WEBVTT - Bloomberg Wall Street Week: Brouillette, Toone, Dube 0:00:00.160 --> 0:00:03.360 This is Bloomberg Wall Street Week. What's the state of 0:00:03.400 --> 0:00:06.360 corporate governance? The deficit is a real issue. The US 0:00:06.400 --> 0:00:09.880 economy continues to send mixed signals. The financial stories that 0:00:10.039 --> 0:00:13.000 cheap our world fed action to con concerns over dollar 0:00:13.039 --> 0:00:16.520 liquidity and encouraging China data. The five hundred wealthiest people 0:00:16.520 --> 0:00:19.160 in the World. Through the eyes of the most influential 0:00:19.239 --> 0:00:22.520 voices Larry Summers, the former Treasury Secretary, star Ward CEO, 0:00:22.640 --> 0:00:26.360 Kevin Johnson sec Chairman j Clayton. Bloomberg wool Street Week 0:00:26.480 --> 0:00:30.360 with David Weston from Bloomberg Radio. Winter comes to Texas, 0:00:30.560 --> 0:00:33.760 but the markets look past higher oil prices and keep 0:00:33.800 --> 0:00:36.720 their focus on earnings and interest rates and getting back 0:00:36.720 --> 0:00:40.240 to business. This is Bloomberg Wall Street Week. I'm David Weston. 0:00:40.600 --> 0:00:44.000 Different experts have different views on what caused the Texas 0:00:44.000 --> 0:00:46.080 power crisis and what needs to be done about it. 0:00:46.360 --> 0:00:49.720 The Secretary of Energy under President Trump, Dan Briette, says, 0:00:49.760 --> 0:00:52.640 the fundamental problem is moving too far and too fast 0:00:52.880 --> 0:00:55.880 toward renewable energy. There is a fundamental flaw in our 0:00:55.880 --> 0:00:58.720 policy inow system here in the United States. Obviously, the 0:00:58.760 --> 0:01:01.200 weather is having an effect on the energy grid, but 0:01:01.520 --> 0:01:03.520 it's important for us to remember that the weather is 0:01:03.560 --> 0:01:06.200 not the actual cause of the rolling blackouts that we're 0:01:06.200 --> 0:01:09.160 seeing across Texas and other parts of the United States. 0:01:09.480 --> 0:01:10.760 You know, it used to be, David, in the in 0:01:10.880 --> 0:01:13.320 years past, we built the utility systems in America to 0:01:13.360 --> 0:01:16.600 provide energy when people needed it when they needed it, 0:01:16.760 --> 0:01:19.199 like right now. And what we've done is we've moved 0:01:19.200 --> 0:01:21.399 away from that. That's what I just described is known 0:01:21.440 --> 0:01:24.640 as baseload power. We've moved away from that to a 0:01:24.720 --> 0:01:28.759 more intermittent and frankly sometimes less reliable form of energy 0:01:28.760 --> 0:01:31.520 in the sense of wind and solar. And when people 0:01:31.600 --> 0:01:33.920 may need the energy like they do today, the wind 0:01:33.920 --> 0:01:35.920 may not be there and the solar may not be there. 0:01:36.240 --> 0:01:38.560 So what we've done is we've moved away from that 0:01:38.560 --> 0:01:40.920 that energy security that we used to have here in 0:01:40.959 --> 0:01:44.920 the United States. And further, David, we've exacerbated the problem 0:01:44.959 --> 0:01:48.160 by in some cases making the baseload power. And what 0:01:48.200 --> 0:01:51.200 I'm speaking to are the pipelines and natural gas pipelines 0:01:51.560 --> 0:01:55.240 dependent upon this intermittent form of energy. So when those 0:01:55.240 --> 0:01:58.600 windmills didn't blow in West Texas, that means the compressors 0:01:58.640 --> 0:02:01.800 on those pipelines didn't work, and that natural gas perhaps 0:02:01.840 --> 0:02:05.840 didn't reach those natural gas utilities in other parts of Texas. 0:02:05.880 --> 0:02:08.080 So we've got to address this very squarely and have 0:02:08.320 --> 0:02:12.480 a very honest conversation about renewable energy in America. Until 0:02:12.520 --> 0:02:14.959 we can reach the point that we have grid scale 0:02:15.000 --> 0:02:18.160 storage and battery technologies that allows us to rely on 0:02:18.240 --> 0:02:22.400 this energy, it's important that we not we not put 0:02:22.400 --> 0:02:25.000 ourselves into situation where we're dependent upon it. Well, and Dan, 0:02:25.040 --> 0:02:26.480 that was gonna be a question how much of this 0:02:26.560 --> 0:02:29.280 is a storage problem. If we had the storage problem fixed, 0:02:29.480 --> 0:02:32.799 would it take care of things like solar and wind, Well, 0:02:32.960 --> 0:02:35.200 it would, David that that's really the challenge, you know, 0:02:35.600 --> 0:02:39.000 Um Today, renewable energy does not have the ability to 0:02:39.000 --> 0:02:42.480 provide what we refer to as grid scale storage or 0:02:42.520 --> 0:02:45.800 seven storage. So in that sense, it is dependent upon 0:02:46.040 --> 0:02:49.440 natural gas, nuclear and coal in certain instances to provide 0:02:49.480 --> 0:02:52.760 that backup power. But if you've made the backup power 0:02:52.960 --> 0:02:56.440 also dependent upon the renewable power, you've got a real challenge. 0:02:56.480 --> 0:02:58.560 And that's what we're seeing in Texas today. So to 0:02:58.680 --> 0:03:01.320 what extent is this irrevocable in the sense that coal 0:03:01.360 --> 0:03:06.560 has become increasingly inefficient, monetarily, economically not so feasible. So 0:03:06.560 --> 0:03:08.200 we have to move away from coal. And if we 0:03:08.280 --> 0:03:10.120 move at coal, where are we going. Well, I think 0:03:10.160 --> 0:03:12.120 we are going to eventually end up, you know, with 0:03:12.800 --> 0:03:14.840 very clean forms of energy. It will be things like 0:03:14.960 --> 0:03:20.040 fusion nuclear fusion technologies, smaller nuclear technologies that have zero 0:03:20.320 --> 0:03:23.680 carbon emissions. We're gonna see a lot more solar energy, 0:03:23.720 --> 0:03:26.000 a lot more wind energy. That's the transition that the 0:03:26.040 --> 0:03:29.560 world is moving toward. The challenges. If we moved there 0:03:29.600 --> 0:03:33.040 today without baseload power, we're going to continue to see 0:03:33.040 --> 0:03:35.040 the problems that we're seeing today in Texas. Again, I'll 0:03:35.040 --> 0:03:37.800 state the point, it's not the weather that's the problem, 0:03:37.880 --> 0:03:41.120 it's the policy that's the problem. And what about the grid, 0:03:41.200 --> 0:03:43.400 because I also have heard in the last four hours 0:03:43.400 --> 0:03:46.320 some talk about the Texas grid being different from some others, 0:03:46.480 --> 0:03:49.960 that it's more independent, that it's not is easy to 0:03:50.000 --> 0:03:53.080 transfer power from Texas outside of Texas to surrounding states. 0:03:53.160 --> 0:03:56.400 Is that true? That is true? Texas is run the 0:03:56.640 --> 0:03:58.920 regulator there is known as ar COOT, that's the grid 0:03:58.960 --> 0:04:02.480 manager within Texas. And yes, they are somewhat isolated from 0:04:02.520 --> 0:04:05.240 the rest of the country. There are instances. For instance, 0:04:05.320 --> 0:04:07.800 during the hurricane season in Louisiana where we were, I 0:04:07.920 --> 0:04:12.080 issued an emergency order to allow electricity to move from 0:04:12.120 --> 0:04:14.600 Texas to Louisiana to help the good folks in Louisiana 0:04:14.640 --> 0:04:17.160 recover from the hurricane. But those are those are are 0:04:17.279 --> 0:04:20.960 are unique events. By and large, the COOT system, the 0:04:21.000 --> 0:04:23.880 Texas system is independent from the rest of the country. 0:04:24.040 --> 0:04:26.840 Is it possible in a short term basis to redeploy 0:04:26.920 --> 0:04:28.520 some of the energy? And the things that I've learned 0:04:28.560 --> 0:04:30.760 because of this crisis is the extent to which Texas 0:04:30.760 --> 0:04:33.440 and particularly reply and relies by natural gas as opposed 0:04:33.440 --> 0:04:36.600 to fuel oil for their heating system. Is it possible 0:04:36.640 --> 0:04:39.120 to redirect some of the natural gas that otherwise we'll 0:04:39.120 --> 0:04:41.520 be going to len G facilities to be exported. Yes, 0:04:41.520 --> 0:04:44.000 you can. The question is, you know, can you get 0:04:44.040 --> 0:04:46.600 those pipelines? Can you get that infrastructure permitted in the 0:04:46.680 --> 0:04:51.120 United States? Intrust A pipelines in Texas have been somewhat 0:04:51.160 --> 0:04:53.719 easier to permit than other places around the country. We 0:04:53.760 --> 0:04:56.240 had a unique problem up in the Northeast where we 0:04:56.279 --> 0:04:59.960 couldn't get natural gas out of the Marcellus shale in Pennsylvania. 