Speaker 1: This is Bloomberg Wall Street Week. What's the state of
Speaker 1: corporate governance? Its deficit is a real issue. The US
Speaker 1: economy continues to send mixed signals to the financial stories
Speaker 1: that keep our world fed, action to con concerns over
Speaker 1: dollar liquidity, and encouraging China data. The five hundred wealthiest
Speaker 1: people in the world. Through the eyes of the most
Speaker 1: influential voices Larry Summers, the former Treasury Secretary, star Ward CEO,
Speaker 1: Kevin Johnson sec Chairman j Clayton. Bloomberg wool Street Week
Speaker 1: with David Weston from Bloomberg Radio, who knew equities can
Speaker 1: go down as well as up as we head into
Speaker 1: an uncertain election and companies continue their struggle with the coronavirus.
Speaker 1: This is Bloomberg Wall Street Week. I'm David Weston. The
Speaker 1: White House was pleased by the strong jobs numbers this week,
Speaker 1: but there is still weakness under the headline numbers of
Speaker 1: one point three seven million jobs added. We asked Austin Goulsbury,
Speaker 1: professor of economics at the University Chicago Booths School of Business,
Speaker 1: what the numbers really show us about the economy. We've
Speaker 1: had a nice rebound of the what were the temporary layoffs.
Speaker 1: So again, if you look at this report, you've got
Speaker 1: strong job growth, especially strong in temporary sensus employment from
Speaker 1: the government that was three something thousands. And then the
Speaker 1: two major sectors of job growth are retail and leisure
Speaker 1: and hospitality. Where you saw the giant increases of temporary layoffs,
Speaker 1: those people are mostly now all the way back or
Speaker 1: pretty close to back. The question is for the permanent layoffs,
Speaker 1: can we get them back to work? And if we
Speaker 1: recovered to something like half where we were before, uh,
Speaker 1: that's not really great. And so I think on the
Speaker 1: political side, we're gonna be in this dynamic where representatives
Speaker 1: of the Trump administration are clearly going to say, well, look,
Speaker 1: we're having strong months, and I think other analysts are
Speaker 1: gonna look at it and say, yeah, but the strength
Speaker 1: is getting weaker every month, and we're not even getting
Speaker 1: remotely close to to where we were even before the
Speaker 1: before the COVID recession began. So Austin, in your estimation,
Speaker 1: what was it going to take to get us to
Speaker 1: the goal we all share reposis of Democrats alike, I
Speaker 1: really getting back to or close to full employment. Is
Speaker 1: it a matter of that fiscal stimulus that seems to
Speaker 1: be hung up in Congress. Is it a matter of
Speaker 1: really getting our arms around the coronavirus? Yet? Look, I
Speaker 1: think everything has to do with that virus. As I've
Speaker 1: said from the beginning, the viruses the boss, and the
Speaker 1: first rule of virus economics is that the only way
Speaker 1: to fix the economics is they get control of the virus.
Speaker 1: You've seen that in other countries where they've now gotten
Speaker 1: they've slowed the spread of the virus dramatically more than
Speaker 1: we have, and their economies are rebounding actually faster than
Speaker 1: than ours is. So hopefully we can get control of that.
Speaker 1: And if we do, I think that we could get
Speaker 1: on a faster path back to where we were and
Speaker 1: growing like we were before. If we don't, Look, we
Speaker 1: need relief, uh, but we shouldn't get ourselves that relief
Speaker 1: and rescue payments trying to keep people from being evicted.
Speaker 1: Um is going to fix the economy. It's not. I mean,
Speaker 1: we gotta we gotta get the engine going again if
Speaker 1: we If we don't, and we all want to really
Speaker 1: beat this virus, but if we don't get the vaccine,
Speaker 1: if we don't get to a world where we can
Speaker 1: go back to something like normal again, Do we need
Speaker 1: to lock down, because that's something that's certainly the problems.
