1 00:00:00,240 --> 00:00:04,040 Speaker 1: Runt You by Bank of America Mary Lynch. With virtual reality, 2 00:00:04,320 --> 00:00:09,719 Speaker 1: virtually everything will change. Discover opportunities in a transforming world. 3 00:00:10,119 --> 00:00:14,440 Speaker 1: Be of a, mL dot Com, slash VR, Mary Lynch, 4 00:00:14,520 --> 00:00:29,240 Speaker 1: Pierced Fenner, and Smith Incorporated. Welcome to the Bloomberg Surveillance Podcast. 5 00:00:29,280 --> 00:00:32,760 Speaker 1: I'm Tom Keene with David Gura. Daily we bring you 6 00:00:32,840 --> 00:00:37,640 Speaker 1: insight from the best of economics, finance, investment, and international relations. 7 00:00:38,080 --> 00:00:43,640 Speaker 1: Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, Bloomberg dot Com, 8 00:00:43,640 --> 00:00:47,480 Speaker 1: and of course, on the Bloomberg The Morning David Garrel 9 00:00:47,520 --> 00:00:49,760 Speaker 1: with Michael McKee. This morning, Tom Keene at the Council 10 00:00:49,840 --> 00:00:51,840 Speaker 1: on Foreign Relations. In just a few moments, he's gonna 11 00:00:51,880 --> 00:00:54,800 Speaker 1: sit down with Robert Kaplan, the President and CEO of 12 00:00:54,840 --> 00:00:59,400 Speaker 1: the Federal Bank. See the man himself in his If 13 00:00:59,440 --> 00:01:02,120 Speaker 1: you have it, you can listen here, or if you're 14 00:01:02,200 --> 00:01:04,320 Speaker 1: on the Internet, you can pull up the web feed 15 00:01:04,319 --> 00:01:07,560 Speaker 1: from the CFR even aview. Robert Caplan before situated him 16 00:01:07,560 --> 00:01:10,480 Speaker 1: and the pantheon of Fed presidents. Right now he's becoming 17 00:01:10,480 --> 00:01:12,800 Speaker 1: a little more influential. Of course, he's fairly new, and 18 00:01:12,840 --> 00:01:15,039 Speaker 1: it takes a little while to get your sea legs. 19 00:01:15,080 --> 00:01:19,160 Speaker 1: But Uh, he's a guy who was executive at Goldman 20 00:01:19,200 --> 00:01:21,920 Speaker 1: Sachs and Harvard University professor for a long time. So 21 00:01:22,000 --> 00:01:25,480 Speaker 1: a very smart man. Uh, different than previous Dallas FED 22 00:01:25,520 --> 00:01:27,840 Speaker 1: presidents and much more of a centrist and much more 23 00:01:27,880 --> 00:01:32,800 Speaker 1: of a practical thinker rather than coming from a particular 24 00:01:32,880 --> 00:01:35,520 Speaker 1: political point of view. And uh, he is a voter 25 00:01:35,640 --> 00:01:37,720 Speaker 1: this year. Uh. And tell us a bit about the 26 00:01:37,800 --> 00:01:40,640 Speaker 1: Dallas FED itself. You look at all of these various districts. 27 00:01:40,640 --> 00:01:43,600 Speaker 1: What's what's the historical reputation of the Dallas Fed. Well, 28 00:01:43,680 --> 00:01:48,280 Speaker 1: historical reputation has been very very free market, anti regulation, 29 00:01:48,840 --> 00:01:53,240 Speaker 1: and very tough on inflation. And we have no inflation 30 00:01:53,240 --> 00:01:56,080 Speaker 1: to speak up at this point. That's less of an issue, 31 00:01:56,520 --> 00:01:59,440 Speaker 1: but Kaplan is less It's not that he's against free markets, 32 00:01:59,640 --> 00:02:03,160 Speaker 1: but he is not pushing that as much. They're also 33 00:02:03,400 --> 00:02:06,480 Speaker 1: very concerned with trade issues and they do a lot 34 00:02:06,480 --> 00:02:08,840 Speaker 1: of work on the US and Mexico and have for 35 00:02:08,960 --> 00:02:11,040 Speaker 1: years and now of course that's come front and center 36 00:02:11,080 --> 00:02:12,959 Speaker 1: as an issue absolutely as we look ahead to the 37 00:02:13,200 --> 00:02:15,760 Speaker 1: next f O MC meeting taking place on the thirteenth, 38 00:02:15,800 --> 00:02:18,640 Speaker 1: I believe thirteenth and fourteenth in Washington, d C. As 39 00:02:18,639 --> 00:02:21,040 Speaker 1: he mentioned Robert Capital of voting member of the f 40 00:02:21,160 --> 00:02:23,320 Speaker 1: O m C this year. He the thirteenth president and 41 00:02:23,360 --> 00:02:26,040 Speaker 1: CEO of the Federals at Bank of Dallas, former professor 42 00:02:26,280 --> 00:02:28,359 Speaker 1: at the Harvard Business School, author of a number of 43 00:02:28,440 --> 00:02:31,080 Speaker 1: books on on leadership as well, and still fairly new 44 00:02:31,080 --> 00:02:33,839 Speaker 1: to the job, right, Mike, Yes, this is I think 45 00:02:33,919 --> 00:02:36,560 Speaker 1: his second year, uh and his his first year as 46 00:02:36,600 --> 00:02:38,880 Speaker 1: a voter, and so far he has voted with the 47 00:02:38,880 --> 00:02:42,440 Speaker 1: majority in every case to raise rates or hold an 48 00:02:42,520 --> 00:02:45,680 Speaker 1: alternating meetings. We'll see what he does that. I would 49 00:02:45,680 --> 00:02:48,280 Speaker 1: bet you, given what he has said, that he has 50 00:02:48,480 --> 00:02:50,440 Speaker 1: going to vote for a rate in Greece in June. 51 00:02:50,520 --> 00:02:54,600 Speaker 1: Since yesterday we saw Lele Brainer, the dove, the Dove's 52 00:02:54,639 --> 00:02:58,040 Speaker 1: dove on the FED say a radio increase is likely 53 00:02:58,919 --> 00:03:01,480 Speaker 1: very soon. And everybody he takes that to me. In June, 54 00:03:01,760 --> 00:03:05,040 Speaker 1: a number of FED policymakers speaking here before the quiet 55 00:03:05,040 --> 00:03:07,840 Speaker 1: period that precedes at the f O m C meeting 56 00:03:08,880 --> 00:03:11,440 Speaker 1: go ahead. Yeah, you know, they expanded the quiet period. 57 00:03:11,480 --> 00:03:13,480 Speaker 1: They moved it back so it's longer. And I was 58 00:03:13,520 --> 00:03:16,800 Speaker 1: sitting with a FED stafford yesterday who was listening in 59 00:03:16,960 --> 00:03:21,760 Speaker 1: on Little Brainer's speech, and she said, thank god, unless 60 00:03:21,840 --> 00:03:24,960 Speaker 1: we have to worry about more days in which they 61 00:03:25,000 --> 00:03:28,680 Speaker 1: can't test. Weeks was before the last meeting. It seems 62 00:03:28,720 --> 00:03:30,600 Speaker 1: like that there were a tremendous amount of speeches. Seems 63 00:03:30,600 --> 00:03:32,760 Speaker 1: like the quantity of speeches has increased. Let's head over 64 00:03:32,800 --> 00:03:34,639 Speaker 1: to the council in formulations up Park Avenue from O 65 00:03:34,639 --> 00:03:37,480 Speaker 1: Bloomberg eleven through with Studios. Tom Keene interviewing Robert Kaplan 66 00:03:37,640 --> 00:03:40,040 Speaker 1: of the Dallas Fan I'm not going to go through 67 00:03:40,080 --> 00:03:42,800 Speaker 1: your bio because it will just take too long, other 68 00:03:42,840 --> 00:03:45,320 Speaker 1: than to say he was Marshall Professor at Harvard Business 69 00:03:45,320 --> 00:03:48,000 Speaker 1: School by way of the University of Kansas, which is 70 00:03:48,040 --> 00:03:51,520 Speaker 1: always a good thing. What have you learned about the 71 00:03:51,560 --> 00:03:55,680 Speaker 1: heritage of the Dallas Fed parachuting in Well, Uh, there's 72 00:03:55,680 --> 00:03:57,520 Speaker 1: a great history in the Dallas Fed. But with the 73 00:03:57,800 --> 00:04:00,880 Speaker 1: most significant thing to me about the Than district is 74 00:04:01,280 --> 00:04:06,320 Speaker 1: uh the business dynamics. It's uh. We're largest energy producer 75 00:04:06,360 --> 00:04:10,120 Speaker 1: in the United States, largest exporting state Texas is in 76 00:04:10,160 --> 00:04:13,680 Speaker 1: the United States. Growing. President will go after you, after 77 00:04:13,720 --> 00:04:16,479 Speaker 1: he's going after the Germans. Well, I won't even go 78 00:04:16,640 --> 00:04:22,520 Speaker 1: near that. But uh, but and we're growing very very rapidly. 79 00:04:22,600 --> 00:04:26,520 Speaker 1: We're uh migration of people in firms to the state 80 00:04:26,520 --> 00:04:29,680 Speaker 1: of Texas in particular has been a significant trend is 81 00:04:29,680 --> 00:04:32,000 Speaker 1: accelerating over the last fifteen years. We have a national 82 00:04:32,040 --> 00:04:34,640 Speaker 1: growth rate to three whatever it is, what's the Texas 83 00:04:34,720 --> 00:04:37,279 Speaker 1: growth rate? If we're we're going about a full percentage 84 00:04:37,279 --> 00:04:41,640 Speaker 1: point faster over the last fifteen years on average every year. Uh, 85 00:04:41,680 --> 00:04:44,040 Speaker 1: And so what it's going to be this year, I'm 86 00:04:44,080 --> 00:04:47,880 Speaker 1: not sure but that but for lots of reasons, people 87 00:04:48,440 --> 00:04:51,320 Speaker 1: and firms are moving to the eleventh districts, So we're 88 00:04:51,320 --> 00:04:53,960 Speaker 1: growing very rapidly. And that'll be one of our themes here, 89 00:04:54,000 --> 00:04:57,360 Speaker 1: particularly to dive into the concept of John Edwards to 90 00:04:57,520 --> 00:05:00,279 Speaker 1: America's and maybe we can talk not you're just stricks 91 00:05:00,279 --> 00:05:04,240 Speaker 1: outside Texas, but the two Texas is a more general statement. 