Speaker 1: This is Bloomberg Wall Street Week. Market shruggle, higher consumer prices.
Speaker 1: The economy is in the process of rebounding. Will the
Speaker 1: futteral reserve have its own digital currency? The financial stories
Speaker 1: that cheap hard work. Many people think the eels are
Speaker 1: just going to keep marching up. We have more spending
Speaker 1: coming out of Congress. One of the big questions I
Speaker 1: think on investor's minds inflations through the eyes of the
Speaker 1: most influential voices. Larry Summer is the former Treasury Secretary
Speaker 1: Bryan Wynahan a backup America, Will Smart, CEO of Charlie Sharp.
Speaker 1: Bloomberg wool Street Week with David Weston from Bloomberg Radio.
Speaker 1: Be careful what you wish for the economy rebounds, earnings beat,
Speaker 1: but now we have to worry about all the pressures
Speaker 1: that come with that. This is Bloomberg Wall Street Week.
Speaker 1: I'm David Weston. This week we got more signals that
Speaker 1: the economy is roaring back from indications of GDP growth
Speaker 1: over ten percent for the quarter and maybe eight percent
Speaker 1: for the year, expecting growth to be at a better
Speaker 1: rate than what we have seen so far, and earnings
Speaker 1: that were so good that they raised questions about the
Speaker 1: analysts who underestimated them, driven in one way or another
Speaker 1: by the authorities opening economy back up. Broadway tickets go
Speaker 1: and sale today at capacity for theaters. The show's open
Speaker 1: September four teeth. But then the jobs numbers for April
Speaker 1: came in way below what anyone was expecting. Under normal
Speaker 1: circumstances that would be a great month. We still have
Speaker 1: a steep, steep clime. We still have ways to go,
Speaker 1: which may be a blip, but there were other storm
Speaker 1: clouds on the horizon with supply chains overwhelmed. We're having
Speaker 1: regular conversations with the administration and members of Congress to
Speaker 1: find the right solution. Growing fear of increased taxes and
Speaker 1: the ever present fear of inflation, made worse by Treasury
Speaker 1: Secretary yelling suggesting we might just see higher interest rates.
Speaker 1: We've been through a year long health and economic crisis,
Speaker 1: putting pressures on our governments like few have ever seen.
Speaker 1: But things appear to be coming back, and now we
Speaker 1: have to think about how we're gonna pay the bills.
Speaker 1: New Jersey is one of the states hit hardest by
Speaker 1: the pandemic and already has one of the highest tax
Speaker 1: rates in the country, So we asked its governor Phil Murphy,
Speaker 1: what paying those bills may mean for taxpayers. Listen, we
Speaker 1: we presented a budget six weeks ago that had zero
Speaker 1: increases in taxes and fees. We want to protect the
Speaker 1: middle class at every turn. We are the quintessential middle
Speaker 1: class state, UH, and we want to regain that mantle.
Speaker 1: We believe we're America's number one state to raise a family,
Speaker 1: and that includes making sure that the value proposition works
Speaker 1: for families, particularly young families who are considering moving here
Speaker 1: or staying here. I was gratified to see the census
Speaker 1: numbers last week. We were the number one state in
Speaker 1: America in terms of the amount by which we exceeded
Speaker 1: the estimate that was put out last year. That's for
Speaker 1: a reason people are coming here to raise their family.
Speaker 1: We've got to make sure that we continue to have
Speaker 1: the number one school's quality of life, great transit, but
Speaker 1: also that the value proposition works in the senses. It
Speaker 1: just came out there was a migration towards Florida, towards Texas,
Speaker 1: towards some lower taxing states. How conscious are you of
Speaker 1: that as you set your budgets? How concerned are you
Speaker 1: that New Jersey could really lose some of the more affluent,
Speaker 1: in particular to places like Florida. Well, listen, New Jersey's
Speaker 1: population grew over five percent over the course of the decade. Again,
Speaker 1: the space we occupy is that that moniker, which we
Speaker 1: don't take lightly. America's number one state to raise a family.
Speaker 1: We have the number one public education system in America,
Speaker 1: top handful of healthcare system, a location second to none.
Speaker 1: We're fixing transit um. The quality of life is exceedingly high.
