WEBVTT - Bloomberg Wall Street Week: Mobius, Tett, Wheeler 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 --> 0:00:09.920 economy continues to send mixed signals, the financial stories that 0:00:10.039 --> 0:00:13.560 keep our world fed, action to con concerns over dollar liquidity, 0:00:13.600 --> 0:00:16.599 and encouraging China data. The five hundred wealthiest people in 0:00:16.640 --> 0:00:19.599 the world. Through the eyes of the most influential voices 0:00:19.880 --> 0:00:23.320 Larry Summers, the former Treasury Secretary, star Ward, CEO Kevin Johnson, 0:00:23.440 --> 0:00:27.040 SEC Chairman Jay Clayton. Bloomberg wool Street Week with David 0:00:27.080 --> 0:00:31.000 Weston from Bloomberg Radio. Big Brother is doing more than 0:00:31.080 --> 0:00:35.920 just watching. It's spending and regulating and providing liquidity, and 0:00:35.960 --> 0:00:39.720 it's not going away anytime soon. This is Bloomberg Wall 0:00:39.720 --> 0:00:42.879 Street Week. I'm David Weston, I'm from the government, and 0:00:42.920 --> 0:00:45.000 I'm here to help you. Well. That used to be 0:00:45.040 --> 0:00:48.040 a sort of sarcastic joke, but this week Global Wall 0:00:48.080 --> 0:00:50.440 Street got a taste of just how much the government 0:00:50.520 --> 0:00:53.920 is intertwined with our markets and with our businesses. From 0:00:53.920 --> 0:00:57.400 Fed chair j Powell and Treasury Secretary Janet Yellen, reassuring 0:00:57.440 --> 0:01:00.279 markets they'll continue to be there for them. So at 0:01:00.280 --> 0:01:02.480 the FED, we will continue to provide the economy the 0:01:02.520 --> 0:01:04.839 support that it needs for as long as it takes. 0:01:05.040 --> 0:01:07.399 We should be clear eye that that's the whole we're 0:01:07.440 --> 0:01:10.640 digging out of. Two big tech company CEO is being 0:01:10.680 --> 0:01:13.959 taken to the woodshed once again by Congress to state 0:01:14.040 --> 0:01:18.120 governments deciding day today how open their economies will be. 0:01:18.560 --> 0:01:21.080 So it's no surprise that the markets this week basically 0:01:21.120 --> 0:01:24.280 paid attention to the FED and prospects for more spending 0:01:24.600 --> 0:01:28.360 with or without taxes, and prospects for reopening. How does 0:01:28.400 --> 0:01:31.600 an investor make decisions in this world so dependent on 0:01:31.640 --> 0:01:35.280 political risk? We asked our roundtable of Jillian Tet, chair 0:01:35.319 --> 0:01:38.240 of the editorial board and editor at large US at 0:01:38.240 --> 0:01:43.360 the Financial Times, Peter Krauss, chairman and founder of Aperture Investors. Well, David, 0:01:43.360 --> 0:01:45.319 that is a terrific question, because I think a lot 0:01:45.360 --> 0:01:50.320 of investors right now and ordinary people are desperately keen 0:01:50.560 --> 0:01:55.400 that when the pandemic ends, they'll go back to normality, 0:01:55.480 --> 0:01:59.080 and they assume that normality might mean an economic recovery 0:01:59.560 --> 0:02:02.120 and some kind of political peace. We'll go back to 0:02:02.160 --> 0:02:04.360 the kind of analysis of the economy that everyone's tool 0:02:04.400 --> 0:02:07.760 about an NBA and things like that. But I think 0:02:07.840 --> 0:02:12.040 that assuming that political risk is going to disappear after 0:02:12.080 --> 0:02:16.120 the pandemic is probably a big mistake. Because we've seen 0:02:16.120 --> 0:02:19.600 the government intervene in the economy to an astonishing degree 0:02:20.000 --> 0:02:22.960 during the pandemic. The question of how it does or 0:02:23.000 --> 0:02:25.520 does not roll that back could prove to be very 0:02:25.520 --> 0:02:28.760 politically divisive. So, Peter, what about as an investor? As 0:02:28.800 --> 0:02:31.880 I say, this may be oversimplifying it, but it was 0:02:31.919 --> 0:02:33.959 basically be in the market, you'll do fine because the 0:02:33.960 --> 0:02:35.960 government's going to bail you out. Now we're in a 0:02:36.000 --> 0:02:38.440 different world as we look into recovery. How does an 0:02:38.440 --> 0:02:40.440 investor take an account what the Fed may or may 0:02:40.440 --> 0:02:42.560 not do. J Pale seems to saying, just let them 0:02:42.560 --> 0:02:44.400 play right now when it comes to