92 00:05:05,080 --> 00:05:07,200 Speaker 1: I want to go to an idea that I was 93 00:05:07,240 --> 00:05:10,080 Speaker 1: talking with our Matt Bestler about and and and this 94 00:05:10,200 --> 00:05:12,600 Speaker 1: is this wonderful thing. This is a mouthful, folks. For 95 00:05:12,640 --> 00:05:15,080 Speaker 1: those of you not in economics, this is why you're 96 00:05:15,080 --> 00:05:21,200 Speaker 1: not in economics. The Dallas Fed trimmed mean PC. That's 97 00:05:21,360 --> 00:05:25,440 Speaker 1: your proprietary view of inflation. What I know in my 98 00:05:25,520 --> 00:05:29,040 Speaker 1: work at Bloomberg is inflation and the vector of it 99 00:05:29,080 --> 00:05:31,960 Speaker 1: now is front and center. Is the vector up or 100 00:05:32,040 --> 00:05:35,680 Speaker 1: is a vector to disinflation again. So it's been weak 101 00:05:35,880 --> 00:05:38,320 Speaker 1: the last couple of months. If you go step a 102 00:05:38,320 --> 00:05:43,480 Speaker 1: little further back, it's been gradually increasing from fourteen fifteen 103 00:05:43,480 --> 00:05:47,000 Speaker 1: to sixteen to seventeen. That the thing that's giving people 104 00:05:47,040 --> 00:05:51,240 Speaker 1: pause is over the last two months, particularly March, for 105 00:05:51,279 --> 00:05:57,440 Speaker 1: a number of I think idiosyncratic reasons. Inflation dipped, telecommunications, pricing, 106 00:05:57,600 --> 00:06:00,839 Speaker 1: other factors. But you notice the e C came out, 107 00:06:02,200 --> 00:06:05,160 Speaker 1: Personal consumption expenditures came out yesterday, and I think it 108 00:06:05,240 --> 00:06:08,719 Speaker 1: showed me that the April number is sort of back 109 00:06:08,760 --> 00:06:12,920 Speaker 1: on trend. The number for most people quote the trailing 110 00:06:13,000 --> 00:06:15,839 Speaker 1: twelve months, and you'll notice the trailing twelve months after 111 00:06:15,920 --> 00:06:18,760 Speaker 1: yesterday declined. But the reason for that is not that 112 00:06:18,839 --> 00:06:21,000 Speaker 1: April was week. It was that a year ago April 113 00:06:21,080 --> 00:06:24,520 Speaker 1: was so strong. So I actually think while inflation has 114 00:06:24,560 --> 00:06:27,279 Speaker 1: been slow and uneven, I don't think we have a 115 00:06:27,320 --> 00:06:30,720 Speaker 1: deteriorating trend. I don't believe that's what's going on. To 116 00:06:30,880 --> 00:06:33,040 Speaker 1: text off this one is the Dala's heritage. I get 117 00:06:33,040 --> 00:06:35,120 Speaker 1: to it in a moment, but let's talk about them more. 118 00:06:35,160 --> 00:06:40,480 Speaker 1: Washington centric analysis we heard that from Governor Brainerd earlier 119 00:06:40,520 --> 00:06:42,840 Speaker 1: today and all the other feed speakers all diving into 120 00:06:42,880 --> 00:06:46,599 Speaker 1: this mix. Is your take that the prism around around 121 00:06:46,640 --> 00:06:49,240 Speaker 1: that table of the ECHOS building. Is your take that 122 00:06:49,279 --> 00:06:52,560 Speaker 1: it's a traditional study of inflation or is there a 123 00:06:52,640 --> 00:06:56,000 Speaker 1: new new to how the feed itself has to deal 124 00:06:56,360 --> 00:06:59,320 Speaker 1: with this odd thing? There's definitely, in my judgment, a 125 00:06:59,400 --> 00:07:01,800 Speaker 1: new new. Now I'm not an economist, I'm a business person, 126 00:07:01,839 --> 00:07:04,080 Speaker 1: but I have I work with lots of economists, so 127 00:07:04,120 --> 00:07:06,280 Speaker 1: I think that gives me a little different perspective. But 128 00:07:06,360 --> 00:07:09,440 Speaker 1: the things that are new, I'll mention two, in particular, 129 00:07:10,320 --> 00:07:14,960 Speaker 1: global over capacity, particularly because of China. China has been 130 00:07:15,320 --> 00:07:18,040 Speaker 1: growing GDP on average about six and a percent a year, 131 00:07:18,040 --> 00:07:21,920 Speaker 1: but the problem is it's they're increasing debt to GDP 132 00:07:22,040 --> 00:07:25,440 Speaker 1: in order to achieve that growth, and they're creating over capacity, 133 00:07:25,480 --> 00:07:28,200 Speaker 1: not just an infrastructure, but an industry is like steel. 134 00:07:28,280 --> 00:07:32,160 Speaker 1: So that's increasing global over capacity that's creating a headwind 135 00:07:32,200 --> 00:07:36,240 Speaker 1: for inflation. And then the second thing that's significant is 136 00:07:36,320 --> 00:07:41,840 Speaker 1: technology enabled disruption, which is another way of saying machines 137 00:07:41,840 --> 00:07:46,920 Speaker 1: are increasingly replacing people, but consumers can use technology now 138 00:07:47,000 --> 00:07:50,160 Speaker 1: to shop for pricing more than ever in our lifetime, 139 00:07:50,240 --> 00:07:54,600 Speaker 1: and therefore the pricing power of businesses is less than 140 00:07:54,720 --> 00:07:56,760 Speaker 1: has it been at any time in our to the 141 00:07:56,760 --> 00:07:59,160 Speaker 1: PhD economists, and wants you to know that, I mean, 142 00:07:59,160 --> 00:08:02,600 Speaker 1: a guy like you come from a different world. Uh, 143 00:08:02,640 --> 00:08:05,280 Speaker 1: the guy up in Minneapolis comes from Cary, comes from 144 00:08:05,280 --> 00:08:07,160 Speaker 1: a different world, et cetera. Do you guys have an 145 00:08:07,200 --> 00:08:10,200 Speaker 1: advantage because you didn't read the textbooks? Well, I think 146 00:08:10,520 --> 00:08:13,240 Speaker 1: many of the many FED presidents, or I would say 147 00:08:13,280 --> 00:08:15,760 Speaker 1: even most do what I do. I look, I talked 148 00:08:15,800 --> 00:08:18,120 Speaker 1: to all the economists, I go through all the economic theory, 149 00:08:18,120 --> 00:08:21,760 Speaker 1: all the economic data, and then I talked to probably 150 00:08:21,800 --> 00:08:24,560 Speaker 1: thirty c e o s. Every month, we do surveys 151 00:08:24,600 --> 00:08:27,600 Speaker 1: among businesses, small businesses, big business as. We do not 152 00:08:27,680 --> 00:08:31,080 Speaker 1: only industrial surveys, but energy surveys, service sector surveys, and 153 00:08:31,120 --> 00:08:33,640 Speaker 1: I put them both together. So a lot of my 154 00:08:33,800 --> 00:08:36,880 Speaker 1: understand about what's going on out there I look at data, 155 00:08:37,160 --> 00:08:39,000 Speaker 1: but a lot of it also comes from talking to 156 00:08:39,040 --> 00:08:42,440 Speaker 1: business leaders. Talking to business leaders is in the present. 157 00:08:42,960 --> 00:08:46,439 Speaker 1: What are your thoughts on forward guidance? This concept is 158 00:08:46,559 --> 00:08:49,920 Speaker 1: silliness of data dependency. Do you find the dots to 159 00:08:49,960 --> 00:08:54,079 Speaker 1: be a constructive tool? Well, so there's a few questions 160 00:08:54,080 --> 00:08:56,320 Speaker 1: in there. So let's talk about data. Let's take data 161 00:08:56,360 --> 00:09:00,200 Speaker 1: dependency for starters. So I'm not I'm not crazy out 162 00:09:00,200 --> 00:09:04,280 Speaker 1: the term data dependency. I prefer to look at data. 163 00:09:04,600 --> 00:09:06,520 Speaker 1: But as a business person, again, I like to look 164 00:09:06,559 --> 00:09:10,240 Speaker 1: at secular drivers, and then data as the economy unfolds, 165 00:09:10,280 --> 00:09:15,079 Speaker 1: either confirms or makes me question the effect these drivers 166 00:09:15,080 --> 00:09:19,280 Speaker 1: are having. So, uh, for example, GDP growth is sluggish. 167 00:09:19,679 --> 00:09:21,960 Speaker 1: I think the big driver behind that. One of the 168 00:09:21,960 --> 00:09:26,840 Speaker 1: big drivers is aging demographics, slowing population growth, slowing workforce growth, 169 00:09:27,040 --> 00:09:29,920 Speaker 1: and so that makes that makes sense to me. Uh 170 00:09:30,760 --> 00:09:32,760 Speaker 1: So I think you got to look at both. But 171 00:09:32,800 --> 00:09:35,600 Speaker 1: I prefer to look at drivers, and then the data 172 00:09:35,720 --> 00:09:37,920 Speaker 1: sort of confirms, like it would as a business person, 173 00:09:38,600 --> 00:09:41,080 Speaker 1: what track we're on or whether whether the drivers are 174 00:09:41,080 --> 00:09:43,920 Speaker 1: having the effect. I think, Carrie, let's go two hours. 175 00:09:43,960 --> 00:09:45,920 Speaker 1: This is going too well, all right, So that you 176 00:09:46,120 --> 00:09:48,800 Speaker 1: talked about the dot plot, so that makes plain of people. 