Speaker 1: That's our value proposition. Some states come at you so listen,
Speaker 1: we want you to move here because we have low
Speaker 1: taxes um. That's that's there. That may be their value proposition.
Speaker 1: Ours is a much more holistic and broader one. Governor.
Speaker 1: You've identified specifically sixteen municipalities in New Jersey of over
Speaker 1: ten thousand people that you're below, led by a New
Speaker 1: Brunswick city. As you look at those, it looks to me,
Speaker 1: you know the states so much better than I do,
Speaker 1: But it looks to me like they tend to be
Speaker 1: lower income and yes, minorities. What are the specific ways
Speaker 1: that you reach those populations. Yeah, you're absolutely right. I
Speaker 1: don't know that every one of the communities are our
Speaker 1: majority communities of color, but they are largely and we
Speaker 1: didn't put that list up to name and shame. This
Speaker 1: is just to give people a sense of what the
Speaker 1: remaining challenges. We have too many people right now declaring victory.
Speaker 1: Our numbers have gotten a lot better, but we're not
Speaker 1: there yet. And so it's a variety of things. It's
Speaker 1: role models getting vaccinated, it's mobile vans, it's houses of worship. UH,
Speaker 1: it's it's getting to homebound individuals, homeless folks. UH, it's
Speaker 1: a whole of initiatives, federally qualified centers. There's no one
Speaker 1: magic wand UH. As it relates to equity, we are
Speaker 1: still on a journey. As we say often, the pandemic
Speaker 1: didn't create the inequities, it's laid them there in Our
Speaker 1: vaccine program is a good example. Uh. It is a
Speaker 1: work in progress. Governors, you know, well, there's a push
Speaker 1: on to get people to go back into their offices.
Speaker 1: We had golden sacks just say we want people back
Speaker 1: by a date. Certain as that happens, that's gonna put
Speaker 1: pressure on some of the transportation systems from New Jersey's
Speaker 1: people commute into Manhattan right now, as I understand it,
Speaker 1: the public transit is really being avoided. Your down something
Speaker 1: like sevent in your capacity. How do you respond to that?
Speaker 1: First of all, financially, you can't run those transit authorities
Speaker 1: very long down capacity, can you? Financially? There's a number
Speaker 1: of questions that are Number one, the federal help, whether
Speaker 1: it's prior coronavirus relief funds or American Rescue Plan money,
Speaker 1: or or perhaps in this debated right now infrastructure plan.
Speaker 1: We desperately need that help. Secondly, and J transit UH,
Speaker 1: when we got into office, it was broken. It's fixed,
Speaker 1: and we've used the pandemic to fix it even faster.
Speaker 1: So I think folks are going to find a clean, safe,
Speaker 1: reliable system. Thirdly, you didn't ask it, but one of
Speaker 1: the ways we're gonna get to vaccination is to get
Speaker 1: our business community UH to be proactive, just as we
Speaker 1: are at the state level. In fact, we had a
Speaker 1: good call with the Chamber of Commerce on this topic
Speaker 1: this morning, getting businesses to be just as forward leaning
Speaker 1: into this as we are being as at the state level.
Speaker 1: I think the transit commuting reality will be slow to recover,
Speaker 1: but I think when folks come back and actually participate,
Speaker 1: it will be a positive experience. That was New Jersey
Speaker 1: Governor Phil Murphy coming up, Big tech has more to
Speaker 1: worry about than just inflation and supply chains, as the
Speaker 1: antitrust challenges just keep fond coming this time for Apple.
Speaker 1: That's next on Wall Street Week on Boombo. This is
Speaker 1: Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
Speaker 1: Apple's ten year relationship with Epic Games is unraveling in
Speaker 1: court this week. It's all about Epics claim that Apple
Speaker 1: is using its market power to charge it too much
Speaker 1: for selling its games and Apple's claim that Epic just
Speaker 1: doesn't want to play by the rules. Apple says, if
Speaker 1: you build an app for our platform, first of all,
Speaker 1: you can only distribute it through their store. They don't
Speaker 1: allow all competing stores, and that's totally un American and uncompetitive.
Speaker 1: In two thousand eleven, Tim Cook used Epics game Infinity
Speaker 1: Blade two to show off Apple's new and powerful iPhone
Speaker 1: for s, but Apple's relationship with the GameMaker went even deeper.