0:05:00.000 --> 0:05:02.880 An enormous resource for the country. We couldn't get it 0:05:02.920 --> 0:05:06.080 to the Northeast, which wanted it desperately, because the state 0:05:06.080 --> 0:05:08.400 of New York would not permit a pipeline to allow 0:05:08.480 --> 0:05:11.559 that gas to travel through its state. It's those types 0:05:11.600 --> 0:05:14.880 of challenges, David, that we face today in America. It's 0:05:14.920 --> 0:05:17.480 not just America, I think, Mr Secretary, we see problems 0:05:17.480 --> 0:05:20.400 in Japan, we see problems in Europe because of extreme 0:05:20.440 --> 0:05:23.080 weather right now and the effect way it affects energy 0:05:23.200 --> 0:05:26.039 and the power grid. What can we do to anticipate 0:05:26.279 --> 0:05:28.440 extreme weather because it doesn't seem to be going away 0:05:28.480 --> 0:05:31.000 anytime soon. Well, I think it goes back to what 0:05:31.040 --> 0:05:33.200 I said earlier, David. You know, we used to build 0:05:33.279 --> 0:05:36.240 utility systems in America with security in mind and have 0:05:36.440 --> 0:05:39.920 it provide energy when people wanted it. I liken this 0:05:40.000 --> 0:05:42.920 to a national defense. You build an army to protect 0:05:42.960 --> 0:05:46.120 your people when the enemy attacks. So what you want 0:05:46.160 --> 0:05:48.800 to do is provide a utility system that provides energy 0:05:48.839 --> 0:05:51.000 when people want it and need it. What we have 0:05:51.080 --> 0:05:54.159 today in America is exactly the opposite. When people really 0:05:54.200 --> 0:05:56.560 need the energy, our response is to tell them to 0:05:56.600 --> 0:05:59.320 turn the heat off, turn the lights off. That's exactly 0:05:59.360 --> 0:06:03.320 the wrong approach the energy policy, in your opinion, Might 0:06:03.560 --> 0:06:06.520 this phenomenon we're watching right now in Texas and through 0:06:06.600 --> 0:06:09.960 much of central United States? Might it affect at least 0:06:09.960 --> 0:06:13.200 the timetable of the Biden Administration's plan to go to 0:06:13.240 --> 0:06:15.279 clean energy. Well, I hope it does. I hope that 0:06:15.279 --> 0:06:17.200 there are some lessons that are taken from these types 0:06:17.240 --> 0:06:19.120 of events, and it's such as Texas. We saw the 0:06:19.160 --> 0:06:22.400 same thing in California last year as well. Look, I 0:06:22.400 --> 0:06:25.480 think everybody has the same goal here. Everybody wants clean air, 0:06:25.560 --> 0:06:28.320 everybody wants clean water. The question is how do you 0:06:28.440 --> 0:06:31.960 do it? And that's an important conversation for the Biden 0:06:32.040 --> 0:06:36.480 administration to consider. That was Dan Riette, former Secretary of Energy, 0:06:36.680 --> 0:06:39.039 coming up what the freeze deep in the heart of 0:06:39.080 --> 0:06:42.000 Texas may tell us or not about the move to 0:06:42.080 --> 0:06:46.520 clean energy from Eric Tune of Breakthrough Energy Ventures. That's 0:06:46.560 --> 0:06:55.400 next on Wall Street Week on Bloomberg. This is Bloomberg 0:06:55.440 --> 0:06:59.560 Will Street Week with David Weston from Bloomberg Radio. A 0:06:59.640 --> 0:07:03.480 snow storm and brutal cold hit an unprepared energy system 0:07:03.600 --> 0:07:07.680 and left nearly five million customers in Texas, North Dakota, 0:07:08.000 --> 0:07:11.960 Arkansas Louisiana and Mississippi in the dark. Power companies in 0:07:12.000 --> 0:07:15.240 affected states had to resort to rolling power blackouts to 0:07:15.240 --> 0:07:19.440 save their networks from collapsing, leaving households and businesses without 0:07:19.480 --> 0:07:22.800 power and heat. What is our priority for UH for 0:07:22.960 --> 0:07:25.360 keeping the lights on and the heat on. Really do 0:07:25.560 --> 0:07:30.560 need to have a very broad mix of power generating sources. 0:07:30.600 --> 0:07:34.120 That's Ellen Walled, Senior fellow of the Atlantic Council. In 0:07:34.200 --> 0:07:36.840 recent years, power grids have come to rely more on 0:07:36.960 --> 0:07:41.320 wind and solar power to meet increasing electricity demands. But 0:07:41.400 --> 0:07:45.000 the alternative energy sources can sometimes vary with the weather. 