Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm term Keene
Speaker 1: jay Leye. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Yeah.
Speaker 1: I'm really pleased to say on this pay Rolls Friday,
Speaker 1: we are joined by Marty foul Stein. Here is Harvard
Speaker 1: University economics professor and the former chairman of the Council
Speaker 1: of Economic Advisors under President Reagan. Marty, always great to
Speaker 1: have you with us on the program. Good morning to
Speaker 1: use sir, Good morning, happy to be here, Looking forward
Speaker 1: to talking to you about payrolls in just a moment.
Speaker 1: Want to begin with China and the prospect of a deal.
Speaker 1: We now have some decent transparency of what the United
Speaker 1: States would like from the Chinese. Let's talk about how
Speaker 1: realistic it is that this administration will get those things. Unfortunately,
Speaker 1: it's the wrong thing to be focusing on. Uh, It's
Speaker 1: something that the public can understand. It's something that President
Speaker 1: Trump can sell as our goal two hundred billion dollars.
Speaker 1: It's a big number. It would cut our bilateral trade
Speaker 1: deficit in half, and it really doesn't matter. What really
Speaker 1: is important is that the Chinese have been taken technology
Speaker 1: from American firms by requiring them to have joint ventures
Speaker 1: with Chinese firms. If they want to do business in China.
Speaker 1: That's against w t O rules and that is what
Speaker 1: we should be focusing on when we negotiate with the Chinese.
Speaker 1: So the administration is also focusing on that, as you know, professor,
Speaker 1: they aren't demanding that the Chinese changed this removal of
Speaker 1: restrictions on foreign ownership of companies. Also the technology transfer
Speaker 1: as well. Is your message that they're asking for too much.
Speaker 1: They should be focusing on just that and not the
Speaker 1: overall trade balance would be much better if they've focused
Speaker 1: on that. I mean that got brought into the discussion
Speaker 1: late in the game. Um, the original thing was about
Speaker 1: cutting the bilateral trade imbalance. And if the Chinese managed
Speaker 1: to do that and we say, great, you've given us
Speaker 1: what we wanted, will have missed the opportunity to deal
Speaker 1: with the serious problem, which is the technology transfer. Let's
Speaker 1: talk about the time horizon for all of this. They
Speaker 1: usually needs to be a credible threat at the other
Speaker 1: end of any negotiation. If we don't negotiate a better deal,
Speaker 1: this is what happens. And on the table at the
Speaker 1: moment is a proposal for a set of tariffs and
Speaker 1: considerations for another proposal of a set of tariffs against
Speaker 1: the Chinese. The Chinese themselves, Professor, have their own proposals
Speaker 1: on how they would respond. So we've got everything set
Speaker 1: up that way. Do you have any idea, any clarity
Speaker 1: at the moment on what the time horizon is to
Speaker 1: negotiate this deal with the prospect of tariffs at the
Speaker 1: other end of it, Well, I think tariffs are important.
Speaker 1: I think restrictions on what the Chinese can do in
Speaker 1: the United States, their ability to invest here, to buy
Speaker 1: US companies, all of those things that the Chinese would
Speaker 1: like to be able to do, we can say you
Speaker 1: can only do those things if you get in compliance
Speaker 1: with w t O rules that you had accepted, and
Speaker 1: that means allowing American companies to invest to sell in
Speaker 1: China without having to have a a Chinese partner. Professor,
Speaker 1: I have been stunned by the US centric coverage of
Speaker 1: these meetings and frankly, of this debate. Are we not
Speaker 1: talking about the Chinese view? On this because we don't
Speaker 1: know what the Chinese view is. Is there something unique
Speaker 1: to dealing with a totalitarian regime a dominant communist party
Speaker 1: there where we do a different dialogue just because they're Chinese. Well,
Speaker 1: the Chinese have said about this technology transfer that they're
Speaker 1: not doing anything illegal. They're violating w t O rules.
Speaker 1: They're not requiring American firms to transfer technology. If American firms,
Speaker 1: on the other hand, want to do business in China,
Speaker 1: well that's the price they have to pay. That is
Speaker 1: exactly a conventrary to w t O rules. But we
Speaker 1: have a president who doesn't want to respect a multilateral
Speaker 1: w t O structure. But this is a clear rule
Speaker 1: that the Chinese are violating. That's hurting us, and we
Speaker 1: ought to use the fact that they had signed on
Speaker 1: to that behavior in the time that we have with you,
Speaker 1: Professor Feldsteine, We need to go back to another time
Speaker 1: and place. I guess ever Dirkson would be a good
Speaker 1: place to start. Where was a billionaire A billionaire Martin
Speaker 1: Feldstein's reaction to a guns and butter certitude everyone's happy
Speaker 1: with a trillion dollar deficits, Well I'm not happy. Well,
Speaker 1: expand on that, please so we used to have not
Speaker 1: too long ago. Ten years ago, we had a national
Speaker 1: debt which was a less than fifty percent of our
Speaker 1: GDP around now it's about double that. And it's heading
Speaker 1: to a hundred perspectors going in the wrong direction, sure is.
Speaker 1: And and if we are actually heading, by the official
Speaker 1: statistics Congressional Budget Office statistics to a hundred percent by
Speaker 1: the end of the decade, the reality will be worse
Speaker 1: than that. In the distinction here in folks, this is
Speaker 1: really important. I'm going to let Professor Feldstone shows ability.