Speaker 1: Last week accused Vice President Biden of saying that basically
Speaker 1: we should lock down the country. What is his view
Speaker 1: on that. Can we keep going with the economy, even
Speaker 1: with social distancing and masks and washing our hands and
Speaker 1: things without actually defeating the virus? Well, I don't speak
Speaker 1: for the Vice president. You know, you know you you
Speaker 1: would want to ask them what their view is. I
Speaker 1: think other countries have shown us that you don't need
Speaker 1: to have kay there's no vaccine in Germany, there's no
Speaker 1: vaccine in Australia. It's not in New Zealand, it's not
Speaker 1: in Taiwan, it's not in a whole bunch of countries
Speaker 1: where they have been able through public health measures, whether
Speaker 1: it's mass whether it's social distancing, whether it's a lot
Speaker 1: of testing so that you can get the people that
Speaker 1: are contagious out of the economy, so you don't have
Speaker 1: to shut down everyone. I don't think you have to
Speaker 1: have universal lockdowns. Uh, you just have to be smart
Speaker 1: about it. You've got to follow what works, and thus
Speaker 1: far we're mostly not following what works. And we got
Speaker 1: a lot of mixed messages coming out. We'll address that
Speaker 1: quite specifically. If it's a matter of doing it better,
Speaker 1: being smarter, and addressing a virus while it's with us,
Speaker 1: What would a President Biden do which would be materially
Speaker 1: different from what President Trump has done. President Biden has
Speaker 1: laid out at least twenty step detailed plan on the
Speaker 1: public health side of how you slow the rate of
Speaker 1: spread of the virus. And I'm not an epidemiologist or
Speaker 1: public health esk bert, I would refer everyone to those uh,
Speaker 1: to those documents. But the center of the of the
Speaker 1: federal response has got to be a clear, consistent approach
Speaker 1: coming from the very top from the President himself, who
Speaker 1: has clearly at many points downgraded what he perceives as
Speaker 1: the danger of this virus and said it's gonna disappear
Speaker 1: by a miracle. Initially said, oh, we have virtually no cases.
Speaker 1: It's gonna go to none. It's it's under lockdown. Don't
Speaker 1: worry about it. You don't need to wear masks. He
Speaker 1: himself won't wear masks. I think that the kind of
Speaker 1: approach got hundreds of thousands of people killed in this
Speaker 1: country that did not need to die. That's what the
Speaker 1: public health experts are saying that if we had moved earlier,
Speaker 1: with consistent with a consistent approach from the federal government,
Speaker 1: and done the testing at the beginning, we would be
Speaker 1: in a lot better spot. But it's not too late.
Speaker 1: That's what I don't understand. If we start more significant
Speaker 1: testing and more significant mask wearing in public and and
Speaker 1: in these places where people are in crowded conditions, we
Speaker 1: spaced them out, we can get the rate of spread
Speaker 1: of this virus down below one in their mathematical terminology.
Speaker 1: And in countries where they've done that, which is almost
Speaker 1: every rich country in the world, they've been able to
Speaker 1: bring their economies back. That was Austin Goulsby, former chairman
Speaker 1: of the National Council of Economic Advisors under President Obama
Speaker 1: and now an advisor to the Biden Harris campaign. Coming up.
Speaker 1: We've lost all those jobs because of the coronavirus and
Speaker 1: the shutdowns it triggered. Dr Steve Corwin of New York
Speaker 1: Presbyterian has fought the virus successfully but says we're not
Speaker 1: out of the woods yet. That's next on Wall Street
Speaker 1: Week on Bloombood. This is Bloomberg Street Week with David
Speaker 1: Weston from Bloomberg Radio. First it was New York and
Speaker 1: New Jersey, then California and Texas, and now the coronavirus
Speaker 1: crisis has moved on to the Midwest. The question is
Speaker 1: what comes next and what can we do to make
Speaker 1: sure we can get the economy going again safely, which
Speaker 1: is what we asked Dr Steve Corwin, CEO of New
Speaker 1: York Presbyterian, the largest hospital group in the New York area. Well,
Speaker 1: I think the moving average across the country is moving
Speaker 1: down and that that is good news. I think, as
Speaker 1: we've talked about before, David, as you start to open,
Speaker 1: you're gonna tight trade infections. You have to be capable
Speaker 1: of sort of dealing with those outbreaks, which is why
Speaker 1: testing becomes so important and contact tracing to try to
Speaker 1: keep a lid on this thing until we're capable of
Speaker 1: treating it and having a vaccine for it. So the
Speaker 1: moving average going down is positive. Some of these hot
Speaker 1: spots obviously are a problem. The opening of colleges, the
Speaker 1: the opening of schools presents a challenge, Indoor dining presents
Speaker 1: a challenge, opening theaters presents a challenge, and we have
Speaker 1: to be mindful of that so that we can scale
Speaker 1: it back if it looks like we're having an outbreak
Speaker 1: in a particular area. In New York, we're down to
Speaker 1: about two of our COVID peak, which is very comforting.
