Speaker 1: This is Bloomberg Wall Street Week.
Speaker 2: I mean may not have an overall recession. We're having
Speaker 2: a rolling recession. To conye, roll looks pretty strongly is
Speaker 2: when it comes to jobs. The financial stories that shape
Speaker 2: our work. Three major regional bank failures send shockwaves through
Speaker 2: the banking system. We're all trying to figure out what
Speaker 2: to make of generative AI.
Speaker 1: Through the eyes of the most influential voices.
Speaker 2: Welcome Dow Doctor Paul Krugman, Ryan moynihan, a Bank of America,
Speaker 2: deebro Lair of the Paulson Institute, Len Hubbard of the
Speaker 2: Columbia Business.
Speaker 1: School, Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
Speaker 2: This week, Jillian Tet at The Financial Times on investing
Speaker 2: in geopolitical risk.
Speaker 3: In some ways, what we're seeing right now is about
Speaker 3: to the future.
Speaker 2: Josh Bolton of the Business Roundtable on what American CEOs
Speaker 2: want in their next president.
Speaker 4: The CEOs of the Business round Table are very concerned
Speaker 4: about the fiscal situation of the United States.
Speaker 2: And economist Melissa Carney on the fight over standardized tests
Speaker 2: at the American universities.
Speaker 5: Students submitted sat or ACT scores are very highly predictive
Speaker 5: of their academic performance when they get to college.
Speaker 2: But we start with Larry Fink of Blackrock and his
Speaker 2: annual letter to investors focus this year on what he
Speaker 2: calls a retirement crisis in the United States and around
Speaker 2: the world, which is what Larry is hearing about more
Speaker 2: and more from Blackrock clients.
Speaker 6: My letters are a reflection of my conversation with clients,
Speaker 6: So it is, and so over the past year I
Speaker 6: heard more and more conversation about retirement or retirement crisis
Speaker 6: from many parts of the world, from middle class developing
Speaker 6: countries to developed countries. The acute problem here in the
Speaker 6: United States is that we have still fifty seven million
Speaker 6: Americans who don't have any savings or any retirement plan.
Speaker 6: So his security is a fantastic foundation for retirement. But
Speaker 6: if that's how you have when you retire, you're going
Speaker 6: to be living in poverty, below the poverty line, because
Speaker 6: it just is it's supplemental, but it's not meant to
Speaker 6: be the totality of what you have in a retirement.
Speaker 6: And the whole concept that we're aging, we're you know,
Speaker 6: we're all living longer. And I think one of the
Speaker 6: big narratives I had to reflect in twenty twenty three
Speaker 6: was the miracles of medicine. When we talk about the
Speaker 6: drugs like a zumpec and all the different weight loss drugs,
Speaker 6: how that is extending life. It's conquering kidney disease and
Speaker 6: liver disease and heart disease and joint disease. And then
Speaker 6: there are new medicines now for dementia that extends life.
Speaker 6: So if you think about the miracles of technology and
Speaker 6: how it transforms our lives and extends our life, there
Speaker 6: is not a dialogue in America or most places about
Speaker 6: can't we afford that longevity and our entire retirement system
Speaker 6: was based on statistics that were created fifty years ago,
Speaker 6: whereby most Americans retired between sixty and sixty two then,
Speaker 6: but most Americans then passed away at sixty seven. And today,
Speaker 6: statistically a couple sixty years old in good health one
Speaker 6: of them is going to live over ninety. And so
Speaker 6: the other question is should we re evaluate how we
Speaker 6: work and how long we work because we all need
Speaker 6: purpose in life, and in most people get fine purpose
Speaker 6: obviously maybe with their grandchildren, their children, their community. Many
Speaker 6: people find purpose in their jobs, and the thought of
Speaker 6: retiring at sixty with thirty more years or a thirty
Speaker 6: year year life in front of you. We need to
Speaker 6: have a dialogue. We need to have a conversation. And
Speaker 6: you know, I'm an optimist. I am very optimistic about
Speaker 6: the long term vitality of our markets. I'm bullish on capitalism.
Speaker 6: The reason I'm bullish is when I read the newspapers
Speaker 6: every morning and listen to Bloom in other news organizations,
Speaker 6: it's full of scary things.
Speaker 2: We talk about the problems.
Speaker 6: We talk about all the problems less, but we solve
Speaker 6: problems through conversation. And the one area where we have
Speaker 6: no conversation is is the affordability of retirement.
Speaker 2: Should we be changing the rules so we can put
Speaker 2: our four to one case our iris into private markets.
Speaker 6: I believe there are some great areas of private markets
Speaker 6: that are going to be great investments for retirement, and
Speaker 6: I would channel that more towards infrastructure because infrastructure has
Speaker 6: a long maturity. It has a higher coupon, but it
Speaker 6: has a lower profile of returns and what I would
Speaker 6: say other areas of the private markets, so it has
Speaker 6: more a good corridor of returns but higher probabilities of
Speaker 6: meeting those returns, and so yes, we need to be
Speaker 6: relooking at how we think about investing, whether that is
Speaker 6: going to be in private equity or infrastructure. I do
Speaker 6: believe we need to be putting more long dated assets
Speaker 6: into retirement and so that you could so that you
Speaker 6: could meet the returns that you need to have the
Speaker 6: pool of money that you require during retirement.