177 00:09:48,840 --> 00:09:50,360 Speaker 1: I think most people here probably come on, we all 178 00:09:50,440 --> 00:09:53,240 Speaker 1: know what the plot. Well, it's shockingly some people may 179 00:09:53,240 --> 00:09:55,440 Speaker 1: not know what the dot plot is. But every quarter, 180 00:09:56,520 --> 00:10:00,320 Speaker 1: all the FED presidents and the governor's submit we all 181 00:10:00,360 --> 00:10:05,040 Speaker 1: submit our forecast for seventeen, eighteen nineteen in the medium 182 00:10:05,120 --> 00:10:10,520 Speaker 1: term GDP inflation not only headline, but core unemployment rate 183 00:10:11,080 --> 00:10:13,320 Speaker 1: and what we think the neutral rate is likely to be, 184 00:10:13,320 --> 00:10:16,520 Speaker 1: which will come back to settle out. So that's referred 185 00:10:16,520 --> 00:10:19,280 Speaker 1: to affectionately or not so affectionately as the dot plot 186 00:10:19,760 --> 00:10:22,199 Speaker 1: or the summary of economic projections. But that gives you 187 00:10:22,240 --> 00:10:25,040 Speaker 1: a pretty good feel every quarter of what each of 188 00:10:25,120 --> 00:10:28,760 Speaker 1: us is thinking about and the views there. There's a 189 00:10:28,800 --> 00:10:32,120 Speaker 1: scatter chart, but they tend to congeal around. Uh, certainly, 190 00:10:32,160 --> 00:10:34,080 Speaker 1: where's the vector of that chart? Right now? What are 191 00:10:34,080 --> 00:10:35,920 Speaker 1: we going to see in future? Dot? I mean you, 192 00:10:36,160 --> 00:10:38,320 Speaker 1: I know you're filling your form out on the way 193 00:10:38,320 --> 00:10:41,360 Speaker 1: from Reagan into the Ecles Building, right, But actually, I mean, 194 00:10:41,360 --> 00:10:43,600 Speaker 1: come on, there's a lot of analysis going into this thing. 195 00:10:43,640 --> 00:10:45,839 Speaker 1: But is it a valuable tool? Sure? And what's it 196 00:10:45,880 --> 00:10:48,080 Speaker 1: gonna show us in the number of If somebody who's 197 00:10:48,080 --> 00:10:50,640 Speaker 1: been observing the FED now for thirty years, that's me 198 00:10:50,720 --> 00:10:55,079 Speaker 1: and my business career, I think I think it's very useful, um, 199 00:10:55,400 --> 00:10:57,640 Speaker 1: because it gives me a pretty good idea about what 200 00:10:57,800 --> 00:11:01,160 Speaker 1: every participant around that table is thinking. Uh, and when 201 00:11:01,160 --> 00:11:03,319 Speaker 1: there are differences, it gives us a basis to debate, 202 00:11:03,320 --> 00:11:05,920 Speaker 1: so I think it's very useful. My own view, just 203 00:11:06,080 --> 00:11:10,080 Speaker 1: my dot has been GDP growth, for example this year 204 00:11:10,960 --> 00:11:13,560 Speaker 1: would be between two two and a quarter percent. I 205 00:11:13,559 --> 00:11:15,959 Speaker 1: think the unemployment rates four point four percent now I 206 00:11:15,960 --> 00:11:18,240 Speaker 1: think it's going to decline further as we get at 207 00:11:18,280 --> 00:11:20,800 Speaker 1: the end of this year. It's not the only employment 208 00:11:20,840 --> 00:11:23,199 Speaker 1: measure I look at. I look at something called you six, 209 00:11:23,480 --> 00:11:26,000 Speaker 1: which doesn't go on the dot plot, which I'll come 210 00:11:26,040 --> 00:11:29,280 Speaker 1: back to. And my own view is inflation will slowly 211 00:11:29,400 --> 00:11:32,559 Speaker 1: but gradually over the next two or three years, not immediately, 212 00:11:32,559 --> 00:11:34,319 Speaker 1: but the next two or three years. Get the two percent. 213 00:11:34,480 --> 00:11:38,320 Speaker 1: Within your wonderful books on leadership, there is implied through 214 00:11:38,400 --> 00:11:42,560 Speaker 1: all these books confidence. One of the great mysteries in 215 00:11:42,559 --> 00:11:44,680 Speaker 1: this room at the Council on Foreign Relations, one of 216 00:11:44,679 --> 00:11:48,360 Speaker 1: the great mysteries in your Dallas district is where is 217 00:11:48,480 --> 00:11:52,240 Speaker 1: business investment? Where is the confidence to move forward? Let 218 00:11:52,280 --> 00:11:54,600 Speaker 1: me just start with the Mathness is it because the 219 00:11:54,679 --> 00:11:57,720 Speaker 1: people that you used to talk to an HBS, they 220 00:11:57,760 --> 00:12:00,199 Speaker 1: can't figure out where the risk free rate is? Are 221 00:12:00,200 --> 00:12:02,640 Speaker 1: the distortions so great? So let's take let's take the 222 00:12:02,679 --> 00:12:06,840 Speaker 1: first part. Business confidence right now is high? Okay, there's 223 00:12:06,840 --> 00:12:09,880 Speaker 1: a lot of business optimism, and you see business investment 224 00:12:09,920 --> 00:12:11,600 Speaker 1: is stronger this year than it's been in the last 225 00:12:11,640 --> 00:12:15,960 Speaker 1: few years. The issue is, UH, that's great and it 226 00:12:16,000 --> 00:12:22,200 Speaker 1: can help GDP growth, but se approximately the economy is 227 00:12:22,200 --> 00:12:25,920 Speaker 1: the consumer. So at the end of the day, businesses 228 00:12:25,920 --> 00:12:30,880 Speaker 1: are more optimistic for several reasons, but ultimately everyone is 229 00:12:30,920 --> 00:12:34,079 Speaker 1: watching the consumer. The consumer is the primary driver of 230 00:12:34,160 --> 00:12:38,400 Speaker 1: GDP growth. Increased business investment though helps and businesses right now, 231 00:12:38,440 --> 00:12:42,400 Speaker 1: we're optimistic, do they see it? The disconnect right now 232 00:12:42,480 --> 00:12:45,040 Speaker 1: is while they're more optimistic, then when you ask a 233 00:12:45,080 --> 00:12:48,640 Speaker 1: business leader, do you see improvement in your business? Oftentimes 234 00:12:48,679 --> 00:12:52,000 Speaker 1: the answer is not yet, but we're expecting it. We're 235 00:12:52,040 --> 00:12:54,680 Speaker 1: expecting We're still there. Does it have to do with 236 00:12:54,800 --> 00:12:58,360 Speaker 1: rain art rokeof length or duration coming out of the 237 00:12:58,400 --> 00:13:01,480 Speaker 1: financial crisis? It just takes kind to heal or there 238 00:13:01,559 --> 00:13:06,240 Speaker 1: a new format of globalization where American business is waiting 239 00:13:06,640 --> 00:13:10,760 Speaker 1: to pull the trigger on the nostalgic investment. Remember, so 240 00:13:10,920 --> 00:13:14,760 Speaker 1: for me, UH, I think some business leaders are hopeful, 241 00:13:15,480 --> 00:13:19,319 Speaker 1: UH that fiscal and other policies might help improve GDP growth. 242 00:13:19,320 --> 00:13:25,240 Speaker 1: That's part of it, UM and UH. In addition, though 243 00:13:25,720 --> 00:13:27,600 Speaker 1: some of the things that have been headwinds which I 244 00:13:27,600 --> 00:13:32,360 Speaker 1: don't think are going away, sluggish population growth which has 245 00:13:32,360 --> 00:13:36,840 Speaker 1: a big effect on consumer spending, and sluggish GDP growth, 246 00:13:37,160 --> 00:13:41,960 Speaker 1: but also increasing disruption and new business models increasingly are 247 00:13:41,960 --> 00:13:45,080 Speaker 1: displacing old ones, which are giving many business leaders pause. 248 00:13:45,720 --> 00:13:48,520 Speaker 1: Even though they want to invest in their business, they're 249 00:13:48,559 --> 00:13:50,880 Speaker 1: not sure that the model that they're investing in is 250 00:13:50,920 --> 00:13:53,520 Speaker 1: going to be sustainable. So I think that's a that's 251 00:13:53,559 --> 00:13:58,079 Speaker 1: a countervailing headwind which is putting a bit of tamping 252 00:13:58,120 --> 00:13:59,880 Speaker 1: down a little bit of options. So you wandered down 253 00:13:59,880 --> 00:14:01,800 Speaker 1: to college station and you have to give a lecture 254 00:14:01,800 --> 00:14:03,760 Speaker 1: at the business school, and some wise guy in an 255 00:14:03,760 --> 00:14:06,640 Speaker 1: A Corps uniform stands up in the back and goes, 256 00:14:06,760 --> 00:14:09,360 Speaker 1: excuse me, sir, do you believe in GDP because that's 257 00:14:09,360 --> 00:14:12,439 Speaker 1: a whole belief right now that these statistics, these traditional 258 00:14:12,480 --> 00:14:15,240 Speaker 1: models that we have don't work anywhere. How do you 259 00:14:15,280 --> 00:14:19,560 Speaker 1: respond to the youngster Texas A? Yeah, So here's here's 260 00:14:19,560 --> 00:14:21,520 Speaker 1: the things that are clear, and here the things that 261 00:14:21,560 --> 00:14:25,640 Speaker 1: are getting debated. GDP growth still it's not perfect, but 262 00:14:25,800 --> 00:14:30,600 Speaker 1: it's still pretty good measure of economic activity. There's an 263 00:14:30,680 --> 00:14:33,440 Speaker 1: issue a lot of people raise about transfer pricing. You 264 00:14:33,440 --> 00:14:37,240 Speaker 1: know Apple, uh innovates a phone here, but they manufactured overseas. 265 00:14:37,440 --> 00:14:40,280 Speaker 1: But I still think GDP growth is is pretty good measure. 266 00:14:40,440 --> 00:14:44,760 Speaker 1: The debate has been about the unemployment rate UH and famously, 267 00:14:45,200 --> 00:14:47,720 Speaker 1: you know many many people have gotten on television said 268 00:14:47,760 --> 00:14:49,840 Speaker 1: the four point four percent. That's a great number, but 269 00:14:49,920 --> 00:14:52,720 Speaker 1: it's not a real number. So I like to go 270 00:14:52,760 --> 00:14:55,480 Speaker 1: to U six, which I mentioned earlier. Here's what U 271 00:14:55,600 --> 00:14:58,200 Speaker 1: six is in the lingo, So you three to use 272 00:14:58,240 --> 00:15:01,360 Speaker 1: the lingo is the headline unemploy himent rate. You six 273 00:15:01,880 --> 00:15:06,720 Speaker 1: is unemployed plus discourage workers plus people who are working 274 00:15:06,840 --> 00:15:10,080 Speaker 1: part time if in a better economy would rather work 275 00:15:10,120 --> 00:15:12,600 Speaker 1: full time. I think that's a better measure of slack. 276 00:15:12,960 --> 00:15:16,640 Speaker 1: That's at eight point six percent right now, here's the problem. 