Speaker 1: In legal documents, Apple said it's spent more than one
Speaker 1: million dollars marketing games for Epic and even added round
Speaker 1: the clock tech support for the GameMaker. The app store
Speaker 1: isn't just a store. It's like a studio, stock with canvases, brushes,
Speaker 1: and paint the tools that artists need to create their works,
Speaker 1: and it's a gallery where they can display and sell
Speaker 1: their creations. The relationship began souring in two seventeen with
Speaker 1: the release of epics blockbuster hit Fortnite. After that, Epics
Speaker 1: CEO and founder Tim Sweeney began publicly criticizing Apple's payment system,
Speaker 1: in which the company took as much as thirty of
Speaker 1: sales and blocked many developers from using other payment methods
Speaker 1: to avoid the fee. You can't have a tech monopoly
Speaker 1: dominating all all interactions between consumers and businesses on a
Speaker 1: scale of billions of users. The final blow to the
Speaker 1: relationship came when Apple removed Fortnite from its app store
Speaker 1: last year after Epic activated its own payment system. Analytics
Speaker 1: firm Censored Tower estimates the app store generated twenty two
Speaker 1: billion dollars in commissions last year for Apple from the
Speaker 1: seven two billion dollars users spent on their devices. Who
Speaker 1: are absolutely going to see some form of legislation or
Speaker 1: additional scrutinary, So in the case of Apple, it'll be
Speaker 1: probably regulating the App store Apples and trust problems aren't
Speaker 1: just in the United States. EU regulators have accused Apple
Speaker 1: of violating competition laws by imposing unfair rules and fees
Speaker 1: on music streaming services that are on the App Store.
Speaker 1: We need any trust regulation to return to what it
Speaker 1: used to be when we protected markets so that no
Speaker 1: one could dominate and block new entrants, no one could
Speaker 1: compete against people operating a marketplace. And so this week
Speaker 1: we saw the start of a three week courtroom battle,
Speaker 1: complete with the Apple and Epic CEOs themselves taking the stand,
Speaker 1: along with a whole lot of experts and no less
Speaker 1: than the fate at the app store hanging in the balance.
Speaker 1: But former Antitrust Division had Bill Bear and blue Berg
Speaker 1: intelligence senior and a trust litigation analyst, Jennifer Ree. It's
Speaker 1: an uphill battle for Epics David to beat Apple's goliath.
Speaker 1: They need to prove first that Apple is a monopolist
Speaker 1: in connection with its App store and its requirement that
Speaker 1: you download through the app store for the iOS devices.
Speaker 1: And then they need to prove that the requirement that
Speaker 1: you go through the app store actually is an anti
Speaker 1: competitive requirement as opposed to what Apple says, which is
Speaker 1: something that is necessary to protect security and privacy of
Speaker 1: its ioas usage. Jen, can you ever monopolize your own product?
Speaker 1: I mean that's in a sense what the claim is here, right, Yeah,
Speaker 1: it's iOS, we invented it, we have it, so yes,
Speaker 1: we have all of it, you know, and this is
Speaker 1: part of their uphill battle. I mean, you can, but
Speaker 1: there are very very few court cases where that actually
Speaker 1: was considered the an appropriate relevant market. It just it
Speaker 1: rarely is, and that's going to be very difficult for them.
Speaker 1: And you can see that because in the again beginning
Speaker 1: of the trial, epic is really hammered on competition, uh,
Speaker 1: and the lack of competition and the reason that all
Speaker 1: the other substitutes are different in our true substitutes. Bill,
Speaker 1: how much of this you think might turn in the
Speaker 1: end on Apple's claim as I understand that we need
Speaker 1: to do it this way for security purposes, there's a
Speaker 1: really legitimate business justification even if you find we have
Speaker 1: an apply power within our system. I think that says
Speaker 1: that exactly right, because being a monopolist is only one
Speaker 1: step in the process of finding in any trust violations,
Speaker 1: you need to show to show that requirements that that
Speaker 1: Apple is imposing on on app developments are unreasonable for
Speaker 1: any competitor. Really served no legitimate um justification. It does
Speaker 1: strike me, jen that quite a few what we would
Speaker 1: think of a tech companies have weighed in on the
Speaker 1: side actually of Epic Games. Maybe the David in this battle, uh,
Speaker 1: including Facebook and Microsoft is saying, we find it really
Speaker 1: difficult as well. We've tried to get in Spotify. Would
Speaker 1: that have any effect on the judge as a practical matter?