Speaker 1: We model it against a Japanese experience where their culture
Speaker 1: and ethos is totally different than this complex economy of
Speaker 1: the United States. We can't compare and contrast plus a
Speaker 1: hundred and deficits with Japan can wait, not at all.
Speaker 1: We cannot do that because the Japanese don't the Japanese
Speaker 1: are able to finance their deficits internally. The Japanese households
Speaker 1: are buying that debt um we sell. We trade in
Speaker 1: the global economy, and John this naivete which the professor
Speaker 1: describes beautifully, I think as much the same as with
Speaker 1: the United Kingdom. Americans want to compare and contrast with
Speaker 1: the United Kingdom, and they're just not the same economies.
Speaker 1: So my question, professor, should we really worry about this
Speaker 1: one trillion dollar deficit? It's of g d P. You're
Speaker 1: saying the debt dynamics are different to Japan. Our listeners
Speaker 1: would agree with you. That's in the data, it's in
Speaker 1: the facts. But still, this is the most liquid bond
Speaker 1: market on the planet, some of the most in demand
Speaker 1: debt on the planet. Why would the treasury markets suddenly
Speaker 1: dry up in terms of demand. No, they're not going
Speaker 1: to dry up, but the interest rates are going to
Speaker 1: be higher. So if at the end of ten years
Speaker 1: we're looking at a hundred to a hundred and pent
Speaker 1: debt to GDP, that's going to mean that interest on
Speaker 1: the government debt is the largest thing the government is
Speaker 1: spending money on, and it's gonna mean that there's going
Speaker 1: to be pressure for long term interest rates to rise,
Speaker 1: real long term interest rates to rise, and that is
Speaker 1: going to be very unhealthy for equity prices. Professor, we
Speaker 1: could probably have a long conversation about how effective markets
Speaker 1: hours a discounted mechanism, but all this information is out there,
Speaker 1: and traceries yield less than three on a US tenure.
Speaker 1: It's heartly dramatic, is it. It's amazing that it is
Speaker 1: so low. But it is moving up, and I think
Speaker 1: it will continue to move up. If you look back
Speaker 1: over the last six months or so, it's moved up,
Speaker 1: both in real terms and in nominal terms. Professor, thank
Speaker 1: you so much. Martin Feldstein joining us with Harvard University,
Speaker 1: of course of National Bureau of Economic Research. He's a
Speaker 1: former chairman of the President's Council of Economic Advisors. Back
Speaker 1: to Job's day, and we do that always with Alan
Speaker 1: Krueger of Princeton University, the former chairman of the President's
Speaker 1: Council of Economic Advisors. Allen, I know John wants to
Speaker 1: get more granular about the report. Let me go more
Speaker 1: at a higher elevation, and that is the effective technology
Speaker 1: on this labor economy. We don't have a clue, do we. Well.
Speaker 1: I think the effective technology has been profound if you
Speaker 1: look over the past several decades, far more important for
Speaker 1: what's happened in manufacturing than international trade. Um the fact
Speaker 1: that we've become much more productive in manufacturing. But our
Speaker 1: listeners feel that technology is their enemy when it comes
Speaker 1: to jobs and waiting growth right. Well, technology can be
Speaker 1: very disruptive in some industries. It's been extremely disruptive, like music. Finally,
Speaker 1: I think in the music industry they're getting their arms
Speaker 1: around how to take advantage of the technology. Not Spotify.
Speaker 1: They got crushed this week, but that's a separate story.
Speaker 1: But at least Latify is helping to generate more revenue
Speaker 1: for for the whole industry. UM. So, I think technology
Speaker 1: obviously can be disruptive. The question is how can we
Speaker 1: make transition to make technology work best for the most
Speaker 1: people in society. How can we do that? Well, I
Speaker 1: think it starts with education, and our education system hasn't
Speaker 1: kept up. And the irony is technology gives us tremendous
Speaker 1: opportunity and education UH to use technology to help improve teaching,
Speaker 1: and we haven't taken full advantage of technology and education yet,
Speaker 1: and our workforces is falling behind in terms of skills
Speaker 1: compared to the rest of the world. I want to
Speaker 1: take the opportunity to to shift towards the Wall Street
Speaker 1: side of the conversation, Alan, if you don't mind. Um,
Speaker 1: the story so far this year has been really, really
Speaker 1: mixed and quite radically different. Payrolls reports through so far.
Speaker 1: January we had the wage growth surprise. February we had
Speaker 1: just this monster payrolls report with three six pounsand jobs
Speaker 1: at it, and March was completely opposite at one oh three.
Speaker 1: Is it getting difficult? It's going to read on what's
Speaker 1: happening in the jobs market, in the labor market in
Speaker 1: the United States right now? The numbers are noisy, that
Speaker 1: they've always been noisy, and from just three or four months,
Speaker 1: it's hard to say that the sampling variability or non
Speaker 1: sampling variability is increased. But John, if you if you
Speaker 1: look at some of the other indicators like unemployment, insurance claims,
Speaker 1: or the KNAVE survey or the manufacturing surveys, the underlying
Speaker 1: job growth, underlying labor market looks like it's solid, continuing
Speaker 1: to improve, and it looks like we may end up
Speaker 1: with a three handle unemployment. Unemployment that is you point out, Alan,
Speaker 1: and I think many people might have missed. It's been really,
Speaker 1: really stable at four point one percent for quite a while,
Speaker 1: and many people are waiting for it to drop even lower.
