Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: This is Wall Street Week. I'm David Weston bringing you
Speaker 2: stories of capitalism. The Trump administration has stopped major funding
Speaker 2: for some university research and threatens more. We tell the
Speaker 2: tale of what that could mean for higher education and
Speaker 2: for the startup culture it supports. Plus, Argentina seemed to
Speaker 2: be heading in the right direction despite the pain. What
Speaker 2: does it need to achieve true economic health? And are
Speaker 2: the people willing to pay that price? And as President
Speaker 2: Trump paid a state visit to the UK, we look
Speaker 2: at London's dominant role in the country's economy and whether
Speaker 2: we just may be seeing some shifts in the balance.
Speaker 2: But we start with the big question for global Wall Street.
Speaker 2: This week, as the Fed issued its long awaited decision
Speaker 2: and summary of economic projections, our special contributor Larry Summers
Speaker 2: of Harvard takes us through what we learned.
Speaker 3: It wasn't far off what the market was expecting or
Speaker 3: I was expecting. I was glad to see Jay lean
Speaker 3: into all the uncertainties in the moment. The uncertainty is
Speaker 3: about inflation, the uncertainties about future policy. The uncertainty is
Speaker 3: about unemployment, The uncertainties about the political environment about tariffs,
Speaker 3: and I.
Speaker 1: Thought that was broadly appropriate.
Speaker 3: My own guess is that policy's currently a little looser
Speaker 3: looking at all financial conditions than people view it as being,
Speaker 3: and that the current configuration the balance of risks is
Speaker 3: a bit more tilted towards inflation rather than unemployment. So
Speaker 3: I think we're a bit on the loose side with
Speaker 3: respect to monetary policy and monetary policy signaling. But that's
Speaker 3: very much a difference of degree, and I was glad
Speaker 3: to see the emphasis on humility and on flexibility in
Speaker 3: the chairman's statement.
Speaker 2: At Chairpal more than once talked about how unusual the
Speaker 2: situation is because there are really conflicting risks here. We've
Speaker 2: got both inflation risk and an employment risk at the
Speaker 2: same time. How unusual is that if you go back
Speaker 2: through history, is that a really strange situation to face?
Speaker 3: Well, it's completely unprecedented for a member of the administration
Speaker 3: on leave to be a governor of the FED. That's
Speaker 3: completely unprecedented. It's completely unprecedented for the President, on a
Speaker 3: basis that many people regard as protectual, to be trying
Speaker 3: to remove a member of the FED. It's completely unusual
Speaker 3: for the FED chair to be acting in a context
Speaker 3: where the President of the United States has called him
Speaker 3: a moron, and the question of the narrow sort of
Speaker 3: economic movements, this is what happens when you have a
Speaker 3: supply shock. When you have a supply shock, it pushes
Speaker 3: up prices and pushes down purchasing power. So you can
Speaker 3: make a case for going to the break because of
Speaker 3: the increasing prices, or going to the accelerator because of
Speaker 3: the reduction in purchasing power. And you know, I'd say
Speaker 3: the dilemma probably takes that form twenty percent of the time. Perhaps,
Speaker 3: so it's not the norm, but it's also something that's
Speaker 3: not unprecedented.
Speaker 2: Chair Poalse said that when it comes to tariffs, which
Speaker 2: is part of the uncertainty, that the consensus of the
Speaker 2: Fed right now is that is a one time price hit.
Speaker 2: You didn't use the word transitory, but he came close
Speaker 2: to transitory. Is does he have reason to be confident
Speaker 2: that after an initial spike up, it'll come back down.
Speaker 3: Well, I think it's important to distinguish two concepts of
Speaker 3: one shot or transitory. There's what we had in twenty
Speaker 3: twenty one, when, for example, the price of use cars
Speaker 3: spiked up and the right assumption would be that the
Speaker 3: price of use cars would come back to the normal
Speaker 3: price level.
Speaker 1: That's not what is reasonable to expect with tariffs.
Speaker 3: With tariffs, you're getting a permanent increase in the price
Speaker 3: of the goods that are tariffed.
Speaker 1: But the question is.
Speaker 3: Whether that's going to be an ongoing rate of change
Speaker 3: or a one off level of adjustment. Nobody thinks, particularly
Speaker 3: that it's going to be a reversed change. So this
Speaker 3: is already more problematic than the kind of supply shot
Speaker 3: people saw in twenty twenty one. And the Chair's clearly
Speaker 3: right that if you're just looking at is the tariff
Speaker 3: going to get raised again and again again? That's very unlikely.
Speaker 3: I think the question is will this increase be processed
Speaker 3: through into an increase in inflation expectations, which will then
Speaker 3: feed through into higher wages and higher prices and settle
Speaker 3: off a cycle. And that's hard to know, and I'm
Speaker 3: certainly not sure that it will be. And less of
Speaker 3: that happened after twenty twenty one than would have been
Speaker 3: my guest, David. But we now have had a recent
Speaker 3: experience of substantial inflation. We now have a more politicized.
Speaker 1: Fed.
Speaker 3: It's a process that's playing out over a long time period,
Speaker 3: So I'm not sure we'd want to be entirely confident
Speaker 3: of the idea that.
Speaker 1: It will be one and done.
Speaker 3: For the inflation impact of these tariffs. He may well
Speaker 3: turn out to be right, but this is an area
Speaker 3: where I would have a lot of humility and doubt,
Speaker 3: and I regard the biggest risk in this situation is
Speaker 3: being that we lose contact with our two percent inflation
Speaker 3: target and become a country with an inflation psychology.
Speaker 2: There has been a fair amount of political pressure, as
Speaker 2: you say, and what the President said, what members administration
Speaker 2: has said in the challenge to Lisa Cook at the
Speaker 2: appointment of Stephen Myron, as you say, who's still working
Speaker 2: for the wise even if he's taking leave of absence.