Speaker 1: You know, I think first of all, you know, in
Speaker 1: my mind, you have to think about the fact that
Speaker 1: Microsoft is a big competitor to Apple. You know, in
Speaker 1: many ways they're they both they compete in the sale
Speaker 1: of computers and they have opposing you know, operating systems.
Speaker 1: So you know, Microsoft has something to benefit if Epic
Speaker 1: wins this trial. And what Microsoft and some of these
Speaker 1: other tech companies are providing is really anecdotal evidence where
Speaker 1: they do or don't compete, and the difficulties that they've
Speaker 1: also had in negotiating with Apple to get their own
Speaker 1: game stores or their own game streaming into the Apple
Speaker 1: App Store. So it's anecdotal evidence. You know, at the
Speaker 1: end of the day, I think it has some influence,
Speaker 1: but but not significant. Bill, give us a sense of
Speaker 1: what the expert witnesses are gonna be testifying to, because,
Speaker 1: as I understand, in most antitrust cases, really the economics
Speaker 1: driving off a lot of it. The expert witnesses on
Speaker 1: either side and the judge is really gonna put a
Speaker 1: lot of emphasis on that. What are they gonna be
Speaker 1: testifying to. Why they're going to have this uh disputed
Speaker 1: visions of what the market looks like? UM is UH
Speaker 1: is Apple by virtue of UH controlling what apps are
Speaker 1: downloaded to iOS users, iPad iPhones? Uh? Is that actually
Speaker 1: just one way of competing in US broader market where
Speaker 1: there are lots of ways of getting apps to other devices,
Speaker 1: there are lots of way for gamers to play games.
Speaker 1: Whereas the epic view is going to be no, no,
Speaker 1: this is a restrictive, narrow market, UH, where Apple is
Speaker 1: able to control the environment for anybody who uses this
Speaker 1: DIOS system and basically ties the iPad and the iPhone
Speaker 1: two downloading software at at commission rate. So they saw
Speaker 1: for developers only through only through Apple's platforms, So they
Speaker 1: will present economic governance that will suggest Apple has pricing
Speaker 1: power that is suggested from an appoly power. Apple's econosts
Speaker 1: will talk about all the other ways in which people
Speaker 1: can play games, or download other apps, or use your
Speaker 1: PC or your your map to to compete, thanks to
Speaker 1: Bill Bear of the Brookings Institution and Jennifer Ree of
Speaker 1: Bloomberg Intelligence. Coming up, just when the auto market wants
Speaker 1: to come roaring back, the lack of microchips reins it in.
Speaker 1: We hear from GM CEO Mary bar On what she
Speaker 1: and her team are doing to manage the problem. That's
Speaker 1: next on Wall Street Week on Bloomberg. This is bloom
Speaker 1: Wall Street Week with David Weston from Bloomberg Radio. GM
Speaker 1: announced its earnings this week and they were strong, very strong,
Speaker 1: as the company sees demand for new cars come back
Speaker 1: stronger and faster than anyone anticipated a year ago. But
Speaker 1: there was a catch. A combination of a surging economy
Speaker 1: and a huge uptick in demand for consumer electronics has
Speaker 1: led to a dire shortage of microchips. And it turns
Speaker 1: out you can't make a car these days without some
Speaker 1: pretty sophisticated computers built right into those cars. We asked
Speaker 1: GM Chairman CEO Mary Barra, how she's managing a problem
Speaker 1: that will caused her up to two billion dollars this year.