Speaker 2: In your letter, you talk a lot about the success
Speaker 2: of the capital markets, although they've accomplished. At the same time,
Speaker 2: you do mention the problem with particularly US debt. You
Speaker 2: think it's more urgent than anytime. I think you said
Speaker 2: you can remember in your lifetime. Put those two things together.
Speaker 2: To what extent has the success of the capital markets
Speaker 2: come specifically because we've taken more debt on the public
Speaker 2: balance sheet. We've shifted debt from private balance sheets to
Speaker 2: public balance sheets, no question.
Speaker 6: Let's just use a statistic, and I think when I
Speaker 6: talk about this statistic, I get frightened. In the year
Speaker 6: two thousand, the US deficit was eight trillion dollars. Today
Speaker 6: it's thirty four trillion dollars. So twenty three years later,
Speaker 6: we increased our deficit by twenty six trillion dollars. So
Speaker 6: for the first two hundred and thirty odd forty years,
Speaker 6: we increased our deficit the eight trillion, and in the
Speaker 6: last twenty three years we went we increased it by
Speaker 6: twenty six trillion dollars. I think that speaks volumes of
Speaker 6: what's happening in our in our in our country today.
Speaker 6: The problem with these type of deficits is and now
Speaker 6: with and I believe higher interest rates for longer, the
Speaker 6: cost of financing our deficits are going to erode more
Speaker 6: and more of our of our disposable income as a country.
Speaker 6: And I do believe there we're getting to a point
Speaker 6: where our public debt is going to start up, crowding
Speaker 6: out private capital, and we're going to have structurally higher
Speaker 6: interest rates.
Speaker 2: That was black Rocks Larry think if growth is the goal,
Speaker 2: one of the most effective policy tools forgetting us there,
Speaker 2: is it public investment? Is it private investment? Trade policy?
Speaker 2: Tax policy. Glenn Hubbard advised President George W. Bush on
Speaker 2: these questions as chair of the Consul of Economic Advisors.
Speaker 2: He is now dean emeritus at the Columbia Business School
Speaker 2: and author, most recently of The Wall and the Bridge.
Speaker 2: So welcome back, Glenn. Always great to have you here,
Speaker 2: So let's talk about growth. Because everybody talks about it,
Speaker 2: I'm not sure anybody does anything about it. But if
Speaker 2: that is our goal that we want to get to growth,
Speaker 2: what drives that the most? From your point of view
Speaker 2: as a matter of policy.
Speaker 7: Well, to me, that's the biggest question in economic policy data,
Speaker 7: and I think growth is super important for our living standards,
Speaker 7: for ability to do anything. There are policies that work,
Speaker 7: but we also have to remember to get social support
Speaker 7: for those policies. A lot of economists line up policies
Speaker 7: and all the angles that you listed, all correctly, but
Speaker 7: without thinking about social support. We need to do both.
Speaker 2: So we've had the bide adminstration now which has tended
Speaker 2: to favor to some extent public investment. We have in
Speaker 2: the Inflation Reduction Act, we have it in the Infrastructure Act.
Speaker 2: What is the role of public investment in order to
Speaker 2: get growth going?
Speaker 7: Well, public investment can play a big role in growth,
Speaker 7: but I don't think it's the type that we're seeing
Speaker 7: in the present industrial policy. I think of it as
Speaker 7: could we invest more in basic research for ideas in general,
Speaker 7: for technology, for climate change mitigation, whatever you want, could
Speaker 7: we put applied research centers around the country. Could we
Speaker 7: do more in defense where we know we're going to
Speaker 7: have to build up and use defense research spillovers in
Speaker 7: the private sector. All of those make sense to me.
Speaker 7: The Inflation Reduction Act less.
Speaker 2: So when it comes to industrial policy, what did the
Speaker 2: Trump administration do the first Trump administration? There may be
Speaker 2: another one.
Speaker 7: Well, Interestingly, one very successful piece of industrial policy in
Speaker 7: the first Trump administration was Operation Warp Speed. Because there
Speaker 7: you have the government in essentially a public private partnership
Speaker 7: guaranteeing demand, expediting things. That strikes me as this kind
Speaker 7: of holistic approach that I'm mentioning. It's a smaller case,
Speaker 7: but a very important one.
Speaker 2: I think it's a.
Speaker 7: Mistake to use the sort of big spending industrial policy
Speaker 7: as opposed to that kind of partnership or research support.
Speaker 2: Some might say that President Trump when he was there
Speaker 2: used big spending in the form of tax cuts, because
Speaker 2: that is a form of expenditure, after all, Was that
Speaker 2: effective in getting private investment? Because I've read very mixed
Speaker 2: things about that.
Speaker 7: Well, I think it is. I mean, most of the
Speaker 7: scholarship I've seen on the Tax Cut in Jobs Act
Speaker 7: of twenty seventeen that you're referring to does indicate quite
Speaker 7: substantial increases investment. Why is it mixed? Because remember, at
Speaker 7: the same time, we also had a protectionist policy tilt
Speaker 7: that's very anti investment and anti growth. But the pure
Speaker 7: effects of the tax cut were there. And I would
Speaker 7: think that the next Congress and the next president, whoever's
Speaker 7: in those various chairs, are going to have to figure
Speaker 7: out what to do about the Tax Cut and Jobs
Speaker 7: Act because many of its provisions are expiring.