0:07:45.320 --> 0:07:48.240 And this weather was severe enough to hit both wind 0:07:48.360 --> 0:07:51.680 and gas fire generation in Texas, and there wasn't enough 0:07:51.800 --> 0:07:54.320 reserve power to keep the lights on, or the heat 0:07:54.800 --> 0:07:57.760 or even the water in some places. Here's Ken Molis, 0:07:57.800 --> 0:08:01.880 the founder and chairman of Molus Company. You cannot force 0:08:02.480 --> 0:08:05.320 a government mandate on certain things that aren't ready to 0:08:05.400 --> 0:08:08.920 supply the basic needs of people. To make things worse, 0:08:09.040 --> 0:08:12.760 the winter storm crippled US oil and gas production, reducing 0:08:12.760 --> 0:08:15.440 it by more than a third in the Permian Basin. 0:08:15.640 --> 0:08:18.720 Major producer Occidental told customers it would be forced to 0:08:18.800 --> 0:08:22.560 curtail oil deliveries, while chevrons shut some wells in the region. 0:08:22.920 --> 0:08:26.160 More than twenty refineries were disrupted by the polar blast, 0:08:26.360 --> 0:08:30.000 sending gasoline futures surging. This is a timely reminded for 0:08:30.040 --> 0:08:31.960 a wake up called really in saying that, yeah, we 0:08:32.080 --> 0:08:34.920 absolutely need fossil fuel in the mix, it's about how 0:08:34.960 --> 0:08:38.480 we get in greener. That's Amrita sent chief oil analysts 0:08:38.480 --> 0:08:42.200 at Energy Aspects. Temperatures in Texas were low enough to 0:08:42.280 --> 0:08:45.560 freeze oil and gas liquids in pipelines laid on the ground. 0:08:45.640 --> 0:08:49.440 Just as the cold caused demand to jump. Liquefied natural 0:08:49.480 --> 0:08:52.120 gas terminals were shut down to reduce their power and 0:08:52.200 --> 0:08:56.520 gas demand in response to emergency declarations. Here's Jim Right, 0:08:56.720 --> 0:09:00.760 Texas Railroad Commissioner. As we hear in Texas have said 0:09:00.840 --> 0:09:05.360 that renewable energy has priority on our grid. We've discouraged 0:09:05.480 --> 0:09:08.640 the people coming in and building car plants that run 0:09:08.640 --> 0:09:11.800 off of natural gas, which is more of a reliable 0:09:11.880 --> 0:09:16.000 source than than as everyone knows when and uh sun is. 0:09:16.320 --> 0:09:19.680 This energy crisis is severe, but not new. Almost a 0:09:19.720 --> 0:09:22.720 fifth of the power capacity in Texas failed in February 0:09:22.720 --> 0:09:26.760 two eleven during another cold snap, and California suffered blackouts 0:09:26.840 --> 0:09:30.679 during a heatwave last August, not to mention multiple wildfires 0:09:30.720 --> 0:09:33.800 that in recent years have been linked to its power grids. 0:09:33.840 --> 0:09:37.559 Here's Paul Sanky, lead analyst at Sankey Research in The 0:09:37.720 --> 0:09:41.520 situation for me is very reminiscent of park in Katrina, 0:09:42.240 --> 0:09:45.319 where if you recall on the Monday after Katrina, that 0:09:45.440 --> 0:09:48.520 was sort of an attitude that, uh, this hasn't been 0:09:48.520 --> 0:09:50.400 that big a deal, and then over the course of 0:09:50.440 --> 0:09:53.720 the following week it's suddenly emerged as a as a 0:09:53.800 --> 0:09:56.880 horrendous disaster. But others say that it is wrong to 0:09:56.960 --> 0:09:59.560 blame the problems in Texas this week on wind and 0:09:59.679 --> 0:10:03.920 so or energy. There's a more fundamental issue of energy reliability. 0:10:03.960 --> 0:10:07.920 According to Eric Tune, he's managing director of Breakthrough Energy Ventures, 0:10:07.960 --> 0:10:11.360 we should instead focus on the underlying weakness of the 0:10:11.400 --> 0:10:15.400 Texas approach to its energy policy. Fundamentally, what you need 0:10:15.840 --> 0:10:18.640 to achieve reliability and electric grid, which is what we're 0:10:18.679 --> 0:10:22.400 trying to do here, is some combination of electricity storage 0:10:22.720 --> 0:10:25.600 and electricity transmission, and those two things sort of play 0:10:25.640 --> 0:10:28.600 off against each other. If you had infinite storage, if 0:10:28.640 --> 0:10:30.880 you could store all the energy you wanted at times 0:10:30.880 --> 0:10:32.960 of surplus, so that you had it at times of need, 0:10:33.440 --> 0:10:36.840 you wouldn't need any transmission. If you had infinite transmission, 0:10:36.880 --> 0:10:39.280 so at times of surplus you could ship your electricity 0:10:39.280 --> 0:10:41.680 to places that didn't have as much, and at times 0:10:41.720 --> 0:10:44.120 of need you could report it from other places. Then 0:10:44.160 --> 0:10:46.160 you wouldn't need any storage. So those two things you 0:10:46.200 --> 0:10:51.120 need some combination of storage and transmission to achieve reliability. 