Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm pim Fox.
Speaker 1: Along with my co host Lisa A. Bramowitz. Each day
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Speaker 1: In the nineteen seventies, about twenty million Americans earned their
Speaker 1: paycheck from factory work. Well, today, about twelve and a
Speaker 1: half million workers remain in the industry. Here to tell
Speaker 1: us more about manufacturing in the United States and his movie,
Speaker 1: American Made Movie, is Vincent Vittorio. He is the director. Vincent.
Speaker 1: Thank you very much for being with us. Thanks so
Speaker 1: much for having me on. Can you just start off
Speaker 1: by telling us why did you decide to make this movie? Well,
Speaker 1: but my co director and I both had kind of
Speaker 1: a connection to manufacturing. My wife's parents were from Detroit
Speaker 1: and work to many of the auto manufacturers there, and
Speaker 1: then my business partners also was in Georgia, um a
Speaker 1: lot of the plants there that end up closing down,
Speaker 1: and we started to realize that, you know, with the
Speaker 1: power of documentary filmmaking, we can kind of get people
Speaker 1: to really understand that well, manufacturing isn't what it was,
Speaker 1: that there's still viable jobs for manufacturing, and so we
Speaker 1: produced a film that talks about kind of that, you know, um,
Speaker 1: the spirit of manufacturing that we can awaken with with
Speaker 1: encouraging people to buy from this country, from their community
Speaker 1: and their home state. Speak if you can about some
Speaker 1: of the specifics, because we know a lot of work
Speaker 1: that might have been done by human beings is now
Speaker 1: done by robots or is automated. But manufacturing employment, as
Speaker 1: evidenced by your movie, you can still lead to a
Speaker 1: positive economic outlook. No, definitely, you know there's a ripple
Speaker 1: effect that happens when you have a UM, a line
Speaker 1: of manufacturing that's much different than what it was twenty
Speaker 1: years ago. I mean you think of the way that
Speaker 1: things have advanced and the way that um A lot
Speaker 1: of these jobs are much more technology based, with having
Speaker 1: a background in technical education as opposed to being on
Speaker 1: a line where we're just putting apart together. And I
Speaker 1: think you know that really goes to the education into things.
Speaker 1: I mean, in your state of New York, there's a
Speaker 1: great program the p Tech program that you know, really
Speaker 1: get kids to understand kind of, um, the importance of
Speaker 1: a career pathway. And I think if we can have
Speaker 1: more things like that across this country to get kids
Speaker 1: to really understand that, you know, we don't all have
Speaker 1: to graduate with a liberal arts degree, but we can
Speaker 1: have a job that gets us kind of a foot
Speaker 1: forward with thinking about advanced manufacturing or careers um to
Speaker 1: kind of, I guess, respond to this skills gap. We're
Speaker 1: starting to see, well, a lot of manufacturers, indeed, the
Speaker 1: Manufacturers Association, National Association and manufacturers a big porter President
Speaker 1: Donald Trump. They speak about tax reform and how that
Speaker 1: could spur infrastructure spending. Is that also part of the
Speaker 1: picture when you know you made this movie, You've got
Speaker 1: to find what are the things that are going to
Speaker 1: make manufacturing economically viable? You know? Well, to start with
Speaker 1: the Trump side of things, I think that it's it's
Speaker 1: kind of one of those I don't know what it's
Speaker 1: gonna mean today versus tomorrow. I mean, so I think that, um,
Speaker 1: I don't know where he's going to bring things, but
Speaker 1: I do think the tax reform can definitely incentivize people
Speaker 1: to make things here and to give them a reason
Speaker 1: to not feel like they can go overseas. Um. I
Speaker 1: just you know, I really think it takes a lot
Speaker 1: of bipartisanship to come together to actually approve that on
Speaker 1: all sides. But what you do see is things like
Speaker 1: the fox con plant, you know in Wisconsin, and I mean,
Speaker 1: that's that's a huge thing to see. The fox com
Speaker 1: that we always look at is being a foreign entity
Speaker 1: of sorts that is now going to be manufacturing things
Speaker 1: on you know, our home soil. And I think that's
Speaker 1: that's a beautiful thing. And you see that with a
Speaker 1: lot of auto manufacturers. So I think that we need
Speaker 1: to give them reasons that aren't just about the tax code,
Speaker 1: but about communities reaching out and making them feel like
Speaker 1: the ripple effect that's going to not only help the
Speaker 1: state but help their their um. You know, they're they're
Speaker 1: manufacturing their brand, their their company. And as far as
Speaker 1: examples in the movie, maybe just give people some idea. Well,
Speaker 1: one one really big company which which I've grown to
Speaker 1: love through making the film Son Partly Bias is new balance.