Speaker 2: Did Chair pow on the FAD put some of that
Speaker 2: to rest in their conduct this week? That is to say,
Speaker 2: did it really make a difference in what they decided
Speaker 2: and what they said.
Speaker 3: I don't think that anything different happened because Steve Myron
Speaker 3: was in that room. I don't think there was a
Speaker 3: different word in the community. I don't think there was
Speaker 3: a different anything. If anything, it probably made it harder
Speaker 3: for there to be the kind of more dubbish language
Speaker 3: that the President preferred. And I think the same thing
Speaker 3: is true with respect to the attack on Governor Cook.
Speaker 3: I think that, if anything, that created a need to
Speaker 3: project vigor and rigor. I thought it was interesting that
Speaker 3: Governor Waller, who's clearly very eager to be the next
Speaker 3: chairman of the FED, nonetheless went along with a consensus
Speaker 3: view that there should be one cut rather than two.
Speaker 1: And I was gratified by that.
Speaker 3: And if the President knows his interest well, the President
Speaker 3: will have enhanced respect for Chris Waller because of this.
Speaker 2: The decision was big news as week, but it wasn't
Speaker 2: the only news affecting the financial community and companies. As
Speaker 2: we now hear from the administration, they would like to
Speaker 2: change the rules so the companies don't report quarterly instead
Speaker 2: they report semi annually. Is that a good idea.
Speaker 3: I think it's a bad idea whose time should never come.
Speaker 3: It's a bad idea because accountability and transparency have been
Speaker 3: the key to the success of America's capital markets, and
Speaker 3: quarterly earnings reports and frequent accountability and substantial sharing of
Speaker 3: information has been central to that. Whenever I hear a
Speaker 3: CEO saying they don't want to have to deal with
Speaker 3: quarterly earnings. I think of my students who don't want
Speaker 3: to have to deal with grades, and yes, sometimes they'd
Speaker 3: be more flexible to pursue their intellectual passions if they
Speaker 3: didn't have grades, But many more times they'd be free
Speaker 3: to drink beer if they didn't have grades. And I
Speaker 3: think it's the same kind of thing. Frankly with our
Speaker 3: business leaders. It seems to me that we have had
Speaker 3: the most extraordinarily successful capital markets.
Speaker 1: In the world.
Speaker 3: Who could have thought twenty five years ago, thirty years ago,
Speaker 3: when the Dow Jones average was only a small fraction
Speaker 3: of what the Nique average was, that two thirds of
Speaker 3: all the market value of all the companies on Earth
Speaker 3: would be American. That's a tribute to the economy. That's
Speaker 3: a tribute to those companies, but it's also a tribute
Speaker 3: to our market institutions and the way our capital markets work.
Speaker 3: That's why we have so much higher multiples on American firm.
Speaker 3: So to try to erode all of that, who are
Speaker 3: you trying to help? You're trying to help people who
Speaker 3: don't want to be accountable. Why are those the people
Speaker 3: who should be the objects of our affection. You're trying
Speaker 3: to help people who have special access to company information
Speaker 3: rather than the broader public. I always thought the idea
Speaker 3: of an honors fair market was to try to reduce
Speaker 3: the advantage of insiders relative to outsiders. This goes in
Speaker 3: exactly the wrong direction.
Speaker 2: Up next, the Trump administration is upending eighty years of
Speaker 2: funding for university research. What's at stake not just for
Speaker 2: the schools, but for the economy.
Speaker 1: This is a.
Speaker 2: Story about trees not growing to the sky, even if
Speaker 2: those trees are holding up an important part of the
Speaker 2: US economy. President Trump has made no secret of his
Speaker 2: quest to cut funding to some of the nation's most
Speaker 2: prestigious universities.
Speaker 1: We want money to go to all universities, not Harvard.
Speaker 3: They have fifty two billion dollars.
Speaker 2: To date. Much of the discussion has centered on the
Speaker 2: politics of it all, whether higher education has gotten too woke,
Speaker 2: and whether it's done enough to combat anti semitism.
Speaker 4: Anti Semitism pro hoomas protests an environment where students can't learn.
Speaker 4: Why should taxpayers, okay around the country be funding a
Speaker 4: private university as.
Speaker 5: A physics chemistry concentrator.
Speaker 2: But the President's actions have put into question a massive,
Speaker 2: long term partnership that has supported exceptional US innovation over
Speaker 2: the years, a partnership between the government and higher education
Speaker 2: in the funding of basic scientific research.
Speaker 5: We have had a terrific system of innovation in the
Speaker 5: United States.
Speaker 2: Raphael Reef served as the seventeenth president of MIT after
Speaker 2: heading its Department of Electrical Engineering and Computer Science.
Speaker 5: It actually goes back to eighty years ago. It started
Speaker 5: with the Feronda and Vandivar Bush that created something called
Speaker 5: the Endless Frontier Act, which was really a social contract
Speaker 5: between the federal government and universities. The federal government funds
Speaker 5: research universities. Scientific research advances knowledge, and we do it here.
Speaker 5: And at the same time as we do that, we
Speaker 5: educate the leaders of the future who bring that advance
Speaker 5: knowledge to the marketplace. And that has been at the
Speaker 5: heart of a terrific ecosystem of innovation in this country
Speaker 5: that has lasted up to this day.
Speaker 2: US government funding for university research had its origins and
Speaker 2: efforts to win World War Two and led to the
Speaker 2: development of new technologies such as radar and the atomic bomb.
Speaker 2: From an annual investment of two hundred and fifty three
Speaker 2: million dollars during the Korean War in nineteen fifty three.
Speaker 2: It exploded to some sixty billion dollars as of twenty
Speaker 2: twenty three. But now it appears that this unique partnership
Speaker 2: may be up for grabs.
Speaker 5: What we have had the last eighty years doesn't seem
Speaker 5: to be coming back. I think the changes that the
Speaker 5: government is making right now are going to be very
Speaker 5: hard for any future government, even if it's a very
Speaker 5: receptive to supporting science. To make it reversible, we have
Speaker 5: to understand that these changes are very severe, and we
Speaker 5: have to figure out a new financial model to continue
Speaker 5: advanced research and advancing science, which is at the heart
Speaker 5: of what we have been successful as a country.