Speaker 1: But now we're gonna look at New York City schools reopening. Uh,
Speaker 1: there's gonna be a push for more indoor venues as
Speaker 1: the weather gets colder. We're gonna have influenza start in
Speaker 1: the fall. So I think seeing that moving average go
Speaker 1: down and seeing the daily infections go down below the
Speaker 1: ten thou numbers what Dr Fauci has said would be
Speaker 1: comforting if we could get to that by October. So
Speaker 1: a lot of challenges. Are we up to meeting the challenges?
Speaker 1: How are we doing on this because it looks like
Speaker 1: we may have to manage this disease for a while
Speaker 1: before there's this magical cure called a vaccine. Can't count
Speaker 1: on that and we reopen our economy? Can we reopen
Speaker 1: our schools to some extent prudently? I hope that we can. David,
Speaker 1: I think that we missed the boat a little, quite frankly,
Speaker 1: in terms of not tamping down the infection number. I
Speaker 1: think we had the debate over masks social distancing. I
Speaker 1: don't think that helped us as a country. We politicized it,
Speaker 1: which was unfortunate. But I think that maintenance of masks,
Speaker 1: maintenance of social distancing, getting the infection number dawn will
Speaker 1: allow us to cautiously reopen the economy as we're doing. Look,
Speaker 1: we have to reopen the economy. We can't still. We
Speaker 1: can't say still forever. But you want to do it
Speaker 1: in as prudent a manner as possible. Uh. You read
Speaker 1: in the Financial Times today as well as other venues
Speaker 1: that Germany thinks that they're having a V shaped recovery.
Speaker 1: Part of that is because they were able to control
Speaker 1: the pandemic to a greater extent than than than we have.
Speaker 1: Um So I think that the two go hand and glove.
Speaker 1: Are we making good progress on the testing front? You
Speaker 1: mentioned testing, and it seems like almost every day we
Speaker 1: have a new report, like Abbot Labs has something out
Speaker 1: that texts fifteen minutes, it doesn't cost very much money.
Speaker 1: Are we making substantial progress on testing? Not as much
Speaker 1: as I would like. We still have issues with reagent
Speaker 1: shortages and things of that nature, so we can't do
Speaker 1: as much testing as we would like. But let's just
Speaker 1: talk about the point of care testing for for for
Speaker 1: a moment um. Some of the point of care tests
Speaker 1: can do a test every fifteen minutes. That's for tests
Speaker 1: an hour um. The machines that we have uh made
Speaker 1: by sepied Ross and others, we can do batch testing
Speaker 1: where we can do thousands of tests a day. So
Speaker 1: if we had the reagents for it with these with
Speaker 1: these machines, we can do turnaround in less than twenty
Speaker 1: four hours, and we can get these things done quickly.
Speaker 1: The public ought to be mindful that point of care
Speaker 1: testing sounds great, but ultimately you want to be able
Speaker 1: to do a high volume of tests on a frequent basis.
Speaker 1: You want a low enough level of an infection so
Speaker 1: that you know if you identifying infection, you can do
Speaker 1: contact racing and then test the contact traces in a
Speaker 1: three to five day period to make sure they're not infected.
Speaker 1: That's the key. I thought it was unfortunate that the
Speaker 1: CDC came out with guidelines for less testing. You need
Speaker 1: more testing um, and I don't think there's much dispute,
Speaker 1: at least in the scientific community and the people I've
Speaker 1: been speaking to about that. Well, I wonder about that.