277 00:15:16,920 --> 00:15:20,440 Speaker 1: The pre recession low in that number was eight point 278 00:15:20,480 --> 00:15:26,560 Speaker 1: one percent, So we're gradually moving toward the prerecession low. 279 00:15:26,840 --> 00:15:30,760 Speaker 1: And in a hundred and sixty million person economy, difference 280 00:15:30,800 --> 00:15:33,320 Speaker 1: between eight six and eight one, it's less than a 281 00:15:33,360 --> 00:15:37,360 Speaker 1: million workers. While they're slack. There's not as much slack 282 00:15:37,520 --> 00:15:40,120 Speaker 1: as people might think. And here's the second problem, which 283 00:15:40,120 --> 00:15:43,560 Speaker 1: we'll get to. Where there is slack, it is highly 284 00:15:43,600 --> 00:15:48,080 Speaker 1: correlated to lower levels of educational attainment i e. College 285 00:15:48,360 --> 00:15:52,120 Speaker 1: and less than college. That participation rates and employment rates 286 00:15:52,280 --> 00:15:54,720 Speaker 1: if you finished college are very high in the United States. 287 00:15:54,840 --> 00:15:56,840 Speaker 1: They could get better, but they're pretty high. Even if 288 00:15:56,880 --> 00:16:00,440 Speaker 1: you've finished some college, they're relatively high. If you went 289 00:16:00,480 --> 00:16:03,000 Speaker 1: to high school, though, they're lower, and if you've got 290 00:16:03,120 --> 00:16:06,960 Speaker 1: some high school education, they're much lower. And so the 291 00:16:07,000 --> 00:16:10,400 Speaker 1: problem is where they're slack and discourage workers. There's there's 292 00:16:10,440 --> 00:16:13,520 Speaker 1: a high correlation between high school and less than high school, 293 00:16:13,560 --> 00:16:16,280 Speaker 1: and that's why there's a number of things we're gonna 294 00:16:16,320 --> 00:16:27,200 Speaker 1: need to do to address that runt. You by Bank 295 00:16:27,200 --> 00:16:31,920 Speaker 1: of America Mary Lynch. With virtual reality, virtually everything will change. 296 00:16:32,400 --> 00:16:36,960 Speaker 1: Discover opportunities in a transforming world. VI of a mL 297 00:16:37,080 --> 00:16:42,640 Speaker 1: dot Com slash VR, Mary Lynch, Pierced Fenner and Smith Incorporated. 298 00:16:48,120 --> 00:16:52,000 Speaker 1: There's something new from Bloomberg. It's called Lens. Starting right now, 299 00:16:52,080 --> 00:16:55,440 Speaker 1: you can use the Bloomberg iOS app off your iPhone 300 00:16:55,560 --> 00:17:00,200 Speaker 1: or iPad or our new Google Chrome extension to read 301 00:17:00,240 --> 00:17:04,160 Speaker 1: any news story on any website, scan it, and then 302 00:17:04,200 --> 00:17:08,359 Speaker 1: instantly see the news stories relevant market data from Bloomberg. 303 00:17:08,680 --> 00:17:11,760 Speaker 1: In addition, see all the bios of the key people 304 00:17:12,200 --> 00:17:15,439 Speaker 1: mentioned in the story. It's called lens, and it is 305 00:17:15,480 --> 00:17:18,560 Speaker 1: just that, a lens into the people and the data 306 00:17:18,680 --> 00:17:22,919 Speaker 1: of any story you may be reading. Again, Lens brings 307 00:17:22,960 --> 00:17:26,199 Speaker 1: you the power of Bloomberg's news and data. Download or 308 00:17:26,240 --> 00:17:29,560 Speaker 1: io s app or search for the Bloomberg extension at 309 00:17:29,600 --> 00:17:32,919 Speaker 1: the Chrome Store to try lens out. Learn more at 310 00:17:32,960 --> 00:17:39,280 Speaker 1: Bloomberg dot com slash lens. I want to ask one 311 00:17:39,320 --> 00:17:42,159 Speaker 1: more monetary question before we dive into what some of 312 00:17:42,200 --> 00:17:44,520 Speaker 1: the research you and your team have been doing at 313 00:17:44,680 --> 00:17:48,800 Speaker 1: at Dallas. One of my treasured books is out of 314 00:17:48,800 --> 00:17:52,560 Speaker 1: the Dallas fed and it is a beautiful, thick monograph, 315 00:17:52,920 --> 00:17:57,159 Speaker 1: exceptionally smart set of essays in honor of John B. Taylor, 316 00:17:57,280 --> 00:18:00,400 Speaker 1: Stanford University. It was a symposium, it was done. I've 317 00:18:00,400 --> 00:18:02,520 Speaker 1: read the whole thing cover to cover. It is math 318 00:18:02,640 --> 00:18:06,000 Speaker 1: warning for those of you have the CFR, I'm sorry, 319 00:18:06,400 --> 00:18:12,479 Speaker 1: algebra differential equations, but within that is some brilliance. Do 320 00:18:12,600 --> 00:18:17,480 Speaker 1: you buy the traditional economics of the feed when the 321 00:18:17,560 --> 00:18:20,520 Speaker 1: media trots out the Phillips curve and you and I 322 00:18:20,560 --> 00:18:23,359 Speaker 1: can go much deeper than trying to answers, do you 323 00:18:23,440 --> 00:18:26,760 Speaker 1: buy the orthodoxy still works? Or do we have to 324 00:18:26,800 --> 00:18:30,159 Speaker 1: amend it. So let me talk about some things that 325 00:18:30,200 --> 00:18:32,640 Speaker 1: have been used historically that I think need to be adjusted. 326 00:18:32,640 --> 00:18:36,440 Speaker 1: The Philip's curve, for example, which talks about transmission. If 327 00:18:36,440 --> 00:18:39,560 Speaker 1: you're at full employment, you would expects wage pressure. You 328 00:18:39,600 --> 00:18:43,000 Speaker 1: expect that wage pressure to translate into price pressure and inflation. 329 00:18:43,520 --> 00:18:47,120 Speaker 1: I would say because of globalization, i e. This excess 330 00:18:47,119 --> 00:18:50,679 Speaker 1: capacity issue, and also what I talked about disruption, the 331 00:18:50,720 --> 00:18:53,399 Speaker 1: fact that businesses have less pricing power. I think the 332 00:18:53,440 --> 00:18:56,640 Speaker 1: Phillips curve is still is alive and well, but it's 333 00:18:56,680 --> 00:19:01,200 Speaker 1: more muted, meaning to extent there's wage pressure here today, 334 00:19:01,480 --> 00:19:04,439 Speaker 1: it's less likely that gets transmitted to prices because business 335 00:19:04,440 --> 00:19:10,080 Speaker 1: customers won't accept the price increase. And um, because businesses 336 00:19:10,160 --> 00:19:14,159 Speaker 1: can replace workers with technology and there's wage pressure, it 337 00:19:14,240 --> 00:19:18,200 Speaker 1: puts some downward pressure on wage pressure. So that's one example. UM. 338 00:19:19,080 --> 00:19:23,639 Speaker 1: I would say. The second thing is the economy is 339 00:19:23,720 --> 00:19:26,520 Speaker 1: dramatically different than it was ten years ago, twenty years ago, 340 00:19:26,560 --> 00:19:28,280 Speaker 1: and thirty years ago. You know, a lot of people 341 00:19:28,320 --> 00:19:30,720 Speaker 1: like to refer back to the Reagan air and it's 342 00:19:30,760 --> 00:19:34,600 Speaker 1: and here's what's so different, uh, aging demographics. So the 343 00:19:34,640 --> 00:19:36,640 Speaker 1: trend over the last thirty years has been going like this, 344 00:19:36,840 --> 00:19:40,960 Speaker 1: slowing population growth, lower participation rates, and over the next 345 00:19:41,000 --> 00:19:43,720 Speaker 1: ten years, the bad news is it's gonna get worse. 346 00:19:44,240 --> 00:19:46,520 Speaker 1: And it's one of the few things we can forecast 347 00:19:46,560 --> 00:19:49,120 Speaker 1: with a lot of confidence. And we think the participation 348 00:19:49,200 --> 00:19:53,560 Speaker 1: rate today sixty it's likely to diplo. So that's one issue. 349 00:19:53,720 --> 00:19:56,760 Speaker 1: Globalization is different today than it was twenty and thirty 350 00:19:56,840 --> 00:20:01,760 Speaker 1: years ago, meaning, uh, we're much more globally intertwined. But 351 00:20:02,520 --> 00:20:06,840 Speaker 1: the trade relationships I think are being misdiagnosed a little 352 00:20:06,880 --> 00:20:10,920 Speaker 1: bit today, meaning uh, it's not a zero sum game. 353 00:20:11,280 --> 00:20:15,600 Speaker 1: Our relationship, for example, with Mexico, in our judgment, increases 354 00:20:15,920 --> 00:20:19,879 Speaker 1: US competitiveness, has caused jobs to stay in the United 355 00:20:19,880 --> 00:20:23,679 Speaker 1: States that we'd otherwise lose, most likely to Asia. And 356 00:20:23,720 --> 00:20:26,320 Speaker 1: so you have to think about globalization different disruption. We've 357 00:20:26,320 --> 00:20:28,359 Speaker 1: already mentioned that I got one last one and I'll stop, 358 00:20:28,600 --> 00:20:32,080 Speaker 1: and that is the debt supercycle. We are much more 359 00:20:32,240 --> 00:20:35,640 Speaker 1: leveraged today than we were ten years ago, certainly twenty 360 00:20:35,720 --> 00:20:38,680 Speaker 1: years ago and thirty years ago. Uh. Government dead held 361 00:20:38,720 --> 00:20:42,320 Speaker 1: by the public is now seventy it's been going up, 362 00:20:42,880 --> 00:20:46,800 Speaker 1: and present value of unfunded entitlements is now forty six trillion. 