0:10:51.120 --> 0:10:56.280 And electric grid has a very specific set of problems. 0:10:56.360 --> 0:10:59.480 First of all, at the transmission level, Texas has a 0:10:59.520 --> 0:11:02.720 grid is limited to the state of Texas or cott 0:11:02.880 --> 0:11:05.800 is unique among electric grids and that it's only for 0:11:05.840 --> 0:11:09.000 the state of Texas, so they have very limited transmission. 0:11:10.080 --> 0:11:14.199 And then they have virtually no storage. Unlike other states, 0:11:14.280 --> 0:11:18.440 Texas doesn't store um natural gas. They basically take it 0:11:18.480 --> 0:11:20.880 straight out of the ground and put it into the pipeline. 0:11:21.200 --> 0:11:23.920 They don't store energy that's produced by winds at times 0:11:23.920 --> 0:11:27.720 of surplus, so it's available at at at times of need. 0:11:28.200 --> 0:11:32.000 And so what happened here is everything went down simultaneously 0:11:32.080 --> 0:11:36.000 and fundamentally the problem was water freezes. Water freezing is 0:11:36.040 --> 0:11:39.080 what caused the turbines to stop. Water freezing is what 0:11:39.240 --> 0:11:42.360 stopped natural gas coming out of the ground because natural 0:11:42.400 --> 0:11:46.280 grass comes out of the ground with with hydrocarbons and 0:11:46.320 --> 0:11:50.000 with water that froze up. Water freezing is the problem. 0:11:50.080 --> 0:11:52.760 That what caused the nuclear reactor to go down, right, 0:11:52.760 --> 0:11:54.920 That was that was a cooling line. So fundamentally here 0:11:55.320 --> 0:11:58.400 the problem is water freezes. That's an unusual event in 0:11:58.480 --> 0:12:03.280 Texas that had ramifications for generation across the board. Across 0:12:03.360 --> 0:12:08.200 the board, renewables, natural gas, even nuclear and with no 0:12:08.400 --> 0:12:13.160 storage and very limited transmission, reliability goes away. So that's 0:12:13.160 --> 0:12:17.280 fundamentally what happened. Water freezes, and it has impaired some 0:12:17.400 --> 0:12:19.440 of the turbines. Although a lot of turbines down there 0:12:19.480 --> 0:12:21.680 is I understanding. At the same time, you can winterize 0:12:21.679 --> 0:12:23.560 those things, can't you. I have read that some of 0:12:23.559 --> 0:12:26.080 the Northern States and Canada do a better job than 0:12:26.120 --> 0:12:29.400 Texas is doing. You absolutely can't. I mean they run Look, 0:12:29.400 --> 0:12:32.400 they run turbines three sixty five days a year in Greenland, 0:12:32.400 --> 0:12:36.640 and Greenland is certainly colder than Texas is today, you know. 0:12:36.760 --> 0:12:39.559 But but here you you you pay money to build 0:12:39.559 --> 0:12:44.160 reliability into those generating assets, and you can decide whether 0:12:44.200 --> 0:12:47.920 I want, you know, a grid that's nine reliable and 0:12:47.960 --> 0:12:49.920 it's going to go down once every ten years, or 0:12:50.000 --> 0:12:53.120 I can you know, build one that's nine percent reliable 0:12:53.120 --> 0:12:54.839 and it's going to go down once every hundred years, 0:12:54.960 --> 0:12:56.839 or ninety nine point nine that goes down, you know, 0:12:56.920 --> 0:12:59.319 once every thousand years. And that costs money, and and 0:12:59.520 --> 0:13:02.199 and that's a decision that a society has to make 0:13:02.280 --> 0:13:05.800 about how much it's prepared to pay for that reliability. Well, 0:13:05.800 --> 0:13:07.520 and that raises a question in my mind a least 0:13:07.520 --> 0:13:09.800 whether this is a technology issue, a climate issue, or 0:13:09.800 --> 0:13:12.880 a business model issue. Is in fact the case that 0:13:13.040 --> 0:13:15.719 Texas largely has decided to run their system way to 0:13:15.800 --> 0:13:18.559 maximize profits, which means you don't spend as much in 0:13:18.760 --> 0:13:22.400 overproducing having excess capacity and storage. I would say that 0:13:22.640 --> 0:13:25.679 that the business model is a significant part of the problem. 