Speaker 2: Before we can figure out what comes next for funding
Speaker 2: of basic research, we need a firm understanding of what
Speaker 2: the existing system has brought us. Lily Lyman is a
Speaker 2: partner at Venture Capital for Underscore VC, which is not
Speaker 2: coincidentally based in Boston. Along with dozens of colleges and
Speaker 2: universities and three hundred and fifty thousand college students, the.
Speaker 6: University enterprises are an important part of this of this ecosystem,
Speaker 6: over a third of our portfolio comes from places like
Speaker 6: Harvard and MIT because of this talentedcity and the interesting
Speaker 6: research coming out of it. So for us, it's a
Speaker 6: really important part of our sourcing strategy and it's an
Speaker 6: important contributor to the innovation economy here in Boston.
Speaker 2: One of those benefiting from that innovation economy in Boston
Speaker 2: is Quilt Health, a digital startup backed by Underscore that
Speaker 2: seeks to put patients, clinicians, and researchers together to address
Speaker 2: complex medical conditions such as sickle cell disease. Its founder
Speaker 2: is doctor Andy Elner, who comes out of Harvard's Brigham
Speaker 2: and Women's Hospital.
Speaker 7: In my world, which is starting companies, really early stages
Speaker 7: of companies, what drives it is really its talent. People
Speaker 7: are always asking, you know, who's the team, what's the
Speaker 7: idea they're working against? And can they build this almost
Speaker 7: impossible thing that they're interested in building? Can they solve
Speaker 7: this almost impossible problem that needs to be solved, And so,
Speaker 7: you know, place like Boston is just a hub for
Speaker 7: you know, really talented people, really ambitious people. And when
Speaker 7: we were looking to start Quilt it's my second company,
Speaker 7: you know, we made a decision we wanted to start
Speaker 7: it here. We wanted to be based here. You know,
Speaker 7: it's hard to start a company. It's hard to build
Speaker 7: a company, and any advantage you can have you want
Speaker 7: to take. And I think just being part of this ecosystem,
Speaker 7: being in the flow of talent and ideas, is really
Speaker 7: critical to solving the hardest problems.
Speaker 5: The key ideas come from places that are thinking in
Speaker 5: other ways, clearly without spectacular companies that know how to
Speaker 5: fintun those ideas and how to employ them, how to
Speaker 5: take advantage of them, how to make products and services
Speaker 5: out of them. We don't have the economy we have,
Speaker 5: so companies play a critical role moving the best ideas
Speaker 5: and implementing them in products into the marketplace. But the
Speaker 5: basic ideas, most of those in the high tech and
Speaker 5: the academic medical centers, they come from research and academia
Speaker 5: that is federally funded.
Speaker 2: President Trump and his administration have challenged some of I
Speaker 2: think basic premises of that structure you describe funding of
Speaker 2: basic research and universities. What is at stake if, in
Speaker 2: fact they pull back from that funding over the longer term.
Speaker 2: Are we seeing disruption already?
Speaker 5: It's a terrible outcome if we stop paying attention to
Speaker 5: the funding of scientific research, the funding of basic science research.
Speaker 5: We really are burning our future. We are really killing
Speaker 5: our future.
Speaker 2: Are we losing some benefits of scientific research already as
Speaker 2: labs suspend their activity.
Speaker 5: Very much so, I mean, there are quite a bit
Speaker 5: of research that has been stopped and research and academia
Speaker 5: stop start doesn't work. Once you stop something, once the
Speaker 5: lab roataries closed. Once we lose the people, once we
Speaker 5: lay off people who have the experience and the expertise
Speaker 5: and the research we're doing, we lose a tremendous amount.
Speaker 5: Some of that has already happened. I tell you one thing,
Speaker 5: I think that even though we have lost quite a
Speaker 5: bit already, we still have an opportunity to just figure
Speaker 5: out how to fix the situation and not continue in
Speaker 5: the path we we just got started. But I'm telling you,
Speaker 5: I honestly think that a couple of years of this
Speaker 5: and this is irreversible, We're gonna lose our advances, We're
Speaker 5: gonna lose our future, We're gonna lose our competition with CHIME.
Speaker 6: So despite you know the headlines of what's been going on,
Speaker 6: you know, the first half of twenty twenty five was
Speaker 6: actually quite strong in the Boston startup ecosystem. We continue
Speaker 6: to see a lot of activities. We continue to see
Speaker 6: a lot of startup funding, but obviously the headlines and
Speaker 6: the pause in funding and research has been very disruptive.
Speaker 6: We've seen really important research in the world of healthcare
Speaker 6: and biotech get paused, there have been job cuts, and
Speaker 6: there's just been a general environment of volatility the last
Speaker 6: couple months. From an underscore perspective, our deal flow has
Speaker 6: remain consistent. We continue to see these exceptional teams coming
Speaker 6: out of this ecosystem, and the entrepreneurial spirit and the
Speaker 6: capabilities and technological unlocks are still quite strong. What will
Speaker 6: be important though, is you know, in any innovation economy,
Speaker 6: you have multiple pieces to it. There's a talent piece
Speaker 6: to it, there's a research piece to it, there's a
Speaker 6: funding piece to it, and obviously the federal funding is
Speaker 6: an important component to the research to mention. So what
Speaker 6: we will need to do is find alternative sources of funding.
Speaker 2: What are those alternative sources of funding and have they
Speaker 2: started to kick in yet. Lyman says, there's some reason
Speaker 2: for optimism.
Speaker 6: We are seeing that, you know, there's venture capital firms
Speaker 6: like ourselves, particularly at the early stages, but we also
Speaker 6: see some of the larger private sector companies in the
Speaker 6: life sciences space and healthcare and insurance that can who
Speaker 6: are funding into this. And then there's also later stage funding.
