Speaker 1: This is Bloomberg Wall Street Week. We turn our attention
Speaker 1: to the markets this week. U s CPIM members reinforcing
Speaker 1: concerns about inflation. The financial stories that chief are worth
Speaker 1: a really different reaction to Mark. It's more indications of
Speaker 1: just how hot the U. S. Economy really is. Through
Speaker 1: the eyes of the most influential voices Larry Summers, the
Speaker 1: former Treachery Secretary, Katherine Keating, CEO of v n Y Moms,
Speaker 1: Sam's l Sharmon and founder of a creating group Investment
Speaker 1: in Bloomberg Wall Street Week with David Weston from Bloomberg Radio,
Speaker 1: giving thanks for what we've been through, for downs as
Speaker 1: well as ups, and for the opportunities yet ahead of us.
Speaker 1: This is a special Thanksgiving edition of Bloomberg Wall Street Week.
Speaker 1: I'm David Weston. This week, America celebrates that holiday known
Speaker 1: as Thanksgiving, when we gather with family and friends, remembering
Speaker 1: a time nearly four hundred years ago when British settlers
Speaker 1: feasted to celebrate their survival and to give thanks to
Speaker 1: the American Indians who made it possible. This year, most
Speaker 1: of us can be thankful that we haven't had to
Speaker 1: survive scenarios anything like those early Massachusetts colonists. Though we
Speaker 1: are mindful of all those who have lost loved ones
Speaker 1: to the pandemic over the last three years. We all
Speaker 1: lost something, a collective suffrage, a collective sacrifice, a year
Speaker 1: filled with the loss of life, the loss of livy,
Speaker 1: and to Ukrainians who have spent most of the year
Speaker 1: valiantly fighting off Russian invaders at a great cost of
Speaker 1: blood and treasure. We will not give up, We will
Speaker 1: not lose. We will fight till the end, at sea,
Speaker 1: in the air. We will continue fighting for our land,
Speaker 1: whatever the cost. But for the rest of us, it
Speaker 1: has been a year of great uncertainty as the economy
Speaker 1: has come back, but at the cost of mounting inflation.
Speaker 1: Inflation is extremely high. The levels were at we're unimaginable
Speaker 1: eighteen months ago, and so we have to get that
Speaker 1: under control and the beginning of belt tightening that has
Speaker 1: played havoc with the plans of so many, as reflected
Speaker 1: in markets that have struggled week to week. One of
Speaker 1: the places on global Wall Street, particularly hard hit by
Speaker 1: the higher rates and greater uncertainty has been mergers and acquisitions,
Speaker 1: And we sat down with one of the consummate dealmakers.
Speaker 1: Sam Zell to talk about the climate and how it's
Speaker 1: affected his business. Let's talk about what investor does in
Speaker 1: this new environment of increased inflation and increased interest rates.
Speaker 1: First of all, tell me what's going on with your company.
Speaker 1: Are you seeing less deal flow? Now just the opposite.
Speaker 1: We're seeing more deal flow. We're seeing more situations where
Speaker 1: companies are having difficulty figuring out what to do. Uh.
Speaker 1: We're seeing situations where nine months ago, financing a transaction
Speaker 1: of X y Z size was nothing. You know, it
Speaker 1: was you know, as you said, money was free. What's
Speaker 1: changed dramatically? I mean, think about the impact of the
Speaker 1: doubling of interest rates in eight weeks double you know,
Speaker 1: it's just eight weeks earlier, interest rates were you know,
Speaker 1: two and a half to three, and now they're five
Speaker 1: and a half to six. That's an enormous change, and
Speaker 1: it's gonna slow down everybody's activity. It's gonna for sure
Speaker 1: impact getting deals done. But in our particular case, because
Speaker 1: I've oftentime told the world that when I'm liquid, the
Speaker 1: stock market can't go down. It only goes down when
Speaker 1: I'm ill liquid. And here I am sitting there with
Speaker 1: a level of liquidity I've never experienced in my life
Speaker 1: because my focus for the last three and a half
Speaker 1: here has been nothing more important than loquality. So you've
Speaker 1: got a significant deal flow, if anything is bigger than
Speaker 1: it was before. What about the quality of deals? Are
Speaker 1: they different from what they were? For example, preach a prandemic.
