1 00:00:00,080 --> 00:00:12,799 Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 2 00:00:12,800 --> 00:00:16,239 Speaker 1: with David Gura. Daily we bring you insight from the 3 00:00:16,239 --> 00:00:21,640 Speaker 1: best of economics, finance, investment, and international relations. Find Bloomberg 4 00:00:21,720 --> 00:00:27,000 Speaker 1: Surveillance on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course, 5 00:00:27,320 --> 00:00:35,800 Speaker 1: on the Bloomberg. Ben burn Anaki needs no introduction. Yes, 6 00:00:35,920 --> 00:00:38,680 Speaker 1: the former chairman of the Fellow Reserve. But not only that, 7 00:00:38,800 --> 00:00:41,640 Speaker 1: but one of our frontline academics. A little did we know, 8 00:00:42,280 --> 00:00:47,159 Speaker 1: A wonderful author. His book, Encouraged to Act, starts quickly 9 00:00:47,360 --> 00:00:50,519 Speaker 1: and moves ever forward breathlessly through the crisis that we 10 00:00:50,600 --> 00:00:54,000 Speaker 1: have all lived and the aftermath as well. He's out 11 00:00:54,040 --> 00:00:58,480 Speaker 1: now with a new addition paperback, perfect for beach reading, 12 00:00:58,920 --> 00:01:02,280 Speaker 1: and it's got a new after the word as well. Ben. Congratulations, 13 00:01:02,320 --> 00:01:04,120 Speaker 1: I know you've done the interview circuit. I want to 14 00:01:04,160 --> 00:01:09,160 Speaker 1: dive into a longer, more thoughtful conversation about many of 15 00:01:09,160 --> 00:01:12,399 Speaker 1: these themes. Let me first begin with the emotion you 16 00:01:12,520 --> 00:01:15,000 Speaker 1: capture at the beginning of the book. Anybody in the 17 00:01:15,080 --> 00:01:19,160 Speaker 1: racket of business journalism knows the name Michelle Smith. She's 18 00:01:19,200 --> 00:01:21,760 Speaker 1: the keeper of the gate. She guards the lock and 19 00:01:21,840 --> 00:01:24,200 Speaker 1: key at the fed. If you don't get along with 20 00:01:24,240 --> 00:01:27,399 Speaker 1: Michelle Smith, you don't talk to anyone. You open your 21 00:01:27,400 --> 00:01:32,080 Speaker 1: book with you exhausted in an office with Michelle Smith. 22 00:01:32,360 --> 00:01:35,759 Speaker 1: Tell us about that moment where you really finally hit 23 00:01:35,760 --> 00:01:38,720 Speaker 1: the wall in this crisis. Well, Michelle Smith was also 24 00:01:38,800 --> 00:01:42,160 Speaker 1: functioning to my chief of staff and general advisor. And 25 00:01:42,200 --> 00:01:45,720 Speaker 1: that was the day that UM we had decided to 26 00:01:45,720 --> 00:01:48,720 Speaker 1: to uh intervene with a I G. And it was 27 00:01:48,720 --> 00:01:53,400 Speaker 1: an enormously risky situation. I had been earlier that day 28 00:01:53,400 --> 00:01:55,920 Speaker 1: to Congress. I talked to a group of senators and 29 00:01:55,960 --> 00:01:58,200 Speaker 1: representatives and they basically made it clear that we were 30 00:01:58,200 --> 00:02:01,240 Speaker 1: on our own, that whatever we did was our responsibility 31 00:02:01,280 --> 00:02:04,720 Speaker 1: and our call. And of course, this was a couple 32 00:02:04,720 --> 00:02:08,640 Speaker 1: of days after after Lehman, and the financial system was 33 00:02:08,880 --> 00:02:14,119 Speaker 1: in in shock, essentially, and it required an unanimous vote 34 00:02:14,160 --> 00:02:16,200 Speaker 1: to take the actions we did, which was eventually to 35 00:02:16,360 --> 00:02:18,959 Speaker 1: lend eighty five billion dollars today i G. So it 36 00:02:19,000 --> 00:02:22,840 Speaker 1: wouldn't collapse, and so I could have stopped it, but 37 00:02:23,480 --> 00:02:24,880 Speaker 1: you know, we thought it was the right thing to do, 38 00:02:24,960 --> 00:02:26,960 Speaker 1: and and we went ahead and did it. But it 39 00:02:27,040 --> 00:02:29,480 Speaker 1: was perhaps the darkest one, or at least certainly one 40 00:02:29,520 --> 00:02:32,760 Speaker 1: of the darkest moments. From there on things began to 41 00:02:32,760 --> 00:02:35,120 Speaker 1: look better, But certainly there was some very dark moments. 42 00:02:35,160 --> 00:02:37,640 Speaker 1: That's all sorts of hindsight going on here. I remember 43 00:02:37,680 --> 00:02:40,639 Speaker 1: being trend fixed at a fancy Bloomberg chart, watching bear 44 00:02:40,720 --> 00:02:43,400 Speaker 1: Stearns go down in flames, and we all have our 45 00:02:43,480 --> 00:02:47,520 Speaker 1: individual uh moments here. Not when did you know it 46 00:02:47,600 --> 00:02:51,400 Speaker 1: was all clear? But from those dark moments, where did 47 00:02:51,400 --> 00:02:55,120 Speaker 1: you get the confidence that the theory and the foundations 48 00:02:55,160 --> 00:02:57,840 Speaker 1: that you had learned at M I T and onto 49 00:02:57,840 --> 00:03:00,760 Speaker 1: your teaching career at Stanford Princeton. The other is when 50 00:03:00,800 --> 00:03:03,040 Speaker 1: did it click in that you may get this right? Well, 51 00:03:03,080 --> 00:03:06,519 Speaker 1: I think I understood the crisis. The crisis it was 52 00:03:06,560 --> 00:03:08,560 Speaker 1: about some prime mortgages, about all these things, but it 53 00:03:08,600 --> 00:03:11,400 Speaker 1: was basically a panic. It was a financial panic, very 54 00:03:11,440 --> 00:03:13,720 Speaker 1: analogous to the runs on the banks we saw in 55 00:03:13,760 --> 00:03:16,240 Speaker 1: the nineteenth century or in the depression, but it was 56 00:03:16,240 --> 00:03:18,600 Speaker 1: an electronic panic. So everyone was in the sense that 57 00:03:18,919 --> 00:03:20,960 Speaker 1: the short term funding of the system, through the repo 58 00:03:21,120 --> 00:03:23,359 Speaker 1: market to the commercial paper market was all being withdrawn. 59 00:03:23,680 --> 00:03:26,800 Speaker 1: Everything was freezing up. And you know, I'd seen the 60 00:03:26,800 --> 00:03:29,440 Speaker 1: analogy to the earlier panics, and I unders I think 61 00:03:29,440 --> 00:03:31,640 Speaker 1: I understood in principle at that point how we were 62 00:03:31,639 --> 00:03:33,880 Speaker 1: going to comment, how we were going to stabilize the situation. 63 00:03:34,280 --> 00:03:37,240 Speaker 1: But the politics was difficult, as you know, even after 64 00:03:37,640 --> 00:03:40,440 Speaker 1: even after leaving failed, it took quite a while to 65 00:03:40,440 --> 00:03:44,040 Speaker 1: get Congress to act. Took two tries before they would act. 66 00:03:44,360 --> 00:03:48,040 Speaker 1: I think the passage of the Top Bill, the the 67 00:03:48,080 --> 00:03:52,160 Speaker 1: Troubled Asset Relief Program, which provided money to stabilize recapitalize 68 00:03:52,200 --> 00:03:54,800 Speaker 1: the banking system. And then there was a meeting in 69 00:03:54,840 --> 00:03:59,000 Speaker 1: October of the of the g G seven in Washington 70 00:03:59,400 --> 00:04:03,000 Speaker 1: where we met with the finance ministers and central bank 71 00:04:03,040 --> 00:04:05,680 Speaker 1: governors of the other major industrial powers. And there was 72 00:04:05,840 --> 00:04:08,440 Speaker 1: a sense of that meeting that we had to work together, 73 00:04:08,800 --> 00:04:11,040 Speaker 1: you know, hanging together or hang separately at that point, 74 00:04:11,560 --> 00:04:13,280 Speaker 1: and I talked about it in my in my book, 75 00:04:13,720 --> 00:04:18,080 Speaker 1: and between that resolution in Washington and then collectively among 76 00:04:18,120 --> 00:04:19,800 Speaker 1: the G seven that we were gonna do what it took. 77 00:04:20,080 --> 00:04:23,159 Speaker 1: To use Mario drag famous phrase, I thought from there 78 00:04:23,160 --> 00:04:24,520 Speaker 1: that we were going to find our way out, but 79 00:04:24,600 --> 00:04:26,960 Speaker 1: it was still very tricky. It's such a luxury of 80 00:04:26,960 --> 00:04:29,880 Speaker 1: a longer conversation with Ben Bernankey. We're going to touch 81 00:04:29,920 --> 00:04:33,080 Speaker 1: on a number of the themes that we've got going 82 00:04:33,120 --> 00:04:35,280 Speaker 1: on right now. And of course we will avoid, as 83 00:04:35,279 --> 00:04:38,520 Speaker 1: we always do with any former FED official, the immediate 84 00:04:38,520 --> 00:04:41,320 Speaker 1: talk as we go to the FED meeting this afternoons. 85 00:04:41,400 --> 00:04:45,239 Speaker 1: I'm not gonna ask Ben Bernanke about how many interest 86 00:04:45,320 --> 00:04:47,720 Speaker 1: rates will they do this year? Anything like that. That's 87 00:04:47,760 --> 00:04:49,680 Speaker 1: part of the rules of the game. One of the 88 00:04:49,760 --> 00:04:52,560 Speaker 1: joys is is to look back at your former speeches. 89 00:04:52,600 --> 00:04:55,039 Speaker 1: I want to speak about the structure of the FED, 90 00:04:55,120 --> 00:04:57,839 Speaker 1: and this goes back to your speak fifteen years ago 91 00:04:57,920 --> 00:05:02,039 Speaker 1: almost now with Milton Freeman and presence his ninetie birthday. 92 00:05:02,080 --> 00:05:04,640 Speaker 1: It's a great speech about something you're really good at, 93 00:05:04,720 --> 00:05:07,400 Speaker 1: which is depression history. But at the end of it 94 00:05:07,720 --> 00:05:11,400 Speaker 1: you talk about then, which is exactly like now, this 95 00:05:11,600 --> 00:05:16,720 Speaker 1: uncertainty of FED leadership. Benjamin Strong in the Depression has 96 00:05:16,760 --> 00:05:19,720 Speaker 1: the audacity to get sick and die, and you make 97 00:05:19,839 --> 00:05:23,359 Speaker 1: clear they never recovered. Do we face that now with 98 00:05:23,400 --> 00:05:27,320 Speaker 1: this this new administration into multi talk about John Taylor, 99 00:05:27,480 --> 00:05:30,120 Speaker 1: they talk about Glenn Hubbard, but they talk about other 100 00:05:30,279 --> 00:05:34,120 Speaker 1: names as well that don't have your pH d jobs. 101 00:05:34,279 --> 00:05:37,520 Speaker 1: Do we have a risk of a leaderless FED with 102 00:05:37,640 --> 00:05:40,560 Speaker 1: President Trump? Well, I think it's presumption is to say, 103 00:05:40,640 --> 00:05:42,719 Speaker 1: we don't know who he's going to appoint. He could 104 00:05:42,880 --> 00:05:46,240 Speaker 1: conceivably reappoint Jenny Yellen, which I think would be from 105 00:05:46,279 --> 00:05:48,960 Speaker 1: his perspective, would be to reappoint Cherry Yellow. Jerry Yellen 106 00:05:49,040 --> 00:05:51,920 Speaker 1: would be certainly, from his perspective, a very reasonable sensible 107 00:05:51,920 --> 00:05:54,640 Speaker 1: thing to do. She's obviously highly competent, she's done a 108 00:05:54,640 --> 00:05:57,960 Speaker 1: good