Speaker 1: So new balance sneakers. You know, they make sneakers in
Speaker 1: the United States, not all of them, but a good
Speaker 1: amount of them, and it's grown tremendously in time. It's
Speaker 1: it's actually kind of ironic that, um, the people that
Speaker 1: are buying the most America made sneakers are overseas, which
Speaker 1: I think that goes back to say something about what
Speaker 1: that brand of made an America means. You know, if
Speaker 1: we can't look at that as we go to the
Speaker 1: big box store and think that this is something important
Speaker 1: that we make things here but other countries are noticing it,
Speaker 1: you know we need to take take interest in that.
Speaker 1: But um, New Balance is a great exam up on
Speaker 1: you know the other one that's based in based in Brighton, right,
Speaker 1: I mean they based in in Boston, home to Bloomberg
Speaker 1: one oh six one and Bloomberg. So that is certainly
Speaker 1: a feature of the sort of the made in America,
Speaker 1: made in the USA label, is it is prestigious outside
Speaker 1: the United States? What about making it prestigious inside the
Speaker 1: United States? You know that takes a lot with the marketing.
Speaker 1: I mean you've seen that the last two Super Bowls
Speaker 1: where you see that made an America ad that comes up.
Speaker 1: But I mean, if we can get people today to
Speaker 1: realize kind of what it means to have a personal
Speaker 1: relationship with the product we buy or the brand. I
Speaker 1: think we can do something. I mean Lebron James great example, right,
Speaker 1: He's getting paid millions of dollars to endorse anything and
Speaker 1: people are going to flock to it. I think if
Speaker 1: we can do that same thing with this Maid in
Speaker 1: America brand. I mean, can you imagine if Robert Downey Jr.
Speaker 1: Had like an Iron Man mask and he took it
Speaker 1: off and gave a pitch for the idea that like
Speaker 1: this was made right here in the USA. I mean, like,
Speaker 1: those are the kind of things that we need really
Speaker 1: kind of do to to spark that because there's no
Speaker 1: doubt we're not making you know, good quality stuff and
Speaker 1: you can go buy a desk at Ikea for a
Speaker 1: quarter of the price at the expensive furniture store, but
Speaker 1: you know, the money you're paying it comes across with
Speaker 1: the product you're getting. Things in America are made um
Speaker 1: to last, and I think that's something that I think
Speaker 1: I feel very passionate about with everything that I purchase.
Speaker 1: All right, But having having said that, do you find
Speaker 1: that there's a contradiction because if you go to a
Speaker 1: big box retailer, you're looking for the best price. You're
Speaker 1: not necessarily going to put the item or the palette
Speaker 1: of items back on the shelf because it's made somewhere else.
Speaker 1: And that is what has fueled a lot of innovation
Speaker 1: in the United States in terms of let's say, retailing
Speaker 1: or even making consumer products affordable. No, you're right. I
Speaker 1: mean it's very hard because we live in this kind
Speaker 1: of throwaway society where we don't plan on buying a
Speaker 1: couch that's going to last us more than a couple
Speaker 1: of years. I mean, and I think that's kind of
Speaker 1: a deeper question about like we buy and the way
Speaker 1: we buy. But I think that, um, ultimately it comes
Speaker 1: to supply and demand. If enough people are looking for
Speaker 1: American made products, of enough people are kind of looking
Speaker 1: for that brand, um and making sure they look at
Speaker 1: the label, it can change things. I mean, it's happened
Speaker 1: with the organic food movement. I mean, can you imagine, um,
Speaker 1: you know, ten years ago, if I would have said
Speaker 1: that organic foods would be like they are now, I
Speaker 1: mean you could never find them everywhere. And now I
Speaker 1: mean you've got truck stops, you know, and they're filled
Speaker 1: with healthy options. So I think it's because consumers demanded it.
