Speaker 1: This is Bloomberg Wall Street Week. We turn our attention
Speaker 1: to the markets this week U S CPI nemers reinforcing
Speaker 1: concerns about inflation. The financial stories that chief are worth
Speaker 1: a really different reaction to markets. More indications of just
Speaker 1: how hot the U. S economy really is. Through the
Speaker 1: eyes of the most influential voices Larry Summers, the former
Speaker 1: Treachery Secretary, Katherine Keating, CEO of v n Y Moms,
Speaker 1: Sam's l Sharon and founder of Equity Group Investment. In
Speaker 1: Bloomberg wool Street Week with David Weston from Bloomberg Radio.
Speaker 1: As fall sets in a decided turn in the air
Speaker 1: for the new British government's designs for the economy, for
Speaker 1: Elon Musk's designs on Twitter, and most decidedly for Mr
Speaker 1: Plutin's designs on Ukraine. This is Bloomberg Wall Street Week.
Speaker 1: I'm David Weston. We had our fair share of about
Speaker 1: faces this week with the Bank of England's quick intervention
Speaker 1: to save the guilt market, as explained by former MPC
Speaker 1: member Kristen Forbes of m I, T seems that they
Speaker 1: are worried that because of the big market moves, there
Speaker 1: could be some margin calls, um some pressures for for
Speaker 1: selling that could cause the guilt market to freeze up,
Speaker 1: and British Prime Minister Liz Trust giving up at least
Speaker 1: part of her economic program. It was becoming a destruction.
Speaker 1: So that's why we immediately change that policy, and that's
Speaker 1: the kind of government we all. But as ugly as
Speaker 1: the situation was in UK markets, it was nothing compared
Speaker 1: with the setbacks for Russian forces in eastern and southern Ukraine,
Speaker 1: with President Putin's efforts to quote annex territory that his
Speaker 1: forces didn't even control, which Admiral John Kirby at the
Speaker 1: NSC looks at as an indication that Mr Putin just
Speaker 1: may be coming to understand how difficult his situation really is.
Speaker 1: The annexation announcements, as well as his announcement of partial mobilization,
Speaker 1: certainly shows the degree to which Mr Putin knows how
Speaker 1: much he's struggling inside Ukraine, and OPEC plus weighed in
Speaker 1: with its own changes, cutting production caps by two million
Speaker 1: barrels a day, or about seven percent, putting even more
Speaker 1: pressure on Europe and the rest of a war world
Speaker 1: already worried about energy, while we were disappointed that OPEC
Speaker 1: made this decision. As the President mentioned, I think it's
Speaker 1: unnecessary if you look at the global environment, where supply
Speaker 1: continues to be the predominant challenge. Then there's Elon Musk.
Speaker 1: He offered forty four billion dollars for Twitter back in April,
Speaker 1: then decided to reneg got sued, and on the eve
Speaker 1: of his deposition, returned to his original offer, even though
Speaker 1: it looks like he's going to be way overpaying in
Speaker 1: many ways. This is almost the most expected outcome of all,
Speaker 1: which is settling on the eve of trial, just before deposition.