job, she's got the confidence of the markets. But whoever, 109 00:05:58,960 --> 00:06:03,200 Speaker 1: whoever is appointed, I'm sure will certainly work carefully with 110 00:06:03,360 --> 00:06:06,360 Speaker 1: the rest of the FMC. And there's a reason why 111 00:06:06,520 --> 00:06:09,039 Speaker 1: there's so many people on the Federal Market Committee making 112 00:06:09,040 --> 00:06:11,840 Speaker 1: those decisions, including seven members of the board and then 113 00:06:12,200 --> 00:06:14,960 Speaker 1: high quality staff which provides a lot of guidance and help. 114 00:06:15,480 --> 00:06:18,400 Speaker 1: So I don't think we're quite in the situation by 115 00:06:18,400 --> 00:06:22,520 Speaker 1: any means, And of course very hopeful that that um 116 00:06:22,560 --> 00:06:25,080 Speaker 1: they will appoint, if not Janet Yell, and if they 117 00:06:25,080 --> 00:06:28,960 Speaker 1: will appoint somebody strong and kind competent with within that 118 00:06:29,279 --> 00:06:32,040 Speaker 1: is this sharp debate within the business media, and I 119 00:06:32,040 --> 00:06:34,840 Speaker 1: would suggest with an economics as well, where if you've bet, 120 00:06:34,880 --> 00:06:37,159 Speaker 1: I'm gonna pick on Gary Khne of the of the 121 00:06:37,200 --> 00:06:41,440 Speaker 1: Trump administration. With great respect for Mr Kohn's abilities. Do 122 00:06:41,520 --> 00:06:44,120 Speaker 1: you need to have a PhD in economics? You need 123 00:06:44,160 --> 00:06:46,320 Speaker 1: to be a front line academic out of m I 124 00:06:46,400 --> 00:06:49,320 Speaker 1: t give me presumptuous to say that. I mean Paul 125 00:06:49,360 --> 00:06:52,600 Speaker 1: Looker does not have a PhD. He was obviously very 126 00:06:52,600 --> 00:06:54,919 Speaker 1: familiar with monetary policy and the FED, having been in 127 00:06:54,960 --> 00:06:58,600 Speaker 1: the system for a number of years, and obviously new markets. Uh. Well, 128 00:06:59,000 --> 00:07:00,520 Speaker 1: so I think there's a range of skills that you 129 00:07:00,560 --> 00:07:03,120 Speaker 1: can have. But obviously you also have to be at 130 00:07:03,160 --> 00:07:07,279 Speaker 1: least familiar obviously with monetary policy and how it works 131 00:07:07,279 --> 00:07:09,160 Speaker 1: and what some of the issues are and and there 132 00:07:09,160 --> 00:07:12,000 Speaker 1: are important technical components to it. But but leadership is 133 00:07:12,040 --> 00:07:16,520 Speaker 1: not constrained by a narrow set of skills. There's there's 134 00:07:16,840 --> 00:07:20,040 Speaker 1: I think different types of backgrounds that could generate create 135 00:07:20,080 --> 00:07:22,600 Speaker 1: a good fair chair. But it is important, obviously to 136 00:07:22,680 --> 00:07:25,480 Speaker 1: know a lot about monetary policy and the financial system. 137 00:07:25,520 --> 00:07:28,400 Speaker 1: What do you envision that our vice chairman of what 138 00:07:28,400 --> 00:07:31,040 Speaker 1: I'm gonna call generally regulation will do? This is a 139 00:07:31,080 --> 00:07:34,320 Speaker 1: new position. There's talk Randy Coral's name, among others, has 140 00:07:34,360 --> 00:07:36,920 Speaker 1: come up for a more regular I think it's it's 141 00:07:36,920 --> 00:07:40,200 Speaker 1: not the romance of the FED that we cover Bloomberg 142 00:07:40,240 --> 00:07:43,240 Speaker 1: and within all of business economics. What do you envision 143 00:07:43,280 --> 00:07:46,600 Speaker 1: that job to be for that new kind of vice chairman. Well, 144 00:07:46,600 --> 00:07:50,520 Speaker 1: it's a very important job obviously because, as they say, 145 00:07:50,640 --> 00:07:54,640 Speaker 1: personnelitis policy and so even if the regulatory structure is 146 00:07:54,640 --> 00:07:58,120 Speaker 1: only moderately changed, is not substantially changed the way it's 147 00:07:58,520 --> 00:08:02,520 Speaker 1: applied in executable man are a lot in practice. So uh, 148 00:08:02,560 --> 00:08:04,679 Speaker 1: you know, the people they've talked about generally are people 149 00:08:04,680 --> 00:08:07,040 Speaker 1: who are I think highly qualified. I've had a lot 150 00:08:07,040 --> 00:08:09,880 Speaker 1: of background in financial regulation. But it's also important to 151 00:08:09,880 --> 00:08:12,960 Speaker 1: get somebody who will take very seriously. What I think 152 00:08:13,280 --> 00:08:15,400 Speaker 1: we kind of learned from the from the Great Crisis 153 00:08:15,480 --> 00:08:18,200 Speaker 1: was that it is not enough to be looking at 154 00:08:18,280 --> 00:08:21,760 Speaker 1: individual banks and at the individual components of the system. 155 00:08:21,840 --> 00:08:24,200 Speaker 1: Somebody has to think hard about the stability of the 156 00:08:24,200 --> 00:08:27,680 Speaker 1: system as a whole. And that was something that really 157 00:08:27,840 --> 00:08:29,800 Speaker 1: was course brought home to us when the system as 158 00:08:29,840 --> 00:08:34,080 Speaker 1: a whole went into shock in two thousand eight. So, uh, 159 00:08:34,160 --> 00:08:36,440 Speaker 1: that person will have a very important role coordinating with 160 00:08:36,480 --> 00:08:40,360 Speaker 1: other regulators, the ft i C and other agencies trying 161 00:08:40,400 --> 00:08:43,160 Speaker 1: to make sure not only are banks individually stable, but 162 00:08:43,280 --> 00:08:46,440 Speaker 1: is the system as a whole resilient for the next 163 00:08:46,440 --> 00:08:49,120 Speaker 1: shock that will come. One more question, and we look 164 00:08:49,160 --> 00:08:53,160 Speaker 1: back to things we've learned. Another crisis, within the depression, 165 00:08:53,200 --> 00:08:57,079 Speaker 1: within the great contraction, as many have called it, there's 166 00:08:57,120 --> 00:09:00,679 Speaker 1: this single idea that we had to keep the banks afloat. 167 00:09:00,760 --> 00:09:02,880 Speaker 1: This has been a great theme of yours. What's so 168 00:09:03,000 --> 00:09:05,280 Speaker 1: interesting is you're in speech. If you don't go back 169 00:09:05,320 --> 00:09:08,160 Speaker 1: to nineteen twenty nine, you go back to challenges of 170 00:09:08,240 --> 00:09:12,160 Speaker 1: nineteen eight. Do you worry that right now we have 171 00:09:12,240 --> 00:09:16,520 Speaker 1: any of the precursors or setups, not of the hysteria 172 00:09:16,520 --> 00:09:20,320 Speaker 1: of a depression, but of nineteen eight when everything was perfect, 173 00:09:20,440 --> 00:09:23,840 Speaker 1: and yet it wasn't. Wasn't, No, it wasn't. I wouldn't 174 00:09:23,840 --> 00:09:27,080 Speaker 1: say so. I see strong parallels there, and among other things, 175 00:09:27,120 --> 00:09:29,200 Speaker 1: the FED is in a much better position, and I 176 00:09:29,200 --> 00:09:31,760 Speaker 1: think it's much stronger, smarter than we used to be. Well, 177 00:09:32,720 --> 00:09:35,640 Speaker 1: one hopes so, One hopes so. You know, sometimes sometimes 178 00:09:35,640 --> 00:09:39,240 Speaker 1: things go in cycles, but certainly our financial system is 179 00:09:39,240 --> 00:09:41,520 Speaker 1: a lot stronger. And one of the problems of the 180 00:09:41,559 --> 00:09:44,040 Speaker 1: thirties was that the FED, which was at that point 181 00:09:44,040 --> 00:09:46,120 Speaker 1: it was very young institution and only been created in 182 00:09:46,200 --> 00:09:50,360 Speaker 1: nineteen fourteen, essentially uh and one of its its objectives 183 00:09:50,559 --> 00:09:53,000 Speaker 1: was to help maintain stability in the banking system. It 184 00:09:53,080 --> 00:09:56,319 Speaker 1: did not succeed in doing that, and in the United States, 185 00:09:56,360 --> 00:09:59,040 Speaker 1: something like eight thousand banks failed in the nineteen thirties, 186 00:09:59,080 --> 00:10:01,880 Speaker 1: which not only had menacing negative impacts on the money supply, 187 00:10:01,960 --> 00:10:04,600 Speaker 1: but also in credit as you would imagine. And one 188 00:10:04,600 --> 00:10:07,599 Speaker 1: of the lessons we took in the financial crisis of 189 00:10:07,640 --> 00:10:10,480 Speaker 1: two thousand and eight was that the financial system is 190 00:10:10,600 --> 00:10:14,000 Speaker 1: a critical input to the health of the economy as 191 00:10:14,000 --> 00:10:16,600 Speaker 1: a whole. You can't let it collapse because it will 192 00:10:16,600 --> 00:10:18,800 Speaker 1: bring down the rest of the economy. And I think 193 00:10:18,800 --> 00:10:20,599 Speaker 1: that was certainly something we learned with the benefit of 194 00:10:20,679 --> 00:10:22,959 Speaker 1: hindsight seeing what happened in the nineteen thirties. If you're 195 00:10:22,960 --> 00:10:25,960 Speaker 1: just joining us on Bloomberg Television and Bloomberg Radio, lengthy 196 00:10:25,960 --> 00:10:30,560 Speaker 1: conversation with a former chairman of the Third System, Ben Bernanke. 197 00:10:30,720 --> 00:10:32,720 Speaker 1: The book is The Courage to Act. It is out 198 00:10:32,720 --> 00:10:36,320 Speaker 1: with a new afterward where he speaks uh interestingly and 199 00:10:36,360 --> 00:10:39,920 Speaker 1: I would say, perhaps sharply about the president administration and 200 00:10:39,920 --> 00:10:41,920 Speaker 1: their view for it will get to that in a moment. 201 00:10:41,960 --> 00:10:44,120 Speaker 1: I want to talk about investment. It's a theme that 202 00:10:44,200 --> 00:10:47,760 Speaker 1: constantly occurs with another work that all of our economic 203 00:10:48,080 --> 00:10:51,120 Speaker 1: team does. It's why equal see plus I plus G 204 00:10:51,320 --> 00:10:55,520 Speaker 1: plus annex and I isn't there. In oh seven o eight, 205 00:10:55,600 --> 00:10:58,960 Speaker 1: Ken Rogolf identified this to me. Bill Pole identified this 206 00:10:59,160 --> 00:11:02,199 Speaker 1: to me. Now everyone knows that where is the investment? 