0:13:26.080 --> 0:13:29.840 Texas also doesn't have capacity markets. Um. Electricity markets are 0:13:29.920 --> 0:13:32.959 very complicated things. You you have markets where you pay 0:13:33.000 --> 0:13:36.000 people to produce electricity, but you also have forward looking 0:13:36.080 --> 0:13:39.320 markets that pay people for capacity. Texas has not used 0:13:39.400 --> 0:13:42.120 capacity markets in the past, and I think it's something 0:13:42.160 --> 0:13:44.280 that they they want to look at, especially if they're 0:13:44.280 --> 0:13:48.320 going to keep an isolated grid ERIC over the longer term. 0:13:48.720 --> 0:13:51.880 We're moving towards renewables. It's pretty clear across the country, 0:13:52.080 --> 0:13:54.080 and the Biden administration wants to move us there faster. 0:13:54.720 --> 0:13:57.920 Does the Texas experience tell us anything about how fast 0:13:58.080 --> 0:14:00.280 we can and should move, and particularly when it comes 0:14:00.320 --> 0:14:02.400 to storage, because as I understand, there remains some real 0:14:02.520 --> 0:14:07.240 issues with storage from renewables. Well, you know, I think 0:14:07.280 --> 0:14:09.839 that that we have to think about reliability, you know, 0:14:10.080 --> 0:14:12.680 as as we move to an era of electrify everything, 0:14:12.760 --> 0:14:15.280 and that's absolutely where we're going. The size of the 0:14:15.360 --> 0:14:16.960 grid is going to grow, so you have to think 0:14:16.960 --> 0:14:19.080 about what new generating assets that you're gonna put on 0:14:19.200 --> 0:14:22.280 to supply that power. That was Eric Tune of Breakthrough 0:14:22.480 --> 0:14:26.120 Energy Ventures, the organization Bill Gates founded to invest in 0:14:26.200 --> 0:14:29.720 sustainable energy. Michael R. Bloomberg, founder and majority owner of 0:14:29.800 --> 0:14:33.600 our parent company, is an investor in b EV. Coming up, 0:14:33.760 --> 0:14:36.560 the President Biden insists he wants the federal minimum wage 0:14:36.680 --> 0:14:39.400 raised to fifteen dollars an hour. But will it cost 0:14:39.520 --> 0:14:42.360 more jobs when we still have almost ten million people 0:14:42.480 --> 0:14:45.360 out of work because of the pandemic. We ask economics 0:14:45.360 --> 0:14:49.280 professor A renderjitz Dubai of U mass Amherst. That's next 0:14:49.360 --> 0:14:58.360 down Wall Street Week on Bloomberg. This is Bloomberg Wall 0:14:58.440 --> 0:15:03.160 Street Week with David from Bloombird Radio. The federal minimum 0:15:03.200 --> 0:15:06.000 wage has been seven dollars and cents an hour since 0:15:06.080 --> 0:15:09.720 July of two thousand nine, and Democrats have been calling 0:15:09.800 --> 0:15:13.200 for a national increase, even as twenty states couldn't wait 0:15:13.600 --> 0:15:16.760 and raise their minimum wage on January one. But will 0:15:16.920 --> 0:15:19.760 some employers hire less people if they have to pay 0:15:19.880 --> 0:15:23.880 them more? Economics professor or Renderjit Dubai of UMSS Amherst 0:15:24.080 --> 0:15:26.480 has become a leading expert on the subject, and he 0:15:26.720 --> 0:15:29.320 has his doubts. So a little over a year ago 0:15:29.440 --> 0:15:32.520 I conducted a major review of the evidence for the 0:15:32.640 --> 0:15:36.680 UK Treasury about what minimum wages do to jobs. Overall, 0:15:37.040 --> 0:15:39.880 the most up to date body of research, in my opinion, 0:15:40.000 --> 0:15:44.000 points to a relatively limited effect of minimum wages on 0:15:44.240 --> 0:15:49.080 jobs in US, in UK and other developed economies. At 0:15:49.120 --> 0:15:53.640 the same time, it's significantly increases wages earnings at the bottom, 0:15:53.760 --> 0:15:56.680 so overall, I think that ends up lifting people out 0:15:56.720 --> 0:15:59.520 of poverty and being a relatively good thing. So the 0:15:59.560 --> 0:16:01.720 Congression on Budget Office has done more than one study 0:16:01.760 --> 0:16:03.520 on this, and I've read at least the summaries of 0:16:03.600 --> 0:16:05.440 them that concludes that on the one hand, what you 0:16:05.480 --> 0:16:08.160 