Speaker 2: Well, you took us to trade pretty quickly. What about trade?
Speaker 2: What is the role of trade policy and and growth?
Speaker 7: Well, unfortunately, this is one where both of our candidates
Speaker 7: are offering a fairly protection US trade policy to the country.
Speaker 7: We need openness and markets. We need markets for American exports.
Speaker 7: We need to be open here to other goods and
Speaker 7: services unless there's a national security interest. But we also
Speaker 7: have to bring everybody along. And I would hope that
Speaker 7: either a President Biden or a President Trump would realize
Speaker 7: that and pose real world policies, not just tariffs.
Speaker 2: We recently had another distinguished economists here, Paul Romer, who
Speaker 2: had an approach to trade that was a bit different
Speaker 2: from what I'd heard before, which is basically be protectionist
Speaker 2: when it comes to goods, importing of goods, but not
Speaker 2: when it comes to capital and ideas. Essentially, you say,
Speaker 2: come build it here, train our workers up, and we
Speaker 2: keep our jobs where we don't lose them to China,
Speaker 2: as many people think we did around two thousand. Well,
Speaker 2: but this is.
Speaker 7: What's curious about some of the president debates. We are
Speaker 7: having foreign investment in the United States and the jobs here,
Speaker 7: Yet we're questioning Nippon Steel and US steeltioning foreign automakers
Speaker 7: being in the United States. Why we're hiring people here.
Speaker 7: We're building things here. So I agree, Glenn.
Speaker 2: What about this so called crowding out phenomenon.
Speaker 7: Well, it's certainly a factor. I think the bigger issue
Speaker 7: for deficits in debt is the future tax burdens that
Speaker 7: they imply. In a global capital market, interest rates themselves
Speaker 7: don't have to go up that much in response to
Speaker 7: US borrowing. That said, we have to pay it back,
Speaker 7: and business people understand that. You and I understand that
Speaker 7: as individuals, those are our future tax burdens. So it's
Speaker 7: definitely a problem. In a good economy, we're running mammoth
Speaker 7: deficits the most recent Congressional Budget Office report says it's
Speaker 7: just going to get worse.
Speaker 2: We need to change. So let me beef specific here,
Speaker 2: put a target on this. We had Larry Fink issue
Speaker 2: his annual Chairman's letter, a long chairman's that's right, but
Speaker 2: we read every word of it, and one of the
Speaker 2: things he said is the thing we need to do
Speaker 2: on the deficit is grow our way out of it.
Speaker 2: He was saying we need to grow at three percent
Speaker 2: real growth, three percent real growth in order to go
Speaker 2: to the deficit. Is that realistic? We can get closed?
Speaker 7: So a lot depends on what you assume about productivity,
Speaker 7: growth's response to artificial intelligence. So I think it might
Speaker 7: be possible. Technically, you can't grow your way out of
Speaker 7: the deficit. Our entitlement programs are linked into the real economy.
Speaker 7: But I certainly agree with mister Fink that yes, growth
Speaker 7: is the number one thing that we could do, and
Speaker 7: there are a set of policies we've talked about some
Speaker 7: of those that would push us in that direction.
Speaker 2: Coming up, geopolitics loom larger in investor's minds than they
Speaker 2: have four years. We talked with Jillian Tett at the
Speaker 2: Financial Times about investing in a troubled world, and.
Speaker 3: Entire generation was weird on the idea that if it's
Speaker 3: not in a model or in the balance sheet, it
Speaker 3: doesn't matter.
Speaker 2: That's next on Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio.
Speaker 2: This is Wall Streetweek. I'm David Weston. Investors are facing
Speaker 2: a sharp rise in political and geopolitical uncertainty, and yet
Speaker 2: markets seem to be assuming everything's just fine. To take
Speaker 2: us through this apparent disconnect, Welcome back now, Jillian Ted,
Speaker 2: columnist and member of the editorial board of The Financial
Speaker 2: Times and provost of King's College, Cambridge. Jill, great to
Speaker 2: have you back with us.
Speaker 3: Great to be here, particularly these crazy weird times exactly.
Speaker 2: And you wrote a column just recently actually about TikTok,
Speaker 2: and you think it's about TikTok and social media, but
Speaker 2: it went beyond that to talk about how capricious governments,
Speaker 2: certainly China but also the United States are and how
Speaker 2: investors have to sort of accommodate that absolutely.
