WEBVTT - Ben Friedman: QE works 0:00:03.600 --> 0:00:07.360 This is Bloomberg Surveillance. There is still the sense in 0:00:07.400 --> 0:00:09.760 the public in the investing community that central banks are 0:00:09.800 --> 0:00:12.920 working somewhat across purposes with one another. The Chinese is 0:00:12.960 --> 0:00:15.319 struggling with trying to keep full of employment, and they're 0:00:15.400 --> 0:00:18.759 terrified about the social unrest it will occur. There is unemployment. 0:00:18.840 --> 0:00:21.560 From this point forward, all the economics can tell you 0:00:21.760 --> 0:00:24.919 that once for the unemployment rate dips down below five percent, 0:00:25.120 --> 0:00:28.880 that wages should pick up. Bloomberg Surveillance your link to 0:00:28.920 --> 0:00:33.240 the world of economics, finance, and investment on Bloomberg Radio. 0:00:33.360 --> 0:00:36.440 Good running everyone, Michael McKee and Tom Keene Bloomberg Surveillance 0:00:36.440 --> 0:00:38.839 in New York City. We welcome all of you across 0:00:38.880 --> 0:00:42.000 the nation of Bloomberg twelve d Boston, Bloomberg eleven three 0:00:42.040 --> 0:00:44.880 oh in a gorgeous New York nine sixty the Bay Area. 0:00:45.320 --> 0:00:48.680 In your early morning, we say good morning, Washington one 0:00:48.880 --> 0:00:52.800 FM Washington and Baltimore Good morning as well. Bloomberg Surveillance 0:00:53.240 --> 0:00:57.680 brought you by CONE Resident Accounting, tax advisory, regulatory changes 0:00:58.000 --> 0:01:00.960 can in picture business. See how the experts at CONE 0:01:01.040 --> 0:01:04.640 RESNC can help you navigate these complexities. Find out more 0:01:04.640 --> 0:01:09.679 at CONE Resnick dot com um looking quickly at a 0:01:09.800 --> 0:01:13.600 snowfall map for New York City. We need to go 0:01:13.640 --> 0:01:16.520 back to the fun Michael McKee and I were doing surveillance. 0:01:16.560 --> 0:01:19.880 It was one of the early years. Eighteen seventy four, 0:01:20.600 --> 0:01:24.080 thirteen and a half inches in April, thirteen and a 0:01:24.080 --> 0:01:27.120 half inches in April. We now go to Rob Caroline 0:01:27.720 --> 0:01:30.880 giving us non hysterical weather coverage. Robert, we're gonna get 0:01:30.920 --> 0:01:34.360 thirteen and a half inches Sunday into Monday. I think 0:01:34.360 --> 0:01:36.399 we've ended up with less than that, Tom and we 0:01:36.400 --> 0:01:38.679 can go back a little less than eighteen seventy four. 0:01:38.720 --> 0:01:40.920 But n we had a storm in April first that 0:01:41.040 --> 0:01:43.480 dumped quite a bit of snow across the Tri state area. 0:01:43.840 --> 0:01:45.760 We've got several pieces with this storm. They all have 0:01:45.800 --> 0:01:47.840 to come together perfectly. I can tell you the models 0:01:47.880 --> 0:01:49.440 that have been coming in the last couple of hours 0:01:49.680 --> 0:01:52.880 are shifting the track further east. The further east this 0:01:53.000 --> 0:01:55.520 storm goes, guys, the less snow will get out of it. 0:01:55.720 --> 0:01:58.080 And since it's still over two days away, I think 0:01:58.080 --> 0:02:00.080 the target is kind of a moving number on how 0:02:00.160 --> 0:02:01.920 much we get. I don't think a question of if 0:02:01.960 --> 0:02:03.880 I think we do see some light snow here. It's 0:02:03.920 --> 0:02:06.000 just gonna be how much ends up fall. Further that 0:02:06.040 --> 0:02:07.680 storm goes out to see, the less we get, but 0:02:07.680 --> 0:02:14.079 it goes out to see somebody gets pounded. No, it's 0:02:14.200 --> 0:02:17.160 our genti in Newfoundland. That's if it goes out to see. 0:02:17.160 --> 0:02:19.360 It ends up catching the eastern side of Newfoundland and 0:02:19.400 --> 0:02:21.080 not a problem for us. But right now our best 0:02:21.200 --> 0:02:24.320 estimate is it gets into the Tristate area around sunrise 0:02:24.360 --> 0:02:28.000 Sunday morning, ends Monday morning, about three to six inches. Boston. 0:02:28.040 --> 0:02:30.280 It starts in the afternoon, it's four to eight inches 0:02:30.520 --> 0:02:32.120 by the time it ends Monday morning. And then for 0:02:32.240 --> 0:02:34.040 d C they just catch a little bit on the 0:02:34.080 --> 0:02:36.639 tail and maybe a slushy inch on the grass late 0:02:36.639 --> 0:02:39.600 Saturday night into Sunday morning went to three inches for Baltimore. 