Speaker 1: I mean, you're a doctor, you head up one of
Speaker 1: the major hospitals in the country. You can sort of
Speaker 1: sift through this. For those of us out here in
Speaker 1: the real world, how do we figure out what the
Speaker 1: truth is? Because, as you say, c DC came out
Speaker 1: and said you don't need to test people who are asymptomatic.
Speaker 1: We had a flurry of people experts come out and say, no,
Speaker 1: that's not right at all. Are they undermining their own
Speaker 1: credibility of some extent? And then we have this condalescent
Speaker 1: plasma thing where the government says it's just fine now
Speaker 1: we're here, and I says, well, I'm not sure we know.
Speaker 1: I think it was very unfortunate and it does undermine
Speaker 1: the credibility of of the f d A and the CDC.
Speaker 1: The f d A mistake was egregious, that should never
Speaker 1: have happened. You're talking about a subset of patients, and
Speaker 1: you're talking about a misrepresentation of the statistics, even according
Speaker 1: to the people who did the study. Um and that
Speaker 1: then so what are the consequences of that? Then then
Speaker 1: gives everyone to say I want convalescent plasma as opposed
Speaker 1: to let's study this more rigorously and see whether it
Speaker 1: works or not. And we got into that same conundrum
Speaker 1: with hydroxy chloroquine. So I think that was very unfortunate.
Speaker 1: I think the CDC um you know, uh, quite frankly,
Speaker 1: that was unfortunate as well. The simple answer is, we
Speaker 1: need to rigorously test various therapies to see if they work.
Speaker 1: We need to do the rigorous testing on the phase
Speaker 1: three of the vaccine trials to make sure that if
Speaker 1: we're going to inoculate and mass inoculate, that that we're
Speaker 1: and there can't be any appearance that this is politicized,
Speaker 1: either for the President's benefit or the or or the
Speaker 1: benefit of Mr Biden. It's got to be that we're
Speaker 1: in this together and that we're trying to to improve
Speaker 1: the public health. So I don't think we're in a
Speaker 1: good place in terms of that. You've got now, this
Speaker 1: is a Democrat Republican issue, and it should not be
Speaker 1: Dr Corey. You of course are a physician, and you
Speaker 1: were chieve a medicine before you were CEO. But you
Speaker 1: are CEO now and you've got a really big company,
Speaker 1: a business that to run. You've said before that your
Speaker 1: company may lose as much as a billion dollars out
Speaker 1: of operating come because the coronavirus this year. How are
Speaker 1: you doing financially? And in particular, there was a hundred
Speaker 1: billion dollars appropriated in the Cares Act to go to hospitals.
Speaker 1: Did you see some of that money will lose uh
Speaker 1: in the two to three hundred million dollar range through June.
Speaker 1: And that's uh, far less than we would have lost
Speaker 1: that we not received the Care's money. We've advocated that
Speaker 1: the Medicare and answers for all hospitals around the country,
Speaker 1: rural and otherwise be converted into grants that would help
Speaker 1: as well. We still are anticipating a loss anywhere between
Speaker 1: seven hundred million and a billion dollars towards the end
Speaker 1: of the year. We do see our volumes coming back.
Speaker 1: That's been very encouraging. Uh. The fact that again the
Speaker 1: volumes are coming back, is completely coincident with the fact
Speaker 1: that people feel safer. Um. That being said, I think
Speaker 1: that um, you know, we're looking for a twenty that
Speaker 1: will be rough, uh and we're hoping the twenty one
Speaker 1: will be better, and we're looking that that by twenty
Speaker 1: two will be out of the worst of it from
Speaker 1: from a from a perspective of a major institution. That
Speaker 1: was Dr Steve Corwin, CEO of New York Presbyterian coming up.