Speaker 6: I think a good example is if you look at
Speaker 6: Commonwealth Fusion, which is an MIT company. They just raised
Speaker 6: over eight hundred million dollars from Google that was announced
Speaker 6: in the last couple weeks. That's critical for them to
Speaker 6: continue their innovation to bring clean energy to this nation.
Speaker 6: So there is alternative sources of capital. We're starting to
Speaker 6: see a flow in again. It will follow innovation and
Speaker 6: big opportunities, and we hope to see more of that continue.
Speaker 2: Although firms could fill some of the void left by
Speaker 2: the federal government, Professor Reef warns that private companies cannot
Speaker 2: be counted on to pick up the full sixty billion
Speaker 2: dollar tab being paid by the US for research, particularly
Speaker 2: the type of basic research that universities specialize in.
Speaker 5: There is of course research done in corporations in companies,
Speaker 5: but most of that research in companies is done on
Speaker 5: our road map of products. That company is thinking that
Speaker 5: in five years from now or ten years from now,
Speaker 5: I need to have this product ready. So the research
Speaker 5: is being done focus on getting that product read. Federally
Speaker 5: funded research and universities is actually to advance knowledge. It's
Speaker 5: not for a particular for profit purpose. It's just to
Speaker 5: advance knowledge, and out of doing that, many of the
Speaker 5: ideas that eventually industry uses to fine tune their products
Speaker 5: is coming from university research. So we have benefited in
Speaker 5: the last eighty years from this terrific system, and not
Speaker 5: having access to that, or stopping access to that, is
Speaker 5: going to basically kill the source of ideas that would
Speaker 5: power the economy for the next eighty years.
Speaker 2: Cutting back on the basic research that's powered the American
Speaker 2: economy since World War Two would be a problem at
Speaker 2: any time, but it's particularly an issue now when the
Speaker 2: US has a strong economic competitor in its rival, China.
Speaker 5: The process of China is critical here because we have had,
Speaker 5: as I mentioned, the best system of innovation in the
Speaker 5: world with our knowledge economy. However, we did not have
Speaker 5: a competitive or like China before. We were the only
Speaker 5: kid on the road just doing all this stuff. China
Speaker 5: comes alone. They have a different model of innovation. In America,
Speaker 5: we have a market oriented model. China does not use
Speaker 5: a market oriented model. They use a technology domination model.
Speaker 5: They have to focus on dominating a particular technology. They
Speaker 5: have all of government effort to dominate it, and they
Speaker 5: get there, and in most of the areas they want
Speaker 5: to dominate, they have actually done that will restore our
Speaker 5: panels or evs or whatever they get there. That model
Speaker 5: has some advantages that we don't have, just like we
Speaker 5: have some advantages that China doesn't have. These are two
Speaker 5: different models competing with each other. What we need to
Speaker 5: do is recognize our strength and double down on those
Speaker 5: strengths while at the same time recognizing our weaknesses and
Speaker 5: fixing them. China is doing exactly that.
Speaker 2: Given the size of the problem and how much is
Speaker 2: at stake, where do we go next? Professor Reef says,
Speaker 2: we can't wait around for a solution.
Speaker 5: So I see a long term track, which is figure
Speaker 5: out a new model, but I figure out I think
Speaker 5: we need a short term emergency fund to make sure
Speaker 5: that as much of the fraction of funding cuts the
Speaker 5: government is doing in science research, we can just bring
Speaker 5: that back. And I think it's critical that state governments
Speaker 5: play a role on this. It's critical does theate governments
Speaker 5: bring the private sector and to figure out how to
Speaker 5: add funds to this emergency fund. It's critical to universities
Speaker 5: to contribute to I think there should be a plan
Speaker 5: right now. That's particularly states like Massachusetts, like Washington State,
Speaker 5: the states that have significant knowledge economy. They have to
Speaker 5: start working on how to figure out to have an
Speaker 5: emergency fund for a couple of years, two three years
Speaker 5: while we figure out.
Speaker 1: The long term plan.
Speaker 6: There is a journey, and it's from the cutting edge
Speaker 6: research where it's still a little bit gray. Then you
Speaker 6: figure it out, but there's still an element where you
Speaker 6: have to figure out a viable commercial model, and that
Speaker 6: can take a really long time. There is a lot
Speaker 6: of venture capital here in the United States with the
Speaker 6: big spenter capital ecosystem in the world, but we need
Speaker 6: to make sure that that capital is creating structures and
Speaker 6: mechanisms for that messy middle before it's obviously commercially viable
Speaker 6: and scalable, and sometimes that's venture but sometimes it is university,
Speaker 6: sometimes it's filanthropic, and sometimes it's private sector. But we
Speaker 6: want to make sure that that is all sort of
Speaker 6: US based or US driven capital in order to get
Speaker 6: it through that entire sort of process of development. And
Speaker 6: you can't sort of cut out pieces of it, or
Speaker 6: else it'll break the whole system.
Speaker 2: Short term or long term. Ours is an ecosystem of
Speaker 2: innovation that's been growing for some eighty years. An ecosystem
Speaker 2: like a forest in which some trimming may need to
Speaker 2: be done from time to time, but in which we
Speaker 2: also need to exercise caution before cutting down those big
Speaker 2: trees reaching toward the sky, lest we put the entire
Speaker 2: system at risk. Coming up, President Melae of Argentina hits
Speaker 2: a bump in the road to his economic revolution. We'll
Speaker 2: look at whether his plan has been working. What is next.
Speaker 2: This is a story about short term pain for a
Speaker 2: long term gain. Argentine President Javier Mila's strong medicine for
Speaker 2: his economy seems to be working despite the costs, but
Speaker 2: recent elections raised outs about whether the public is willing
Speaker 2: to stay on a difficult course.
Speaker 8: Over the weekend, President Javier Mile was defeated in a
Speaker 8: key provincial election.