363 00:20:46,840 --> 00:20:50,360 Speaker 1: Dollars also been going up, and because of aging demographics 364 00:20:50,520 --> 00:20:54,240 Speaker 1: makes it worse. And that's that last part. I think 365 00:20:54,280 --> 00:20:57,080 Speaker 1: that creates a head wind that isn't talked about that much. 366 00:20:57,359 --> 00:20:59,359 Speaker 1: Reason it's not talked about his rates are so low. 367 00:20:59,440 --> 00:21:02,000 Speaker 1: If you had more normal interest rates, I think we'd 368 00:21:02,040 --> 00:21:05,000 Speaker 1: be having a much more intense national discussion on that. 369 00:21:05,040 --> 00:21:06,600 Speaker 1: I want to take to some of those themes, but 370 00:21:06,640 --> 00:21:09,480 Speaker 1: I got so it changes everything. The FETE analysis, you 371 00:21:09,480 --> 00:21:12,120 Speaker 1: have to talk agree, it changes the world is different. 372 00:21:12,240 --> 00:21:13,880 Speaker 1: So we've got to change the way we look at Okay, 373 00:21:13,880 --> 00:21:15,040 Speaker 1: we're gonna do that in a minute, but I got 374 00:21:15,160 --> 00:21:16,840 Speaker 1: to rip up the script on one question. I want 375 00:21:16,920 --> 00:21:18,960 Speaker 1: to speak not so much to the president. Is a 376 00:21:19,000 --> 00:21:20,800 Speaker 1: public official, I'm not. I know you're not going to 377 00:21:20,880 --> 00:21:23,720 Speaker 1: take shots in any other I am not. I know 378 00:21:23,840 --> 00:21:25,400 Speaker 1: you're not. We're gonna get that out of the way. 379 00:21:25,480 --> 00:21:28,280 Speaker 1: But what I would suggest, within the format of the 380 00:21:28,359 --> 00:21:31,399 Speaker 1: counts on foreign relations and the heritage of this shot, 381 00:21:31,680 --> 00:21:35,520 Speaker 1: we can go back to Jacob win or Chicago and 382 00:21:35,560 --> 00:21:38,760 Speaker 1: talk about America is a mercantilis power. You're on the 383 00:21:38,800 --> 00:21:41,720 Speaker 1: border with Mexico. They're gonna build the walls. You can 384 00:21:41,720 --> 00:21:45,000 Speaker 1: see it outside your window on Pearl Street. Are we 385 00:21:45,119 --> 00:21:48,199 Speaker 1: gonna end up being a mercantilist America? Is that a 386 00:21:48,240 --> 00:21:53,600 Speaker 1: real risk? It's it's a direction we we would be 387 00:21:53,640 --> 00:21:55,680 Speaker 1: well served not to go in. And here's the Here's 388 00:21:55,720 --> 00:22:02,040 Speaker 1: the problem is the of the imports it's from Mexico today. 389 00:22:02,240 --> 00:22:06,720 Speaker 1: Is US content okay? Means these goods going back and 390 00:22:07,280 --> 00:22:10,399 Speaker 1: forth across the border. Adding jobs in the US is 391 00:22:10,440 --> 00:22:14,199 Speaker 1: not the only criteria. Are they globally competitive? That that 392 00:22:14,280 --> 00:22:17,200 Speaker 1: will they sustain? Will they be here ten years now? 393 00:22:17,359 --> 00:22:22,159 Speaker 1: The relationship with Mexico allows us to be more globally competitive. 394 00:22:22,320 --> 00:22:26,040 Speaker 1: Here's the second problem is geo politically. I think this country, 395 00:22:26,040 --> 00:22:28,520 Speaker 1: maybe we've taken it for rent, is very well served 396 00:22:29,200 --> 00:22:34,840 Speaker 1: by having stable relationships with stale relationship with our neighbor 397 00:22:34,920 --> 00:22:38,200 Speaker 1: on our southern border. UH. It has been. It's a 398 00:22:38,359 --> 00:22:40,560 Speaker 1: very helpful to the United States. And my only my 399 00:22:40,600 --> 00:22:42,800 Speaker 1: main concern I think NAFTA my own view, and I've 400 00:22:42,800 --> 00:22:45,480 Speaker 1: said this publicly, will get renegotiated in a constructive way 401 00:22:45,520 --> 00:22:51,080 Speaker 1: despite the rhetoric. But the mood in Mexico UH is 402 00:22:51,200 --> 00:22:52,919 Speaker 1: much more. And I go down there a lot and 403 00:22:53,080 --> 00:22:55,400 Speaker 1: spend a lot of time with leaders there is more 404 00:22:55,560 --> 00:22:58,399 Speaker 1: anti American. And my concern is when there's a presidential 405 00:22:58,400 --> 00:23:00,919 Speaker 1: election in Mexico in the summer of two thousand eighteen, 406 00:23:01,720 --> 00:23:06,040 Speaker 1: unless we unless we can improve this this tone, it's 407 00:23:06,119 --> 00:23:08,760 Speaker 1: more likely that you'll have to be an American to 408 00:23:08,840 --> 00:23:10,960 Speaker 1: get elected as the president of Mexico in the summer 409 00:23:10,960 --> 00:23:13,080 Speaker 1: of two thousand eighteen. I think that would that would 410 00:23:13,080 --> 00:23:16,560 Speaker 1: not serve the United States very well. Let us call 411 00:23:16,680 --> 00:23:18,800 Speaker 1: us together here before we get to your questions here 412 00:23:18,800 --> 00:23:21,480 Speaker 1: in about twelve minutes, I want to call us together 413 00:23:21,720 --> 00:23:23,880 Speaker 1: some of the themes you and your research have been 414 00:23:23,880 --> 00:23:26,720 Speaker 1: working on. UM. I go back and forth with Michael Dell, 415 00:23:26,760 --> 00:23:30,320 Speaker 1: who's a leading technologist of your shop. Arguably he jumped started. 416 00:23:30,520 --> 00:23:32,960 Speaker 1: I mean I think asleep the band Asleep at the 417 00:23:32,960 --> 00:23:35,200 Speaker 1: Wheel would think they jump started Austin. But we'll give 418 00:23:35,200 --> 00:23:38,760 Speaker 1: the credit to Mr Dell. The answer is technology disruption 419 00:23:39,240 --> 00:23:41,840 Speaker 1: is owned by the eleventh District. I know out in 420 00:23:41,880 --> 00:23:44,879 Speaker 1: California they think they don't know you guys own it. 421 00:23:45,200 --> 00:23:48,680 Speaker 1: What have you learned about technology disruption in our two 422 00:23:48,720 --> 00:23:51,720 Speaker 1: America's Uh, Well, the first thing I've learned is no 423 00:23:51,760 --> 00:23:55,800 Speaker 1: one owns it. It's everywhere. Uh, it's affecting every mall, 424 00:23:55,880 --> 00:23:59,520 Speaker 1: it's affecting every business. It's even affecting higher education. Used 425 00:23:59,520 --> 00:24:01,359 Speaker 1: to be people you just think higher education it's not 426 00:24:01,400 --> 00:24:05,399 Speaker 1: going to get disrupted. It's getting disrupted. It's everywhere, and 427 00:24:05,440 --> 00:24:08,880 Speaker 1: it's springing up in every state in this country. And 428 00:24:09,000 --> 00:24:12,480 Speaker 1: so what does it mean. It means workers are far 429 00:24:12,560 --> 00:24:15,520 Speaker 1: more likely in the next thirty years to have to 430 00:24:15,520 --> 00:24:19,480 Speaker 1: find a new career or a new job during their career, 431 00:24:19,800 --> 00:24:25,200 Speaker 1: which means skills training is much more important. Worker adaptability 432 00:24:25,280 --> 00:24:28,560 Speaker 1: is much more important. And the problem is worker mobility 433 00:24:28,600 --> 00:24:31,320 Speaker 1: is declining lower, so it means if you're going to 434 00:24:31,400 --> 00:24:34,440 Speaker 1: find a new job, it's probably gonna have to be locally, 435 00:24:34,880 --> 00:24:36,399 Speaker 1: which is why we're spending a lot of time on 436 00:24:36,440 --> 00:24:40,000 Speaker 1: the Dallas FED and in our research focusing on creating 437 00:24:40,040 --> 00:24:45,640 Speaker 1: these partnerships between businesses, educational institutions, nonprofits to to create 438 00:24:45,680 --> 00:24:48,680 Speaker 1: skills training for a whole series of jobs to let 439 00:24:48,720 --> 00:24:52,040 Speaker 1: people who get who lose their job, to get trained 440 00:24:52,119 --> 00:24:55,360 Speaker 1: and back into the workforce. We're doing it much more 441 00:24:55,560 --> 00:24:58,400 Speaker 1: in the United States, but not quickly enough. We did 442 00:24:58,400 --> 00:25:00,640 Speaker 1: that when the Cowboys went six super rolls in a row. 443 00:25:00,680 --> 00:25:02,919 Speaker 1: We called it the community college model. Is that the 444 00:25:02,960 --> 00:25:06,440 Speaker 1: model that works or what's the new community has to be? 445 00:25:07,200 --> 00:25:10,040 Speaker 1: There's community colleges are a part of this. It has 446 00:25:10,119 --> 00:25:13,560 Speaker 1: to be a partnership. Okay, So we have a number 447 00:25:13,600 --> 00:25:16,200 Speaker 1: of businesses in our district. They have to get together 448 00:25:16,240 --> 00:25:19,440 Speaker 1: and we help facilitate this. At the FED, we convene people. 