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Speaker 2: Trsten slocked his bulletproof economics. He does it with a
Speaker 2: continental europe feel out of Copenhagen and of courses work
Speaker 2: at Princeton as well iconic and definitive, i should say,
Speaker 2: at Deutsche Bank and now at Apollo Global Management. Torsten
Speaker 2: give us an update on real and nominal GDP in
Speaker 2: the United States of America. It's become a blur with
Speaker 2: the cacophity of the news twelve months forward. Where are
Speaker 2: you on real GDP? Where are you on a nominal statistic?
Speaker 3: Well, the US is having three very important ail instagrow
Speaker 3: at the moment, one coming from the AI boom, another
Speaker 3: coming from the one big bit of a bill, and
Speaker 3: another tailwind also coming from the industrial renaissance, meaning the
Speaker 3: political interest in bringing back production to the USS of
Speaker 3: manufacturing capacity. And were beginning to see all these three
Speaker 3: engines really fire very, very significantly because the AI boom
Speaker 3: obviously is very strong. We also had the one big
Speaker 3: bit of a bill especially for the next two to
Speaker 3: three quarters, is very strong. And we're also seeing ISSM
Speaker 3: manufacturing begin to accelerate in the last six months because
Speaker 3: now the trade more uncertainty is more behind us, and
Speaker 3: now we're beginning to see the positive effects. So therefore
Speaker 3: GDP over the next twelve months should be growing in
Speaker 3: nominal terms roughly around five percent, and in real terms
Speaker 3: we should have GDP growth at roughly two two and
Speaker 3: a half percent.
Speaker 2: Is it just a set of stimuli.
Speaker 3: Well, the key issue is of course that the AI
Speaker 3: spending boom plays such a significant role, and that's very
Speaker 3: important both because it plays a course of role in
Speaker 3: the data center build out but also the associated the
Speaker 3: energy build out. And that's why the AI boom is
Speaker 3: so interesting from a fit and an inflation perspective, because
Speaker 3: the AI boom is certainly inflationary initially.
Speaker 4: Because we are spending a lot of dollars.
Speaker 3: About seven hundred billions from the hyper skill as alone
Speaker 3: on the buildout, and that of course means more pricing
Speaker 3: and more therefore higher inflation when it comes to semiconductor prices.
Speaker 3: When it comes to labor, when it comes to energy,
Speaker 3: when it comes to construction workers. So initially it is
Speaker 3: something that is not just driven by the one big
Speaker 3: bill of a bill, but it's also important driven by
Speaker 3: ultimately how long time you think the AI boom will continue.
Speaker 5: What is your inflation call here at Torsten? Is it
Speaker 5: a transitory energy driven inflation or is there something more
Speaker 5: out there?
Speaker 3: Yeah, you know, this is the fast debate that they
Speaker 3: don't like the word transitoris and now they call it
Speaker 3: temporary instead. Okay, And this is of course why this
Speaker 3: is of course the dangerous game, because well, what if
Speaker 3: this boom in particular of course when it comes to
Speaker 3: the AI spending is going to last several years, and
Speaker 3: if at the same time you also have seen terrorsts
Speaker 3: put up by pleasure and inflation, you've also seen of
Speaker 3: course ultimately energy price is also putting off by pressure
Speaker 3: on inflation. So that's why if you're tied ECFC, go
Speaker 3: on your bluebelg streen I look at the quarterly profile.
Speaker 3: You will see, as you all know, that the inflation
Speaker 3: levels both for headline and for coll infation is going
Speaker 3: to be about three at least for the next twelve
Speaker 3: months and that's of course the call problem for the
Speaker 3: twelve voting members on their form. See namely that eleven
Speaker 3: of them have said that we're not cutting interest rates
Speaker 3: and infavation is going up. It becomes pretty complicated for
Speaker 3: them to lower interest rates in this environment.
Speaker 2: Turston. I don't want you to get in trouble with
Speaker 2: compliance folks, and we don't take cheap shots, particularly with
Speaker 2: someone like doctor Slock. Here's a headline, and I want
Speaker 2: to make clear I'm not going to be snarky here
Speaker 2: and go directly to this Blackstone, not related to doctor Slock.
Speaker 2: Blackstone private credit fund caps investor redemptions at five percent. Okay,
Speaker 2: that headline just came out. That's like a huge deal, Torston.
Speaker 2: Forget about that headline. But when you're sitting there, Torston,
Speaker 2: looking at your World Cup card and what Denmark's going
Speaker 2: to do, I mean, where are the Torsten Slock shadows
Speaker 2: out there in leverage or ill liquidity.
Speaker 3: Yeah, so Denmark didn't qualify unfortunately for the work. So
Speaker 3: I will be having a very relaxed sumwhe here. But
Speaker 3: you're right, Tom So it's frankly in terms of the
Speaker 3: risks to the outlook, the key risk of course, Number
Speaker 3: one is that we still need to get the straight
Speaker 3: up a moose open in some form so that OLI
Speaker 3: prices are not at risk of suddenly spiking higher if
Speaker 3: some tank runs dry somewhere in the world, in particular
Speaker 3: somewhere in Europe. So the risk of higher ALIL prices
Speaker 3: at absolutely the number one risk to the outlook at
Speaker 3: the moment.