Speaker 1: A tsunami hit the news media over the last few years,
Speaker 1: taking much of the newspaper industry with it. We talked
Speaker 1: with the man who led The New York Times not
Speaker 1: just to survive, but to thrive, Mark Thompson, It's CEO
Speaker 1: through a remarkable and a remarkably challenging time. That's next
Speaker 1: our Wall Street Week on Bloomberg. This is Bloomberg Wall
Speaker 1: Street Week with David Weston from Bloomberg Radio. For all
Speaker 1: the difficulties experienced by most of the traditional newspaper business,
Speaker 1: the New York Times over the past eight years has
Speaker 1: managed to embrace the future. And we asked it CEO
Speaker 1: Mark Thompson, how he went about doing it what we
Speaker 1: decided to do. There were four revenue streams when when
Speaker 1: I arrived at the company still are today. Print advertising,
Speaker 1: which once had been more than eighty percent of the
Speaker 1: total revenue of the company have been print advertizing, print subscription,
Speaker 1: digital advertising, and digital subscription. And really my kind of
Speaker 1: bed I narrative on on digital subscription as the as
Speaker 1: the revenue stream we should really grow, and indeed had
Speaker 1: to grow, because ultimately, for different reasons, all of the
Speaker 1: other revenue streams seemed to me were in trouble potentially
Speaker 1: and ultimately I even disappear. So we double down on
Speaker 1: the very simple idea of great journalism packaged effectively in
Speaker 1: good digital products, which established a very close relationship with
Speaker 1: people who are prepared to pay to get that journalism,
Speaker 1: and that becoming really the bedrock of the entire future
Speaker 1: of the company. And to do that, we invested in
Speaker 1: our news room. We actually built the news room. We've
Speaker 1: got hundred and fifty more journalists now than then when
Speaker 1: I walked into the building. And we also got smart
Speaker 1: about digital product. We had hundreds of software engineers and
Speaker 1: data scientists, machine learning people, and graphic designers and videographers
Speaker 1: and and really worked on the digital product. And and
Speaker 1: we've ended up with a kind of virtuous circle where
Speaker 1: I think the content is as rich and and broaders
Speaker 1: has ever been. It's much more effectively packaged up in products,
Speaker 1: and people are flocking to buy the products as as
Speaker 1: as new subscribers. So Mark, you described it as simple,
Speaker 1: but it was far from conventional wisdom when you took
Speaker 1: over I mean most newspaper people, as you and I
Speaker 1: both know in the United States, and said, look at
Speaker 1: we made the mistake early out of making this free
Speaker 1: on the internet. There's no way we can charge with it.
Speaker 1: With the possible exception of the Financial Times maybe the
Speaker 1: Wall Street Journal because it's especially business publication. So what
Speaker 1: you did may have been simple, but it was not
Speaker 1: what most people thought would work. That's true of my industry.
Speaker 1: But if you step back, I mean read Hastings was
Speaker 1: thinking the same thought about about high quality TV and
Speaker 1: in relation to Netflix. Daniel Eck and co at Spotify
Speaker 1: were thinking the same about music, that there was a
Speaker 1: way of getting great entertainment of great music to the
Speaker 1: world's public, and enough people out there would pay for
Speaker 1: it to make a great business. And really all we're
Speaker 1: really doing I think we're part of a broader trend
Speaker 1: towards direct digital subscription relationships with people who want really
Speaker 1: good stuff, and that's a that's an entire sector which
Speaker 1: is growing very rapidly, and in a way, it's a
Speaker 1: little bit like the moment when cable TV arrived in
Speaker 1: the US and suddenly the was a choice there was
Speaker 1: a choice of something beyond regular broadcast TV television. And
Speaker 1: I think that although it's true that the broadcast model
Speaker 1: is happening to broadcast TV right now, is is post
Speaker 1: growth and it is going to be very difficult to
Speaker 1: stay even its current level. Um it turns out these
Speaker 1: other forms of getting TV and music and news could grow.
Speaker 1: There was once a really big market in in paid
Speaker 1: news in America. And it wasn't just The New York Times.
Speaker 1: It was local newspapers, it was metros, it was magazines.
Speaker 1: Know that people paid billions and billions of dollars as
Speaker 1: subscribers and buying buying these products from newsstands. There's no
Speaker 1: reason why that market can't be recaptured. But how would
Speaker 1: that happen? Marcus A practical markers. When you came in,
Speaker 1: the New York Times still had a very robust newsroom
Speaker 1: directed toward print, larger but very US newsroom. A lot
Speaker 1: of newspapers across the country, these are regional as well
Speaker 1: as local papers, really have had to cut back so
Speaker 1: far they've let those newsrooms go. Is it possible this
Speaker 1: point to rebuild that. Can your model apply beyond the
Speaker 1: New York Time? And I guess that's what I'm asking.
