Speaker 1: This is Bloomberg Wall Street Week.
Speaker 2: I mean may not have an overall recession. We're having
Speaker 2: a rolling recession. To kin of Rowl looks pretty strongly.
Speaker 2: It is when it comes to.
Speaker 3: Jobs the financial stories that shape our word.
Speaker 2: Three major regional bank failures sent shockwaves through the banking system.
Speaker 2: We're all trying to figure out what to make of
Speaker 2: generative AI.
Speaker 3: Through the eyes of the most influential voices.
Speaker 2: Welcome down, Doctor Paul Krugman, Ryan Moynahan, Bank of America,
Speaker 2: deebro Lair of the Paulson Institute, Glen Hubbard of the
Speaker 2: Columbia Business School.
Speaker 3: Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
Speaker 2: Up in the Air on whether Elon Musk moves to Texas,
Speaker 2: on the future of Boeing, on when tech we'll see
Speaker 2: that AI payoff, and on when the Fed we'll get.
Speaker 1: A move on. This is Bloomberg Wall Street Week. I'm
Speaker 1: David Weston.
Speaker 2: This week special contributor Larry Summers on US jobs numbers.
Speaker 4: I was surprised, not shocked that the job numbers came
Speaker 4: in that way.
Speaker 2: Shipwar author Chris Miller of Tufts on governments funding the tech.
Speaker 5: Race, all of the world's governments, from the US to Japan,
Speaker 5: to Europe to China, are pouring tens of billions of
Speaker 5: dollars into their own ship industries.
Speaker 2: And Nobel economist Paul Krugman of Cunei on what the
Speaker 2: election could mean for US trade policy.
Speaker 6: Tariffs don't eliminate trade deficits unless they get so high
Speaker 6: as to basically make trade impossible.
Speaker 2: Gold Wall Street looked at a lot of questions this week,
Speaker 2: but did not get many answers, as Elon Musk threatened
Speaker 2: to take his marbles along with his Tesla and go
Speaker 2: home to Texas after a Delaware court said he couldn't
Speaker 2: take home that fifty five billion dollar pay package his
Speaker 2: board had promised him.
Speaker 1: If shareholders, upon the board's recommendation, decide to move to Nevada,
Speaker 1: they have a right to do that, but it's not
Speaker 1: a Musk decision.
Speaker 2: Boweling's crisis over the seven thirty seven Max and nine
Speaker 2: aircraft is far from resolved, as the government limited future production.
Speaker 2: The companies said it would take a day off to
Speaker 2: reflect on what happened, and its chief executive admitted it
Speaker 2: was at fault. We carved the problems and we understand that,
Speaker 2: and we instituted additional quality controls and inspections at Going
Speaker 2: and at our supplier. Big Tech announced earnings this week,
Speaker 2: and although they were strong, they didn't entirely measure up
Speaker 2: to what some had hoped, leaving open the question of
Speaker 2: just when those promised AI profits are likely to hit
Speaker 2: the bottom line.
Speaker 7: The earnings that came out last night were excellent earnings
Speaker 7: by any measure, They just maybe didn't meet.
Speaker 2: The gaftiest of lofty expectations, and the Fed surprised absolutely
Speaker 2: no one by not moving at all or giving much
Speaker 2: real sense.
Speaker 1: Of when it will.
Speaker 8: I don't think it's likely that the Committee will reach
Speaker 8: a level of confidence by the time of the March
Speaker 8: meeting to identify March as the time to do that,
Speaker 8: but that's to be seen.
Speaker 4: Then.
Speaker 2: On Friday, US jobs numbers underscored why the Fed may
Speaker 2: be reluctant to cut rates in the near future, as
Speaker 2: three hundred and fifty thousand new jobs were almost double
Speaker 2: what people had expected and the unemployment rates stayed at
Speaker 2: a very low three point seven percent. After an up
Speaker 2: and down week, the equity markets were off to the
Speaker 2: races on the jobs news, with the S and p
Speaker 2: five hundred and he got just under one point four
Speaker 2: percent up for the week, a new record, and that
Speaker 2: beats the median number of our Bloomberg alves for the
Speaker 2: end of the year, while the Nasdaq added over one
Speaker 2: percent and the Yeald the Tenure jumped fifteen basis points
Speaker 2: on Friday alone, though for the week it was actually
Speaker 2: down twelve basis points to end just over four percent.
Speaker 2: Take us through the week.
Speaker 1: Of the markets.
Speaker 2: Welcome back, now, Sonal Desai. She's Franklin Templeton's fixed income
Speaker 2: CIO and Peter Krause, founder, chair and CEO of Aperture Investors. So, Sonawka,
Speaker 2: why don't you give us your take on what we
Speaker 2: saw in the markets this week up to the clothes
Speaker 2: on Friday.