Speaker 1: Of the main players, Elon must himself he doesn't want
Speaker 1: to be deposed. He has, you know, probably some embarrassing
Speaker 1: text messages and conflicting statements and all of that would
Speaker 1: make for a very unpleasant decision crowd. But after all
Speaker 1: the back and forth, this week, US jobs and members
Speaker 1: actually came in surprisingly on course, adding two and sixty
Speaker 1: three thousand new jobs, just slightly more than expected, with
Speaker 1: workers paid five percent more than they were last year,
Speaker 1: and a reduction the unemployment rate to three. Here to
Speaker 1: walk us through this week and what got us here
Speaker 1: are Aaron Brown, portfolio manager at PIMCO, and Chris Allman,
Speaker 1: Chief Investment Officer, Ed Kelster. So, Chris, let me start
Speaker 1: with you. Boy, given what we're seeing right now, are
Speaker 1: we looking at a long, cold winter? Would you say? Unfortunately, David,
Speaker 1: I think we are. Um. I think the Fed, you know,
Speaker 1: with these employment numbers, the Fed knows that they have
Speaker 1: to continue this pace of aggressive tightening and they're going
Speaker 1: to do so the next meeting and the next senning
Speaker 1: after that, and I think which the street is pricing in,
Speaker 1: but I think after that they're going to have to
Speaker 1: keep it up and that's going to be into the
Speaker 1: winter and it's going to be a tough time. So
Speaker 1: what do you say, Aaron, is it going to be
Speaker 1: a rough winter? I think it is going to be
Speaker 1: a rough winter. I think that they're fans of uncertainty
Speaker 1: are quite wide. For next year, the Fed is tightening
Speaker 1: into an economic slowdown and we haven't even seen the
Speaker 1: real impact of that slowdown yet. We're just starting to
Speaker 1: see signs of a gradual slowing, but like will continue
Speaker 1: to see that into next year, and we think that
Speaker 1: we're heading into a recession into early and at that
Speaker 1: same point, just given the level of inflation, the Federal
Speaker 1: Reserve is now really challenged to be able to arrest
Speaker 1: that inflation get it under control despite what happens to
Speaker 1: the economy. So I think that really poses a challenge
Speaker 1: for the FED, and we'll likely see something that's fairly unprecedented,
Speaker 1: which is continued financial conditions tightening and FED tightening into
Speaker 1: an economic slowdown, even if it really leads to a
Speaker 1: harder landing than what the Fed's anticipating. And Aarin I
Speaker 1: pushed back a little bit. I actually think we're in
Speaker 1: a recession right now. It's not a very strong one, um,
Speaker 1: and it doesn't hurt a lot. I would so an
Speaker 1: employment growing, you know, but we did have a negative
Speaker 1: GDP in the second quarter, third quarters mild to me,
Speaker 1: anything below one percent in the USA feels like a recession.
Speaker 1: But so what you're saying is you think it's going
Speaker 1: to be a really will actually have a good, traditional
Speaker 1: hard get overse session with rising unemployment, which is exactly
Speaker 1: what Powell has said. I mean that's his forecast. Yeah,
Speaker 1: I think that's right. I mean, my our view at
Speaker 1: PIMCO is that will likely see unemployment rise to about
Speaker 1: five percent by the end of and so right now
Speaker 1: we're sort of seeing some of those early signs, but
Speaker 1: we really haven't seen the full brunt of financial condition
Speaker 1: tightening yet. That's more to come. So we are going
Speaker 1: to continue to see as slow down, and I think
Speaker 1: that's really going to hit in the first quarter of
Speaker 1: next year and into the second quarter of Chris, given
Speaker 1: where we are with inflation right now. Loo concerns about
Speaker 1: inflation if we are heading an inter session or even
Speaker 1: are already in one, no matter how long it is
Speaker 1: or how short it is, what are the tools the
Speaker 1: Fed has to use, Because typically you turn to the
Speaker 1: Fed and say, okay, start cutting interest rates. It doesn't
Speaker 1: look like they're going to do that. In the likelihood
Speaker 1: they're gonna raise interest rates. They only have one tool
Speaker 1: they have well, they have their mouth that can job
Speaker 1: on the market, which is what they're doing. They have
Speaker 1: the dot plot, which is going to indicate or direct
Speaker 1: the market, but there really the only tool they have
Speaker 1: is short term ingistrates and the FED funds rate. Uh
Speaker 1: and that's what they're using aggressively. I mean, good Greek
Speaker 1: seventy basis points. Those are big balances. Do you know
Speaker 1: through history you've gotta go way back before you have
Speaker 1: that aggressive tightening of monetary policy and they have to
Speaker 1: shrink the balance sheet. So as they moved through that,
Speaker 1: you know, he's already said he's going to hurt employment.
Speaker 1: Yet we have stronger numbers. I think the numbers there's
Speaker 1: something strange in the numbers this week, just like last month.
Speaker 1: But we'll see how that balances out. We're gonna have
Speaker 1: a tougher time, and you know, I think the question
Speaker 1: is going to be about corporate earnings. You've got cp
Speaker 1: I next week, and then you've got the bank starting
Speaker 1: to roll out with their earnings. Okay, we're gonna pick
Speaker 1: up exactly that question, where do you hide in this environment?
Speaker 1: Chris Ailman and Aaron Brown will be staying with us.
Speaker 1: We're gonna ask for them them for some investment advice.