the tenure yield 0:02:44.760 --> 0:02:47.000 and then we have more spending coming out of Congress, 0:02:47.040 --> 0:02:48.840 how does an investor take that on into account or 0:02:48.880 --> 0:02:51.800 do they Well? I want to build on what Jillian said, 0:02:51.840 --> 0:02:55.120 because I think it's a very it's a very significant 0:02:55.120 --> 0:03:02.040 probability that the voter or the populace decides that the 0:03:02.120 --> 0:03:05.720 positive impact of government stimulus in the size and scale 0:03:05.919 --> 0:03:10.120 that it has taken over the last eighteen months is 0:03:10.120 --> 0:03:15.800 a positive and that trying to redistribute wealth into a 0:03:15.880 --> 0:03:19.679 broader base might actually be a good thing. The economy stronger, 0:03:20.080 --> 0:03:23.760 the markets up, interest rates haven't risen that much, Inflation 0:03:23.840 --> 0:03:26.680 is not out of control. I like this, I want 0:03:26.680 --> 0:03:29.880 more of this, and I think Jillian's right on the 0:03:29.960 --> 0:03:34.079 money that that's going to continue. Now. The interesting thing 0:03:34.120 --> 0:03:38.520 about that is that we've been through thirty years of 0:03:38.560 --> 0:03:41.160 declining interest rates. Let me give you a couple of 0:03:41.240 --> 0:03:43.920 facts that I think is interesting. Over the last ten years, 0:03:43.960 --> 0:03:48.240 inflation is one point seven over that last ten years, 0:03:48.280 --> 0:03:53.000 the average US Treasury yield is two point two. That 0:03:53.480 --> 0:03:57.240 is a negative rate of interest real rate of interests 0:03:57.280 --> 0:04:01.960 of fifty basis points. I see positive of fifty basis points. 0:04:01.960 --> 0:04:05.120 You subtract the yield two point two minus the one 0:04:05.120 --> 0:04:09.160 point seven. Okay, So today we have one point seven 0:04:09.800 --> 0:04:12.920 uh tenure at one point six tenure, and we have 0:04:12.960 --> 0:04:15.480 an inflation to trying to get the two. Well, that 0:04:15.480 --> 0:04:19.000 would give us a negative yield. Well, how long we're 0:04:19.000 --> 0:04:21.840 going to have that negative yield? We can't have negative 0:04:21.880 --> 0:04:27.240 yields in a period of prosperity growth, Government stimulus, fiscal stimulus, 0:04:27.440 --> 0:04:29.800 and the things that Jillian is talking about so as 0:04:29.800 --> 0:04:34.359 an investor, the backdrop here is rising rates, rising rates 0:04:34.600 --> 0:04:39.080 secularly over time, and growth, but that will lead to 0:04:39.480 --> 0:04:43.680 periods of inflation, and those periods of inflation will hurt equities, 0:04:44.080 --> 0:04:47.760 they'll hurt bonds. So as an investor, fundamental investing is 0:04:47.760 --> 0:04:50.479 going to become more important. And the backdrop you have 0:04:50.560 --> 0:04:55.839 to assume is growth, higher inflation, higher interest rates. So, Jilian, 0:04:55.880 --> 0:04:58.520 what does that do for overall GDP growth? Where the 0:04:58.600 --> 0:05:01.040 United States but global growth? As practical matter, are you 0:05:01.120 --> 0:05:06.320 looking at increasing GDP growth even without further fiscal stimulus? 0:05:07.400 --> 0:05:11.720 I think absolutely we are heading to a big rebound, 0:05:12.240 --> 0:05:14.240 call it the Roaring twenties if you want to call 0:05:14.279 --> 0:05:17.640 it anything else. And the fact that we're having basically 0:05:17.680 --> 0:05:22.880 a rebound after the pandemic, coinciding with these extraordinarily large 0:05:22.880 --> 0:05:27.560 fiscal support programs and super loose monetary policy is a 0:05:27.720 --> 0:05:31.080 very striking combination. As Peter says, the fact that we 0:05:31.120 --> 0:05:34.039 have negative real rates right now at a time when 0:05:34.040 --> 0:05:38.280 people are forecasting six growth in the US economy is 0:05:38.640 --> 0:05:42.120 astonishing if you want to be charitable, or I would 0:05:42.160 --> 0:05:45.960 say completely nuts um, And I think that the fence 0:05:46.360 --> 0:05:50.640 on the nuts point Julius. Well, I've been open about 0:05:50.640 --> 0:05:52.600 this many times. I think it's completely nuts. I think 0:05:52.600 --> 0:05:55.560 the biggest mistake that's BED made was to be give 0:05:55.600 --> 