207 00:11:02,520 --> 00:11:07,000 Speaker 1: What the mystery of the lack of investment? Now? Well, Uh, 208 00:11:07,240 --> 00:11:10,079 Speaker 1: it has been weaker than we would like capital investment, 209 00:11:10,080 --> 00:11:13,960 Speaker 1: new factories, new buildings and so on. UM, it hasn't 210 00:11:13,960 --> 00:11:16,600 Speaker 1: been catastrophically bad, but certainly should should be better. And 211 00:11:16,600 --> 00:11:18,959 Speaker 1: that would be better not only in terms of driving demand, 212 00:11:19,480 --> 00:11:22,160 Speaker 1: you know, for for output, but also in creating more 213 00:11:22,200 --> 00:11:24,719 Speaker 1: capacity and increasing productivity and helping us grow more in 214 00:11:24,760 --> 00:11:27,959 Speaker 1: the long run. UM. I think you know, Larry Summers 215 00:11:27,960 --> 00:11:31,120 Speaker 1: talks about secular stagnation, and I have some sympathy with that. 216 00:11:31,200 --> 00:11:33,480 Speaker 1: I have some other thoughts about that. But but there 217 00:11:33,520 --> 00:11:37,160 Speaker 1: is some evidence that around the world that U there's 218 00:11:37,160 --> 00:11:41,319 Speaker 1: a lot of savings looking for good investments to make UM. 219 00:11:41,320 --> 00:11:46,480 Speaker 1: But for variety of reasons slower growth, slower growing labor force, UH, 220 00:11:46,760 --> 00:11:51,160 Speaker 1: relatively weak productivity gains, and advanced industrial economies, that the 221 00:11:51,240 --> 00:11:55,320 Speaker 1: number of strong capital projects that pay a high return 222 00:11:55,440 --> 00:11:57,079 Speaker 1: is just limited and with the amount of saving that 223 00:11:57,120 --> 00:12:00,360 Speaker 1: we see looking for returns that's driving down the olds 224 00:12:00,400 --> 00:12:03,640 Speaker 1: keeping interest rates a little globally. Uh, we have to 225 00:12:03,679 --> 00:12:07,480 Speaker 1: look for new sources of growth, new industries, new technologies, 226 00:12:07,480 --> 00:12:09,679 Speaker 1: those things are becoming I think, which is why I 227 00:12:09,720 --> 00:12:14,120 Speaker 1: don't buy secondistagnation as a permanent situation. But right now, 228 00:12:14,400 --> 00:12:16,679 Speaker 1: and partly because of the after effects of course of 229 00:12:16,760 --> 00:12:20,400 Speaker 1: the crisis itself. Uh, we just we just don't have 230 00:12:20,440 --> 00:12:22,839 Speaker 1: the opportunities out there that that we would like. Can 231 00:12:22,880 --> 00:12:27,760 Speaker 1: there be a policy prescription to jump start investment that 232 00:12:28,040 --> 00:12:31,680 Speaker 1: is modern and forward looking, or do we risk having 233 00:12:31,720 --> 00:12:34,320 Speaker 1: a nostalgic investment where we build you know, as they 234 00:12:34,320 --> 00:12:36,640 Speaker 1: did in Japan years ago, bill roads. Well, those there's 235 00:12:36,679 --> 00:12:39,880 Speaker 1: different There's there's different elements. There's cost, the capital and 236 00:12:40,080 --> 00:12:43,280 Speaker 1: tax policy obviously know it's got a discussion about core protectorates. 237 00:12:43,760 --> 00:12:47,680 Speaker 1: There is technology. We need to continue to support technological 238 00:12:47,760 --> 00:12:52,240 Speaker 1: advance and the adaptation of new technologies into commercial purposes. 239 00:12:53,000 --> 00:12:57,080 Speaker 1: Um skilled workers to provide complements to those uh, to 240 00:12:57,200 --> 00:13:02,120 Speaker 1: those uh investments. Uh. Even you mentioned roads and buildings, 241 00:13:02,320 --> 00:13:03,760 Speaker 1: you know, in the United States, I don't think we're 242 00:13:03,840 --> 00:13:06,120 Speaker 1: quite in the state where we couldn't benefit from some 243 00:13:06,200 --> 00:13:09,800 Speaker 1: improved infrastructure in New York as well. I mean, you know, 244 00:13:10,120 --> 00:13:11,720 Speaker 1: you were talking the other day about how long it 245 00:13:11,760 --> 00:13:15,199 Speaker 1: took you to get from Washington hosts DC l G 246 00:13:15,440 --> 00:13:18,480 Speaker 1: A fix. If you want you want people spend less 247 00:13:18,520 --> 00:13:22,720 Speaker 1: time in traffic jams and uh less time traveling from 248 00:13:22,760 --> 00:13:26,000 Speaker 1: city to city, which is the detriment to productivity, then 249 00:13:26,559 --> 00:13:29,560 Speaker 1: you know infrastructure is is one way to prove that 250 00:13:29,920 --> 00:13:31,800 Speaker 1: to mension, so that there's a number of different things 251 00:13:31,840 --> 00:13:34,920 Speaker 1: that can can can help. But it's a slow process. 252 00:13:34,920 --> 00:13:39,360 Speaker 1: You can't expect people make firms make capital investments over five, ten, 253 00:13:39,480 --> 00:13:41,880 Speaker 1: twenty year horizons. You can't expect everything to turn on 254 00:13:41,920 --> 00:13:44,320 Speaker 1: a dime. But I'm hopeful that there will be some 255 00:13:44,360 --> 00:13:47,439 Speaker 1: improvement in that. I had the clearest memory Chairman Bernanke, 256 00:13:47,920 --> 00:13:52,720 Speaker 1: Chairman Greenspan, not baffled but almost bewildered by the buoyant 257 00:13:52,760 --> 00:13:56,959 Speaker 1: productivity of another time and place. Every chairman of a FED, 258 00:13:57,440 --> 00:14:02,120 Speaker 1: all with courage to act, are their productivity cards. Cherry 259 00:14:02,160 --> 00:14:05,880 Speaker 1: Yelling has been out a very tough deck on productivity. 260 00:14:05,960 --> 00:14:09,000 Speaker 1: It's a mischief. Speaking with my colleague Michael McKee about this, 261 00:14:09,240 --> 00:14:12,880 Speaker 1: it is at the top of Mike mckey's list, capital dynamics, 262 00:14:13,160 --> 00:14:17,079 Speaker 1: labor dynamics, and with a great honor to Robert Solo, 263 00:14:17,240 --> 00:14:19,920 Speaker 1: this odd thing off to the right side of the equation. 264 00:14:20,280 --> 00:14:24,280 Speaker 1: What is wrong with America's productivity right now? Well, some 265 00:14:24,320 --> 00:14:26,800 Speaker 1: of it may be after effects of the financial crisis. 266 00:14:26,880 --> 00:14:29,480 Speaker 1: After all, the crisis led to a fewer startups of 267 00:14:29,520 --> 00:14:32,280 Speaker 1: new firms. Let's venture capital, less r and D, less 268 00:14:32,320 --> 00:14:35,560 Speaker 1: capital investment, all those things that generate productivity over time. 269 00:14:35,840 --> 00:14:37,960 Speaker 1: I think we're moving away from that now. It's almost 270 00:14:37,960 --> 00:14:40,600 Speaker 1: a decade since since the crisis. The other thing is 271 00:14:40,640 --> 00:14:43,840 Speaker 1: the line pursued by Bob Gordon, you know his work 272 00:14:43,880 --> 00:14:46,600 Speaker 1: on to Rise and Fall of American Growth, and he 273 00:14:46,720 --> 00:14:49,880 Speaker 1: argues that the period after World War Two, the fifties 274 00:14:49,920 --> 00:14:52,320 Speaker 1: sixties was kind of unusual period. There was a lot 275 00:14:52,320 --> 00:14:55,200 Speaker 1: of catch up after World War two. Um, a lot 276 00:14:55,200 --> 00:14:58,560 Speaker 1: of transformation is happening in the American economy, which we're 277 00:14:58,560 --> 00:15:01,680 Speaker 1: not quite seeing that degree of change at this time. 278 00:15:02,080 --> 00:15:04,680 Speaker 1: And so the slower productivity gains are just reflecting the 279 00:15:04,720 --> 00:15:08,160 Speaker 1: fact that technology comes and eds and flows. You mentioned 280 00:15:08,360 --> 00:15:10,960 Speaker 1: Greenspans technology boom in the nineties. That was a period 281 00:15:11,040 --> 00:15:15,440 Speaker 1: where the new I T revolution. Information technology revolution was 282 00:15:15,480 --> 00:15:19,920 Speaker 1: really first having its big impact on productivity from areas 283 00:15:19,960 --> 00:15:24,800 Speaker 1: from office work to retail, you know, to engineering. Um 284 00:15:24,880 --> 00:15:27,440 Speaker 1: that seems to have slowed in two thousand five. Appears 285 00:15:27,560 --> 00:15:29,400 Speaker 1: by that time that a lot of that first wave 286 00:15:29,480 --> 00:15:32,440 Speaker 1: of I T productivity had been absorbed. It may we 287 00:15:32,520 --> 00:15:34,280 Speaker 1: may get another wave, but at the mother we're kind 288 00:15:34,280 --> 00:15:36,480 Speaker 1: of in a little bit of a flat spot. Within 289 00:15:36,600 --> 00:15:40,560 Speaker 1: this flat spot of productivity is the clearly, with Mr 290 00:15:40,560 --> 00:15:43,240 Speaker 1: Trump doing so well in Senator Sanders and the populism 291 00:15:43,280 --> 00:15:47,720 Speaker 1: and other elections around the world, there's a primal scream 292 00:15:47,880 --> 00:15:52,800 Speaker 1: to do something about how do you lift wages? Where 293 00:15:52,840 --> 00:15:56,040 Speaker 1: does wage growth? Where does that sense as Mr Gordon 294 00:15:56,080 --> 00:15:59,040 Speaker 1: talked about with a wonderful twining center that you and 295 00:15:59,120 --> 00:16:03,200 Speaker 1: I live, Where does that prosperity come from? Well, it's 296 00:16:03,200 --> 00:16:05,480 Speaker 1: not just prosperity. I think there's an interesting in the 297 00:16:05,480 --> 00:16:08,600 Speaker 1: following sense. There's an interesting paradox, which is that if 298 00:16:08,640 --> 00:16:10,880 Speaker 1: you look at the economy as a whole, you talk 299 00:16:10,920 --> 00:16:14,160 Speaker 1: about the unemployment rate and job creation and GDP growth 300 00:16:14,200 --> 00:16:16,800 Speaker 1: and all those things. You know, the recovery has been 301 00:16:16,800 --> 00:16:20,280 Speaker 1: pretty good overall unemployments for and a half percent, we 302 00:16:20,360 --> 00:16:23,800 Speaker 1: created sixteen million jobs. But then, of course Donald Trump 303 00:16:23,840 --> 00:16:26,320 Speaker 1: was elected president because a lot of people are very dissatisfied. 304 00:16:26,760 --> 00:16:30,040 Speaker 1: So it's not just the overall strength of the economy 305 00:16:30,120 --> 00:16:32,200 Speaker 1: with the United States is frankly the envy of a 306 00:16:32,240 --> 00:16:34,640 Speaker 1: lot of other economies in the world, but the fact 307 00:16:34,680 --> 00:16:37,680 Speaker 1: that those games are not being broadly shared, that social mobility, 308 00:16:37,760 --> 00:16:41,080 Speaker 1: upward mobility is is not what it was forty or 309 00:16:41,080 --> 00:16:43,400 Speaker 1: fifty years ago in the United States. So a big 310 00:16:43,440 --> 00:16:46,120 Speaker 1: part of the overall growth picture is also trying to 311 00:16:46,120 --> 00:16:49,760 Speaker 1: make sure that everyone is contributing, everyone is sharing in prosperity. 