Speaker 1: We could use it, that's for sure. That's the next
Speaker 1: time Wall Street Week here on Bloomberg. This is Bloomberg
Speaker 1: Wall Street Week with David Weston from Bloomberg Radio. The
Speaker 1: facts on unemployment seemed clear enough, or at least as
Speaker 1: clear as that changing social definition ever can be. The
Speaker 1: situation is gained a little better, but not much. The
Speaker 1: government announced today that the overall unemployment rate last month
Speaker 1: was six pot nine. The official unemployment rate has been
Speaker 1: stuck within a tenth of seven percent for six months,
Speaker 1: and that scarcely represents the massive reduction of unemployment that
Speaker 1: at least some folks thought they heard Jimmy Carter promise
Speaker 1: a year ago. That was Lewis Kaiser on Wall Street
Speaker 1: week back in October of ninety seven, when the unemployment
Speaker 1: rate was twice what it is today and we were
Speaker 1: trying to get it down rather than focusing on inflation
Speaker 1: whatever that ends up meaning for employment. And if that
Speaker 1: seems like a galaxy far far away, well maybe that's
Speaker 1: no accident. The top movie this week back in was
Speaker 1: Star Wars, and the top song on the charts was
Speaker 1: You Got It the Star Wars theme. Still with us
Speaker 1: are Aaron Brown and Pimco and Chris Ailment of Calistro. So, Aaron,
Speaker 1: let me turn to you and pick up on where
Speaker 1: we were talking just now with Chris. But where you
Speaker 1: hide if you're really an asset here? You said cash
Speaker 1: is one alternative? Are there things though, that involve at
Speaker 1: least some risk that you go to? And how much
Speaker 1: it depends on what you think the recovery is gonna
Speaker 1: look like whenever it comes. So I'm gonna flip that
Speaker 1: sort of question and answer the second question first, which
Speaker 1: is unlike prior recessions that we've seen in very recent history.
Speaker 1: So think of the global financial crisis or even the
Speaker 1: pandemic of I don't think this is going to be
Speaker 1: a V shaped recovery. I think this is going to
Speaker 1: be more of a pro monged you know, sort of
Speaker 1: stalling of the economy and more of an L shaped
Speaker 1: recovery than what we've seen in the past. And the
Speaker 1: reason for that is because inflation is high and it's
Speaker 1: likely to persist at high levels, You're not going to
Speaker 1: come in and see the FED start cutting, you know,
Speaker 1: as the unemployment rises like we've seen in the past. Instead,
Speaker 1: because the the FED is you know, moved from a
Speaker 1: dual mandate FED to a single mandate FED, really just
Speaker 1: focus on getting the inflation right down, you'll likely see
Speaker 1: you won't see this sort of immediate relief that we've
Speaker 1: seen in recent history. And so that does change a
Speaker 1: little bit the landscape of how you think about investing.
Speaker 1: You know, Historically, as we start to get closer to
Speaker 1: what we expect the bottom level of the SMP five
Speaker 1: hundred to be we start to you know, scale risk
Speaker 1: back up, start to move back into equity investments to
Speaker 1: catch that recovery to the upside. And this time around,
Speaker 1: I think you have to be a little bit more patient.
Speaker 1: So instead, what we're really looking at is fixed income
Speaker 1: investments that we think are going to be able to
Speaker 1: sort of stand at the test of time, be able
Speaker 1: to sort of hide out in a safe haven assets.
Speaker 1: So beyond just looking at cash, we're looking at high
Speaker 1: quality investment grade corporates. We're looking at municipalities, municipal bonds,
Speaker 1: you know, particularly for those who are can take advantage
Speaker 1: of the tax advantages. Tax advantage bonds UM we think
Speaker 1: offer good value there at a sort of after tax
Speaker 1: yield of six and a half percent, you know. In addition,
Speaker 1: we also like UM some mortgage agency bonds and structured
Speaker 1: credit bonds as well. And then sort of high quality
Speaker 1: equities that are defensive equities, high free cash flow, dividend growth,
Speaker 1: strong balance sheets we also think to do well in
Speaker 1: this environment. But you know, it is a sort of
Speaker 1: challenging time for investors where you have to skew more
Speaker 1: towards fixed income in order to have stability of return
Speaker 1: as opposed to looking for a quick snapback in equities.
Speaker 1: But you know, I posed a question to Chris because
Speaker 1: I know he also manages a diversified portfolio. Chris, where
Speaker 1: are you looking at? What type of sort of diversification
Speaker 1: that are you looking at in order to sort of
Speaker 1: hide out over the next couple of quarters. Well, Aaron,
Speaker 1: you know, I've got the benefit of being able to
Speaker 1: go into private security. So I've got a good sized
Speaker 1: real estate portfolio. We have a large private equity portfolios.