Speaker 1: And the answer is because so few people have even
Speaker 1: tried it, I don't think we know. But but to me,
Speaker 1: I mean, I think there's one basic, big caveat which
Speaker 1: is this is a kind of horse and buggy to
Speaker 1: automobile moment, and that requires capital. You have to risk
Speaker 1: some money, you have to invest to make the change.
Speaker 1: But assuming someone wants to invest, I don't see at
Speaker 1: all why if you rehire your journalists, rebuild that newsroom,
Speaker 1: start doing great reporting, and start getting smart about how
Speaker 1: you get it to the public while you can't really
Speaker 1: build a new business. I think the mistake made was
Speaker 1: thinking that you could kind of eke your way to
Speaker 1: the digital future without putting any fresh money in. And
Speaker 1: no one could do that. Nobody could take a to two,
Speaker 1: could take a a kind of horse carriage factory and
Speaker 1: turn it into a car company without vast fresh investment.
Speaker 1: And this is one of those periods in media, which
Speaker 1: is very capital intensive, requires lots of money. But for
Speaker 1: people who prepared to put the money in, I think
Speaker 1: there are great businesses to be built. But the other
Speaker 1: thing we saw was people take a look at Facebook
Speaker 1: and Google and say they're so massive there are audience
Speaker 1: is so large, we have no choice but to go
Speaker 1: through them. We have to hitch our wagon to them,
Speaker 1: even though they will have the direct relationship with our subscriber,
Speaker 1: our customer. I mean even New York Times flirted with
Speaker 1: that for a time. So is it possible for if
Speaker 1: you do this directly, I mean, you have a direct
Speaker 1: relation to the subscriber. And we believe that although um
Speaker 1: uh digital social media, Facebook and the rest of it,
Speaker 1: Google Search and all of these platforms are really important
Speaker 1: in people finding our content, hearing about the Times and
Speaker 1: making sure our journalism is really influential, that we really
Speaker 1: needed a kind of trail of breadcrumbs from these other
Speaker 1: platforms back to the mothership, back to the New York
Speaker 1: Times experience. That was Mark Thompson, outgoing CEO of the
Speaker 1: New York Times company. Coming up, we wrap up the
Speaker 1: week with our special contributor, Larry Summers. This is Wall
Speaker 1: Street Week on Bloomberg. This is Bloomberg Wall Street Week
Speaker 1: with David Weston from Bloomberg Radio. It was a week
Speaker 1: of ups and downs and sometimes just playing moving sideways.
Speaker 1: To wrap it up for us, we welcome now our
Speaker 1: special contributor and former Treasury Secretary Larry Summers of Harvard. So, Larry,
Speaker 1: we had a lot of information on the stock market
Speaker 1: towards the end of the week. I mean, in the
Speaker 1: early week it was going up. The Latin part of
Speaker 1: the week it really sold off quite a bit. How
Speaker 1: much of this is signal and how much is this
Speaker 1: as noise? To Barro from Nate Silver, you know, David
Speaker 1: uh Bob Rubin famously told everybody in the Clinton White House,
Speaker 1: markets go up, markets go down. I think it's a
Speaker 1: mistake always to make judgments about deep and profound things,
Speaker 1: even about the future of markets, from how they behave
Speaker 1: over a period of uh several days. So I'd be
Speaker 1: very surprised if the events of the last couple of
Speaker 1: days are historically memorable. My uh, my son, who's in
Speaker 1: his mid twenties, UM, sent me a note in the
Speaker 1: middle of the day saying, uh, hell of a correction, Dad,
Speaker 1: And I wrote back, by the standards of your young life, UM,
Speaker 1: and he had the good grace to write back, uh
Speaker 1: fair enough. UM. So I don't know whether where markets are.
