1 00:00:09,720 --> 00:00:12,880 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene with 2 00:00:13,600 --> 00:00:16,520 Speaker 1: David Gura. Daily we bring you insight from the best 3 00:00:16,560 --> 00:00:22,239 Speaker 1: of economics, finance, investment, and international relations. Find Bloomberg Surveillance 4 00:00:22,320 --> 00:00:27,000 Speaker 1: on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course, 5 00:00:27,320 --> 00:00:34,560 Speaker 1: on the Bloomberg Here's what we're not gonna do. I'm 6 00:00:34,560 --> 00:00:37,680 Speaker 1: not gonna ask Glenn Hubbard dumb questions about being on 7 00:00:37,720 --> 00:00:40,280 Speaker 1: the short list of the FED. He's known me for 8 00:00:40,360 --> 00:00:42,280 Speaker 1: too long to know. I'm not going to ask snide 9 00:00:42,280 --> 00:00:46,080 Speaker 1: little questions. But we will address the periphery of monetary 10 00:00:46,120 --> 00:00:49,080 Speaker 1: policy as we can with the extinguished dean of the 11 00:00:49,120 --> 00:00:52,680 Speaker 1: Columbia Business School, where he was Carson Professor of Finance, 12 00:00:52,960 --> 00:00:56,960 Speaker 1: Glenn Hubbard. What I know is Eric Johnson's course at 13 00:00:57,000 --> 00:01:00,720 Speaker 1: Colombia Business School Bight six one nine dash zero zero 14 00:01:00,760 --> 00:01:05,120 Speaker 1: one Behavioral Economics and decision Making will be a different 15 00:01:05,160 --> 00:01:07,480 Speaker 1: course as you move forward, and you know you've got 16 00:01:07,560 --> 00:01:11,680 Speaker 1: them now in two thousand seventeen as well, where does 17 00:01:11,800 --> 00:01:17,600 Speaker 1: Richard Taylor fit into Hubbard economics? Well, Taylor is a 18 00:01:17,680 --> 00:01:20,839 Speaker 1: fabulous choice for a Nobel as a bridge between psychology 19 00:01:20,840 --> 00:01:24,240 Speaker 1: and economics. In fact, my Freshman textbook is long featured 20 00:01:24,240 --> 00:01:27,320 Speaker 1: behavioral economics. I think it's central, even at the basics. 21 00:01:28,040 --> 00:01:30,200 Speaker 1: I have colleagues like Eric Johnson or you mentioned, but 22 00:01:30,280 --> 00:01:33,800 Speaker 1: also Steve's Elvis who worked to bring behavioral economics into 23 00:01:33,880 --> 00:01:36,960 Speaker 1: the practice of business with the NBA students. I think 24 00:01:36,959 --> 00:01:39,360 Speaker 1: this is a great nobel for the profession. You know 25 00:01:39,920 --> 00:01:43,000 Speaker 1: that the certitude of the media in the FED parlor 26 00:01:43,080 --> 00:01:47,400 Speaker 1: game is just that an amateur certitude magna decide Ls 27 00:01:47,800 --> 00:01:54,360 Speaker 1: writes about Hubrius about a disequilibrium state. How do any chairs, 28 00:01:54,400 --> 00:01:58,040 Speaker 1: whether chair Yell and Chairman Bernankey, how do they fold 29 00:01:58,160 --> 00:02:04,760 Speaker 1: behavioral economics into the crystal ball gazing that is so juvenile? Well, 30 00:02:04,800 --> 00:02:07,800 Speaker 1: I think it's a really important question. Tom. You know 31 00:02:07,800 --> 00:02:11,480 Speaker 1: it's going back to the financial crisis. I think ignoring 32 00:02:11,560 --> 00:02:16,440 Speaker 1: behavioral factors lead the FED astray and many economists astray. 33 00:02:16,480 --> 00:02:19,120 Speaker 1: I think the key right now for the FED is 34 00:02:19,160 --> 00:02:23,360 Speaker 1: to ask the question, what's normal? What does that mean? 35 00:02:23,600 --> 00:02:27,720 Speaker 1: How to basic economic factors and behavioral factors shape that 36 00:02:28,280 --> 00:02:30,160 Speaker 1: You've written about the need to find somebody to run 37 00:02:30,160 --> 00:02:33,200 Speaker 1: the FED who can quote, maintain, and explain. You've said 38 00:02:33,200 --> 00:02:36,440 Speaker 1: that the personnel is policy. I wonder how much a 39 00:02:36,720 --> 00:02:39,680 Speaker 1: person individual can shape or reshape the FED, and how 40 00:02:39,760 --> 00:02:43,680 Speaker 1: much time that takes to do well. No one person, 41 00:02:43,720 --> 00:02:45,800 Speaker 1: of course, is going to completely remake the FED, but 42 00:02:45,880 --> 00:02:48,680 Speaker 1: the chair is a very important role. He or she 43 00:02:49,400 --> 00:02:52,320 Speaker 1: will set a tone I think the idea maintain and 44 00:02:52,400 --> 00:02:55,360 Speaker 1: explain as you ought to be able to articulate a 45 00:02:55,400 --> 00:02:58,120 Speaker 1: framework for monetary policy and the lender of last resort, 46 00:02:58,120 --> 00:03:01,320 Speaker 1: and explain when you deviate. The chair sets that tone. 47 00:03:01,720 --> 00:03:04,480 Speaker 1: I think the board will too. The goal I think 48 00:03:04,480 --> 00:03:07,160 Speaker 1: for President Trump is to appoint an entire Federal Reserve 49 00:03:07,240 --> 00:03:10,600 Speaker 1: Board essentially that could carry something like that out. Do 50 00:03:10,880 --> 00:03:12,640 Speaker 1: you feel satisfied that he's well on the way to 51 00:03:12,680 --> 00:03:14,600 Speaker 1: doing that. Our colleague gena smile like writing a great 52 00:03:14,600 --> 00:03:17,120 Speaker 1: piece last week for Bloomberg Markets magazine, and when she 53 00:03:17,160 --> 00:03:19,799 Speaker 1: looked at this imbalance as it stands right now, you've 54 00:03:19,840 --> 00:03:22,440 Speaker 1: got a board that has a lot of regional presidents 55 00:03:22,480 --> 00:03:26,240 Speaker 1: and fewer FED governors. How problematic is it to your 56 00:03:26,240 --> 00:03:28,079 Speaker 1: mind that we have that imbalanced at this point? And 57 00:03:28,440 --> 00:03:31,000 Speaker 1: are you satisfied we're going to see that put into 58 00:03:31,080 --> 00:03:33,840 Speaker 1: some equilibrium here in these next few months? Well confident 59 00:03:33,919 --> 00:03:37,000 Speaker 1: we'll see the equilibrium. We've already seen very good choices, 60 00:03:37,120 --> 00:03:39,560 Speaker 1: like Randy Quarrels to be the vice chair of the 61 00:03:39,640 --> 00:03:43,360 Speaker 1: FED for Financial Supervision. Obviously President Trump will make a 62 00:03:43,480 --> 00:03:46,480 Speaker 1: decision about chair. There's also a vice chair other governors. 63 00:03:46,720 --> 00:03:48,720 Speaker 1: I think the team is very focused on that and 64 00:03:48,760 --> 00:03:51,760 Speaker 1: it should be. I thought this weekend, which I'm sure 65 00:03:51,760 --> 00:03:53,880 Speaker 1: we'll be discussed, to call me a business school Dean 66 00:03:53,960 --> 00:03:58,080 Speaker 1: Hummard is the idea that if you cut corporate taxes 67 00:03:59,080 --> 00:04:04,480 Speaker 1: there's almost direct extrapolation over to economic growth. Do you 68 00:04:04,520 --> 00:04:08,520 Speaker 1: buy it? I do. I think the bigger story to 69 00:04:08,600 --> 00:04:12,840 Speaker 1: tell economically and perhaps politically is the link to wages. 