Speaker 7: Well, you know, the market has been so positioned, so
Speaker 7: positioned for and it's not entirely shield on the back
Speaker 7: of walk positioned for massive early FED rate cuts that
Speaker 7: wasn't going to happen. And in many ways, what Powell
Speaker 7: said during his press conference he left the door open
Speaker 7: for potentially cutting. I don't think he should and I
Speaker 7: don't think they will. But the immediate reaction to Powell's
Speaker 7: statement was still a bit of a rally before they started,
Speaker 7: before one market started selling off. Eventually, overall, I think, unfortunately,
Speaker 7: it still is the case that in December the FED
Speaker 7: reinserted itself into the story of the market, and we
Speaker 7: continue to see an easing of financial conditions, which certainly
Speaker 7: makes the Fed's job somewhat harder in terms of deciding
Speaker 7: when to cut. And they want to cut. That's clear.
Speaker 7: That's clear.
Speaker 1: So Peter explained one thing.
Speaker 2: We had a sort of unusual week where we had
Speaker 2: rates up in the form of the yield and equities
Speaker 2: up at the same time.
Speaker 1: How do you explain those two things.
Speaker 9: Well, first of all, you made an interesting point that
Speaker 9: rates are up today but actually up relative to the week. Secondly, normally,
Speaker 9: when rates move have that big a move, the markets
Speaker 9: do actually go down. That's been the recent consensus move.
Speaker 9: But as you saw today, there are two really big.
Speaker 10: Stocks, Amazon and Meta that were up.
Speaker 9: Dramatically during the day, and if you actually adjust for that,
Speaker 9: I'm not sure the market was up much at all.
Speaker 9: And the Russell of course was down forty basis points.
Speaker 9: So I actually think the markets are reacting somewhat negatively
Speaker 9: to Pal taking his foot off the gas of cutting rates,
Speaker 9: But I agree with so now, and I've said for
Speaker 9: a while I don't think the FED is going to
Speaker 9: cut rates early. I think they're going to wait for
Speaker 9: inflation to actually break. I think inflation is done better,
Speaker 9: but it is still elevated, and you see job growth
Speaker 9: and you see wage growth.
Speaker 2: So so now I think you too are agreeing that
Speaker 2: there are going to be cuts. The question is how
Speaker 2: big and how soon? What do you expect for this
Speaker 2: the rest of the year.
Speaker 7: You know, I haven't changed my views now for quite
Speaker 7: a while, and I was in the fifty basis point
Speaker 7: cam in this in December and powers Folk it became
Speaker 7: pretty clear that the FED would like to do seventy five.
Speaker 7: I think maybe they'll do seventy five, but it's going
Speaker 7: to be in the second half of the year. I'm
Speaker 7: not changing any of that really, because it's not that
Speaker 7: I expect inplation to run away or pick up strongly,
Speaker 7: and I just don't think it's going to come down
Speaker 7: convincingly enough to allow for early rate cuts. And definitely
Speaker 7: the political calendar complicates this, But abstracting from that, I
Speaker 7: think as second half and seventy five business on this
Speaker 7: is well.
Speaker 1: I don't quite an experien in Sampeter.
Speaker 2: When you've got this kind of growth, which is very robust,
Speaker 2: and this kind of employment what we're seeing right now, why.
Speaker 1: Is there a need to cut rates?
Speaker 2: Why do you need to stimulate the economies through monetary
Speaker 2: policy right now?
Speaker 1: Yeah?
Speaker 9: I think that's a good point. I do think that
Speaker 9: we're seeing a very strong and resilient economy up and
Speaker 9: down the income spectrum. And although there are some delinquencies
Speaker 9: that are rising in the consumer world, we still have
Speaker 9: people well employed with jobs.
Speaker 10: That are paying even more than they paid last year.
Speaker 9: So the FED is looking that inflation, and inflation has
Speaker 9: come down from eight percent or seven percent down to four,
Speaker 9: down to three, But is it really.
Speaker 10: Going to fall much faster?
Speaker 9: And so I think the FED is going to be
Speaker 9: very careful about taking short rates down. And I think
Speaker 9: it's quite possible that longer rates go up from here,
Speaker 9: not down from here.
Speaker 2: So, given what you just said, Peter, why don't people
Speaker 2: feel better about it? Because everything we see and all
Speaker 2: the polls taken, people don't feel that great about the economy.
Speaker 1: You describe an economy it's pretty good.
Speaker 9: Yeah, I think that's the question that many people have asked,
Speaker 9: and I myself am a bit confused about it, but
Speaker 9: I think the answer really falls in how inflation affects
Speaker 9: people's spending capability. So, yes, wages are up, but remember
Speaker 9: wages are up following a very high period of inflation,
Speaker 9: which change the ability for consumers to actually spend money.
Speaker 9: It really changed their discretionary spending patterns, and it changed
Speaker 9: what they had left over to actually use for something else.
Speaker 9: So if you have to spend more money on food,
Speaker 9: and you have to spend more money on gas, and
Speaker 9: you have to spend money on the things that you
Speaker 9: have to spend money on, then you have a lot
Speaker 9: less for everything else, and people feel pinched. And that's
Speaker 9: not going to change until you get enough wage growth
Speaker 9: to actually overcome the effect of that inflation on your
Speaker 9: actual living expenses.
Speaker 10: Remember, we don't have deflation.