Speaker 1: Pip Makar.
Speaker 2: Milay's party lost big in the Buenos Aires provincial election,
Speaker 2: and markets reacted immediately. The peso weakened against other currencies
Speaker 2: and stocks tumbled as the country's political and economic future
Speaker 2: was thrown into doubt.
Speaker 5: The Argentina dollar bonds plunging the most in three years,
Speaker 5: that's after a provincial election, is now threatening to undermine
Speaker 5: President Javier Malay's national economic agenda.
Speaker 2: By some measures. President Milay has pulled off a near
Speaker 2: economic miracle, bringing Argentina's inflation rates down from almost three
Speaker 2: hundred percent year over year in twenty twenty four to
Speaker 2: just over thirty percent today, but he got there by
Speaker 2: imposing austerity measures that hit the country's citizens. David Kim
Speaker 2: is CEO of Argentina based textile company ARMSUD.
Speaker 9: The history of Argentina, there was always political problems when
Speaker 9: during election times.
Speaker 1: This is.
Speaker 9: This time is no different. Our employees are very concerned.
Speaker 9: Some are frightened because the last two years we had
Speaker 9: to lay off one hundred employees of four fifty we
Speaker 9: are now three fifty. It was very difficult.
Speaker 10: The problem that you have with the kind of reforms
Speaker 10: Malay has been putting in place is putting a lot
Speaker 10: of economic pressure on anybody for the little class down.
Speaker 2: Hans Humes has been investing in Argentina since the nineteen eighties,
Speaker 2: and his chief investment officer of grey Luck Capital Management.
Speaker 10: A lot of these austerity measures that were imposed. In particular,
Speaker 10: we're hitting the kind of voters that Malay was able
Speaker 10: to grab to win the election in the first place,
Speaker 10: and that's the tricky part of it. They were willing
Speaker 10: to take that pain, but now they want to see
Speaker 10: something come together for them.
Speaker 2: This latest round of turmoil is part of a much
Speaker 2: longer story, one that Juan Pablo Nicolini has studied over
Speaker 2: the years. A former economics professor in Buenos Aires, Nicolini
Speaker 2: is now an economist with the Minneapolis Federal Reserve, though
Speaker 2: he made it clear that the opinions he shared with
Speaker 2: us are his own and are not the opinions of
Speaker 2: the FAED.
Speaker 11: Argentinian society has an addiction to government spending that really
Speaker 11: ends up generating fiscal deficits. That is, the government typically
Speaker 11: has spent in every single year in the last sixty
Speaker 11: except for a few short periods, more than the tax
Speaker 11: revenues it collected. As you can imagine for every even
Speaker 11: a person, a family, a company, if you always spend
Speaker 11: more than what you make, that leads you to trouble.
Speaker 11: And that was basically the nick name of Argentina for
Speaker 11: the last decades, Trouble Economic trouble, and we are now
Speaker 11: in the process of reverting that. And the question now
Speaker 11: is going to be whether that's going to be sustained
Speaker 11: for the next three to four administrations, which is what
Speaker 11: Argentina needs to recover from the addiction.
Speaker 2: How did the President Mula reduce the deficit?
Speaker 11: The whole approach was to reduce government spending. That was
Speaker 11: for the level of income. The per capita that Argentina
Speaker 11: has was certainly too high, and that had been increasing
Speaker 11: substantially in the last two decades, and that's where he
Speaker 11: attacked the problem. The first month of his administration, he
Speaker 11: managed to achieve physcal surplus. Because he did that, then
Speaker 11: they could also take measures to lower inflation. At the
Speaker 11: time he was selected, inflation was running about maybe between
Speaker 11: five and six percent per month, and now it's running
Speaker 11: at about between one and a half and two percent
Speaker 11: per month.
Speaker 12: So it's still like very high, but clearly reverted the
Speaker 12: trend of inflation of inflation going up.
Speaker 9: The biggest problem is that the costs increased significantly. Even
Speaker 9: though the inflation has gone down, Energy costs have rosed
Speaker 9: about seventy eighty percent in one year, and we weren't
Speaker 9: able to pass those increases onto our selling prices, so
Speaker 9: been selling under our cost. I hope there is a
Speaker 9: change here.
Speaker 2: So inflation has come down, that means prices are more
Speaker 2: stable than they were before. What has been the effect
Speaker 2: of unemployment?
Speaker 12: Un Employment increased a little bit.
Speaker 11: And actually that is a pretty good question, because we
Speaker 11: are used to think in very stable economies that typically
Speaker 11: when you have policies that reduce inflation, one tends to
Speaker 11: think that that kind of slows down the economy and
Speaker 11: then that increases unemployment. But when you're running at at
Speaker 11: the inflation rate levels at Argentina wol running which I
Speaker 11: give over two hundred percent per year, then when you
Speaker 11: reduce inflation to let's say about only twenty or thirty
Speaker 11: percent per year, then you do not necessarily affect economic growth,
Speaker 11: or to put it differently, you actually improve economic growth.
Speaker 2: So how did we get here? Most economists agree that
Speaker 2: the long shadow of one peron, the long time I'm
Speaker 2: leader of the forties and fifties, continues to plague the
Speaker 2: Argentine economy. His populist policies of government borrowing to address
Speaker 2: poverty and inequality helped the masses for a time, but
Speaker 2: by the nineteen sixties. They affected inflation growth and above
Speaker 2: all the size of the fiscal deficit, something that President
Speaker 2: Mela sought to address with his vigorous economic agenda when
Speaker 2: he came to office less than two years ago. Argentina
Speaker 2: over time has built up a lot of deficits, but
Speaker 2: there have been a couple of periods where they did
Speaker 2: more or less get the fiscal deficits under control. Talk
Speaker 2: to us about those two periods.
Speaker 12: So the first one was during the nineties.
Speaker 11: It was after a massive hyperinflation It followed. For instance,
Speaker 11: the worst month was June in nineteen eighty nine, in
Speaker 11: which inflation rate was two hundred percent.