Speaker 1: I I have come to think that the idea that
Speaker 1: many had early on, how can the markets be so
Speaker 1: strong in the midst of a COVID shock, So big,
Speaker 1: I did that idea that treats the divergence as overwhelming
Speaker 1: av instant markets are wrong is misguided. You would expect that, uh,
Speaker 1: when interest rates were reduced as much as they have,
Speaker 1: when the Fed is just freely providing liquidity, when action
Speaker 1: is shifting towards technology companies, you'd expect to see a
Speaker 1: variety of the things we've seen. Are they overdone? Are
Speaker 1: the movement's overdone? What fraction of that has been corrected
Speaker 1: in the last couple of days. Each investor will have
Speaker 1: to make uh their own judgment. But just as every
Speaker 1: time it starts to snow, it's not a blizzard. Though
Speaker 1: it might be h every time you have a significant
Speaker 1: market move, it's not the beginning of something UH profound.
Speaker 1: So I think people should be worried about whether we're
Speaker 1: going to carry on an honest election in the United States.
Speaker 1: They should be worried about whether we're going to have
Speaker 1: a competent effort, which in many ways we haven't so
Speaker 1: far to contain COVID. They should be worried about whether
Speaker 1: we're going to find a way of making our economy function.
Speaker 1: So it helps UH middle class UH people and large
Speaker 1: fraction of population shares in any prosperity that's created. I
Speaker 1: think the fundamentals are the more important things to be
Speaker 1: worried about than UH this particular UH market fluctuation, which
Speaker 1: I think is unlikely to be long remembered. Larry, there's
Speaker 1: a lot of talk this week, because it was a
Speaker 1: sell off led by big tech, that this might look
Speaker 1: like two thousands, But as you pointed out to me,
Speaker 1: it's very different, in part because of what you just
Speaker 1: pointed out, which is the central bank liquidity being infused
Speaker 1: into the marketplace, as well as the fact that the
Speaker 1: big tech companies aren't making a lot of money unlike
Speaker 1: some of those tech high flyers back in two thousands. Yeah,
Speaker 1: I don't think you were not. You were talking about
Speaker 1: pets dot com UH in two thousands. You were talking
Speaker 1: about an era when people raised UH money before they
Speaker 1: had their first dollar of profits, before they had their
Speaker 1: first dollar of revenues, before they had their first coherent
Speaker 1: UH plan. I think when you're talking about the largest
Speaker 1: companies in the marketplace, which is what the tech companies
Speaker 1: UH now are, you're looking at something very different than
Speaker 1: what we were looking at in two thousands, and if
Speaker 1: you look at price earnings ratios, they're not in the
Speaker 1: same kind of stratospheric place that the tech sector price
Speaker 1: earnings ratios were in uh in the year two thousands. Now, look,
Speaker 1: that doesn't mean there isn't gonna be a substantial correction
Speaker 1: of some sort. Uh, No one, No one can know that,
Speaker 1: and I certainly wouldn't want to claim that. But I
Speaker 1: think that those who have been saying it's all a
Speaker 1: big bubble and declaring themselves vindicated right now are premature
Speaker 1: in their declarations of victory. Larry, one of the things
Speaker 1: that the markets don't appear to be waiting for is
Speaker 1: a fiscal stimulus package, that so called fourth round. Otherwise
Speaker 1: they'd be waiting for good because it keeps going on
Speaker 1: another week this week without getting it. At the same time,
Speaker 1: we had to report of the CBO about the level
Speaker 1: of episode which is going to go over a g
Speaker 1: d P for the first time since World War Two.
Speaker 1: Do the Republicans up on Capitol Hill who are concerned
Speaker 1: about this have a point, you know, David Um what
Speaker 1: I learned from the CBO actually made me a little
Speaker 1: less concerned about a fiscal crisis and made me a
Speaker 1: little more focused on providing fiscal support for the economy
Speaker 1: that I was before. We all know that the United
Speaker 1: States ran a big deficit in We all know that
Speaker 1: the debt to GDP ratio, which was around at the
Speaker 1: beginning of the year, is going to rise to around
Speaker 1: because of uh, that big deficit and because of the
Speaker 1: declining g d P. The thing I didn't have a
Speaker 1: beat on until the CBO report was what was the
Speaker 1: path gonna be out for a decade. And what I
Speaker 1: learned from the CBO report is while the debt to
Speaker 1: GDP ratio is projected to go up slowly over the
Speaker 1: next two or three years from two thousand and twenty
Speaker 1: three to two thousand and thirty on current law and
Speaker 1: on current projections, the debt to GDP ratio isn't exploding.