Speaker 4: The second risk is this issue of inflation.
Speaker 3: Because there's the strait of a moose remains closed, then
Speaker 3: there's even more upside risk to infasion than my ECFC
Speaker 3: ghostcreen is telling me at the moment.
Speaker 4: And the last thing that's also a risk is, of course,
Speaker 4: what's happening with AI.
Speaker 3: AI is a risk in the sense that if it
Speaker 3: is successful, it will create new challenges. If it's not successful,
Speaker 3: it will also create new challenges. So these three things
Speaker 3: they need enterprises, what's happening with inflation, and what's hap
Speaker 3: with AI. Those are the three areas that we spend
Speaker 3: a lot of time looking at Tourson.
Speaker 5: With the current immigration policy, population and growth in the
Speaker 5: US is essentially stalled. Can I guess the performance of AI.
Speaker 5: Can that improve productivity to the point where this economy
Speaker 5: can still grow?
Speaker 3: But It's probably going to take a longer time because
Speaker 3: initially the AI spending boom is going to be inflationary
Speaker 3: and we will probably not see much initial productivity gains.
Speaker 4: This is why this transition period that we're going through.
Speaker 3: What is the world ultimately going to look like once
Speaker 3: AI has been fully implemented and installed. Is it going
Speaker 3: to be dramatically higher productivity or is only going to
Speaker 3: be modestly higher productivity? It will be positive for sure,
Speaker 3: but the question becomes what is the level of investment
Speaker 3: that deployed today relative to what the end result is?
Speaker 3: And if that's the case that this is the discussion,
Speaker 3: then executly to your question here, well, then we do
Speaker 3: need to think about, well, if that endpoint becomes so important,
Speaker 3: what is that endpoint going to look like?
Speaker 2: So is our efficiency or product activity now not AI?
Speaker 2: And is it something else going on? Including Nicholas booth
Speaker 2: Out at Stanford saying work from home is an efficiency
Speaker 2: and productivity boost, what are your thoughts on that?
Speaker 3: Yeah, this has been a very important debate in the
Speaker 3: academic literature and Nick Bloom has been absolutely in front
Speaker 3: of all this because the discussion has been you would
Speaker 3: normally have the logical conclusion, Well, if people work for home,
Speaker 3: they don't work too much, they relax, they go and
Speaker 3: have a cup of coffee. But he is actually shown
Speaker 3: in a series of papers exactly what you're saying, Tom,
Speaker 3: namely that people working from home actually increases productivity.
Speaker 4: So you're right, it's not only about AI, or.
Speaker 3: You can call that a version of AI, but it's
Speaker 3: also a lot of other factors that really are all
Speaker 3: about how are capsul and labor working together.
Speaker 4: In other words, with capuson and labor. Ultimately, the way they.
Speaker 3: Work together creates, as you know very well, total factor
Speaker 3: of productivity, and total factor productivity can be higher if
Speaker 3: you give the tools to.
Speaker 4: Capusul and labor to work better together.
Speaker 3: And AI is exactly one of those tools that does
Speaker 3: do increase total factor of productivities in Europe.
Speaker 2: Do what you just said.
Speaker 3: I mean, the challenge for Europe is that they are
Speaker 3: not enjoying the AI boom that we're seeing in the US.
Speaker 3: And this is very important. Normally, my job is easy.
Speaker 3: If the US is good, Europe is good. If the
Speaker 3: US is bad, Europe is bad. But at the moment,
Speaker 3: the three tailwinds to the US, the AI boom they
Speaker 3: wan't to be beautiful Bill the industrial renaissance.
Speaker 4: None of these tailwinds exist in Europe.
Speaker 3: And as a footnote, remember also none of these tailwinds
Speaker 3: that are growth enhancing in the US.
Speaker 4: They are not sensitive to interest rates.
Speaker 3: In other words, it's really unique that the US is
Speaker 3: driven by factors that are not particularly sensitive to whether
Speaker 3: rates go up or down. Those sectors in the economy
Speaker 3: that are senteni to that is housing and autos, they
Speaker 3: are not doing very well because they are very interest
Speaker 3: rates sensitive. But the sources of growth in.
Speaker 4: The US are really unique in the US at the moment, and.
Speaker 3: We don't have them in Europe, Canada and Australia unfortunately
Speaker 3: for the rest of the world.
Speaker 5: Torson how is Europe missing this AI story? Here one
Speaker 5: could argue they miss just the technology, the boom of
Speaker 5: the last thirty years. How can they afford to miss
Speaker 5: this AI boom which is reshaping the planet.
Speaker 3: I would suggest that this is exactly a topic for
Speaker 3: Scarlet and Tom's Money Show, because here we have a
Speaker 3: very critical thing. Maybe why is it Europe is falling
Speaker 3: behind so much an AI? And there are several oecd
Speaker 3: answers to this. Number one, they do not have a
Speaker 3: very flexible label market. It's very difficult to hire people,
Speaker 3: it's very difficult to fire people.