Speaker 12: Prices were three times what they were.
Speaker 11: At the end of the month than what they were
Speaker 11: at the beginning of the month, and that really was
Speaker 11: a big shock for society. And then that's when a
Speaker 11: government came that proposed a different path and it fulfilled it.
Speaker 11: It had a much more responsible physical policy, didn't completely
Speaker 11: eliminate the deficit, but they were much, much, much lower.
Speaker 11: And then Argentina had a huge crisis in two thousand
Speaker 11: and one.
Speaker 12: In two thousand and.
Speaker 11: Two in which the government couldn't pay the debt. There
Speaker 11: was a default poverty rates. When balloon went to over
Speaker 11: fifty percent, an employment went to about twenty five percent,
Speaker 11: pretty much like what it was a great depression in
Speaker 11: the US.
Speaker 12: And then following that we.
Speaker 11: Also had a period of five six years with physical discipline,
Speaker 11: and then in which again inflation was there.
Speaker 12: We had two or three years with inflation of.
Speaker 11: Only one digit I meant like eight percent, which again
Speaker 11: for Argentina is an amazing success. But then the physical
Speaker 11: deficits started showing up after the financial crisis, and they
Speaker 11: started going up again, and we went into the same
Speaker 11: old mistakes of the past.
Speaker 10: Let's not pretend there were back in the gloriers of
Speaker 10: Paranism where there was enough of a surplus that you
Speaker 10: could effectively subsidize a big part of the population. You know,
Speaker 10: focus on businesses, focus on value added manufacturing, focus on education.
Speaker 10: I mean, there's a real miss allocation of resources that's happened,
Speaker 10: human resources that's happened over years in Argentina. Because of
Speaker 10: some of the distortions in.
Speaker 1: The foreign exchange markets.
Speaker 10: You have some of the best business minds playing games
Speaker 10: with the official rate US, the external rate that doesn't
Speaker 10: add a lot of value to the economy. If you
Speaker 10: go back to the passe leftist rhetoric. That'll be a
Speaker 10: short term solution as well.
Speaker 2: Argentina is certainly not the only Latin American country that's
Speaker 2: had its problems with debt, but others have figured out
Speaker 2: ways to come back from the brink.
Speaker 12: The problems that plagued Argentina and economy in the.
Speaker 11: Last three decades were basically plague in the region, the
Speaker 11: Latin American region.
Speaker 12: In the seventies and.
Speaker 11: The eighties, countries like Chile, Mexico, Peru, uru Way, they
Speaker 11: were also running very large deficits, and all of them
Speaker 11: had a very large and recurrent microeconomic crisis. But most
Speaker 11: of those countries learn the lesson and they have been
Speaker 11: doing much, much, much better than Argentina. The message is
Speaker 11: something that you learn in primary school, which is that
Speaker 11: you cannot buy candy at school if you don't bring
Speaker 11: your own money, or you could because if you have
Speaker 11: a friend that can lend you the money, then you
Speaker 11: might have candy today, but then you have to come
Speaker 11: back tomorrow with extra money to buy your candy and
Speaker 11: pay your day back.
Speaker 12: Is very painful for us, but it's a great example
Speaker 12: for the rest of the world.
Speaker 2: Some investors over time have seen a pattern to the
Speaker 2: Argentine economic reforms and have taken them into account in
Speaker 2: their investment decisions.
Speaker 10: This time, we're lucky enough to sort of understand that
Speaker 10: three years is generally when Argientine presidents start having problems,
Speaker 10: so we were able to lighten up quite a bit
Speaker 10: and we're actually buying across the board. Markets on the
Speaker 10: dead side may have only moved ten to fifteen percent,
Speaker 10: but that's still some pretty good returns on the yield basis.
Speaker 10: I mean, you've got twelve fifteen percent yields. My assessment
Speaker 10: is that the lessons have been learned well enough that
Speaker 10: they can manage it and we won't go back to
Speaker 10: any of those really bad times.
Speaker 2: So we'll see lay out the best case or long
Speaker 2: term investment from outside in Argentina right now.
Speaker 10: Wow, it would be good to see follow through on
Speaker 10: a lot of these reform efforts. I'm curious to see
Speaker 10: what changes Melae might make in this cabinet.
Speaker 11: Investment has been good, but not spectacular. There were a
Speaker 11: lot of restrictions on financial markets and in foreign exchange
Speaker 11: markets when the government started. They've been removing some of
Speaker 11: those restrictions, but not fully yet. Like there are restrictions
Speaker 11: on international companies to take the profits out of the country.
Speaker 11: So in basement has not been booming as one would
Speaker 11: expect with the stabilization because there're still some of those
Speaker 11: restrictions in place.
Speaker 2: Many years ago, an Argentine finance minister gave a speech
Speaker 2: about the painful steps needed to put the country's economic
Speaker 2: house in order. He concluded that the measures in progress
Speaker 2: allow us to launch a new formula. Today we must
Speaker 2: get through the winter. Now, sixty six years after that address,
Speaker 2: Argentina finds itself needing to get through another winter. The
Speaker 2: question is whether the country's people are willing to suffer
Speaker 2: short term pain that President Melae says is necessary in
Speaker 2: order to find long term gain in a more sustainable
Speaker 2: fiscal approach that hangs in the balance.
Speaker 9: They say, we are crazy to stay here, but where
Speaker 9: is to this and we will be here working in
Speaker 9: the tech side business for many, many years. I think
Speaker 9: the business owners in Argentina deserve a medal because it's
Speaker 9: a very it's a very challenging country.
Speaker 10: I think the entire country understands what has held them
Speaker 10: back for decades now, and they're willing to take a
Speaker 10: certain amount of personal pain. Now we have to see
Speaker 10: how this transition goes and what the new messaging will come.
Speaker 10: If paranism is able to prevail in October, what's the
Speaker 10: messaging that they bring along with it. If it's a
Speaker 10: return to the same old I think that will have
Speaker 10: lost a huge opportunity.