Speaker 1: What's going on there? You know, it's been a remarkable
Speaker 1: run of four point one percent six months in a row.
Speaker 1: The sampling error on the unemployment rate is substantial. It
Speaker 1: takes about a two tense of a percentage point movement
Speaker 1: in the unemployment rate for the buer of labor statistics
Speaker 1: to say that it was a meaningful change. So the
Speaker 1: fact that has just been sitting at four point one,
Speaker 1: it has been a remarkable coincidence. Martin Feldstone today, who
Speaker 1: I would suggest has a different economic thesis than you UH,
Speaker 1: suggested that the FED really needs to focus on the
Speaker 1: employed part of the economy and that we are fully employed.
Speaker 1: You see that claims clearly. How do we address the
Speaker 1: huge body of America that's struggling. I hear it. I
Speaker 1: get it, John, and I get it every day in
Speaker 1: the emails from people. Is there a social requirement for
Speaker 1: the FED and for fiscal authorities to address that? I
Speaker 1: think it's the responsibility of government economic policymakers to address it,
Speaker 1: and the FED is part of that network. Now, the
Speaker 1: Fed's tools are more limited than what Congress can do.
Speaker 1: Congress has done some things to help that segment of
Speaker 1: the workforce. UH. The Affordable Care Act has helped to
Speaker 1: bring millions more people UH under health insurance coverage, which
Speaker 1: has been been beneficial for low income workers. UM, I
Speaker 1: think it's important that we build on that progress. Unfortunately,
Speaker 1: we're moving in the opposite direction with many decisions of
Speaker 1: the current administration. But just as one narrow example, and
Speaker 1: we've spoken to Sunder Deportment and others of ohio about
Speaker 1: opiated Most most people in Washington, I think can't spell opioid.
Speaker 1: I mean they're just running from it from what you know,
Speaker 1: not Republican Democrat. But we're basically spinning our wheels on
Speaker 1: what is what is a medical, social and economic issue.
Speaker 1: How do we affect a policy on opioid that is
Speaker 1: bipartisan and begins to address it. You know, I think
Speaker 1: this shows enormous failure of the current administration. They appointed
Speaker 1: Chris Christie to chair commission, which mostly made sensible recommendations.
Speaker 1: The administration hasn't followed through. So UM, I think that
Speaker 1: there's been tremendous neglect when it comes to the opioid crisis.
Speaker 1: I can tell you, Tom, I've done some research, as
Speaker 1: you know, on how the opioid crisis intersected the decliin
Speaker 1: in labor force participation. And I've never received such heartfelt
Speaker 1: responses from the public. But the folks this is important.
Speaker 1: Alan Krueger shows up and he's got a bunch of
Speaker 1: fancy titles and he pontificates about what we're going to
Speaker 1: see at a thirty. What you need to know is
Speaker 1: it was card In. Krueger and a guy named Daton
Speaker 1: have actually done John the grunt work on what people
Speaker 1: are really doing with their lives. It's called like micro research,
Speaker 1: and somebody's got to go out and do it, including
Speaker 1: the Laureate Angus Deton. We've tolked about your research before,
Speaker 1: but for our listeners that haven't heard it, um, just
Speaker 1: give us a synopsis, Professor, of what you have learned
Speaker 1: about the outpiold crisis and what it really means for
Speaker 1: the labor market at the moment, Well, almost half of
Speaker 1: the prime age men who are out of the labor
Speaker 1: force are taking pain medication regularly. Half and that's a
Speaker 1: remarkable figure that comes from Bureau of Labor statistic surveys.
Speaker 1: We don't know what type of pain medication. So one
Speaker 1: of the things I did was a follow up survey
Speaker 1: and I asked, and two thirds of those individuals are
Speaker 1: taking prescription medication. And I have to believe there's a
Speaker 1: lot of underreporting as Well, then I looked across the
Speaker 1: country and I found that areas where prescription opioid medication
Speaker 1: UH increase the most is the greatest. We've seen the
Speaker 1: biggest decline in labor force participation, and my estimates suggests
Speaker 1: that around a third of the decline in labor force
Speaker 1: participation over the last fifteen years can be accounted for
Speaker 1: by the spread of opioid medication. What should remedy Well,
Speaker 1: first of all, I think we need uh to uh
Speaker 1: make sure the medical profession doesn't overprescribe. And I think
Speaker 1: a lot of the responsibility falls on doctors who and
Speaker 1: pharmaceutical companies who pushed the medication unnecessarily, probably for good intentions,
Speaker 1: but the unintended consequences have been tremendous. UM. So I
Speaker 1: think that is should be the first line of defense. Then,
Speaker 1: we have a large number of people who are addicted
Speaker 1: to the medication, and we need better treatment facilities for them. UM.