Speaker 1: I think they are because they think they're a little
Speaker 1: more realistic. I think in prepaymandemic, when money was free,
Speaker 1: we did as back and chose not to take it
Speaker 1: to the next level. Because when we did this back
Speaker 1: spac seemed like a very interesting way to in effect
Speaker 1: monetize opportunity. Uh. It very quickly became a highly speculative
Speaker 1: scenario dependent on preposterous valuations that ultimately led to the
Speaker 1: crash of the whole spack market. World has changed a
Speaker 1: lot since then, and and the change is basically modifying
Speaker 1: what you can do. On the other hand, is always
Speaker 1: demand for capital, uh, And there's always that demand is
Speaker 1: always on the on the the shoulders of those that
Speaker 1: have preserved the couidity. So let's talk about some specific
Speaker 1: investment of serious energy. I mean, you know energy terribly well.
Speaker 1: You see opportunities of energy ight. Now, there's been a
Speaker 1: lot of tumult in the marketplace because of Russia and
Speaker 1: Ukraine and all sorts of versions. Yeah. I I mean
Speaker 1: we continue to do something in the energy space, not
Speaker 1: as much as I would have thought when we when
Speaker 1: this period began. The volatility and the energy space has
Speaker 1: been so extreme. Uh. I mean you just think about it.
Speaker 1: Within a twelve month period, the price of oil. Uh
Speaker 1: you know, you know, vascillated between thirty and twenty. Uh.
Speaker 1: That's an incredible level of volatility. Makes making investments extraordinarily
Speaker 1: difficult and challenging. Do you see a prospect of a
Speaker 1: little less volatil because you up on the one plus
Speaker 1: o pl plus trying to live with things. Now you've
Speaker 1: got the U. S. Government, which it was not trying
Speaker 1: to regulate the price of oil. It looks kind of
Speaker 1: like it is because it says when it's gonna selone's
Speaker 1: gonna buy. So it looks like it's got a bid
Speaker 1: and ass price. Yeah. But we also have a allegedly
Speaker 1: we also have an administration it's very anti oil and
Speaker 1: and and too. In my judgment, that anti oil provision
Speaker 1: is only going to hurt the United States. I mean,
Speaker 1: we were producing eleven million barrels a day of oil. UH.
Speaker 1: I don't know what we're doing now, but I think
Speaker 1: it's down two or three million barrels a day. UH
Speaker 1: as we've cut back on uh, capital for the for
Speaker 1: for fracking, etcetera. Uh. Not a healthy set of circumstances.
Speaker 1: That was Sam's l founder and chairman of Equity Group Investments.
Speaker 1: Coming up, we'll turn to energy and the quest to
Speaker 1: get more of it with less emissions with Christine Todd Whitman,
Speaker 1: former EPA administrator and former governor of New Jersey. That
Speaker 1: next on this special Thanksgiving edition of Wall Street Week
Speaker 1: on Bloomberg. This is Bloomberg Wall Street Week with David
Speaker 1: Weston from Bloomberg Radio. This is a special Thanksgiving edition
Speaker 1: of Wall Street Week. I'm David Weston. Energy has been
Speaker 1: much on the minds of Wall Street this year as
Speaker 1: Russia's war in Ukraine made the price of natural gas
Speaker 1: spike up. The President gets it. He's been working to
Speaker 1: get prices gas prices down, so as a result, they've
Speaker 1: been coming down for the last three weeks or so.
Speaker 1: But we understand that that's partially due to the war
Speaker 1: in New Train and we need to keep oil on
Speaker 1: the market. And President Biden tried to keep the price
Speaker 1: of gasoline down by releases from the Strategic Petroleum Reserve
Speaker 1: additional fifteen million barrels four December out of the SPR.
Speaker 1: But the President was doing this even as he tried
Speaker 1: to continue his push for more investment in energy sources
Speaker 1: that didn't add to carbon emissions. We're proving a good
Speaker 1: climate pology is good economic policy. It's a strong foundation
Speaker 1: for durable, resilient, inclusive economic growth. Much of Mr Biden's
Speaker 1: effort was focused on renewables like wind and solar, but
Speaker 1: many of those who take the zero emissions goals seriously
Speaker 1: agree that we can't get there ultimately without nuclear energy.