Speaker 3: I mean, what I was really trying to talk about
Speaker 3: in the TikTok column was the fact that we have
Speaker 3: this paradox in markets. On the one hand, you have
Speaker 3: market soaring on the back of a pretty good short
Speaker 3: term economic outlook, a lot of relief about the so
Speaker 3: called soft landing and excitement about the idea the Third
Speaker 3: World cut rates later this year. But at the same
Speaker 3: time we have really quite unprecedented levels of medium to
Speaker 3: long term geopolitical risk and domestic political risk, and TikTok
Speaker 3: is one example of that in a fairly extreme form,
Speaker 3: because until a couple of years ago, there were a
Speaker 3: lot of big private capital players who assumed this was
Speaker 3: going to be one of the hothest things in the
Speaker 3: tech landscape. People were talking about it potentially being the
Speaker 3: most lucrative and profit generating trade that they've seen for
Speaker 3: a long time. But of course now we know that
Speaker 3: Washington is considering forcing TikTok to essentially be banned if
Speaker 3: byke dances parent doesn't sell off TikTok to an outside player,
Speaker 3: And so suddenly geopolitical risk has come in and spot
Speaker 3: the party. And that's a metaphor for what's happening or
Speaker 3: what could happen in many many asset classes and in
Speaker 3: relation to many types of securities going forward. And my
Speaker 3: concern is that investors are simply not realizing the magnitude
Speaker 3: of that risk.
Speaker 2: Julie, we all know you for your work at Financial Times,
Speaker 2: how you've covered international finance for many, many years. At
Speaker 2: the same time, I want to go back to your
Speaker 2: original training because I love to talk to you as
Speaker 2: a social anthropologist. That's where you have your PhD. Apply
Speaker 2: that if you can to investors, what are they missing here?
Speaker 2: Is it because they're wishing themselves to success and just saying,
Speaker 2: let's make believe there aren't these problems. Is it because
Speaker 2: it's just too difficult to try to discount this geopolitical
Speaker 2: risk in China or the United States?
Speaker 3: I think the key thing in Bester is are missing
Speaker 3: right now? Is that if you look back at the
Speaker 3: second half of the twentieth century, that was an era when
Speaker 3: we saw the rise of all kinds of intellectual tools
Speaker 3: that were very useful for navigating the world, like balance sheets,
Speaker 3: like economic models, like opinion polls, and all of those
Speaker 3: rows on the back of the computer revolution and the
Speaker 3: fact that it became possible to crunch huge amounts of
Speaker 3: data for the first time on a large scale. Now,
Speaker 3: the problem with all of those tools is that although
Speaker 3: they're incredibly useful, they're only as good as what you
Speaker 3: put into your model, onto your balance sheet, onto your
Speaker 3: opinion poll, and what you leave out can sometimes matter enormously.
Speaker 3: And the story of the last few years is that
Speaker 3: what has been left out, what has been a footnote
Speaker 3: in the balance sheet, or an externality to the economic model,
Speaker 3: like medical risk, like environmental issues like social upheaval, like
Speaker 3: rapid tech change, or now domestic politics and geopolitics, those
Speaker 3: issues that were not included in those fancy computerized models
Speaker 3: are suddenly becoming the model in a sense, their most important.
Speaker 3: And from a cultural perspective, an entire generation was reared
Speaker 3: on the idea that if it's not in the model
Speaker 3: or in the balance sheet, it doesn't matter. And now
Speaker 3: they're waking up and realizing with the shock that's wrong.
Speaker 3: That was no surprise to the people who were investing
Speaker 3: before the eras of model making and balance sheet fine tuning,
Speaker 3: but it is a surprise now because of this cultural pattern.
Speaker 2: Jenny, I want to pick up on one thing you
Speaker 2: refer to as political risk as we face election here
Speaker 2: in United States, serre elections around the world, but we've
Speaker 2: tend to focus on the presidential one here, and is
Speaker 2: there a new element of uncertainty in misinformation because I
Speaker 2: know you've done a lot of work on that subject.
Speaker 2: There is, by the way, which may tests back into TikTok,
Speaker 2: because that's some of the objections about TikTok.
Speaker 3: Absolutely, the issue of misinformation is a classic issue which
Speaker 3: was not appearing on the economist model or even frankly
Speaker 3: on many politicians or political models in the past, and
Speaker 3: the issue cuts both ways. On the one hand, there
Speaker 3: really is a very real risk that AI and other
Speaker 3: types of tech digital technologies will end up manipulating or
Speaker 3: meddling with the whole voting process in a way that
Speaker 3: discredits potentially the outcome in November. The other risk, though,
Speaker 3: for investors, is that fear of that causes some very
Speaker 3: unpredictable and potentially capricious reactions from Washington that could potentially
Speaker 3: hurt the tech sector. And what we see in the
Speaker 3: last year or two is a tech sector boom dramatically
Speaker 3: on the idea that these extraordinary technological breakthroughs around AI
Speaker 3: would keep generating more and more profits and enable American
Speaker 3: business to boom. That may be the case, but anyone
Speaker 3: investing in tech today has to think about the ways
Speaker 3: that the growing politicization of tech could essentially upend their
Speaker 3: models and projections for the future as well. And yes,
Speaker 3: TikTok Byte Dance is an extreme case, but it's certainly
Speaker 3: not the only one at the moment that's out there
Speaker 3: that investors need to think about.
Speaker 2: Jillian's always such a great treat to heavy on Wall Street. Wee,
Speaker 2: there's Jillian Tech of the Financial Times and King's College, Cambridge.
Speaker 2: As we move closer to the presidential election in November,
Speaker 2: Global Wall Street focused on what the differing economic policies
Speaker 2: of the two front runners, President Joe Biden and former
Speaker 2: President Donald Trump could mean for business. For his views,
Speaker 2: we welcome back now Josh Bolton. He's president and CEO
Speaker 2: of the Business Roundtable and former chiefs staff to President
Speaker 2: George W. Bush. So, Josh, welcome back. Good to have you.
