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Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jaylie.

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Speaker 1: We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg So

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Speaker 1: a brilliant interview took place between Bloomberg News and the

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Speaker 1: Secretary the Treasury Secretary Stephen manu Chin on a train

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Speaker 1: in Philadelphia, and the Secretary of the Treasury taking the

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Speaker 1: opportunity to say, there are a lot of ways that

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Speaker 1: the economy could grow. You could have wage inflation and

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Speaker 1: not necessarily have inflation concerns. In general, it's a message

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Speaker 1: that seems to be coming out of this administration that

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Speaker 1: wages can go up, but you may not end up

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Speaker 1: with broad based price pressures. I want to turn to

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Speaker 1: someone who can weigh in is Carl Weinberg. Here is

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Speaker 1: the founder of high frequency Economics and he joins us

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Speaker 1: here in New York City. So Carl, let's put the

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Speaker 1: economics to the test. Can we have the wage growth

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Speaker 1: without a big boost to the overall headline inflation number? Well,

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Speaker 1: we can. It's a question of whether it's likely. The

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Speaker 1: whole driving theme of this administration is that its policies

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Speaker 1: are going to increase productivity. So if productivity goes up

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Speaker 1: as fast or faster than wages do, then unit labor costs,

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Speaker 1: which is what affects prices, they will go down, and

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Speaker 1: then you can get with the Secretary suggests. So the

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Speaker 1: primary thesis of the Trump administration is a test here

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Speaker 1: will current policies increase productivity? So the administration say, this

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Speaker 1: is a big supply side stimulus, so it should end

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Speaker 1: up with less inflation than you might expect if it

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Speaker 1: was just the demand side stimulus. But a lot of

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Speaker 1: people come on this program and they say, you know what, Carl,

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Speaker 1: we're bumping up against supply constraints, capacity constraints. That's got

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Speaker 1: to mean that if this economy grows any further, inflation

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Speaker 1: is bound to come. What do you say back to that, count, Well,

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Speaker 1: I don't say anything back to it. I agree with

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Speaker 1: it entirely. You know, high Frequency Economics, we've been telling

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Speaker 1: our our subscribers for a long time now that the

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Speaker 1: administration's policies, at least in the short run, are going

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Speaker 1: to be inflationary, that they're going to take an economy

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Speaker 1: that's already at full employment and push it for through

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Speaker 1: full unemployment, and we don't really see the mirrors of

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Speaker 1: doing that at this time. Jeff Goodline over double line

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Speaker 1: went again on Twitter, of all places, and he said

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Speaker 1: the following to Secretary Minution, policies will raise wages without inflation? Yeah, sure,

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Speaker 1: And we're going to expand the Buffalo Art Museum without

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Speaker 1: making it bigger. And then he followed up by saying,

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Speaker 1: if by miracles wages go up without inflation, it's not

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Speaker 1: good for profits. Isn't that the bottom line here? If

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Speaker 1: you get the wage growth but you don't get the

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Speaker 1: overall price pressure and prices don't go up, then what

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Speaker 1: happens to profits of some of these big companies. You

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Speaker 1: assume that margins go down when you Yeah, I'm not

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Speaker 1: sure that I agree with that, because the only way

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Speaker 1: that you can get that increase in wages and not

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Speaker 1: get prices to go off is if productivity goes up.

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Speaker 1: So if productivity goes up, you know, then workers will

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Speaker 1: get you know, two thirds or whatever the labor share

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Speaker 1: of income is in the economy out of it, but

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Speaker 1: the rest of will go back to profits. Now that

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Speaker 1: would be a very very good outcome. The question on

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Speaker 1: the table, and I don't have an answer for it,

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Speaker 1: is what is productivity going to do next? Separate from

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Speaker 1: the question of whether Trump policies are going to help

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Speaker 1: it go higher fast? This is critical. The media wants

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Speaker 1: to always focus on something equivalent to total factor total

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Speaker 1: factor productivity, which is technology and what we're doing and

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Speaker 1: what we're doing better. Nobody talks about labor deepening because

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Speaker 1: that hasn't been part of the story for half a century,

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Speaker 1: if not more. But then there's this thing capital deepening.

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Speaker 1: How can you have capital deepening if you have share

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Speaker 1: buy backs and dividend grows? Well, of course, you know

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Speaker 1: you're hitting on the questions of the day. You know,

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Speaker 1: the question of the day isn't you know what, more

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Speaker 1: productivity with more output per worker make us better off? Well,

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Speaker 1: of course it would. That's how we get better off.

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Speaker 1: The question on the table, which is of political as

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Speaker 1: well as an economic question, is where the current policies

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Speaker 1: are going to necessarily take us to higher productivity growth?

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Speaker 1: And that the knock on question is is whether we're

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Speaker 1: going to get higher productivity growth at all without current policy? John,

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Speaker 1: This is the question that's better around since time began.

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Speaker 1: Does higher productivity growth create jobs or does it put

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Speaker 1: people out of business? Everything we know about economics tells

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Speaker 1: us that the course to prosperity is paid by higher

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Speaker 1: productivity growth. There, that's that's a good one, isn't. You

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Speaker 1: can keep the catch list for productivity growth and do

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Speaker 1: you see it now? You know? I was talking to

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Speaker 1: Tom about this off camera on the television segment just before,

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Speaker 1: and I went through all my notes from graduate school.

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Speaker 1: We don't have a theory and economic theory of productivity.

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Speaker 1: We can observe episodes of productivity surging. We can see

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Speaker 1: at time is when productivity drove the economy forward. Look

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Speaker 1: at the sixties and the seventies of the race for space.

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Speaker 1: All right, they'll that teflon and vel grow and all

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Speaker 1: that stuff in digital technology that all made us better off.

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Speaker 1: We need a project like that, and there are good

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Speaker 1: candidates out there. The environment is a good project like that,

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Speaker 1: Infrastructure is a good project like that. There are lots

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Speaker 1: of things we can do that can increase overall productivity,

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Speaker 1: but we have to do them, and it's not clear.

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Speaker 1: And now we'll get into the politics of it. And

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Speaker 1: now I'll get in trouble on your Twitter, will will

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Speaker 1: go off the hook right now. But but it's not

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Speaker 1: clear whether or not either way that current administration policies

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Speaker 1: are cutting taxes is going to get us that result.