449 00:25:19,560 --> 00:25:21,840 Speaker 1: They have to say, we need so many pipe fitters, 450 00:25:21,880 --> 00:25:26,440 Speaker 1: automotive technicians, registered nurses, insurance specialists, go on and on 451 00:25:26,880 --> 00:25:30,280 Speaker 1: at the I T people and we have enough slots 452 00:25:30,280 --> 00:25:33,199 Speaker 1: that to the local community college if we if we 453 00:25:33,240 --> 00:25:37,280 Speaker 1: create a training program, we can take these see tangible 454 00:25:37,320 --> 00:25:39,600 Speaker 1: results of that. You see it all over the state 455 00:25:39,680 --> 00:25:43,080 Speaker 1: and all around the country. My concern is it's not 456 00:25:43,200 --> 00:25:46,639 Speaker 1: happening fast enough. We have to scale it up. And 457 00:25:46,640 --> 00:25:49,120 Speaker 1: the reason it's not so easy to scale it's got 458 00:25:49,160 --> 00:25:51,200 Speaker 1: to be done locally. It's not the kind of thing 459 00:25:51,240 --> 00:25:54,320 Speaker 1: you scale nationally so easily because it has to be 460 00:25:54,400 --> 00:25:57,840 Speaker 1: done locally, because worker mobility is lower. That's why this 461 00:25:57,920 --> 00:26:02,280 Speaker 1: is so hard. Link this idea and frankly many other 462 00:26:02,320 --> 00:26:06,040 Speaker 1: ideas to the tragedy. I haven't read about it in Texas, 463 00:26:06,080 --> 00:26:09,800 Speaker 1: but we have an opioid epidemic across a leaguered Middle West. 464 00:26:09,840 --> 00:26:12,960 Speaker 1: I'll pick on West Virginia, Ohio. I'm sorry, sunder Deportment 465 00:26:13,000 --> 00:26:15,600 Speaker 1: that I did that. But there are these geographies of 466 00:26:15,720 --> 00:26:20,720 Speaker 1: incredible disassociation from the world of economics, in the world 467 00:26:20,720 --> 00:26:24,399 Speaker 1: of a better America's President Obama called it, what do 468 00:26:24,440 --> 00:26:26,600 Speaker 1: you need to do in the eleventh district to jump 469 00:26:26,680 --> 00:26:30,680 Speaker 1: start those people who are truly outside the good? So 470 00:26:31,160 --> 00:26:33,280 Speaker 1: all the work we do, first of all, there's a trend, 471 00:26:33,400 --> 00:26:38,080 Speaker 1: as you know, people moving from rural areas in two cities. Uh. 472 00:26:38,119 --> 00:26:41,240 Speaker 1: But the big trend, and the big thing that you 473 00:26:41,320 --> 00:26:44,399 Speaker 1: keep coming back to, is if you have lower levels 474 00:26:44,400 --> 00:26:47,720 Speaker 1: of educational attainment, you are more likely have poor health, 475 00:26:47,760 --> 00:26:49,560 Speaker 1: You're more likely to use drugs, you're more likely to 476 00:26:49,560 --> 00:26:53,560 Speaker 1: be incarcerated. Everything that's bad is more likely that you're 477 00:26:53,640 --> 00:26:56,960 Speaker 1: likely to have a shorter lifespan. And so I think 478 00:26:57,000 --> 00:26:58,840 Speaker 1: the two things that can be done I talked about 479 00:26:58,840 --> 00:27:01,800 Speaker 1: workforce development, that there's a second thing, which also spent 480 00:27:01,880 --> 00:27:04,560 Speaker 1: a lot of time on early childhood literacy. So we 481 00:27:04,600 --> 00:27:07,960 Speaker 1: have to improve the school system. But what happens is 482 00:27:08,000 --> 00:27:10,879 Speaker 1: all our work shows that we look at says if 483 00:27:10,880 --> 00:27:13,920 Speaker 1: you start kindergarten behind, you never catch up. Okay, it's 484 00:27:13,920 --> 00:27:16,640 Speaker 1: already too late. Minnieapolis has done great. They do great 485 00:27:16,640 --> 00:27:19,320 Speaker 1: work in Minneapolis FED on this and so and we've 486 00:27:19,359 --> 00:27:22,959 Speaker 1: piggybacked on that zero to five. We've got to do 487 00:27:23,080 --> 00:27:28,400 Speaker 1: much more in this away from the Dallas FED. Yeah, 488 00:27:28,440 --> 00:27:30,760 Speaker 1: we're dealing with the guy out of Kansas who owns 489 00:27:30,920 --> 00:27:35,080 Speaker 1: leadership and own great service to Harvard Business School. Why 490 00:27:35,400 --> 00:27:39,520 Speaker 1: can't we jump start this? What's the impediment? What is 491 00:27:39,560 --> 00:27:43,320 Speaker 1: the constrain to getting the five year olds jump started? 492 00:27:43,440 --> 00:27:45,320 Speaker 1: I'll give you my own view, and this is somebody, 493 00:27:45,400 --> 00:27:47,200 Speaker 1: but I'm speaking for myself. Spent a lot of time 494 00:27:47,200 --> 00:27:50,639 Speaker 1: in the nonprofit World Forward Foundation on this first awareness 495 00:27:50,720 --> 00:27:54,040 Speaker 1: just making clear people has to be done locally because 496 00:27:54,080 --> 00:27:56,160 Speaker 1: you know what you're gonna You have to do this 497 00:27:56,440 --> 00:27:58,679 Speaker 1: with a local program. So you've got to make business 498 00:27:58,760 --> 00:28:01,960 Speaker 1: leaders aware of it. Government is unlikely to allocate enough 499 00:28:02,000 --> 00:28:05,040 Speaker 1: money to solve this, so means business leaders and nonprofits 500 00:28:05,040 --> 00:28:08,040 Speaker 1: have to get together or you have to form nonprofits 501 00:28:08,119 --> 00:28:11,119 Speaker 1: so that kids are read to if their parents don't 502 00:28:11,119 --> 00:28:15,119 Speaker 1: do it. Uh at ages one to three, four and five, 503 00:28:15,680 --> 00:28:18,720 Speaker 1: and so, I think this takes leadership, and this is 504 00:28:18,760 --> 00:28:23,200 Speaker 1: something that business leaders mayors in this country are spending 505 00:28:23,240 --> 00:28:25,440 Speaker 1: time on But it's gonna take I think if we're 506 00:28:25,440 --> 00:28:28,639 Speaker 1: waiting for the government to solve this problem, Washington, what 507 00:28:28,680 --> 00:28:30,800 Speaker 1: does any government or state govern if you if you're 508 00:28:30,840 --> 00:28:33,840 Speaker 1: waiting for government to solve this, you can stop. It's 509 00:28:34,119 --> 00:28:35,919 Speaker 1: that they can do it, but it's got to be 510 00:28:35,960 --> 00:28:40,400 Speaker 1: done from leadership leaders locally and I'm talking business leaders, 511 00:28:40,400 --> 00:28:45,040 Speaker 1: community leaders, nonprofit leaders, and yes, local government leaders need 512 00:28:45,080 --> 00:28:48,080 Speaker 1: to take ownership. And I think they are and this 513 00:28:48,160 --> 00:28:50,320 Speaker 1: is one of those things. We're just not doing it 514 00:28:50,520 --> 00:28:54,760 Speaker 1: nearly fast enough given the demographic trends, which suggests if 515 00:28:54,800 --> 00:28:57,760 Speaker 1: you if you don't improve educational attainment level, it's twenty 516 00:28:57,840 --> 00:29:01,080 Speaker 1: years from now, wealth inequality is going to grow much much, 517 00:29:01,160 --> 00:29:04,160 Speaker 1: to a much greater degree. Within that wealth and equality 518 00:29:04,200 --> 00:29:06,520 Speaker 1: And you mentioned this earlier in our discussion, is the 519 00:29:06,600 --> 00:29:10,520 Speaker 1: concept of age and you talk about an aging America. Yeah, 520 00:29:10,880 --> 00:29:12,920 Speaker 1: I looked at last night out on Twitter. There's a 521 00:29:12,960 --> 00:29:18,400 Speaker 1: wonderful a six decade distribution of Japanese population dynamics. It's 522 00:29:18,400 --> 00:29:22,120 Speaker 1: a terrible problem there to see those issues. How do 523 00:29:22,160 --> 00:29:24,920 Speaker 1: we deal with that as a public policy? And by 524 00:29:24,920 --> 00:29:27,200 Speaker 1: the way, I'll just I'll mention on Japan they have 525 00:29:27,240 --> 00:29:29,480 Speaker 1: a much worse demographic issue than we do, and they've 526 00:29:29,520 --> 00:29:34,120 Speaker 1: had very slow depth geographic GDP growth. The one thing 527 00:29:34,200 --> 00:29:36,600 Speaker 1: they have that we don't have very high savings rate, 528 00:29:37,000 --> 00:29:41,479 Speaker 1: and they can they they're highly leveraged, but because um 529 00:29:43,680 --> 00:29:45,400 Speaker 1: the Central Bank has bought a lot of that and 530 00:29:45,440 --> 00:29:48,560 Speaker 1: they can restructure this. We and we are very highly 531 00:29:48,640 --> 00:29:52,440 Speaker 1: leveraged also, so we really we've got to grow faster. 532 00:29:53,440 --> 00:29:57,800 Speaker 1: And the problem is as the workforce ages, we can 533 00:29:57,840 --> 00:30:00,920 Speaker 1: create incentives for people to work longer, but there's no 534 00:30:01,000 --> 00:30:03,200 Speaker 1: gain around. Even if we do that, we're just delaying 535 00:30:03,240 --> 00:30:07,200 Speaker 1: the inevitable. Participation rates are declining. Now, how do you 536 00:30:07,280 --> 00:30:10,760 Speaker 1: solve that? Workforce development would help. The second thing that 537 00:30:10,800 --> 00:30:14,760 Speaker 1: would help is immigration. Some I know it's controversy built 538 00:30:14,760 --> 00:30:19,479 Speaker 1: sensible immigration reform. Immigration has been key to this country. 539 00:30:19,560 --> 00:30:22,760 Speaker 1: Immigrants and their children have made up over half the 540 00:30:22,760 --> 00:30:25,720 Speaker 1: workforce growth in this country over the last twenty years, 541 00:30:26,480 --> 00:30:28,440 Speaker 1: and it's our judgment of the Dallas Fed that if 542 00:30:28,440 --> 00:30:30,160 Speaker 1: you go out the next twenty years, it's going to 543 00:30:30,240 --> 00:30:33,840 Speaker 1: be higher than that because of aging demographics. So if 544 00:30:33,840 --> 00:30:38,240 Speaker 1: we do things that limit sensible immigration, we are likely 545 00:30:38,400 --> 00:30:41,200 Speaker 1: to slow GDP. Based on what you're saying, you're not 546 00:30:41,200 --> 00:30:43,000 Speaker 1: going to get the new slots at the White House, 547 00:30:43,520 --> 00:30:46,719 Speaker 1: with with with with within. That is what is the 548 00:30:46,760 --> 00:30:50,000 Speaker 1: tone out of Washington and what many perceived to be 549 00:30:50,040 --> 00:30:55,600 Speaker 1: a anger across this nation about immigrants, anger about this, 550 00:30:55,840 --> 00:30:57,840 Speaker 1: anger about that. I'm sure you see that within the 551 00:30:57,840 --> 00:31:03,880 Speaker 1: eleventh district, how do policymakers move beyond the angers of 552 00:31:03,920 --> 00:31:09,480 Speaker 1: two thousand seventeen um. So, actually within the eleventh district, 553 00:31:09,560 --> 00:31:12,800 Speaker 1: I think I wouldn't. I would say it's a little 554 00:31:12,800 --> 00:31:15,240 Speaker 1: bit more balanced the view because of the fact we're 555 00:31:15,320 --> 00:31:18,760 Speaker 1: right on the border with Mexico. I would say the following. 