Speaker 1: We need to treat it like a mental health problem,
Speaker 1: not like not like a crime. UH. And we think
Speaker 1: we vastly need to increase our mental health services for
Speaker 1: these individuals. Up to the job's day UH today, are
Speaker 1: we fully employed? I think we're pretty close to the
Speaker 1: textbook definition of full employment. Now, full employment doesn't mean
Speaker 1: that you can't continue to see job growth. Uh. Full
Speaker 1: employment doesn't mean that, um, the expansion has come to
Speaker 1: an end. But by the textbook definition of the unemployment
Speaker 1: rate solo that most people can find a job we're
Speaker 1: searching in a in a in a reasonable period of time,
Speaker 1: that the remaining unemployment is what we call frictional. Uh.
Speaker 1: In the aggregate. That's probably true for some populations. However,
Speaker 1: I think unemployment still remains much too high. Amazing. It's
Speaker 1: an amazing John This conversation off of Bloomberg surveillance seventy
Speaker 1: nine years ago, just extraordinary. It's phenomenal research as well
Speaker 1: from the professor. And if you want to find it,
Speaker 1: where can we find it? Professor? For our listeners that
Speaker 1: would like to have a read, well, I had much
Speaker 1: of it posted on my web page at www dot
Speaker 1: Krueger that Princeton Daddy do you there we go? Mr Plug? Now,
Speaker 1: I just thought, you know, I just thought for our
Speaker 1: listeners that might want to read the whole thing, um
Speaker 1: for the professor could plug his west are they going
Speaker 1: to see this? Also at the web page of the
Speaker 1: Real yield with John Ferrel. They might hear a little
Speaker 1: bit about it at one pm Eastern time on ploom
Speaker 1: Bag TV. You're welcome to link, and I think you'd
Speaker 1: like to plug some king Professor Ran Krueger, Princeton University
Speaker 1: professor and of course the former chairman of President Barack
Speaker 1: Obama's Council of Economic Advisors. Let's continue that dialogue with
Speaker 1: Julia Coronado with her work and a wonderful call on
Speaker 1: a more substued potential g d P as well. There's
Speaker 1: that that unemployment rate Dr Coronado, that is the efficient
Speaker 1: unemployment rate NEIL Data over Renaissance Macro drives for the
Speaker 1: analysis and says, look, under four percent unemployment rate, wage
Speaker 1: growth is basically nowhere. Is the new NEIGHRU, like the
Speaker 1: new potential g d P a small number. I think
Speaker 1: it's hard not to conclude that NEHRU is lower given
Speaker 1: the wage performance. And yes, we had a strong e
Speaker 1: c I, but it's strong relative to where it's been
Speaker 1: not in historical terms, right, it's still below three percent,
Speaker 1: and so I think it's hard to look at this. Yes,
Speaker 1: the labor market is strong, but it's just not generating
Speaker 1: a lot of wager inflationary pressures, no need for the
Speaker 1: FED to panic. In fact, from the set itself looked
Speaker 1: at um because of better educated population and an older population,
Speaker 1: NEHRU is probably lower. Those factors lower the equilibrium unemployment rate.
Speaker 1: So good news, but no panic for them. Okay, So
Speaker 1: the potential GDP number, like the efficient GDP number, is
Speaker 1: politically unacceptable the politicians because they want more spirit, they
Speaker 1: want more and all that is there a politically acceptable
Speaker 1: unemployment rate, I mean, is three point nine percent unemployment
Speaker 1: and Eisenhower like statistic? Is that good for Donald Trump?
Speaker 1: Is that good for Nancy Pelosi? Look, it's good for everybody, right,
Speaker 1: I mean, it is very good news that the labor
Speaker 1: market is strong. It's very good news that it's now
Speaker 1: you know, a seller's market if you will, that that
Speaker 1: people finally do have good job prospects. They're changing jobs.
Speaker 1: The quits rate has recovered, So there's a lot of
Speaker 1: indicators saying it's a healthy, healthy job market. Um. Politically,
Speaker 1: you know, anybody can grab that and run with it. Um.
Speaker 1: But I think for the economy it's great news. For
Speaker 1: the feed, it's great news. I think the fact that
Speaker 1: the unemployment rate drop does keep them marching higher on
Speaker 1: interest rates, but again sort of in the gradual pace
Speaker 1: that they've got planned out. So, um, I think it
Speaker 1: is kind of a sweet sweet spot right now. You know,
Speaker 1: we're it's a sweet spot right now. And the three
Speaker 1: point nine number is I'm sorry, Julie, to me, it's
Speaker 1: historically extraordinary in a yearly basis, it's back thee. We'll
Speaker 1: get the monthly granularity. Our team are Brendan Murray and
Speaker 1: our team in Washington will do that. But when you
Speaker 1: see Dr Coronado a three point nine statistic, particularly with
Speaker 1: your Texas background, that's that's a stunning statement. Shouldn't everybody
Speaker 1: stand up and celebrate today? Yes, absolutely, we should stand
Speaker 1: up and sell bread. I mean, I think again, Yes,
Speaker 1: it's great, great news that finally, after a very frustratingly
Speaker 1: halting recovery, we're kind of humming along. Um. And as
Speaker 1: Jim Glasman said, the fact that hiring has flowed a bit,
Speaker 1: it's still a healthy pace. There's nothing there that worries them. Um.