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Speaker 1: It's just not clear. Like I said, we have no

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Speaker 1: theory of productivity growth alright, but we do see in

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Speaker 1: the short run, is that whatever current administration tax policies

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Speaker 1: do for productivity in the longer run, in the shorter run,

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Speaker 1: they're creating a lot of demand. And our chief economist

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Speaker 1: at High Frequency Economics GMO Slivan is writing about this.

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Speaker 1: In the near term, people are getting more money in

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Speaker 1: their markets, and they're spending it long before companies can

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Speaker 1: get around to investing it in projects that will increase productivity.

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Speaker 1: So the thoughts that the current administration though just to

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Speaker 1: stack up the order of things for them. It seems

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Speaker 1: to me that they think by cutting taxes, you boost

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Speaker 1: capital expenditure, and by boosting campex you boost productivity. Um.

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Speaker 1: I know you're saying we don't have a theory of productivity,

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Speaker 1: but is that not just stack up for you cut taxes,

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Speaker 1: camp X increases more camp X more productivity. That's the theory,

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Speaker 1: and now we have to wait and see if it

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Speaker 1: plays out. But until that theory plays out, everyone agrees

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Speaker 1: that if it does play out, it's going to take time.

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Speaker 1: In the meantime, in the very short run, this week,

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Speaker 1: people are getting fatter paychecks than they did a month

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Speaker 1: ago or two months ago, and they're going to start

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Speaker 1: to spend it. So demand is going to increase faster

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Speaker 1: than supply, even if the supply side theory works, and

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Speaker 1: that creates an inflation challenge for the Fed. I'm looking

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Speaker 1: at the GDP forecast. I was talking to Jonathan Golober

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Speaker 1: Credit Swiss, and he said, go on to e CFC

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Speaker 1: on the Bloomberg terminal. So I did it, and I

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Speaker 1: looked at the forecast for eighteen, nineteen and twenty, and

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Speaker 1: what you see is a real deceleration in growth here

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Speaker 1: in the United States of America. This is the survey

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Speaker 1: of economists here at Bloomberg that we survey from two

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Speaker 1: point seven percent this year to two point four percent

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Speaker 1: next year to one point nine percent in Do you

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Speaker 1: see growth in the United States for America? Rolling up,

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Speaker 1: rolling over the way? Our survey captures that story. I

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Speaker 1: think Jim Osullivan has growth in the US a little

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Speaker 1: bit more flat than what your survey has and um uh,

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Speaker 1: and I think that that would probably characterize it a

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Speaker 1: little bit pretty well. You know, we don't see it

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Speaker 1: rolling down to one point nine, but we do think

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Speaker 1: that something has to give, And if Jim's right in

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Speaker 1: his forecast, then we'll see more growth than your showing

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Speaker 1: in the Bloomberg survey, but we'll probably see a little

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Speaker 1: bit more inflation than either your survey or the FED

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Speaker 1: wants to see. There we go. Carl Wineberg, high frequency

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Speaker 1: Economics founder joining us in New York City, is going

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Speaker 1: to stay with us as well, Tom and quite into

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Speaker 1: the week, I must say, I must say a very

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Speaker 1: very quiet entered the week after a pretty vicious start

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Speaker 1: with all that bond issue is coming through end of

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Speaker 1: the week, but with the political news flow and with

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Speaker 1: some of the economic themes that we can address with

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Speaker 1: Dr Weinberg and Michael Darda as well coming up, I

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Speaker 1: think there's a lot of themes Johnny into the spring

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Speaker 1: that are really unanswered right now, and I think, frankly,

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Speaker 1: looking into March, it makes for a fascinating March one

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Speaker 1: FED meeting. While looking to the FED minutes, I have

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Speaker 1: to say that confusion about influence remains, and I think

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Speaker 1: there is still just a confusion and most people would

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Speaker 1: admit to it. What this package that has come out

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Speaker 1: from Washington, d C. What the tax cuts ultimately mean

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Speaker 1: for overall growth and how much longevity that trajectory for

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Speaker 1: higher growth in the United States, how much how much

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Speaker 1: longer it would actually last? Carol Weinberg, thank you so much.

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Speaker 1: With our frequency Economic Friday is a time to get

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Speaker 1: ready for weekend reading, get ready for the week, the

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Speaker 1: end of the month and into March. And right now

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Speaker 1: our most important interview of the day on the American economy,

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Speaker 1: John Farrell. Please Michael Darta Who John? What I love

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Speaker 1: about him? He's always leading with nominal G d P.

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Speaker 1: Michael Darta loves the American animal spirit. Mkmpant is chief

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Speaker 1: economist and chief Market Strategists jointing us in New York. Michael,

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Speaker 1: big question, what do you do when all investors seemingly

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Speaker 1: flocked to the one side of the boat and I'm

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Speaker 1: talking about treasury markets and how everyone seemingly at the

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Speaker 1: moment seems to be pretty bearished compared to where they

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Speaker 1: were a year ago. Absolutely so, thank you guys for

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Speaker 1: having me on, I think you take the other side

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Speaker 1: of the bed um as long as there's a fundamental

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Speaker 1: reason to do so. I believe there is. So we've

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Speaker 1: seen a pretty significant push higher in the tenure treasury

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Speaker 1: yield almost at three percent. Now we're pulling back over

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Speaker 1: the last couple of trading sessions. But first question is

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Speaker 1: why is that happening. The reason it's happening is because

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Speaker 1: there's been a cyclical acceleration in pro activity or sorry,

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Speaker 1: nominal GDP growth. Tom lead with nominal we can we can,

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Speaker 1: we can talk about productivity in a bit, but nominal

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Speaker 1: growth is now back over four percent year over year.