312 00:16:50,440 --> 00:16:53,800 Speaker 1: I think that is that is where we have fallen down, 313 00:16:53,840 --> 00:16:57,240 Speaker 1: where we have not helped provide the opportunity that that 314 00:16:57,320 --> 00:17:00,640 Speaker 1: we need. Is it a cultural dearth of productivity? Page five, 315 00:17:00,720 --> 00:17:02,920 Speaker 1: eighties six? Here this so it's five eighties six, and 316 00:17:02,960 --> 00:17:05,399 Speaker 1: it reads faster than that. It's not more in peace, 317 00:17:05,480 --> 00:17:09,639 Speaker 1: don't be don't be afraid, Bernankee. I called on Congress 318 00:17:09,640 --> 00:17:13,399 Speaker 1: to increase spending or cut taxes, or at least to 319 00:17:13,640 --> 00:17:19,359 Speaker 1: avoid new austerity. Are we victims of our cultural economics, 320 00:17:19,400 --> 00:17:22,840 Speaker 1: almost our cultural religion where we can't spend money when 321 00:17:22,880 --> 00:17:26,320 Speaker 1: we need to? What it's it's ironic because of course 322 00:17:26,359 --> 00:17:28,920 Speaker 1: now we're talking about big tax cuts. You know, from 323 00:17:29,200 --> 00:17:31,480 Speaker 1: at least from the perspective of putting people back to work, 324 00:17:32,000 --> 00:17:34,960 Speaker 1: it would have made more sensitive had more tax cuts 325 00:17:35,000 --> 00:17:38,240 Speaker 1: and more spending twelve, which is when I was asking 326 00:17:38,280 --> 00:17:40,720 Speaker 1: for that. I think that from at least from that perspective, 327 00:17:40,920 --> 00:17:42,880 Speaker 1: with unemployment at four and a half percent, the case 328 00:17:43,000 --> 00:17:46,000 Speaker 1: today is a little weaker. Although there's always a case 329 00:17:46,040 --> 00:17:48,320 Speaker 1: for improving the quality of the tax colle making it 330 00:17:48,400 --> 00:17:50,600 Speaker 1: more the fish and fair simple and so on. But 331 00:17:50,920 --> 00:17:53,840 Speaker 1: in terms of adding demand to the economy, you know 332 00:17:53,920 --> 00:17:55,359 Speaker 1: that that would have been a little bit better a 333 00:17:55,359 --> 00:17:57,240 Speaker 1: few years ago. Let's make some news. Here are these 334 00:17:57,240 --> 00:18:00,240 Speaker 1: tax cuts, tax cuts you can support is proposed, and 335 00:18:00,440 --> 00:18:04,680 Speaker 1: particularly are these tax cuts within a gilded age where 336 00:18:04,720 --> 00:18:08,160 Speaker 1: all those benefits go too narrowly to the affluence. Well, 337 00:18:08,200 --> 00:18:12,280 Speaker 1: if I talk about the proposal, the income tax proposal 338 00:18:12,320 --> 00:18:15,920 Speaker 1: for personal income, I guess I have a couple of concerns. 339 00:18:15,960 --> 00:18:19,920 Speaker 1: One is that it is more demand side, I think 340 00:18:19,960 --> 00:18:22,600 Speaker 1: oriented than supply side. That is, it's going to generate 341 00:18:22,680 --> 00:18:25,000 Speaker 1: more consumer spending. It's not obvious it's going to increase 342 00:18:25,320 --> 00:18:28,399 Speaker 1: the potential of the economy very much and as they're saying, 343 00:18:28,760 --> 00:18:30,640 Speaker 1: four or five years ago, we could have used more 344 00:18:30,760 --> 00:18:34,800 Speaker 1: demand side uh stimulus. Today it's not as obvious that 345 00:18:34,840 --> 00:18:37,760 Speaker 1: we do need that. The other aspect of it, uh 346 00:18:37,880 --> 00:18:40,280 Speaker 1: is that has written down. Of course we don't know 347 00:18:40,320 --> 00:18:42,160 Speaker 1: the details. That appears like it would create a bunch 348 00:18:42,160 --> 00:18:45,679 Speaker 1: bigger deficit. I'm not opposed to increasing depths under our 349 00:18:45,720 --> 00:18:48,399 Speaker 1: circumstances by any means. But if we're going to increase 350 00:18:48,440 --> 00:18:51,679 Speaker 1: the depthit, why not think about improving the efficiency of 351 00:18:51,680 --> 00:18:54,560 Speaker 1: the corporate tax code or doing infrastructure that I think 352 00:18:54,600 --> 00:18:58,720 Speaker 1: would have more direct effects on supply potential output than 353 00:18:59,359 --> 00:19:02,520 Speaker 1: personal tax You didn't suffer the pain of working at CBO, right, 354 00:19:03,400 --> 00:19:05,159 Speaker 1: Uh No, But I was in the White House for 355 00:19:05,200 --> 00:19:08,120 Speaker 1: a while and I had my connections with o MB 356 00:19:08,359 --> 00:19:10,960 Speaker 1: that officers and management budget. Do you have in your 357 00:19:11,000 --> 00:19:15,640 Speaker 1: head a deficit to GDP percent? Where for ben Burn 358 00:19:15,680 --> 00:19:19,240 Speaker 1: Nankey it becomes problematic? Is it five right now? Folks 359 00:19:19,240 --> 00:19:23,240 Speaker 1: worth three give or take a little five? Does does 360 00:19:23,280 --> 00:19:26,520 Speaker 1: your caution click in at six percent? Where is it? Well? 361 00:19:26,560 --> 00:19:28,680 Speaker 1: I think that what the way I think about this 362 00:19:28,840 --> 00:19:33,560 Speaker 1: is the CBO, the Professional Budget Office, does these um 363 00:19:34,000 --> 00:19:39,280 Speaker 1: projections of the debt and the depths out for years, 364 00:19:40,000 --> 00:19:42,000 Speaker 1: and so I think about it that way. I mean, 365 00:19:42,040 --> 00:19:44,840 Speaker 1: I think you can always have I was supportive of 366 00:19:45,000 --> 00:19:47,840 Speaker 1: the fiscal program in two thousand nine in the depth 367 00:19:47,880 --> 00:19:50,240 Speaker 1: of the recession, where where because the recession was so 368 00:19:50,280 --> 00:19:52,760 Speaker 1: bad we needed some fiscal stimulus that a big deficit 369 00:19:52,840 --> 00:19:55,120 Speaker 1: was kind of inevitable at that point. So I tend 370 00:19:55,160 --> 00:19:57,880 Speaker 1: to think about the longer term perspective, and so how 371 00:19:57,960 --> 00:20:01,840 Speaker 1: much will changes in paul See effect that longer term trajectory. 372 00:20:02,240 --> 00:20:03,760 Speaker 1: And by the way, I think one of the key 373 00:20:03,800 --> 00:20:06,120 Speaker 1: elements to that is really what's going to happen to healthcare. 374 00:20:06,400 --> 00:20:08,440 Speaker 1: Not that I really want to get into the deep 375 00:20:08,480 --> 00:20:13,000 Speaker 1: details of healthcare policy, but but uh, the federal government, 376 00:20:13,560 --> 00:20:15,959 Speaker 1: which some people have described as being an insurance company 377 00:20:15,960 --> 00:20:18,200 Speaker 1: with an army, you know, that's basically the two things 378 00:20:18,200 --> 00:20:21,359 Speaker 1: it does. It It ensures people for health and retirement, 379 00:20:21,400 --> 00:20:25,440 Speaker 1: and it and runs the military. Um, if if the 380 00:20:25,480 --> 00:20:28,959 Speaker 1: cost of healthcare in our aging society continue along the 381 00:20:28,960 --> 00:20:31,080 Speaker 1: lines we you know, we've seen in the past few decades, 382 00:20:31,640 --> 00:20:34,760 Speaker 1: that's gonna be a huge fiscal burden. Years ago, I'm 383 00:20:34,760 --> 00:20:36,879 Speaker 1: gonna go I'm gonna take debate, folks. Here we go 384 00:20:36,920 --> 00:20:40,440 Speaker 1: on healthcare, which is the theme in Washington this afternoon. 385 00:20:40,880 --> 00:20:45,160 Speaker 1: It was sevent of GDP. It's ridiculous how much more 386 00:20:45,200 --> 00:20:48,800 Speaker 1: we spend in every other prosperous nation in this world. 387 00:20:48,840 --> 00:20:52,280 Speaker 1: Would you suggest that the Affordable Care Act, Obamacare or 388 00:20:52,359 --> 00:20:57,440 Speaker 1: trump Care can lower that contribution to GDP of healthcare, Well, 389 00:20:57,480 --> 00:21:00,000 Speaker 1: there's been some success on that in the last few years, 390 00:21:00,040 --> 00:21:02,359 Speaker 1: and that the rate of growth of healthcare costs is 391 00:21:02,400 --> 00:21:06,720 Speaker 1: diminished somewhat. But the quite honestly, the focus of both 392 00:21:07,080 --> 00:21:09,640 Speaker 1: Obamacare and and some of the proposals here are more 393 00:21:09,680 --> 00:21:11,879 Speaker 1: about coverage. I mean, how many people are covered and 394 00:21:11,920 --> 00:21:17,280 Speaker 1: at what cost, and the tough decisions about quality, what 395 00:21:17,400 --> 00:21:20,600 Speaker 1: we're gonna pay for, how much is gonna cost. That 396 00:21:20,600 --> 00:21:23,239 Speaker 1: that's there, but it hasn't gotten as much attention as 397 00:21:23,240 --> 00:21:24,840 Speaker 1: the coverage. To take a memo, we're going to a 398 00:21:24,840 --> 00:21:26,399 Speaker 1: three hour and maybe we got too many things to 399 00:21:26,520 --> 00:21:28,720 Speaker 1: talk about here today. A couple more minutes with Ben 400 00:21:28,760 --> 00:21:31,760 Speaker 1: Berniky here, and we're gonna come back on some important themes, 401 00:21:31,760 --> 00:21:34,560 Speaker 1: including the idea of the FED banalance sheet, which I 402 00:21:34,600 --> 00:21:36,800 Speaker 1: know is really front and center. I was talking to 403 00:21:36,800 --> 00:21:39,600 Speaker 1: our Brendan Murray and he talks about the complacency that's 404 00:21:39,640 --> 00:21:42,480 Speaker 1: out there, the quiet that's out there without reporting every 405 00:21:42,560 --> 00:21:46,840 Speaker 1: day at Bloomberg, Are you worried that we're lulling ourselves 406 00:21:47,119 --> 00:21:51,119 Speaker 1: into being not careful with our economic thought? Is it 407 00:21:51,240 --> 00:21:54,879 Speaker 1: just too quiet up there right now? Well, you know, 408 00:21:54,960 --> 00:21:59,120 Speaker 1: markets are are pretty quiet, the volatility indicators are pretty low, 409 00:21:59,200 --> 00:22:02,560 Speaker 1: and I don't feel understand it. Certainly the world is 410 00:22:02,560 --> 00:22:05,680 Speaker 1: is a dangerous place in some dimensions. Certainly, Uh, there 411 00:22:05,760 --> 00:22:08,960 Speaker 1: there's no shortage of geopolitical concerns. Uh, you know, from 412 00:22:08,960 --> 00:22:12,680 Speaker 1: North Korea, you know, to the Middle East. Um, But 413 00:22:12,920 --> 00:22:16,479 Speaker 1: markets so far don't order politics. So we're seeing, for example, 414 00:22:16,480 --> 00:22:18,840 Speaker 1: in Europe to market so far, I've kind of dismissed 415 00:22:18,840 --> 00:22:21,439 Speaker 1: those things. That's interesting you make of that. And for 416 00:22:21,520 --> 00:22:24,680 Speaker 1: the haves, those that have assets and are in the game, 417 00:22:24,760 --> 00:22:28,480 Speaker 1: not the people that feel so removed and disaffected. There's 418 00:22:28,520 --> 00:22:31,119 Speaker 1: just the quiet to what's going on. Yeah, No, I 419 00:22:31,440 --> 00:22:34,280 Speaker 1: don't really have a great explanation for it. I think 420 00:22:34,400 --> 00:22:38,240 Speaker 1: that the good news is that, you know, while a 421 00:22:38,280 --> 00:22:41,040 Speaker 1: lot of the increase in market valuations in the last 422 00:22:41,040 --> 00:22:45,280 Speaker 1: six months or four months came about because of of 423 00:22:45,760 --> 00:22:47,480 Speaker 1: the reaction that there was going to be some kind 424 00:22:47,480 --> 00:22:50,600 Speaker 1: of Trump Bool, which so far is not obviously materialized, 425 00:22:50,640 --> 00:22:52,479 Speaker 1: and it looks to be pushed further out in the future. 