Speaker 1: And so if consumers can demand um with their purchase
Speaker 1: power American made goods, then I think that the big
Speaker 1: box stores could start to see more of those coming there.
Speaker 1: If you give you a fifteen seconds, is there one
Speaker 1: product that you wish was made in the United States
Speaker 1: but isn't. Oh gosh, I mean, I think the Apple computer.
Speaker 1: I mean, that's that's a really big one because it
Speaker 1: was it was it was grown out of you know,
Speaker 1: my state of California, and with the the the engineering,
Speaker 1: the the prototypes, everything about it, we should make it here.
Speaker 1: I mean, we're making enough money with that. And I
Speaker 1: know that something President Trump and even you know, for
Speaker 1: President Obama was trying to do. I think that there's
Speaker 1: certain things we should really try to make here, and
Speaker 1: I think it's it's important. I want to thank you
Speaker 1: very much for spending time with us. Vincent Victorio. He
Speaker 1: is the director of American Made Movie. All right, let's
Speaker 1: turn our attention now to investments and Mike Mulaney. Mike
Speaker 1: is joining us from Boston Partners. He is the director
Speaker 1: of Global Market Research. Mike, thanks very much for being
Speaker 1: with us. Uh, you know, I want if we get
Speaker 1: start off with You've listed a couple of very important things.
Speaker 1: You've got things such as you know, the Trump bomp
Speaker 1: issues having to do with oil the Japanese market. And
Speaker 1: I'm wondering if we could kind of look at Japan
Speaker 1: first and work our way back to the United States
Speaker 1: because the Prime Minister, Shinzo Abe has called an election,
Speaker 1: and yeah, election, yes to us, it's reminiscent obviously of
Speaker 1: what Teresa May did in June, and yeah, you got
Speaker 1: exactly exactly. Now, this is a scheduled for October twenty two,
Speaker 1: and he's been in power for about five years, which
Speaker 1: is pretty long if you're a Japanese prime minister. But
Speaker 1: he is going to be going against He's going to
Speaker 1: be opposed by the Party of Hope. Now, this is
Speaker 1: this new conservative alliance which is led by the populist
Speaker 1: mayor of Tokyo, Uriko koek and she has previously served
Speaker 1: as Minister of Defense. And I'm wondering if you could
Speaker 1: describe what would happen if indeed shinzo Abe was returned
Speaker 1: to power with a reduced majority, or indeed didn't even
Speaker 1: make it past the post. Well, you have the question
Speaker 1: once again, the progress of of abenamics or abenamics in
Speaker 1: j general, if he was going to be able to
Speaker 1: push through his reforms that he's been relatively successful for
Speaker 1: if you look at both the economy uh and the
Speaker 1: markets in general and Japan. So I think that would
Speaker 1: be the primary question mark whether or not he would
Speaker 1: able to proceed with um with the same kind of
Speaker 1: vigor that he's had up a failure last you know,
Speaker 1: two to three years that that's been in place. Right now,
Speaker 1: looking at the Japanese stock market in dollar terms, up
Speaker 1: about twelve and a quarter percent so far this year. Yeah,
Speaker 1: And the key with the you know, the Japanese market
Speaker 1: is that investors basically have been burned so many times
Speaker 1: in the past about Japan. There's still kind of that
Speaker 1: weary eye about the market in general and the economy
Speaker 1: in general because we've had not just one, but probably
Speaker 1: at least two decades of the you know, the lost decades,
Speaker 1: not just they lost decade as far as Japan's concern,
Speaker 1: that goes to the economy and more or less for
Speaker 1: the markets in general. So I think, you know, we
Speaker 1: have to have a a proof statement coming from from
Speaker 1: this type of a snap election that we can can
Speaker 1: continue to see the improvement that we've seen, like I said,
Speaker 1: most recently from both the economy and the markets. Yeah, well,
Speaker 1: I was even thinking. You know that Governor Karda of
Speaker 1: the Bank of Japan, his reappointment is scheduled for eighteen
Speaker 1: but that could change if we get a new leader
Speaker 1: in Japan, no question, and we you know, if we
Speaker 1: were to air on both the Bank of Japan in
Speaker 1: on the Federal Reserve, we would like to see status quo,
Speaker 1: that being Karada staying in place as well as jon
Speaker 1: and staying in place. Just the stability of the market.