Speaker 4: That means that risk taking among entrepreneurs is a.
Speaker 3: Lot lower because it becomes much more expensive if you
Speaker 3: go out and hire and fire people. That's particularly pronounced
Speaker 3: in Germany and France. But this has been a problem
Speaker 3: for decades. The second thing that's also very critical for
Speaker 3: Europe is that we need much more access to capucul,
Speaker 3: much more access to venture capusil, much more access to
Speaker 3: long term capitul, and financial markets are simply not as developed.
Speaker 4: It's difficult if.
Speaker 3: You want an entrepreneur to find financing in Europe, where
Speaker 3: it's really easy to do.
Speaker 4: In the US.
Speaker 2: Okay, so, folks of Vignette here to set this up.
Speaker 2: I'm in Davos and it's like the Blur and it's
Speaker 2: the beautiful people and all that, and my my fourth espresso.
Speaker 2: I'm standing by the bar. Torsten comes up to me
Speaker 2: with some guy and he introduces me to somebody nobody knew,
Speaker 2: Christian Saving, who at the time is retail German banking
Speaker 2: with Deutsche Bank, and all of a sudden he's running
Speaker 2: the ship. Torsten slam it forward. Simon Foy Florian Miller
Speaker 2: in the Ft last week, how Deutsche Bank Torsten slacks
Speaker 2: Deutsche Bank learned to stop chasing America. That's the heart
Speaker 2: of the matter, isn't it. It's not chase America, but
Speaker 2: do it within like soft Bank in France or the
Speaker 2: Deutsche Bank revolution and the continent right.
Speaker 3: Well, I think the Europeans o beginning to recognize that
Speaker 3: something needs to change, especially in financial markets solvency two.
Speaker 3: The rules are simply so rigid that they're not very
Speaker 3: supportive fault growth, and that's a real chinnese for the Europeans.
Speaker 3: They can also use last language models, that's all very helpful,
Speaker 3: but they should themselves really begin to realize more.
Speaker 4: And I think that is where we are going.
Speaker 3: That they need to also themselves invent the new anthropics
Speaker 3: and open AI in spasics. And the only way to
Speaker 3: do that is to get a more flexible label market
Speaker 3: and to change rules in cavisel let.
Speaker 2: Me ask one more question, is Paul's got fourteen questions
Speaker 2: of being route towards to the heart of the matter,
Speaker 2: And this is like a Noi Rabini question. It's old world,
Speaker 2: new world. We have a heritage of failure, bankruptcy and
Speaker 2: a hyachien clearing of the market, and they do not.
Speaker 2: It's as simple as that, isn't it.
Speaker 4: It is indeed quite as simple as that.
Speaker 3: It is very important that bankruptcy laws also in the
Speaker 3: US give you quote unquote a second chance. Bankruptcy laws
Speaker 3: in most of European countries do not give you a
Speaker 3: second chance. That's all these issues about recalls non recalls.
Speaker 3: If I go bankrupt in the US, I can have
Speaker 3: a clean slate, I can start a new business. In
Speaker 3: many European countries, if I go bankrupt, I owe people
Speaker 3: money for decades. So that's why this whole issue about
Speaker 3: how quickly can you come out of bankruptcy codes? Can
Speaker 3: you start a new business? How dynamic issue economy? All
Speaker 3: these things are really important for the Europeans, and I
Speaker 3: think they're moving in the right direction on a number
Speaker 3: of different fronts. But unfortunately it's just not moving fast enough,
Speaker 3: because as we all know, and as we exactly talk
Speaker 3: about here, the US is just ahead, especially in this
Speaker 3: case when it comes to AI and Torsten.
Speaker 5: I mean, you know, Ai, Tom and I were forcing
Speaker 5: ourselves to learn AI, to adapt AI to our workflows.
Speaker 5: The young people here, it's just part of their life.
Speaker 5: How about the young people in Europe. Aren't they pushing
Speaker 5: for change? Aren't they pushing for adaptation of new technologies?
Speaker 3: I think they are, and that's also why there is
Speaker 3: also an emerging venture capitul and small business and entrepreneur
Speaker 3: ara industry in Europe.
Speaker 4: But the issue is still that there's a lot of
Speaker 4: visited interests.
Speaker 3: There's a lot of balances between On the one hand,
Speaker 3: we want a dynamic economy, but we don't want to
Speaker 3: dismantle trade unions. We don't want to make all the
Speaker 3: existing structures that we have, we don't want to dismanted
Speaker 3: them completely. So that's why this transition to go from
Speaker 3: the old world that Europe has been for a long
Speaker 3: time to the new world where they can also contribute
Speaker 3: with GDP growth, new technologies, new innovations in renewable energy.
Speaker 3: They I ahead on a number of fronts, but broadly speaking,
Speaker 3: you're right, it is indeed this which is the key issue.
Speaker 2: Turch and slock Apollo of Global Management, thank you for
Speaker 2: the correct conversation. Stay with us. More from Bloomberg Surveillance
Speaker 2: coming up after this.