Speaker 1: It isn't rising very rapidly at all. It's basically of
Speaker 1: at And what that says to me is that we're
Speaker 1: in a relatively stable situation. Now, then you can ask
Speaker 1: the question is it a dangerous situation? Well? There, I
Speaker 1: think the way you have to look at a debt
Speaker 1: is to look at the interest flows that it generates,
Speaker 1: and in fact, we're spending less on interest UM as
Speaker 1: a share of GDP than we have historically on average
Speaker 1: over the last decades. And if you do what economists
Speaker 1: would tend to say you should do, which is look
Speaker 1: at UH the real interest cost of the debt, that is,
Speaker 1: the cost net of inflation. Real interest rates are now negative,
Speaker 1: which makes it much much easier to carry UH debt.
Speaker 1: So what I learned from the CBO is not the
Speaker 1: current deficit figures there in the papers every day, there
Speaker 1: in the treasury accounts. What I looked to the studio
Speaker 1: for every six months is an update on the long
Speaker 1: run debt path, and that was actually a relatively serene
Speaker 1: um UH projection. So I feel better now than I
Speaker 1: did then. But is that because of the Fed? Larry
Speaker 1: to put it simply, because if the real issue is
Speaker 1: the interest cost right now we're approaching the zero bound
Speaker 1: and interest cost because the Fed are we essentially financing
Speaker 1: that that that debt, is this really a form of
Speaker 1: modern monetary theory. I don't think that's quite the right
Speaker 1: way to think about it, David. I think that if
Speaker 1: most economists will tell you that, yes, the Fed can
Speaker 1: set the interest rate this year, or maybe the said
Speaker 1: FED can set the interest rate next year, but the
Speaker 1: interest rate on long term debt, the so called five
Speaker 1: year five year interest rate, the interest rate that's baked
Speaker 1: into markets for borrowing that starts five years from now
Speaker 1: and continues for five years half after that, that's not
Speaker 1: something that the FED can immediately control. And it's remarkably low.
Speaker 1: I think it's fundamental factors about savings and investment that
Speaker 1: are determining the low level of interest rates, and the
Speaker 1: FED is basically tracking that in its effort to keep
Speaker 1: the economy stable. And this is the secular stagnation idea
Speaker 1: that you and I have talked about on this UH show,
Speaker 1: or the low neutral interest rate that people in the
Speaker 1: Federal Reserve system we've been talking about. I think they're
Speaker 1: fundamental factors that mean we're going to have lower interest
Speaker 1: rates and therefore can carry larger debts than we historically.
Speaker 1: It's fascinating. Thank you so much. It's always a treat
Speaker 1: to talk with you. Larry. That is Wall Street. We
Speaker 1: special contribute Larry Summers of Harvard coming on a rather
Speaker 1: remarkable week a lot of all time in the marketplace,
Speaker 1: but maybe not telling us very much in the end, finally,
Speaker 1: one more thought, a different kind of Labor Day. In
Speaker 1: the United States, we celebrate Labor Day this weekend, traditionally
Speaker 1: marking the end of summer and back to school, but
Speaker 1: originally Labor Day had a bit more edge to it
Speaker 1: than picnics and beach parties. Starting locally here in New
Speaker 1: York City, in eighteen eighty two, it became a national
Speaker 1: holiday as part of President Grover Cleveland's efforts to come
Speaker 1: labor strife that had led to deaths in eighteen ninety four.
Speaker 1: This year, we celebrate Labor Day with millions upon millions
Speaker 1: of people out of work, with back to school very
Speaker 1: much up in the air for millions of children, with
Speaker 1: warnings about the need to wear masks and keep our
Speaker 1: distance from one another, and with racial strife and cities
Speaker 1: around the country triggered by police shootings. But despite all that,
Speaker 1: we're dealing with. Happy Labor Day wherever you are, and
Speaker 1: however you can celebrate it safely. Let's hope for holiday
Speaker 1: next year we can go back to worrying only about
Speaker 1: getting a sunburn and eating too much. That does it.
Speaker 1: For this episode of Wall String Week, I'm David Weston.
Speaker 1: This is Bloomberg see you next week.