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Speaker 1: That's the best showing and year to year nominal GDP

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Speaker 1: growth in four years time. And guess where the yields

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Speaker 1: were four years ago, just under three percent, right where

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Speaker 1: we are today. So the average gap between the ten

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Speaker 1: year treasury yield nominal GDP through this business cycle has

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Speaker 1: been about a hundred and forty basis points. So with

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Speaker 1: nominal growth up at four point four, you're basically right

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Speaker 1: there at three. The question is where do we go

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Speaker 1: from here? Is this going to be sustained and built

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Speaker 1: upon or are we going to see slower growth in

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Speaker 1: twenty nineteen, and and I think the lagged impact of

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Speaker 1: FED tightening in the weak underlying fundamentals for productivity and

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Speaker 1: labor force growth probably will pull nominal growth back below

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Speaker 1: four percent, in which case you'd want to take a

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Speaker 1: more bullish view on the treasury market from here. Is

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Speaker 1: the tactical positioning a lot more important in the short

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Speaker 1: term than Michael, And what I mean that this House

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Speaker 1: records shorts that are in the treasury market, and for

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Speaker 1: a lot of people wondering just why I seem to

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Speaker 1: be captive below three percent, there are some massive short

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Speaker 1: positions that have built up that you imagine it's going

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Speaker 1: to make it difficult to break yields out any further

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Speaker 1: for the time being. Michael, at least that's an argument

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Speaker 1: out there. Sure, absolutely, So, you know, we don't want

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Speaker 1: to get trapped too much in the in the short

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Speaker 1: term volatility, but we could, you know, use use that

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Speaker 1: as an opportunity to build positions. So in this case,

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Speaker 1: if we look at certain sectors that have sold off

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Speaker 1: pretty hard in the in the bond yield run up,

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Speaker 1: utilities would be one defensive sector under strain and reads

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Speaker 1: big correction in the reads over fiftent from the you know,

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Speaker 1: the the recent highs. So if we truly are kind

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Speaker 1: of topping out here on the tenure yield around you know,

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Speaker 1: or just under three percent in a year from now,

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Speaker 1: we're lower in yield, I would take a look at

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Speaker 1: some of these groups that you know that are defensive,

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Speaker 1: that have fallen out of favor, use the shorter term

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Speaker 1: volatility to build the positions um for the long haul.

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Speaker 1: Have you changed with a nominal GDP. It's correlation and

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Speaker 1: linkage over the revenues of corporate America. I made anybody

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Speaker 1: that listens to me knows that made a big deal

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Speaker 1: about the shift I perceive at Honeywell to a better

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Speaker 1: revenue line, and we're seeing it from some other companies

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Speaker 1: as well. Are we going to see revenues ramp up

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Speaker 1: as a general statement, Well, we are seeing it in

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Speaker 1: a modest way. So you know, we we suffered through

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Speaker 1: a four or five quarter profit recession in two thousand

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Speaker 1: and fifteen and sixteen. That was part and parcel of

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Speaker 1: a big nominal GDP slowdown, and you could see that

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Speaker 1: in weak top line growth as well. So there has

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Speaker 1: been a modest pickup. But are we going to continue

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Speaker 1: building momentum on the top line from here, and I

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Speaker 1: think that's probably unlikely at the end of the day.

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Speaker 1: The underlying backdrop for productivity has been weak so last year,

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Speaker 1: even with nominal growth at a four year high and

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Speaker 1: real growth at a four year high, activity was lousy.

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Speaker 1: Average one percent for the year Q four was you know,

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Speaker 1: close to zero. So no sign yet of this, you know,

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Speaker 1: much hope for pickup in productivity growth, you know, hopefully

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Speaker 1: it happens. That's ultimately what propels the standard of living.

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Speaker 1: The investment. Do we need an old Jude with supply

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Speaker 1: shock to do that? Where's the behavioral linkage into business

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Speaker 1: and investment? I don't see it. What I see is

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Speaker 1: within a general critique financial engineering. Yeah, you've got a

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Speaker 1: lot of that going on, no doubt about it. You know.

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Speaker 1: I think if we're talking about the supply side, we

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Speaker 1: need to look at it in a complete way, in

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Speaker 1: a holistic fashion. Many people are focused on the prospects

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Speaker 1: of faster productivity because corporate tax rates have come down. Um,

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Speaker 1: but let's look at fiscal policy overall. We're going towards

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Speaker 1: more strict anti growth policies on trade, anti growth policies

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Speaker 1: on in immigration, and you know, those things stunt the

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Speaker 1: supply side. We're building up deficits at a time in

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Speaker 1: the business cycle when it's completely inappropriate. Higher debt will

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Speaker 1: tend to you know, tend to to you know, to

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Speaker 1: to dampen uh productivity growth, all things equal. So sure

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Speaker 1: the corporate text cut could help at the margin, but

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Speaker 1: there are other forces out there on the supply side

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Speaker 1: that have you know, that have been headwinds and we're

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Speaker 1: getting worse. So you know, we'll see, we'll see about this,

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Speaker 1: you know, so called productivity to pick up. I'm pretty skeptical, Michael.

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Speaker 1: Let's unpack some of the comments you just made. I

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Speaker 1: think the idea that we should have a counter cypnical

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Speaker 1: fiscal policy is something that most of our listeners will share,

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Speaker 1: and that now is probably not the appropriate time to

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Speaker 1: inject fiscal stimulus into the economy when it's doing well. Fine,

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Speaker 1: let's put that to one side. I want to address

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Speaker 1: the anti trade issues. I don't actually see many big

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Speaker 1: anti trade policies now. I put the emphasis on policies.

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Speaker 1: See a lot of retric. I hear a lot of

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Speaker 1: retric I don't see any policy to back it up.

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Speaker 1: Are we going to see the policy to pack it up?

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Speaker 1: I sure, hope not. You know, there have been a

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Speaker 1: lot of threats and you know, uncertainty connect as attacks

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Speaker 1: and and that's where we are. But we haven't seen

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Speaker 1: like a wholesale pull out a NAFTA or something like that,

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Speaker 1: which could be quite damaging. But you know, at the margin, uh,

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Speaker 1: you know, we are moving into a more restrictive posture

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Speaker 1: on both trade and immigration, and if we're talking about

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Speaker 1: the supply side, we need to incorporate those headwinds and

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Speaker 1: not just you know, dance around on top of the

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Speaker 1: corporate text cut and expect like the old normals about

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Speaker 1: to return. I think you know, we will end up

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Speaker 1: disappointed if that's the path down which we're going, so

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Speaker 1: try it is one thing regulation, another regulation is something else.

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Speaker 1: We hear a lot about the loosening regulation. Um you

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Speaker 1: seeing the loosening of regulation and reality and overlay that

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Speaker 1: of the Barrish thesis. Well sure, I mean theoretically, if

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Speaker 1: you're stripping away regulations that are growth retarding or inefficient,

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Speaker 1: you know that can help to lift productivity. But you

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Speaker 1: know that's really the test, right if it's just simply

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Speaker 1: a matter of well, let's deregulate the banking sector and

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Speaker 1: you still have too big to fail and moral hazard

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Speaker 1: goes crazy. I mean, is that going to lift productivity?

