WEBVTT - Hoover's Ohanian: Fed Policy is 'Not the Right Medicine'(Audio)

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<v Speaker 1>Global business news twenty four hours a day at Bloomberg

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<v Speaker 1>This is a Bloomberg business flash from Bloomberg World Handquarters.

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<v Speaker 1>I'm Charlie Pelt. A mixed picture for stocks. Little changed

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<v Speaker 1>a drop there of less than point one percent. SMP

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<v Speaker 1>up to a game of point one percent. Nestack up five,

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<v Speaker 1>Stocks are fluctuating. We've got the tenure up six thirty seconds,

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<v Speaker 1>the yield one point six eight percent, Gold down four

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<v Speaker 1>seventy ounce to twelve sixty seven, a drop of four

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<v Speaker 1>tenths of one percent, and crude oil down one dollar

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<v Speaker 1>nine cents now to seventy nine. West Texas Intermediate at

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<v Speaker 1>declining two point two. I'm Charlie Pellock. That's a Bloombird

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<v Speaker 1>business flash. Bloomberg jaging stock to the Fed in focus.

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<v Speaker 1>Interest rates start too row for where the economy is going.

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<v Speaker 1>The question is how much higher should they be. Feds

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<v Speaker 1>increased to fast yes, and in doing so, it has

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<v Speaker 1>increased its liability. Keeping interest rates at zero for a

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<v Speaker 1>long time is not going to cause inflation to go up.

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<v Speaker 1>It's very controversial. I think what we need to do

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<v Speaker 1>is find a way for the FED to integrate its

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<v Speaker 1>policy and think more about its impact on the world.

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<v Speaker 1>The Fed in focus on Bloomberg Radio, the Fed in

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<v Speaker 1>focus day to affect your Janet Allen's testimony to the Congress,

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<v Speaker 1>this time the House of Representatives the Financial Services Committee,

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<v Speaker 1>pretty much a repeat of yesterday's testimony. But when you

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<v Speaker 1>step back and look at the two days with Jane

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<v Speaker 1>Allens seems to be saying is that she no longer

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<v Speaker 1>is certain the Federals the economy, excuse me, is on

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<v Speaker 1>an upswing that will continue and warrant more rate hikes.

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<v Speaker 1>She is concerned even about long term slowdown with Larry

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<v Speaker 1>Summers from a Treasure Secretary called secular stagnation, and that

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<v Speaker 1>could put the FED on hold for a long time.

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<v Speaker 1>Joining us now is Leo Hanian, senior fellow at the

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<v Speaker 1>Hoover Institution at Stanford University. Lee welcome, Hi, thanks for

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<v Speaker 1>having me so on that particular point, do you think

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<v Speaker 1>Janet Yellen's acknowledgement of Larry Summer's argument, which a lot

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<v Speaker 1>of people have not been on his bandwagon, is justified.

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<v Speaker 1>You're certainly an expert on long term trends on on

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<v Speaker 1>US growth. What do you see? Yeah, I mean, in

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<v Speaker 1>terms of the data we've been seeing, there's really no

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<v Speaker 1>sign that the economy has recovered back to its pre

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<v Speaker 1>two thousand and eight trend um productivity growth, which is

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<v Speaker 1>is about point nine percent per year since two thousand

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<v Speaker 1>and nine, its historical averages two and a half percent

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<v Speaker 1>per year. So this is the most disturbing trend that

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<v Speaker 1>I'm seeing in the economy right now. Uh, And I

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<v Speaker 1>don't see any sign that productivity growth is going to increase.

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<v Speaker 1>Professor h hanean um And I just want to note

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<v Speaker 1>that you're not only a professor of economics at the

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<v Speaker 1>University of California u c l A, but also advised

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<v Speaker 1>many federal Reserve banks. Also to note that you are

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<v Speaker 1>at the Hoover Institution and the head of the enter

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<v Speaker 1>Family Program at u c l A. In that context,

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<v Speaker 1>of your research. You did some research about the New

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<v Speaker 1>Deal and Franklin Delano Roosevelt, if you were to do

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<v Speaker 1>that same kind of research on what the Federal Reserve

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<v Speaker 1>has been doing in the last five to ten years

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<v Speaker 1>in the United States, give us an idea of how

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<v Speaker 1>that would play out. Well. In the nineteen thirties, we

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<v Speaker 1>had a slow recovery where jobs didn't come back. The

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<v Speaker 1>big difference is that productivity growth was very, very rapid

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<v Speaker 1>after after three And what happened is that once we

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<v Speaker 1>free the economy up by removing some gum rate interventions

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<v Speaker 1>that were depressing job creation, depressing new business formation, the

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<v Speaker 1>economy really started to take off about in nineteen thirty nine.