Speaker 2: Before we get into what November might mean for business,
Speaker 2: let's talk about where we are right now. I know
Speaker 2: quarterly you do a survey of your CEOs. Who are
Speaker 2: your members? Where do your CEOs think we are as
Speaker 2: an economy right now?
Speaker 4: David, thanks for having me back. Our CEOs are in
Speaker 4: a pretty comfortable place. Every quarter, we ask them about
Speaker 4: their expectations for sales over the coming six months and
Speaker 4: their plans for capex and hiring over that same period,
Speaker 4: and we combine the results into a headline index that
Speaker 4: is basically a pretty good barometer of CEO sentiment, and
Speaker 4: the CEOs in the Business Roundtable their sentiment for the
Speaker 4: coming six months is pretty good. For the first time
Speaker 4: since the third quarter of twenty twenty two, that headline
Speaker 4: index is above its historic app ridge. So it's not exuberant,
Speaker 4: it's not going gangbusters as far as our CEOs are concerned.
Speaker 4: But they see things as in pretty good shape for
Speaker 4: the coming six months based on economic fundamentals. And it
Speaker 4: seems to me, David, that the one thing that might
Speaker 4: throw them off of that optimistic outlook is something that
Speaker 4: happens in something dramatic that happens in our politics or
Speaker 4: our geopolitics.
Speaker 2: So let's talk about that specific because as I say,
Speaker 2: you had experience in the White House, you know whereof
Speaker 2: you speak, how much of a difference does it make
Speaker 2: who is in the White House? No matter who it is,
Speaker 2: can the president really affect the economy substantially.
Speaker 4: Well from the standpoint of our businesses enormously, and in
Speaker 4: particular during periods when the tax code is open for renegotiation,
Speaker 4: when there are potential trade deals on the table that
Speaker 4: might or might not happen depending on who's in charge.
Speaker 4: The regulatory environment is dramatically influenced by who's in the
Speaker 4: White House. So all of those things can really affect
Speaker 4: the business outlook from the standpoint of our country's biggest corporations.
Speaker 2: Let's take those three that you've mentioned, starting with taxes
Speaker 2: and the difference as we perceive it right now between
Speaker 2: the two front runners, Donald Trump and Joe Biden. Joe
Speaker 2: Biden has said he wants to increase taxes and specifically
Speaker 2: on corporations. Presumably President Trump would want to renew the
Speaker 2: so called tax cuts, the Trump tax cuts. So how
Speaker 2: does business perceive the alternative between these two individuals.
Speaker 4: Well, business very much welcomed the tax cuts that passed
Speaker 4: in twenty seventeen. They had a lot to do with
Speaker 4: the prosperity that we enjoyed before the pandemic and that
Speaker 4: we enjoy now. Is a reasonable tax environment. Prior to
Speaker 4: twenty seventeen, the United States was among the highest tax
Speaker 4: jurisdictions among developed countries. The twenty seventeen Act didn't bring
Speaker 4: us to the head of the pack, but it put
Speaker 4: us in the middle of the pack where it's possible
Speaker 4: for US companies to compete. In twenty twenty five, a
Speaker 4: lot of those provisions that brought us back into a
Speaker 4: competitive range are going to expire, and there will be
Speaker 4: a big debate about what to do with a whole
Speaker 4: range of tax provisions on both the corporate and the
Speaker 4: individual side, And the occupant of the White House is
Speaker 4: going to have a lot to say about whether taxes
Speaker 4: go up or remain roughly roughly where they are. The
Speaker 4: composition of the Congress for that purpose is also going
Speaker 4: to be very important, and as close as it looks
Speaker 4: like polling suggests that our presidential elections will be the
Speaker 4: control of both Houses of Congress is also very much
Speaker 4: in doubt.
Speaker 2: Josh, As you know so well taxes in Washington, amount
Speaker 2: of revenue. I mean, if you cut taxes, you lower
Speaker 2: revenue as well. Typically, how concerned our business CEOs studios
Speaker 2: of incorporations about our debt and deficit situation? Because there's
Speaker 2: a lot of concern on.
Speaker 4: Economists point yeah, And as a former budget director, I'm
Speaker 4: concerned as well. The CEOs of the Business Roundtable are
Speaker 4: very concerned about the fiscal situation of the United States.
Speaker 4: But from their perspective, the United States doesn't really have
Speaker 4: a problem that we're under taxed, certainly on the corporate side.
Speaker 4: We have a problem of overspending. And if you look
Speaker 4: at historic data about taxation, tax revenue is a percentage
Speaker 4: of GDP and government spending as a percentage of GDP,
Speaker 4: you see that the tax revenue over time is reware
Speaker 4: in a relatively historically average place in how much of
Speaker 4: our GDP taxes are taking. What's gone way out of
Speaker 4: whack is the spending.
Speaker 2: I'll concerned as the business community with increased terrors, particularly
Speaker 2: some of those ones which are about like fifty sixty
Speaker 2: even one hundred percent on Chinese products.