Speaker 1: Sure it's gonna have right downs, but its value is
Speaker 1: a bit more stable than we see in the public markets. Um,
Speaker 1: we have a cash position, but the problem is for
Speaker 1: US cash is not outperforming inflation. So the old adage
Speaker 1: cash is trash is still true. Um. We do like
Speaker 1: private credit. You were kind of hitting on that that,
Speaker 1: you know, variable rate debt, short term debt with high quality,
Speaker 1: and I think collateral is going to be key because,
Speaker 1: as you said, we're gonna have a long rough winter. Uh,
Speaker 1: so you don't want to be loaning money to everybody.
Speaker 1: You have to do care about covenance, but it is
Speaker 1: tough in this environment. I mean, you know, if the
Speaker 1: economy is slowing, and inflation is still strong. That's stag inflation.
Speaker 1: And you look back in the seventies. I gotta say,
Speaker 1: I love that suit that that Lou had. I don't
Speaker 1: know where you get that back in the seventies, but
Speaker 1: I'm stunned by it. But you know, you look back
Speaker 1: in that time period, returns in seventies seven were terrible.
Speaker 1: We're hard places to It was just a very tough
Speaker 1: time to hide anywhere. Yeah, So I'm curious though exactly,
Speaker 1: But when you go into fixed income do you think
Speaker 1: the price is attractive now in some fixed income Chris Well,
Speaker 1: I agree with Aaron. I'm gonna go short. I'm not
Speaker 1: gonna go long fixed income and take duration exposure short
Speaker 1: term credits. I mean, you've can hold a credit for
Speaker 1: two to three years and then it's money good. And
Speaker 1: as she said, you're gonna put it in a spread products.
Speaker 1: So you pick up a couple of basis points by
Speaker 1: being in the corporate You're okay. There's still a lot
Speaker 1: of money, David, international money that wants to come into
Speaker 1: this market, non us rather that wants to come into
Speaker 1: the market. You saw it in the this week where
Speaker 1: it suddenly comes rushing in. So I would give the
Speaker 1: advice to the average investors, You've got to slowly average
Speaker 1: cost in. You're not gonna be able to call the bottom.
Speaker 1: As much as Aaron I think there's a support number,
Speaker 1: it may not hit that at all, and the market
Speaker 1: is going to just bounce along and and an Aaron's
Speaker 1: example of an L and L goes on forever and
Speaker 1: it's just flat. I hope we don't have to live
Speaker 1: in a flat recession for years and years that I
Speaker 1: think this is going to be a tough market to
Speaker 1: find any kind of growth opportunities. Uh So, you want
Speaker 1: a protection and a return of your money rather than
Speaker 1: return on your money are in. One of the big
Speaker 1: development this week was OPEC plus and what they did
Speaker 1: it certainly seemed to stun the White House of the time.
Speaker 1: What it tells about geopolitical risk generally and specifically energy.
Speaker 1: It looks like oil princes are going to stay up
Speaker 1: there for a while. I think that's one of the
Speaker 1: things that the market is really mispricing right now. If
Speaker 1: you look at the throw word curve for oil, the
Speaker 1: risk is really in the sort of very short term
Speaker 1: where the market expects that oil is going to be
Speaker 1: elevated for the short term, but it really hasn't extrapolated
Speaker 1: or extended that expectation out the next one to two years.