0:05:58.560 the impression it was time dependent. I it was setting 0:05:58.600 --> 0:06:02.520 Fed policy according to a timeline rather than data dependent, 0:06:02.920 --> 0:06:05.919 i e. Reacting to the data and the fact that 0:06:05.960 --> 0:06:08.599 the Fed keeps indicating it's going to keep rates super 0:06:08.600 --> 0:06:11.680 low until I think it is setting itself up for 0:06:11.720 --> 0:06:14.880 a very nasty accident, because I would agree with Peter 0:06:15.000 --> 0:06:17.240 that there's a chance that the markets are going to 0:06:17.279 --> 0:06:19.640 start putting pressure on the BED to act sooner rather 0:06:19.680 --> 0:06:22.960 than later, and that would really wrong for investors. And 0:06:23.080 --> 0:06:25.919 one quick thing to think about. Everyone's talking about the 0:06:26.000 --> 0:06:28.920 roaring twenties. You know, boom, boom, boom. Isn't that great? 0:06:29.520 --> 0:06:32.880 Remember what the rowing twenties of the pandemic then led 0:06:32.960 --> 0:06:38.240 to MATHI stock market bubble, It burst, huge political upheaval 0:06:38.279 --> 0:06:41.680 and tension, and it's not difficult to imagine that could 0:06:41.680 --> 0:06:44.400 be the kind of scenario that we're heading for again now. 0:06:44.520 --> 0:06:46.840 Thanks to Jillian Tett of the Financial Times and Peter 0:06:46.920 --> 0:06:50.920 Krauss of Aperture Investors, coming up, Turkey makes yet another 0:06:51.000 --> 0:06:54.240 about face on monetary policy. We ask the Dean of 0:06:54.279 --> 0:06:58.239 Emerging Markets Investors, Mark Mobius, what it means for Turkey 0:06:58.560 --> 0:07:02.400 and for others. That's next on Wall Street Week on Bloomberg. 0:07:07.360 --> 0:07:11.320 This is Bloomberg Wall Street Week with David Weston from 0:07:11.440 --> 0:07:15.760 Bloomberg Radio. Turkey's President of Urdawan shook markets again by 0:07:15.800 --> 0:07:18.960 replacing the head of his central bank again, this time 0:07:19.000 --> 0:07:22.480 after just four months on the job. Naji Abal was 0:07:22.520 --> 0:07:25.880 the third central bank chief ousted in less than two years. 0:07:26.120 --> 0:07:29.800 Here's former British Ambassador of Turkey, Sir Peter Westmacott. President 0:07:30.200 --> 0:07:32.760 has headed in his head for a long time that 0:07:32.880 --> 0:07:35.640 high interest rates are a cause of inflation, and most 0:07:35.720 --> 0:07:40.400 orthodox economists think the opposite. Mr Abal's successor, Shahab kab Jolu, 0:07:40.520 --> 0:07:44.000 falls more in line with President Dans unorthodox thinking about 0:07:44.040 --> 0:07:48.000 interest rates and inflation. Well, we were really expecting, given 0:07:48.040 --> 0:07:51.040 the heights that we've seen from the previous sample bank governor, 0:07:51.120 --> 0:07:54.119 that eventually inflation will started going down, and it would 0:07:54.160 --> 0:07:58.680 have if they had maintain policies um and their credibility. 0:07:59.200 --> 0:08:03.120 That's shamilaka On, director of Emerging Market Debt for Alliance Bernstein. 0:08:03.360 --> 0:08:07.320 Cavolo's predecessor raised interest rates by eight hundred seventy five 0:08:07.400 --> 0:08:11.320 basis points in his short tenure, trying to slow Turkey's inflation, 0:08:11.440 --> 0:08:14.840 which runs at about fifteen percent a year, but putting 0:08:14.840 --> 0:08:17.520 a more devilish central bank chief in place. It didn't 0:08:17.560 --> 0:08:21.000 sit well with foreign exchange traders. The lyra plunged as 0:08:21.080 --> 0:08:24.480 much as fifteen percent on the announcement. Here's John Hardy, 0:08:24.640 --> 0:08:27.360 head of FIC strategy at Saxo Bank. If you look 0:08:27.400 --> 0:08:29.440 at how that the behavior in the Leri has been 0:08:29.520 --> 0:08:32.559 versus the rest of emerging markets, it's it's pretty idiosyncratic. 0:08:32.600 --> 0:08:35.080 It's its own story. This isn't the first time that 0:08:35.120 --> 0:08:37.599 the lira has struggled. There was a currency crisis in 0:08:37.640 --> 0:08:40.680 two thousand and eighteen after President Trump double tariffs on 0:08:40.800 --> 0:08:44.720 steel and aluminum imports from Turkey, and it's stabilized only 0:08:44.760 --> 0:08:46.880 after the central bank took rates all the way up 0:08:46.920 --> 0:08:51.600 to two for almost a year. By two nine, rate 0:08:51.640 --> 0:08:55.480 cuts started coming back. Markets didn't like that. Even though 0:08:55.800 --> 0:08:59.480 the new governor has not yet reversed the interest rate hike, 0:09:00.000 --> 0:09:03.360 which was implemented last Thursday, and he has said that 0:09:03.360 --> 0:09:05.600 there won't be a feather adjustment for another three weeks. 