He says that the great era of American
Speaker 1: economic growth was from eighteen seventy to nineteen seventy. We've
Speaker 1: been slowing down ever since then, and his assessment is
Speaker 1: that going forward from two thousand sixteen, we're going to
Speaker 1: be slowing down even more. I don't know. I think
Speaker 1: the real issue is technology. And I'm I'm always mind
Speaker 1: that in the part of the country where I live,
Speaker 1: a hundred and fifty or so years ago, right at
Speaker 1: the right at the beginning of the period Bob Gordon
Speaker 1: was writing about, people were talking, believe it or not,
Speaker 1: about running out of oil. And you know what that meant.
Speaker 1: That meant that the nice people down in Nantucket and
Speaker 1: New Bedford, We're going to run out of whales to catch,
Speaker 1: because it wasn't until eighteen sixty nine that anybody understood
Speaker 1: you could pull petroleum out of the ground. So we
Speaker 1: just we just don't know. And there there are all
Speaker 1: of these technological inventions that come along and new discoveries,
Speaker 1: and I don't have any better way of gauging the
Speaker 1: pace of them than anybody else. Bob, Bob is pessimistic.
Speaker 1: I think I'm more of a pestimist. Let's come back
Speaker 1: with Benjamin Friedman of Harvard University. We got to check
Speaker 1: it with Michael Barr. Now I get the latest World
Speaker 1: of National Hines. Michael, mind Tom, thank you very much.
Speaker 1: North Korea fired a medium range ballistic missile into the sea.
Speaker 1: The test violated multiple U N Security Council resolutions at
Speaker 1: vanned North Korea from engaging in any ballistic and nuclear
Speaker 1: activities Launch game as North Korea condemned ongoing annual South
Speaker 1: Korean U S military drills. Bernie Sanders says he still
Speaker 1: believes there is a way to win the Democratic presidential
Speaker 1: nomination despite Hillary Clinton's lead of more than three hundred
Speaker 1: committed delegates. He's predicting the upcoming races in several Western states,
Speaker 1: including Arizona and Washington, will offer him a chance to
Speaker 1: catch up. Russia is urging the U S Prod, Syria's
Speaker 1: main opposition group, to show a willingness to compromise at
Speaker 1: peace talks with president of SA's regime. Russia this week
Speaker 1: announced a surprise pull out most of its forces from Syria.
Speaker 1: Global News twenty four hours a day, powered by our
Speaker 1: journalists more than a hundred fifty news bureaus from around
Speaker 1: the world. I'm Mike Labar, Mike Tom and I Canna
Speaker 1: thank you so much on the future of America. Coming up.
Speaker 1: Benjamin Friedman of Harvard University on America's dearth of productivity.
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