Speaker 1: One of those who has been consistently advocating for the
Speaker 1: role of nuclear energy is Christine Todd Whitman, former Governor
Speaker 1: of New Jersey and former administrator of the e p
Speaker 1: A and Governor. Whitman joined us on Wall Street Week
Speaker 1: to explain how it could work. You've dealt with nuclear
Speaker 1: energy for years now, so give us your sense of
Speaker 1: the role of nuclear energy potentially in getting to net zero. Well.
Speaker 1: I think nuclear can play a huge role, at least
Speaker 1: in a transition from fossil fuels to renewables. Renewables are
Speaker 1: not yet base energy. They're peak shaving and we're seven society,
Speaker 1: as is the rest of the world the world, and
Speaker 1: nuclear is the only form of base power that releases
Speaker 1: no regulated pollutants or greenhouse gases, wireless producing power. And
Speaker 1: we have an incredible safety record here in this country
Speaker 1: on nuclear and actually with a few obviously very huge
Speaker 1: exceptions being Chernobyl and what happened in Fukushima, Daishi, overall
Speaker 1: worldwide it's been it's been safe and getting safe for
Speaker 1: all the time. I mean, the US Nuclear Regulatory Commission
Speaker 1: is considered the gold standard on regulatory oversight of nuclear reactors.
Speaker 1: I don't think, given costs and time, that we're going
Speaker 1: to see any more large reactors built in this country.
Speaker 1: Certainly they are being built in China, They're being built
Speaker 1: around the world, and we can certainly play a part
Speaker 1: in developing the parts for those reactors. But I see
Speaker 1: the future for nuclear right now being in the small
Speaker 1: modular reactors. Well, let's get to that, and we first
Speaker 1: of all give us a sense of the scope of it. Already.
Speaker 1: One of the things that I have learned is nuclear
Speaker 1: is actually one of the few things that really don't
Speaker 1: have a mission that can be taken to scale. I
Speaker 1: think something like energy in the United States and generated
Speaker 1: but in France, right. And you know, you saw an
Speaker 1: example of what happens when you take nuclear offline when
Speaker 1: California took the Santino Frey nuclear reactor offline. Their missions
Speaker 1: went up and the cost of their energy went up.
Speaker 1: I mean, it was totally counter to everything that they
Speaker 1: were hoping to achieve in my mind, and so what
Speaker 1: I found over time is that if you have an
Speaker 1: opportunity to talk to people and answer they're very real questions.
Speaker 1: I mean, it's it's normal to have questions about the
Speaker 1: safety and you should ask them. But the answers are
Speaker 1: really good, and they're based on our history. You can
Speaker 1: prove that in fact, these things work, and once you
Speaker 1: do that with people, they get much more comfortable with
Speaker 1: the idea of nuclear It's just that for so long,
Speaker 1: um it's been used as frankly a fundraiser a lot
Speaker 1: of times for the environmental groups, and we need to
Speaker 1: get the public to understand. Particularly with the new small
Speaker 1: modular reactors that are built in a contained facility, they
Speaker 1: can be played east on site. They're much safer technology.
Speaker 1: They are a much safer way to produce the nuclear energy.
Speaker 1: So overall, there are really I believe, have the potential
Speaker 1: to make a huge difference, particularly if you think about
Speaker 1: the rural parts of America where you're not on the
Speaker 1: grid or you're not close to the grid. You can
Speaker 1: take a small modular reactor and provide power for an
Speaker 1: entire talent or an entire business. So they have a
Speaker 1: lot of potential there. So let's pursue that question of
Speaker 1: safety because that is on a lot of people's minds
Speaker 1: without a doubt, and as you've mentioned, we've had some
Speaker 1: horrific instances. Is the issue with safety that people don't
Speaker 1: realize that actually the tracker is quite good for nuclear
Speaker 1: or is it technological developments such as as you're referring
Speaker 1: to small module reactors now. I think it's because people
Speaker 1: just don't know, they don't understand. I mean, I get
Speaker 1: a lot of questions I used to in the past
Speaker 1: about well what about the spent rods, And first of all,
Speaker 1: I tell them from all but when the time when
Speaker 1: we had a hundred and two nuclear reactors in this
Speaker 1: country and you took all those spent rods and you
Speaker 1: put them in one place, you'd fill up one football
Speaker 1: field to the height of the goal posts. They may
Speaker 1: have gotten slightly above that now because this was data
Speaker 1: from several years ago, but the point being, it's not
Speaker 1: this massive thing the size of the state of Vermont
Speaker 1: that people kind of have in their minds. And the
Speaker 1: other thing is that what's in those spent rods is
Speaker 1: eight seven to ninety percent fishing noble material, meaning unused energy.