Speaker 9: Prices aren't coming down, they're just not going up faster.
Speaker 9: So it's going to take some time and people are
Speaker 9: not going to feel great about it for a while.
Speaker 1: This is Wall Straight Week.
Speaker 2: I'm David weston Son, I'll the side of Franklin Temple
Speaker 2: and Peter Krause of Aperture Investors have stayed with us
Speaker 2: We've talked on this program, Peter in the past about
Speaker 2: the growth of private credit and private equity. It seems
Speaker 2: sometimes like the trees are growing to the sky. I
Speaker 2: know you've just gotten back from Miami talking to MFA
Speaker 2: conference about a portfolio allegation. Is there a point at
Speaker 2: which maybe we start not rushing forward in private quite
Speaker 2: so fast?
Speaker 10: Yeah, I think we are at that point.
Speaker 9: I think that in the last fifteen years, we've had
Speaker 9: declining interest rates, benign credit environments and very low yields,
Speaker 9: and the place where you could get more yield was
Speaker 9: in the.
Speaker 10: Private space, particularly in private credit.
Speaker 9: And the place where you got more return inequity was
Speaker 9: in private equity, and a lot of that was in
Speaker 9: growth investing venture capital. I think at this point we
Speaker 9: have to be more cautious about those spaces, and the
Speaker 9: liquidity coming out of those areas that you invested in
Speaker 9: has slowed down dramatically.
Speaker 10: We know that there's a lot less M and A.
Speaker 10: We know there's a lot less.
Speaker 9: IPOs in the private equity space. There are continuation funds
Speaker 9: being talked about in credit, so maybe your credit comes
Speaker 9: back slower than you thought so, And I do think
Speaker 9: we said this in the earlier session is that yields
Speaker 9: in the liquid space have grown dramatically, and so if
Speaker 9: you're thinking about where you're going to allocate your next dollar,
Speaker 9: would it really be in that private space?
Speaker 10: Where would it make more sense.
Speaker 9: To actually be opportunistic in the liquid space and find
Speaker 9: a place to actually get reasonable yields with liquidity in
Speaker 9: that area.
Speaker 2: So so now in here from the fixed income side,
Speaker 2: how does this play out in fixed income, private credits,
Speaker 2: syndicated loans, liquid credit?
Speaker 1: How does it play out?
Speaker 7: So basically it is it is exactly true. For the
Speaker 7: last fifteen years, illiquidity was almost sought after because liquid
Speaker 7: liquid acids yielded so little. What I would say is
Speaker 7: today with with liquid assets, I look at high yield
Speaker 7: for example, and even with the current of compression, you
Speaker 7: are getting all in returns of something like seven and
Speaker 7: a half percent. If you look at bank loans or
Speaker 7: floating rate you know, which is a little bit even
Speaker 7: you know it's very short duration, it's looking good at
Speaker 7: around nine percent or so. I think that private markets
Speaker 7: are going to need to give a significant premium for
Speaker 7: the ill liquidity in a period when liquidity starts compressing,
Speaker 7: as central banks start ending their periods of QE and
Speaker 7: so on. So that's one element. But against this background,
Speaker 7: there are many institutional investors who quite like having assets
Speaker 7: which are not marked to market because you don't see
Speaker 7: the volatility constantly, right, So I think there's a bit
Speaker 7: of a trade off there. Nonetheless, with liquid markets liquid
Speaker 7: fixed in markets yielding as well as they currently are,
Speaker 7: I'm very optimistic about fixed income over the next few
Speaker 7: years relative to last decade.
Speaker 9: I think there's some risk in marking to market assets
Speaker 9: at the end. Oh yeah, I fully get that I
Speaker 9: don't want to see my assets go up and down.
Speaker 10: I fully get that it's nice to smooth them.
Speaker 9: But at the end of the day, if you actually
Speaker 9: don't know what the values are, that's not exactly a
Speaker 9: good place to be. And I also think that we've
Speaker 9: had very few periods in the last fifteen years we've
Speaker 9: had extended period of time when asset values are hard
Speaker 9: to determine. We've had short reductions and very rapid increases.
Speaker 10: But if you go for two years where.
Speaker 9: Your assets are kind of difficult to value, that's a
Speaker 9: tough place for any fiduciar be.
Speaker 2: Yeah, not knowing the value maybe part of the reason
Speaker 2: why they're not distributed cash back right.
Speaker 10: And because they don't have the cash.
Speaker 2: Exactly and when they sold them it might not be
Speaker 2: as much as they thought. Okay, many thanks now that
Speaker 2: Peter Krause of Aperture Investors and Sonal Desi of Franklin Templeton.
Speaker 2: Coming up the race for governments to subsidize chip production
Speaker 2: around the world, We talk with Chris Miller of Tufts University,
Speaker 2: author of Chip Wars. That's next on Wall Street Week
Speaker 2: on Bloomberg.
Speaker 3: This is Bloomberg Walls Street Week with David Weston from
Speaker 3: Bloomberg Radio.