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Speaker 2: This is beyond Time. Lindsay Newman steps in. Now she's
Speaker 2: with Chathamhouse and we're told that she could join this morning. Lindsey,
Speaker 2: what are you writing into the weekend giving the chaos
Speaker 2: out there?
Speaker 6: Yeah, thanks so much, Tom. I just have to plug
Speaker 6: for England. We can't forget England harcane going for a
Speaker 6: bellow and day or in the World Cup. It would
Speaker 6: be really missing me not to raise that. So look,
Speaker 6: there has been so much speculation and back and forth
Speaker 6: about what's going on with the conflict in Iran. At
Speaker 6: any given moment, it's hard to tell whether we're inching
Speaker 6: forward towards a resolution of this conflict or actually, in fact,
Speaker 6: we're inching backwards towards resumption of wider hostilities. We know
Speaker 6: that President Trump and the US administration want the American
Speaker 6: people and they want markets to feel as though there's
Speaker 6: optimism that they're going to reach a deal. That this
Speaker 6: memorandum of understanding that's been floating out there for a
Speaker 6: couple of weeks now is actually nearly resolved. But this
Speaker 6: is not a reality television show we are watching. This
Speaker 6: is reality. While we all want to sort of stream
Speaker 6: to the next episode where we find out what happens.
Speaker 6: It's not the case that Trump can control all eventualities,
Speaker 6: you know, he tweeted earlier, he posted earlier this week
Speaker 6: that we should just sit back and relax and let
Speaker 6: things resolve. They always do. But it's not that he
Speaker 6: has control over everything. There are misalignments and mistrust that
Speaker 6: runs rife between these parties and has been going that
Speaker 6: way since all the way back to last year. So
Speaker 6: I don't personally have a ton of optimism at this moment.
Speaker 6: We know that Iron's form. Minister Ragi said that there
Speaker 6: has basically been no further progress on negotiations and we
Speaker 6: still have a lot of runway ahead of us before
Speaker 6: we're going to actually see some sort of deal here.
Speaker 5: Do we have a sense of kind of who on
Speaker 5: the US side is kind of driving the conversation for
Speaker 5: Is it the administration, is it the State Department, which
Speaker 5: I think that's their job, or is it a couple
Speaker 5: of lawyers from New York Well, Paul, I.
Speaker 6: Mean, I think we always have to resort to mean
Speaker 6: here that it is Donald Trump and the Donald Trump Show.
Speaker 6: We of course saw a Secretary of State Marco Rivio
Speaker 6: involved in testimony yesterday, and he is obviously driving the
Speaker 6: state departments as emphasis and efforts in that way. But
Speaker 6: in terms of the negotiations selves, we know that last
Speaker 6: week Trump called his cabinet and said, I want to
Speaker 6: review the deal that's on the table. I have some
Speaker 6: further comments that I want to raise with the Iranian
Speaker 6: delegation around Iran's nuclear program, around the Strait of Hormuse,
Speaker 6: these major outstanding issues, and it seems as though neither
Speaker 6: the US nor Iran are eager to be the first
Speaker 6: one to raise their hand and say we will approve
Speaker 6: this deal. And that's really where things stand. It is
Speaker 6: this mistrust and miscalculation. The two sides have not agreed
Speaker 6: upon these open issues, either the sort of near term
Speaker 6: pressing ones like the straight of Hoe Moose, nor the
Speaker 6: longer term ones that have been outstanding forever, like Aron's
Speaker 6: nuclear program, what happens with its enriched uranium. And they
Speaker 6: also don't even agree about whether they're willing to talk
Speaker 6: about certain issues right hearing anymore about Iran's missile program.
Speaker 6: Trump last week said that Gulf states need to sign
Speaker 6: up to the Abraham Accords. That went over like a
Speaker 6: lead balloon. So we are continuing to see that these
Speaker 6: two sides are really talking past each other, even though
Speaker 6: the market forces want there to be a deal, and
Speaker 6: even though the administration wants market to believe that a
Speaker 6: deal is impending.
Speaker 2: I've been so waiting for you, Lindsey, to come on
Speaker 2: at Chathamhouse in London, because the Telegraph in London a
Speaker 2: number of days ago did an extraordinary article. This is
Speaker 2: Conser Rabbi and Sai Goldcar talking about the two new
Speaker 2: unknown leaders of the IRGC and within that without going
Speaker 2: into this incredibly intense article about the new future of
Speaker 2: the Iranian military. From where you sit, do you have
Speaker 2: a knowledge base of the new leadership of the IRGC.