Speaker 1: And in France and Japan they figured out how to
Speaker 1: reprocess that and to get the energy out of those rods,
Speaker 1: rendering that what you have is the quote unquote bad
Speaker 1: stuff too down to let's say, and it can't be
Speaker 1: used in a nuclear weapon, so it's much easier to store,
Speaker 1: much less to store. You have a lot of unused
Speaker 1: power just sitting there. And they spent rods um and
Speaker 1: we should be using that technology as well. And people
Speaker 1: have to understand. And when you explain it to them,
Speaker 1: you take one of these rods from a nuclear reactor
Speaker 1: and put it in a missile, it's not the same technology.
Speaker 1: It won't work that way. And the other thing that
Speaker 1: explained to them because one of the most immediate issues
Speaker 1: that we had in this country was three Mile Island,
Speaker 1: and when that went down, the operators in the utility itself,
Speaker 1: in the reactor itself, were never exposed to high levels
Speaker 1: of radiation and they've been tracked ever since, and there
Speaker 1: were no releases into the community, and even those who
Speaker 1: were right there in the reactor had no adverse reaction
Speaker 1: to what happened. And in fact, it was because they
Speaker 1: overrode the system. Really that you had the partial meltdown
Speaker 1: fo Kushima Daishi. That wasn't because of the earthquake. It
Speaker 1: was because of the tsunami, and that was because they
Speaker 1: had their backup power, their generator located physically in the
Speaker 1: reactor building. After nine eleven, our Nuclear Regulatory Commission said
Speaker 1: to our nuclear industry, you've got to move those out
Speaker 1: that cannot be co located with the reactor itself, so
Speaker 1: we that kind of thing can't happen here anymore. Just
Speaker 1: this week we saw an announcement of a deal to
Speaker 1: acquire Westinghouse Electric basically on the premise, in effect, we're
Speaker 1: going to have more nuclear energy. Do you anticipate at
Speaker 1: that in the United States? Well, I certainly hope we do.
Speaker 1: But it was what not even ten years ago. I
Speaker 1: guess there were four proposed reactors to in Georgia and
Speaker 1: two in South Carolina, and we were very hopeful if
Speaker 1: those are going to come in on budget and on time,
Speaker 1: and they both ran over and the utilities decided in
Speaker 1: each case that it just wasn't worth going forward. So
Speaker 1: it is a question of cost and regulatory hurdles. But
Speaker 1: you want to have those regulations in place because that's
Speaker 1: what protects the community, to make sure that things are
Speaker 1: safe and streamline how you approach them. That was Christine
Speaker 1: Todd Whitman, former governor of New Jersey and e P
Speaker 1: A administrator, coming up. Higher interest rates this year have
Speaker 1: really at the real estate market hard. We get the
Speaker 1: overview from Tom Shapiro of G T I S Partners.
Speaker 1: That's next on this special Thanksgiving edition of Wall Street
Speaker 1: Week on Bloomberg. This is Bloomberg Wall Street Week with
Speaker 1: David Weston from Bloomberg Radio. This is a special Thanksgiving
Speaker 1: edition of Wall Street Week. I'm David Weston. Real estate
Speaker 1: is never far from the mind of Global Wall Street.
Speaker 1: In the United States, construction accounts for three point nine
Speaker 1: percent of all g d P and one point three
Speaker 1: percent of the jobs so when you start the year
Speaker 1: with mortgage rates around three point three percent and they
Speaker 1: reach seven by the end of the year, it can
Speaker 1: make for a bit of a rough ride. One of
Speaker 1: those feeling the ride most directly is Tom Shapiro. He's
Speaker 1: co founder and chief investment officer of GTS Partners, and
Speaker 1: he joined us on Wall Street Week to take us
Speaker 1: through some of the struggles but also some high points
Speaker 1: for real estate adjusting to higher interest rates. First of all,
Speaker 1: I want to start with your take on where the
Speaker 1: housing market is right now. We've seen some slowing even
Speaker 1: this week, with some new housing sales as well as
Speaker 1: existing housing sales. Sure that first, thank you so much
Speaker 1: for having me on the show. Why don't I just
Speaker 1: give you a little anecdotal evidence of what we're seeing
Speaker 1: in the field right now. Our home sales are down
Speaker 1: about fifteen but that's a headline number, and you know,
Speaker 1: I think it would be helpful to kind of dig
Speaker 1: a little bit deeper into that number. The reason, for
Speaker 1: the most part it's down is because we can't deliver homes.