Speaker 11: What a reversal today, when Japanese manufacturers have been so
Speaker 11: brilliantly successful at selling to and in many cases even
Speaker 11: taking over American markets that practically every politician in the
Speaker 11: US is scrambling to touch our nerves of xenophobia and
Speaker 11: to find a way of restricting and weakening these seemingly
Speaker 11: omnipotent foreign devils. Or look at the all two typical furor,
Speaker 11: this time involving Japanese chip producers who accused this week
Speaker 11: of the awful crime of selling their semiconductors outside the
Speaker 11: US at steep discounts.
Speaker 2: That was Lewis Rocheiser on Wall Street Week back in
Speaker 2: nineteen eighty six, when the issue was computer chips coming
Speaker 2: from Japan. Today it's Chinese chips that has Washington concerned,
Speaker 2: something laid out by Chris Miller of Tufts University in
Speaker 2: his book Chip War. We asked him for an update
Speaker 2: given the billions of dollars in US subsidies about to
Speaker 2: be announced under the Chips and Science Act.
Speaker 5: The boom and investment in artificial intelligence has impacted the
Speaker 5: chip industry too, and today there's actually a shortage of
Speaker 5: the types of chips that are used to train AI systems.
Speaker 5: Even the biggest companies in the world Microsoft, Amazon, Google
Speaker 5: can't get enough of these specialized AI chips, and in
Speaker 5: part because of this, all of the world's governments, from
Speaker 5: the US to Japan, to Europe to China, are pouring
Speaker 5: tens of billions of dollars into their own chip industries,
Speaker 5: trying to make sure they've got that competitive ability to
Speaker 5: stay up with regard to these chip making capabilities that
Speaker 5: are needed for AI chips.
Speaker 2: At the same time, there have been various actions taken
Speaker 2: by the US government and others to restrict China's access
Speaker 2: to some of the machinery, if I can put it
Speaker 2: that way, with the technology to develop these chips, how
Speaker 2: effective is that?
Speaker 1: Do we know?
Speaker 4: Well?
Speaker 5: I think the honest answer is that it's still pretty
Speaker 5: early in the process. The restrictions went into place in
Speaker 5: late twenty twenty two, and the goal the restrictions was
Speaker 5: not really to stop China in its tracks, but rather
Speaker 5: to slow its progress over time. And so China's continuing
Speaker 5: to make progress. SMIC, the leading Chinese chip maker, is
Speaker 5: moving forward and its technological capabilities, but I think it's
Speaker 5: already likely the case that it's moving forward at a
Speaker 5: slower rate than it would have had these controls not
Speaker 5: been in place. And the key is not really where
Speaker 5: is China, but it's where is China relative to the
Speaker 5: most advanced capabilities in Taiwan, or in the United States,
Speaker 5: or in South Korea. And there you see that China
Speaker 5: is making some progress closing the gap, but a really
Speaker 5: sizeable gap remains.
Speaker 2: A lot of these hips actually put into other products
Speaker 2: that get important. Do we know where the chips are
Speaker 2: coming from?
Speaker 5: Well, I think that's part of the challenge. You're right
Speaker 5: to say that the US and Europe and Japan is
Speaker 5: saying we don't actually import many chips from China directly.
Speaker 5: Most of the Chinese chips in our systems are actually
Speaker 5: first sent to Vietnam, then to the Philippines and to
Speaker 5: Malaysia and some countries. Some companies don't always know the
Speaker 5: origins of every single component inside of their system, and
Speaker 5: that's why a traditional anti dumping tariff might be less
Speaker 5: relevant in this case.
Speaker 2: It's not just the United States and China, but also
Speaker 2: I've read now about Japan actually investing in at least
Speaker 2: the precursors to some of the chip manufacturing. What is
Speaker 2: the role of Japan potentially in subsidizing some of the
Speaker 2: more advanced chips.
Speaker 5: Well, today, Japan doesn't produce any of the most advanced
Speaker 5: ships domestically, but it plays a major role in producing
Speaker 5: the machines and also the chemicals that are needed in
Speaker 5: cutting edge chip making. And there's some really unique expertise
Speaker 5: among a handful of Japanese firms, especially in the chemicals sphere,
Speaker 5: where Japan has very high levels of market share and
Speaker 5: limited competition because they've been investing in this sphere for
Speaker 5: now several decades. And that's where the Japanese government is
Speaker 5: focusing a lot of its efforts and retaining its advantages
Speaker 5: that it has over other countries and these chemicals.
Speaker 1: That was Chris Miller of Tufts.
Speaker 2: Elections have consequences, including for business and the economy.
Speaker 1: When President Trump was.
Speaker 2: Elected in twenty sixteen, markets reacted violently and turned out
Speaker 2: to be violently wrong.
Speaker 9: But you'll remember a lot of us kind of got
Speaker 9: this wrong on election night when it looked like Trump
Speaker 9: was going to win, and initially the market crash. Then
Speaker 9: people said, wait a minute, the markets sort up again,
Speaker 9: and it kind of took off from there, and.