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Speaker 1: I don't think so. How do you link it into

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Speaker 1: the stock market? You know, one of the great Michael

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Speaker 1: Darna heritages as you do all the Sekono Babylon, we

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Speaker 1: think you that you do a lot of Bloomberg terminal

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Speaker 1: usage in your research notes. Nobody cares. They just want

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Speaker 1: to know on a Friday do they go along the

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Speaker 1: market here? Right? Okay, let's do that. So if you,

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Speaker 1: you know, to a lot of people, looks like we're

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Speaker 1: in a really strange situation with these really strong you know,

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Speaker 1: risk asset prices and correction and we've been bouncing around.

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Speaker 1: We're bouncing around now. But it's been a very strong

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Speaker 1: cycle for the stock market. Not so much in terms

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Speaker 1: of nominal GDP. But if you look historically at priced

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Speaker 1: earnings ratios for stocks is, assuming you're not in a

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Speaker 1: recession period, you know, they tend to correlate inversely with

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Speaker 1: inflation and nominal grow you know, so obviously discount rates

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Speaker 1: tend to be lower in a lower inflation environment, as

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Speaker 1: long as you're not in a recession, Slow but steady growth,

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Speaker 1: low inflation, low discount rates gives you what everybody looks

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Speaker 1: at as bubbles, right, Um, So that's the environment we're in. Um.

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Speaker 1: That doesn't mean that stocks are going to continue compounding

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Speaker 1: at double digit rates. I think we shouldn't expect that. Probably,

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Speaker 1: you know, more of a single digit environment, but most

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Speaker 1: phenomenal Broth reasonable. You can't make a case talk about

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Speaker 1: the triple leverage on cash. One, you can't make a

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Speaker 1: case to dash to cash. Well, you could make a case.

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Speaker 1: You could make a case. So so cash paid nothing,

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Speaker 1: uh not long ago. Now the Fed has rates almost

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Speaker 1: up at one and a half on the short edge.

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Speaker 1: So cash is uh an alternative, and short rates are

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Speaker 1: going to continue to move higher as the yield curve compresses,

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Speaker 1: and it's likely to keep compressing. You know at some point, Um,

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Speaker 1: you know, the Fed probably will tighten enough to end

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Speaker 1: a business cycle. We're certainly not out there yet, we

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Speaker 1: don't expect to be there this year. But in that environment,

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Speaker 1: cash is an alternative. Very quickly here you your basic

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Speaker 1: theme is we can't get back to five plus nominal GDP.

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Speaker 1: We're not going to get back there without two things,

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Speaker 1: either a sustained pickup and productivity growth or a different

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Speaker 1: inflation target from the Fed than the one they have.

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Speaker 1: Can you look at the Fed's forecast, it's one eight

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Speaker 1: in terms of sustained real growth to percent inflation target.

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Speaker 1: Add the two and you're just below four percent nominal.

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Speaker 1: If you're thinking in multi year increments, you can go

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Speaker 1: with that. Michael Darta, thank you so much. It's a

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Speaker 1: stunning statement for folks on a reduced animal spirit and

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Speaker 1: reduced vision of what we knew twenty years ago. Michael Darta,

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Speaker 1: excuse I'm gasping. Thank you. It is a wonderful time

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Speaker 1: to catch up on the policy of Washington. Were Libby Cantrill.

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Speaker 1: She is with Pimco and thrilled that she's with us,

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Speaker 1: and and it really a I guess I'm gonna call

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Speaker 1: it a heartbreaking week, Libby. I really would like to

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Speaker 1: talk about the stuff that's off the radar, but on

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Speaker 1: the radar is the heartbreak of Florida and guns. I

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Speaker 1: want to just center on one politician as I after

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Speaker 1: the week, Rob Portman, who has been a good friend

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Speaker 1: of Bloomberg on the economy. In Bloomberg surveillance senator from Ohio.

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Speaker 1: I believe he's a pig receiver of funds from an

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Speaker 1: r A. Do those kind of more centrist Republicans do

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Speaker 1: they shift off the Florida tragedy. Yeah, I mean it's um,

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Speaker 1: I mean it was, it's it is just it just

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Speaker 1: tragic what happened, what happened last week. You know, I

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Speaker 1: does feel in Washington that this time might be different, right,

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Speaker 1: although it was a caveat that I think every time

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Speaker 1: these horrible mass shootings happen, um if folks, folks say that.

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Speaker 1: But I think the reason why this might be different is,

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Speaker 1: of course just the very articulate, uh, mobilized response that

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Speaker 1: we've heard, um from from the students of the impacted

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Speaker 1: high school. I mean we've you just have heard their

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Speaker 1: own accounts of this, and and it just it feels

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Speaker 1: like they're actually penetrating. Um. And there are some you know,

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Speaker 1: low hanging fruit, so to speak, in terms of gun control,

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Speaker 1: tightening background checks, um, these bump stock issues. There are

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Speaker 1: things that I think modern Republicans can get behind. While um,

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Speaker 1: you know, it's not totally alienating. You know, they're you know,

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Speaker 1: they're based or their or their donor base. I look

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Speaker 1: at where we are, and I guess to get back

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Speaker 1: to somewhat normal policy. The leaders the president's ratings are better.

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Speaker 1: Can you ascribe his poll ratings better? Two? Tax reform?

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Speaker 1: Is America liking what they saw six weeks ago? Yeah,

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Speaker 1: I mean, you know, it's interesting because of course, when

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Speaker 1: this was, when this was passed back in December, this

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Speaker 1: was one of the least popular tax bills, including tax hikes, UM,

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Speaker 1: that had gone through. I mean, the majority of the

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Speaker 1: population viewed this very unfavorably. That has changed, and of

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Speaker 1: course you've seen companies announcing these one time bonuses, UM.

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Speaker 1: You've seen you know, better corporate earnings. The stock market

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Speaker 1: continues to go up. UM. So I think the sentiment

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Speaker 1: around tax has certainly changed. And you're now seeing you know,

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Speaker 1: fifty percent approval ratings, and I think that you know,

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Speaker 1: part of that it has, you know, has to do

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Speaker 1: with the president's um you know, president approval rating. However,

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Speaker 1: and as you know, Tom, I mean, his roval ratings

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Speaker 1: are historically low, right, I mean they he finished up

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Speaker 1: this year with the lowest approval rating you know, any

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Speaker 1: of any president. So he still has a way to go.

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Speaker 1: But certainly the directionally it's it's been more positive recently.

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Speaker 1: We're gonna get in the hell of fiscal policy. John

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Speaker 1: and I were talking about that earlier in our five

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Speaker 1: Things to Know. We're beginning to see a little bit

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Speaker 1: of analysis give us a head start on that Libby control.