Speaker 1: We're still having tremendous supply chain issues. Also, we find
Speaker 1: that a lot of home builders are actually holding back
Speaker 1: on the number of homes they want to deliver, and
Speaker 1: that is for a couple of reasons. One inflation because
Speaker 1: costs keep going up and they don't know what it's
Speaker 1: gonna actually cost to finish the house. And and too
Speaker 1: they want to ride up the home price appreciation. So
Speaker 1: I would say for the most part, right now, while
Speaker 1: we see a fifteen slow down in sales, you're over year.
Speaker 1: A lot of that is because of other extraneis issue.
Speaker 1: It's more of a delivery issue than is a demand issue.
Speaker 1: With that said, we're definitely starting to see a pullback.
Speaker 1: We're starting to have to go deeper into our wait lists.
Speaker 1: But every house at this point that we deliver in
Speaker 1: the markets were in, we are selling. But I think
Speaker 1: we have to be careful about what we see, you know,
Speaker 1: on a going forward basis, because definitely we're starting to
Speaker 1: see things slowing down. That's a really helpful way of
Speaker 1: putting up because we're having those discussions about the overall economy.
Speaker 1: Is it supply, is it demand? Is I understand you've
Speaker 1: got a supply problem because the supply change. People say
Speaker 1: that's going to go away? Is it going away? And
Speaker 1: how's it? Well, it's not I mean, we definitely have issues.
Speaker 1: We have problems getting trusses and windows and appliances. Um,
Speaker 1: we're delivering homes with plywood windows at times. Um, it's
Speaker 1: it's we're having all sorts of issues. And of course
Speaker 1: you know the war in Ukraine and what's going on
Speaker 1: in China, and the work stoppage is there. Um, the
Speaker 1: deliveries and transportation is an issue, and jobs are an issue,
Speaker 1: and trades are an issue. So it's gotten marginally better,
Speaker 1: but we still have tremendous supply chain issues. Uh. And
Speaker 1: look if you look at how many houses were delivering
Speaker 1: a year in total, this is all all forms, it's
Speaker 1: about one point two million housing units a year, which
Speaker 1: is sort of inequilibrium. So Tom, some of the issue
Speaker 1: can be on the demand side. At some point. We've
Speaker 1: heard about mortgage rates going up to what five point
Speaker 1: five percent something like that, so that must affect it
Speaker 1: to some extent. How are you seeing some effects with
Speaker 1: that because we also have the FED is going to
Speaker 1: start selling off some of those mortgeback securities. Yeah for sure.
Speaker 1: I mean, look, the consumer stretched, so why are they
Speaker 1: stretched a stretch because of inflation? So we have all
Speaker 1: sorts of issues. We have gas prices are more expensive,
Speaker 1: and we have the costs of food is more expensive,
Speaker 1: and of course, as you point out, mortgage rates are
Speaker 1: our own issues. So the consumer is stretch and that
Speaker 1: is certainly going to be an issue on a going
Speaker 1: forward basis on housing. But we are seeing, you know,
Speaker 1: people taking less options, they're going to slightly smaller unit
Speaker 1: types um and their renting. So we aren't necessarily seeing
Speaker 1: a slow down at this point because of Morgan traits.
Speaker 1: But again, I think we have to be careful. I think,
Speaker 1: you know, the crystal ball says it's going to get
Speaker 1: a lot worse. We're not seeing it today, but I
Speaker 1: think in the future where I'm going to see a
Speaker 1: slow down. When you say things are going to get worse,
Speaker 1: a lot of us go back to two thousand and eight,
Speaker 1: the last time we really thought hard about housing crisis
Speaker 1: in this country. And there are some anecdotal incidents where
Speaker 1: it sort of feels like two thousands six or seven
Speaker 1: where people are outbidding each other houses. They're going away
Speaker 1: but above the asking price. Are there parallels with what
Speaker 1: happened in two doesn't eight? It's an amazing it's really
Speaker 1: really good questions. So so why don't we go back
Speaker 1: in history because I think, you know, we really have
Speaker 1: to analyze where did we end up in a eight
Speaker 1: and why did we end up there? So if you
Speaker 1: if you look back to two thousand and five, we
Speaker 1: produced two million housing units, So in general, we produce
Speaker 1: one point two million households or what's a household? Your
Speaker 1: kid graduates college and moves into an apartment. Uh, A
Speaker 1: couple moves out of their parents house and they and
Speaker 1: they've taken apartment, there's a divorce, etcetera. And that creates
Speaker 1: a need for housing units. So against a total need
Speaker 1: of one point two million units, we produced to and
Speaker 1: then it did slow down because remember after five even
Speaker 1: before the GFC we started to have a housing slow down,
Speaker 1: we still produced one point five million housing units, so
Speaker 1: we had a massive oversupply going into then a demand shock.