70 00:04:13,320 --> 00:04:15,520 Speaker 1: You know, when I was a student many years ago, 71 00:04:15,800 --> 00:04:18,080 Speaker 1: the view was the burden of the corporate tax was 72 00:04:18,160 --> 00:04:22,239 Speaker 1: born by owners of capital. Economists today, myself included, believe 73 00:04:22,279 --> 00:04:24,719 Speaker 1: that a lot of that's actually born by labor. And 74 00:04:24,760 --> 00:04:28,240 Speaker 1: the reason is that the corporate tax depresses investment and productivity. 75 00:04:28,320 --> 00:04:30,880 Speaker 1: So yes, there are growth effects and wage effects. And 76 00:04:31,040 --> 00:04:34,200 Speaker 1: that's where the debate and the debate across Democrat and 77 00:04:34,240 --> 00:04:39,960 Speaker 1: Republican politics is about the diffusion of technology across the 78 00:04:40,040 --> 00:04:43,000 Speaker 1: models we learned or with our humility, the models that 79 00:04:43,040 --> 00:04:45,680 Speaker 1: we're living in the right now. How do you adjust 80 00:04:45,839 --> 00:04:50,400 Speaker 1: Hubbard economics Given this huge new impulse of technology, we're 81 00:04:50,440 --> 00:04:54,080 Speaker 1: living well. I think corporate tax reform will help with 82 00:04:54,160 --> 00:04:57,040 Speaker 1: that too. It will make sure that more of those 83 00:04:57,080 --> 00:05:01,360 Speaker 1: gains get shared in productivity and wages with workers. I 84 00:05:01,440 --> 00:05:04,760 Speaker 1: think the questions you're asking about growth about technology, that's 85 00:05:04,760 --> 00:05:07,560 Speaker 1: how we ought to be talking about tax reform. And 86 00:05:07,640 --> 00:05:10,440 Speaker 1: for me, the corporate piece of tax reform is almost 87 00:05:10,480 --> 00:05:12,600 Speaker 1: a no brainer. I turned to a paper that you 88 00:05:12,680 --> 00:05:15,799 Speaker 1: published this summer July tenth with the John Taylor, Kevin Warson, 89 00:05:15,839 --> 00:05:19,839 Speaker 1: and John Cogan here on that you all can work 90 00:05:19,880 --> 00:05:25,240 Speaker 1: together outside come back on again, but the prospects for 91 00:05:25,320 --> 00:05:27,720 Speaker 1: higher economic growth. And on that paper you for stressed 92 00:05:27,760 --> 00:05:30,479 Speaker 1: that it's important to emphasize the tax reform and spending 93 00:05:30,520 --> 00:05:33,160 Speaker 1: reductions go hand in hand. From what you've seen from 94 00:05:33,200 --> 00:05:35,640 Speaker 1: the Big six this nine page document, do you think 95 00:05:35,680 --> 00:05:38,320 Speaker 1: they've tackled spending reductions enough? And are you confident you're 96 00:05:38,320 --> 00:05:40,240 Speaker 1: going forward? We're going to see lawmakers do that as 97 00:05:40,279 --> 00:05:42,280 Speaker 1: they put some meat on the bones here of this 98 00:05:42,400 --> 00:05:46,120 Speaker 1: nine page outline. I think it's highly likely that they 99 00:05:46,120 --> 00:05:48,559 Speaker 1: will be tackling that, probably not on the spending side, 100 00:05:48,560 --> 00:05:52,560 Speaker 1: but more on revenue neutrality. The budget resolution almost guarantees that, 101 00:05:52,760 --> 00:05:55,800 Speaker 1: and many Conservatives in the House won't vote for a 102 00:05:55,839 --> 00:06:00,280 Speaker 1: budget buster. The bigger point that the John's and Heaven 103 00:06:00,320 --> 00:06:03,320 Speaker 1: and I were making is that in the long run, 104 00:06:03,360 --> 00:06:05,720 Speaker 1: if we want a better tax system, we have to 105 00:06:05,720 --> 00:06:09,200 Speaker 1: get the entitlement state in line, and sadly I don't 106 00:06:09,279 --> 00:06:13,479 Speaker 1: see any effort there. The joke is Glenn, However, without 107 00:06:13,480 --> 00:06:18,560 Speaker 1: getting you in trouble with the Fed, is the idea 108 00:06:18,680 --> 00:06:22,200 Speaker 1: of low rate Janet, And we can certainly say in 109 00:06:22,240 --> 00:06:25,720 Speaker 1: the sense of the President low rate Donald is the 110 00:06:25,880 --> 00:06:30,200 Speaker 1: rules based architecture all of the distinguished gentleman from Stanford. 111 00:06:30,960 --> 00:06:34,400 Speaker 1: Is that a solution for the political pressure of a 112 00:06:34,440 --> 00:06:38,600 Speaker 1: low rate model? I don't think so. First of all, 113 00:06:38,640 --> 00:06:41,520 Speaker 1: it wouldn't give you the answer of low rates probably 114 00:06:41,520 --> 00:06:44,320 Speaker 1: at the moment. The bigger reason is that we don't 115 00:06:44,360 --> 00:06:47,200 Speaker 1: really know what the equilibrium interest rate is. You know, 116 00:06:47,240 --> 00:06:49,719 Speaker 1: I eat the intercept in the rule that you mentioned. 117 00:06:50,000 --> 00:06:52,159 Speaker 1: I think what's more important is for the FED to 118 00:06:52,320 --> 00:06:55,640 Speaker 1: articulate the way it thinks about monetary policy, what are 119 00:06:55,680 --> 00:06:59,040 Speaker 1: the goals and to explain the deviations. And that's where 120 00:06:59,040 --> 00:07:01,719 Speaker 1: I fault the FED. It's it's in its ad HOCNAS 121 00:07:01,760 --> 00:07:04,520 Speaker 1: we go to Cartesian Monday with Glenn Hubbard. Okay, the 122 00:07:04,640 --> 00:07:08,159 Speaker 1: intercept is clipping at the y axis and out on 123 00:07:08,200 --> 00:07:11,160 Speaker 1: the right side of the equation? Is the unknown? Is 124 00:07:11,200 --> 00:07:16,120 Speaker 1: that epsilon which is of such challenge? Taylor would probably say. 125 00:07:16,200 --> 00:07:19,800 Speaker 1: Richard Taylor would probably say, we have certitude and where 126 00:07:19,840 --> 00:07:23,600 Speaker 1: we describe the intercept or the slope? How do you 127 00:07:23,720 --> 00:07:30,360 Speaker 1: balance that in today's really interesting UH economy with completely 128 00:07:30,480 --> 00:07:35,720 Speaker 1: fiction interest rates. Well, I mean, let me get more specific. 129 00:07:35,760 --> 00:07:40,080 Speaker 1: The fed's models, the Federal Reserve Board US model framework 130 00:07:40,160 --> 00:07:43,720 Speaker 1: that it uses, I don't think capture economic reality, let 131 00:07:43,720 --> 00:07:48,600 Speaker 1: alone the psychological factors that UH Professor Taylor mentions. So 132 00:07:48,640 --> 00:07:51,640 Speaker 1: I think there's need for more diversity and economic thinking 133 00:07:52,040 --> 00:07:55,120 Speaker 1: inside the FED. UH in a real wake up call, 134 00:07:55,240 --> 00:07:58,040 Speaker 1: the models and the financial crisis alone should have suggested that. 135 00:07:58,120 --> 00:08:01,080 Speaker 1: I think David was that question we just to Chairman Hubbard. 