Speaker 4: Yeah, that would be it would be highly disruptive. The
Speaker 4: United States cannot operate in the modern world as its
Speaker 4: own bubble of a protected economy. We are in a
Speaker 4: global economy, and we damage our own prosperity and our
Speaker 4: own future competitiveness if try to protect ourselves by tariffs
Speaker 4: or any other measure from a global international trading environment.
Speaker 4: Nobody knows that better than the big companies that are
Speaker 4: members of the Business Roundtable because they operate in Most
Speaker 4: of them operate in many countries around the world, and
Speaker 4: they need to be able to compete.
Speaker 2: Josh, thank you so much for being on Wall Street
Speaker 2: Week once again. That is Josh Bolton of the Business Roundtable,
Speaker 2: coming up the fight over standardized tests. Are they helping
Speaker 2: or hurting us make sure the right people get into college?
Speaker 2: We ask economists Melissa Carney of the University of Maryland.
Speaker 2: That's next on Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio.
Speaker 2: This is Wall Street Week. I'm David Weston. Matching prospective
Speaker 2: students with the right college opportunities has never been more
Speaker 2: important for the students and for their future employers, which
Speaker 2: has led to greater scrutiny of the standardized tests used
Speaker 2: to screen applicants, with some colleges turning away from the
Speaker 2: SAT and the ACT and some schools returning to them
Speaker 2: after giving them up. Thig us through the pluses and
Speaker 2: minuses of standardized tests. Welcome back now, Melissa Karney, Professor
Speaker 2: of Economics at the University of Maryland, Lissa, great to
Speaker 2: have you back with us. So, first of Larnias has
Speaker 2: the most basic question, do they work? Do SATs and acts?
Speaker 2: Are they accurate in predicting success in post secondary education?
Speaker 5: Yes, is the short answer. The data that comes out
Speaker 5: of college records has revealed very clearly that students submitted
Speaker 5: SAT or ACT scores are very highly predictive of their
Speaker 5: academic performance when they get to college, much more so
Speaker 5: than guidance counsel, recommendation letters or even their high school grades.
Speaker 5: In some sense, the fact that the test scores are
Speaker 5: more predictive of college academic performance than high school grades
Speaker 5: is not surprising given how much variation there is across
Speaker 5: high schools and grading standards and academic rigor, and of
Speaker 5: course rampant grade inflation has made grades less meaning meaningful,
Speaker 5: And so test scores are just very predictive and a
Speaker 5: really important signal that colleges have access to when they're
Speaker 5: looking for the right match, the right academic match between
Speaker 5: students and their level of academic rigor.
Speaker 2: What about the claims that I've seen that there's some
Speaker 2: cultural bias to these standardized tests, and by the way,
Speaker 2: they disadvantage students coming from less fortunate families.
Speaker 5: Yeah, there's a couple points to make here. First, researchers
Speaker 5: who have looked for this finding that the test scores
Speaker 5: are very predictive of academic performance in college for students
Speaker 5: from different backgrounds, and so that counters the idea that
Speaker 5: it's not helpful for students from less advantaged backgrounds or
Speaker 5: it's biased against them. The second really important fact here
Speaker 5: is that college admissions officers don't consider standardized test scores
Speaker 5: in a vacuum. They're very open and transparent about the
Speaker 5: fact that they evaluate these in the context. The bar
Speaker 5: for what would be considered an impressive score is higher
Speaker 5: for students coming from more advantaged backgrounds than less advantaged backgrounds,
Speaker 5: and so that's really important to realize that admissions officers
Speaker 5: are contextualizing the scores when they're submitted. And by the way,
Speaker 5: this is why the move to test optional or test
Speaker 5: blind made it particularly difficult for kids from less advantaged
Speaker 5: backgrounds to signal to more academically rigorous schools that they
Speaker 5: were prepared. It's actually a particularly important signal for kids
Speaker 5: from less advantaged backgrounds to be able to deliver to
Speaker 5: university or college admissions officers who might not know their
Speaker 5: high school very well, for instance.
Speaker 2: Yeah, So there are various advantages people coming from families
Speaker 2: that have more wealth have, But one of them is
Speaker 2: this incredible industry that's grown up around preparing for the
Speaker 2: SAT and SAT act. I'll just go to my personal experience.
Speaker 2: As you know, I'm involved in a charity in Yonkers
Speaker 2: helping the public schools. So you go across the border
Speaker 2: to Bronxville, those kids are all getting tutoring, which costs
Speaker 2: a fair amount of money, not so much in Yonkers.
Speaker 2: Doesn't that skew the system?
Speaker 5: Yeah, but admissions officers are aware of that. So what
Speaker 5: they would see from a kid coming from Yonkers who
Speaker 5: likely doesn't have access to that kind of tutoring or preparation. Really,
Speaker 5: they're not going to evaluate the scores the same. The
Speaker 5: report coming out of Dartmouth about why they're going back
Speaker 5: to requiring tests is very clear on this. So they
Speaker 5: use the example of a student from an advantaged background,
Speaker 5: a high income family, a school that sends a lot
Speaker 5: of kids to selective schools. A fourteen hundred on the
Speaker 5: SAT would not have helped that student gained admission to Dartmouth.
Speaker 2: But for a.