Speaker 1: So it was really the perfect storm and that is
Speaker 1: why we end up with the global financial crisis. That
Speaker 1: was Tom Shapiro, president and co founder of G T
Speaker 1: I S Partners, coming up. The tight labor market has
Speaker 1: continued throughout the year. We talked about the causes, including
Speaker 1: some that may not be going away anytime soon with
Speaker 1: special Wall Street we contributed larryus Summers of Harvard and
Speaker 1: with economist Melissa Carney of the University of Maryland. That's
Speaker 1: next on this special Thanksgiving addition of Wall Street Reek
Speaker 1: on Bloomberg. This is Bloomberg Will Street Week with David
Speaker 1: Weston from Bloomberg Radio. This is water Rag. I'm David Weston.
Speaker 1: Even as the markets and investors have struggled to come
Speaker 1: to grips with higher interest rates and less fiscal stimulus
Speaker 1: coming from the government, even as inflation is cut into
Speaker 1: wages and profits, the labor market this year has continued
Speaker 1: to be robust. The labor market is still strong, but
Speaker 1: it requires a fed that has a lot more skill
Speaker 1: and a lot more luck. Some of that maybe, as
Speaker 1: they say, transitory, they continued, aftermath of the pandemic and
Speaker 1: a dramatic snap back in the economy. There are also
Speaker 1: more structural, longer forces at play, and we turn to
Speaker 1: our special comtinuter Larry Summers of Harvard and his fellow
Speaker 1: economists from Maryland Melissa Carney, to take us through some
Speaker 1: of those longer term labor market issues. They joined us
Speaker 1: from the Aspen Economic Strategy Groups meeting in Colorado. Let's
Speaker 1: start with the question of where growth will come on
Speaker 1: the other side of whatever it is we're going through,
Speaker 1: because that's ultimately going to be the question here, I
Speaker 1: understand from what conness like you, it comes from one
Speaker 1: of two sources, either more workers or more productivity. Are
Speaker 1: we going to get more workers. We're looking to at
Speaker 1: both fewer workers and lower productivity, as you know, So
Speaker 1: let me focus on the fewer workers aspect for a moment.
Speaker 1: The real issue demographic issue facing the US is we
Speaker 1: have a plummeting birth rate, and so total fertility in
Speaker 1: the US is now below the level required to keep
Speaker 1: population growth constant. And so the issue here is that
Speaker 1: on average now a woman in the US is expected
Speaker 1: to have one point six five children over her lifetime.
Speaker 1: So women used to have three kids, then it fell
Speaker 1: to two. Women were having comfortably above two kids for
Speaker 1: many decades. With a with a fertility rate below too,
Speaker 1: that means our population is going to age and it's
Speaker 1: not going to grow, and so eventually we're going to
Speaker 1: have a shrink working age population unless Melissa, we have immigration.
Speaker 1: And that's why immigration, I think many of us at
Speaker 1: this conference feel is so very very important. What's your
Speaker 1: sense of what economists would say the politics apart um
Speaker 1: about the immigration policy. Economists love immigration. We think immigration
Speaker 1: is a is a potential answer to our demographic challenges
Speaker 1: as well as our productivity innovation challenges. Since immigrants come in,
Speaker 1: they work, they're more likely than native born Americans to
Speaker 1: be entrepreneurs and innovators. Of course, as you know Larry,
Speaker 1: immigration rates our way down. So we used to bring
Speaker 1: in as you know, sixteen we hit as many as
Speaker 1: a million new people coming into the country every year.
Speaker 1: That number is now below two d and fifty thousand,
Speaker 1: and so the combination of a declining native war in
Speaker 1: population and a decline in immigration portends even worse demographic
Speaker 1: challenges than if we were just facing one versus the other.