said is exactly right. You raise a lot of people 0:16:08.240 --> 0:16:10.560 out of poverty. On the other hand, you lose jobs. 0:16:10.680 --> 0:16:12.880 Last estimal myself was like one point three million or 0:16:12.920 --> 0:16:15.600 one point formula if you go to fifteen dollars an 0:16:15.640 --> 0:16:18.560 hour minium, which across the entire country. Yeah, so I 0:16:18.600 --> 0:16:21.120 think it's you know, it's sometimes it's hard to interpret 0:16:21.240 --> 0:16:24.160 what that one point four million means. The top line numbers, 0:16:24.440 --> 0:16:27.000 that is it big, it's strong. The way they think 0:16:27.000 --> 0:16:30.000 about it is this the CPO analysis suggests there will 0:16:30.080 --> 0:16:34.400 be job loss one point four million fewer jobs um. 0:16:34.640 --> 0:16:38.480 At the same time, wage games are far larger than that, 0:16:39.000 --> 0:16:41.840 and so as a result, it ends up lifting people 0:16:41.880 --> 0:16:47.200 out of poverty and actually increasing earnings overall for working people. 0:16:47.760 --> 0:16:51.280 Having said that, let me also say that I actually 0:16:51.400 --> 0:16:55.960 think the several analysis is more pessimistic than what I found. 0:16:56.560 --> 0:16:59.440 Um In my review, I used a somewhat broader set 0:16:59.480 --> 0:17:03.760 of evidence, and I also paid close attention to some 0:17:03.880 --> 0:17:06.399 particular data points. And here's a you know, going a 0:17:06.440 --> 0:17:09.280 little bit into the weeds here. But the CBO analysis 0:17:09.400 --> 0:17:14.879 really basically they uses eleven studies and um, what the 0:17:15.119 --> 0:17:18.119 problem is that some of those studies that there's a 0:17:18.160 --> 0:17:21.520 few studies that find really large job losses, and one 0:17:21.600 --> 0:17:25.320 of those is this study from University Washington that looked 0:17:25.359 --> 0:17:29.560 at Seattle minimum wage. It just turns out that that 0:17:30.640 --> 0:17:35.080 that that study actually was um one where they found 0:17:35.160 --> 0:17:37.800 really large job loss, but then it turned out that 0:17:38.080 --> 0:17:42.000 it was actually almost certainly incorrect. In fact of subsequent 0:17:42.040 --> 0:17:45.680 analysis by the same authors found job loss that was 0:17:45.760 --> 0:17:49.560 one tenth as large from the same minimum wage increase, 0:17:49.600 --> 0:17:52.480 and that was not included in the CBO report. I 0:17:52.560 --> 0:17:54.320 can go more into the weeds, but I will say 0:17:54.400 --> 0:17:56.800 that overall, I think that one point for milion is 0:17:57.160 --> 0:17:59.760 you know, almost certainly too large of a job loss. 0:17:59.800 --> 0:18:03.600 But the overall tenor is that I think minimum wage 0:18:03.640 --> 0:18:08.680 increases raise wages. There may be some just fewer jobs. 0:18:08.760 --> 0:18:10.520 On the other hand, there's a lot of other waves 0:18:10.800 --> 0:18:14.399 that actually the economy absorbs the minimum wage increase. What 0:18:14.520 --> 0:18:17.800 about a differential effect on larger businesses or medium business 0:18:17.840 --> 0:18:19.720 as opposed to small businesses. One of the things we 0:18:19.800 --> 0:18:22.480 hear is it might be affordable for some companies, but 0:18:22.480 --> 0:18:24.359 when you get to the really small businesses which are 0:18:24.440 --> 0:18:26.920 hurting right now during this pandemic, they can't afford it. 0:18:27.119 --> 0:18:30.040 So I think there's some evidence that the minimum wage 0:18:30.080 --> 0:18:34.640 increase does lead to reallocation from lower productivity to higher 0:18:34.680 --> 0:18:38.119 productivity firms. Right, So that means that you may have 0:18:38.440 --> 0:18:43.760 some more employer and more workers working at larger businesses 0:18:43.840 --> 0:18:47.920 than smaller businesses. That's a possible cost. On the other hand, 0:18:48.000 --> 0:18:50.159 one could also see that as a possible benefit, that 0:18:50.240 --> 0:18:55.600 you're actually allocating workers to more productive enterprises. Now we 0:18:55.760 --> 0:18:59.080 hear from some executives like the CEO of Walmart, who 0:18:59.119 --> 0:19:01.720 says fifteen dollars an hour it makes good sense in 0:19:01.840 --> 0:19:04.240 some parts of the country, but not across the country 0:19:04.240 --> 0:19:06.720 because the cost of living very so much across the country. 