Speaker 1: So this is definitely a good news report. I mean,
Speaker 1: within this, Juliet, and I guess we can backtrack to
Speaker 1: wage growth as well. Get Neil dotta with a smart
Speaker 1: two sentence. Uh no, you know, the the idea of
Speaker 1: wage growth where it is, that's not acceptable. I mean, great,
Speaker 1: John Tucker to are biased because we live in three
Speaker 1: zip codes of Upstate, you know't you know, if we're
Speaker 1: making triple you're making, John, we still wouldn't be enough
Speaker 1: wage growth. But but with that said, Julius, two point
Speaker 1: two point six percent, two point six percent, it just
Speaker 1: doesn't get it done, does it. No, No, it doesn't
Speaker 1: because I mean, let's let's peel out inflation. In plation
Speaker 1: is starting to run close to the target. That's what point. Uh,
Speaker 1: you know, real wage growth. That's not a lot of
Speaker 1: purchasing power to sustain the economy. So I do think
Speaker 1: we want to see that number climb higher. I think
Speaker 1: policymakers will want to see that number climb higher. So
Speaker 1: that is a very good reason to you know, let
Speaker 1: this economy keep running. Juliet Coronado, thank you so much.
Speaker 1: From ten unemployment down to three point nine percent unemployment. Uh,
Speaker 1: that is fine. Just thrilled to have her with this.
Speaker 1: Dr Coronado of course, with years of good work and
Speaker 1: helping that with the program she is with macro policy
Speaker 1: perspectives as well. We have been honored this morning by
Speaker 1: the attendance of Martin Feldstein of Harvard, Alan Krueger from Princeton,
Speaker 1: James Lasting with us, Julia Cordado another Worthies. We continue
Speaker 1: strong out of the plant of Ned Gramblich in the
Speaker 1: University of Michigan. We are thrilled to bring you Betsy Stevenson, Yes,
Speaker 1: with the Console Economic Advisors who study under Greg Banko
Speaker 1: at Harvard. But far more importantly, she's actually dark in
Speaker 1: the halls of the Department of Labor. Betsy Stevenson with
Speaker 1: us from the University of Michigan. Betsy, what was it
Speaker 1: like the first day at the Department of Labor? I mean,
Speaker 1: people moufie, people on Wall Street talk about it as
Speaker 1: a dark, evil empire. What's it really like? I think
Speaker 1: the Department of Labor is a fantastic place. I mean,
Speaker 1: today we're celebrating one terrific aspect, which is the Bureau
Speaker 1: of Labor Statistics, which gathers all the data that we use.
Speaker 1: And you know, we sometimes take that for granted, but
Speaker 1: you you know, do you think back to the depression,
Speaker 1: when we weren't measuring unemployment. Politicians were arguing about how
Speaker 1: many people wanted jobs who couldn't find jobs, what unemployment was.
Speaker 1: We didn't have any idea. Um terrific is that we
Speaker 1: can count on the beer of labor statistics to tell
Speaker 1: us what's happening in the economy. Wall Street certainly relies
Speaker 1: on it. Within this is three point nine percent unemployment.
Speaker 1: And the partition is a without question fully employed America
Speaker 1: that's in the models of your textbooks years ago at Wellesley. Fine,
Speaker 1: the reality is there's a whole nother America out there.
Speaker 1: How do we reattach the America of yellings slack in
Speaker 1: the economy to the fully employed America. So here's what
Speaker 1: I think is the difficulty. And in modern times shall
Speaker 1: we say, which is that we in our textbooks we're
Speaker 1: thinking about the unemployment, the pool of the people who
Speaker 1: are unemployed as the only potential people who could take jobs.
Speaker 1: So if the business wants to hire, the with people
Speaker 1: they can hire are among the unemployed. But it turns
Speaker 1: out there's lots of people who don't get counted as
Speaker 1: unemployed because they're not looking for jobs. And we see
Speaker 1: lots and lots of people moving from what we call
Speaker 1: not in the labor force people not looking for jobs,
Speaker 1: that aren't indicating that they're willing to work straight into
Speaker 1: jobs as business is higher, and the puzzle for us
Speaker 1: is to try to figure out how many people who
Speaker 1: aren't working would work if the right job came along,
Speaker 1: and would move into those jobs. That's what when we
Speaker 1: talk about the flack in the labor market, we're wondering
Speaker 1: about those people who aren't working. Are they willing to
Speaker 1: go into the labor market. And what we've seen in
Speaker 1: recent years is that the relationship between um who's willing
Speaker 1: to be hired in the employment rate is not the
Speaker 1: same as it used to be. We're doing a lot
Speaker 1: more poland people straight out of labor. Betsy Stevenson, University
Speaker 1: of Michigan with this vote, the Jerald Ford School of
Speaker 1: Public Policy, Betsy, you've got an arduous public Paul three
Speaker 1: zero course at Michigan Microeconomics for public policy. This is
Speaker 1: a legendary, folks course where people actually have to go
Speaker 1: micro instead of macro bladder. That's what Betsy Stevenson is
Speaker 1: known for. What's the micro economics of our lousy wage growth? Um? Yeah,
Speaker 1: that's a great question. So the micro economics is getting
Speaker 1: into why aren't workers demanding more? Right? We know there's
Speaker 1: a lot of jobs out there, and so one of
Speaker 1: the ways in which workers get the power to negotiate
Speaker 1: higher wages is to go look for another job and
Speaker 1: to threaten to leave if they don't get one, if
Speaker 1: they if they don't get raised. And so it's it's
Speaker 1: up to workers too um to try to put in
Speaker 1: that you know, real credible threat, which is willingness to
Speaker 1: walk away. And the question is why aren't they willing
Speaker 1: to do that? Well, lives are more complicated today. People
Speaker 1: have families. It's not as easy for one person to say,
Speaker 1: you know, I'm sick of this job. I'm going to
Speaker 1: look for another job. Maybe that job's got a two
Speaker 1: hour commute. Can you set that in with your family life?