Speaker 6: Yeah, I mean what we know, Tom, I mean, obviously
Speaker 6: I should say caveat that. Sunanvakil at Chathamhouse is our
Speaker 6: lead expert on Iran and she's best positioned to talk
Speaker 6: about that. But what we do know is that Auran
Speaker 6: took away a lot of lessons learned from last year's
Speaker 6: June operation against it, also led by Israel and the
Speaker 6: US and quickly and sort of look to do a
Speaker 6: very intensive post mortem and reorganized various components, including the ERGCY,
Speaker 6: including its military capabilities, including its leadership structure and plans
Speaker 6: going forward. And we've seen that in action over the
Speaker 6: course of Operation Epic Fury. Right. So, the fact that
Speaker 6: the US has pursued all of this degradation on Iran's
Speaker 6: missile capabilities, perhaps some of its nuclear capabilities, its naval
Speaker 6: capabilities has not necessarily translated, as we know, into Iran
Speaker 6: being overall degraded. The regime remains very much intact, although
Speaker 6: what we know is it's been sort of more diversified,
Speaker 6: dispersed across the country. It's sort of in a moret
Speaker 6: of guerrilla style approach. It has also been maybe perhaps
Speaker 6: de emphasizing some of the more ideological components instead of
Speaker 6: pursuing this new leadership structure pursues more of sort of
Speaker 6: nationalistic approach to leadership. And what that means is Iran
Speaker 6: has been able to develop and pursue very intensive tools
Speaker 6: of leverage, including over the Strait of Hormuz, which sort
Speaker 6: of is its new tool going forward beyond even its
Speaker 6: new capabilities, even as we think that perhaps rob Is
Speaker 6: didn't continue to pursue its nuclear program.
Speaker 2: Just one more quick questions. We've got confabs, we got
Speaker 2: I think Paul NATO's in Turkey. Yeah, there's G sevens
Speaker 2: give us Lindsey an allied update in their relationship, the
Speaker 2: traditional allies relationship with the President of the United States.
Speaker 6: Yeah, so we know that Trump has said that he
Speaker 6: is going to the G seven meetings in just a
Speaker 6: couple weeks time. It will be an interesting dance that
Speaker 6: we're going to be watching. We know, of course that
Speaker 6: the relationships there have been strained. There hasn't actually been
Speaker 6: a lot of sort of news breaking public facing conversations
Speaker 6: between the sides of late. It's all sort of been
Speaker 6: mostly back channeling. But there is tension there that has
Speaker 6: not been resolved. It's interestingly enough, we see today that
Speaker 6: the UK, Germany and France are talking about developing their
Speaker 6: own track to conversations with Puchin about resolving the war
Speaker 6: with Ukraine. That just shows that Europe is getting the
Speaker 6: message that the US is not going to be participating
Speaker 6: in the same way that has always been historically participating.
Speaker 6: Since the post Cold War period and that facts are
Speaker 6: moving on. And that doesn't mean that Europe is willing
Speaker 6: to jump into supporting Trump and the US administration in Iran,
Speaker 6: but it does mean that we should be watching us
Speaker 6: very closely to see how this dance plays out.
Speaker 2: Lindsey, thank you so much. Lindzie Newman with Chathamhouse, stay
Speaker 2: with us. More from Bloomberg Surveillance coming up after this.
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Speaker 2: Juliet Cornado joins US right now, hugely competent, definitive in
Speaker 2: the crisis at BMP. Perry about Julia link tomorrow's jobs
Speaker 2: report to how the newly minted chairman will think.
Speaker 7: Yeah, I mean, before I go there, tom I just
Speaker 7: want to say Ghostpurs go. I will be at the
Speaker 7: game tomorrow, So season ticket holder.
Speaker 2: Which color shirt are you're gonna wear?
Speaker 7: I mean, well, the Fiesta colors are only for game one,
Speaker 7: So if you've been paying attention to the Spurs, every
Speaker 7: game one features the Fiesta colors. I know that the
Speaker 7: Knicks fans were struggling with that last.
Speaker 2: Night, but.
Speaker 7: We proudly fly our Fiesta flag. So but tomorrow night
Speaker 7: they will be black T shirts.
Speaker 2: Juliett.
Speaker 5: We're going to get some important jobs numbers tomorrow. Give
Speaker 5: us your thoughts. What are you looking for tomorrow and
Speaker 5: what's your view of this labor market here?
Speaker 7: So there's a lot of conflicting signals in this labor market.
Speaker 7: I mean, one thing I think we can say is
Speaker 7: that we've left labor hoarding behind us, so we get
Speaker 7: things that are send mixed signals like pretty elevated challenger
Speaker 7: layoff announcements, lots of layoffs in tech, and yet you
Speaker 7: still see a low unemployment rate and some okay jobs numbers.
Speaker 7: So you know, I think we see more chern there's
Speaker 7: more hiring, more firing. It is a low amplitude labor market.
Speaker 7: The break even rate of labor supply is probably close
Speaker 7: to zero, somewhere between zero and fifty thousand, So we
Speaker 7: don't really need to create a lot of jobs to
Speaker 7: keep the unemployment rate steady. There isn't, you know, inflationary
Speaker 7: pressures coming from the labor market. They're coming from elsewhere.
Speaker 7: Real and they are persistent, but they are not being
Speaker 7: generated by wage growth.
Speaker 2: I help us. This is so important. I think of
Speaker 2: there's a school, Julia called Texas A and M. I
Speaker 2: think you maybe familiar with. I think a time as
Speaker 2: savings work down there in others. So you say, statistically
Speaker 2: we're sub one hundred thousand non farm payrolls, and I
Speaker 2: get mathematically, that's like cute to our audience. It's not cute. No,
Speaker 2: it's one hundred and fifty. Politically, it's sub hundred thousand
Speaker 2: non farm payrolls. Acceptable for the president or for the chairman.