0:09:05.720 --> 0:09:09.520 That again was Sir Peter Westmacott, former British ambassador to Turkey. 0:09:09.640 --> 0:09:12.280 In a speech to his ruling party this week, President 0:09:12.400 --> 0:09:15.720 Urdwan tried to win back the trust of international investors, 0:09:15.920 --> 0:09:20.680 assuring them that the recent volatility doesn't reflect Turkey's economy. Again, 0:09:20.800 --> 0:09:23.840 here's Alliance Burns Stein's Shamela Khan. It's going to be 0:09:24.000 --> 0:09:26.400 very hard to get credibility back. I think the best 0:09:26.440 --> 0:09:29.240 they can do is try to stabilize the situation. Um So, 0:09:29.600 --> 0:09:34.400 stability in the situation is probably the most optimistic scenario. 0:09:34.800 --> 0:09:37.640 The central bank game of musical chairs is holding Turkey 0:09:37.720 --> 0:09:41.240 back during an emerging market's revival. Flows into the world 0:09:41.320 --> 0:09:45.400 developing economies have increased tent in the past five years, 0:09:45.720 --> 0:09:49.560 while Turkeys have fallen. It is going to be a 0:09:49.679 --> 0:09:53.160 very selective year for emerging markets, and it will be 0:09:53.200 --> 0:09:56.679 for whisk asses as well. That's Bloomberg Opinion columnist Mohammad L. 0:09:56.880 --> 0:09:59.560 R N. To understand what happened in Turkey and what 0:09:59.679 --> 0:10:02.480 itould mean for investors, we turned to the man who 0:10:02.559 --> 0:10:06.640 pioneered investing in emerging markets, Mark Mobius, partner and co 0:10:06.760 --> 0:10:09.720 founder of Mobius Capital Partners, and he said, it all 0:10:09.760 --> 0:10:14.240 starts with the currency. In all these emerging markets, everybody's 0:10:14.240 --> 0:10:16.840 focused on the currency. I mean the first question I 0:10:16.920 --> 0:10:20.520 get whenever I talk about emerging markets, clients say, what 0:10:20.600 --> 0:10:24.040 about the currency? Is there risking the currency? So, and 0:10:24.080 --> 0:10:27.040 of course the central banks are supposed to be responsible 0:10:27.120 --> 0:10:30.880 for a steady currency in the currency that's not volatile, 0:10:31.440 --> 0:10:33.960 and so whenever you see a central bank being a 0:10:34.040 --> 0:10:38.200 leader being replaced, that creates a panic. Despite the fact 0:10:38.280 --> 0:10:41.600 that if you notice the statement about the new central 0:10:41.600 --> 0:10:46.040 bank the governor in Turkey, his objective will be to 0:10:46.200 --> 0:10:50.840 have a stable lira, Turkish lira. So I think it's 0:10:50.920 --> 0:10:53.880 probably the reaction was overdone. I think it was did 0:10:53.920 --> 0:10:56.320 not make sense to have that kind of reaction, but 0:10:57.000 --> 0:10:59.680 it was expected that whenever you have this kind of change, 0:10:59.720 --> 0:11:01.839 the and see will get weaker. But I don't think 0:11:01.840 --> 0:11:03.880 the leader will continue with this weakness. I think it 0:11:03.880 --> 0:11:07.160 would be steady going forward. How do you protect yourself 0:11:07.200 --> 0:11:11.000 as an investor against currency co operations? What we do 0:11:11.160 --> 0:11:14.959 is we try to look at purchasing power parity is 0:11:15.000 --> 0:11:17.800 one measure and other measures of whether we think the 0:11:17.800 --> 0:11:21.360 currency will get stronger or weaker, and then we if 0:11:21.400 --> 0:11:23.560 we see that the currency is going to get weaker 0:11:23.640 --> 0:11:27.400 or isn't getting weaker. We then make a choice of 0:11:27.559 --> 0:11:32.280 stocks which will benefit from this weakness. So in some 0:11:32.360 --> 0:11:36.360 ways a weak currency can actually help us to perform better. 