0:02:40.160 --> 0:02:42.280 Rob Carolin will continue to check in with you and 0:02:42.600 --> 0:02:46.040 try to nail down how far east this goes and 0:02:46.280 --> 0:02:52.440 who actually gets the Ben Friedman Mike, and he lives 0:02:52.480 --> 0:02:57.840 in uh in Cambridge. I presume Harvard University professor author 0:02:57.919 --> 0:03:01.079 of this is some definitely something we want to talk 0:03:01.080 --> 0:03:04.239 to him about. The famous book Moral Consequences of Economic Growth, 0:03:04.240 --> 0:03:07.080 which is for the centerpiece of this year's political campaign, 0:03:07.560 --> 0:03:12.200 but also has a new paper out about monetary policy 0:03:12.240 --> 0:03:16.079 and whether the financial crisis has changed the way we 0:03:16.160 --> 0:03:20.440 do monetary policy. Good morning to you, Professor Freeman. Let 0:03:20.440 --> 0:03:23.280 me uh, let me ask you got your snow shovel out. 0:03:23.960 --> 0:03:26.640 I think we're going to need it. It's uh, I 0:03:26.639 --> 0:03:28.679 mean everybody up there talking about the Red Sox that 0:03:28.720 --> 0:03:30.760 all of a sudden you gotta talk about snow again. 0:03:31.639 --> 0:03:33.880 We'd much rather talk about the Red Sox. Have you 0:03:33.960 --> 0:03:36.000 given up yet? On the Red side? Tom has already 0:03:36.000 --> 0:03:40.240 consigned them to last class. That's because you live in 0:03:40.240 --> 0:03:43.320 the wrong city. It's not your fault. And professor, professor 0:03:43.360 --> 0:03:45.600 wonderful to speak to you again. It's been way too long. 0:03:45.920 --> 0:03:48.640 I'm working on a paperback Beach read called The Moral 0:03:48.720 --> 0:03:53.800 Consequences of the Boston Red Sox and the let's take here. 0:03:54.120 --> 0:03:56.800 Let's let's talk about central banks first, because it's a 0:03:56.880 --> 0:03:59.520 very interesting new paper, especially to talk about in a 0:03:59.560 --> 0:04:01.760 week where just about every central bank in the world 0:04:02.040 --> 0:04:07.000 met um. You suggest that you know the response to 0:04:07.040 --> 0:04:10.360 the crisis where we ended up with large scale asset 0:04:10.840 --> 0:04:16.040 purchases um quei as it were, that did work and 0:04:16.240 --> 0:04:19.279 probably will be used again, but the idea of forward 0:04:19.279 --> 0:04:22.919 guidance maybe not so much. That's right. My sense is 0:04:22.960 --> 0:04:26.120 that when they were stuck at the zero lower bound 0:04:26.160 --> 0:04:30.279 and couldn't do monetary policy in the normal way, central 0:04:30.279 --> 0:04:34.120 banks turned to a variety of new devices, most prominently 0:04:34.160 --> 0:04:38.200 two of them quantitative easing and forward guidance. My judgment 0:04:38.320 --> 0:04:41.560 is that quantitative easing worked, and they should continue to 0:04:41.640 --> 0:04:46.359 do that, and moreover, do it both symmetrically, both sides 0:04:46.760 --> 0:04:50.760 sometimes buying bonds and sometimes selling them. And by contrast, 0:04:50.839 --> 0:04:55.679 I think quantitative. I think forward guidance has been largely 0:04:55.720 --> 0:04:57.920 a failure and they should get rid of that as 0:04:57.960 --> 0:05:00.360 soon as they can. And I think the Federal deserves 0:05:00.400 --> 0:05:03.479 action day before yesterday is a good sign. I think 0:05:03.920 --> 0:05:07.200 their attempts to do forward guidance day before yesterday, we're 0:05:07.240 --> 0:05:11.080 simply bollocks ing up markets. Well, the dot plot isn't 0:05:11.080 --> 0:05:15.920 that essentially forward guidance, and it doesn't seem to work. 0:05:16.720 --> 0:05:18.800 I think that's right. I think the problem for for 0:05:19.440 --> 0:05:22.480 central banks trying to do forward guidance is that they 0:05:22.520 --> 0:05:26.640 can never provide as much information as markets want. That's 0:05:26.680 --> 0:05:29.640 because the markets are in different businesses than they are. 0:05:29.720 --> 0:05:33.200 The markets are in the business of trading on speculative 0:05:33.240 --> 0:05:35.839 assets for a profit. There's nothing wrong with that, that's 0:05:35.839 --> 0:05:38.800 what the markets are supposed to do. But that means 0:05:38.880 --> 0:05:42.080 that the markets are always going to be focusing on 0:05:42.760 --> 0:05:47.560 call