Speaker 1: I think Karroda has done a magnificent job. He's probably
Speaker 1: been the most uh do you want to call it aggressive,
Speaker 1: and it's not just um, you know, more or less
Speaker 1: creative of of the central bankers in the world. And
Speaker 1: once again it's done a good job of a stabilizing
Speaker 1: asset prices and stabilize the economy in general. Well, you're
Speaker 1: being diplomatic because some investors might say that he actually
Speaker 1: fixes the prices of assets because what they have about
Speaker 1: thirty three of the j GB market and like three
Speaker 1: quarters of all Japanese exchange traded funds that are owned
Speaker 1: by the central Bank. That's why I use the word creative,
Speaker 1: because it's something a little bit out of the norm
Speaker 1: that we've seen from other central bankers. But um, you know,
Speaker 1: it's it's a little bit reminiscent of what Mario Draga said,
Speaker 1: it's whatever it takes, and I think Corona has basically
Speaker 1: done that. Okay, so you help me circle back. We're
Speaker 1: gonna go to Europe now and Mario drag the European
Speaker 1: Central Bank tell me what you uh, what your thoughts
Speaker 1: are are there, because I know that later on in
Speaker 1: the week, I believe you know, we're going to get
Speaker 1: some news from the Central Bank of Europe, but also
Speaker 1: we're gonna get the Fed minutes. What are you what
Speaker 1: are you gonna take away from Europe? First? Well, Europe
Speaker 1: is going to be key, is that I think the
Speaker 1: twenty six I think is the meeting in Europe, and
Speaker 1: once again the eyes are gonna be focused on exactly
Speaker 1: what's going to happen with the balance sheet tapering program
Speaker 1: from the e c B. What we're worry about once
Speaker 1: again is that that's going to coincide with potentially the Fed,
Speaker 1: you know, uh, diminishing and dropping their balance sheet this
Speaker 1: this month as well, So we're gonna have a two
Speaker 1: for for the month of October potentially. As far as
Speaker 1: balance sheet um retracement, I guess you could say is
Speaker 1: concerns and we're leary about that because this is still
Speaker 1: a grand experiment, you know, on the way up, it
Speaker 1: was a grand experiment on the balance sheet explosions that
Speaker 1: we've seen around the world, and we're a little bit
Speaker 1: leary and that to think that we don't want to
Speaker 1: be naive to think there's not going to be some
Speaker 1: kind of symmetry between the the benefit of asset prices
Speaker 1: on the upside as balance sheets grew from the central
Speaker 1: banks versus as they shrink them. Um, there will be
Speaker 1: no impact. And I think that's where you know, people
Speaker 1: might be a bit naive. Have you've heard this from
Speaker 1: um Jamie diamond saying that you've got to watch this
Speaker 1: given that it is the grand experiment as far as
Speaker 1: balance sheets A concerned all right, Well as someone I
Speaker 1: know who's got a lot of experienced in fixed income
Speaker 1: markets put that hat on and tell us what do
Speaker 1: you think about the balance sheet unwind? And that gives
Speaker 1: us an opportunity to turn to the United States where
Speaker 1: do you think that's gonna do to yields? For example,
Speaker 1: we got the thirty year today basically on two point
Speaker 1: eight nine, the tenure at two thirty five. Uh. To
Speaker 1: two aspects of the yield story. So the first one
Speaker 1: would be, like you said, as far as the balance sheet, uh,
Speaker 1: you know, the FED owns. I believe it's of all
Speaker 1: mortgage backed securities and also seventeen percent of all treasuries
Speaker 1: right now, so they have been obviously in most recent years,
Speaker 1: the marginal buyer that's been out there for both the
Speaker 1: treasury market and the mortgage back market. So as that unwind,
Speaker 1: it's gonna have you're gonna have to find the next
Speaker 1: marginal buyer. I don't know if it's gonna be Japan.
Speaker 1: I don't know if it's gonna be China, but someone's
Speaker 1: gonna have to take up the slack that that is
Speaker 1: going to become apparent from the lack of FED buying.