136 00:08:02,440 --> 00:08:05,160 Speaker 1: I think it's worth get one more question, very hard. 137 00:08:05,440 --> 00:08:08,040 Speaker 1: Four hangs up on us never again. On the subject 138 00:08:08,120 --> 00:08:09,920 Speaker 1: of research, What did you hear from Janet Yelling a 139 00:08:09,920 --> 00:08:11,720 Speaker 1: couple of weeks back in Cleveland when she spoke at 140 00:08:11,720 --> 00:08:14,720 Speaker 1: the name but conference. You talked about inflation modeling and forecasting. 141 00:08:15,440 --> 00:08:17,480 Speaker 1: Did it stand out to you as a maya culpa, 142 00:08:17,560 --> 00:08:20,480 Speaker 1: a recognition that there are flaws with the modeling. What 143 00:08:20,520 --> 00:08:23,120 Speaker 1: did you hear from the chair a couple of weeks back. Well, 144 00:08:23,160 --> 00:08:26,440 Speaker 1: I think the bottom line is the chair feels that 145 00:08:26,520 --> 00:08:30,360 Speaker 1: we have a series of transitory factors one offset you will, 146 00:08:30,440 --> 00:08:33,679 Speaker 1: that have held inflation down. And I actually agree with that. 147 00:08:33,679 --> 00:08:36,160 Speaker 1: That's different though from the view of whether we're modeling 148 00:08:36,160 --> 00:08:38,960 Speaker 1: inflation well, and I don't think we are. It is 149 00:08:39,000 --> 00:08:41,480 Speaker 1: certainly a very big bet. If you think that they're 150 00:08:41,520 --> 00:08:44,719 Speaker 1: structural factors holding inflation down, then the whole framework is 151 00:08:44,760 --> 00:08:47,480 Speaker 1: in question. But on the bottom line, I would agree 152 00:08:47,480 --> 00:08:51,120 Speaker 1: with the chair. Glenn terrific sport to come on with this. 153 00:08:51,280 --> 00:08:55,880 Speaker 1: Many others we greatly appreciated. Dina Hubbard is the Carson 154 00:08:55,960 --> 00:09:00,000 Speaker 1: Professor of Finance and Economics, Columbia Business School, and just uh, 155 00:09:00,160 --> 00:09:02,360 Speaker 1: just for a now wonderful for a how just wonderful 156 00:09:02,400 --> 00:09:05,120 Speaker 1: to happen, I tell you eighty four other people is no, 157 00:09:05,360 --> 00:09:08,240 Speaker 1: we can't do that. Glenn Hubbard joining us on our 158 00:09:08,280 --> 00:09:22,040 Speaker 1: phone lines, eager to have with us here in a 159 00:09:22,040 --> 00:09:24,120 Speaker 1: political levengry of studios to day Andreas tone Bread, he's 160 00:09:24,120 --> 00:09:25,520 Speaker 1: a member of the executive board off the Deutch to 161 00:09:25,520 --> 00:09:27,000 Speaker 1: put his bunk yet here with us, as I said 162 00:09:27,160 --> 00:09:28,880 Speaker 1: in New York before heading down to Washington for the 163 00:09:28,960 --> 00:09:30,520 Speaker 1: I m F World Bank meetings, Great to have you 164 00:09:30,840 --> 00:09:33,079 Speaker 1: here with us. Let's start just with a thirty thousand 165 00:09:33,120 --> 00:09:35,880 Speaker 1: foot view of the regulatory landscape in Europe at this 166 00:09:35,960 --> 00:09:40,400 Speaker 1: point the Bossel taxa continue. What's the status of those negotiations. Yep, 167 00:09:40,520 --> 00:09:43,360 Speaker 1: you know, we just met last week and um that 168 00:09:43,440 --> 00:09:48,520 Speaker 1: was on Wednesday and Thursday, regular meeting and uh meeting 169 00:09:48,559 --> 00:09:52,040 Speaker 1: went well, and we're getting closer and closer together, I 170 00:09:52,120 --> 00:09:56,120 Speaker 1: must say, But Basil will only be concluded once the 171 00:09:56,160 --> 00:09:58,719 Speaker 1: governors and heads of supervision degree and when the G 172 00:09:58,840 --> 00:10:03,640 Speaker 1: twenty endors So let's see what happens. But um, you 173 00:10:03,640 --> 00:10:07,160 Speaker 1: know it, when you come together in a meeting like 174 00:10:07,200 --> 00:10:09,360 Speaker 1: the one last week, you come together to agree and 175 00:10:09,400 --> 00:10:11,600 Speaker 1: not to disagree. So you you know, you don't fly 176 00:10:11,720 --> 00:10:16,640 Speaker 1: across the world for no reason and to argue. We're 177 00:10:16,679 --> 00:10:19,480 Speaker 1: focused on timetables here with regard to your Certainly the 178 00:10:19,480 --> 00:10:21,600 Speaker 1: timetable for Brexit is one of them. But how about 179 00:10:21,600 --> 00:10:24,400 Speaker 1: the timetable for this this iteration of basil is it 180 00:10:24,440 --> 00:10:26,280 Speaker 1: is it proceeding to the pace you'd like to see 181 00:10:26,280 --> 00:10:29,360 Speaker 1: it proceeded. If we look back, we wanted to have 182 00:10:29,440 --> 00:10:32,720 Speaker 1: BATTLED finished by the end of two thousand fifteen. Now 183 00:10:32,720 --> 00:10:36,080 Speaker 1: we're we're in two thousand seventeen. I must say we're 184 00:10:36,080 --> 00:10:39,359 Speaker 1: still working on year end of two thousand and fifteen 185 00:10:39,960 --> 00:10:42,559 Speaker 1: data and numbers by the banks. So if we really 186 00:10:42,559 --> 00:10:45,960 Speaker 1: go into two thousand and eighteen, I would be worried 187 00:10:46,240 --> 00:10:49,000 Speaker 1: that we would be working on a two old a 188 00:10:49,160 --> 00:10:52,319 Speaker 1: set of data. It's a little bit like uh, going 189 00:10:52,400 --> 00:10:55,680 Speaker 1: with the with the GPS and you know, sailing and 190 00:10:55,720 --> 00:10:58,360 Speaker 1: with an old GPS. So we need, you know, if 191 00:10:58,400 --> 00:11:02,080 Speaker 1: we want to conclude on this basis, I would believe 192 00:11:02,160 --> 00:11:04,880 Speaker 1: that we would need to conclude this year. Um it 193 00:11:04,920 --> 00:11:07,959 Speaker 1: would be nice to have, um, you know, a conclusion 194 00:11:08,000 --> 00:11:10,960 Speaker 1: during the German G twenty presidency, which ends, if end 195 00:11:10,960 --> 00:11:12,760 Speaker 1: the end of November of this year. But this is 196 00:11:12,760 --> 00:11:15,000 Speaker 1: not a must. We have to have a good result 197 00:11:15,200 --> 00:11:17,559 Speaker 1: the drum G twenty presidency. I think the last time 198 00:11:17,600 --> 00:11:20,000 Speaker 1: we spoke, I was incredibly rude because you were within 199 00:11:20,120 --> 00:11:23,000 Speaker 1: hours or days of an ECB announcement. I could basically 200 00:11:23,080 --> 00:11:25,680 Speaker 1: say nothing. We got a little more wiggle room. Now. 201 00:11:26,200 --> 00:11:29,760 Speaker 1: I think our listeners across this nation and worldwide, our 202 00:11:29,840 --> 00:11:33,280 Speaker 1: our world audience has somewhat of an idea of the 203 00:11:33,320 --> 00:11:35,839 Speaker 1: Bank of