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Speaker 1: When the fiscal experts weigh in, what will you be

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Speaker 1: looking for? What what's the mystery you'll be searching for

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Speaker 1: in the next two, three, four years of our trillion

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Speaker 1: dollar budgets. Well, yeah, I mean this is obviously, you know,

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Speaker 1: it's extraordinary to see such fiscal stimulus this late in

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Speaker 1: the economic cycle. I'm like everybody has been has been discussing.

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Speaker 1: I mean, not only did we see, of course, the

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Speaker 1: big tax bill that was passed inside into law in December,

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Speaker 1: but you know what you just saw was this very

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Speaker 1: significant two year spending deal. Um that's going to add

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Speaker 1: you know, twenty to thirty basis points to to to

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Speaker 1: real real GDP growth over the over the next two years.

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Speaker 1: So a lot of fiscal stimulus and a lot of

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Speaker 1: fiscal impulse coming out of Washington. I think that the

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Speaker 1: big question, of course, is this just a sugar high?

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Speaker 1: Is this just going to add your short term phenomenal

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Speaker 1: growth or does this really kind of contribute to the

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Speaker 1: productivity and what how do you lead to more sustainable

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Speaker 1: real growth? And I think that's the big in John

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Speaker 1: to the question. Let me answer my own part, John Ferroll,

429
00:23:15,000 --> 00:23:19,000
Speaker 1: with an American analysis. I go to the plugins. What's

430
00:23:19,040 --> 00:23:21,600
Speaker 1: the g d P plug in that we just heard

431
00:23:21,600 --> 00:23:24,800
Speaker 1: from Michael Darter? How do you plug that into this analysis?

432
00:23:24,920 --> 00:23:26,720
Speaker 1: I want to understand what Libby is talking to the

433
00:23:26,760 --> 00:23:29,000
Speaker 1: pms at PIMCO about right now, because we caught up

434
00:23:29,040 --> 00:23:32,359
Speaker 1: with Markquisel yesterday. Libby, of course someone you know, well,

435
00:23:32,560 --> 00:23:35,360
Speaker 1: he has credit Global credit over at pim can. You're

436
00:23:35,400 --> 00:23:39,920
Speaker 1: taping him for the real week. This has already happened,

437
00:23:40,600 --> 00:23:43,480
Speaker 1: and he's basically saying, we're not underweight treasuries anymore. We've

438
00:23:43,480 --> 00:23:45,600
Speaker 1: been underweight for a while and we've shifted. So it

439
00:23:45,640 --> 00:23:48,520
Speaker 1: makes me wonder the policy that we hear about and

440
00:23:48,560 --> 00:23:50,159
Speaker 1: the worries that a lot of people have on the

441
00:23:50,200 --> 00:23:52,760
Speaker 1: street at the moment, Libby is a deficit getting out

442
00:23:52,760 --> 00:23:56,359
Speaker 1: of control and the government that struggles to finance itself.

443
00:23:56,440 --> 00:23:58,960
Speaker 1: I sent from you guys that that's not a worry

444
00:23:59,000 --> 00:24:01,960
Speaker 1: for you. Yeah, you know, we um. I think that's

445
00:24:01,960 --> 00:24:04,760
Speaker 1: exactly right, right. I think we um, you know, we

446
00:24:04,760 --> 00:24:07,960
Speaker 1: we've our view is that unless you really see a

447
00:24:08,080 --> 00:24:12,000
Speaker 1: sustained pickup in inflation, and you know, what we're looking

448
00:24:12,000 --> 00:24:15,240
Speaker 1: at for inflation is isn't around you to two point

449
00:24:15,280 --> 00:24:18,800
Speaker 1: one percent and nothing um so significant that we think

450
00:24:19,040 --> 00:24:21,480
Speaker 1: is going to lead um, you know, the FED to

451
00:24:21,600 --> 00:24:24,320
Speaker 1: act in more of a significant way than what is

452
00:24:24,320 --> 00:24:27,160
Speaker 1: already priced into the market. Um. And so yeah, that's

453
00:24:27,160 --> 00:24:29,080
Speaker 1: exactly right. I mean, I think at this point we're

454
00:24:29,119 --> 00:24:32,040
Speaker 1: actually some of our pms are actually adding us duration

455
00:24:32,359 --> 00:24:35,399
Speaker 1: um because they're they're thinking that this is probably, you know,

456
00:24:35,440 --> 00:24:37,600
Speaker 1: pretty fair value in terms of where the same a

457
00:24:37,680 --> 00:24:39,919
Speaker 1: ten yure is. Maybe what is your analysis right now

458
00:24:39,960 --> 00:24:43,560
Speaker 1: for the trajectory of the deficit in the United States? Yeah,

459
00:24:43,600 --> 00:24:46,080
Speaker 1: so we um. You know, we obviously saw the deaths

460
00:24:46,119 --> 00:24:50,399
Speaker 1: that finished out in seventeen around six seventy billion. It

461
00:24:50,400 --> 00:24:53,720
Speaker 1: looks like for it's going to be around a trillion,

462
00:24:53,880 --> 00:24:58,920
Speaker 1: and then you know, one point to one point three

463
00:24:58,960 --> 00:25:04,000
Speaker 1: trillion if run this trajectory so quite significant. However, you know,

464
00:25:04,040 --> 00:25:07,280
Speaker 1: we saw it was the President Obama run very similar

465
00:25:07,320 --> 00:25:11,679
Speaker 1: deficits UM and yields were very low. So it's clearly

466
00:25:11,720 --> 00:25:15,200
Speaker 1: a different context right now. But you know it's the

467
00:25:15,480 --> 00:25:18,359
Speaker 1: sort of the correlation is not necessarily one to one.

468
00:25:18,440 --> 00:25:21,600
Speaker 1: But I really, Libyan, you know, I've seen this from

469
00:25:21,600 --> 00:25:25,679
Speaker 1: a lot of analysis, the comparison of two thousand twelve

470
00:25:25,800 --> 00:25:29,399
Speaker 1: to now in two thousand twenty we're coming out of

471
00:25:29,400 --> 00:25:33,560
Speaker 1: a financial crisis there and that debt reality looked normal.