Speaker 1: So that's number one. Rates should be higher to attract
Speaker 1: that next marginal buyer. To once again, you've got to
Speaker 1: go back to inflation. And you know, it's been a
Speaker 1: a quandary that the Janet Yellen has been talking about
Speaker 1: for quite some time. We did see some pressure obviously
Speaker 1: on average hourly earnings that came in and the report
Speaker 1: on Friday backup at two point. The question becomes is
Speaker 1: that's going to stick a not or is that once
Speaker 1: again just a byproduct of the hurricanes that we saw
Speaker 1: during the course of the September reporting period where lower
Speaker 1: wage journers fell out of the survey and therefore biased
Speaker 1: the numbers upwards. So we've still got a month to
Speaker 1: figure out if it was just a temporary factor or not.
Speaker 1: But ultimately it's going to be inflation that's going to
Speaker 1: drive where interest rates go. Um. I don't think that
Speaker 1: the FED itself can get too aggressive as far as
Speaker 1: pushing up the overall structure of rates. Thanks very much,
Speaker 1: Mike Mullaney. He is the director of Global market Research
Speaker 1: for Boston Properties. We now call upon Nick Hayman of
Speaker 1: William Blair Global Industrial Infrastructure Expert to tell us about
Speaker 1: a general electric Nick, always a pleasure. What do you
Speaker 1: make of the moves by John Flannery taking the reins
Speaker 1: earlier from Jeffrey Immelt, A new CFO and four vice chairs,
Speaker 1: well three four if you count the CFO leaving the company. Yeah,
Speaker 1: We have obviously a lot of change being implemented in
Speaker 1: a very short time period by John Flannery and it
Speaker 1: UH is leaving no stone unturned. But with regards to
Speaker 1: you know, Jeff Bornstein, the former CFO, and Beth Combstock
Speaker 1: and John Rice, I think that you know, John is
Speaker 1: is really trying to find, if you will, representatives of
Speaker 1: what he sees perhaps is more of the initiatives he's
Speaker 1: going to focus on going forward versus those that were
Speaker 1: really UM stewards of Jeff Emil's former CEO and chairman.
Speaker 1: All right, so what are some of the strategy points
Speaker 1: that John Flannery is into a rely on. Well, I mean,
Speaker 1: very simplistically, he's very UH focused near term on being
Speaker 1: able to help UM improve the cash flow from operating
Speaker 1: activities UM that this year, you know, clearly have been
Speaker 1: under pressure. We think UM they may not even reach
Speaker 1: the low end of their twelve to fourteen billion dollar target,
Speaker 1: and that reflects stepped up UH restructuring on a cash
Speaker 1: basis across all aspects of the company's operations. But I
Speaker 1: think that will lay out a clear plan to improve
Speaker 1: that by fifty or six percent by later this decade
Speaker 1: to eighteen to twenty billion dollars. G needs fifteen sixteen
Speaker 1: billion on a normalized capital spend of two and a
Speaker 1: half to three UH to be able to support HITS
Speaker 1: operations and pay it's eight billion dividend. Let's just go
Speaker 1: through some of the items, perhaps you know this a
Speaker 1: little bit more detailed, maybe getting ready for that November
Speaker 1: thirteenth meeting. I believe that John Sinner is going to
Speaker 1: addressing UH investors. Number One, you write, you talk about
Speaker 1: operationally weaker end market demand for gepower, transportation, and oil
Speaker 1: and transportation, right, yeah, and the oil and gas so
Speaker 1: you have when you're looking to reset, which is one
Speaker 1: of the exercises, He'll go through the two dollar two
Speaker 1: thousand eighteen UM target by jeff eimilt Um. He'll look
Speaker 1: to operationally adjust that for the weaker end market conditions
Speaker 1: you just mentioned. He's going to have some changes in
Speaker 1: the business portfolio, I'm sure for smaller businesses, but he's
Speaker 1: also going to have a tremendously larger I think amount
Speaker 1: of costs out a three billion or more. And then
Speaker 1: in turn he's going to reset the accounting so that
Speaker 1: will include you know, the full impact of contract asset investments.