Speaker 1: Is your spouse willing to move for your job? What
Speaker 1: about your spouse's job? So I think there's these complications
Speaker 1: in workers lives that might make it a little bit
Speaker 1: difficult for them to do what our models predict, which
Speaker 1: is to threaten to vote with their feet by walking
Speaker 1: out the door if they don't get a raise. And
Speaker 1: employers seem to be taking advantage of that. And now, folks,
Speaker 1: we go nowhere where we would like to go, but
Speaker 1: we're gonna do it with Betsy Stevenson, who is in
Speaker 1: America the definitive student of economics in our family. You
Speaker 1: wrote a paper in two thousand and eight with a
Speaker 1: guy from Australia called how should we think about the
Speaker 1: taxpayer consequences of divorce? What did Betsy Stevenson think about
Speaker 1: the alimony treatment in the new tax bill? A select
Speaker 1: group of our Bloomberg surveillance listeners would like to know. Um, so,
Speaker 1: I'm embarrassed to say that that was something I didn't
Speaker 1: pay attention to. Okay, well, they're going to change the
Speaker 1: rules on alimony in the tax treatment on alimony, and
Speaker 1: this goes back to the concept in Washington of divorce,
Speaker 1: which is always across American history, always been a fraud.
Speaker 1: In interesting consequence, you wrote the definitive paper with Justin Wolfers,
Speaker 1: how should we think about taxpayer consequences of divorce? Granted
Speaker 1: it was a decade ago, but everybody remembers the paper. Betsy,
Speaker 1: what what? What are the tax consequences of divorce in
Speaker 1: this nation? Um? Well, I think what we were trying
Speaker 1: to point out is that it isn't as easy for
Speaker 1: it isn't easy for taxpayers to think about what are
Speaker 1: the consequences for divorce. So one of the things that's
Speaker 1: happened is making it easier for people to get divorced
Speaker 1: is one of the things that encouraged women to stay
Speaker 1: attached to the labor force. If you're less about whether
Speaker 1: you're gonna stay in your marriage, then you want to
Speaker 1: know that you're gonna be able to support yourself outside
Speaker 1: of your marriage, and that we saw that movement um
Speaker 1: in the seventies and the eighties. As we change divorce laws,
Speaker 1: put you women into the labor force. So as the
Speaker 1: threat of divorce grows, labor force participation of women grows,
Speaker 1: which actually means that there's more women pay more taxes.
Speaker 1: Because you don't pay taxes when you're doing home production,
Speaker 1: when you're at home raising your kids and uh cleaning
Speaker 1: your house and cooking your meals, we don't tax you
Speaker 1: on the value you're providing your family. If you get
Speaker 1: a job and you go to work and you pay
Speaker 1: somebody else to do all of those taxks, not only
Speaker 1: do you get have to pay taxes on what you earn,
Speaker 1: but then the person you're paying to do the things
Speaker 1: you used to do. They're also now earning dollars that
Speaker 1: they're paying taxes on. So that, UM, that's one way
Speaker 1: in which we sort of intuitively think you might not
Speaker 1: intuitively realize that, um, that divorce can generate more tax dollars.
Speaker 1: But of course there's other consequences of it as well, UM,
Speaker 1: related to how kids do and what kind of certain
Speaker 1: that might put on taxpayers to provide services. I then there,
Speaker 1: I mean, I think there's this natural issue, which is,
Speaker 1: as families split apart, how should we think about you know,
Speaker 1: what people's true UM means are right, what's their ability
Speaker 1: to provide? And then there's and then how should we
Speaker 1: think about them sharing income as you will through say
Speaker 1: alimony payments or child support payments. UM, how should we
Speaker 1: think about that from a tax consequence? And as they said,
Speaker 1: I was not aware that the regent taxil, the regent
Speaker 1: taxil has so many things to imitnuck little things in
Speaker 1: um that. But it doesn't surprise me that, you know,
Speaker 1: politicians might want to rethink how we UM assessed that
Speaker 1: kind of income sharing based on when I've got in
Speaker 1: my mail, people are rethinking good And it's a sport
Speaker 1: to say the least, this has been wonderful. Betsy Stevenson,
Speaker 1: thank you so much with the gerald Ford Policy of
Speaker 1: Public Policy School at the University of Michigan on this
Speaker 1: job's day of three unemployment and extraordinary statistic and also
Speaker 1: with her expertise on public policy and particularly path breaking
Speaker 1: research and the family as well. Now for the Trump
Speaker 1: administration's views on the jobs report, we joined now on
Speaker 1: flimback television and on radio by Kevin Hassett, the head
Speaker 1: the Council of Economic Advisors. Chairman Kevin, always great to
Speaker 1: get your insight on hand with the labor market. Let's
Speaker 1: just begin with that stunning unemployment figure, a three handle, Kevin.