Speaker 1: There's not a lot of transparency between the different automakers
Speaker 1: of what's happening. We're focused on GM and I think
Speaker 1: what's been incredible is the work that we're doing with
Speaker 1: our purchasing group, our engineering group, are manufacturing group in
Speaker 1: sales and marketing and working with suppliers. You know, we've
Speaker 1: been working to build strong relationship with our suppliers for many,
Speaker 1: many years now, and there's just a t that is
Speaker 1: looking understanding what chips are we going to have access to,
Speaker 1: how do we allocate those to our highest demand and
Speaker 1: and products that we have limited or no ability to
Speaker 1: recover because there's just such strong demand. We run those
Speaker 1: manufacturing operations around the clock and they're they're just being
Speaker 1: creative and doing what engineers do of problem solving and
Speaker 1: and in some cases re engineering to get the chips
Speaker 1: to the right products and to just um find every
Speaker 1: opportunity we can to build a car, trucker crossover and
Speaker 1: get it to the customer. So it's a mixed question
Speaker 1: not just of the vehicles you sell, but also where
Speaker 1: you direct your chips. It sounds like you want to
Speaker 1: direct it to the ones that really are the most important.
Speaker 1: Are you getting more chips? Do you think than you
Speaker 1: would have expected, because if you're purchasing department, well, again,
Speaker 1: there's not a lot of transparent to say more than
Speaker 1: you know, we were very clear last year of what
Speaker 1: we thought the demand was going to be this year
Speaker 1: and the chips that we had ordered, and so you know,
Speaker 1: we're continuing to work with the supply base on that
Speaker 1: and UH again, but it's I think it's looking for
Speaker 1: every opportunity and managing it centrally and also working hand
Speaker 1: in hand with our j V and China, so across
Speaker 1: the board, we are just really being I think the
Speaker 1: team is being really scrappy and finding ways that we
Speaker 1: can build the vehicles, not only full size trucks and SUVs,
Speaker 1: but also our electric vehicle programs. And I think it's
Speaker 1: important to note that even with the challenges of the
Speaker 1: semiconductors UH shortage, there is no impact on our electric vehicles,
Speaker 1: on our autonomous vehicles and the growth initiatives that we've
Speaker 1: been talking about this first quarter. That was one of
Speaker 1: the questions I had, both for the Hummer that's coming
Speaker 1: out later this year and then the lyric which is
Speaker 1: coming at sometimes the first happened next year. Is there
Speaker 1: going to be any delay because of the chip problem?
Speaker 1: Absolutely not, And I can tell you those vehicle programs
Speaker 1: are on track, and uh, I'm really excited to have
Speaker 1: customers get in those vehicles and drive them because I
Speaker 1: think they're going to be amazed. This problem isn't going
Speaker 1: away in the sense that as you go forward, you're
Speaker 1: gonna make more and more cars, they are going to
Speaker 1: require more and more chips. What is the longer term
Speaker 1: solution to this so we don't have this sort of
Speaker 1: problem you have this year? Well, I think we are
Speaker 1: going to see recovery. We think Q two will be
Speaker 1: the weakest for the year. We'll see some recovery, recovery
Speaker 1: in Q three, Q four. Uh, And we're working on
Speaker 1: a lot of long term strategies. I don't have anything
Speaker 1: to share right now, but there's a a you know,
Speaker 1: a whole um menu of things that we're working on,
Speaker 1: processes that we're changing. Um. So more to come later
Speaker 1: in the year of how we'll make sure we're never
Speaker 1: in this situation again. But believe me, we have a
Speaker 1: dedicated team working on that as well. When it comes
Speaker 1: to batteries, you've sort of vertically integrated, as it were,
Speaker 1: where the joint venture where you're making your own batteries.
Speaker 1: Is there something like that perhaps that would make sense
Speaker 1: for GM. You know, I'm not going to take anything
Speaker 1: off the table. We're going to look at what what
Speaker 1: we can do to make sure that we have the
Speaker 1: right number of automotive grade chips UH and that we
Speaker 1: it it doesn't constrain our growth because we see huge
Speaker 1: opportunity not only with the product portfolio we have today,
Speaker 1: but with the strong electric vehicle products that we have coming.
Speaker 1: We hear some in Washington, both the Commerce Secretary and
Speaker 1: also I talked to one of your Michigan representatives, Haley Stevens,
Speaker 1: who suggested perhaps there needs to be some co investment
Speaker 1: from the government as well as the private sector in
Speaker 1: chip production. Does that make sense from your point of view?