426 00:22:53,160 --> 00:22:55,240 Speaker 1: Uh not all of it is not all the market 427 00:22:55,280 --> 00:22:58,879 Speaker 1: reactions due to expectations about President Trump's policy. Some of 428 00:22:58,920 --> 00:23:00,199 Speaker 1: it is due to the fact that it's has been 429 00:23:00,240 --> 00:23:03,160 Speaker 1: a some of better tone globally. I mean, we've seen 430 00:23:03,160 --> 00:23:05,080 Speaker 1: a little bit better tone in in Europe, a better 431 00:23:05,119 --> 00:23:08,520 Speaker 1: tone in China. And that's that. That has made people, 432 00:23:08,520 --> 00:23:11,000 Speaker 1: I guess a little more comfortable because you and I 433 00:23:11,080 --> 00:23:13,840 Speaker 1: use kufuls or slide rules. Remember you had a slide 434 00:23:13,920 --> 00:23:15,479 Speaker 1: rule and it was a pain. You couldn't figure out 435 00:23:15,520 --> 00:23:18,320 Speaker 1: how to use it. And one day this magical thing 436 00:23:18,400 --> 00:23:22,080 Speaker 1: showed up, a Hewlett Packard calculator. Remember the first rich 437 00:23:22,160 --> 00:23:24,640 Speaker 1: kid in your class, so that want to yeah, and 438 00:23:24,640 --> 00:23:26,480 Speaker 1: you know everybody the rich kids had him. It was like, 439 00:23:26,600 --> 00:23:30,480 Speaker 1: one day I'll have this too. That technological progress that 440 00:23:30,520 --> 00:23:32,240 Speaker 1: you and I lived in many others, that many of 441 00:23:32,240 --> 00:23:35,680 Speaker 1: our viewers and Bloomberg people lived, is that really what's 442 00:23:35,680 --> 00:23:38,840 Speaker 1: going on now is a technological progress that is only 443 00:23:39,000 --> 00:23:42,760 Speaker 1: advantage to a certain group of people versus a broader 444 00:23:42,800 --> 00:23:46,080 Speaker 1: part of society. Well, I don't know. I mean, everybody 445 00:23:46,080 --> 00:23:47,840 Speaker 1: has a cell phone, or a large number of people 446 00:23:47,880 --> 00:23:50,679 Speaker 1: have cell phones, even an emerging markets. So some of 447 00:23:50,720 --> 00:23:53,560 Speaker 1: the some of these technological things are helping the advances 448 00:23:53,560 --> 00:23:56,480 Speaker 1: are helping a lot of people. I think it is 449 00:23:56,520 --> 00:23:58,760 Speaker 1: true that that there's a bit of a paradox again 450 00:23:58,880 --> 00:24:02,919 Speaker 1: that we talked about all these amazing advances in communications 451 00:24:02,960 --> 00:24:06,159 Speaker 1: and artificial intelligence and so on, but overall productivity just 452 00:24:06,240 --> 00:24:08,240 Speaker 1: isn't doing very much. And I think the truth is 453 00:24:08,280 --> 00:24:12,040 Speaker 1: that outside of some areas like communications like social media, 454 00:24:12,600 --> 00:24:16,280 Speaker 1: that the technological opportunities we see out there have not 455 00:24:16,400 --> 00:24:20,480 Speaker 1: yet really you know, completely diffused into our economy, and 456 00:24:20,520 --> 00:24:23,080 Speaker 1: that that's a potential for the next couple of decades. 457 00:24:23,119 --> 00:24:25,400 Speaker 1: Now we're gonna come back with Ben Bernankey in support 458 00:24:25,520 --> 00:24:28,800 Speaker 1: of the Courage to Act. It was hugely successful and 459 00:24:28,920 --> 00:24:32,480 Speaker 1: hardcover now out in paperback with a new Afterward, we're 460 00:24:32,480 --> 00:24:34,639 Speaker 1: gonna come back and talk about the immediate issues of 461 00:24:34,680 --> 00:24:37,520 Speaker 1: the Feller Reserve. No, not the meeting today, that's not 462 00:24:37,600 --> 00:24:40,200 Speaker 1: fair game. But yes, we will talk about the balance 463 00:24:40,240 --> 00:24:43,200 Speaker 1: sheet as well. Right now, the joy before our FED 464 00:24:43,280 --> 00:24:46,800 Speaker 1: meeting is a conversation where the former Feller Reserve System 465 00:24:46,880 --> 00:24:50,159 Speaker 1: chairman Ben bernanke he is out with a courage to act, 466 00:24:50,800 --> 00:24:53,840 Speaker 1: hugely received in a hardcover here a year ago, maybe 467 00:24:53,840 --> 00:24:56,560 Speaker 1: fourteen months ago, and now on paperback with a new 468 00:24:56,960 --> 00:25:00,640 Speaker 1: biting afterward about the events of his Washington Now he's 469 00:25:00,640 --> 00:25:03,840 Speaker 1: of course been at the Brookings Institution writing must read 470 00:25:04,040 --> 00:25:07,439 Speaker 1: blogs on a really accessible theory that's on the edge 471 00:25:07,480 --> 00:25:09,959 Speaker 1: of Milton Freedman. I mean, I remember Milton Friedman when 472 00:25:10,000 --> 00:25:13,000 Speaker 1: we were kids writing newsweeks. Are you enjoying grinding this 473 00:25:13,119 --> 00:25:15,960 Speaker 1: out or is this David Wessel beating you every Wednesday? 474 00:25:16,160 --> 00:25:18,480 Speaker 1: And get the note I do try to get to 475 00:25:18,520 --> 00:25:20,360 Speaker 1: get out something else in a while. It's a it's 476 00:25:20,359 --> 00:25:22,199 Speaker 1: a public service. Let's go right to it right now. 477 00:25:22,200 --> 00:25:25,240 Speaker 1: I'm not going to ask you about silly Fed immediacly, 478 00:25:25,280 --> 00:25:26,800 Speaker 1: but I am going to ask you about the FED 479 00:25:26,840 --> 00:25:29,679 Speaker 1: balance sheet. You've written about this. I would suggest it 480 00:25:29,760 --> 00:25:33,200 Speaker 1: is a fear in some camps, bordering on the sterea. 481 00:25:33,560 --> 00:25:36,400 Speaker 1: And you seem to face this debate about lowering the 482 00:25:36,400 --> 00:25:39,960 Speaker 1: FED balance sheet the balloon up during the crisis. You 483 00:25:40,040 --> 00:25:42,320 Speaker 1: seem calm about it. Are you calm about it? In 484 00:25:42,480 --> 00:25:45,399 Speaker 1: actually might calm? I mean, I think they're legitimate questions 485 00:25:45,400 --> 00:25:47,480 Speaker 1: about how big it should be ultimately, and we can 486 00:25:47,480 --> 00:25:50,600 Speaker 1: talk about that, of course, but but there seems to 487 00:25:50,640 --> 00:25:54,639 Speaker 1: be no concern, certainly not much visible in markets that 488 00:25:54,760 --> 00:25:57,520 Speaker 1: the unwinding part is going to be very difficult. Uh. 489 00:25:57,560 --> 00:26:01,080 Speaker 1: The whole strategy the FED is basically two Uh. At 490 00:26:01,119 --> 00:26:04,880 Speaker 1: some point stop reinvesting maturing securities and let it run 491 00:26:04,880 --> 00:26:07,680 Speaker 1: off in a very quiet, passive way. And I suspect 492 00:26:07,680 --> 00:26:10,760 Speaker 1: that will be received pretty well when the concision of 493 00:26:10,800 --> 00:26:13,320 Speaker 1: your thought, what you lead to always is within the 494 00:26:13,400 --> 00:26:17,399 Speaker 1: paragraph distinctions, and you've got an important distinction within the 495 00:26:17,400 --> 00:26:21,840 Speaker 1: balance upward. Educate our audience about the word to shrink 496 00:26:22,280 --> 00:26:26,240 Speaker 1: passively and that there's different ways to shrink, and you 497 00:26:26,359 --> 00:26:30,399 Speaker 1: make a key distinction there. Well. Sure, the balance sheet 498 00:26:31,080 --> 00:26:34,959 Speaker 1: is mostly consists of U S Treasury securities and mortgage 499 00:26:35,000 --> 00:26:39,440 Speaker 1: backed securities Fanning and Freddie securities backed by US government. UM, 500 00:26:39,480 --> 00:26:42,560 Speaker 1: those are obviously you know, private sector type of private 501 00:26:42,560 --> 00:26:45,960 Speaker 1: securities that are owned by the FED, and they have 502 00:26:46,000 --> 00:26:48,640 Speaker 1: a maturity and at some point, you know, each individual 503 00:26:48,640 --> 00:26:52,440 Speaker 1: security will will mature and and and run off. And 504 00:26:52,600 --> 00:26:55,800 Speaker 1: what happened was that earlier on in the process of 505 00:26:55,800 --> 00:26:59,280 Speaker 1: expanding the balance sheet, we began to say well, look, 506 00:26:59,280 --> 00:27:02,119 Speaker 1: we don't want a balance sheet to decline in a 507 00:27:02,200 --> 00:27:04,920 Speaker 1: passive way because things are running off, you know, maturing. 508 00:27:05,280 --> 00:27:08,479 Speaker 1: So we began to process. This is back in whenever 509 00:27:08,560 --> 00:27:11,560 Speaker 1: a security ran off, we took the proceeds, we reinvested 510 00:27:11,600 --> 00:27:13,760 Speaker 1: it in new security, so to keep the size of 511 00:27:13,760 --> 00:27:17,000 Speaker 1: the balance sheet unchanged. And so since October when they 512 00:27:17,040 --> 00:27:19,800 Speaker 1: said stopped buying securities, that balance sheet has basically been 513 00:27:19,840 --> 00:27:24,480 Speaker 1: fixed size. But all maturing securities haven't been replaced. Now, 514 00:27:24,560 --> 00:27:27,040 Speaker 1: what they're eventually going to do, according to their explanations 515 00:27:27,080 --> 00:27:29,480 Speaker 1: and many speeches and and and the minutes and the like, 516 00:27:30,240 --> 00:27:32,720 Speaker 1: is that at some point, probably in this year, next year, 517 00:27:32,720 --> 00:27:35,240 Speaker 1: they're gonna say, well, from now on, we're gonna not 518 00:27:35,880 --> 00:27:39,040 Speaker 1: replace all of the maturing securities, may replace half of them, 519 00:27:39,240 --> 00:27:42,040 Speaker 1: for example, whatever they decide. And that just means that 520 00:27:42,080 --> 00:27:46,000 Speaker 1: without actually selling anything right or taking any active decision, 521 00:27:46,080 --> 00:27:48,440 Speaker 1: the balance sheet will vary gradually over a number of years, 522 00:27:48,720 --> 00:27:51,160 Speaker 1: you know, just begin to shrink deck down towards something 523 00:27:51,840 --> 00:27:54,720 Speaker 1: more sustainable. There's a there's in folks within a curse 524 00:27:54,800 --> 00:27:58,080 Speaker 1: to act. The photos are absolutely extraordinary, and particularly family 525 00:27:58,119 --> 00:28:02,880 Speaker 1: photos of the Bernicke's of Europe and particularly of Lithuania. 