Speaker 2: Right now it looks like we may get a second
Speaker 2: look at mister Trump's approach to the economy as he
Speaker 2: appears to be headed to renomination as the Republican candidate,
Speaker 2: and if nominated, would be a serious contender to replace
Speaker 2: President Biden. Some say that the Biden record on economics
Speaker 2: stacks up favorably to former President Trump's.
Speaker 12: For the first time in history, we have two candidates
Speaker 12: that had been president, So you have a track record
Speaker 12: of what to expect. In the case of President Biden,
Speaker 12: You've had so far three years of steadiness, good growth.
Speaker 12: Market said at all time home, I think it's underappreciated
Speaker 12: what has gone on with the economy.
Speaker 2: Others see President Biden's policies insufficiently pro growth.
Speaker 13: People are frustrated, and it's the economic policies the Biden
Speaker 13: administration that has brought us here. Is the president's policies
Speaker 13: of paying people not to work after the pandemic, massive
Speaker 13: multi trillion dollars spending bills that drove inflation. And the
Speaker 13: end result is if you speak to people here in Wisconsin,
Speaker 13: regular folks on the street, they're getting collaborated by Bidenomics,
Speaker 13: and they want to see Washington change course.
Speaker 2: And then you have experts like Glenn Hubbard who worry
Speaker 2: that there isn't a big enough difference between the two.
Speaker 14: What strikes me, in looking at least at President Biden
Speaker 14: and former President Trump's policies is less how different they
Speaker 14: are than how similar they are. So in terms of protectionism,
Speaker 14: in terms of a fondness for industrial pulse, in terms
Speaker 14: of intervention in financial markets, the two men are more
Speaker 14: similar than they are different.
Speaker 2: But whoever gets the presidential nod this year, they're going
Speaker 2: to be faced with some big issues of the federal
Speaker 2: deficits and debt. The problem is that's led us two
Speaker 2: years and years of borrowing too much.
Speaker 14: We now have a debt that's about to be at
Speaker 14: record levels.
Speaker 15: I think we're in a terrible place because, unfortunately, once
Speaker 15: you get to legislating, there's a lot of talk, but
Speaker 15: the talk is always divided politically between the Republicans who
Speaker 15: refuse to raise taxes and the Democrats who.
Speaker 1: Won't deal with titlements.
Speaker 15: I do think when we eventually get to doing this,
Speaker 15: about sixty percent or something of the increase in the
Speaker 15: debt from thousand to twenty twenty two was because of
Speaker 15: the tax cuts.
Speaker 2: For his thoughts on what difference the election out could
Speaker 2: could make for the economy were welcome, Dowt Doctor Paul Krugman,
Speaker 2: Nobel Laureate Economics and Distinguished Professor at the City University
Speaker 2: of New York Graduate Center. So, doctor Kruman, thank you
Speaker 2: so much for being back with this. Before we talk
Speaker 2: about what differences there may be in the leading candidates
Speaker 2: right now in November, give us your sense of the
Speaker 2: economy overall and what we're likely to need over the
Speaker 2: next four years. Then we can talk about who might
Speaker 2: be most likely to provided.
Speaker 6: Okay, so we are in an extraordinarily good immediate position.
Speaker 6: I've been arguing with people who say, you know, this
Speaker 6: is a Goldilock's.
Speaker 10: Economy, and that's that's wrong.
Speaker 6: Goldilocks found a partis that was neither too hot nor
Speaker 6: too cold. We've got an economy that's hot where you
Speaker 6: wanted to be hot, like in GDP growth, and cold
Speaker 6: where you wanted to be cold on inflation. So this is,
Speaker 6: you know right now, is this is a lotways the
Speaker 6: best short run economy we've had since since the nineteen nineties.
Speaker 6: So what we need for the next four years is
Speaker 6: to be thinking about the long run.
Speaker 2: Do we need to at least start to think about
Speaker 2: the deficit and the debt that's accumulating because right now,
Speaker 2: as you look at Donald Trump and Joe Biden, the
Speaker 2: two leading candidates, neither one seems to be willing to
Speaker 2: address that. By the way, this week Congress did do
Speaker 2: something on taxation which was actually actually it was negative
Speaker 2: in terms of the deficit. So do we need to
Speaker 2: address that question?
Speaker 1: And if so, when.
Speaker 6: You know, I'm not a complete deficits never matter, guy,
Speaker 6: but I'm not.
Speaker 10: It still doesn't look like a first rank issue.
Speaker 6: Despite the you know, the enormous numbers but you know,
Speaker 6: everything about America is enormous, and particularly there is a
Speaker 6: lot of the sustainability of debt depends a lot on
Speaker 6: comparison between interest rates and the economy's growth rate. And
Speaker 6: right now what we have is interest rates seem to
Speaker 6: be coming down. Growth seems to you know, productivity growth
Speaker 6: is looking really good. There are high hopes for AI.
Speaker 6: All of which means that despite the huge size of
Speaker 6: those raw debt numbers, I actually don't think that there's
Speaker 6: any urgency.