Speaker 7: Well, it's a great question, Tom, I mean, it is
Speaker 7: a new environment. It is an environment that comes from
Speaker 7: two big factors. One is an aging population. The boomers
Speaker 7: are moving into retirement in great numbers. It is a
Speaker 7: drag on labor force participation. It is a drag on
Speaker 7: labor supply. And if anything, the booming stock market is
Speaker 7: facilitating earlier retirements, so that's depressing labor supply. And then,
Speaker 7: of course the other big factor is immigration. The US
Speaker 7: has been for decades a country that grants about a
Speaker 7: million people legal immigration status every year. That has dropped precipitously.
Speaker 7: That's a policy choice, and that means fewer workers, fewer jobs.
Speaker 7: It does mean less income generation in the economy. And
Speaker 7: here's where we get to this strange market, strange economy
Speaker 7: that we are in, where it's increasingly narrowly concentrated in
Speaker 7: GDP and investment on AI, in the labor market, on
Speaker 7: healthcare jobs, and really outside those sectors, there's not a
Speaker 7: lot of dynamism going on, and there's a lot of
Speaker 7: frictions and supply shocks that sectors and firms have to
Speaker 7: deal with. So it's not an economy that you look
Speaker 7: at it and say, wow, this is fantastic, and you
Speaker 7: see that in pretty sour consumer sentiment. So is it
Speaker 7: good enough? You know, it's it's a different environment. It
Speaker 7: doesn't feel great in a lot of ways, even though
Speaker 7: it's stable in the aggregate.
Speaker 5: So, Julia, the other aspects of this economy that the
Speaker 5: FED is focusing on is inflation, and this warn Iran
Speaker 5: has really kicked up energy costs for everyone. Yes, yes,
Speaker 5: how do you think about that?
Speaker 7: Well, we're going to get inflation data next week for
Speaker 7: May and it's going to show, you know, yet another
Speaker 7: burst of energy inflation and yet another acceleration in headline inflation,
Speaker 7: And what we know as macro economists is that when
Speaker 7: you get hit with a supply shock, the inflation comes
Speaker 7: first and then comes the hit to demand. And so
Speaker 7: this is where I think we're seeing caution at the FED.
Speaker 2: In On the one.
Speaker 7: Hand, you've got a veryasonable judgment that, look, inflation's been
Speaker 7: too high for too long, it's going in the wrong direction.
Speaker 7: We need to we may need to do something about it.
Speaker 7: On the other hand, if you know your macro you
Speaker 7: know that there's a demand hit that's very likely going
Speaker 7: to commolate Q two, Q three.
Speaker 1: Uh.
Speaker 7: The real disposable income growth is negative. Consumers are losing
Speaker 7: purchasing power. They are having to dip deeper and deeper
Speaker 7: into savings to finance spending. There's probably going to be
Speaker 7: at least some moderation in that pace of spending as
Speaker 7: the year progresses. The tax cuts will be fading and
Speaker 7: consumers are going to be squeezed.
Speaker 2: I mean, Julia, I look at where we are, and
Speaker 2: I get this feeling. No one's talking about the FED.
Speaker 2: Are you Are we going to get a ce change
Speaker 2: to labor day on how the FED communicates with the world.
Speaker 7: Yeah, I think so, Tom. I think. I think when
Speaker 7: we hear Chair worsh talk about regime change, when we
Speaker 7: hear him, you know, talk about reform, when he brings
Speaker 7: in senior outside advisors who have written the chapter in
Speaker 7: Project twenty twenty five on FED reform, you should expect
Speaker 7: him to at least put his money where his mouth
Speaker 7: is to some degree, you know this is not just
Speaker 7: blustered ju He wants to change things.
Speaker 2: Julie Rivet script we gotta go. Spike from the fanciest
Speaker 2: hotel in San Antonio just emailed in Tom Love the Show.
Speaker 2: Does Julie have a ticket for me tomorrow? Can you
Speaker 2: help them? Let's spike in some thousand a night hotel
Speaker 2: and sends in Antonio.
Speaker 7: I have no extra tickets to provide anybody.
Speaker 8: I have two for me and my son.
Speaker 2: We will be going to the game together. Shay on
Speaker 2: the Spike. Thank you so much. Course, Spike Lee definitive
Speaker 2: for the next Juliet Carnado, the Spike Lee of the
Speaker 2: San Antonio Spurs. Stay with us. More from Bloomberg Surveillance
Speaker 2: coming up after this.
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Speaker 2: So here's the way it works. Usually one person transforms
Speaker 2: a university, and I have the clearest memory of Indiana
Speaker 2: University being a complete backwater. Purdue rocking it I mean,
Speaker 2: Paul Purdue was rocking it in. Herman Wells single handedly
Speaker 2: turned around Indiana University. One of the beneficiaries is the
Speaker 2: Wells scholar from IU, Rebecca home Kiss, who has gone
Speaker 2: on to absolutely sterling academics at the London Business School
Speaker 2: and wandering by Duke University from time to time. She
Speaker 2: joins us this morning on our growth economics. Is our
Speaker 2: growth model now original? Or is AI a bull done
Speaker 2: to everything we've seen? You know from Herman Wells on
Speaker 2: is it just another growth story?