0:11:36.840 --> 0:11:40.160 So for example, in Turkey, we have one investment in 0:11:40.160 --> 0:11:44.880 the software company that exports its products, so they're getting 0:11:45.400 --> 0:11:48.000 far an exchange coming in and of course their costs 0:11:48.040 --> 0:11:51.320 sound Turkish leader, which is getting weaker. So that's the 0:11:51.400 --> 0:11:53.839 kind of thing we take into a consideration. So we 0:11:53.960 --> 0:11:57.760 try to emphasize that currency can be your helper instead 0:11:57.760 --> 0:12:01.880 of your detractive mark. One of the big subjects in 0:12:01.920 --> 0:12:03.959 the United States, but I think it also applies to 0:12:04.040 --> 0:12:07.959 emerging markets. Is the so called reflation trade? Uh, is 0:12:08.000 --> 0:12:10.960 it coming? Is it here? As it already had its time? 0:12:11.000 --> 0:12:13.840 For example, all prices actually start to come down over 0:12:13.840 --> 0:12:16.000 the last week or two, although they spiked up briefly 0:12:16.000 --> 0:12:18.840 with that Suez issue. What do you make the reflation 0:12:18.880 --> 0:12:20.920 trade as an e M investor? Is this the time 0:12:21.200 --> 0:12:25.240 to go in for the countries and the stocks that 0:12:25.280 --> 0:12:27.800 will benefit from the reflation or not? Well, First of all, 0:12:27.880 --> 0:12:30.600 I believe that looking at what the FETE is doing, 0:12:30.640 --> 0:12:33.160 we're not going to see a big spike in the 0:12:33.240 --> 0:12:36.240 inflation indices that we measure cp I. As you know, 0:12:36.360 --> 0:12:39.920 I'm not a great believer in those, uh, those statistics, 0:12:39.920 --> 0:12:42.160 but anyway, you're not going to see a big spike 0:12:42.200 --> 0:12:46.240 in those numbers. And of course the emerging market countries, 0:12:46.320 --> 0:12:50.239 in fact, the world you're included, looks at the US 0:12:50.280 --> 0:12:54.680 and concludes that paid inflation in America is not going anywhere. Therefore, 0:12:54.720 --> 0:12:57.040 we're not going to get hit with that same kind 0:12:57.080 --> 0:13:02.119 of situation. So the expectation is, first of all, inflation 0:13:02.280 --> 0:13:05.360 will as measured by the CPI will not raise its 0:13:05.440 --> 0:13:08.560 ugly head number one. Number two, the U S style 0:13:08.640 --> 0:13:12.480 will get weaker because of the big spending program that 0:13:12.600 --> 0:13:15.600 the Biden administration has, And of course we're already seen 0:13:15.679 --> 0:13:19.280 emerging market currency is getting stronger against the U style. 0:13:19.800 --> 0:13:23.079 There's been recently a little spike in the U style 0:13:23.200 --> 0:13:26.280 index getting a little stronger, but basically the U style 0:13:26.360 --> 0:13:28.400 index is at a weak point and probably we'll get 0:13:28.440 --> 0:13:32.280 weaker going forward, which again is very good for emerging markets. 0:13:32.440 --> 0:13:35.240 As you look at emerging markets as investments, uh, do 0:13:35.360 --> 0:13:39.000 you divide it up between the investments that are really 0:13:39.000 --> 0:13:43.680 tied to commodities as opposed to those tied to i 0:13:43.880 --> 0:13:47.560 T investment and communications, because typically people talk about North Asia, 0:13:47.559 --> 0:13:51.000 for example, as being much more oriented towards communications i T, 0:13:51.480 --> 0:13:55.480 but some other places like Mexico, like Brazil being more 0:13:55.480 --> 0:13:58.680 tied to commodities. That's a very important question because we 0:13:58.760 --> 0:14:01.480 have investments in Brazil, in South Africa and so forth, 0:14:01.760 --> 0:14:05.199 but we haven't been in the in the commodity area 0:14:05.240 --> 0:14:07.480 at all for a number of reasons. One of course 0:14:08.200 --> 0:14:13.439 is the environmental problem. You know, you have these environment challenges. Nevertheless, 0:14:13.880 --> 0:14:17.880 commodity prices have moved up very dramatically and very nicely. 