556 00:31:18,960 --> 00:31:22,000 Speaker 1: When I go around Texas, New Mexico and Louisiana, which 557 00:31:22,000 --> 00:31:25,560 Speaker 1: is primary and I talked, go to rural areas and 558 00:31:25,680 --> 00:31:29,520 Speaker 1: we talk about what the actual trends are. Uh, I think, 559 00:31:30,080 --> 00:31:33,560 Speaker 1: and we've talked about this fact globalization is increasingly being 560 00:31:34,400 --> 00:31:38,520 Speaker 1: conflated with technology enabled disruption. What I mean by that, 561 00:31:38,680 --> 00:31:40,920 Speaker 1: twenty years ago, many jobs that were lost in this 562 00:31:40,960 --> 00:31:43,480 Speaker 1: country we're due to globalization, and we can go industry 563 00:31:43,480 --> 00:31:48,000 Speaker 1: by industry and give examples today not so much. Uh, 564 00:31:48,080 --> 00:31:54,840 Speaker 1: it's technology enabled disruption is far more responsible for job displacement. 565 00:31:55,000 --> 00:31:58,560 Speaker 1: And the trends were saying than probably globalization is, and 566 00:31:58,720 --> 00:32:01,440 Speaker 1: to the point where I think part of key elements 567 00:32:01,440 --> 00:32:03,920 Speaker 1: of globalization are more likely to be part of the 568 00:32:04,000 --> 00:32:07,320 Speaker 1: solution than part of the problem, because I think a 569 00:32:07,360 --> 00:32:11,640 Speaker 1: lot of the disruption we're seeing is due to technology. Uh, 570 00:32:11,680 --> 00:32:13,840 Speaker 1: and I think we're mixing them up, and I don't 571 00:32:13,840 --> 00:32:15,720 Speaker 1: think we're being well served by it. How does the 572 00:32:15,840 --> 00:32:18,880 Speaker 1: Dallas FED, I mean, seriously, how does the Dallas Fed 573 00:32:19,000 --> 00:32:22,440 Speaker 1: respond to the idea that on this morning in Abilene, 574 00:32:22,480 --> 00:32:24,960 Speaker 1: there's somebody with brown skin worried they're gonna be picked 575 00:32:25,040 --> 00:32:28,320 Speaker 1: up by the US government. That's a new feeling for 576 00:32:28,480 --> 00:32:32,120 Speaker 1: millions of Americans. What is your research show is a 577 00:32:32,120 --> 00:32:35,400 Speaker 1: better outcome to that? Well, I guess I would observe 578 00:32:35,480 --> 00:32:38,080 Speaker 1: the following. And I've said this publicly a few times 579 00:32:38,480 --> 00:32:41,920 Speaker 1: several times, and I'll say it again. Um, consumer is 580 00:32:43,320 --> 00:32:46,520 Speaker 1: the economy, Okay, And so I'm insensitive to anything that 581 00:32:46,560 --> 00:32:50,440 Speaker 1: affects consumer spending, particularly among groups that have a very 582 00:32:50,520 --> 00:32:55,360 Speaker 1: high propensity to spend, which tend to be lower, lower 583 00:32:55,440 --> 00:33:00,200 Speaker 1: middle income groups. So healthcare reform I'm very sensitive to 584 00:33:00,200 --> 00:33:02,880 Speaker 1: to the extent people are more concerned about access to 585 00:33:02,920 --> 00:33:05,680 Speaker 1: health care, access to be able to get subsidies or 586 00:33:05,920 --> 00:33:08,360 Speaker 1: be able to be eligible for medicaid. They are more 587 00:33:08,400 --> 00:33:10,600 Speaker 1: likely to save them to spend. And there are millions 588 00:33:10,600 --> 00:33:12,960 Speaker 1: of immigrants living in this country, and to your point, 589 00:33:13,080 --> 00:33:15,640 Speaker 1: they're not going out and shopping, They're staying home. They're 590 00:33:15,640 --> 00:33:17,440 Speaker 1: afraid if they go out they may not come home 591 00:33:18,360 --> 00:33:21,120 Speaker 1: on margin, and that it's too soon for the data 592 00:33:21,200 --> 00:33:23,560 Speaker 1: to pick it up. So I'm hearing it anecdotally, and 593 00:33:23,600 --> 00:33:25,560 Speaker 1: I believe we're going to see it. I think those 594 00:33:25,600 --> 00:33:28,920 Speaker 1: people are more likely to save than to spend, and 595 00:33:29,080 --> 00:33:33,479 Speaker 1: those two effects have some muting effect on consumer spending 596 00:33:33,480 --> 00:33:37,080 Speaker 1: and therefore GDP growth. Within that and with the responsibilities 597 00:33:37,120 --> 00:33:39,040 Speaker 1: that Cheery Olne has, I don't want you to speak 598 00:33:39,080 --> 00:33:42,040 Speaker 1: for the chair, but I would suggest that she has 599 00:33:42,080 --> 00:33:47,400 Speaker 1: a huge burden and responsibility as we somehow normalize ourselves 600 00:33:47,440 --> 00:33:49,880 Speaker 1: back to rates. Do you believe we can do that 601 00:33:50,360 --> 00:33:53,360 Speaker 1: for that person in Abilene or for the rich guy 602 00:33:53,400 --> 00:33:57,880 Speaker 1: outside Dallas who's employing people. Can we do it in 603 00:33:57,920 --> 00:34:01,080 Speaker 1: a way of stability? Do you worried within the media 604 00:34:01,440 --> 00:34:03,760 Speaker 1: about the doom and gloom if we raise rates six 605 00:34:03,800 --> 00:34:08,239 Speaker 1: times in two thousand seventeen, Well there'll be instability. So 606 00:34:08,320 --> 00:34:12,160 Speaker 1: my own view is the following. UM, I got raise 607 00:34:12,280 --> 00:34:14,239 Speaker 1: rates six times. There, I got that we're not going 608 00:34:14,280 --> 00:34:18,680 Speaker 1: to do that, uh in a rapid way. UM. I 609 00:34:18,719 --> 00:34:24,040 Speaker 1: believe because of these secular headwinds. UH. And and we 610 00:34:24,239 --> 00:34:26,839 Speaker 1: say this, I say this over and over again. I think, 611 00:34:26,960 --> 00:34:30,239 Speaker 1: while I believe we should be removing accommodation, because I 612 00:34:30,239 --> 00:34:33,239 Speaker 1: think we're getting we're near full employment, and while it's 613 00:34:33,280 --> 00:34:37,160 Speaker 1: been frustratingly slow, we're moving toward our inflation target, although 614 00:34:37,200 --> 00:34:39,640 Speaker 1: I think not yet. Over the next few years, we 615 00:34:39,640 --> 00:34:42,040 Speaker 1: should be removing comedation. But it's got to be done 616 00:34:42,280 --> 00:34:46,279 Speaker 1: patiently and gradually. UH. For those who say, why aren't 617 00:34:46,280 --> 00:34:49,800 Speaker 1: you raising rates more dramatically, I think the secular headwinds 618 00:34:49,840 --> 00:34:52,400 Speaker 1: we just talked about, these, these factors that make this 619 00:34:52,440 --> 00:34:54,799 Speaker 1: economy different than ten years ago and twenty years ago, 620 00:34:55,320 --> 00:34:58,080 Speaker 1: means that we at the Central Bank need to be 621 00:34:58,200 --> 00:35:02,000 Speaker 1: much more careful we remove accommodation. And that's why my 622 00:35:02,040 --> 00:35:05,040 Speaker 1: own view is everybody, every people, everyone around the table 623 00:35:05,280 --> 00:35:08,919 Speaker 1: has an independent view. I believe we should remove accommodation, 624 00:35:09,200 --> 00:35:13,000 Speaker 1: but gradually and patiently, because I don't think this economy 625 00:35:13,239 --> 00:35:15,719 Speaker 1: is running away from US. I don't think inflation is 626 00:35:15,760 --> 00:35:18,399 Speaker 1: running away from us. I wish it were, and I 627 00:35:18,440 --> 00:35:21,359 Speaker 1: think we need to do this in a very careful way. 628 00:35:21,400 --> 00:35:23,680 Speaker 1: You have a wonderful heritage here for this question, the 629 00:35:23,760 --> 00:35:28,399 Speaker 1: idea of Dallas, McTeer, Fisher Kaplan. And yet you live 630 00:35:28,480 --> 00:35:30,960 Speaker 1: for a long time in the people's republic at Cambridge. 631 00:35:31,000 --> 00:35:34,400 Speaker 1: How far is Dallas away from rosen Gren in Boston? 