Speaker 5: Student like your student from that you brought up from Yonkers,
Speaker 5: A fourteen hundred would have been very helpful to them
Speaker 5: in earning admission. The problem is when the schools went
Speaker 5: test optional, kids from different backgrounds were equally likely to
Speaker 5: withhold a score of fourteen hundred, presumably for because kids
Speaker 5: from less advantaged backgrounds don't have access to the savvy
Speaker 5: college counselors who are more tuned to how the game
Speaker 5: is played and would have told them, no, this score
Speaker 5: is helpful for you. You're not being compared to the
Speaker 5: overall average or distribution. And so that's why the kids
Speaker 5: who were most harmed by the elimination of the test
Speaker 5: score requirement were really high achieving kids from less advantage backgrounds.
Speaker 5: And that's a big part of the reason that schools
Speaker 5: like Dartmouth and Brown and mat and Yale are saying
Speaker 5: they're going back to requiring these tests.
Speaker 2: Certainly, getting the right student into the right college is
Speaker 2: a starting point, but it's not the ending point. They
Speaker 2: also have to succeed once they get there. They have
Speaker 2: to make it all the way through, and the tracker
Speaker 2: there that I've read is not so great about a
Speaker 2: lot of children making all the way through and particularly
Speaker 2: ones from less advantaged families. What can we do to
Speaker 2: make sure they succeed once they get there.
Speaker 5: I think this is really important. So, for instance, the
Speaker 5: University of California school system is still test blind, and
Speaker 5: people who are championing that have pointed out that those
Speaker 5: schools are now enrolling more students from underrepresented minority groups
Speaker 5: less advantaged backgrounds. But the problem is if that access
Speaker 5: is coming at a cost of less academic match and
Speaker 5: so you're bringing in students who are less likely to thrive,
Speaker 5: and you're undermining the match between the academic preparation of
Speaker 5: a student and the academic rigor of a particular campus.
Speaker 5: So getting the match right is critically important. We don't
Speaker 5: want to throw out signals of the match quality and
Speaker 5: then students who are disadvantaged when they get to college.
Speaker 5: You know, work has shown that a lot of students
Speaker 5: need a lot of support systems, and you want to
Speaker 5: be able to make sure that students are being well
Speaker 5: served by the campuses they're at. That's a different problem.
Speaker 5: And by the way, there's a related problem here, which
Speaker 5: is the fact that students from different backgrounds are much
Speaker 5: you know, they have different levels of academic preparation by
Speaker 5: the time they're eighteen. That's not the fault of standardized
Speaker 5: test scores. That is a reflection of rampant inequality and
Speaker 5: class gaps and opportunities and schools and family background and
Speaker 5: all sorts of things that affect a student's likelihood of
Speaker 5: excelling in college when they're eighteen. And so again, throwing
Speaker 5: out the metrics that show us these gaps exist don't
Speaker 5: mean the gaps don't exist. They just make us make
Speaker 5: it harder for us to identify them and know.
Speaker 2: Where to put our efforts. Give us a sense of
Speaker 2: how big a problem it is in the Ivy League
Speaker 2: schools as opposed to those state schools like I came from.
Speaker 5: I'm really glad you brought this up, and I'm proud
Speaker 5: to teach one of these flagship state universities, University of Maryland.
Speaker 5: But so let me be clear, all of the media
Speaker 5: emphasis and even our public leaders talk about what's happening
Speaker 5: in admissions at these private elite schools the Ivy League,
Speaker 5: all eight schools combined, serve less than one percent of
Speaker 5: the ten point eight million students enrolled in four year
Speaker 5: institutions in this country. So whatever these schools are doing
Speaker 5: in admissions, whether it comes to their testing regime or
Speaker 5: legacy admissions, is really not that material to the story
Speaker 5: of higher education in this country. I mean, it's very
Speaker 5: frustrating to me how much attention we give these schools,
Speaker 5: given that the flagship universities, the University of Michigan, University
Speaker 5: of Maryland, the Sunny System, the Unity System, they serve
Speaker 5: so many more students than all of the ivy's put together.
Speaker 5: But here's another way to look at this. Over the
Speaker 5: past thirty years, our country has produced a million more
Speaker 5: college for your college degree holders than in nineteen ninety. Okay,
Speaker 5: so we went from just over a million to just
Speaker 5: over two million. Do you know how many more degrees
Speaker 5: were granted by the ivs combined, an additional thirty five hundred.
Speaker 5: So when it comes to expanding access to higher education,
Speaker 5: the story is just not at the elite private schools,
Speaker 5: and so we need to be talking about what's happening
Speaker 5: at the state schools, the public schools, their lack of funding.
Speaker 5: That's where the real story is.
Speaker 2: And finally, Melissa, we just had a new budget proposed
Speaker 2: with the federal government. You spend a lot of time
Speaker 2: looking at that. I know you're concerned about the deficit
Speaker 2: and the debt that we're building up at the same time,
Speaker 2: what did you see in that budget, if anything, that
Speaker 2: could help this problem of really making sure we're supporting
Speaker 2: kids coming from less fortunate families.