Speaker 2: History we're told does not repeat itself, but it does
Speaker 2: rhyme sometimes. Is there a rhyme with nineteen ninety three,
Speaker 2: because if you go back to nineteenninety three you talked
Speaker 2: to Bob Rubin about what happened with President Clinton, It's
Speaker 2: thought that we got a lot of growth out of
Speaker 2: the nineties in part because we both increased some taxes
Speaker 2: and cut some spending. Is there a similar opportunity here
Speaker 2: for pro growth policies.
Speaker 6: I'm a great admirer of Bob Rubin, but I don't
Speaker 6: believe that story for a minute. It's just not what
Speaker 6: you what looks like actually happened in the nineties. What
Speaker 6: actually happened in the nineties was that businesses finally figured
Speaker 6: out what to do with these computer things, and we
Speaker 6: got a decade of good productivity growth because we finally
Speaker 6: figured out how to make productive use of it. And
Speaker 6: I actually don't think that Clint administration policies made.
Speaker 10: Much difference one way or the other.
Speaker 6: So I just don't buy that it's just And we
Speaker 6: may be approaching another moment like that. Again, the recent
Speaker 6: productivity numbers are really quite good. AI. Maybe it's either
Speaker 6: going to destroy us or or possibly give us another
Speaker 6: decade of good productivity growth. So no, I just don't
Speaker 6: that whole responsible fiscal policy was responsible for the Roaring nineties.
Speaker 6: It's a lovely narrative. I don't think there's anything to
Speaker 6: support it.
Speaker 2: President Trump, former President Trump, has said that he would
Speaker 2: favor a ten percent across the board, not just China,
Speaker 2: across the board tariff and Infortant and actually Joe Lightehyser
Speaker 2: is advisors section. Maybe we increase that to eliminate trade deficit.
Speaker 1: What would that do to the growth of the American economy?
Speaker 6: Okay, Now, dirty little secret of international trade economics is
Speaker 6: that moderate tariff rates do not, at least according to
Speaker 6: our models and as far as we can tell, in practice,
Speaker 6: don't have huge growth effects. They distort consumption.
Speaker 10: And production choices.
Speaker 6: They do some damage, but to get really big numbers
Speaker 6: you have to get well beyond ten percent. So of course,
Speaker 6: if the goal is to eliminate the trade deficit, lightheyder
Speaker 6: to have us a surprise, because tariffs don't eliminate trade
Speaker 6: deficits unless they get so high as to basically make
Speaker 6: trade impossible. So we would be talking about much much
Speaker 6: higher tariff rates potentially.
Speaker 10: What worries me is not I.
Speaker 6: Mean, I think there are a lot of really negative
Speaker 6: consequences if the US does a ten percent tariff, but
Speaker 6: they have they're sort of geopolitical more than anything else.
Speaker 10: They would mean that the United.
Speaker 6: States is basically saying, well, we're opting out of our
Speaker 6: role as a leader of the global economy.
Speaker 10: It would have a lot of bad effects.
Speaker 6: In terms of the economic impact. I mean, I'm hearing
Speaker 6: talk about, well, let's have sixty percent terroriffs on imports
Speaker 6: from China, and you know, tariff roughly speaking, the adverse
Speaker 6: effects of a tariff are proportionals something like the square
Speaker 6: of the tariff rates. So as sixty percent tariff is
Speaker 6: you know, thirty thirty six percent times as bad as
Speaker 6: a ten percent TERRAF. So if we start to get
Speaker 6: into those kinds of tariffs, yeah, then we are actually
Speaker 6: talking about significant negative impacts.
Speaker 2: Doctor Carrey, thank you so very much for being Wall
Speaker 2: Street Week. I really appreciate that. Is Nobel laureate. Paul Krugman.
Speaker 1: Coming up.
Speaker 2: We wrap up the week with special contributor Larry Summers
Speaker 2: of Harvard.
Speaker 4: I'm much less prepared to declare that it's all over then,
Speaker 4: I think, Paul is that's next on.
Speaker 1: Wall Street Week on Bloomberg.
Speaker 3: This is Bloomberg Wall Street Week with David Weston from
Speaker 3: Bloomberg Radio.
Speaker 2: This is Wall Street Week. I'm David western We are
Speaker 2: joined once again this week. We're our very special contributor
Speaker 2: Larry Summers of Harvard. Larry, thanks so much for being
Speaker 2: being this. We have to start with those wow, as
Speaker 2: some people are calling them jobs numbers. They came out
Speaker 2: way above expectation. What did you make of them?
Speaker 4: Look, the economy has been surprising on the upside for
Speaker 4: a while, so I was surprised not that the job
Speaker 4: numbers came in that way. It was a pretty broadly
Speaker 4: strong report. Household Survey Business Survey wage numbers, especially given
Speaker 4: that the weather was pretty bad in January in many
Speaker 4: parts of the country, which probably held the numbers down
Speaker 4: below what would have been their normal level. And what
Speaker 4: that suggests is that despite the interest rate hikes of
Speaker 4: the Fed, there's a lot of strength in the economy.