Speaker 1: As well as their pension costs. Okay, So that and
Speaker 1: then you're talking that would lead you right into your
Speaker 1: second point, which is the portfolio pruning, getting rid of
Speaker 1: businesses that don't necessarily meet their cost to capital. Yes. No,
Speaker 1: there's definitely some peripheral businesses that I would call calls
Speaker 1: on the future him that in turn were funded under Jeff.
Speaker 1: But under John, if you're not earning your cost to capital,
Speaker 1: you're probably not on the team. These are not big
Speaker 1: parts of the company, but smaller adjunct businesses related to
Speaker 1: their core um industrial operations. All right, and you also
Speaker 1: mentioned that you previously mentioned the accounting, So okay, is
Speaker 1: that Is there anything more we need to know there? No,
Speaker 1: I mean accounting obviously has been There's four different sets
Speaker 1: of earnings that he presents, and I think we're going
Speaker 1: streamline this down to something on the order of, you know,
Speaker 1: gap accounting plus or minus um one time positive and
Speaker 1: negative items for restructuring their games. But he's really got
Speaker 1: to focus on getting this cash flow from operating activities up,
Speaker 1: which includes reducing the capital spending to this normalized level
Speaker 1: of two and a half to three billion from three
Speaker 1: and a half to four This year, he's got to
Speaker 1: narrow the focus of digital operation so that in turn
Speaker 1: that can reduce its um R and D and capital
Speaker 1: spending intensity. He's got to take and reduce the contract
Speaker 1: asset investments. And lastly, he's got to work to show
Speaker 1: up the nineteen billion contractual portion of the company's thirty
Speaker 1: one billion pension deficit. Alright, given all that and your
Speaker 1: outperform rating on the shares, is there a connection between
Speaker 1: all of this activity and Nelson pelts ed Garden, UH
Speaker 1: and Try and Fund Management will Try and has been
Speaker 1: involved for quite some time with GE and UM. I
Speaker 1: think at this point clearly UM giving them one of
Speaker 1: the seats on the board as uh Deer's former CEO
Speaker 1: step down, UM gives them an opportunity to continue to
Speaker 1: be a constructive partner in helping John accelerate the transformation
Speaker 1: of GEN. Alright, Having said that, though, Nick, what do
Speaker 1: you think that John would prefer to inherit in terms
Speaker 1: of how GE operates. I think he's trying to change
Speaker 1: what is not a broken company but a bloated company,
Speaker 1: and in turn trying to go across all aspects of
Speaker 1: the cost structure of the company, whether it's the new
Speaker 1: headquarters building, whether it's planes, whether it's cars for their
Speaker 1: management team, there's no stone left unturned PIM. And just
Speaker 1: to finally, Nick, you know, tell people how long you've
Speaker 1: been covering ge and how you see the company coming
Speaker 1: out from all of this. Well, we've been found for
Speaker 1: about thirty four years, and UM, what we're seeing here
Speaker 1: is a dichotomy between perhaps um the focus on their
Speaker 1: earnings reset for cell side analysts typically versus on the
Speaker 1: owners of the shares, a need to have visual improvement
Speaker 1: for actionable steps to lift the cash flow so you
Speaker 1: can sustain the dividend. And if they see that, I
Speaker 1: think the investors are likely to ultimately um rerate the
Speaker 1: yield from four currently to probably something like three over
Speaker 1: the next year. All right, well, we're gonna have to
Speaker 1: wait and see what happens, and we're going to count
Speaker 1: on you. I know you're gonna probably be at that
Speaker 1: November thirteenth meeting, get more details and we could check
Speaker 1: in with you then. Thanks very much, Nick Hayman from
Speaker 1: William Blair Expert when it comes to global industrial infrastructure
Speaker 1: shares u S economist Richard Taylor, one of the founding
Speaker 1: fathers of behavioral economics has won this year's Nobel Prize
Speaker 1: for Economics, and here to tell us more about this
Speaker 1: winner is Simon Kennedy. He is our editor for Brexit,
Speaker 1: amongst other things. Simon, thanks for joining me here in
Speaker 1: the studio. What does it say about the state of
Speaker 1: economics when the winner of this year's prize has this quote?