Speaker 2: Up next, as President Trump pays a visit to the
Speaker 2: King of England, we take a look at the economy
Speaker 2: of the United Kingdom and whether it could ever be
Speaker 2: determined by more than just what happens in London. This
Speaker 2: is a story about putting all of your eggs in
Speaker 2: one basket and what it can take to move some
Speaker 2: of them into other baskets. President Trump paid a state
Speaker 2: visit to England this week. As usual, the focus was
Speaker 2: on London, which historically has dominated the British story economically
Speaker 2: and otherwise. But our colleague Lizzie Burden tells us about
Speaker 2: how that just may be beginning to change.
Speaker 8: If you talk to anyone long enough about the UK,
Speaker 8: two things usually come up, football and London. When Tom
Speaker 8: Wagner was looking for an investment opportunity, he wanted both.
Speaker 8: In the end he got one.
Speaker 13: It's an interesting story because our adventures in English football
Speaker 13: actually began with us looking at a London based Premier
Speaker 13: League club. It was a great opportunity, and shortly after
Speaker 13: passing on the opportunity in London, the opportunity to invest
Speaker 13: in Birmingham City was presented to us and it proved
Speaker 13: to be too compelling for a variety of reasons.
Speaker 8: So it's more about the football than Birmingham.
Speaker 13: The football is what drew us to the opportunity, but
Speaker 13: what sold us on the opportunity was the city of Birmingham.
Speaker 8: So Wagner, the co founder of New York based Head
Speaker 8: Capital Management, went all in, partnering with NFL great Tom
Speaker 8: Brady to buy Birmingham City Football Club and invest three
Speaker 8: billion pounds to turn his derelict plot of land just
Speaker 8: fifteen minutes outside the city's downtown into a project featuring
Speaker 8: a new stadium, commercial office space and transport links.
Speaker 14: Two weeks ago, that bridge wasn't there.
Speaker 8: It's Jeremy Beal as the club CEO. He shared us
Speaker 8: around their new site.
Speaker 14: We're planning on having one hundred and twenty five acre
Speaker 14: site and what you can see around us is you
Speaker 14: can see a new bridge which has been built, which
Speaker 14: is what will carry HS two into the city. HS
Speaker 14: two we always say makes Birmingham London Zone five. It
Speaker 14: makes us accessible from the capital within forty seven minutes
Speaker 14: and you can see the city skyline. Over to my
Speaker 14: right is where the stadium for Birmingham City Football Club
Speaker 14: will be built up on a hill towering over the
Speaker 14: city skyline, and we're really excited about that ambition.
Speaker 8: The investment is welcome news for the region. But why Birmingham.
Speaker 13: It's oft forgotten as being England's second city. It sits
Speaker 13: right between the two most talked about cities in the UK,
Speaker 13: with London and Manchester. It is a really really interesting
Speaker 13: city in the sense that it's going through a transition
Speaker 13: from an industrial base to one that is transitioning to
Speaker 13: a modern economy, and it's filled with a highly diverse,
Speaker 13: very young, very educated, very dynamic population and when you
Speaker 13: look at that set of circumstances, it makes for an
Speaker 13: interesting place to commit capital, an interesting place to pursue
Speaker 13: a very large and ambitious project.
Speaker 8: That's music to the ears of a labor government which
Speaker 8: is struggling to spur growth that's been sluggish since the
Speaker 8: Great Financial Crisis.
Speaker 12: Labor MPs are going on the recording.
Speaker 8: And which as the Opposition leader, fearing that the UK
Speaker 8: may need an IMF bailout a repeat of nineteen seventy.
Speaker 15: Six, to negotiate with the IMF on the basis of
Speaker 15: our existing policies, not changes in policies, and I need
Speaker 15: your support to do it. It means sticking to the very
Speaker 15: painful Dutch and public expenditure on which the government's already decided.
Speaker 8: Data from the Productivity Institute, a Manchester based research firm,
Speaker 8: found that the UK does not function as an optimal
Speaker 8: currency area, a defficiency which means that the benefits of
Speaker 8: the country's monetary policy are almost entirely concentrated on London's economy.
Speaker 16: The key there is that.
Speaker 8: Diane Coyle is Professor of Public Policy at the University
Speaker 8: of Cambridge and a former advisor to the UK Treasury, the.
Speaker 16: UK is one of the most regionally unequal economies in
Speaker 16: the developed world. We're right at one extreme, which is
Speaker 16: probably not a good place to be. And the problem
Speaker 16: about that is that if you want to raise economic
Speaker 16: growth nationally and improve people's living standards around the whole country,
Speaker 16: that growth is not going to all come from London
Speaker 16: or from places like Cambridge where I'm sitting now. You know,
Speaker 16: obviously it's fantastic that we've got these extremely high value,
Speaker 16: rapidly growing cities in the southeast of the country, but
Speaker 16: that needs to happen in other parts of the country
Speaker 16: as well, and I think there are actually some quite
Speaker 16: optimistic signs about that. If you think about Manchester or Birmingham,
Speaker 16: their performance has improved recently, and that's something that I
Speaker 16: would link to the devolution journey that the country has
Speaker 16: been on. One of the things holding back those other
Speaker 16: cities has been just an inability to make decisions themselves
Speaker 16: on the basis of the area that they know well,
Speaker 16: the local needs, that they know, the things that they
Speaker 16: can tell investors about what makes some attractive places to
Speaker 16: put money. In the sense, it's been a very long journey.
Speaker 16: The UK's very centralized. Lot of economic decisions for the
Speaker 16: whole country are taken in the treasury. The Treasury can't
Speaker 16: possibly know what's going on around the whole of the
Speaker 16: UK's there's a lots of information about local needs and
Speaker 16: local opportunities in doing it that way, and so many
Speaker 16: people in many cities, and Manchester is the one I
Speaker 16: know best, have been working for decades actually on persuading
Speaker 16: central government that more decisions need to be taken locally
Speaker 16: and that local knowledge needs to be exploited better. So
Speaker 16: it began post financial crisis really with the devolution deal.