Speaker 1: I think a lot of people trying to wonder whether
Speaker 1: we're at full employment or not. What's the administration's view, Well,
Speaker 1: I think they're getting down to three point nine is
Speaker 1: really astonishing because what it means is that we now
Speaker 1: have the longest labor expansion, continuous labor expansion on record.
Speaker 1: And I think that a lot of the reason why
Speaker 1: that's happened is that we came in and we deregulated
Speaker 1: at the beginning of last year, and then we had
Speaker 1: this big tax cut, and so a lot of times
Speaker 1: recoveries start to run out of a steam at the end,
Speaker 1: but we just you know, put more steam in right
Speaker 1: at the end. And and one metric of that, by
Speaker 1: the way, that I think is most interesting is that
Speaker 1: since the president was elected, nine thousand people have re
Speaker 1: entered the labor force and gotten a job. And so
Speaker 1: we've been able to continue to grow the economy at
Speaker 1: a very healthy pace because people are coming back. People
Speaker 1: who were discouraged because they couldn't find a job because
Speaker 1: of Obama's economy have been reconnected to society and that's
Speaker 1: really good news. So that you know, that's really the
Speaker 1: smoothing through the ups and downs. The headline of the
Speaker 1: jobs report, I think is the really surprising increase in
Speaker 1: labor force participation over the last year year and a half. Tavin.
Speaker 1: For a lot of economists on the straight they look
Speaker 1: at the headline numbers and they say, an economy a
Speaker 1: labor market that is a full employment, a labor market
Speaker 1: is really tight, and they're full. Surely inflation pressia must
Speaker 1: be coming at the other end. And Kevin, the administration,
Speaker 1: led by yourself, really really looking for a supply side response.
Speaker 1: Why are you so convinced will get that supply side response,
Speaker 1: What do you see in the dates and key water
Speaker 1: that gives you the optimism, Sure, we see it in
Speaker 1: the data already. So so both in Q four there
Speaker 1: was a big spike in capital spending U and that
Speaker 1: was in part because people wanted to get some stuff
Speaker 1: in before year end because of the tax cuts, because
Speaker 1: they could expense it back to September at a higher
Speaker 1: rate if they spent it last year. And so we're
Speaker 1: a little worried that capital spending might level off in
Speaker 1: the first quarters, but it went up from there, and
Speaker 1: so the capital spending boom that we said would happen
Speaker 1: is happening. We're also seeing it in wages. You know,
Speaker 1: we now have more than six million people that have
Speaker 1: gotten raises that their employers said were because of the
Speaker 1: tax cuts. And if you look at the employment cost Index,
Speaker 1: then over the last three months it increased one percent.
Speaker 1: You know, if we had you know, another three quarters
Speaker 1: like that, that'd be four percent for the year. And
Speaker 1: that's the highest rate we've seen at least since two
Speaker 1: thousand six. Going before two thousand six, it's hard to
Speaker 1: make comparisons because they changed the data a little bit,
Speaker 1: it's a lot of good is in the labor market
Speaker 1: right now, there is, and some people pointing out to
Speaker 1: make they'll over the last month or so, in the
Speaker 1: last several months, that there are some signs of some
Speaker 1: bottlenecks appearing, labor supply shortages as well as let's say
Speaker 1: backlogs at factories in terms of orders and whether they
Speaker 1: can really get things out supply side constraints. Do you
Speaker 1: don't see that, Kevin, Yeah, that's that's a normal thing
Speaker 1: in the cycle that with the unemployment gets unemployment rate
Speaker 1: gets low, then what will happen will be it'll be
Speaker 1: hard to find workers. And at that point, what firms
Speaker 1: tend to do is invest heavily in capital in order
Speaker 1: to increase the productivity of the workers they have. And so,
Speaker 1: if you think about it, the tax cut was timed
Speaker 1: perfectly because right at the moment when firms need to
Speaker 1: invest in capital to make their own workers more productive
Speaker 1: because it's getting a little bit harder to find people, Uh,
Speaker 1: then we gave them a tax cut the stimulated capital spending.
Speaker 1: And so I think that that's why you know, you've
Speaker 1: seen everybody, the I m F, even the the CBO,
Speaker 1: they've jacked their forecasts up for this year to around
Speaker 1: three which is what we said last fall would happen
Speaker 1: after the tax cut, right, And it's happening because the
Speaker 1: capital spending boom, it's in the data. The wage growth,
Speaker 1: you know, that's in the data too. And the reason
Speaker 1: we've been able to continue to grow is there are
Speaker 1: those nud people that it sort of you know, everybody
Speaker 1: gave up on before President Trump was elected, who have
Speaker 1: been reconnected to society and found a jar. So, Kevin,
Speaker 1: where the private forecasters aren't with you, it's not. They're
Speaker 1: pretty much in line with you. You guys looking for
Speaker 1: something with a free handle. The median estimate in our
Speaker 1: Blomberg survey the high twos. It's most of the street,
Speaker 1: the consensus see the economy rolling gover not drastically, not dramatically,
Speaker 1: but certainly the trend's gonna go the other way. Why
Speaker 1: do you think that's not the case? And and my
Speaker 1: second point really on the issue if there's been late
Speaker 1: cycle or not, a lot of people say this isn't
Speaker 1: the right time to do a fiscal stimulus because if
Speaker 1: exactly what's about to happen, the economy is set to
Speaker 1: go into a bit of a downturn, You're you're really
Speaker 1: good questions so that they actually tied together neatly. So
Speaker 1: the point is that late in the cycle, if you
Speaker 1: were to pass a big demand stimulus like the cash
Speaker 1: for Clunkers program by the President Obama, then that big
Speaker 1: demand stimulus could heat up the economy and cars inflation
Speaker 1: to get out of control. But if you have a
Speaker 1: supply side stimulan US, then you increase supply, and an
Speaker 1: increase in supply can even put downward pressure on prices.