England. They've got an idea of the FED, 204 00:11:35,920 --> 00:11:39,280 Speaker 1: They've got an idea of this that the other and 205 00:11:39,320 --> 00:11:43,160 Speaker 1: the Bundesbank is an enigma. It is is something we 206 00:11:43,200 --> 00:11:47,400 Speaker 1: don't understand. Explain the day to day structure of the 207 00:11:47,559 --> 00:11:51,680 Speaker 1: leadership of the German Central Bank. We are six in 208 00:11:51,720 --> 00:11:55,200 Speaker 1: the leadership. Our president sits on the board of the ECB. 209 00:11:55,800 --> 00:11:59,240 Speaker 1: So whilst in the past um the board of the 210 00:11:59,280 --> 00:12:03,079 Speaker 1: Buddhist Bank crafting monetary policy for Germany, whilst whilst we 211 00:12:03,120 --> 00:12:06,080 Speaker 1: still have the Dutch MK, now we are participating through 212 00:12:06,080 --> 00:12:10,360 Speaker 1: our president in the decision making of the European Central Bank. 213 00:12:10,840 --> 00:12:13,400 Speaker 1: So we are now have a smaller room than we 214 00:12:13,440 --> 00:12:17,120 Speaker 1: had before, but for a much bigger game, if you want. 215 00:12:17,200 --> 00:12:20,160 Speaker 1: How has it changed? I remember visiting with atmar Issing 216 00:12:20,240 --> 00:12:23,320 Speaker 1: in brand new Frankfort, a brand new ECB. The tower 217 00:12:23,480 --> 00:12:26,920 Speaker 1: wasn't actually Professor Hassening showed me the blueprints for the 218 00:12:26,960 --> 00:12:29,640 Speaker 1: tower when I was in the office a million years ago. 219 00:12:30,200 --> 00:12:34,640 Speaker 1: How is the Bundesbank relationship with Frankfort change from the 220 00:12:34,720 --> 00:12:37,800 Speaker 1: beginning to where we are now. Now let's don't forget 221 00:12:37,840 --> 00:12:42,199 Speaker 1: that the ECB was set up with the Bundesbank as 222 00:12:42,200 --> 00:12:45,720 Speaker 1: a model. Yes, so the independence of the Buddisbank was 223 00:12:46,160 --> 00:12:48,960 Speaker 1: you know, taken to the e c B, etcetera, etcetera. 224 00:12:49,120 --> 00:12:52,199 Speaker 1: When you give up your monetary policy, your direct influence 225 00:12:52,200 --> 00:12:55,320 Speaker 1: on monetary policy, of course there you have somewhat of 226 00:12:55,320 --> 00:12:57,240 Speaker 1: a shock, but you do this for the greater good 227 00:12:57,240 --> 00:12:59,680 Speaker 1: of things. So I would think that in nine out 228 00:12:59,679 --> 00:13:05,000 Speaker 1: of or nineteen out of twenty instances, the Bundesbank and 229 00:13:05,040 --> 00:13:08,679 Speaker 1: the ECB agree on the issues. In maybe in twenty 230 00:13:08,679 --> 00:13:12,320 Speaker 1: out of twenty instances we have the feeling that we 231 00:13:12,400 --> 00:13:16,080 Speaker 1: have the same judgment. But it really depends on how 232 00:13:16,160 --> 00:13:18,840 Speaker 1: you react, how you implement, what do you do, and 233 00:13:18,880 --> 00:13:21,280 Speaker 1: then you know, the glass can be held full or 234 00:13:21,320 --> 00:13:24,280 Speaker 1: half empty. But it's not that we constantly disagree with 235 00:13:24,280 --> 00:13:27,000 Speaker 1: the CB. I sit on what it's called the Supervisory 236 00:13:27,000 --> 00:13:28,920 Speaker 1: Board of the CB. So there's the governing Council of 237 00:13:28,960 --> 00:13:31,120 Speaker 1: the monetary policy is crafted and then there's the bood 238 00:13:31,120 --> 00:13:33,600 Speaker 1: of Board of Supervisors. There's a Chinese ball in between, 239 00:13:33,880 --> 00:13:36,120 Speaker 1: and I sit for Germany on that one, and we 240 00:13:36,240 --> 00:13:41,040 Speaker 1: also UM very much agree, but we also argue we 241 00:13:41,080 --> 00:13:44,680 Speaker 1: are not living in a Soviet system where where everybody 242 00:13:44,720 --> 00:13:46,680 Speaker 1: has to agree all the time and everybody has to 243 00:13:46,720 --> 00:13:50,720 Speaker 1: collect their heels. But it's only normal that you do that, 244 00:13:50,840 --> 00:13:55,000 Speaker 1: you do discuss issues. But should there be ever, will 245 00:13:55,040 --> 00:13:58,000 Speaker 1: be a decision um in the e c B, the 246 00:13:58,040 --> 00:14:01,360 Speaker 1: Buddhas Bank will properly execute with that decision. As we 247 00:14:01,400 --> 00:14:05,360 Speaker 1: watch this Brexit process unfold, companies have made announcements they 248 00:14:05,360 --> 00:14:07,480 Speaker 1: intend to move more workers to Germany in other places 249 00:14:07,760 --> 00:14:10,719 Speaker 1: within Europe. How does that change your regulatory responsibilities? In 250 00:14:10,720 --> 00:14:12,880 Speaker 1: other words, if you have an influx of more commerce 251 00:14:13,040 --> 00:14:15,760 Speaker 1: or more personnel, has that change the role that your 252 00:14:15,760 --> 00:14:18,319 Speaker 1: bank is going to plan. First of all, let me 253 00:14:18,360 --> 00:14:23,080 Speaker 1: say UM that I personally regret that this Brexit referendum 254 00:14:23,160 --> 00:14:25,320 Speaker 1: led to what it led, and that I could have 255 00:14:25,400 --> 00:14:29,280 Speaker 1: lived perfectly with the system as it was as it was, 256 00:14:29,400 --> 00:14:30,960 Speaker 1: and that but that is you know, we have to 257 00:14:31,000 --> 00:14:35,800 Speaker 1: face we have to face um reality, which means that 258 00:14:36,200 --> 00:14:40,200 Speaker 1: a heart Brexit is the scenario the banks are preparing for. 259 00:14:40,400 --> 00:14:42,240 Speaker 1: It may not be a heart Brexit at the end, 260 00:14:42,440 --> 00:14:45,640 Speaker 1: but as a scenario that's the most probable and most 261 00:14:45,680 --> 00:14:49,440 Speaker 1: likely scenario. So if you prepare for that, which would 262 00:14:49,520 --> 00:14:53,960 Speaker 1: mean that you would have no free trade agreement really 263 00:14:54,520 --> 00:14:57,200 Speaker 1: at the end of this two year period. If that 264 00:14:57,320 --> 00:14:59,840 Speaker 1: is happening, you know many many banks will have to 265 00:15:00,040 --> 00:15:03,280 Speaker 1: shift part of their business into Europe, which means that 266 00:15:03,320 --> 00:15:06,040 Speaker 1: they will come to certain cities on the continent. Just 267 00:15:06,280 --> 00:15:11,160 Speaker 1: Brexit threatened Conrad an Hour's Europe, No, not at all. 268 00:15:11,640 --> 00:15:15,000 Speaker 1: It is it is a Brexit is a UM. It 269 00:15:15,160 --> 00:15:19,440 Speaker 1: is a UM step which was taken. But it does 270 00:15:19,480 --> 00:15:24,600 Speaker 1: not mean that for example, UM Britain leaves the NATO, 271 00:15:24,880 --> 00:15:27,720 Speaker 1: Britain leaves the G seven, that Great Britain leaves the 272 00:15:27,720 --> 00:15:31,840 Speaker 1: G twenty. It means they're leaving a common European Union, 273 00:15:31,880 --> 00:15:34,960 Speaker 1: which in itself is a pretty problematic issue, but it 274 00:15:35,040 --> 00:15:38,400 Speaker 1: still means that we can work very closely together. Not 275 00:15:38,480 --> 00:15:41,880 Speaker 1: to answer your question, we will have inflows of a 276 00:15:41,960 --> 00:15:46,600 Speaker 1: broker dealers into Europe also into Frankfort I must say, 277 00:15:46,680 --> 00:15:49,560 Speaker 1: and we have never really supervised large broker dealers, so 278 00:15:49,600 --> 00:15:51,920 Speaker 1: there's going to be a challenge to the roles of 279 00:15:51,960 --> 00:15:54,720 Speaker 1: the supervisors and how do we deal with broker dealers. 