0:14:18.360 --> 0:14:21.840 But we decided that we're going to focus on technology 0:14:22.040 --> 0:14:25.560 and not only the software but also the hardware. We're 0:14:25.560 --> 0:14:30.400 looking at things like computer I sees the software that 0:14:30.440 --> 0:14:34.000 goes into semiconductors, that sort of thing. The nuts and 0:14:34.040 --> 0:14:38.840 boats because this explosion and technology and the Internet is 0:14:38.880 --> 0:14:41.200 going to be with us for quite some time. Of course, 0:14:41.280 --> 0:14:45.600 it's been accelerated during the COVID crisis, but going forward, 0:14:45.640 --> 0:14:48.920 we're going to see a continuing demand for these goods 0:14:48.920 --> 0:14:52.800 and services. Thanks to Mark Movius and Mavius Capital Partners 0:14:52.800 --> 0:14:56.200 coming up. Text c eos have a showdown on Capitol Hill. 0:14:56.640 --> 0:14:59.880 Former EBSC chairman Tom Wheeler on whether there is a 0:15:00.040 --> 0:15:04.640 regulation that can fix misinformation on social media. That's next 0:15:04.640 --> 0:15:13.240 on Wall Street Week on Bloomberg. This is Bloomberg Wall 0:15:13.280 --> 0:15:17.400 Street Week with David Weston from Bloomberg Radio. The CEOs 0:15:17.440 --> 0:15:21.120 of Facebook, Twitter, and Alphabet faced another round of grilling 0:15:21.160 --> 0:15:24.480 from lawmakers on the subject of disinformation and social media. 0:15:24.800 --> 0:15:28.360 Former FCC chairman Tom Wheeler has seen tech from both 0:15:28.360 --> 0:15:31.560 sides as a regulator and as an investor. We asked 0:15:31.640 --> 0:15:35.080 him whether there was any regulation that could fix misinformation 0:15:35.320 --> 0:15:38.200 on social media. It looks pretty clear that there will 0:15:38.240 --> 0:15:40.960 be something that will be done to deal with the 0:15:41.000 --> 0:15:46.200 issues of information going to children. UM. I was interested 0:15:47.040 --> 0:15:51.680 that um Mark Zuckerberg as he was questioned by Congressman 0:15:51.800 --> 0:15:57.080 Welsh Um seemed to endorse the idea of a new 0:15:57.640 --> 0:16:01.680 digital platform agency, which is something that a group and 0:16:01.760 --> 0:16:05.760 I have been advocating for some time. As you know, UM, So, 0:16:05.880 --> 0:16:11.040 I think that Congress is actually trying to find what 0:16:11.280 --> 0:16:14.200 solutions might be and that for the first time we 0:16:14.320 --> 0:16:17.640 began to hear the ceo s saying that they might 0:16:17.640 --> 0:16:21.120 be receptive. So I wondered, Tom, from your experience Uh, 0:16:21.240 --> 0:16:24.560 can you have a new agency, a digital platform agency, 0:16:24.720 --> 0:16:28.280 really involved in this setting standards, maybe enforcing standards, and 0:16:28.320 --> 0:16:31.000 not curtail innovation, because that's the argument you always hear 0:16:31.000 --> 0:16:33.560 is once you start doing that, you're gonna really squash 0:16:33.560 --> 0:16:35.880 a lot. Innovation. Might not hurt Facebook, but it might 0:16:35.960 --> 0:16:38.880 hurt the next Facebook. That is a really good question, 0:16:38.880 --> 0:16:41.200 and one of the things that we specifically in our 0:16:41.200 --> 0:16:45.040 proposal spent a lot of time on is how do 0:16:45.120 --> 0:16:51.880 you not um slow down innovation or investment. And the 0:16:52.000 --> 0:16:55.720 key to that is that we need to have irregulatory 0:16:55.800 --> 0:17:02.320 structure that relates to the realities of today's digital markets, 0:17:02.560 --> 0:17:06.960 rather than being built around the assumptions of yesterday's what 0:17:07.040 --> 0:17:10.320 worked for yesterday's industrial markets. And then when you stop 0:17:10.359 --> 0:17:12.720 and think about it, the regulation that you and I 0:17:12.760 --> 0:17:20.040 are used to is industrial era concepts, industrial era structures, 0:17:20.800 --> 0:17:23.159 and we're not suggesting that's where you go now that 0:17:23.320 --> 0:17:28.880 those are rigid, sclerotic and can have a negative impact. 0:17:29.320 --> 0:17:31.760 But what we were trying to propose was that there 0:17:31.800 --> 0:17:36.600 needs to be a more agile approach to regulation that 0:17:36.720 --> 0:17:40.640 perhaps has built around the kind of ideas that delivered 0:17:40.680 --> 0:17:43.760 as the technology revolution in the first place. And that's 0:17:43.960 --> 0:17:46.920 standard setting process that you know, you go from three 0:17:46.960 --> 0:17:49.240 G T, four G T, five G and now six 0:17:49.280 --> 0:17:52.240 G that they're working on the standards for to keep 0:17:52.359 --> 0:17:57.159 up with things. That's not the way that regulation industrial 0:17:57.200 --> 0:18:00.720 style of regulation works, but