472
00:25:33,720 --> 00:25:37,000
Speaker 1: It was hugely stochastic. We went to a much wider

473
00:25:37,040 --> 00:25:40,560
Speaker 1: debt and then we you know, essentially came back to

474
00:25:40,680 --> 00:25:44,000
Speaker 1: a better world. Do you see a comeback to a

475
00:25:44,000 --> 00:25:47,359
Speaker 1: better world in two thousand twenty one or two thousand

476
00:25:47,440 --> 00:25:50,880
Speaker 1: twenty two? Yeah, I mean, um, well, look I think

477
00:25:50,880 --> 00:25:55,080
Speaker 1: we're just focused on but yeah, you know, it's a

478
00:25:55,320 --> 00:25:58,320
Speaker 1: it's an excellent point. Obviously, the context again is quite

479
00:25:58,359 --> 00:26:01,600
Speaker 1: different from from those times were running very large, very

480
00:26:01,680 --> 00:26:04,080
Speaker 1: large deficits, and and you know, I think, you know,

481
00:26:04,119 --> 00:26:06,320
Speaker 1: our view is that you're still you know, we still

482
00:26:06,320 --> 00:26:09,240
Speaker 1: sort of ascribed to this new normal right that um,

483
00:26:09,280 --> 00:26:12,879
Speaker 1: you were going to see you know, positive but still

484
00:26:12,920 --> 00:26:16,640
Speaker 1: pretty muddeling growth for the US over the at least

485
00:26:16,680 --> 00:26:19,119
Speaker 1: the cyclical time frame, and that you're not going to

486
00:26:19,240 --> 00:26:22,320
Speaker 1: necessarily see this, you know, this breakout, you know, breakout growth,

487
00:26:22,359 --> 00:26:24,960
Speaker 1: and as a result, we think that you know, partly

488
00:26:25,320 --> 00:26:28,080
Speaker 1: the yields are going to be range bound because of

489
00:26:28,119 --> 00:26:30,520
Speaker 1: that right that we're not going to necessarily see some

490
00:26:30,600 --> 00:26:33,920
Speaker 1: big breakout in uh in real growth over the next

491
00:26:33,920 --> 00:26:35,639
Speaker 1: To be clear here, Libby, your base case at the

492
00:26:35,680 --> 00:26:38,119
Speaker 1: moment is the deficit gets bigger year after year for

493
00:26:38,160 --> 00:26:44,320
Speaker 1: the next three years, but GDP growth doesn't accelerate with it. Yes, yeah,

494
00:26:44,359 --> 00:26:46,439
Speaker 1: and yes, and some I think that's that's a that's

495
00:26:46,480 --> 00:26:48,320
Speaker 1: a that's a right way to get characteristic for sure,

496
00:26:48,480 --> 00:26:50,000
Speaker 1: Lebby Cantrally, it's trying to have you with us, you think.

497
00:26:50,040 --> 00:26:53,280
Speaker 1: Pimco Executive VP and head of Public Policy joining us

498
00:26:53,320 --> 00:27:10,040
Speaker 1: at a joy on this Friday to speak to James

499
00:27:10,080 --> 00:27:14,160
Speaker 1: Menika of the Mackenzie Global Institute. We've been talking about

500
00:27:14,200 --> 00:27:18,000
Speaker 1: their new report on productivity. But over the last years

501
00:27:18,560 --> 00:27:21,959
Speaker 1: I have seen only one or two reports is profound

502
00:27:22,000 --> 00:27:28,080
Speaker 1: as Mr Manique's report of December on jobs worldwide and

503
00:27:28,160 --> 00:27:33,399
Speaker 1: particularly on jobs in America. James, congratulations on your hundred

504
00:27:33,440 --> 00:27:38,240
Speaker 1: and fifties some pages jobs lost, jobs gained. Germany Page

505
00:27:38,440 --> 00:27:42,280
Speaker 1: ninety four. Why is Germany different? What do the Germans

506
00:27:42,320 --> 00:27:46,920
Speaker 1: do that the United States of America needs to do well.

507
00:27:46,920 --> 00:27:49,520
Speaker 1: They do several things well. They have vocational training that

508
00:27:49,520 --> 00:27:53,440
Speaker 1: actually works so people have better prepared for work. They

509
00:27:53,520 --> 00:27:56,960
Speaker 1: also have set up a system that allows that inc

510
00:27:57,400 --> 00:28:00,080
Speaker 1: creates and centers for the private sector to invest to

511
00:28:00,200 --> 00:28:02,960
Speaker 1: human capital. One of the things that's quite striking, Tom

512
00:28:03,040 --> 00:28:05,520
Speaker 1: is that if you look at as important as we

513
00:28:05,600 --> 00:28:08,399
Speaker 1: say training and education and on the job training and

514
00:28:08,440 --> 00:28:12,360
Speaker 1: learning is important, were very little by way of incentives

515
00:28:12,359 --> 00:28:15,080
Speaker 1: to encourage the private sector to invest in that. We

516
00:28:15,080 --> 00:28:18,160
Speaker 1: we've set up all kinds of incentives for investments into capital,

517
00:28:18,240 --> 00:28:21,320
Speaker 1: into R and D, we learn detext credits, etcetera, etcetera,

518
00:28:21,359 --> 00:28:24,840
Speaker 1: But when it comes to human capital, very much bred,

519
00:28:25,320 --> 00:28:30,600
Speaker 1: well bred, DeLong and Danny Roderick, looking at retail manufacturing,

520
00:28:31,000 --> 00:28:34,479
Speaker 1: clothing manufacturing in America said it was all lip service.

521
00:28:34,520 --> 00:28:37,240
Speaker 1: We didn't come up with the incentives for the people

522
00:28:37,280 --> 00:28:41,520
Speaker 1: that got hammered to twenty years ago in clothing this

523
00:28:41,680 --> 00:28:48,480
Speaker 1: clothing self. How do we change our culture to help people. Well,

524
00:28:48,520 --> 00:28:51,440
Speaker 1: one way to change our constotop people is actually invest

525
00:28:51,480 --> 00:28:54,200
Speaker 1: in them one way. So one of the things there's

526
00:28:54,240 --> 00:28:56,160
Speaker 1: two things that we don't do as well as the

527
00:28:56,200 --> 00:28:59,880
Speaker 1: United States. One is the amount that we spend even

528
00:29:00,200 --> 00:29:02,720
Speaker 1: public sector or the private sector and on the job

529
00:29:02,800 --> 00:29:05,120
Speaker 1: training is actually the lowest among the o c D

530
00:29:05,160 --> 00:29:09,200
Speaker 1: country and it's been declining. Similarly, the amount we spend

531
00:29:09,240 --> 00:29:12,320
Speaker 1: in helping people have been dislocated. Look what happened to

532
00:29:12,360 --> 00:29:15,880
Speaker 1: globalization is also among the lowest among in the O

533
00:29:16,080 --> 00:29:18,680
Speaker 1: c D country. So we have to invest in people. Okay,

534
00:29:18,720 --> 00:29:21,600
Speaker 1: so but that this is folks, let's be direct. This

535
00:29:21,680 --> 00:29:26,440
Speaker 1: is the lackey in individualistic tone of the early nineteenth century.