280 00:15:54,720 --> 00:15:57,120 Speaker 1: But we are confident that we can do that. This 281 00:15:57,200 --> 00:15:59,760 Speaker 1: is not really a financial stability risk. This is coming 282 00:16:00,120 --> 00:16:02,640 Speaker 1: with a two year time horizon, so the market can 283 00:16:02,720 --> 00:16:06,680 Speaker 1: really understand and anticipate what's happening. What it gets your 284 00:16:06,720 --> 00:16:09,560 Speaker 1: perspective on this moment in central banking or monetary policy. 285 00:16:09,600 --> 00:16:11,720 Speaker 1: I go back to centrip Portugal, where you had are 286 00:16:11,720 --> 00:16:14,480 Speaker 1: the leaders of many central banks. They're talking for more 287 00:16:14,480 --> 00:16:19,080 Speaker 1: communication cooperation pick the word uh, and you know we 288 00:16:19,120 --> 00:16:21,440 Speaker 1: see here the US trying to unwind QI normalize the 289 00:16:21,440 --> 00:16:23,480 Speaker 1: balance sheet. Where do things stand as you observe it 290 00:16:23,480 --> 00:16:26,840 Speaker 1: from from where you sit in Frankfurt? Why is it? UM? 291 00:16:26,960 --> 00:16:30,960 Speaker 1: I think that the debate is um. How can we 292 00:16:32,120 --> 00:16:36,800 Speaker 1: best interpret the pretty strong economic numbers we're having across Europe, 293 00:16:37,360 --> 00:16:41,760 Speaker 1: the much better situation a UM consumer price inflation, which 294 00:16:41,800 --> 00:16:45,760 Speaker 1: is UMU at one point five pc, going towards our 295 00:16:45,840 --> 00:16:49,880 Speaker 1: definition of price stability, a core inflation rate strengthening, with 296 00:16:50,000 --> 00:16:54,480 Speaker 1: the highest consumer confidence we've had for a long time. UM, 297 00:16:54,560 --> 00:16:57,360 Speaker 1: Why why are we why are we doing better? Why 298 00:16:57,440 --> 00:17:01,160 Speaker 1: is eurosclerosis differently away? Yeah? Because first of all, there's 299 00:17:01,200 --> 00:17:04,240 Speaker 1: no deflation scenario, if they ever was one. I can 300 00:17:04,280 --> 00:17:09,320 Speaker 1: actually see UM and we're seeing growth now UM in 301 00:17:09,400 --> 00:17:13,320 Speaker 1: almost all member states of the U area. We have 302 00:17:13,400 --> 00:17:17,120 Speaker 1: really bottomed out, and the economic environment is much better, 303 00:17:17,160 --> 00:17:20,120 Speaker 1: and the political risk we've been debating half a year 304 00:17:20,400 --> 00:17:23,320 Speaker 1: a year ago no longer is really there. Is it 305 00:17:23,400 --> 00:17:26,280 Speaker 1: because of business practices which you studied a JP Morgan 306 00:17:26,320 --> 00:17:30,199 Speaker 1: at Rath Childhood Bank of America are becoming more Anglo American. No, 307 00:17:30,400 --> 00:17:34,400 Speaker 1: because the situation is so much better. From an economic 308 00:17:34,400 --> 00:17:37,359 Speaker 1: point of view, we still have a credit based economy 309 00:17:37,359 --> 00:17:41,920 Speaker 1: and not yet an Anglo saxon Um capital markets based economy. 310 00:17:42,080 --> 00:17:46,720 Speaker 1: In that so diplomatically, David, it's just amazing bat that 311 00:17:46,880 --> 00:17:49,159 Speaker 1: right back over than that. So we're not there yet, 312 00:17:49,200 --> 00:17:51,560 Speaker 1: And we're not there, you know, and and and and 313 00:17:51,640 --> 00:17:54,359 Speaker 1: we're doing we're still doing much better. So now that 314 00:17:54,480 --> 00:17:56,800 Speaker 1: from a monetary policy perspective, you really have to think, so, 315 00:17:57,440 --> 00:18:00,320 Speaker 1: what do you make out of this um stronger enemy, 316 00:18:00,920 --> 00:18:05,800 Speaker 1: better numbers uh more going towards uh the definition of 317 00:18:05,840 --> 00:18:09,159 Speaker 1: price Deputy, So my question would be what now the 318 00:18:09,200 --> 00:18:11,359 Speaker 1: Governing Council, and I'm not a member of the Governing Council, 319 00:18:11,359 --> 00:18:14,560 Speaker 1: would have to debate how to react. Well, I think 320 00:18:14,560 --> 00:18:16,840 Speaker 1: the goal will be to get Swiss tenure yields under 321 00:18:17,440 --> 00:18:20,320 Speaker 1: above positive again, that would be a good sir, this 322 00:18:20,400 --> 00:18:22,600 Speaker 1: is manager. Can you do this every week and our 323 00:18:22,680 --> 00:18:25,520 Speaker 1: studios on a weekly basis? That would be a good 324 00:18:25,560 --> 00:18:29,280 Speaker 1: thing from time to time. Addressed, Thank you very much again, 325 00:18:29,280 --> 00:18:32,160 Speaker 1: Executive member the Executive Board of the Dutch Bundesbank. Joining 326 00:18:32,240 --> 00:18:35,560 Speaker 1: us here in a plibical eleven three studios in New York. Yes, great, Evan, 327 00:18:35,560 --> 00:18:37,080 Speaker 1: you're heading to Washington as well. Like this week, I 328 00:18:37,080 --> 00:18:39,600 Speaker 1: should mention Tom, it's a rumor I will be there. 329 00:18:40,119 --> 00:18:41,879 Speaker 1: It's a it's a rumor right now, be there. No, 330 00:18:41,960 --> 00:18:44,480 Speaker 1: we've got some wonderful interviews lined up at the I 331 00:18:44,640 --> 00:18:59,399 Speaker 1: m F meetings. And now joining us the Laureate Robert 332 00:18:59,440 --> 00:19:03,679 Speaker 1: Schuller Yale University is he celebrates UH the announcement of 333 00:19:03,760 --> 00:19:08,520 Speaker 1: Richard Taylor to a Nobel Prize Taylor's course of Chicago, 334 00:19:09,119 --> 00:19:11,920 Speaker 1: out of Case Western and out of the University of Rochester. 335 00:19:12,680 --> 00:19:18,800 Speaker 1: Bob Schiller inform our audience as to the distinction of 336 00:19:18,920 --> 00:19:25,119 Speaker 1: Taylor economics versus Schiller economics or Becker economics or the others. 