526 00:28:03,119 --> 00:28:05,960 Speaker 1: There's a wonderful, lonely photo of you taking lunch with 527 00:28:06,000 --> 00:28:08,840 Speaker 1: Tim Geitner, where I'm sure you had lots to talk 528 00:28:08,880 --> 00:28:11,520 Speaker 1: about at the time. Maybe you didn't even need You 529 00:28:11,600 --> 00:28:13,719 Speaker 1: just talked to each other about what you're gonna do 530 00:28:13,760 --> 00:28:16,600 Speaker 1: with the ugly media. Within that was the glide path 531 00:28:16,720 --> 00:28:20,200 Speaker 1: from two thousand seven to win the balance sheet was done. 532 00:28:20,200 --> 00:28:22,359 Speaker 1: Do you have a date where you would think we 533 00:28:22,400 --> 00:28:25,200 Speaker 1: would get the balance sheet to normalcy? Is it two 534 00:28:25,320 --> 00:28:28,600 Speaker 1: years out, five years out? Is it twenty years that well, 535 00:28:28,600 --> 00:28:31,879 Speaker 1: the FAT has released a lot of simulations or projections 536 00:28:31,880 --> 00:28:33,400 Speaker 1: of what they think it will do, and of course 537 00:28:33,440 --> 00:28:36,879 Speaker 1: it depends where they decided to end up. UM. I 538 00:28:36,920 --> 00:28:39,000 Speaker 1: think the best guess is something like four or five 539 00:28:39,080 --> 00:28:42,480 Speaker 1: years after they began the process of unwinding to to 540 00:28:42,520 --> 00:28:46,280 Speaker 1: get back to some kind of sustainable level um. And 541 00:28:46,520 --> 00:28:48,800 Speaker 1: so again, I think that it's not going to be 542 00:28:49,440 --> 00:28:52,960 Speaker 1: a huge problem. Um. And one reason though they waited 543 00:28:53,200 --> 00:28:55,600 Speaker 1: until this point to begin that process is if it 544 00:28:55,640 --> 00:28:58,400 Speaker 1: does end up tightening conditions to the v races interest 545 00:28:58,440 --> 00:29:00,760 Speaker 1: rates a little bit, then they have raised the short 546 00:29:00,840 --> 00:29:03,160 Speaker 1: term rate, the federal funds rate enough away from zero 547 00:29:03,920 --> 00:29:07,640 Speaker 1: necessary they can can wait, or even if necessary, cut 548 00:29:07,680 --> 00:29:10,360 Speaker 1: a little bit too offset whatever effect the balance she's 549 00:29:10,400 --> 00:29:12,960 Speaker 1: had in terms of policy wants and everybody worried about 550 00:29:12,960 --> 00:29:14,800 Speaker 1: the found and what cherry yelling is gonna say, and 551 00:29:14,840 --> 00:29:17,000 Speaker 1: all that. This is the most important item of this 552 00:29:17,240 --> 00:29:21,920 Speaker 1: entire conversation. You your Princeton commencement speech, you talked about 553 00:29:21,920 --> 00:29:25,040 Speaker 1: a parent who bought a Cadillac every year, that truition 554 00:29:25,320 --> 00:29:27,120 Speaker 1: cost so much and then you drive it off a cliff. 555 00:29:27,440 --> 00:29:29,800 Speaker 1: That guy was Carl ricka donna. He's with us in 556 00:29:29,840 --> 00:29:33,200 Speaker 1: Bloomberg Economics, zero space out of Princeton, and his father 557 00:29:33,280 --> 00:29:35,800 Speaker 1: every year drove a Cadillac off the cliff to pay 558 00:29:35,840 --> 00:29:39,760 Speaker 1: for your pay Yeah, meta, Well, maybe not importantly, But 559 00:29:39,920 --> 00:29:42,480 Speaker 1: Carl today said to me something very important. He said, 560 00:29:42,520 --> 00:29:45,280 Speaker 1: just what you alluded to. You need an interest rate 561 00:29:45,440 --> 00:29:49,480 Speaker 1: buffer to make the balance sheet reduction work. They work 562 00:29:49,520 --> 00:29:54,200 Speaker 1: in tandem. What's your confidence that well meaning people can 563 00:29:54,400 --> 00:29:58,720 Speaker 1: link those two items together to make the balance she's 564 00:29:58,760 --> 00:30:01,440 Speaker 1: shrink and at the same time get the right buffer 565 00:30:01,760 --> 00:30:04,200 Speaker 1: that you need. Well, they don't want to start the 566 00:30:04,240 --> 00:30:06,560 Speaker 1: process of shrinking the balance sheet until the interest rate 567 00:30:06,720 --> 00:30:08,680 Speaker 1: is far enough away from zero. They feel that they 568 00:30:08,720 --> 00:30:11,000 Speaker 1: have some confidence space. They want to make sure the 569 00:30:11,000 --> 00:30:13,400 Speaker 1: economy is moving along in a good way at that point. 570 00:30:13,440 --> 00:30:15,240 Speaker 1: You know, if if it's a very uncertain period and 571 00:30:15,360 --> 00:30:18,920 Speaker 1: things are slowing down, they might delay and be cautious. Um, 572 00:30:18,960 --> 00:30:20,760 Speaker 1: but they're just gonna have to monitor. I mean, there's 573 00:30:20,760 --> 00:30:23,160 Speaker 1: really no there's no magic crystal ball. You have to 574 00:30:23,160 --> 00:30:25,800 Speaker 1: see what's happening in the economy, following the data, following 575 00:30:25,800 --> 00:30:29,000 Speaker 1: the financial markets. And you know, I think they'll they'll 576 00:30:29,000 --> 00:30:31,120 Speaker 1: they'll be able to do it unless there's some new 577 00:30:31,160 --> 00:30:34,080 Speaker 1: problem from outside, some new shop of some kind. But 578 00:30:34,120 --> 00:30:37,000 Speaker 1: I don't see any practical reasons why they can't unwind 579 00:30:37,000 --> 00:30:39,680 Speaker 1: the balance sheet in a relatively passive way within the 580 00:30:39,760 --> 00:30:42,280 Speaker 1: dynamic of the balance sheet. And then so much that 581 00:30:42,320 --> 00:30:45,320 Speaker 1: you're here talk about the expansion of the balance sheet. 582 00:30:46,000 --> 00:30:48,880 Speaker 1: Is it about measuring it to economic growth? Or do 583 00:30:48,920 --> 00:30:51,240 Speaker 1: you measure it to price change? Do you measure it 584 00:30:51,480 --> 00:30:54,000 Speaker 1: to wage growth? Or is it a set? Is it 585 00:30:54,080 --> 00:30:57,400 Speaker 1: a super thing that FED looks at. Mostly is what 586 00:30:57,560 --> 00:30:59,800 Speaker 1: is the outlook for the economy? What is the model 587 00:30:59,840 --> 00:31:03,320 Speaker 1: and the analysis and the best guesses of the of 588 00:31:03,320 --> 00:31:06,160 Speaker 1: the economists say about where the economy is going? One 589 00:31:06,280 --> 00:31:09,520 Speaker 1: it put infut into that outlook is what's the state 590 00:31:09,520 --> 00:31:12,040 Speaker 1: of financial conditions? Are financial conditions very tight with high 591 00:31:12,040 --> 00:31:14,320 Speaker 1: interest rates and low equity prices, or they loose that 592 00:31:14,360 --> 00:31:17,800 Speaker 1: are supportive of growth. Um. So they'll be looking at 593 00:31:17,840 --> 00:31:20,880 Speaker 1: the outlook of the economy trying to assess how the 594 00:31:20,880 --> 00:31:24,680 Speaker 1: balance sheet wind off wind down is affecting those financial conditions, 595 00:31:24,720 --> 00:31:28,520 Speaker 1: and based on that they'll make those judgments. Um. Just 596 00:31:28,560 --> 00:31:31,200 Speaker 1: because of time here and we could go on for hours. 597 00:31:31,240 --> 00:31:33,040 Speaker 1: I could go on for hours. You probably don't want, 598 00:31:33,080 --> 00:31:36,120 Speaker 1: so let's talk about It's not in your book. It's 599 00:31:36,160 --> 00:31:38,040 Speaker 1: in the moments, in the zeit geist of the world 600 00:31:38,080 --> 00:31:40,240 Speaker 1: at this time. It's in the French elections, it's in 601 00:31:40,240 --> 00:31:42,880 Speaker 1: the special election in the United Kingdom, and it's here 602 00:31:42,920 --> 00:31:46,000 Speaker 1: as well. And that is trade. Douglas Irwin was with 603 00:31:46,080 --> 00:31:49,320 Speaker 1: us of Dartmouth is wonderful against the tide from years ago, 604 00:31:49,400 --> 00:31:53,800 Speaker 1: Paul Krugman's essay on Ricardo from twentysome years ago. If 605 00:31:53,840 --> 00:31:57,160 Speaker 1: I state, interview after interview, we have the risk of 606 00:31:57,200 --> 00:32:01,000 Speaker 1: becoming a zero sum America and our in our rhetoric 607 00:32:01,040 --> 00:32:04,560 Speaker 1: back to a mercantile state, is that a legitimate risk? 608 00:32:04,640 --> 00:32:07,640 Speaker 1: To ben Vernankee I don't think it's very likely because 609 00:32:07,640 --> 00:32:10,320 Speaker 1: the cost of doing it would be so overwhelming, you know, 610 00:32:10,480 --> 00:32:13,480 Speaker 1: just just the idea of shutting down and after for example, 611 00:32:13,560 --> 00:32:16,719 Speaker 1: that the US auto industry in the Mexican auto industry 612 00:32:16,720 --> 00:32:20,360 Speaker 1: are so integrated that if you were to draw a 613 00:32:20,400 --> 00:32:23,440 Speaker 1: barrier between those two parts of the industry, you would 614 00:32:23,480 --> 00:32:25,840 Speaker 1: have not only it wouldn't be good for the US 615 00:32:25,880 --> 00:32:27,720 Speaker 1: auto industry, they would be shutting down to semi lines 616 00:32:27,720 --> 00:32:30,040 Speaker 1: because they couldn't get the parts. So the world is 617 00:32:30,120 --> 00:32:32,880 Speaker 1: very integrated now. So I just think that any attempt 618 00:32:32,920 --> 00:32:35,560 Speaker 1: to really shut down trade would have such a bad 619 00:32:35,560 --> 00:32:38,520 Speaker 1: effect almost immediately that that people would back off in that. 620 00:32:38,560 --> 00:32:40,440 Speaker 1: And I don't see that happening frankly. I mean, you're 621 00:32:40,440 --> 00:32:43,520 Speaker 1: seeing a lot of discussion saying talk about rhetoric. You're 622 00:32:43,520 --> 00:32:46,479 Speaker 1: seeing some some actions taken, like the like the lumber 623 00:32:46,800 --> 00:32:50,480 Speaker 1: uh action, you know, against Canada, and there's gonna be 624 00:32:50,560 --> 00:32:52,560 Speaker 1: a bunch of things like that. But I I guess 625 00:32:52,640 --> 00:32:54,800 Speaker 1: I just don't see it as a realistic threat that 626 00:32:55,120 --> 00:32:58,440 Speaker 1: there's gonna be a major shutdown. Written workings or have 627 00:32:58,520 --> 00:33:02,240 Speaker 1: you responded to the Navarre A ross thesis of trade 628 00:33:02,280 --> 00:33:07,960 Speaker 1: and particularly trade with China. Well, it's not the case that, uh, 629 00:33:08,080 --> 00:33:09,640 Speaker 1: the trade is a zero sum game. I mean, that's 630 00:33:09,640 --> 00:33:12,840 Speaker 1: certainly true. Everyone benefits, or at least every major economy 631 00:33:12,880 --> 00:33:15,160 Speaker 1: that's involved in trade is going to benefit the same 632 00:33:15,160 --> 00:33:17,440 Speaker 1: way that you and I benefit from trading with our neighbors, 633 00:33:17,440 --> 00:33:19,640 Speaker 1: you know, in in in a store or in uh 634 00:33:19,720 --> 00:33:23,560 Speaker 1: in a factory. Um. But it's not to say that 635 00:33:23,640 --> 00:33:26,760 Speaker 1: there aren't improvements that can be made in our relationships. 