Speaker 1: And I think that there's a real value in sort
Speaker 1: of the back end of the curve for oil because
Speaker 1: I think that these oil challenges are going to persist
Speaker 1: much longer than what the markets anticipating. One of the
Speaker 1: reasons for that is, you know, first we saw out
Speaker 1: of oil OPEC plus this week, our intention to keep
Speaker 1: prices elevated. But I think the other challenges is that
Speaker 1: we really haven't invested here in the US or on
Speaker 1: a global basis on energy infrastructure, so that capacity is
Speaker 1: really constrained over the next couple of years. Even if
Speaker 1: we wanted to expand capacity, or oil producers wanted to
Speaker 1: expand capacity, they don't have the ability to do so
Speaker 1: in the immediate term, and that's going to keep oil
Speaker 1: prices elevated. So the risk for oil, then the risk
Speaker 1: for the energy complex broadly isn't just this winter, but
Speaker 1: it's next winter as well, and next winter's challenges are
Speaker 1: going to be even more difficult, particularly on the shores
Speaker 1: of Europe um than what we're experiencing this winter, And
Speaker 1: so that's what I think the challenges and you know why,
Speaker 1: I think this is something that's going to persist much
Speaker 1: longer than what the market is currently priced in. Thank
Speaker 1: you so much to Aaron Brown and Chris Alman. Coming up,
Speaker 1: we'll wrap up the week with our special contributor to
Speaker 1: Larry Summers are Harvard. That's really up next on Wall
Speaker 1: Street Week on Bloomberg. This is Bloomberg Wall Street Week
Speaker 1: with David Weston from Bloomberg Radio. Every week we turned
Speaker 1: to Larry Summers of Harvard, are very special contributor here
Speaker 1: on Wall Street Week to help us some up the
Speaker 1: major events of the weekend. Once again, we welcome back
Speaker 1: Larry Summer. So, Larry, I think we should start with
Speaker 1: the jobs numbers out on Friday in the United States.
Speaker 1: I mean, some say not too hot, not too cold.
Speaker 1: Some people say, isn't this good? At least it's not
Speaker 1: getting worse. I guess my real question you is, I
Speaker 1: may not be getting worse. Was there a danger just
Speaker 1: in the inflation where many where it is we have
Speaker 1: five percent year over year increasing wages. I think these
Speaker 1: numbers were about what we expected, and the sensible judgment
Speaker 1: was that we've got an inflation problem. Core inflation figures
Speaker 1: look artificially good. They're better than media and inflation. And
Speaker 1: yet core inflation ran at a seven percent rate last month,
Speaker 1: and that was more than for the quarter, and the
Speaker 1: quarter was more than for the half year, and the
Speaker 1: half year was more than for the whole year. So
Speaker 1: we're not in a controlled place with respect to inflation.
Speaker 1: And there wasn't really anything in this report to suggest
Speaker 1: that we were coming into UH a controlled place. UH.
Speaker 1: The monthly wage number was relatively favorable, but it was
Speaker 1: pretty clearly distorted by the fact that you had a
Speaker 1: lot more workers coming in and leisure and hospitality, and
Speaker 1: those are low wage workers. The workers where wages are
Speaker 1: most flexible are going up more rapidly. So I don't
Speaker 1: think this is a number that changed, UH the picture
Speaker 1: that we've got an economy that is too strong to
Speaker 1: be an economy where inflation is going down, but that
Speaker 1: is maintaining its UH robustness. But I think we are
Speaker 1: headed for a collision of some kind or other, and
Speaker 1: we've just got to manage that collision carefully. And I
Speaker 1: think the sooner we start UH managing for a slope,
Speaker 1: managing for some slowdown, the better we're gonna do. I
Speaker 1: think Chairman Powell was way late to come to that recognition,
Speaker 1: but he now has that recognition and he should be
Speaker 1: supported in that. So what do you think Chai Powell
Speaker 1: and the Federal Reserve will make of these numbers? How
Speaker 1: will it affect what they do in early November? I
Speaker 1: don't think these numbers are going to change what the Fed,
Speaker 1: uh does? You know, you never know what's going to happen,
Speaker 1: and certainly there's risk of some kind of financially traumatic event,
Speaker 1: but I think the chances of something that is large
Speaker 1: enough to divert the FED are really quite low. So
Speaker 1: I'd be expecting that uh, the market, which is anticipating
Speaker 1: basis points in November and is anticipating fifty more in December.
Speaker 1: That would correspond to my best guess at this moment
Speaker 1: as well. And I think that kind of thing is
Speaker 1: going to be appropriate if we achieve disinflation. Larry, there's
Speaker 1: another strain of discussion I've seen certainly this week. In fact,
Speaker 1: there was even some FED staff work at the New
Speaker 1: York FED suggesting that we better be careful because in fact,
Speaker 1: the rate that we may need and already get down
Speaker 1: to two percent, maybe so high it will cause financial instability.
Speaker 1: There is a really safety and sound as issue. What
Speaker 1: do you make of that? Is it possible the Fed
Speaker 1: will have to choose between financial stability in the one
Speaker 1: hand and getting inflation down on the other. First, I
Speaker 1: think that should be the occasion for some soul searching.