if that can be the 0:18:00.760 --> 0:18:06.639 way that a digital era agile regulation works. Toma strikes 0:18:06.640 --> 0:18:10.600 me as you think about industrial era regulation. Basically we're 0:18:10.600 --> 0:18:12.720 regulating people. I mean, they might have been trains, but 0:18:12.760 --> 0:18:15.000 there was somebody driving the train or setting the price 0:18:15.040 --> 0:18:17.600 for the train. I wonder if that's true here because 0:18:17.680 --> 0:18:20.639 the thing making decision often is an algorithm, is not 0:18:20.680 --> 0:18:25.680 a person. Is that an entirely different way to approach regulation. Yes, 0:18:25.920 --> 0:18:29.520 And what is that algorithm dealing with? It is dealing 0:18:29.720 --> 0:18:35.560 with data, with digital information. So the capital asset of 0:18:35.600 --> 0:18:40.520 the twenty one century is data. How did the companies 0:18:40.720 --> 0:18:45.280 that were before the committee managed to get such a 0:18:45.359 --> 0:18:50.560 choke hold on economic activity was because they control the 0:18:50.720 --> 0:18:55.280 principal asset, and that's data. It's the data that drives 0:18:55.280 --> 0:19:00.080 the algorithms. So just like Rockefeller controlled oil, they can 0:19:00.080 --> 0:19:02.720 troll data and we gotta say, okay, how do we 0:19:02.800 --> 0:19:05.840 make sure that there's inter connection amongst those data? So 0:19:05.840 --> 0:19:09.119 that there's not a series of choke points. At the 0:19:09.119 --> 0:19:11.119 same time, the thrust of the hearing was about, as 0:19:11.119 --> 0:19:15.080 I say, extremism and disinformation, really focusing on the terrible 0:19:15.119 --> 0:19:17.520 events of January six at the Capitol, as well as 0:19:17.560 --> 0:19:22.320 some of the vaccine issues via XX issues about COVID 0:19:22.400 --> 0:19:26.000 nineteen uh. And I wonder whether when it comes to that, 0:19:26.040 --> 0:19:28.720 whether what we're seeing, the things we're objected to, is 0:19:28.760 --> 0:19:31.000 a bug or whether it's a feature. And by that 0:19:31.119 --> 0:19:33.719 I mean this is I understand the algorithms they basically 0:19:33.760 --> 0:19:37.560 designed to say, take the most engaging piece of information, which, unfortunately, 0:19:37.600 --> 0:19:40.159 because we're human, is often the most controversial or the 0:19:40.200 --> 0:19:42.439 most outrageous, and put it up to the top of 0:19:42.440 --> 0:19:45.040 the queue. Is that a basic feature? Can you ever 0:19:45.320 --> 0:19:48.440 fix that problem? Well? It's kind of like Dr Frankenstein, 0:19:48.520 --> 0:19:51.960 isn't it um? You know, you you create these software 0:19:51.960 --> 0:19:55.240 algorithms that then go run off and you don't even 0:19:55.240 --> 0:19:57.520 know what they're doing. So one of the big issues 0:19:57.560 --> 0:20:01.560 you gotta deal with is how do we get insight 0:20:01.800 --> 0:20:04.560 into what the algorithms are doing? How do you understand 0:20:04.560 --> 0:20:07.520 how do you get transparency? You know? Mark Zuckerberg, to 0:20:07.600 --> 0:20:10.520 his credit, keeps saying, well, we've got all of these 0:20:10.640 --> 0:20:14.399 kind of interventions. Okay, that's nice, but we don't have 0:20:14.800 --> 0:20:20.320 measurement for those interventions. We don't have oversight of those interventions. 0:20:20.560 --> 0:20:23.560 We don't know whether they're where you draw the line 0:20:23.600 --> 0:20:28.560 between a pr move and something that's really substantive and uh, 0:20:28.600 --> 0:20:31.600 and that's where we need to be going when we 0:20:31.680 --> 0:20:36.560 talk about an algorithm driven um economy. That was former 0:20:36.560 --> 0:20:40.080 FCC Chairman Tom Wheeler. Coming up. We hear from special 0:20:40.080 --> 0:20:43.600 contributor Larry Summers of Harvard about political risk and economic 0:20:43.680 --> 0:20:46.480 risk and how to tell the difference. That's next on 0:20:46.560 --> 0:20:54.840 Wall Street read on Bloomberg. This is Bloomberg Wall Street 0:20:54.840 --> 0:20:58.280 Week with David Weston from Bloomberg Radio. One of the 0:20:58.280 --> 0:21:01.000 most basic and immediate ways the government can affect the 0:21:01.000 --> 0:21:04.240 economy is through taxes, and this