636 00:33:26,760 --> 00:33:29,040 Speaker 1: And I you know, I think that uh, if you've 637 00:33:29,040 --> 00:33:30,960 Speaker 1: ever seen if you've ever seen a trade agreement, they're 638 00:33:31,000 --> 00:33:33,560 Speaker 1: incredibly complicated. There are many of them are deal with 639 00:33:33,720 --> 00:33:37,440 Speaker 1: the details of small differences across different products and the like. 640 00:33:38,080 --> 00:33:40,120 Speaker 1: So I'm not denying there couldn't be ways that you 641 00:33:40,160 --> 00:33:43,400 Speaker 1: could improve our trade relationships. But the broadly speaking, I 642 00:33:43,440 --> 00:33:46,720 Speaker 1: mean I think that we are we United States are 643 00:33:47,280 --> 00:33:51,440 Speaker 1: irretrievably and irreversibly integrated into the global economy. There's really 644 00:33:51,720 --> 00:33:55,000 Speaker 1: no way we would want to undo that. We can 645 00:33:55,480 --> 00:33:59,000 Speaker 1: we can try to uh improve the relationship, we can 646 00:33:59,000 --> 00:34:01,320 Speaker 1: try to do better for people who are displaced or 647 00:34:01,400 --> 00:34:04,240 Speaker 1: disrupted by trade, but we certainly don't want to end 648 00:34:05,000 --> 00:34:08,200 Speaker 1: our our global our global role. If you're just joining 649 00:34:08,280 --> 00:34:11,520 Speaker 1: us on Bloomberg Television, Bloomberg Radio worldwide. Ben Bernanke in 650 00:34:11,600 --> 00:34:14,400 Speaker 1: conversation and support of the Courage to Act with a 651 00:34:14,440 --> 00:34:17,320 Speaker 1: new afterword, A memoir of crisis and its aftermath. I 652 00:34:17,400 --> 00:34:20,480 Speaker 1: can't say enough about the velocity of the book and 653 00:34:20,640 --> 00:34:24,800 Speaker 1: getting through the most difficult eight nine and ten years 654 00:34:25,040 --> 00:34:27,680 Speaker 1: Enable Bernankey, My son, you used able Bernankey. I hope 655 00:34:27,680 --> 00:34:29,600 Speaker 1: you enjoyed the royalty check. I don't know what it 656 00:34:29,680 --> 00:34:32,080 Speaker 1: costs me. I was like cats, like two d or 657 00:34:32,120 --> 00:34:35,160 Speaker 1: something or two fifty or something. That's able, Bernankey. Are 658 00:34:35,239 --> 00:34:39,280 Speaker 1: the dollar dynamics Enable Bernankey? True? Today? Is President Trump 659 00:34:39,680 --> 00:34:43,000 Speaker 1: ignorant of what dollar dynamics could be? Given some of 660 00:34:43,080 --> 00:34:44,800 Speaker 1: what we hear in right, there is a bit of 661 00:34:44,800 --> 00:34:48,080 Speaker 1: a contradiction in different parts of the program that in 662 00:34:48,239 --> 00:34:52,719 Speaker 1: that the some of the fiscal plans, so the infrastructure 663 00:34:52,800 --> 00:34:56,280 Speaker 1: tax cuts, that part of it, if it doesn't come about, 664 00:34:56,560 --> 00:34:59,640 Speaker 1: is going to raise interest rates and cause the dollar strength. 665 00:34:59,680 --> 00:35:03,400 Speaker 1: And strong dollar has a lot of effects in the economy. 666 00:35:03,400 --> 00:35:05,160 Speaker 1: One of the effects it has it's probably gonna make 667 00:35:05,200 --> 00:35:08,479 Speaker 1: it more difficult to say, bring back manufacturing jobs, because 668 00:35:08,760 --> 00:35:11,960 Speaker 1: manufacturing the US would be less competitive goldally, so there's 669 00:35:12,040 --> 00:35:14,520 Speaker 1: different parts of the of the program which are not 670 00:35:14,680 --> 00:35:18,319 Speaker 1: entirely consistent the dollar is one of the reasons that, uh, 671 00:35:19,040 --> 00:35:21,360 Speaker 1: you know that that the fiscal part could actually be 672 00:35:21,480 --> 00:35:24,920 Speaker 1: inconsistent with the trade part. With within this and just 673 00:35:25,040 --> 00:35:26,520 Speaker 1: one more question here and I want to get to 674 00:35:26,600 --> 00:35:32,160 Speaker 1: the broader American picture. Is a phrase expect the unexpected? 675 00:35:32,560 --> 00:35:37,600 Speaker 1: What is the unexpected we could see within international economics 676 00:35:37,920 --> 00:35:40,680 Speaker 1: using currency as a litmus paper. Is it do you 677 00:35:40,840 --> 00:35:43,280 Speaker 1: do you think about rend men need? Is it about 678 00:35:43,320 --> 00:35:47,080 Speaker 1: dollar dynamics? Is it something to do with europolitics right 679 00:35:47,120 --> 00:35:50,439 Speaker 1: now and the experiment of the euro? What's the part 680 00:35:50,560 --> 00:35:53,920 Speaker 1: of currency dynamics that could be the unexpected in the 681 00:35:54,040 --> 00:35:57,360 Speaker 1: coming years. Well, uh, there was a lot of relief, 682 00:35:57,520 --> 00:35:59,880 Speaker 1: you know that, at least in the financial circles that 683 00:36:00,120 --> 00:36:04,160 Speaker 1: Mr Macron one one along with Lepen won the first 684 00:36:04,239 --> 00:36:07,440 Speaker 1: round of the French election because of the concerns that 685 00:36:07,600 --> 00:36:10,000 Speaker 1: le Pen would push to take France out of the Euro. 686 00:36:10,760 --> 00:36:13,160 Speaker 1: Um it does look to me like, at least for 687 00:36:13,200 --> 00:36:15,320 Speaker 1: the media future, the Euro is going to remain stable. 688 00:36:15,800 --> 00:36:17,799 Speaker 1: If there was a country like particularly one of its 689 00:36:17,800 --> 00:36:20,279 Speaker 1: biggest for France, that tried to leave the Euro Zone. 690 00:36:20,360 --> 00:36:23,160 Speaker 1: It would be very disruptive and would have major implications 691 00:36:23,200 --> 00:36:26,200 Speaker 1: not just for the Euro's a currency, but for for 692 00:36:26,280 --> 00:36:29,000 Speaker 1: a wide range of assets. So there are some political 693 00:36:29,120 --> 00:36:31,880 Speaker 1: risks that come, you know, from Europe. There similar risks 694 00:36:32,400 --> 00:36:36,880 Speaker 1: in in in Asia. And remember the evaluation in August 695 00:36:37,640 --> 00:36:40,880 Speaker 1: by the Chinese which had such disructive effects on the 696 00:36:40,880 --> 00:36:44,120 Speaker 1: global financial markets because people don't understand, you know, what 697 00:36:44,280 --> 00:36:46,040 Speaker 1: it was about, what was the reason for it. And 698 00:36:46,239 --> 00:36:49,080 Speaker 1: and they have sence them to much clearer about their strategy, 699 00:36:49,160 --> 00:36:50,920 Speaker 1: which has been very helpful. And I'm honor to ask 700 00:36:50,960 --> 00:36:54,000 Speaker 1: you this question. Uh, and this goes back to Tokyo 701 00:36:54,080 --> 00:36:56,880 Speaker 1: two thousand five speech, which I consider your most important 702 00:36:57,400 --> 00:37:01,160 Speaker 1: academic effort, your courage to act to tell Japan how 703 00:37:01,239 --> 00:37:06,680 Speaker 1: to reflate is abonomics. Ben Bernankee's speech of two thousand five. Well, actually, 704 00:37:06,680 --> 00:37:08,480 Speaker 1: I'm going to be at the Bank of Japan later 705 00:37:08,560 --> 00:37:10,840 Speaker 1: this month and I'm gonna try to update some of that. 706 00:37:11,440 --> 00:37:13,480 Speaker 1: I think they've they've made a lot of progress. I 707 00:37:13,560 --> 00:37:17,360 Speaker 1: think that bonomics and particularly the very aggressive policy to 708 00:37:17,360 --> 00:37:19,560 Speaker 1: the Bank of Japan have moved them in the right direction. 709 00:37:19,640 --> 00:37:23,200 Speaker 1: But quite honestly, it's been harder than I anticipated in 710 00:37:23,360 --> 00:37:26,239 Speaker 1: two thousand um and I need to think hard about, 711 00:37:26,400 --> 00:37:27,719 Speaker 1: you know, what more they can do if they need 712 00:37:27,760 --> 00:37:30,520 Speaker 1: to do something. In your book, there is a one 713 00:37:30,680 --> 00:37:34,400 Speaker 1: single picture which speaks to transparency. It is the first 714 00:37:34,640 --> 00:37:38,600 Speaker 1: picture in your book, A Couraged Act. It's you on 715 00:37:38,719 --> 00:37:43,600 Speaker 1: a street corner in Dylan, South Carolina with Scott Paley 716 00:37:43,680 --> 00:37:46,480 Speaker 1: of CDs. Was that your decision to do that? Was 717 00:37:46,520 --> 00:37:49,360 Speaker 1: that your screaming call, we have to be more transparent 718 00:37:49,640 --> 00:37:52,600 Speaker 1: I'm going on in general, yes, but you mentioned the 719 00:37:52,640 --> 00:37:54,800 Speaker 1: beginning of the hour you talked about Michelle Smith my 720 00:37:55,040 --> 00:37:58,759 Speaker 1: communication FED. No, no, no, she thought it was a 721 00:37:58,800 --> 00:38:02,279 Speaker 1: good idea. I mean, traditionally the FED has been very, 722 00:38:02,480 --> 00:38:04,960 Speaker 1: very removed from so to the main street. I mean, 723 00:38:05,120 --> 00:38:07,960 Speaker 1: this is just just just a culture and very focused 724 00:38:07,960 --> 00:38:11,520 Speaker 1: more on financial markets, on economists, you know, and and 725 00:38:11,600 --> 00:38:14,200 Speaker 1: on some limited part of the of the media. But 726 00:38:14,640 --> 00:38:16,400 Speaker 1: it was clear that in the middle of a crisis 727 00:38:16,600 --> 00:38:18,520 Speaker 1: as we were having that it was important for the 728 00:38:18,520 --> 00:38:21,000 Speaker 1: FED to get out and explain what we were seeing, 729 00:38:21,040 --> 00:38:23,000 Speaker 1: what we were doing, why we were doing it. And 730 00:38:23,360 --> 00:38:26,840 Speaker 1: and the sixty Minutes program with Scott Paley where we 731 00:38:26,880 --> 00:38:28,960 Speaker 1: went back to my hometown of Dylan, we sort of 732 00:38:29,000 --> 00:38:31,560 Speaker 1: showed my background, tried to humanize me a little bit, 733 00:38:31,600 --> 00:38:33,440 Speaker 1: but also just try to get a chance and difficult, 734 00:38:33,440 --> 00:38:35,000 Speaker 1: I know, but try to give me a chance to 735 00:38:36,000 --> 00:38:38,279 Speaker 1: explain to ordinary people what the FED is. I mean, 736 00:38:38,320 --> 00:38:39,880 Speaker 1: most people don't have that good a sense of what 737 00:38:39,960 --> 00:38:42,040 Speaker 1: the FED is and what it does. And it seemed 738 00:38:42,080 --> 00:38:43,880 Speaker 1: that that was the time when it was really important 739 00:38:43,880 --> 00:38:45,880 Speaker 1: to get out there. If I live a Dylan, South Carolina, 740 00:38:45,880 --> 00:38:48,360 Speaker 1: if I believe up on the northern border of South Carolina, 741 00:38:48,400 --> 00:38:51,759 Speaker 1: it was railroads. I looked the other day, there's Dillon Yarn, 742 00:38:51,880 --> 00:38:55,320 Speaker 1: which has gone through all the textile turmoil, and that 743 00:38:55,600 --> 00:38:59,160 Speaker 1: I want you to speak to Mr Trump's America that 744 