Speaker 1: If we have an economy where we think there's going
Speaker 1: to be substantial financial breakage because the FED lifts the
Speaker 1: FED funds rate to four and a half percent, then
Speaker 1: we have an inadequately supervised financial system and insufficiently active
Speaker 1: financial regulator. And so if anyone believes that, along with
Speaker 1: whatever monetary policy implication they draw, they better tell us
Speaker 1: how we think how they think we ought to be
Speaker 1: repairing the regulation of the financial system. David might sense
Speaker 1: is that you can never rule out these kinds of risks.
Speaker 1: But the Fed has more than one instrument. It has
Speaker 1: instruments for specific guaranteed lending. We've seen that used a
Speaker 1: number of times, and each time we're surprised by how
Speaker 1: much the economy retains its robustness. In retrospect, we cut
Speaker 1: interest rates too much and kept them too low when
Speaker 1: we were supporting the financial system. After COVID. In retrospect,
Speaker 1: we kept interest rates too low and blew up a
Speaker 1: bubble when we were supporting the economy with low interest rates.
Speaker 1: After Asia and LTCF in retrospect, we were surprised, amazed
Speaker 1: by how rapidly the economy grew when the Fed uh
Speaker 1: did what was necessary after the seven stock market crash.
Speaker 1: So we need to regulate right to preserve financial stability.
Speaker 1: We need to have a very strong firefighting force in
Speaker 1: order to respond if and when financial accidents happened. Larry's
Speaker 1: always so helpful to have you on each week, and
Speaker 1: Delia said, d larious, I was gonna be staying with
Speaker 1: us as we bring in Professor Brad DeLong, professor of
Speaker 1: economics from UC Berkeley on his new book Slouching Towards Utopia.
Speaker 1: That's an economic history of the toy a century. That's
Speaker 1: gonna up next on Wall Street Week on Bloomberg. This
Speaker 1: is Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
Speaker 1: Are very special contributor at Larry Summers of Harvard has
Speaker 1: stayed with us because we're gonna bring in now professor
Speaker 1: of economics from it you see Berkeley, he's Brad DeLong,
Speaker 1: the author of a new book, Slouching toward Utopia and
Speaker 1: Economic History of the twentieth Century. So, professor, welcome for
Speaker 1: joining us. It's really good to have you here. I've
Speaker 1: read this fascinating and really sort of protein book. It's
Speaker 1: really quite a book. Let's set it up first, because
Speaker 1: it's a history of the the twentieth century. But you don't
Speaker 1: necessarily define the twentieth century as from nineteen hundred to
Speaker 1: two thousand. You start in eighteen seventy, un end up
Speaker 1: in why Well, the big thing that happens happens in
Speaker 1: eighteen seventy. Right before eighteen seventy, the world's poor, and
Speaker 1: there's no prospect for the world being anything other than poor.
Speaker 1: After eighteen seventy, every single generation, humanity's technical competence doubles
Speaker 1: and then doubles again in the following generation. And such
Speaker 1: an enormous pace of tech chnological events raises the possibility,
Speaker 1: for the first time, of a world in which we
Speaker 1: can bake a sufficiently large economic pie for everyone to
Speaker 1: have enough. And that was nothing that humanity had ever
Speaker 1: seen before. One of the remarkable things, Brad, that you
Speaker 1: highlight is that it really wasn't very different to live
Speaker 1: in the United Kingdom in the nineteenth century than it
Speaker 1: had been to live in the ancient world two thousand
Speaker 1: years before. Say something about that acceleration of growth that
Speaker 1: you see is happening in the twentieth century, well, you know,
Speaker 1: I mean it was British economist John Stuart mill right.