Speaker 1: I think making sure we have a secure supply chain
Speaker 1: um for the growth that I think we're going to
Speaker 1: see it. I think it's something that we all have
Speaker 1: to work together on, and we're having regular conversations with
Speaker 1: the administration and members of Congress to find the right
Speaker 1: solution and we'll continue to do that. In your presentation today,
Speaker 1: General Motors really lays out a fairly robust program to
Speaker 1: really go to electric vehicles and to really deal with
Speaker 1: greenhouse gases over the longer term. You have very specific
Speaker 1: targets you're setting out there. How do you hope to
Speaker 1: achieve those? Well, I think it's making sure there's a
Speaker 1: whole ecosystem that when a customer looks at can I
Speaker 1: buy an electric vehicle, they say, I'm going to have
Speaker 1: a better experience when I buy an electric vehicle. It's
Speaker 1: going to be a beautiful vehicle. It's going to be
Speaker 1: in this segment that I want to purchase because we
Speaker 1: can't you know, person if they want an suv or
Speaker 1: a crossover, they're not going to buy a sedan. It's
Speaker 1: to meet them in the market where they want. But
Speaker 1: then it's also making sure there's a robust charging infrastructure,
Speaker 1: and we're working on that as well, and that will
Speaker 1: be not only what we're doing. For instance, we're putting
Speaker 1: charging in our workplaces, but also working with communities and
Speaker 1: then working with all the startups that are in this
Speaker 1: business connecting those We just made an announcement that we
Speaker 1: have now We're going to provide access to sixty chargers
Speaker 1: across across the country to really give confidence to customers
Speaker 1: as they buy an e V and if even if
Speaker 1: it's their only vehicle, that they're going to have a
Speaker 1: robust charging infrastructure. And I think all those things combine,
Speaker 1: you know, beautiful vehicles, meets their needs, the right range,
Speaker 1: and then charging available, customers are going to move to
Speaker 1: e vs. That was GM chairman and CEO Mary Borrow.
Speaker 1: Coming up, we wrap up the week with our special
Speaker 1: contributor Larry Summers of Harvard. This is Wall Street Week
Speaker 1: on Bloomberg. This is Bloomberg Wall Street Week with David
Speaker 1: Weston from Bloomberg Radio. We welcome now our special Wall
Speaker 1: Street Week contributor, Larry Summers of Harvard. Larry, welcome, is
Speaker 1: great to see you. So, first of all, start with
Speaker 1: these jobs numbers. They were so surprising to so many people.
Speaker 1: Two sixty six thousand instead of one million. Some people
Speaker 1: are we two million? Did they tell us anything beyond
Speaker 1: this one data point? I think it's hard to interpret.
Speaker 1: My senses that it's got a lot to do with
Speaker 1: the emerging labor shortages that we're hearing about almost everywhere
Speaker 1: that managers in many different places are talking about and
Speaker 1: worrying about it, and if people can't find workers, employment
Speaker 1: can employment's got to go up. Evidence for that is
Speaker 1: that we really had an extremely strong average hourly earnings
Speaker 1: print this month. Now it's only one month, and they
Speaker 1: were down UH last month, but they were up at
Speaker 1: a nine annual rate UH this month. And probably the
Speaker 1: figure was our officially held down by the fact that
Speaker 1: most of the new jobs were in low wage sectors
Speaker 1: like restaurants. So I think what we're seeing is more
Speaker 1: and more evidence of labor shortage, and maybe that will
Speaker 1: prove to be transitory. Maybe it will turn out that
Speaker 1: as people go back to school um more and more
Speaker 1: people come into the workforce and will lose that sense
Speaker 1: of labor shortage. But as I look at the data,
Speaker 1: I see much stronger evidence that people who retired over
Speaker 1: the last year aren't coming back. I see more and
Speaker 1: more evidence that people who in one way or another
Speaker 1: have changed around their lives aren't coming back for a while.
Speaker 1: So I expect that as the economy grows rapidly, as
Speaker 1: everybody thinks it's going to over the next few months,
Speaker 1: that that labor shortage problem is going to grow. That
Speaker 1: that's gonna be putting more and more pressure on wages,
Speaker 1: and that's ultimately going to move into UH prices. So
Speaker 1: I actually think there's reason to think that inflation might
Speaker 1: even accelerate from where it is this summer, rather than
Speaker 1: the deceleration that the Fed and the Treasury are so
Speaker 1: confidently predicting. You know, it's further evidence for that view
Speaker 1: to look at the housing market. You see the prices
Speaker 1: of housing UH rising at incredible mid you know, double
Speaker 1: digit rates in the teens. That probably is telling you
Speaker 1: that rents are going to be going up before long.