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<v Speaker 1>Today we don't have the benefit of having a strong

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<v Speaker 1>underlying economy with with strong productivity growth. And the set

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<v Speaker 1>is is put themselves really into a corner. And then

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<v Speaker 1>they've really pinned themselves into a corner in the sense

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<v Speaker 1>that they've kept the interest rates obviously close to zero um,

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<v Speaker 1>they've embarked on a number of quantitative easing programs, and

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<v Speaker 1>when you look at the data, you don't see the

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<v Speaker 1>employment population ratio coming back anywhere close to we were

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<v Speaker 1>before we see very weak productivity growth. And there's not

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<v Speaker 1>really any evidence I'm aware of it indicates that the

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<v Speaker 1>if the FED continues to do this, the it will

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<v Speaker 1>enhance economic growth in any way. Uh, FED policy is

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<v Speaker 1>not really the medicine for the disease we have right now. Well,

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<v Speaker 1>what is the medicine then? Yeah, the biggest you know,

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<v Speaker 1>the biggest issue we have right now, and this is

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<v Speaker 1>this is a unique situation with the US economy. We're

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<v Speaker 1>the only country in the world has had two plus

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<v Speaker 1>years of systematic, persistent economic growth on average year and

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<v Speaker 1>year out. No other country has ever done that over

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<v Speaker 1>a two century period. And the reason we've been able

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<v Speaker 1>to do that is because we replace big businesses that

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<v Speaker 1>ultimately decline with new transformational businesses that take off. So

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<v Speaker 1>back in the twenties, it was General Electric and General

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<v Speaker 1>Motors in US, Deal and DuPont and Kodak, and they

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<v Speaker 1>helped us grow through the nineteen fifties and sixties. And

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<v Speaker 1>then after that it was Apple and Microsoft and Oracle

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<v Speaker 1>and FedEx and Walmart and Costco, and they've been the

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<v Speaker 1>reason we've been able to grow for the last three

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<v Speaker 1>five years. What we know what we're not seeing now

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<v Speaker 1>is who will be the new Apple, the new Microsoft,

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<v Speaker 1>the new fed X, the new Walmart. And we have

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<v Speaker 1>about a thirty drop in new business formation. We've never

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<v Speaker 1>seen anything like that. What new business owners tell us

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<v Speaker 1>is that they see high tax rates, particularly a tax

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<v Speaker 1>code that really impacts them much differently than the tax

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<v Speaker 1>code impacts very large businesses. They talk about a difficulty

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<v Speaker 1>finding skilled workers who are well matched for jobs. They

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<v Speaker 1>talk about difficulties in finding capital, and so some of

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<v Speaker 1>those issues I think we can sort out, such as

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<v Speaker 1>UM reforming dot frank, which has really impacted community banks,

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<v Speaker 1>which were the banks that really made it possible for

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<v Speaker 1>new businesses, a small businesses to grow, and they're just

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<v Speaker 1>having a really hard time getting loans because it's become

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<v Speaker 1>so expensive to make a small business loan. I think

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<v Speaker 1>that is that kind of pass a lot. I don't

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<v Speaker 1>even know where. I gotta say that's a very uh

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<v Speaker 1>coach and description of what's going on. Very interesting. Lee

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<v Speaker 1>Orhanian is a senior Fellow at the Hoover Institution at

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<v Speaker 1>Stanford University and also professor of Economics at u C

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<v Speaker 1>l A. Didn't that thank you very much for joining us,

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<v Speaker 1>Sir um Kathleen. Very interesting descriptions. I think so too. Honestly,

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<v Speaker 1>Lee is summing up so many issues, and I think

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<v Speaker 1>the kind of the point he was getting out and

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<v Speaker 1>maybe you're gonna get two PM. Can the federally fixes

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<v Speaker 1>by keeping race solo? I thought, that's the big questions

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<v Speaker 1>description of this is not the right medicine for this

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<v Speaker 1>particular ailment. Very telling. You're listening to taking Stock on

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<v Speaker 1>Bloomberg Radio, Hoover, taking Stock is a brunt to you

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<v Speaker 1>by um being coming up next, we're going to continue

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<v Speaker 1>the FED in focus