Speaker 1: Conventional conventional economics assumes that people are highly rational, superrational,
Speaker 1: and unemotional. They can calculate like a computer and have
Speaker 1: no self control problems, meaning that that does not exist. Really,
Speaker 1: it's taken until seventeen for people to get the stamp
Speaker 1: of approval that emotions are what drive markets as much
Speaker 1: as markets. Well, I think we've seen some element in
Speaker 1: the past. Is Daniel Kannaman and Robert Shilow win in
Speaker 1: the PASTA but but I think it's very important for
Speaker 1: the behavioral economics field that Richard failure as one. He's
Speaker 1: been very much a cheerleader for that and and for
Speaker 1: a long period of time, as you you hint had,
Speaker 1: behavior economics was kind of the the ugly member of
Speaker 1: the family. It was pushed to the side. A lot
Speaker 1: of people didn't buy it. People when you say a
Speaker 1: lot of people. You mean a lot of people in academia,
Speaker 1: because certainly in markets, anyone who's an investor knows that
Speaker 1: animal spirits and emotion played very crucial role. But I
Speaker 1: think in mainstream because you couldn't put it in a formula,
Speaker 1: it was kind of rejected as a as not a
Speaker 1: as not it was a party trick, something that's interesting.
Speaker 1: I'll tell someone a good story to dinner party. But
Speaker 1: it wasn't viewed as as important to the mainstream economics.
Speaker 1: And now it quite liarly is. And it's been brought
Speaker 1: in by people a Richard Taylor, by people like Robert Shiller,
Speaker 1: promoted by people like Mia the author and Limberview columnist
Speaker 1: Michael Lewis in his new book, It's very important, and
Speaker 1: so along with the fund stories that are accessible and
Speaker 1: mean that this field of economics, it's perhaps more popular
Speaker 1: parts more interesting. I start into one colleague today who
Speaker 1: said his daughter was interested in it because the kind
Speaker 1: of free economics. I was just going to mention that, yes, indeed, well,
Speaker 1: his book, one of his many books, of Faylor's many
Speaker 1: books that he co authored, this one with the Cass Sunstein,
Speaker 1: is entitled Nudge Right improving decisions about health, wealth and happiness.
Speaker 1: Do you believe that that had an influence on on
Speaker 1: the Nobel Committee that would eventually give him the prize?
Speaker 1: I think so in one way it's already influenced how
Speaker 1: we live our lives. If in the last decade, people
Speaker 1: like Barack Obama in the White House, David Cameron in
Speaker 1: Downing Street in the UK have turned to this kind
Speaker 1: of theory, this theory that you can can do things,
Speaker 1: you can change, you make small incentives and you can
Speaker 1: change how people behave, how vote, how consumers and voters behave.
Speaker 1: And if you can do that in a time of
Speaker 1: a big budget deficits, when you haven't got the money
Speaker 1: to spend to incentivize them, you can you can quote
Speaker 1: unquote nudge them into into doing things you're in. One
Speaker 1: example in the UK, um they discovered that taxes were
Speaker 1: that were paid quicker. If you sent a letter to
Speaker 1: two taxpayers saying everyone in your areal, a lot of
Speaker 1: people in your area have already paid their taxes. Uh,
Speaker 1: And it kind of clicked something intoone's brain. Now, what
Speaker 1: if every if my neighbors have done so, I better
Speaker 1: get on that. And so they are sort of like
Speaker 1: being in a classroom in elementary school and the teacher says,
Speaker 1: everyone else has cleaned up their desk, what about you. Yeah,
Speaker 1: it's it's kind of guilt by by by association, And yeah,
Speaker 1: I was actually talking about it this time my sons
Speaker 1: the other day. When you see a sign that says
Speaker 1: police sir, I don't know if you see them in America,
Speaker 1: but in the UK you'll see these signs saying you're
Speaker 1: entering a police traffic zone. Well, they might just have
Speaker 1: spend money on the sign and that there's no police
Speaker 1: coming up. But does anyone want to trust that they
Speaker 1: want to they're going to slow down. So it's all
Speaker 1: about tricking the brain into behaving in a way that's
Speaker 1: optimal for society. Does does the work of Richard Daylor
Speaker 1: Does it also include the idea that we have tricked
Speaker 1: ourselves into believing that we are rational, that we make decisions,
Speaker 1: and then what we do is we go and find
Speaker 1: evidence to fit the decisions that we've made, not because
Speaker 1: it's true, but because it makes us feel good. Yeah. Absolutely,
Speaker 1: you want to explain why you've done in. One area
Speaker 1: of his work is on quiz shows, So there's a
Speaker 1: quiz show called Deal or No Deal, and it turns
Speaker 1: out that actually people are the further they go into
Speaker 1: the process, their behavior or the choices of which briefcase
Speaker 1: to open up is led by did they get lucky
Speaker 1: earlier in the in the thing. If they feel they're
Speaker 1: they're lucky earlier and they've got this what's called the
Speaker 1: hot hand, they feel that they can continue, and so
Speaker 1: they take risks based on what's happened before, even though
Speaker 1: the odds would suggest that they should have behaved. Does
Speaker 1: that Does that indicate in your mind that what has
Speaker 1: happened is we've used statistics in a way that can't
Speaker 1: necessarily predict the future, but we wish it did. Yeah. Absolutely.