Speaker 1: That's why people are buying these houses in part. That's
Speaker 1: certainly why private equities buying up a large amount of houses.
Speaker 1: And right so far rental factor has been holding down
Speaker 1: the inflation in this season. That's about to change. So
Speaker 1: between the inventory issues, the labor shortage issues, the rental
Speaker 1: UH issues is UH. I have to say that my
Speaker 1: concerns about inflation are increasing. Are we contributing to it
Speaker 1: in part by keeping people on the sidelines because of
Speaker 1: how much we're reimbursing them for being unemployed. That's something
Speaker 1: that both President Buying addressed this week and Secretary the
Speaker 1: Treasury yelling did They were both asked pointedly, you're paying
Speaker 1: people a lot of not to work. Is that making
Speaker 1: the situation worth Both of them thought, that's not the problem.
Speaker 1: I think it's more a matter of having to stay
Speaker 1: home to take care of kids or elderly relatives. What
Speaker 1: do you make of that, respectfully, uh, I think it
Speaker 1: is close to self evident that the fact that people
Speaker 1: are being paid more to stay at home than they
Speaker 1: would be to work, in millions of cases is reducing
Speaker 1: the available supply of labor. I think the fact that
Speaker 1: the fraction of the unemployed who are getting unemployment insurance
Speaker 1: is it record highs is contributing to people being more
Speaker 1: picky about jobs. You can argue that it's really important relief.
Speaker 1: You can argue that it's really important insurance that we're providing.
Speaker 1: But I don't see how one can plausibly say that
Speaker 1: paying people more to not work than to work is
Speaker 1: having no effect on the availability of UH workers. And
Speaker 1: I think we just need to recognize that it probably
Speaker 1: was the right thing to do when we really wanted
Speaker 1: people to be very careful to stay home and not
Speaker 1: spread COVID. But I think it's very hard to justify
Speaker 1: and rationalize them. Uh, right now, Larry, as a macro economist,
Speaker 1: are you concerned at all that our models might not
Speaker 1: really let us know where we are if we're driving
Speaker 1: the car too fast? Is the sphenometer working? Because we
Speaker 1: haven't seen this sort of phenomenon perhaps ever in the
Speaker 1: history of our economy. And let's be frank, the jobs
Speaker 1: numbers came in very different from what econdoms thought there
Speaker 1: were gonna be. At the same time, we never saw
Speaker 1: the kind of go down that fast come back that fast.
Speaker 1: And goodness knows, with all the monetary and fiscal stimulus,
Speaker 1: do we really have a model that tells us where
Speaker 1: we are and where we're going? Look, I don't. I
Speaker 1: don't think any of us can predict with great precision,
Speaker 1: and I think over confidence is a real Uh is
Speaker 1: a real problem. That's why I've always framed my prediction probabilistically.
Speaker 1: There's a one third chance this will all work out well.
Speaker 1: There's a one third chance that we're really gonna push
Speaker 1: the inflation rate up in the way we did after Vietnam,
Speaker 1: during Vietnam and into the nineties seventies, And there's a
Speaker 1: one third chance that we're gonna have some kind of
Speaker 1: fiscal monetary collision. So I think you gotta recognize that
Speaker 1: there's uncertainty. I think you can discern sort of broad
Speaker 1: structure and trend of the way things are moving. And
Speaker 1: I think the law of supply and demand is more
Speaker 1: reliable than most other economic laws. And it sure does
Speaker 1: seem like demand is rising relative to supply, and that
Speaker 1: certainly points towards UH rising prices and some acceleration of inflation.
Speaker 1: So I think that's the tendency. But you're absolutely right, David,
Speaker 1: that there are both wild cards that come from the
Speaker 1: outside and there are doubts about UH internal dynamics, and
Speaker 1: those are things that absolutely have to be UH factored
Speaker 1: into UH the analysis UM in a in a clear way.