632 00:35:34,680 --> 00:35:37,960 Speaker 1: What is that divide? Where's the ven diagram? So Eric 633 00:35:38,080 --> 00:35:40,600 Speaker 1: of a different view versus debt. It's interesting. I knew 634 00:35:40,680 --> 00:35:44,080 Speaker 1: Eric rosen Grin when I was in Cambridge, and uh, 635 00:35:44,160 --> 00:35:47,240 Speaker 1: you know, I think the great thing about the FED 636 00:35:47,520 --> 00:35:51,880 Speaker 1: I've learned there's great the great people. Uh. But around 637 00:35:51,920 --> 00:35:57,359 Speaker 1: the table, um, each of them gives an does an 638 00:35:57,360 --> 00:36:00,480 Speaker 1: independent analysis the economy and gives a view on what's 639 00:36:00,520 --> 00:36:04,200 Speaker 1: going on in their district. And so um you know 640 00:36:04,239 --> 00:36:06,839 Speaker 1: my views on this. Uh, well I won't. I won't 641 00:36:06,840 --> 00:36:09,439 Speaker 1: compare them to others. But they're very similar to many 642 00:36:09,440 --> 00:36:12,480 Speaker 1: people around the table. But they come each come from 643 00:36:12,520 --> 00:36:15,840 Speaker 1: different districts. That there are some things we have in common, uh, 644 00:36:15,880 --> 00:36:18,080 Speaker 1: and a number of things that I said, the secular 645 00:36:18,120 --> 00:36:20,040 Speaker 1: trends affect all of us. The other thing I think 646 00:36:20,120 --> 00:36:23,640 Speaker 1: I hear about everywhere is the skills gap. So I'll 647 00:36:23,680 --> 00:36:25,960 Speaker 1: just get this in the skills gap in the United States, 648 00:36:26,000 --> 00:36:28,320 Speaker 1: Meaning with all these issues we just talked about in 649 00:36:28,480 --> 00:36:32,680 Speaker 1: educational attainment, there are more openings for skilled workers there 650 00:36:32,680 --> 00:36:35,400 Speaker 1: in the supply of workers. So part of this educational 651 00:36:35,440 --> 00:36:39,840 Speaker 1: attainment issue and the urgent need for workforce development is 652 00:36:40,000 --> 00:36:42,680 Speaker 1: we're missing an enormous opportunity. And this is probably true 653 00:36:42,680 --> 00:36:46,320 Speaker 1: in every district in the country where their businesses cannot 654 00:36:46,360 --> 00:36:49,600 Speaker 1: find skilled workers. I think I quoted the n f 655 00:36:49,600 --> 00:36:52,440 Speaker 1: I B Survey, a small business survey unless I think 656 00:36:52,480 --> 00:36:56,600 Speaker 1: almost fifty I think of them reported they can't find 657 00:36:56,640 --> 00:37:00,840 Speaker 1: workers to fill skilled jobs. So this is a big opportunities. So, 658 00:37:00,880 --> 00:37:04,120 Speaker 1: while each district in the United States is different, there's 659 00:37:04,120 --> 00:37:06,640 Speaker 1: a number of these trends that and themes we have 660 00:37:06,680 --> 00:37:10,040 Speaker 1: in common. What are the adjacency effects of low taxas? 661 00:37:10,120 --> 00:37:12,920 Speaker 1: Texas is on fire, It's always been on fire, and 662 00:37:12,920 --> 00:37:15,000 Speaker 1: a lot of that is tax policy. I looked at 663 00:37:15,040 --> 00:37:18,080 Speaker 1: the personal savings rate to disposable income. Savings rate to 664 00:37:18,200 --> 00:37:22,160 Speaker 1: disposable income back then in the regime seems to be 665 00:37:22,239 --> 00:37:24,880 Speaker 1: one with a lower aggregate tax set, and then the 666 00:37:24,920 --> 00:37:27,920 Speaker 1: next ten twenty years was with a higher tax asset 667 00:37:27,920 --> 00:37:31,360 Speaker 1: which brought down savings. Is that the Texas distinction is 668 00:37:31,400 --> 00:37:34,680 Speaker 1: different texts. I think. I think there are a number 669 00:37:34,680 --> 00:37:40,000 Speaker 1: of things. First of all, UH, pro business culture, relatively 670 00:37:40,160 --> 00:37:45,040 Speaker 1: lower level of regulation. Yes, central location. Yes, there's the 671 00:37:45,080 --> 00:37:47,480 Speaker 1: tax issues. Some people love tribute some of it to 672 00:37:47,520 --> 00:37:50,880 Speaker 1: the weather. But I know I can tell you this 673 00:37:50,960 --> 00:37:53,200 Speaker 1: having spent a lot of my life traveling to Texas 674 00:37:53,280 --> 00:37:57,120 Speaker 1: with my dad and jewelry salesperson. Uh, Texas is a 675 00:37:57,239 --> 00:38:01,000 Speaker 1: very welcoming place for people who of their most people 676 00:38:01,040 --> 00:38:03,120 Speaker 1: I meet, most CEO s I know in state are 677 00:38:03,200 --> 00:38:07,040 Speaker 1: not from Texas. They've moved there. They migrated their business there. 678 00:38:07,080 --> 00:38:09,520 Speaker 1: Taxes might not have been the reason, might have been 679 00:38:09,800 --> 00:38:13,759 Speaker 1: workforce availability, um, it might have been the fact that 680 00:38:13,800 --> 00:38:16,799 Speaker 1: other businesses that are related to them have moved there. 681 00:38:17,239 --> 00:38:20,160 Speaker 1: So there's an ecosystem that makes it a very attractive 682 00:38:20,160 --> 00:38:22,160 Speaker 1: place for businesses to move. We're gonna get the questions. 683 00:38:22,440 --> 00:38:24,360 Speaker 1: Is one more question, Ben, I'm gonna go to you first, 684 00:38:24,480 --> 00:38:26,759 Speaker 1: so you get a warning. I'm gonna Ben Steel here 685 00:38:26,760 --> 00:38:29,000 Speaker 1: with the first question. But I got one more question. 686 00:38:29,239 --> 00:38:31,560 Speaker 1: Cathleen Hayes and I go back and forth on this. 687 00:38:31,760 --> 00:38:35,879 Speaker 1: The idea I hate this phrase a border tax. Isn't 688 00:38:35,920 --> 00:38:38,839 Speaker 1: there no border, it's a tax against everything. Where are 689 00:38:38,920 --> 00:38:42,960 Speaker 1: you and where are your PhDs on the efficacy of 690 00:38:43,000 --> 00:38:47,800 Speaker 1: an import tax? And I believe has more countries involved 691 00:38:47,840 --> 00:38:53,520 Speaker 1: in Mexico. So uh, I'll answer this in a political 692 00:38:53,600 --> 00:38:57,759 Speaker 1: way as you would expect. Uh. Yeah, So our analysis 693 00:38:57,840 --> 00:39:00,560 Speaker 1: is as follless um, And I'll go through the pros 694 00:39:00,600 --> 00:39:01,880 Speaker 1: and the cons which the only way know how to 695 00:39:01,920 --> 00:39:06,839 Speaker 1: do it. Um. Uh. The challenges will be there gonna 696 00:39:06,840 --> 00:39:11,000 Speaker 1: be winners and losers from this. Uh. For example, retailers 697 00:39:11,239 --> 00:39:13,719 Speaker 1: have made very clear people in our district that it 698 00:39:13,719 --> 00:39:16,279 Speaker 1: will eat into their margins. And I think a lot 699 00:39:16,280 --> 00:39:18,719 Speaker 1: of people in businesses are people are focusing on the 700 00:39:18,719 --> 00:39:21,439 Speaker 1: fact that, boy, businesses they didn't think imported that much 701 00:39:21,560 --> 00:39:23,760 Speaker 1: turn out import a lot more than they thought. Imports 702 00:39:23,800 --> 00:39:27,480 Speaker 1: are very critical to competitiveness. And then the second issue 703 00:39:27,600 --> 00:39:30,759 Speaker 1: is what's the effect on consumer prices here? Now the 704 00:39:30,880 --> 00:39:34,960 Speaker 1: counter to that has been but the currency will adjust. 705 00:39:35,719 --> 00:39:38,560 Speaker 1: But the truth is it's a big uncertainty how much 706 00:39:38,600 --> 00:39:41,360 Speaker 1: the currency will adjust and will adjust enough to offset 707 00:39:41,440 --> 00:39:45,560 Speaker 1: the fact that this border tax has to be paid 708 00:39:45,560 --> 00:39:48,680 Speaker 1: by consumers here. And then the third thing, which you 709 00:39:48,800 --> 00:39:52,719 Speaker 1: don't know and you can't quantify is retaliation what's the 710 00:39:52,760 --> 00:39:56,440 Speaker 1: likelihood of retaliation? Uh? It is critical to the United 711 00:39:56,440 --> 00:39:59,880 Speaker 1: States and certainly the US domiciled companies to be a 712 00:40:00,000 --> 00:40:02,960 Speaker 1: able to sell goods overseas. A lot has been made 713 00:40:03,040 --> 00:40:06,920 Speaker 1: recently for about the fact that of SMP five hundred 714 00:40:07,680 --> 00:40:10,960 Speaker 1: neighborhood of half revenues and profits come from outside the And 715 00:40:10,920 --> 00:40:13,840 Speaker 1: And I'd say, if there's retaliation, what will be effect 716 00:40:14,080 --> 00:40:17,120 Speaker 1: on US companies and US employment. So I think there's 717 00:40:17,160 --> 00:40:20,680 Speaker 1: a lot of uncertainties. If you could get through those 718 00:40:20,800 --> 00:40:24,160 Speaker 1: five years from now, Um, certainly there will it will 719 00:40:24,160 --> 00:40:27,600 Speaker 1: create incentives for people to locate manufacturing here or locate 720 00:40:27,680 --> 00:40:30,959 Speaker 1: facilities here. But I think they're enormous number of uncertainties. 721 00:40:31,320 --> 00:40:33,960 Speaker 1: So and I don't think there's been enough time to 722 00:40:34,040 --> 00:40:39,840 Speaker 1: analyze in my judgment, UH, particularly the retaliation issue. What 723 00:40:40,200 --> 00:40:43,239 Speaker 1: what's the likelihood? And so I think that's one of 724 00:40:43,239 --> 00:40:46,960 Speaker 1: the reasons why this may You know, people are very 725 00:40:48,000 --> 00:41:01,400 Speaker 1: concerned about implementing this kind of policy. Thanks for listening 726 00:41:01,440 --> 00:41:05,799 Speaker 1: to the Bloomberg Surveillance Podcast. Subscribe and listen to interviews 727 00:41:06,160 --> 00:41:11,240 Speaker 1: on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. 728 00:41:11,800 --> 00:41:14,879 Speaker 1: I'm on Twitter at Tom Keene. David Gura is at 729 00:41:15,000 --> 00:41:19,839 Speaker 1: David Gura. Before the podcast, you could always catch us worldwide. 730 00:41:20,000 --> 00:41:34,360 Speaker 1: I'm Bloomberg Radio. Runch you by Bank of America Mary Lynch. 731 00:41:34,600 --> 00:41:40,120 Speaker 1: With virtual reality, virtually everything will change. Discover opportunities in 732 00:41:40,160 --> 00:41:44,760 Speaker 1: a transforming world. VI of a mL dot Com slash VR, 733 00:41:45,600 --> 00:41:48,560 Speaker 1: Mary Lynch, Pierced Fenner and Smith Incorporated