337 00:19:25,200 --> 00:19:31,639 Speaker 1: What is distinctive about Richard Taylor. But he UH has 338 00:19:31,680 --> 00:19:38,960 Speaker 1: helped promote a revolution that in economics, namely behavioral economics, 339 00:19:39,000 --> 00:19:43,800 Speaker 1: that makes economics more a real world and also that 340 00:19:43,920 --> 00:19:49,560 Speaker 1: leads to public policies that can be tested and found 341 00:19:49,920 --> 00:19:54,520 Speaker 1: to work. Uh there has been a tendency to rely 342 00:19:55,000 --> 00:20:00,679 Speaker 1: too much on abstract models of economic behavior. Uh as 343 00:20:00,720 --> 00:20:04,720 Speaker 1: if everyone we're paying attention and everyone we're optimizing, but 344 00:20:04,840 --> 00:20:08,320 Speaker 1: they're not. So we're coming back to the reality. I 345 00:20:08,359 --> 00:20:10,800 Speaker 1: know David Gurw wants to jump in here, but very quickly. 346 00:20:10,840 --> 00:20:13,359 Speaker 1: If you go back to the Carnegie Rochester sessions of 347 00:20:14,040 --> 00:20:17,119 Speaker 1: eighty two where you were there with Lars Peter Hansen, 348 00:20:17,240 --> 00:20:20,199 Speaker 1: Jacob Frankel and others. If you go back to the 349 00:20:20,240 --> 00:20:24,320 Speaker 1: Battle of seventy nine Common Diversity, the Battle of Sailor 350 00:20:24,880 --> 00:20:28,880 Speaker 1: eighty writing originally the battle that you fought at two, 351 00:20:29,200 --> 00:20:34,399 Speaker 1: describe to our listeners how the Rational Expectations Crew they 352 00:20:34,440 --> 00:20:39,560 Speaker 1: hated you people. What was it like that? Because that's 353 00:20:39,600 --> 00:20:43,240 Speaker 1: strong where some of them probably did. Although I have 354 00:20:43,320 --> 00:20:50,280 Speaker 1: to say academia does come across as open minded. There 355 00:20:50,320 --> 00:20:56,040 Speaker 1: they may have hostile emotions. I once spoke to Eugene Fama, 356 00:20:56,119 --> 00:20:58,480 Speaker 1: who is you might call him my enemy, how that 357 00:20:58,520 --> 00:21:03,040 Speaker 1: we won the Nobel But he's not my enemy. He's 358 00:21:03,040 --> 00:21:06,240 Speaker 1: a thorn in my side. And it's probably good. But 359 00:21:06,359 --> 00:21:09,200 Speaker 1: he once told me that he has refereed and accepted 360 00:21:09,760 --> 00:21:15,119 Speaker 1: many important behavioral economics articles. Uh. I think people in 361 00:21:15,200 --> 00:21:19,359 Speaker 1: academia are not all that bad, but they do get emotional. 362 00:21:19,640 --> 00:21:22,439 Speaker 1: That's just human nature. Bob Sla, let me ask you 363 00:21:22,440 --> 00:21:25,840 Speaker 1: about Richard Taylor, the public intellectual. We've we've seen him 364 00:21:25,880 --> 00:21:28,399 Speaker 1: in the Big Short playing poker or blackjack or whatever 365 00:21:28,440 --> 00:21:31,200 Speaker 1: it was, alongside Selina Gomez. We've we've we've heard him 366 00:21:31,760 --> 00:21:34,199 Speaker 1: lecture to popular audiences, has written books that have been 367 00:21:34,200 --> 00:21:36,760 Speaker 1: popularly consumed as well. How much has he made a 368 00:21:36,760 --> 00:21:42,320 Speaker 1: difference here in popularizing behavioral economics, Well, he has been 369 00:21:42,600 --> 00:21:48,040 Speaker 1: enormously important. I think, uh As I say it's a revolution. 370 00:21:48,080 --> 00:21:51,960 Speaker 1: If if you were to summarize what important has happened 371 00:21:52,480 --> 00:21:57,119 Speaker 1: in economics in the last twenty years or so, I 372 00:21:57,160 --> 00:22:01,040 Speaker 1: think behavioral economics would come now one. And to me, 373 00:22:01,240 --> 00:22:06,600 Speaker 1: it's really inspirational to get back to reality because we 374 00:22:06,680 --> 00:22:11,200 Speaker 1: have just disrespected in economics. Other social sciences have been 375 00:22:11,320 --> 00:22:15,520 Speaker 1: quietly working away and coming up with new information about 376 00:22:15,560 --> 00:22:19,120 Speaker 1: how people really behaved. How could we have ignored that 377 00:22:19,200 --> 00:22:22,840 Speaker 1: for so wrong? So to me it's refreshing. Someone had 378 00:22:22,840 --> 00:22:28,400 Speaker 1: to had to call out the fallacy of relying exclusively 379 00:22:28,520 --> 00:22:33,159 Speaker 1: on rational optimizing models. Finally it's been done. And you know, 380 00:22:33,440 --> 00:22:37,320 Speaker 1: Dick Taylor was the president of the American Economic Association. 381 00:22:37,920 --> 00:22:42,919 Speaker 1: He's the profession has come around to appreciate what can 382 00:22:43,640 --> 00:22:49,480 Speaker 1: what can what can President Trump learn from Richard Taylor? Okay, Well, 383 00:22:49,520 --> 00:22:53,280 Speaker 1: you know President Trump himself is a bit of student 384 00:22:53,359 --> 00:22:57,160 Speaker 1: of psychology, but not such academic psychology. If you read 385 00:22:57,200 --> 00:23:00,440 Speaker 1: his books, and I think they were not just totally 386 00:23:01,359 --> 00:23:05,520 Speaker 1: totally goest writain, he had some input into them. He 387 00:23:05,760 --> 00:23:10,760 Speaker 1: is very aware of human psychology. Uh and uh, well 388 00:23:11,040 --> 00:23:13,000 Speaker 1: he has Art of the Deal is based on it. 389 00:23:14,040 --> 00:23:17,200 Speaker 1: But I think Donald Trump has a lot more he 390 00:23:17,240 --> 00:23:21,680 Speaker 1: could learn from Dick Sailor. Professor Schulder, thank you so much. 391 00:23:21,720 --> 00:23:23,960 Speaker 1: Honored to have you with us again. Robert Schiller of 392 00:23:24,520 --> 00:23:29,440 Speaker 1: Yale University of course, uh not two thousand thirteen Nobel 393 00:23:29,520 --> 00:23:32,600 Speaker 1: Laureate on his colleague, particularly with great work at NB 394 00:23:32,960 --> 00:23:36,800 Speaker 1: er with Richard Sailor as well. Um, David, we've had 395 00:23:36,800 --> 00:23:39,400 Speaker 1: a Sailor's siding. We got a wonderful note from an 396 00:23:39,440 --> 00:23:45,000 Speaker 1: extremely beliaguered Richard the conference. Yeah, and we will have 397 00:23:45,080 --> 00:23:47,760 Speaker 1: him later this week, which I think is probably better 398 00:23:47,800 --> 00:23:50,159 Speaker 1: for our Listen. We've talked about saltwater and freshwater and 399 00:23:50,160 --> 00:23:52,760 Speaker 1: brackish water. Is this a high water mark for behavior economics, 400 00:23:52,760 --> 00:23:58,800 Speaker 1: Tomm you mentioned, Yeah, it was widely presumed that Robert 401 00:23:58,840 --> 00:24:02,640 Speaker 1: Schiller would win award. But this is a further uh 402 00:24:02,760 --> 00:24:08,440 Speaker 1: codification of behavioral economics into the canon. David gerin Tom Keenan, 403 00:24:08,440 --> 00:24:23,439 Speaker 1: New York. This is Bloomberg. We are blessed and that 404 00:24:23,600 --> 00:24:26,240 Speaker 1: we have just had on