Speaker 1: Let me see if I can do a little arithmetic
Speaker 1: based on what you said, from one million, so that's
Speaker 1: about seven fifty thousand people a year, so that's about
Speaker 1: half a percent of our workforce, maybe a little less,
Speaker 1: So half a percent slower labor force UH growth over
Speaker 1: time can accumulate to something UH that is very that
Speaker 1: is very large. And and if we go back to
Speaker 1: the birth rates, we have about five dred thousand fewer
Speaker 1: babies being born a year than in the not distant past. Melissa,
Speaker 1: if you um, what would you say about about this? Um?
Speaker 1: Most people are scared that immigrants come and they take
Speaker 1: jobs for Americans, and that if they're more immigrants, then
Speaker 1: there aren't gonna be as many jobs for Americans, or
Speaker 1: if there are jobs, because there's more compet titian, Uh,
Speaker 1: they're going to be paid less. And that's true whether
Speaker 1: the job people think is working at McDonald's or is
Speaker 1: working doing computer programming at Microsoft. What how do you
Speaker 1: how should people feel? Shouldn't they have shouldn't they have
Speaker 1: this worry that they're going to be poorer if we
Speaker 1: take all the immigrants, just like they get hurt if
Speaker 1: we take a lot of local a lot of trade
Speaker 1: from other countries where they have much lower wages. So so,
Speaker 1: the reason economists are so bolish on immigration is because
Speaker 1: we have so much evidence that immigrants are good for
Speaker 1: the economy. They are good for most workers. But it
Speaker 1: is true that there are some groups in some places
Speaker 1: that will feel wage pressures. And I think the way
Speaker 1: we the way we solve this issue is to make
Speaker 1: sure that we recognize the disparate impacts of certain groups.
Speaker 1: We recognize that low wage workers in certain sectors might
Speaker 1: not experience the benefits. The were all benefits that immigrants
Speaker 1: bring to the economy, and we take steps to help them.
Speaker 1: I mean, it's not it's not dissimilar to what we
Speaker 1: have to do with trade to you know, more imports
Speaker 1: is good for most people, but some people are harmed
Speaker 1: by it. We're going to see this too with the
Speaker 1: shift of green a greener economy. Some people are going
Speaker 1: to lose their jobs even though it's better for everyone.
Speaker 1: And so I mean, I think acknowledging that some people
Speaker 1: feel and are harmed by this, but that's a small
Speaker 1: concentrated group, and taking steps to address that allows us
Speaker 1: to do things that make the economy grow and be
Speaker 1: more productive. I wanted to come back to fertility. Larry's
Speaker 1: pointed out a way in which economics, whether misperceived or not,
Speaker 1: may affect our willingness to have immigration. What about fertility?
Speaker 1: Are there economic causes for the reduction and fertility? So
Speaker 1: the decline in US fertility and it's really being driven
Speaker 1: by a plummeting of birth rates Since two thousand seven,
Speaker 1: births fell after the Great Recession, they haven't recovered. Um,
Speaker 1: you ken a point to any any policy or economic
Speaker 1: factor that's changed since two thousand seven. So sometimes people
Speaker 1: will say things like childcare has become more expensive, and
Speaker 1: if we just made childcare less expensive, people would return
Speaker 1: to having more than two kids. None. That is just
Speaker 1: not the case, right, There's nothing, uh, there's nothing that
Speaker 1: easy that we could point to. And in fact, us
Speaker 1: women now are just having births in the same way
Speaker 1: that women in other high income countries have reduced their
Speaker 1: birth rates long before, in the eighties and nineties. So
Speaker 1: I don't think this is going to be easy to
Speaker 1: turn around. Lots of other countries have taken direct steps
Speaker 1: to try and incentivize people to have more kids. There's
Speaker 1: a lot of countries that have experimented with baby bonuses
Speaker 1: a few thousand dollars. Birth rates go up a little
Speaker 1: bit in the following year, but nothing like the increase
Speaker 1: in infertility we would need to get back to replacement level. Also,
Speaker 1: having an expert like you here, I can't is this
Speaker 1: h stepping out of our mutual lane as economists to
Speaker 1: ask a question I suspect is on many people's minds.