Speaker 1: And so if you want to sustain recovery late in
Speaker 1: the cycle, what you need is a capital spending boom
Speaker 1: to push up supply and keep the upward pressure on
Speaker 1: prices low. And that's exactly what we're seeing in the data,
Speaker 1: and as a real debate as to whether that's going
Speaker 1: to continue. And Kevin, outside of that debate, there's a
Speaker 1: debate about the contribution of trade to overall g d P.
Speaker 1: I think for some economists, by definition, if we get
Speaker 1: some fiscal stimulus, demands going to go up, and therefore
Speaker 1: the trade deficit is naturally gonna widen, and you're gonna
Speaker 1: get a negative contribution from trade. And that's something you
Speaker 1: guys don't want. So can you reconcile the trade effort
Speaker 1: to get the trade deficit down with the GDP effort
Speaker 1: to get growth up to three and beyond? Oh sure,
Speaker 1: you know. And and President Trump and the team are
Speaker 1: all on the same page on this. And if you
Speaker 1: look at the Economic Report of the President, which was
Speaker 1: written by a guy who some have called the globalist right,
Speaker 1: that that it very clearly enunciates the president's agenda, which
Speaker 1: is to just get reciprocity, to make it so that
Speaker 1: countries around the world lower their tariffs to the US level.
Speaker 1: And so the you know, China, there's talks over there
Speaker 1: right now. They have a terraf on Urados, We have
Speaker 1: a two and a half percent terraf on their their artists.
Speaker 1: If we can get reciprocity in our trade deals, if
Speaker 1: we can improve them, then over time US exports should skyrocket.
Speaker 1: And that's really the objective of our trade post, so Kevin,
Speaker 1: and it's good for us, and it's good for them too,
Speaker 1: because removing the trade barriers around the world will increase
Speaker 1: global growth and welfare. I know, the team is on
Speaker 1: the way back from Beijing. There's only so much you
Speaker 1: can say about the results of the negotiations we've seen
Speaker 1: here at Bloomberg in a in a copy of the
Speaker 1: document that you guys are presented to Beijing of the
Speaker 1: demands on the U. S. Sun And they've already been
Speaker 1: talked about in quite a detailed way. What I'm trying
Speaker 1: to gage from the administration. We've had great transparency on
Speaker 1: what you want. I'm trying to understand still, the time frame,
Speaker 1: the time horizon. There's a credible threat with proposed tariffs
Speaker 1: at the other end, how much longer do we have
Speaker 1: to see negotiations take place for before that credible threat
Speaker 1: is actually imposed and becomes policy. You know, I have
Speaker 1: nothing to say about timing right now. You know, the
Speaker 1: team's flying back, and before the team left, they communicated
Speaker 1: that decisions about what happens next would be made in Washington,
Speaker 1: not in Beijing. And I think that that's out of
Speaker 1: of course respect for the Constitution. But I'm sure that
Speaker 1: everybody wants to come back and get down in a
Speaker 1: room with everybody who's back here in Washington and talk
Speaker 1: it through. And so I'm sure there'll be more news
Speaker 1: for you guys soon, and Kevin and I'm sure you'll
Speaker 1: be on screen, or someone from the delegation, perhaps a
Speaker 1: Lonry Cardillo will come on the program and talk about
Speaker 1: the update, and I'd really look forward to that. I
Speaker 1: guess always at your disposal of my officers right over there,
Speaker 1: and I'd love that Kevin as well. I guess my
Speaker 1: final question to you is whether the trade issue is
Speaker 1: separate from the foreign policy effort, because the President has
Speaker 1: blended the two and quite clearly pressure on China is
Speaker 1: generating some foreign policy results. So can we blend the
Speaker 1: two issues together? Do you take a softer stance on
Speaker 1: China on trade because they're generating results on the foreign
Speaker 1: policy side for you? Right? Well, you know, I'm not
Speaker 1: a foreign policy expert. I'm an economist, but there is
Speaker 1: a foreign policy angle to to everything. And if you
Speaker 1: look at the reports that the economical for the president
Speaker 1: the focused on China, you know, there are lots of
Speaker 1: episodes of China stealing our intellectual property and you know,
Speaker 1: not really respecting the rule of law internationally. And I
Speaker 1: guess that's an economic issue at a foreign policy issue,
Speaker 1: and that's the kind of thing that's on the table.
Speaker 1: And then I'm sure that our team has talked about
Speaker 1: with them Hi, Kevin. Really appreciate Tom. It's always great
Speaker 1: to catch up with you. And for the White has
Speaker 1: to give us there insight off the Pyrose Friday something
Speaker 1: very valuable on this program, the Chairman of the Council
Speaker 1: of Economic Advices. Thanks for listening to the Bloomberg Surveillance Podcast.
Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or
Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom
Speaker 1: Keane before the podcast. You can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio EWO