the Laureate Robert Schiller on 405 00:24:26,440 --> 00:24:30,160 Speaker 1: Richard Taylor. Professor Taylor will join us later in the week. 406 00:24:30,160 --> 00:24:32,600 Speaker 1: I got a lovely note from him this morning. He's beleaguered, 407 00:24:32,640 --> 00:24:35,040 Speaker 1: as you can imagine, and we'd much rather do a 408 00:24:35,080 --> 00:24:38,639 Speaker 1: more thoughtful interview with the Laureate later this week. But 409 00:24:38,840 --> 00:24:41,680 Speaker 1: now is the most important interview of the day. This 410 00:24:41,760 --> 00:24:43,960 Speaker 1: is Randall Krosner. You know him as a governor of 411 00:24:44,000 --> 00:24:47,960 Speaker 1: the Feederal Reserve System. He is without question our premier 412 00:24:48,040 --> 00:24:52,240 Speaker 1: financial economist of his generation, and he has to work 413 00:24:52,240 --> 00:24:56,240 Speaker 1: in the behavioral soup of the Fortress Becker every day 414 00:24:56,280 --> 00:24:59,720 Speaker 1: at Chicago. Randy Krosner, what is Gary Becker? What is 415 00:24:59,760 --> 00:25:03,560 Speaker 1: the legacy of the Becker years? Followed on to Richard Taylor, 416 00:25:03,640 --> 00:25:07,640 Speaker 1: what does behavioral economics mean to your Chicago m hmm. 417 00:25:08,320 --> 00:25:10,199 Speaker 1: I'm delighted to be here and I'm thrilled to be 418 00:25:10,200 --> 00:25:16,000 Speaker 1: able to share the excitement that Chicago Boost School business 419 00:25:16,040 --> 00:25:19,679 Speaker 1: has for Sailor getting the prize. I mean, we have 420 00:25:19,800 --> 00:25:23,080 Speaker 1: a pretty broad range of people. I mean, obviously we 421 00:25:23,119 --> 00:25:25,520 Speaker 1: have Gary Becker, who unfortunately no longer with us, to 422 00:25:25,800 --> 00:25:29,480 Speaker 1: Wonderable Prize just in two thousand thirteen, Gene Fama of 423 00:25:29,680 --> 00:25:34,880 Speaker 1: the proponent of efficient markets Wonderable Prize, and Dick Taylor, who, 424 00:25:34,960 --> 00:25:38,480 Speaker 1: now that's a very different approach of a behavioral economics 425 00:25:38,480 --> 00:25:41,760 Speaker 1: approach that says, we've got to really think about people 426 00:25:41,800 --> 00:25:46,000 Speaker 1: as people think about their their foibles, their flaws, and 427 00:25:46,000 --> 00:25:48,600 Speaker 1: how they make decisions. And so he takes a very 428 00:25:48,600 --> 00:25:52,040 Speaker 1: different approach to financial markets and economics overall than they do. 429 00:25:52,320 --> 00:25:54,760 Speaker 1: But they're all together. To take it back to when 430 00:25:54,800 --> 00:26:00,359 Speaker 1: you were with Frank Knight in not that all, but 431 00:26:00,480 --> 00:26:03,040 Speaker 1: to George Stiegler, and to take it back to Frank Knight, 432 00:26:03,480 --> 00:26:07,960 Speaker 1: are our measurements of risk and uncertainty more uncertain now 433 00:26:08,359 --> 00:26:11,720 Speaker 1: because of Schiller and Taylor. When you guys are at 434 00:26:11,720 --> 00:26:14,479 Speaker 1: the FED trying to figure out what to do? Do 435 00:26:14,560 --> 00:26:19,119 Speaker 1: you do it with less certainty than we did years ago? Actually, 436 00:26:19,160 --> 00:26:22,560 Speaker 1: I think um, quite the opposite. It has been helpful 437 00:26:23,080 --> 00:26:27,879 Speaker 1: in making sure that we have a broader perspective. I think, UM, 438 00:26:28,000 --> 00:26:32,439 Speaker 1: let's say, you know, Knight certainly introduced very important ideas, UM, 439 00:26:32,480 --> 00:26:37,040 Speaker 1: but I think people uh working in behavior economics helped 440 00:26:37,080 --> 00:26:38,840 Speaker 1: to make that a little bit more concrete. Well, what 441 00:26:38,880 --> 00:26:42,000 Speaker 1: are some of those sources of that? What is it? 442 00:26:42,040 --> 00:26:45,760 Speaker 1: What could it be from people's behavioral perspective that might 443 00:26:45,760 --> 00:26:49,520 Speaker 1: be generating uncertainty or why things might not follow a 444 00:26:49,600 --> 00:26:51,760 Speaker 1: simple model that we would have had in the past 445 00:26:52,280 --> 00:26:54,520 Speaker 1: right across. He was asked at the press conference following 446 00:26:54,520 --> 00:26:56,560 Speaker 1: the announcement of the award this morning about the impact 447 00:26:56,560 --> 00:26:58,439 Speaker 1: of his work, what he hopes the impact would be 448 00:26:58,560 --> 00:27:00,520 Speaker 1: or has been, and he said a quote, it's the 449 00:27:00,560 --> 00:27:03,840 Speaker 1: recognition that economic agents are human and that economic models 450 00:27:03,840 --> 00:27:06,560 Speaker 1: have to incorporate that. When you look at the profession 451 00:27:06,600 --> 00:27:10,560 Speaker 1: written large outside of the narrow niche of behavioral economics, 452 00:27:10,560 --> 00:27:13,440 Speaker 1: how well incorporated is this line of thinking now into 453 00:27:13,240 --> 00:27:17,439 Speaker 1: two other veins of economic thought. So I think it 454 00:27:17,480 --> 00:27:19,400 Speaker 1: is much more so than it used to be. So 455 00:27:19,520 --> 00:27:21,560 Speaker 1: just in the twenty seven years that I've been at 456 00:27:21,800 --> 00:27:24,680 Speaker 1: at Chicago, so roughly half of my life, I've seen 457 00:27:24,680 --> 00:27:28,960 Speaker 1: an amazing transformation occur. Um. Very few people when I 458 00:27:28,960 --> 00:27:32,680 Speaker 1: first got here really focused on these these broader issues, 459 00:27:33,359 --> 00:27:36,160 Speaker 1: and I would say now that a very high fraction 460 00:27:36,359 --> 00:27:39,080 Speaker 1: of the younger people that we have hired over the 461 00:27:39,160 --> 00:27:43,520 Speaker 1: last five to ten years, whether it's in economics, finance, 462 00:27:43,760 --> 00:27:46,439 Speaker 1: or other areas at the school, are focused on these 463 00:27:46,520 --> 00:27:49,560 Speaker 1: kind of broader issues of trying to introduce humanity into 464 00:27:50,040 --> 00:27:53,760 Speaker 1: into economics and finding a lot of very rich empirical 465 00:27:54,040 --> 00:28:00,320 Speaker 1: UH veins to tap. For example, Sailor has talked a 466 00:28:00,320 --> 00:28:03,960 Speaker 1: lot about the mental accounting that the way you treat 467 00:28:04,000 --> 00:28:06,119 Speaker 1: a dollar in your pocket may be different than the 468 00:28:06,160 --> 00:28:09,480 Speaker 1: way you treat a dollar in your UH, in your 469 00:28:09,680 --> 00:28:13,080 Speaker 1: in your bank, or in your savings account, and UM 470 00:28:13,320 --> 00:28:16,400 Speaker 1: economist traditionally said, if you have a dollar, doesn't matter 471 00:28:16,440 --> 00:28:19,080 Speaker 1: where it is, it's a dollar, the same decisions associated 472 00:28:19,119 --> 00:28:21,679 Speaker 1: with it. He said, you just think about it. If 473 00:28:21,680 --> 00:28:23,760 Speaker 1: there's a dollar in your pocket and you want something, 474 00:28:24,320 --> 00:28:27,280 Speaker 1: you may go spend that dollar. If that that opportunity 475 00:28:27,359 --> 00:28:28,840 Speaker 1: is right in front of you. If you had to 476 00:28:28,880 --> 00:28:31,440 Speaker 1: go down to the bank, withdraw that dollar, you may say, 477 00:28:31,600 --> 00:28:34,959 Speaker 1: not so sure about that. To take the endowment effect further, 478 00:28:35,880 --> 00:28:38,200 Speaker 1: does the central bank has any given central bank? And 479 00:28:38,280 --> 00:28:41,160 Speaker 1: let's pick on the Americans. Do they have an endowment 480 00:28:41,280 --> 00:28:44,640 Speaker 1: effect of the policies they have? Now? Are they so 481 00:28:44,800 --> 00:28:48,160 Speaker 1: wedded to their policies that they have to live them 482 00:28:48,200 --> 00:28:52,720 Speaker 1: because they're endowed to them? So? Um, I think that's 483 00:28:52,720 --> 00:28:55,240 Speaker 1: slightly different than the endowment effect, But it is another 484 00:28:55,400 --> 00:28:58,080 Speaker 1: mental effect that there's sort of a framing effect that 485 00:28:58,200 --> 00:29:01,200 Speaker 1: comes in if you frame the world through a particular 486 00:29:01,360 --> 00:29:04,200 Speaker 1: lens or particular set of set of questions and see 487 00:29:04,240 --> 00:29:06,680 Speaker 1: it that way. And so if you see the world 488 00:29:06,840 --> 00:29:10,200 Speaker 1: as now subject to a lot of fragility, if you've 489 00:29:10,240 --> 00:29:13,360 Speaker 1: experienced the financial crisis, you've worked hard to try to 490 00:29:13,400 --> 00:29:17,640 Speaker 1: fight the financial crisis, you may be more reluctant than 491 00:29:17,800 --> 00:29:21,200 Speaker 1: someone from the outside to say, Hey, things have normalized. Now, 492 00:29:21,240 --> 00:29:26,040 Speaker 1: let's move back to uh, to our normal situation quickly. 493 00:29:26,560 --> 00:29:28,640 Speaker 1: You may say, Gosh, I've got the scars of the 494 00:29:28,640 --> 00:29:32,640 Speaker 1: financial crisis on me. I'm going to move much more slowly. Besides, 495 00:29:32,720 --> 00:29:34,720 Speaker 1: because I've lived through it. And I think that's some 496 00:29:34,840 --> 00:29:38,000 Speaker 1: of what we're seeing with central banks that you know, 497 00:29:38,240 --> 00:29:42,080 Speaker 1: they're very leery of declaring victory because they've they've been 498 00:29:42,080 --> 00:29:44,200 Speaker 1: in the trenches and they don't want to lose the 499 00:29:44,800 --> 00:29:47,400 Speaker 1: benefits that they have they feel that they have have 500 00:29:47,480 --> 00:29:51,400 Speaker 1: gotten over the last few years by undertaking quantitative easing, 501 00:29:51,520 --> 00:29:54,920 Speaker 1: zero interest rate policies, etcetera. Randy, let's personalize this if 502 00:29:54,960 --> 00:29:57,160 Speaker 1: we could. Let's go to south Woodlawn Avenue and I 503 00:29:57,200 --> 00:29:58,720 Speaker 1: wonder if you can think of a time when you're 504 00:29:58,720 --> 00:30:01,360 Speaker 1: having a cup of coffee with Taylor or just chatting 505 00:30:01,360 --> 00:30:03,920 Speaker 1: with him in the halls of the booth school when 506 00:30:03,960 --> 00:30:05,800 Speaker 1: he said something that made you change or think about 507 00:30:05,960 --> 00:30:10,400 Speaker 1: what you thought about in the past. And so uh. 508 00:30:10,440 --> 00:30:14,640 Speaker 1: He he has been a very important intellectual force of 509 00:30:15,040 --> 00:30:19,720 Speaker 1: UM of really I think opening people up to be 510 00:30:19,720 --> 00:30:23,240 Speaker 1: be much broader in the way they approached things. For example, 511 00:30:23,800 --> 00:30:27,000 Speaker 1: a lot of the work that he's done on let's 512 00:30:27,040 --> 00:30:30,680 Speaker 1: say UM mutual funds, where you have these closed and 513 00:30:30,800 --> 00:30:35,200 Speaker 1: mutual funds, which means that it's not like an exchange 514 00:30:35,200 --> 00:30:39,440 Speaker 1: tredded fund. It's closed in the amount of assets that 515 00:30:39,520 --> 00:30:43,080 Speaker 1: that are owned, but sometimes that can trade above or 516 00:30:43,120 --> 00:30:46,000 Speaker 1: below the value of the underlying assets, the so called 517 00:30:46,040 --> 00:30:49,120 Speaker 1: net asset value and I remember having a discussion with 518 00:30:49,200 --> 00:30:51,440 Speaker 1: him about that. That was something that had always puzzled 519 00:30:51,480 --> 00:30:54,479 Speaker 1: me when I was in graduate school. But he and 520 00:30:54,680 --> 00:30:58,960 Speaker 1: co authors and students have really kind of fleshed that out. 521 00:30:59,000 --> 00:31:02,200 Speaker 1: Try to understand that my better to help us to 522 00:31:02,240 --> 00:31:08,040 Speaker 1: get um measures of um exuberance or pessimism. So gets 523 00:31:08,080 --> 00:31:11,040 Speaker 1: back to what Tom was talking about before, here's a 524 00:31:11,040 --> 00:31:13,600 Speaker 1: an example of where rather than just sort of dismissing 525 00:31:13,600 --> 00:31:15,360 Speaker 1: it as well, that just doesn't make any sense to her. 526 00:31:15,480 --> 00:31:18,320 Speaker 1: You know, there must be some sort of transaction costs 527 00:31:18,360 --> 00:31:21,920 Speaker 1: that's in there. Dick took a different approach and said, well, 528 00:31:22,400 --> 00:31:26,560 Speaker 1: it's suggestive of either enthusiasm or pessimism, and some people 529 00:31:26,600 --> 00:31:28,200 Speaker 1: have used that as a way of a thing. Well, 530 00:31:28,360 --> 00:31:32,120 Speaker 1: this can give us broader market measures of pessimism or enthusiasm. 531 00:31:32,160 --> 00:31:34,800 Speaker 1: Generous of you to rip up your morning to come 532 00:31:34,800 --> 00:31:37,080 Speaker 1: on with this. Randy Krasner of the Booth School, Chicago, 533 00:31:37,160 --> 00:31:41,240 Speaker 1: and celebration of his colleague Richard Taylor. Richard Taylor winning 534 00:31:41,240 --> 00:31:54,200 Speaker 1: the Nobel Prize. Thanks for listening to the Bloomberg Surveillance podcast. 535 00:31:54,640 --> 00:31:59,840 Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or 536 00:32:00,040 --> 00:32:04,280 Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom Keene. 537 00:32:04,400 --> 00:32:08,720 Speaker 1: David Gura is at David Gura. Before the podcast, you 538 00:32:08,760 --> 00:32:12,040 Speaker 1: can always catch us worldwide. I'm Bloomberg Radio