00:38:59,320 --> 00:39:03,040 Speaker 1: has been to use the phrase financially repressed. Low interest rates, 745 00:39:03,120 --> 00:39:06,680 Speaker 1: low nominal rates, low real rates. They can't save. There's 746 00:39:06,719 --> 00:39:11,399 Speaker 1: been twelve and fifteen years of median incomes dagnation here. 747 00:39:11,840 --> 00:39:16,240 Speaker 1: What can the elites do in Washington, in the sanctuary cities, 748 00:39:16,640 --> 00:39:19,920 Speaker 1: what can they do to assist those people who have 749 00:39:20,000 --> 00:39:21,839 Speaker 1: been crushed? All Right, So this is a big, big 750 00:39:21,920 --> 00:39:26,440 Speaker 1: issue for the United States. People are the American dream 751 00:39:26,719 --> 00:39:29,960 Speaker 1: is about upward mobility. It's about the idea that if 752 00:39:30,000 --> 00:39:33,880 Speaker 1: you are even if you are very modest origins that 753 00:39:34,000 --> 00:39:37,400 Speaker 1: if you work hard and you get some education and you, 754 00:39:37,719 --> 00:39:40,640 Speaker 1: you know, continue to to improve yourself, that you'll you'll 755 00:39:40,640 --> 00:39:43,600 Speaker 1: make your way up the ladder, and that upward mobility 756 00:39:43,760 --> 00:39:46,800 Speaker 1: is much reduced to compared to what it was a 757 00:39:46,880 --> 00:39:50,080 Speaker 1: few decades ago. And it needs to be a major 758 00:39:50,200 --> 00:39:54,000 Speaker 1: it needs to be a major priority for policymakers in 759 00:39:54,040 --> 00:39:57,480 Speaker 1: general for Americans. UM, it's not an easy problem. It's 760 00:39:57,520 --> 00:40:00,120 Speaker 1: been many years into making that. Many things you need 761 00:40:00,200 --> 00:40:04,919 Speaker 1: to do, ranging from um, you know, pre k interventions, 762 00:40:05,000 --> 00:40:10,200 Speaker 1: through programs for working class kids, through apprenticeships, through better 763 00:40:10,280 --> 00:40:16,279 Speaker 1: access to college, to more infrastructure to create more productivity, 764 00:40:16,400 --> 00:40:18,520 Speaker 1: to improve technologies, all these things you need to make 765 00:40:18,520 --> 00:40:21,680 Speaker 1: the economy stronger, but with more focus on the question 766 00:40:21,800 --> 00:40:24,239 Speaker 1: of who's it for? You know, we we can't just 767 00:40:24,719 --> 00:40:27,960 Speaker 1: have look at the overall numbers, the overall GDP numbers. 768 00:40:28,239 --> 00:40:30,840 Speaker 1: You have to think about is everyone got a chance 769 00:40:31,360 --> 00:40:33,560 Speaker 1: to make their way up the ladder? And if not, 770 00:40:33,760 --> 00:40:35,839 Speaker 1: then the economy is not really serving. We're living were 771 00:40:35,880 --> 00:40:37,799 Speaker 1: you have fed chairman for a guilded age, I mean 772 00:40:37,840 --> 00:40:39,920 Speaker 1: you were in crisis. We know that from a courage 773 00:40:39,920 --> 00:40:42,279 Speaker 1: to act or so I should say this is cherry 774 00:40:42,320 --> 00:40:46,240 Speaker 1: yelling a chairman for a guilded age. Is it a plutocracy? 775 00:40:47,680 --> 00:40:49,640 Speaker 1: I think that's that's a little strong, But it is 776 00:40:49,680 --> 00:40:53,719 Speaker 1: certainly true that the share of growth, the share of 777 00:40:53,800 --> 00:40:57,160 Speaker 1: GDP gains going to the upper fraction of the of 778 00:40:57,280 --> 00:41:01,120 Speaker 1: the contribution is is very high. And what as you mentioned, 779 00:41:01,160 --> 00:41:05,279 Speaker 1: it reflects the fact that the median wage has not 780 00:41:05,800 --> 00:41:08,000 Speaker 1: risen very much over the past few decades of the 781 00:41:08,040 --> 00:41:10,440 Speaker 1: debates about the exact measurement. But what I what I 782 00:41:10,480 --> 00:41:13,520 Speaker 1: think is is important is not just the fact that 783 00:41:13,560 --> 00:41:16,800 Speaker 1: there's a range of outcomes, but the fact that you 784 00:41:16,960 --> 00:41:19,480 Speaker 1: start off at at a lower part of the distribution 785 00:41:19,719 --> 00:41:22,200 Speaker 1: than the odds are today, that you're going to stay there, 786 00:41:22,200 --> 00:41:23,480 Speaker 1: You're not gonna be able to make your way up 787 00:41:23,520 --> 00:41:26,040 Speaker 1: the ladder. So I think people are okay with a 788 00:41:26,080 --> 00:41:28,520 Speaker 1: certain amount of difference in a certa amount of inequality, 789 00:41:28,520 --> 00:41:30,320 Speaker 1: as long as I feel that it's fair and that 790 00:41:30,440 --> 00:41:33,440 Speaker 1: everybody has a chance. And I think through an increasing 791 00:41:33,480 --> 00:41:36,120 Speaker 1: extent people don't think there's a fair fair game, and 792 00:41:36,200 --> 00:41:38,120 Speaker 1: that that is really important to address. What can the 793 00:41:38,200 --> 00:41:40,520 Speaker 1: monetary leads and I don't mean just the FED, and 794 00:41:40,560 --> 00:41:42,319 Speaker 1: I don't want you to talk about this FAT day, 795 00:41:42,400 --> 00:41:45,360 Speaker 1: but the easy to be the bank of a leaders 796 00:41:45,560 --> 00:41:48,960 Speaker 1: of our financial system. What can they do then to 797 00:41:49,280 --> 00:41:52,840 Speaker 1: jump start that sense of fair Well, I think what 798 00:41:53,120 --> 00:41:55,560 Speaker 1: what the FED has has done in other central banks, 799 00:41:56,120 --> 00:42:00,640 Speaker 1: you know, the let's look back. I mean, the policies 800 00:42:00,680 --> 00:42:03,759 Speaker 1: were very criticized. They were arguably gonna People were saying, oh, 801 00:42:03,760 --> 00:42:05,600 Speaker 1: they're going to create hyper inflation, They're not gonna have 802 00:42:05,640 --> 00:42:08,239 Speaker 1: any benefits. Now we look at an economy that in 803 00:42:08,320 --> 00:42:09,920 Speaker 1: many ways is much better off now than was a 804 00:42:09,960 --> 00:42:11,880 Speaker 1: fewyears ago. We have not had hyper inflation, we've had 805 00:42:11,920 --> 00:42:13,520 Speaker 1: low and stable inflation, and we've had a lot of 806 00:42:13,600 --> 00:42:16,719 Speaker 1: job creation. And I think that helping the economy meet 807 00:42:16,760 --> 00:42:19,640 Speaker 1: its potential and provide jobs, that's the best thing that 808 00:42:19,920 --> 00:42:21,719 Speaker 1: central bank can do. And that's the fact that FET 809 00:42:21,760 --> 00:42:24,320 Speaker 1: has done that. The FED, however, does not have the 810 00:42:24,400 --> 00:42:29,600 Speaker 1: ability to create you know, better educational opportunities. It can't 811 00:42:29,680 --> 00:42:33,000 Speaker 1: make factories more productive. Um, those are things that that 812 00:42:33,480 --> 00:42:37,000 Speaker 1: the private sector and other policymakers have to be addressing. 813 00:42:37,280 --> 00:42:38,800 Speaker 1: The FAT has a certain number of things that can do, 814 00:42:38,880 --> 00:42:40,279 Speaker 1: and it's really not fair to ask it to go 815 00:42:40,400 --> 00:42:42,920 Speaker 1: beyond the tools that it actually has. When you write 816 00:42:43,000 --> 00:42:45,520 Speaker 1: volume two. Ellen Meltzer would tell you you must write 817 00:42:45,560 --> 00:42:47,680 Speaker 1: a volume two. He was good at that is where 818 00:42:48,000 --> 00:42:50,360 Speaker 1: many others when you write a volume to a courage 819 00:42:50,400 --> 00:42:54,000 Speaker 1: to act, there's a single sentence in your book and 820 00:42:54,080 --> 00:42:58,279 Speaker 1: it is President Obama. You people are shell shocked, and 821 00:42:58,400 --> 00:43:01,640 Speaker 1: he simply goes, how did we get to this point? 822 00:43:02,160 --> 00:43:05,400 Speaker 1: He just quietly as that, how did you respond? And 823 00:43:05,520 --> 00:43:08,839 Speaker 1: how would you respond today to Americans saying how did 824 00:43:08,920 --> 00:43:12,960 Speaker 1: we get to this point? Well, the crisis itself was 825 00:43:13,239 --> 00:43:17,360 Speaker 1: a complicated phenomenon, and it was essentially a big panic 826 00:43:17,440 --> 00:43:19,279 Speaker 1: in the financial system that was built up over a 827 00:43:19,360 --> 00:43:23,359 Speaker 1: number of years, excessive risk taking, excessive reliance on short 828 00:43:23,440 --> 00:43:27,120 Speaker 1: term funding, and and frankly, you know, the regulators and 829 00:43:27,200 --> 00:43:30,359 Speaker 1: the policymakers didn't see it coming, or at least not enough. 830 00:43:30,480 --> 00:43:32,800 Speaker 1: I mean, we addressed some parts of it, so that 831 00:43:33,200 --> 00:43:35,040 Speaker 1: that was a failing and certainly is one of the 832 00:43:35,080 --> 00:43:37,560 Speaker 1: reasons why people are still angry today, because even though 833 00:43:37,600 --> 00:43:39,960 Speaker 1: we've recovered from it and they're still they went through 834 00:43:39,960 --> 00:43:42,160 Speaker 1: a lot. But I think, you know, again, I think 835 00:43:42,200 --> 00:43:44,279 Speaker 1: it's important to distinguish that, as important as it was, 836 00:43:44,360 --> 00:43:47,359 Speaker 1: from these longer term issues which go back to at 837 00:43:47,400 --> 00:43:50,839 Speaker 1: least to the seventies of slower productivity growth, greater inequality, 838 00:43:50,880 --> 00:43:54,120 Speaker 1: and lower lower social mobility, which the crisis didn't help 839 00:43:54,120 --> 00:43:55,640 Speaker 1: any of that, but it wasn't the cause of it. 840 00:43:56,440 --> 00:43:58,880 Speaker 1: This is something that's been going on now for probably 841 00:43:58,920 --> 00:44:01,520 Speaker 1: at least forty years, and it's not something that's going 842 00:44:01,560 --> 00:44:03,279 Speaker 1: to turn around in a few weeks. That the takes 843 00:44:03,280 --> 00:44:06,239 Speaker 1: gonna take a lot of concerted effort attention to get 844 00:44:06,320 --> 00:44:08,160 Speaker 1: us back in the right on the right track. Ben 845 00:44:08,200 --> 00:44:10,840 Speaker 1: BERNANKEI thank you so much a courage to act, and 846 00:44:10,920 --> 00:44:13,120 Speaker 1: I did not ask him how many rate increases we 847 00:44:13,200 --> 00:44:25,360 Speaker 1: would see this year. Thanks for listening to the Bloomberg 848 00:44:25,400 --> 00:44:31,719 Speaker 1: Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, 849 00:44:32,120 --> 00:44:35,920 Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at 850 00:44:35,960 --> 00:44:40,600 Speaker 1: Tom Keene. David Gura is at David Gura. Before the podcast, 851 00:44:40,960 --> 00:44:44,319 Speaker 1: you can always catch us worldwide on Bloomberg Radio.