Speaker 1: You know, another thing to look at, just because they
Speaker 1: reflect act a large number of views, and certainly one
Speaker 1: shouldn't always assume they're right, because they're often wrong. Is
Speaker 1: what's happening in markets? And what we're seeing in markets
Speaker 1: is that because the FED is so clear about its
Speaker 1: reluctance to raise rates, UM, you're seeing very little movement
Speaker 1: in nominal rates, but under the surface, you're seeing a
Speaker 1: reduction in real interest rates and an increase in the
Speaker 1: inflation premium that's priced into the difference between nominal bonds
Speaker 1: and uh real bonds. And we haven't seen a three
Speaker 1: or four month movement in inflation break evens that was
Speaker 1: as large since these markets got invented, since these index
Speaker 1: bonds got invented many years ago. The FED made me
Speaker 1: very clear about that, but the former FED chair who
Speaker 1: is now the Secretary Treasury, Janet Yellen, wasn't quite clear.
Speaker 1: This week. One of the big issues for investors was
Speaker 1: when she came out and said in response to a question,
Speaker 1: she said, well, look at and then we may get
Speaker 1: to a point where the market's heating up enough so
Speaker 1: that we actually have to increase rates. She came back
Speaker 1: out afterwards. I said, well, I really wasn't trying to predict.
Speaker 1: At the same time, would you make of what she
Speaker 1: had to say? I felt for Janet. I've I've been there.
Speaker 1: People make comments, they get interpreted in a certain way,
Speaker 1: and the markets get very excited and see strategy where
Speaker 1: there's only um innocent economic commentary. I don't think that
Speaker 1: is a big deal. On the other hand, what she
Speaker 1: said was self evidently true that if the economy gets
Speaker 1: going sufficiently strong, and there starts to be inflationary pressures.
Speaker 1: As part of containing those pressures, interest rates will be raised.
Speaker 1: I don't see how a reasonable person could disagree with
Speaker 1: that statement, and the fact that that was so alarming
Speaker 1: in markets to the point where she felt it necessary
Speaker 1: to provide further clarification of that. I think points up
Speaker 1: what is really quite dangerous in our macroeconomic strategy. Between
Speaker 1: monetary and fiscal policy, we're creating a sense for markets
Speaker 1: that it's always going to be let the good times roll.
Speaker 1: And I think when people get the idea that the
Speaker 1: punch bowls never going to be removed until they're actually
Speaker 1: people staggering around drunk at the party, it makes it
Speaker 1: more likely that the party is going to get out
Speaker 1: of control. Okay, thanks so very much to our special
Speaker 1: Wall Street Week contributor Larry Summers of Harvard. Finally, one
Speaker 1: more thought, adding a new letter to the C suite.
Speaker 1: First it was CEO, then CFO, and c I O
Speaker 1: and CTO, oh and c d O, but what about
Speaker 1: c h O. It's all about climate these days from
Speaker 1: President Biden, putting climate at the very top of his agenda.
Speaker 1: Two companies like a b in BEV, linking how much
Speaker 1: interest they pay to whether they accomplished greenhouse gas emissions
Speaker 1: goals to investors like Sam Zell just not investing in
Speaker 1: oil and gas anymore at all, because the risk reward
Speaker 1: has shifted in the wrong direction. Pretty much everyone agrees
Speaker 1: that we're seeing and feeling the effects of climate change
Speaker 1: in the weather, and it turns out that the biggest
Speaker 1: source of death from weather in the United States isn't
Speaker 1: hurricanes or tornadoes, it is heat, which takes us to
Speaker 1: that new member of the C suite, the Chief Heat Officer.
Speaker 1: Miami Dade County has just appointed its first ever c
Speaker 1: h O, and Athens in Freetown, Sierra Leone are soon
Speaker 1: to follow. Jane Gilbert is Miami Dade's interim c CHO,
Speaker 1: working on ways to protect the most vulnerable populations from heat,
Speaker 1: creating things like resilience hubs where people can go to
Speaker 1: cool off when they need to, and working with the
Speaker 1: employers to protect workers out in the noonday sun and
Speaker 1: fields or in construction sites. She even wants to start
Speaker 1: naming and ranking heat waves the way we do storms,
Speaker 1: complete with early warning systems. So maybe coming soon to
Speaker 1: an eyewitness news near you. We may well have the
Speaker 1: Doppler three thousand heat map that does it. For this
Speaker 1: episode of Wall Street Week, I'm David Weston. This is Bloomberg.
Speaker 1: See you next week.