Speaker 1: I think it's because you know, you say, well, all right,
Speaker 1: the probability of something, but the probability of something is
Speaker 1: always yes or no. It's you know, fifty fifty, but
Speaker 1: it doesn't matter how many times you flip the coin.
Speaker 1: That's still the probability. But statistics will tell you something else. Yeah,
Speaker 1: and you're One of the things that was used by
Speaker 1: this money is he's been in the big short film
Speaker 1: talking about c d os and this idea that that yeah,
Speaker 1: that he he brings this idea that you can have
Speaker 1: a hot hand fallacy that that that you you become
Speaker 1: more confident based on what's already well. I can also
Speaker 1: lead to bad decisions and investments, because if you find
Speaker 1: a manager and you look at the track record and
Speaker 1: you say, well, the manager has done great for the
Speaker 1: last twenty years, has nothing really to do with the
Speaker 1: performance for the next year. And it doesn't necessarily mean
Speaker 1: you should drop that manager or add that manager is
Speaker 1: past performance no longer an indgient future. Right, that goes
Speaker 1: right with the police science, right, you know, the disclaimer.
Speaker 1: Last thing to you, if you were to take this
Speaker 1: information and his body of work and try to apply
Speaker 1: it to the world of asset management, where would you
Speaker 1: come out. What would you take away from this? Well,
Speaker 1: I think he's already he's he's spent a lot of
Speaker 1: time on four oh one programs and how they can
Speaker 1: can be incentivize, how people can can save you know,
Speaker 1: obviously savings is a huge thing. We all talked about
Speaker 1: getting our pension up in versus up exactly. So you say,
Speaker 1: if you're a company, um, so traditionally the paper it
Speaker 1: comes in, you're so busy and you never really opted
Speaker 1: in something time has taken. It's actually people. Obviously, pensions
Speaker 1: are are good things for most people. So therefore, if
Speaker 1: you have to opt out, if you have to send
Speaker 1: the paperwork to get out of the pension, it's more
Speaker 1: likely you'll be in the pensions. And do you have
Speaker 1: a copy of Nudge. I've a signed copy of a
Speaker 1: signed copy of the joy that the joy of the
Speaker 1: Nobel Prize today was that that actually, I'm familiar with
Speaker 1: a lot of economies work. There's someone who very familiar
Speaker 1: with so we were able to write good stories on
Speaker 1: the basis that he's very accessible. This is someone who
Speaker 1: it's not he's not just for economists, all right. Thanks
Speaker 1: very much, as Simon Kennedy, part of our Bloomberg Economics team,
Speaker 1: much appreciated the author of Richard Taylor, the author of Nudge,
Speaker 1: winner of the Nobel Prize of Economic Thanks for listening
Speaker 1: to the Bloomberg P and L podcast. You can subscribe
Speaker 1: and listen to interviews at Apple Podcasts, SoundCloud, or whatever
Speaker 1: podcast platform you prefer. I'm pim Fox. I'm on Twitter
Speaker 1: at pim Fox. I'm on Twitter at Lisa Abramo. It's
Speaker 1: one before the podcast. You can always catch us worldwide
Speaker 1: on Bloomberg Radio.