Speaker 4: My instinct is that that is telling you, as I've
Speaker 4: been saying for some time on your show, David, that
Speaker 4: some combination of a higher neutral rate is the world
Speaker 4: we're living in, and possibly, quite possibly spending has become
Speaker 4: less intrasensitive over time because there's less how in the
Speaker 4: economy relative to GDP, because durable goods are less durable
Speaker 4: and so long lives than they used to be, because
Speaker 4: there's more flow of income to the rest of the
Speaker 4: economy from larger government debts, and that makes interest rates
Speaker 4: operate in the other direction. So I think what we've
Speaker 4: learned is that what we might have thought would be
Speaker 4: substantially restrictive monetary policy based on the magnitude of the
Speaker 4: interstrate hikes, really wasn't well.
Speaker 2: And we heard from the treasure six Ary Janet Yellen
Speaker 2: this week saying she's not sure that the introducers the
Speaker 2: longer term interest rates will come back down, they may
Speaker 2: remain elevated, in part because of how robust the economies.
Speaker 1: We also heard the FED Chair J. Powell say his
Speaker 1: concern isn't.
Speaker 2: So much about reacceleration of inflation, but it just won't
Speaker 2: come all the way down. On the other hand, despite
Speaker 2: the wage increases, productivity is at high levels right now.
Speaker 1: I just checked it.
Speaker 2: I think it's like three point two percent right now.
Speaker 1: Might that save us?
Speaker 4: The answer is yes, yes, and yes. I welcome Secretary
Speaker 4: Yellen's recognition that given prospective budget deficits, given perspective increases
Speaker 4: in investment demand, we really don't know where neutral interest
Speaker 4: rates are going to be. I'll be interested in seeing
Speaker 4: what's in the Administration forecast when it comes out. I
Speaker 4: think one would want to be guessing that Treasury bill
Speaker 4: rates will be averaging well above three percent through the
Speaker 4: rest of this decade.
Speaker 2: Larry, We talked with your economist colleague Paul Krookman this
Speaker 2: week about inflation and what we should have expected, and
Speaker 2: he admitted that he actually underestimated the issue of inflation.
Speaker 2: He thought it would not be as big and glasses long,
Speaker 2: and he sort of called you up by name saying
Speaker 2: he thought you'd stayed too long on the old models,
Speaker 2: that you had topreciated that this was really a once
Speaker 2: in a lifetime experience with the pandemic and the shutdown
Speaker 2: of the supply. What do you have to say about that?
Speaker 2: Do you in retrospect, did you over predict the need
Speaker 2: for unemployment to get inflation down?
Speaker 4: Look, I think we're having a softer landing than I
Speaker 4: would have expected so far. We'll see how inflation settles out,
Speaker 4: but we.
Speaker 1: Are having that.
Speaker 4: I think Paul tends to attribute it to a whole
Speaker 4: set of stuff on the supply side. I see the
Speaker 4: largest fiscal stimulus by far since World War Two. I
Speaker 4: see nominal GDP growth rising in double digits. I see
Speaker 4: an economy that gives evidence of booming and gave evidence
Speaker 4: of booming before the supply stuff was fixed. And so
Speaker 4: I think demand is a pretty big part of the story.
Speaker 4: But yes, the outcome has been more benign than those
Speaker 4: of us who drew the implications from standard models predicted.
Speaker 4: I think if you look back, we recognize that there
Speaker 4: was enormous uncertainty. But yes, things did come back in
Speaker 4: a way that was more favorable than standard models would
Speaker 4: have expected, though I'm much less prepared to declare that
Speaker 4: it's all over. We have not yet landed this plane.
Speaker 4: No one, to my knowledge thinks the kind of job
Speaker 4: growth we've seen over this month or over the last
Speaker 4: quarter is medium term sustainable. And that means and no
Speaker 4: one thinks we're all the way back to two percent
Speaker 4: inflation on a durable basis, and so that means that
Speaker 4: there are still issues around the landing.
Speaker 2: What's your take on what really happened in the nineteen
Speaker 2: nineties and the relationship between that ninety three Act and
Speaker 2: the tax increases and spending cuts on the one hand,
Speaker 2: and growth on the other.
Speaker 4: Look, there's no question that the economy hit good fortune
Speaker 4: from technology in the nineteen nineties, and that's an important part.
Speaker 1: Of the story.
Speaker 4: But you know, when you bring down capital costs, that's
Speaker 4: when people tend to take a longer view. That's when
Speaker 4: there's more investment in technology that produces growth. And I
Speaker 4: think what those of us who were in the Clinton
Speaker 4: administration always felt was that by cutting interest rates, you
Speaker 4: could turn a vicious cycle of high capital costs and
Speaker 4: low investment into a virtuous circle of lower capital costs,
Speaker 4: more investments, more growth. Lower deficits and the cycle goes
Speaker 4: round again. And I think you can never replay history.