it the p numbra, the edges of whatever information 0:05:47.680 --> 0:05:51.400 set is provided, and the central banks are chasing a 0:05:51.480 --> 0:05:55.080 will of the whisp as they think that by providing 0:05:55.320 --> 0:06:00.039 a little more information and expanding the area of in 0:06:00.040 --> 0:06:04.839 formation they provide, they can then alleviate or ease market 0:06:04.960 --> 0:06:09.719 uncertainty because if they expand the information set they provide, 0:06:10.080 --> 0:06:13.160 then there's a new pre number, a new boundary of 0:06:13.160 --> 0:06:16.440 where the uncertainty is around that, and if they keep going, 0:06:16.480 --> 0:06:19.359 they'll just create more and more problems for themselves. So 0:06:19.640 --> 0:06:21.479 I wish they would get out of the business of 0:06:21.520 --> 0:06:25.520 forward guidance, simply do what they do and explain to 0:06:25.560 --> 0:06:28.159 the best of their ability why they just did what 0:06:28.279 --> 0:06:32.240 they did without speculating on their own future actions. Leave 0:06:32.279 --> 0:06:35.880 the markets to speculate. That's what they're good at. Now. 0:06:36.920 --> 0:06:40.440 The most interesting part of this to me is um 0:06:40.520 --> 0:06:43.919 your view of the permanent what maybe a permanent change 0:06:44.440 --> 0:06:47.960 in the conceptual part of monetary policy, and that is 0:06:48.279 --> 0:06:51.880 um that we always used to look at central bank liabilities, 0:06:52.279 --> 0:06:54.840 but now it's the asset side of the ballot sheet 0:06:55.080 --> 0:06:59.840 that matters for stimulating growth. Yes, I think that's just right. 0:07:00.320 --> 0:07:03.320 For many, many years, of course, everybody knew that the 0:07:03.360 --> 0:07:07.039 central bank had a balance sheet with both assets and liabilities, 0:07:07.320 --> 0:07:10.280 but the focus was on what they were doing with 0:07:10.360 --> 0:07:16.160 their liabilities, namely providing reserves to the banking system. And 0:07:16.440 --> 0:07:19.800 in the years that we've had since the crisis, the 0:07:20.040 --> 0:07:23.000 entire focus of attention has shifted to the other side 0:07:23.000 --> 0:07:26.160 of the balance sheet has been what they were buying 0:07:26.640 --> 0:07:29.960 in their asset portfolio. Now, of course, their balance sheet 0:07:30.000 --> 0:07:33.400 has to balance just like anybody else's, and so idiots 0:07:33.520 --> 0:07:39.440 true that as they were adding assets, they were adding liabilities, 0:07:40.000 --> 0:07:44.480 and some economists and other people continued to focus on 0:07:44.520 --> 0:07:49.320 the liabilities and that led them into terrible, terrible mistakes. 0:07:49.360 --> 0:07:53.200 You may remember that for years after central banks started 0:07:53.360 --> 0:07:59.560 on quantitative easing, many economists were talking about huge inflations, 0:07:59.600 --> 0:08:05.520 even heightener inflations. People were following old fashioned models and saying, look, 0:08:05.560 --> 0:08:09.239 the fellow Reserve is increasing the size of its balance 0:08:09.320 --> 0:08:12.840 sheet by a factor of five. That means that the 0:08:12.880 --> 0:08:15.200 price of everything you buy at the drug store is 0:08:15.200 --> 0:08:20.440 going to multiply by five. Well, talk about classic economic mistakes. 0:08:20.520 --> 0:08:23.960 That's about the biggest mistakes that anybody's made in my lifetime, 0:08:24.520 --> 0:08:28.960 in my profession. And the reason, just to be clear, 0:08:29.040 --> 0:08:31.720 the reason is that those people were focusing on the 0:08:32.240 --> 0:08:35.600 liability side of the central banks balance sheet, which really 0:08:35.640 --> 0:08:39.560 doesn't matter anymore, instead of thinking about the assets. In 0:08:39.640 --> 0:08:42.839 two thousand seven, roughly you did a panel at n 0:08:42.920 --> 0:08:46.880 the Er with Alan Meltzer, Stephen Goldfeld, and importantly with 0:08:47.000 --> 0:08:51.160 Robert Gordon. All of our listeners, but particularly those wedded 0:08:51.200 --> 0:08:55.959 to economics, demand that we understand from Benjamin Friedman your 0:08:56.040 --> 0:09:00.800 interpretation of Robert Gordon's Future of America. His book is 0:09:00.840 --> 0:09:04.079 front and center now is your book was a decade ago? 0:09:04.160 --> 0:09:08.840 Do