536
00:29:26,480 --> 00:29:29,400
Speaker 1: I guess we've moved on from Thomas Jefferson and maybe

537
00:29:29,400 --> 00:29:32,080
Speaker 1: we can winder out to Andrew Jackson with a portrait

538
00:29:32,120 --> 00:29:35,640
Speaker 1: hanging over Mr Trump's desk in the Oval Office. How

539
00:29:35,680 --> 00:29:40,320
Speaker 1: do we get to a more modern ethos from where

540
00:29:40,360 --> 00:29:45,120
Speaker 1: we're stuck in the nineteenth century on helping labor be

541
00:29:45,320 --> 00:29:49,960
Speaker 1: productive labor? I think a big part of that is

542
00:29:49,960 --> 00:29:52,480
Speaker 1: realizing just how much work has changed. One of the

543
00:29:52,600 --> 00:29:55,680
Speaker 1: things that we haven't paid attention to tom which is

544
00:29:55,680 --> 00:29:58,640
Speaker 1: an important part of changing that culture, is recognizing that

545
00:29:59,000 --> 00:30:01,040
Speaker 1: well at the time of a hundred years ago, even

546
00:30:01,040 --> 00:30:03,960
Speaker 1: as recently it's thirty years ago, when in fact the

547
00:30:04,040 --> 00:30:08,200
Speaker 1: share of the national income that went two wages was

548
00:30:08,200 --> 00:30:11,080
Speaker 1: actually high. It's been declining, so we need to recognize

549
00:30:11,080 --> 00:30:13,040
Speaker 1: that that's changed. So a lot of it is that

550
00:30:13,080 --> 00:30:16,040
Speaker 1: we haven't quite appreciated just how much the economy and

551
00:30:16,080 --> 00:30:19,360
Speaker 1: the labor markets have actually changed, and how work looks different,

552
00:30:19,840 --> 00:30:23,200
Speaker 1: how and so recognizing that change a big part of

553
00:30:23,280 --> 00:30:26,680
Speaker 1: changes that culture. I've been quite struck in conversations I've

554
00:30:26,720 --> 00:30:29,880
Speaker 1: had with policy makers but also with business leaders, we

555
00:30:29,920 --> 00:30:33,440
Speaker 1: haven't quite appreciated those structural changes that have occurred. So

556
00:30:33,440 --> 00:30:35,720
Speaker 1: I would say that's the big part of first step.

557
00:30:35,960 --> 00:30:37,960
Speaker 1: I mean, and James, when you go to Davos, I

558
00:30:38,000 --> 00:30:40,920
Speaker 1: know you're flying in on the Mackensey helicopter, mere mortals

559
00:30:44,480 --> 00:30:48,200
Speaker 1: actually knowing, James Benki, You're you're walking from St. Maritz

560
00:30:48,280 --> 00:30:52,120
Speaker 1: North to Davos over three mountain ranges. I take the

561
00:30:52,200 --> 00:30:56,600
Speaker 1: trains sometimes, which focus just a wonderfully pleasant ride. And

562
00:30:56,760 --> 00:31:01,360
Speaker 1: you see Switzerland manufacturing. We to do that. How do

563
00:31:01,440 --> 00:31:05,600
Speaker 1: we create not a little Switzerland, but a big Switzerland

564
00:31:05,720 --> 00:31:11,960
Speaker 1: in American manufacturing that will actually at the margin create jobs. Well,

565
00:31:12,120 --> 00:31:14,840
Speaker 1: there's several things that are actually in our favor. One

566
00:31:14,880 --> 00:31:17,000
Speaker 1: of the things is that we should take advantage of

567
00:31:17,040 --> 00:31:20,360
Speaker 1: the digital technologies that we now have. We should also

568
00:31:20,400 --> 00:31:23,080
Speaker 1: take advantage of the fact that we now have an

569
00:31:23,160 --> 00:31:26,400
Speaker 1: energy revolution. One of the reasons why people typically located

570
00:31:26,480 --> 00:31:29,560
Speaker 1: elsewhere in manufacturing. We forget it's not just labor costs,

571
00:31:29,680 --> 00:31:31,960
Speaker 1: but it's also energy costs. So we should take advantage

572
00:31:31,960 --> 00:31:34,240
Speaker 1: of that. And the other thing we should do is

573
00:31:34,280 --> 00:31:36,800
Speaker 1: to invest in the supplier base. If you look at

574
00:31:36,840 --> 00:31:39,800
Speaker 1: what's happened in manufacturing of the last twenty five years,

575
00:31:39,920 --> 00:31:43,880
Speaker 1: especially in America, is that the the small supplier base

576
00:31:43,960 --> 00:31:47,400
Speaker 1: that steeds into manufacturing. We've mostly gutted that. So the

577
00:31:47,440 --> 00:31:49,840
Speaker 1: amount of investment that's gone into that has not been great.

578
00:31:49,880 --> 00:31:52,000
Speaker 1: So those are some of the things we need to do,

579
00:31:52,080 --> 00:31:54,200
Speaker 1: but a lot of it also comes back to the

580
00:31:54,240 --> 00:31:58,360
Speaker 1: skills question, Tom, which is our skill profile manufacturing has

581
00:31:58,400 --> 00:32:00,760
Speaker 1: not been as great as it needs to be. Again,

582
00:32:00,880 --> 00:32:03,760
Speaker 1: interest in people, well, I want to go, I want

583
00:32:03,760 --> 00:32:05,800
Speaker 1: to go to that. I think that's important. A supplier

584
00:32:05,840 --> 00:32:09,560
Speaker 1: based Bloomberg Surveillance worth James Manik of Mackenzie brought you

585
00:32:09,600 --> 00:32:13,560
Speaker 1: by Eisner Amper. Congress has past the most sweeping text

586
00:32:13,640 --> 00:32:18,160
Speaker 1: law changes since n Is your company ready? Check out

587
00:32:18,200 --> 00:32:21,640
Speaker 1: the latest analysis? The latest news from Eisner Amper and

588
00:32:21,840 --> 00:32:25,440
Speaker 1: Eisner Amper dot com slash text change. Let me spell

589
00:32:25,520 --> 00:32:28,240
Speaker 1: that e I S N E R A mpe er

590
00:32:28,800 --> 00:32:33,160
Speaker 1: Eisner Amper dot com slash text change with James Mannika,

591
00:32:33,520 --> 00:32:35,520
Speaker 1: we meet with him, we hope twice a year, maybe

592
00:32:35,520 --> 00:32:40,160
Speaker 1: even three, with a wonderful report productivity. And before that

593
00:32:40,240 --> 00:32:44,120
Speaker 1: we're talking about it right now, jobs lost, jobs gained.