Speaker 9: AI is a different growth story, but it is changing
Speaker 9: some of the math about how we think about investment
Speaker 9: returns inside organizations. But it is still very very early days.
Speaker 9: The majority of organizations that are bringing AI in are
Speaker 9: not really seeing growth gains. They're seeing a bit of
Speaker 9: productivity or cost reduction, but we're not really seeing a
Speaker 9: lot of the use case that are generating detrimental revenue
Speaker 9: or value creation for organizations. Again, we're early days, but
Speaker 9: you know, the last couple of months are showing a
Speaker 9: little bit more doubt about how much these investments are
Speaker 9: going to translate into returns.
Speaker 5: So when you talk to your C suite of clients,
Speaker 5: are they looking to embrace AI? Are they still in
Speaker 5: a stage of what is AI? And is it a friend?
Speaker 7: Me to me?
Speaker 8: How do I think about it?
Speaker 5: What's the conversation you're having?
Speaker 9: So I love this question because there's been a transition.
Speaker 9: So we went from kind of twenty twenty three, I'd
Speaker 9: say it was doubting. CEOs did not want to jump
Speaker 9: on another trend that was not going to pan out.
Speaker 9: Then we went into dabbling right use cases, throwing called
Speaker 9: pilot licenses at people. We are very slowly transitioning into
Speaker 9: what I call deliberate actually bringing AI into strategy, but
Speaker 9: relatively early days, the majority of companies are still dabbling.
Speaker 9: So while AI adoption is very high, it is incredibly shallow.
Speaker 9: You now only kind of ten to fifteen percent of
Speaker 9: business work is being done in any form with AI,
Speaker 9: and any kind of cross team, cross functional use cases
Speaker 9: are relatively small.
Speaker 5: What is the as we step back here and think
Speaker 5: about some of all the economic data we've been getting
Speaker 5: over the last several weeks, and including this week, we'll
Speaker 5: get some more on the labor front here. What's the
Speaker 5: conversations you're having today with your clients about the economy?
Speaker 5: What are you hearing? What's the conversation now?
Speaker 9: It's funny is that the market gets bored of topics
Speaker 9: when it goes on too long. You know, we're kind
Speaker 9: of a board of the IRN war, We're a board
Speaker 9: of the k shaped economy. CEOs don't have the luxury
Speaker 9: of getting bored. Just because a trend has been going
Speaker 9: on for a couple of months doesn't mean that.
Speaker 8: It affects strategy.
Speaker 9: So I'd say, look, we're looking at the IRN War,
Speaker 9: we are looking at the economy, especially the lower end,
Speaker 9: and tariffs are back in play as of yesterday. And
Speaker 9: again we might be tired of talking about terrorifts, but
Speaker 9: they're real economic in cap and companies trying to make
Speaker 9: some of these decisions.
Speaker 2: The Pennsylvania Railroad was religion in my family, arking across
Speaker 2: to Chicago. I mean, it's what came out of the
Speaker 2: three tobaccles of railroads going back to eighteen ninety the
Speaker 2: analog to the railroads in AI. Where are we in
Speaker 2: that path right now?
Speaker 9: Very early days? The difference is eighteen ninety ish. The
Speaker 9: difference is tom when we laid some of the early
Speaker 9: railroads or the kind of the cable infrastructure in the nineties,
Speaker 9: there was nothing really going on them or through them
Speaker 9: in the early days. We do not have a demand
Speaker 9: issue right now like this is very much. We are
Speaker 9: still lower supply than we have demand. So demand is high.
Speaker 9: It is increasing at a nonlinear rate and it will
Speaker 9: continue to but we are going to see a very
Speaker 9: volatile market when it comes to AI. We're seeing a
Speaker 9: shock the last couple of weeks because a lot of
Speaker 9: the vendors are changing how they're pricing, which is why
Speaker 9: compute cost and token max and all of those.
Speaker 8: Things are coming into the conversation and.
Speaker 2: Bro listening to people like you, do you feel like
Speaker 2: they're in a vacuum and their earnestness and their eight
Speaker 2: dollars on the West Coast? Are they actually listening to
Speaker 2: bring Jolson or hummus about what's actually going on?
Speaker 9: You know, if you look at the differences between the
Speaker 9: impact that both economists, academics, and tech firms think that
Speaker 9: AI will have on productivity. The range is between point
Speaker 9: one percent and eighty percent. Like that is one hundreds
Speaker 9: of order magnitude difference, Like we will eventually need to
Speaker 9: ladder out somewhere. It'll be higher than we've seen another
Speaker 9: tech booms. But at this point, I think we're dramatically
Speaker 9: overestimating the near to short term impact that AI will
Speaker 9: have on productivity.
Speaker 5: Well, because I mean that's probably that's a non consensus view,
Speaker 5: I would argue because I think most people that come
Speaker 5: into the studio with Tom and.
Speaker 2: I suggest that.
Speaker 5: I mean, you got electricity at the top of the compendium,
Speaker 5: and right below.