Speaker 5: What I would have liked to see in the budget
Speaker 5: is a much bigger allocation of funding towards spending on kids,
Speaker 5: towards spending on less advantaged groups. I mean, we spend
Speaker 5: more on interest on the debt at this point than
Speaker 5: we do on all federal programs aimed at children. If
Speaker 5: we want to equip more students to be in a
Speaker 5: position to thrive in college, if we want to close
Speaker 5: class gaps, to build up our workforce, we need to
Speaker 5: be shifting the budget not just away from deficit spending
Speaker 5: and interest payments, but really to have a more dedicated
Speaker 5: focused on forward looking investments, and that means in kids
Speaker 5: and younger generation in this country. That's what I would
Speaker 5: have liked to have seen in the budget.
Speaker 2: Melissa. It's always a treat to have you with this.
Speaker 2: Thank you so much for joining us. That's MOSSA Carney
Speaker 2: of the University of Maryland, one of the great leaders
Speaker 2: of the twentieth century, Winston Churchill said that the price
Speaker 2: of greatness is responsibility. We've been watching as some people
Speaker 2: striving for greatness are being held responsible, like House Speaker
Speaker 2: Mike Johnson, who found a way to get the Congress
Speaker 2: to keep the government funded, only to be confronted with
Speaker 2: one of his own Republican colleagues trying to kick him
Speaker 2: out of his job.
Speaker 8: We need a new speaker. This is not personal against
Speaker 8: Mike Johnson. He's a very good man and I have
Speaker 8: respect for him as a person, but he is not
Speaker 8: doing the job.
Speaker 2: Or President ge of China who aspires to greatness by
Speaker 2: making sure he holds the reins of power in his economy,
Speaker 2: but may end up bearing responsibility for its slow and growth.
Speaker 2: I think this is all about state control.
Speaker 7: You know.
Speaker 8: Sheijinping is all about control, and right now China is
Speaker 8: all about Sheijinping.
Speaker 2: This week we saw the price of greatness in the
Speaker 2: corporate world, as Boeing CEO Dave Calhoun announced that he'd
Speaker 2: be stepping down after a series of problems with Boeing
Speaker 2: planes undermined confidence in his leadership, especially from his airline customers.
Speaker 1: Everybody's worried about boeing, we've got to get Bowing back
Speaker 1: to the point where it produces an impeccable product.
Speaker 2: And Nelson Peltz continues to do his dead level best
Speaker 2: to hold Bob Eyer responsible after years of great performance
Speaker 2: as Disney CEO, as his proxy battle comes to a
Speaker 2: climax at the annual shareholders meeting on Wednesday.
Speaker 9: This really is a story not necessarily about Nelson Pelts,
Speaker 9: so Disney is actually sort of pushing that that line,
Speaker 9: but really is more about the governance the company itself.
Speaker 2: But perhaps the strangest example of someone trying to hold
Speaker 2: a leader responsible comes from NBC, which last Friday announced
Speaker 2: it would be adding Ronald McDaniel as an on air contributor,
Speaker 2: just two weeks after she stepped down as chair of
Speaker 2: the Republican National Committee. In the memo, staff, the NBC
Speaker 2: senior vice president of Politics said that quote, it couldn't
Speaker 2: be a more important moment to have Ms McDaniel on
Speaker 2: the team. Well, other members of the NBC team begged
Speaker 2: to disagree. Chuck Todd, Rachel Maddow, Joe Scarborough and Miko
Speaker 2: Verziniski all very publicly objected in some pretty strong terms
Speaker 2: to what their leadership had done, and so NBC promptly
Speaker 2: reverse course and decided that Ms McDaniel would not be
Speaker 2: joining its team after all. Look, let me do with
Speaker 2: the and in the room. Yes, I think our bosses
Speaker 2: owe you an apology for putting you in this situation
Speaker 2: because I don't know what to believe. Trust me, this
Speaker 2: isn't the first time that those in the newsroom have
Speaker 2: challenged decisions made by leadership. When I ran ABC News,
Speaker 2: there were any number of times that my colleagues took
Speaker 2: issue with things I was doing, everything from giving Leonardo
Speaker 2: DiCaprio a role on an Earth Day special to using
Speaker 2: digital technology to cut the size of some of our
Speaker 2: crews in the field. I even had some internal pushback
Speaker 2: when I brought George Stephanopoulos on, and it came from
Speaker 2: none other than Peter Jennings, the journalists journalist. Peter told
Speaker 2: me I was making a big mistake because George had
Speaker 2: not been trained in the craft, and even worse, he'd
Speaker 2: spent time in the Clinton White House several years before.
Speaker 2: Looking back on it now, the issue seems almost quaint
Speaker 2: given the first rate reporter, interviewer, and anchor George has
Speaker 2: become and in fairness to Peter. After he'd worked with
Speaker 2: him for a few months, he came back to me
Speaker 2: to say he'd been wrong, that George had the instincts
Speaker 2: and the work ethic of the best journalists in our newsroom.
Speaker 2: But then again, I'm not gonna ware that George Stephanopoulos
Speaker 2: ever challenged the legitimacy of an election that he'd lost.
Speaker 8: We should all be concerned about the care, custody, integrity
Speaker 8: of every ballot. But that's all I'm saying. And you
Speaker 8: know what, this is a viewpoint of a lot of Republicans,
Speaker 8: and they think Joe Biden's the president, but they also
Speaker 8: think there were problems and both can be true.
Speaker 2: That does it for this episode of Wall Street Week.
Speaker 2: I'm David Weston. This is Bloomberg. See you next week.