Speaker 1: He was writing in eighteen seventy one about how all
Speaker 1: the Industrial Revolution had done was it had created a
Speaker 1: somewhat larger middle class, and it had allowed manufacturers and
Speaker 1: the rich to earn greater fortunes, but that the overwhelming
Speaker 1: massive humanity was still confined to the same life of
Speaker 1: drudgery and imprisonment um than they had been before. That
Speaker 1: they had been in before um and before all the
Speaker 1: way back into deep time. It was very clear by
Speaker 1: nineteen hundred that things had changed. You know. John Maynard Keynes,
Speaker 1: writing in nineteen nineteen, looks back and says, starting in
Speaker 1: eighteen seventy we entered economic El Dorado, and that now
Speaker 1: our chief task after World War One was figuring out
Speaker 1: why we tried to blow it up and try to
Speaker 1: get desperately back to what was good was going on
Speaker 1: after eighteen seventy. Fortunately, we eventually did, and so things
Speaker 1: rolled through up until our day. First of all, gives
Speaker 1: a sense of what happened in eighteen seventy. They brought
Speaker 1: all us about. There were some three driving forces in
Speaker 1: your book. Well, you know, everyone has an idea about
Speaker 1: just what it is that's made us as a civilization
Speaker 1: so wealthy, that makes our economy so productive. And you know,
Speaker 1: different people have different things, and they all go back,
Speaker 1: some of them back even to say the year ten seventy,
Speaker 1: when it turns out that the law applies to a
Speaker 1: German emperor standing in the snow outside of the castle
Speaker 1: that allaws and his tool. But instead it could be
Speaker 1: that the law proatlies to everybody. But you've got three
Speaker 1: things that fall into place in eighteen seventy that set
Speaker 1: technological progress into a much higher gear than ever before.
Speaker 1: And they are the industrial research lab so that you
Speaker 1: can rationalize and routinize the discovery and development of technology.
Speaker 1: And then the corporation as we know it um, which
Speaker 1: rationalizes the development and deployment of technology. And combine that
Speaker 1: with the globalized economy, with the telegraph and the eye
Speaker 1: railroad and the ironholed ocean going steamship and all of
Speaker 1: a sudden, the incentives to deploy technology worldwide for production
Speaker 1: are so overwhelming, and people turn their minds to how
Speaker 1: to do this that everything explodes and way it never
Speaker 1: had before. Brad Um. Much of the academic discussion of
Speaker 1: your book has centered on this idea of a pivot
Speaker 1: point in eighteen seventy. But I want to ask about
Speaker 1: a different judgment you make, which is that there was
Speaker 1: this major era and that the major era ended in
Speaker 1: UH twenty ten. I would have thought that the world
Speaker 1: was growing, it was becoming more integrated with technology. There
Speaker 1: were important political struggles. Um. That was the stuff of
Speaker 1: history through the twentieth century, much better in the second
Speaker 1: half of the century than in the first half of
Speaker 1: the century. The and the Cold War was a very
Speaker 1: different war than World War One or World War Two.
Speaker 1: It was cold, but I would have thought that was
Speaker 1: a continuing process with substantial challenges. And yet you see
Speaker 1: us as now being in a quite different era. What's
Speaker 1: different about the era we're in than the era you
Speaker 1: wrote the history of other than more of the kind
Speaker 1: of progress and change that you saw as happening every generation. Um, Well,
Speaker 1: I'm pleased you disagree here and I'm very pleased you
Speaker 1: disagree in our story. I had optimist here about our future, UM,
Speaker 1: because look, I've been had losing arguments in person with
Speaker 1: you for forty two years, even when I think I'm
Speaker 1: right afterwards, and here I'm genuinely uncertain, and I actually
Speaker 1: very much hope you are really right this time. My
Speaker 1: thinking was, I've been listening to our friend John fern
Speaker 1: Old about how the underlying pace of technological progress has
Speaker 1: more or less have since two thousand and five compared
Speaker 1: to what we were used to beforehand saving those year
Speaker 1: is from nineteen seventy five to nineteen ninety, when technology
Speaker 1: was crawling toward a more energy efficient and environmentally friendly
Speaker 1: UM configuration rather than focusing on labor saving. You know,
Speaker 1: but after two thousand and after two thousand, we seem
Speaker 1: to have a substantial loss of social and economic knowledge
Speaker 1: about how to run things. Things about financial regulation that
Speaker 1: I thought were in trend, that were known in the
Speaker 1: bones UM turned out to have been completely forgotten in
Speaker 1: two thousand and eight. Things about the proper tools for
Speaker 1: macroeconomic policy that I thought were in where were ingrained
Speaker 1: in the bone, were also forgotten. After two thousand and ten,
Speaker 1: and I remember you and I whimpering in two thousand
Speaker 1: and twelve that no for more expansionary fiscal policy was
Speaker 1: not then um a thing that ran any risks whatsoever.
Speaker 1: So as I say so, we're more couple. Book. It's
Speaker 1: slouching towards utopia and economic history of the twenty century.