Speaker 4: But gosh, I think if we had failed to act
Speaker 4: strongly with respect to the deficit in nineteen ninety three,
Speaker 4: I don't think we would have seen the kind of
Speaker 4: economic miracle that happened in the nineteen nineties. At the
Speaker 4: same time, look, I think on shows like this, people
Speaker 4: in markets do have a tendency to put all the
Speaker 4: emphasis on the short run tools of monetary and fiscal policies,
Speaker 4: and it's a mistake to recognize structure and technology as
Speaker 4: driving forces of what happens in the economy. And I
Speaker 4: think in that area, the Clinton administration was fortunate in
Speaker 4: just what was happening in the private sector, but also
Speaker 4: whether it was telecommunications, whether it was the approach that
Speaker 4: was taken to the internet, acted wisely in creating an
Speaker 4: environment that made it very attractive for the private sector
Speaker 4: to invest. And in all honesty, I think they are
Speaker 4: important lessons from that moderate progressive approach for policy going forward.
Speaker 1: Larry, thank you so very much. SS. Larry Summer is
Speaker 1: our very special contributor here on Wall Street Week. He's
Speaker 1: from Harvard.
Speaker 2: Finally, one more thought author Orn Woodward says, he who
Speaker 2: controls the fool's gold controls the fool. All of us
Speaker 2: are looking for some pot of gold at the end
Speaker 2: of our rainbow, whether it's intangible wealth or in something
Speaker 2: a bit less tangible. So we pay a lot of
Speaker 2: attention to those who do particularly well for themselves, like,
Speaker 2: for example, Elon Musk becoming the richest man in the
Speaker 2: world through his Tesla electric vehicles and SpaceX satellite launch.
Speaker 7: Elon Muskus seeing his own network jump by more than anyone.
Speaker 7: So far this year, he and the world's five hundred
Speaker 7: visious people have gained more than eight hundred and fifty
Speaker 7: billion dollars wealth.
Speaker 2: Or the late doctor Paul Farmer realizing a lifelong dream
Speaker 2: to change the world.
Speaker 4: People shouldn't die of a readily treatable disease because they're poor.
Speaker 2: But sometimes, and maybe too often, when it first appears
Speaker 2: to be a truly great deal, ends up too good
Speaker 2: to be true. That's certainly what Bernie Madoff's investors learned
Speaker 2: the hard way.
Speaker 16: This is the real tragedy. This is where the human
Speaker 16: tragedy comes in. Those people organize their lives around the
Speaker 16: fact that they had real profits when in fact, there
Speaker 16: were never any, never, any assets at all beyond that
Speaker 16: which they put in.
Speaker 2: As did investors in Enron, Developing a new technology to
Speaker 2: diagnose what ails us through a single drop of blood
Speaker 2: seemed a god send to patients and investors alike, until
Speaker 2: it turned out that Elizabeth Holmes Fharanos was all unallowed fraud.
Speaker 17: So government prosecutes is. This was put plainly as a
Speaker 17: case about fraud. They said it was a story about
Speaker 17: a Silicon Valley founder and executive who had lied and
Speaker 17: cheated in order to raise money from investors and at
Speaker 17: the same time deceived customers and doctors about the capabilities
Speaker 17: of Pharnos's technology.
Speaker 2: Even Elon Musk may in the end find out that
Speaker 2: his quest for X that's formally known as Twitter leaves
Speaker 2: him with more fools gold than real gold.
Speaker 12: I'm wondering how much Elin Mask is regretting this impassive
Speaker 12: decision to buy tweeter.
Speaker 2: This week, we got a particularly powerful reminder of the
Speaker 2: dangers in letting our ambition or our greed get the
Speaker 2: better of us when news came out of Minnesota about
Speaker 2: a Ruby slippers caper. It appears that mister Terry Martin
Speaker 2: of Grand Rapids, Minnesota, that's the hometown of Judy Garland,
Speaker 2: bought into a plan to steal an original pair of
Speaker 2: the ruby slippers worn by miss Garland when she played
Speaker 2: Dorothy in the Wizard of Oz. The seventy two year
Speaker 2: old mister Martin had past experience with stealing jewels, having
Speaker 2: served prison time for burglary, but unfortunately that past experience
Speaker 2: did not include having actually seen The Wizard of Oz,
Speaker 2: and so when he was approached by what his lawyer
Speaker 2: called an old mob associate, he willingly believed that they
Speaker 2: were called ruby slippers because they were just that covered
Speaker 2: with real rubies. Why else would they be insured for
Speaker 2: one million dollars. So you can imagine his surprise when
Speaker 2: his old mob associated took one look at the shoes
Speaker 2: and told them those supposed rubies were really only colored glass. Disappointed,
Speaker 2: Martin walked away, leaving them with his partner in crime. Eventually,
Speaker 2: the slippers made it back to the museum after the
Speaker 2: insurance company offered a two hundred thousand dollars reward, and
Speaker 2: mister Martin, who is in hospice care and not expected
Speaker 2: to live long, got off with time served and one
Speaker 2: year of supervised release, so in the end, like Dorothy
Speaker 2: Terry Martin of Grand Rapids, Minnesota, can return home.
Speaker 6: After all, there's no place.
Speaker 1: Like that, does it. For this episode of Wall Street Week,
Speaker 1: I'm David Weston. This is Bloomberg. See you next week.