Speaker 16: That's happened first for Manchester, subsequently for other cities around
Speaker 16: the country, and I think it's paying dividends because in
Speaker 16: the past decade or so the col Greater Manchester area
Speaker 16: has been one of the fastest growing areas of the country.
Speaker 16: So I think we're starting to see a demonstration of
Speaker 16: the case for becoming less centralized, allowing local authorities to
Speaker 16: build on the information they have, that know how that
Speaker 16: they have about their local economy, and the ability to
Speaker 16: coordinate better among local actors because if an overseas investor
Speaker 16: wanting to put money in the UK, potentially one of
Speaker 16: the challenges is all of the different agencies and people
Speaker 16: you need to speak to. It's much easier to coordinate
Speaker 16: that at the level of an individual city than it
Speaker 16: is to have a single front door in central government
Speaker 16: where they don't have all the information they need.
Speaker 8: The improvements are beginning to show in the data in
Speaker 8: the Office for National Statistics' latest figures London recorded annual
Speaker 8: real GDP growth of zero point two percent in twenty
Speaker 8: twenty three. The Northeast was at one point seven percent
Speaker 8: and the West Midlands one point one percent. Jason Wurra
Speaker 8: is the CEO of Lioncroft Wholesale in Birmingham.
Speaker 17: Well a landscape in the Midlands and Birmingham has changed
Speaker 17: a huge amount over the last fifty odd years that
Speaker 17: we've been in business. Lioncroft has seen a massive growth
Speaker 17: in the independent retail sector that we deal with, the
Speaker 17: mom and pop stores as you might know them, and
Speaker 17: the demand has been driven by the demographic in Birmingham,
Speaker 17: the growth of different communities. Coming in Brexit in its
Speaker 17: early stages back in twenty twenty was challenging. We found
Speaker 17: that in the short term for business, for importation, for exports,
Speaker 17: it became very difficult to trade and the labor market
Speaker 17: became very tight, so it got a bit difficult for
Speaker 17: about a year or two. And also concurrently there was
Speaker 17: the COVID virus the pandemic happening, so that had a
Speaker 17: double effect on us. However, the medium term and the
Speaker 17: long term picture seems a lot more positive. So if
Speaker 17: we look at our region and we look at our
Speaker 17: country today, we're free to do trade investments and trade
Speaker 17: deals with various countries around the world, and it just
Speaker 17: feels that there's a real energy to this place right now,
Speaker 17: and it's just amazing to see. I've lived and worked
Speaker 17: in Birmingham all my life, and I think the energy
Speaker 17: of this region of this city today is far stronger,
Speaker 17: far greater than ever before.
Speaker 8: That's g Tom Wagener is looking to capitalize on and
Speaker 8: turn into a profitable investment.
Speaker 13: YF for Birmingham the city. I think the growth potential
Speaker 13: is extraordinary because we can help spur investment into a
Speaker 13: city that's in need of housing, that's in need of
Speaker 13: more office space that I think could use to keep
Speaker 13: more of the talent that is educated there in the
Speaker 13: city of Birmingham by making it a more compelling place
Speaker 13: to live and then providing for a venue of work
Speaker 13: and entertainment for the whole of the Cotswolds, the whole
Speaker 13: of the West Midlands as an example. Those are places
Speaker 13: that are very dynamic and experiencing lots of inbound investment
Speaker 13: that we'll see a greater amount of connectivity into Birmingham
Speaker 13: the city and as it relates to Birmingham City Football Club.
Speaker 13: The opportunity for us is to grow the brand and
Speaker 13: to grow the club into something that I think is
Speaker 13: more commensurate with the underlying fan base that existed when
Speaker 13: we bought the club. It had always been a big
Speaker 13: club that had never really seen or achieved its full
Speaker 13: pame ntural.
Speaker 8: And likewise, London, which contributes around twenty three percent of
Speaker 8: the country's GDP, far more than any other region, will
Speaker 8: always be the UK star player, but for it to
Speaker 8: reach its full potential, it needs more from the whole team.
Speaker 16: London is going to be the dominant city it always
Speaker 16: has been, and we want London to continue growing as well,
Speaker 16: but the whole economy will be healthier if other cities
Speaker 16: are growing in the same way. At the moment, there's
Speaker 16: a lot of transfer through the tax system from London
Speaker 16: to the rest of the country. That could change if
Speaker 16: other cities start to generate more tax revenues themselves through
Speaker 16: their own ability to grow. So having a much more
Speaker 16: balanced economy regionally is good for everybody. There's often an
Speaker 16: idea that this is a zero sum game, that if
Speaker 16: Manchester and Birmingham growing, London is going to somehow going
Speaker 16: to harm London that's a complete nonsense. The more other
Speaker 16: cities grow, the better it is for London as well.
Speaker 16: I am optimistic if the politics aligns and it is
Speaker 16: a political decision about how we want to organize the
Speaker 16: governs the country and how much devolution we want. One
Speaker 16: of the things that tends to hold it back is
Speaker 16: this concern about the capability of officials in other parts
Speaker 16: of the country to deliver the kinds of policies that
Speaker 16: we have centralized for so long. That's not going to
Speaker 16: change unless we start to do it, and there are
Speaker 16: definitely ways to address that. If we don't try it,
Speaker 16: if that political decision isn't made, then we're going to
Speaker 16: be stuck as a slow growth country and the laggard
Speaker 16: in the OECD area. But there's a great opportunity there,
Speaker 16: and if the Chancellor and her successors care about growth
Speaker 16: and care about living standards, they're going to have to
Speaker 16: grab that opportunity.
Speaker 2: That does it for us. Here at Wall Street Week,
Speaker 2: I'm David West and see you next week for more
Speaker 2: stories of capitalism s