594
00:32:44,480 --> 00:32:50,120
Speaker 1: What is our supplier base to manufacturing? Describe that? Well,

595
00:32:50,160 --> 00:32:53,640
Speaker 1: it's ays So think about automotives. We have these second

596
00:32:53,720 --> 00:32:58,080
Speaker 1: ti and third tier supplies who provide breaks, that provide electronics,

597
00:32:58,160 --> 00:33:02,520
Speaker 1: they provide uh uh, you know, gear shafts, they provide

598
00:33:02,560 --> 00:33:06,040
Speaker 1: all these little things. They provide the machinery, the mental tools.

599
00:33:06,400 --> 00:33:09,400
Speaker 1: They even provide some of the engineering services that feed

600
00:33:09,400 --> 00:33:12,400
Speaker 1: into automotive for example. So so there's a lot of

601
00:33:12,480 --> 00:33:16,800
Speaker 1: kind of an ecosystem of these small suppliers who feed

602
00:33:16,880 --> 00:33:21,760
Speaker 1: into manufacturing. This proportion of those has been declining of

603
00:33:21,880 --> 00:33:24,480
Speaker 1: the last twenty years or so. So that's a little

604
00:33:24,480 --> 00:33:26,680
Speaker 1: bit of what we need to rebuild. And a lot

605
00:33:26,720 --> 00:33:29,480
Speaker 1: of that is actually in the heartland. It's in the heartland,

606
00:33:29,640 --> 00:33:34,520
Speaker 1: and I'm sorry it can be policy successful. Why can't

607
00:33:34,640 --> 00:33:43,960
Speaker 1: we institute policy to create entrepreneurial suppliers coast to coast. Well,

608
00:33:44,760 --> 00:33:47,000
Speaker 1: part of the practice we haven't paid attention to. They

609
00:33:47,000 --> 00:33:49,760
Speaker 1: have always thought about this is, you know, the big manufacturer,

610
00:33:49,840 --> 00:33:52,800
Speaker 1: the big supplies, big players, the big right, and not

611
00:33:53,040 --> 00:33:56,200
Speaker 1: enough for the small base. But however, there's some good

612
00:33:56,240 --> 00:33:58,440
Speaker 1: news on this which has been changing. And but we

613
00:33:58,560 --> 00:34:00,560
Speaker 1: manufacturer is actually on the apps ing, by the way,

614
00:34:00,600 --> 00:34:04,160
Speaker 1: in terms of output and growth United States. A big

615
00:34:04,200 --> 00:34:07,920
Speaker 1: part of that is we've finally encouraged foreign direct investment.

616
00:34:08,000 --> 00:34:10,839
Speaker 1: Look at what's happened, for example, in South Carolina with

617
00:34:10,880 --> 00:34:14,160
Speaker 1: automotive and typically when you have smart policy and you

618
00:34:14,239 --> 00:34:17,960
Speaker 1: bring in, uh what are called greenfield for indirect investments

619
00:34:18,000 --> 00:34:22,720
Speaker 1: where they build facilities, that typically also stimulates a local

620
00:34:22,760 --> 00:34:26,560
Speaker 1: supply base. So you see this in various parts of

621
00:34:26,600 --> 00:34:28,799
Speaker 1: the country, in South Carolina in places where we have,

622
00:34:28,880 --> 00:34:32,239
Speaker 1: for example, aircraft manufacturing. But one of the things that

623
00:34:32,280 --> 00:34:35,000
Speaker 1: I think we should come back to tom in manufacturing,

624
00:34:35,040 --> 00:34:38,400
Speaker 1: but even across the economy comes back to this Job's question,

625
00:34:38,760 --> 00:34:42,120
Speaker 1: which is automation and air and automation is one of

626
00:34:42,160 --> 00:34:46,040
Speaker 1: the things that's actually has changed what's happened in manufacturing

627
00:34:46,040 --> 00:34:49,000
Speaker 1: in terms of employment. And it's also coming to you know,

628
00:34:49,080 --> 00:34:52,279
Speaker 1: affect an air. You now that we have air technologies,

629
00:34:52,320 --> 00:34:55,959
Speaker 1: an automation showing up even in white collar work. Well,

630
00:34:56,040 --> 00:34:58,319
Speaker 1: well let's say that for another time. James, you can

631
00:34:58,440 --> 00:35:01,480
Speaker 1: thank you have so much having the productivity puzzle just

632
00:35:01,600 --> 00:35:04,480
Speaker 1: published and jobs lost in jobs gained, and I'm not

633
00:35:04,520 --> 00:35:06,680
Speaker 1: going to mince words, folks. You can go to the

634
00:35:06,760 --> 00:35:12,000
Speaker 1: Mackenzie Global Institute website. They have a terrific totally quick

635
00:35:12,040 --> 00:35:16,040
Speaker 1: read executive summary and then the wonderful detail and graphic

636
00:35:16,120 --> 00:35:20,640
Speaker 1: presentation of these different important puzzles. It's a huge, huge

637
00:35:20,719 --> 00:35:24,920
Speaker 1: public service by the Mackenzie Global Institute. I'll tweet all

638
00:35:24,920 --> 00:35:28,480
Speaker 1: those out when I get a chance here, James Monniki,

639
00:35:28,680 --> 00:35:37,360
Speaker 1: thank you so much greatly. Uh, I appreciate that. Thanks

640
00:35:37,360 --> 00:35:41,600
Speaker 1: for listening to the Bloomberg Surveillance podcast. Subscribe and listen

641
00:35:41,840 --> 00:35:47,200
Speaker 1: to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform

642
00:35:47,280 --> 00:35:51,560
Speaker 1: you prefer. I'm on Twitter at Tom Keane before the podcast.

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Speaker 1: You can always catch us worldwide. I'm Bloomberg Radio