week talk about Texas 0:21:04.400 --> 0:21:06.680 was all the rage with reports to the White House 0:21:06.840 --> 0:21:09.359 is about to propose raising rates on corporations and on 0:21:09.440 --> 0:21:12.880 individuals making more than four dollars, with Secretary Janet yell 0:21:12.920 --> 0:21:15.320 And telling Congress that they needed to raise revenue to 0:21:15.359 --> 0:21:18.439 make long term investments such as infrastructure, and with Senator 0:21:18.480 --> 0:21:21.359 Bernie Sanders interducing legislation to take the corporate tax rate 0:21:21.560 --> 0:21:24.400 right back up to Well, what could all this mean 0:21:24.480 --> 0:21:26.600 for our economy? When it comes to question like that, 0:21:26.640 --> 0:21:28.720 we turned to one place, and that is our special contrader, 0:21:28.800 --> 0:21:31.840 Larry Summers of Harvard for his perspective. So, Larry, give 0:21:31.920 --> 0:21:34.560 us a sense, as an econoist a macro economist, what 0:21:34.720 --> 0:21:37.320 is the right level of taxation? What is it too much? 0:21:38.000 --> 0:21:40.639 I don't think we're near the point where it's too much, David. 0:21:41.720 --> 0:21:49.960 We're looking at huge planned investments, hugely important investments, but 0:21:50.640 --> 0:21:56.240 limits to the economy's capacity and risks of overheating, ultimate 0:21:56.400 --> 0:22:00.960 limits on how much borrowing is possible. So I think 0:22:01.040 --> 0:22:03.720 it would be better if we could pay for as 0:22:03.800 --> 0:22:07.880 much of that investment as possible. And I actually think 0:22:07.920 --> 0:22:11.040 the United States is now in a position where there 0:22:11.080 --> 0:22:14.840 are many ways we can raise tax revenue that will 0:22:14.880 --> 0:22:18.960 actually make the economy function better. As I've said before 0:22:19.040 --> 0:22:23.000 on your show, we could raise over a trillion dollars 0:22:23.040 --> 0:22:26.280 in ways that we make the tax system fairer, in 0:22:26.320 --> 0:22:31.399 ways that would reduce evasion activity, simply by doing a 0:22:31.480 --> 0:22:35.880 good job of enforcing uh the tax law. There are 0:22:35.960 --> 0:22:40.960 plenty of shelters carried interests is just one example ten 0:22:41.080 --> 0:22:45.600 thirty one. Real estate exchanges that avoid capital games UH 0:22:45.880 --> 0:22:50.399 is another. Loopholes in the estate tax is a third. 0:22:50.840 --> 0:22:56.520 There are plenty of examples of provisions that distort resources, 0:22:56.600 --> 0:23:00.199 that cause investments to go into less productive place is 0:23:00.640 --> 0:23:05.119 and at the same time cost the treasury revenue. I 0:23:05.160 --> 0:23:08.120 think there's a lot we can do in cooperation with 0:23:08.400 --> 0:23:17.120 other countries to prevent tax arbitrage across countries um eroding 0:23:17.600 --> 0:23:22.320 our tax collections. There's no reason why income should be 0:23:22.440 --> 0:23:29.439 lost to cyberspace in the twenty one UH century. I 0:23:29.480 --> 0:23:34.280 think that there's no rational economic case for corporate rate 0:23:34.320 --> 0:23:39.919 reductions on the scale that President Trump UH legislative the 0:23:39.960 --> 0:23:45.359 Business Roundtable would have been thrilled to have achieved. UH 0:23:45.600 --> 0:23:51.320 corporate tax rate. There's no case for corporate tax rate. 0:23:51.800 --> 0:23:56.760 So we can raise in the trillions of dollars before 0:23:56.840 --> 0:24:05.560 we do anything that even raises tradeoffs about adverse economic performance, 0:24:06.119 --> 0:24:10.480 and beyond that, even if there is some consequence for 0:24:10.600 --> 0:24:17.040 the economy, taxes enable us to invest Justice Holmes famously 0:24:17.160 --> 0:24:22.560 said taxes are what we pay for civilization. So I 0:24:22.600 --> 0:24:28.480 think phased in when the economy has started to overheat 0:24:28.960 --> 0:24:36.760 there's a compelling case for a much larger level of taxation, 0:24:36.960 --> 0:24:42.840 and I hope the administration will work to achieve it. Lord, 0:24:42.920 --> 0:24:44.719 let's just pick up on one specific point you made, 0:24:44.760 --> 0:24:48.200 that tax arbitrage. Internationally, we heard from Janet Yelling, your 0:24:48.240 --> 0:24:51.359