Speaker 4: That is AI.
Speaker 5: Well below that is the Internet. That's kind of where
Speaker 5: people kind of weigh this thing because.
Speaker 9: Adoption was so much higher. You know, we reach fifty
Speaker 9: percent of global adoption in three years. The Internet was
Speaker 9: seven to ten. The difference is what is happening inside organizations.
Speaker 9: It is very I don't want to say easy, because
Speaker 9: nothing's easy, but it is very approachable to get productivity
Speaker 9: booms at a team or function level. So engineering team
Speaker 9: at scale thirty percent, productivity, customer service support thirty to
Speaker 9: fifty cent productivity. What we do not have is cross team,
Speaker 9: cross functional, organizational wide productivity, which is something you will
Speaker 9: see as an external. And the reason is getting those
Speaker 9: kind of gains does not take throwing AI on top
Speaker 9: of work. It takes actually redesigning workflows, and that is
Speaker 9: really hard work that takes time. So we'll get there
Speaker 9: maybe slash probably, but short to near term we are
Speaker 9: looking at change.
Speaker 2: Paul's too polite, so I'm going to ask Seed blunt,
Speaker 2: it's just another corporate education program. Polonio's fuqua the future
Speaker 2: of leadership. Now, what's the distinction about duke corporate education
Speaker 2: versus another soiree to look buff and beautiful.
Speaker 9: I think all forms of corporate education, whether it's lend
Speaker 9: of a business school, are duke. We are trying to
Speaker 9: help deliver impact and value creation and really understanding not
Speaker 9: just the topics, but how they can practically apply it
Speaker 9: inside their day to day work.
Speaker 8: Can do math all the time, This is cool.
Speaker 9: Get get I get when I put up charts, I
Speaker 9: always ca it and it's going to be a chart if.
Speaker 2: You do corporate education. To sponsor me my first sponsor.
Speaker 2: The first people that said the idiot with the bow tie.
Speaker 2: Let's throw money at them. Stern School of Business, n
Speaker 2: y U and one of the students showed me their math. Paul,
Speaker 2: it was like, are you kidding me? That's the energy
Speaker 2: that's in these programs.
Speaker 8: Math still matters, Tom, Math still matters.
Speaker 5: She can come back size exactly exactly how do you
Speaker 5: put how do you put AI into the curriculum here?
Speaker 4: Because I would think that would be a question.
Speaker 5: I'm anybody north of twenty eight, twenty nine years old.
Speaker 4: I need to be educated on AI.
Speaker 8: So there is plenty of education.
Speaker 9: I look at the vendor front as well on what
Speaker 9: we call hands on keyboard education, and that's fine, but
Speaker 9: that's not what leadership teams need. Leadership teams need to
Speaker 9: actually understand how do I retrain my teams? How do
Speaker 9: I hold people accountable for AI? And not to kind
Speaker 9: of overwhelm on jargon, but most companies are great at
Speaker 9: tracking the outputs of AI. How many use cases are
Speaker 9: in play, how many people have licenses, how many tokens
Speaker 9: are used. Organizations get nothing from those output measures. What
Speaker 9: we really need is kind of this organization why, leadership,
Speaker 9: why training, and how to deliver outcomes from AI versus
Speaker 9: just outputs.
Speaker 2: How about the ethics of AI?
Speaker 5: I mean I speaking to the malts and consulting recently
Speaker 5: and they say, before they engage with a client who
Speaker 5: wants to quote unquote implement AI into their business model,
Speaker 5: they want to get buy off at the c suite
Speaker 5: level and the board level on ethical implementation of AI.
Speaker 5: How does that figure into it?
Speaker 8: Absolutely does.
Speaker 9: And for full disclosure of an advisor at BCG as well,
Speaker 9: is that if you think about the first of all,
Speaker 9: it's much not a senior leadership thing as well, younger
Speaker 9: employees are very very concerned about the ethical use as well.
Speaker 9: If you ploy younger excuse me, pull younger employees, that's
Speaker 9: what they want to talk about as well. The challenge
Speaker 9: is there's three or four simultaneous planks you need to
Speaker 9: work on. If you want to get benefits from AI.
Speaker 9: You need to do organizational while upskilling. You need to
Speaker 9: focus on the governance ethics response AI. You need to
Speaker 9: build your tech infrastructure data platform. Most established organizations don't
Speaker 9: have data in a way that they can actually leverage
Speaker 9: it using these the eye tools.
Speaker 8: And then you've got to link it to outcomes.
Speaker 9: So doing those four things at the same time we
Speaker 9: call it parallel pathing is very difficult, but if you
Speaker 9: don't have the governance, responsible AI in place, you're not
Speaker 9: going to move. The irony is that boundaries give folks freedom.
Speaker 9: So organizations that are moving the fastest are those that
Speaker 9: have the clearest boundaries and governance and responsible AI. When
Speaker 9: the rules are clear, people move faster.
Speaker 2: We're becka, thank you so much. You're backing on because
Speaker 2: with us, with the London Business School, all sorts of
Speaker 2: other efforts. Original Department from LC and from Indiana.
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