Speaker 1: Thank you so much for bringing with it. We can
Speaker 1: only really touch upon it today. I urge you everybody
Speaker 1: to read it. It's really worth the effort. Thank you
Speaker 1: so much. That's Professor Brad DeLong of UC Berkeley, and
Speaker 1: of course to our very special contributor Larry Summers of Harvard. Finally,
Speaker 1: one more thought, the fine line between being steady and
Speaker 1: being stubborn. We've all admired those leaders through the years
Speaker 1: who have stuck to their guns when times got tough.
Speaker 1: British leaders like Winston Churchill and the darkest days of
Speaker 1: World War Two which he'll fight in the hill, which
Speaker 1: you'll never horrender. And Churchill's successor Margaret Thatcher, who was
Speaker 1: known for sticking to her guns no matter what he wanted,
Speaker 1: the Council of Ministers to be the Senate No No.
Speaker 1: And American leaders like President Reagan at the Brandenburg Gate,
Speaker 1: demanding that the Soviet and tear down the Burling Wall
Speaker 1: when it seemed that was the farthest thing from Mr
Speaker 1: Gorbatchaw's mind. Mr garbut Schaw open this gate, Mr Garbutchev,
Speaker 1: tear down this war. But those were the times when
Speaker 1: the steadfast were ultimately proven right by history. What happens
Speaker 1: when bold proclamations don't hold up quite as well, such
Speaker 1: as George Herbert Walker Bush's insistence he would never ever
Speaker 1: raise taxes, and they'll push again, and I'll say to them,
Speaker 1: read my lips. And then there are those bold pronouncements
Speaker 1: that have yet to be proven out one way or
Speaker 1: the other. Like President Je's insistence that his zero COVID
Speaker 1: policy is the right one for his country, but if
Speaker 1: you just look at the COVID zero protocols, it requires
Speaker 1: all people returning from abroad to have ten days of quarantine.
Speaker 1: Or President Putin insisting that he will ultimately still prevail
Speaker 1: in Ukraine. He thinks he's losing and may lose his
Speaker 1: his office and even life. Then he could become completely unpredictable.
Speaker 1: But this week, this week we saw something a bit different.
Speaker 1: Big Bowl pronouncements being completely reversed not long after they
Speaker 1: were made. A big one was, of course, Elon Musk's
Speaker 1: change of mind again on whether he'd pony up forty
Speaker 1: four billion dollars for Twitter for now here in that
Speaker 1: Elon Musk and Twitter, of course, that resolution really said
Speaker 1: to be sticking on the contingency of getting that debt financing,
Speaker 1: and that is going to be the key clause that
Speaker 1: we're focused on going forward. But at least Mr Musk
Speaker 1: took a few months for his change of heart. Over
Speaker 1: in Great Britain we saw a new government lay out
Speaker 1: a new budget that included big tax cuts, starting with
Speaker 1: the top tax bracket. We loved the tax cutting, but
Speaker 1: not to this time. This is just absolutely the wrong
Speaker 1: time to do this, bringing immediate and violent reaction in
Speaker 1: the markets. He's trying to get the markeys behind those
Speaker 1: two lass of factors probably significantly more difficult, and the
Speaker 1: Bank of England stepping in for the rescue. So suddenly
Speaker 1: the Bank of England signed itself in the ECB situation.
Speaker 1: So Prime Minister trust is newly minted Chancellor of the
Speaker 1: Exchequer had to admit publicly that they had been wrong,
Speaker 1: clearly and dramatically wrong. At least on those top tax rates.
Speaker 1: And it came only days after he and Prime Minister
Speaker 1: Trust had gone so big and so bold. I think
Speaker 1: it was a destruction. Uh And I think and I
Speaker 1: think I think it was. It was the wrong thing
Speaker 1: to do. One can hardly fall to government for listening
Speaker 1: to its people, even if the listening might have come
Speaker 1: better before the deciding. But whatever the right answer, the
Speaker 1: one thing for certain is that, at least in this respect,
Speaker 1: Mistrust is no Margaret Thatcher. To those waiting with bated
Speaker 1: breaths for that favorite media catchphrase, the U turn, I
Speaker 1: have only one thing to say, you turn if you
Speaker 1: want to the latest not for turning. That does it
Speaker 1: for this episode of Wall Street Week, I'm David Weston.
Speaker 1: This is Bloomberg. See you next week. M hm.