0:19:06.920 --> 0:19:09.280 How do you respond to that, Well, that's interesting because 0:19:09.359 --> 0:19:12.240 Walmart has a minimum wage. It's eleven dollars an hour. 0:19:12.560 --> 0:19:17.080 It actually is the same in all states. And so 0:19:17.200 --> 0:19:21.000 that's an interesting point because they actually chose the national 0:19:21.080 --> 0:19:25.119 minimum wage, which was voluntary but was binding exactly the 0:19:25.200 --> 0:19:27.560 same way. Same is true for Target, which is a 0:19:27.680 --> 0:19:31.440 fifteen dollar minimum wage exactly the same across all states 0:19:31.480 --> 0:19:34.159 in the United States. Same is true with Amazon, a 0:19:34.240 --> 0:19:38.359 fifteen dollar minimum wage. The same across every state. So 0:19:38.640 --> 0:19:41.679 I think they're Look, they're they're different pros and cons 0:19:41.880 --> 0:19:45.440 for having a set wage. Here's the way I think 0:19:45.440 --> 0:19:49.359 about it, that the federal minimum wage is the floor. 0:19:50.200 --> 0:19:55.000 Beyond that. Thirty states currently have minimum wages that exceed that. Okay, 0:19:55.359 --> 0:19:58.639 forty plus cities have minimum wages that exceed that. My 0:19:58.800 --> 0:20:00.639 guess is that's going to keep continue to be the 0:20:00.920 --> 0:20:04.960 case in the future as well. So the question becomes, 0:20:05.000 --> 0:20:06.920 then for us, what floor should we have at the 0:20:07.040 --> 0:20:09.719 national level? Right? I want to squeeze just one more 0:20:09.800 --> 0:20:11.800 in here, and that's the earned income tax Credit, because 0:20:11.840 --> 0:20:13.600 some people say, if the goal is to bring people 0:20:13.600 --> 0:20:15.440 out of poverty, a better way to do it is 0:20:15.480 --> 0:20:17.680 the earned income tax credit, because that's a tax on 0:20:17.760 --> 0:20:21.320 all Americans, not just people who employ other Americans. Yeah, 0:20:21.400 --> 0:20:24.280 so I think earned income tax credit is a great 0:20:24.359 --> 0:20:27.800 policy that should be expanded. I'm glad to see there's 0:20:27.840 --> 0:20:30.760 proposals out there. Here's the thing. I think the earned 0:20:30.760 --> 0:20:33.760 income tax credit and the minimum wager compliments. They work 0:20:33.840 --> 0:20:37.280 well together, not substitutes. Here's a simple reason why their 0:20:37.400 --> 0:20:40.720 income tax credit actually does a good thing. It encourages 0:20:40.800 --> 0:20:44.040 people to work. But when more people are looking for jobs. 0:20:44.119 --> 0:20:47.240 It tends to push wages down somewhat. A minimum wage 0:20:47.280 --> 0:20:49.919 can stop. That isn't the way they can play well together. 0:20:50.320 --> 0:20:53.440 That was economics professor Aaron Dubai of U Mask Camp. 0:20:53.960 --> 0:20:56.000 Coming up, we wrap up the week with our special 0:20:56.080 --> 0:20:59.920 contributor Larry Summers. This is Wall Street Week on Bloomberg. 0:21:03.000 --> 0:21:07.160 This is Bloomberg Will Street Week with David Weston from 0:21:07.320 --> 0:21:11.000 Bloomberg Radio. We cannot end a week on Wall Street 0:21:11.080 --> 0:21:15.040 without turning to our special contributor, Larry Summers of Harvard. So, Larry, 0:21:15.119 --> 0:21:19.160 welcome back. You've been outspoken on this program and elsewhere 0:21:19.240 --> 0:21:21.000 saying that you have some concern about the one point 0:21:21.080 --> 0:21:24.800 nine trillion dollar stimulus package, that it might overheat the economy. 0:21:25.000 --> 0:21:27.520 From what you're seeing, are you more concerned or less 0:21:27.560 --> 0:21:31.760 concerned than you were before? Probably a bit more concerned. 0:21:32.680 --> 0:21:37.200 The Atlanta Fed this morning UH said that it's now 0:21:37.440 --> 0:21:40.920 cast for first quarter g T is nine and a 0:21:40.960 --> 0:21:45.240 half percent of growth in an annualized great. That's higher 0:21:45.320 --> 0:21:48.560 than most other observers. I guess it's too high, but 0:21:48.760 --> 0:21:52.640 it does say that there's likely to be substantial spending, 0:21:52.840 --> 0:21:57.040