you agree with the cautious optimism of America's future 0:09:08.920 --> 0:09:12.720 that we see from the professor from Northwestern That's an 0:09:12.760 --> 0:09:17.800 interesting interpretation you just suggested. I think Bob's outlook for 0:09:17.960 --> 0:09:23.280 the future economic growth of America is not optimistic for 0:09:23.360 --> 0:09:26.040 your listeners who haven't read the book, and I hope 0:09:26.080 --> 0:09:30.760 everybody will because it's a wonderful book. Bob reviews the 0:09:31.160 --> 0:09:35.040 history of the growth of the American economy since the 0:09:35.080 --> 0:09:39.199 Civil War. He says that the great era of American 0:09:39.200 --> 0:09:43.560 economic growth was from eighteen seventy to nineteen seventy. We've 0:09:43.559 --> 0:09:47.920 been slowing down ever since then, and his assessment is 0:09:47.960 --> 0:09:51.280 that going forward from two thousand sixteen, we're going to 0:09:51.320 --> 0:09:55.920 be slowing down even more. I don't know. I think 0:09:55.960 --> 0:10:00.200 the real issue is technology. And I'm I'm always mind 0:10:00.200 --> 0:10:02.160 that in the part of the country where I live, 0:10:03.080 --> 0:10:05.600 a hundred and fifty or so years ago, right at 0:10:05.640 --> 0:10:08.120 the right at the beginning of the period Bob Gordon 0:10:08.240 --> 0:10:11.160 was writing about, people were talking, believe it or not, 0:10:11.240 --> 0:10:14.040 about running out of oil. And you know what that meant. 0:10:14.080 --> 0:10:16.559 That meant that the nice people down in Nantucket and 0:10:16.640 --> 0:10:20.040 New Bedford, We're going to run out of whales to catch, 0:10:20.720 --> 0:10:24.559 because it wasn't until eighteen sixty nine that anybody understood 0:10:24.600 --> 0:10:27.320 you could pull petroleum out of the ground. So we 0:10:27.440 --> 0:10:30.320 just we just don't know. And there there are all 0:10:30.360 --> 0:10:34.920 of these technological inventions that come along and new discoveries, 0:10:35.200 --> 0:10:39.520 and I don't have any better way of gauging the 0:10:39.559 --> 0:10:42.640 pace of them than anybody else. Bob, Bob is pessimistic. 0:10:42.720 --> 0:10:45.080 I think I'm more of a pestimist. Let's come back 0:10:45.200 --> 0:10:52.640 with Benjamin Friedman of Harvard University. We got to check 0:10:52.679 --> 0:10:54.280 it with Michael Barr. Now I get the latest World 0:10:54.320 --> 0:10:56.839 of National Hines. Michael, mind Tom, thank you very much. 0:10:56.880 --> 0:11:00.120 North Korea fired a medium range ballistic missile into the sea. 0:11:00.280 --> 0:11:04.240 The test violated multiple U N Security Council resolutions at 0:11:04.280 --> 0:11:08.040 vanned North Korea from engaging in any ballistic and nuclear 0:11:08.080 --> 0:11:12.760 activities Launch game as North Korea condemned ongoing annual South 0:11:12.840 --> 0:11:16.400 Korean U S military drills. Bernie Sanders says he still 0:11:16.400 --> 0:11:18.880 believes there is a way to win the Democratic presidential 0:11:18.880 --> 0:11:22.679 nomination despite Hillary Clinton's lead of more than three hundred 0:11:22.720 --> 0:11:26.880 committed delegates. He's predicting the upcoming races in several Western states, 0:11:26.920 --> 0:11:30.640 including Arizona and Washington, will offer him a chance to 0:11:30.720 --> 0:11:34.160 catch up. Russia is urging the U S Prod, Syria's 0:11:34.160 --> 0:11:37.120 main opposition group, to show a willingness to compromise at 0:11:37.120 --> 0:11:40.360 peace talks with president of SA's regime. Russia this week 0:11:40.400 --> 0:11:44.400 announced a surprise pull out most of its forces from Syria. 0:11:44.640 --> 0:11:47.760 Global News twenty four hours a day, powered by our 0:11:48.160 --> 0:11:50.840 journalists more than a hundred fifty news bureaus from around 0:11:50.840 --> 0:11:52.880 the world. I'm Mike Labar, Mike Tom and I Canna 0:11:52.880 --> 0:11:55.760 thank you so much on the future of America. Coming up. 0:11:55.800 --> 0:12:00.880 Benjamin Friedman of Harvard University on America's dearth of productivity. 0:12:01.320 --> 0:12:07.120 This is Bloomberg's surveillance. This news update brought to you 0:12:07.120 --> 0:12:09.240 by the New York Community Trust, where donors like you 0:12:09.520 --> 0:12:11.319 helped them make New York better.