Speaker 1: Do you think that the recent Supreme Court decision and
Speaker 1: the steps that are going to be taken in a
Speaker 1: number of states. Do you think that's going to materially
Speaker 1: affect the number of births in the United States? The
Speaker 1: We do have estimates on this based based on you know,
Speaker 1: lots of data we have about how abortion restrictions you know,
Speaker 1: lead to more birth rates. I expect there will be
Speaker 1: about a hundred thousand more births a year. This is
Speaker 1: not going to bring fertility rates back to where they were.
Speaker 1: This is going to mean that some women who wouldn't
Speaker 1: want to have a child now are going to um.
Speaker 1: Since you raise the issue, I will say that this
Speaker 1: makes the imperative of doing more to support kids and
Speaker 1: low income women in this country that much stronger. That
Speaker 1: was Special Wall Street. We contributed Larry Summers and University
Speaker 1: of Maryland Professor of Economics Melissa Karney. Getting money for
Speaker 1: free or close to it can be nice. It allows
Speaker 1: us to pursue hopes and dreams that we otherwise might
Speaker 1: not be able to afford, leading to investments that couldn't
Speaker 1: be made with higher hurdle rates. I outline everything from
Speaker 1: community college block grants to aid to communities, to reform
Speaker 1: of the earned income tax credit to support work All
Speaker 1: of that is probably about a hundred billion dollars a year.
Speaker 1: That's real money. But what happens when the music stops
Speaker 1: or at leak slows down a fair amount, as interest
Speaker 1: rates shoot up and the bankers and other lenders get
Speaker 1: out their sharp pencils. Then, as Warren Buffett famously said,
Speaker 1: we find out who's been swimming without their trunks, and
Speaker 1: at the front of the line of the so called
Speaker 1: zombie companies, the ones who aren't throwing off enough cash
Speaker 1: to meet their interest payments, much less pay off their principle.
Speaker 1: Sonya Gibbs, Managing director at the Institute of International Finance,
Speaker 1: joined us on Wall Street Week this year to take
Speaker 1: us through the problem and what it may mean for
Speaker 1: the rest of us. Let me start with those basic
Speaker 1: of questions, what exactly is a zombie company and how
Speaker 1: many of them are they're out there? First of all,
Speaker 1: to take a step back, what you need to think
Speaker 1: about is that over the past ten or fifteen years,
Speaker 1: global debt levels have skyrocketed. We've had very low interest rates,
Speaker 1: and for example, non financial corporate debt around the world
Speaker 1: is now close to a cent of g d P
Speaker 1: and that's more than double what it was a decade ago,
Speaker 1: So that's a very worrying backdrop. And so what we
Speaker 1: mean by zombie companies is a company that essentially has
Speaker 1: to borrow to keep going. They're highly leveraged, they're not
Speaker 1: growing very fast, their revenues are not up to power,
Speaker 1: and at the moment they face a very difficult situation.
Speaker 1: You've got higher input costs, so your commodity prices are higher,
Speaker 1: wages are rising. At the same time, you don't earn
Speaker 1: enough revenue to cover all of these higher costs and
Speaker 1: your debt service. So if you have a ratio of
Speaker 1: revenues to interest costs that's one or less. If you
Speaker 1: can barely cover your debt service costs, we call you
Speaker 1: a zombie company. And it's a very good name. It's
Speaker 1: very evocative. And for how many I mean, it's difficult
Speaker 1: to calculate, right because for a lot of firms that,
Speaker 1: for example, aren't publicly listed, the information might be less available.
Speaker 1: They might be smaller non public companies. But the Federal
Speaker 1: Reserve estimates that between five and ten percent of US
Speaker 1: firms fall into this category. And it's also important to
Speaker 1: remember that this is not a static world. It's not
Speaker 1: once a zombie, always a zombie. Conditions change, and in fact,
Speaker 1: becoming a zombie company is a little bit cyclical in
Speaker 1: the sense that when times are good, maybe interest rates
Speaker 1: are low, growth is high, maybe you're not a zombie.
Speaker 1: But then you know, bad things happen. Pandemics happen, shocks happen,
Speaker 1: interest rates go up, and a company that was formally
Speaker 1: doing reasonably oh might suddenly fall into the zombie category.
Speaker 1: That was Sonya Gibbs of the Institute of International Finance,
Speaker 1: that does it. For this special Thanksgiving edition of Wall
Speaker 1: Street Week, I'm David Weston. This is Bloomberg. See you
Speaker 1: next week.