WEBVTT - Surveillance Special: Tom Keene Speaks With Ben Bernanke 0:00:00.080 --> 0:00:12.799 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:12.800 --> 0:00:16.239 with David Gura. Daily we bring you insight from the 0:00:16.239 --> 0:00:21.640 best of economics, finance, investment, and international relations. Find Bloomberg 0:00:21.720 --> 0:00:27.000 Surveillance on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course, 0:00:27.320 --> 0:00:35.800 on the Bloomberg. Ben burn Anaki needs no introduction. Yes, 0:00:35.920 --> 0:00:38.680 the former chairman of the Fellow Reserve. But not only that, 0:00:38.800 --> 0:00:41.640 but one of our frontline academics. A little did we know, 0:00:42.280 --> 0:00:47.159 A wonderful author. His book, Encouraged to Act, starts quickly 0:00:47.360 --> 0:00:50.519 and moves ever forward breathlessly through the crisis that we 0:00:50.600 --> 0:00:54.000 have all lived and the aftermath as well. He's out 0:00:54.040 --> 0:00:58.480 now with a new addition paperback, perfect for beach reading, 0:00:58.920 --> 0:01:02.280 and it's got a new after the word as well. Ben. Congratulations, 0:01:02.320 --> 0:01:04.120 I know you've done the interview circuit. I want to 0:01:04.160 --> 0:01:09.160 dive into a longer, more thoughtful conversation about many of 0:01:09.160 --> 0:01:12.399 these themes. Let me first begin with the emotion you 0:01:12.520 --> 0:01:15.000 capture at the beginning of the book. Anybody in the 0:01:15.080 --> 0:01:19.160 racket of business journalism knows the name Michelle Smith. She's 0:01:19.200 --> 0:01:21.760 the keeper of the gate. She guards the lock and 0:01:21.840 --> 0:01:24.200 key at the fed. If you don't get along with 0:01:24.240 --> 0:01:27.399 Michelle Smith, you don't talk to anyone. You open your 0:01:27.400 --> 0:01:32.080 book with you exhausted in an office with Michelle Smith. 0:01:32.360 --> 0:01:35.759 Tell us about that moment where you really finally hit 0:01:35.760 --> 0:01:38.720 the wall in this crisis. Well, Michelle Smith was also 0:01:38.800 --> 0:01:42.160 functioning to my chief of staff and general advisor. And 0:01:42.200 --> 0:01:45.720 that was the day that UM we had decided to 0:01:45.720 --> 0:01:48.720 to uh intervene with a I G. And it was 0:01:48.720 --> 0:01:53.400 an enormously risky situation. I had been earlier that day 0:01:53.400 --> 0:01:55.920 to Congress. I talked to a group of senators and 0:01:55.960 --> 0:01:58.200 representatives and they basically made it clear that we were 0:01:58.200 --> 0:02:01.240 on our own, that whatever we did was our responsibility 0:02:01.280 --> 0:02:04.720 and our call. And of course, this was a couple 0:02:04.720 --> 0:02:08.640 of days after after Lehman, and the financial system was 0:02:08.880 --> 0:02:14.119 in in shock, essentially, and it required an unanimous vote 0:02:14.160 --> 0:02:16.200 to take the actions we did, which was eventually to 0:02:16.360 --> 0:02:18.959 lend eighty five billion dollars today i G. So it 0:02:19.000 --> 0:02:22.840 wouldn't collapse, and so I could have stopped it, but 0:02:23.480 --> 0:02:24.880 you know, we thought it was the right thing to do, 0:02:24.960 --> 0:02:26.960 and and we went ahead and did it. But it 0:02:27.040 --> 0:02:29.480 was perhaps the darkest one, or at least certainly one 0:02:29.520 --> 0:02:32.760 of the darkest moments. From there on things began to 0:02:32.760 --> 0:02:35.120 look better, But certainly there was some very dark moments. 0:02:35.160 --> 0:02:37.640 That's all sorts of hindsight going on here. I remember 0:02:37.680 --> 0:02:40.639 being trend fixed at a fancy Bloomberg chart, watching bear 0:02:40.720 --> 0:02:43.400 Stearns go down in flames, and we all have our 0:02:43.480 --> 0:02:47.520 individual uh moments here. Not when did you know it 0:02:47.600 --> 0:02:51.400 was all clear? But from those dark moments, where did 0:02:51.400 --> 0:02:55.120 you get the confidence that the theory and the foundations 0:02:55.160 --> 0:02:57.840 that you had learned at M I T and onto 0:02:57.840 --> 0:03:00.760 your teaching career at Stanford Princeton. The other is when 0:03:00.800 --> 0:03:03.040 did it click in that you may get this right? Well, 0:03:03.080 --> 0:03:06.519 I think I understood the crisis. The crisis it was 0:03:06.560 --> 0:03:08.560 about some prime mortgages, about all these things, but it 0:03:08.600 --> 0:03:11.400 was basically a panic. It was a financial panic, very 0:03:11.440 --> 0:03:13.720 analogous to the runs on the banks we saw in 0:03:13.760 --> 0:03:16.240 the nineteenth century or in the depression, but it was 0:03:16.240 --> 0:03:18.600 an electronic panic. So everyone was in the sense that 0:03:18.919 --> 0:03:20.960 the short term funding of the system, through the repo 0:03:21.120 --> 0:03:23.359 market to the commercial paper market was all being withdrawn. 0:03:23.680 --> 0:03:26.800 Everything was freezing up. And you know, I'd seen the 0:03:26.800 --> 0:03:29.440 analogy to the earlier panics, and I unders I think 0:03:29.440 --> 0:03:31.640 I understood in principle at that point how we were 0:03:31.639 --> 0:03:33.880 going to comment, how we were going to stabilize the situation. 0:03:34.280 --> 0:03:37.240 But the politics was difficult, as you know, even after 0:03:37.640 --> 0:03:40.440 even after leaving failed, it took quite a while to 0:03:40.440 --> 0:03:44.040 get Congress to act. Took two tries before they would act. 0:03:44.360 --> 0:03:48.040 I think the passage of the Top Bill, the the 0:03:48.080 --> 0:03:52.160 Troubled Asset Relief Program, which provided money to stabilize recapitalize 0:03:52.200 --> 0:03:54.800 the banking system. And then there was a meeting in 0:03:54.840 --> 0:03:59.000 October of the of the g G seven in Washington 0:03:59.400 --> 0:04:03.000 where we met with the finance ministers and central bank 0:04:03.040 --> 0:04:05.680 governors of the other major industrial powers. And there was 0:04:05.840 --> 0:04:08.440 a sense of that meeting that we had to work together, 0:04:08.800 --> 0:04:11.040 you know, hanging together or hang separately at that point, 0:04:11.560 --> 0:04:13.280 and I talked about it in my in my book, 0:04:13.720 --> 0:04:18.080 and between that resolution in Washington and then collectively among 0:04:18.120 --> 0:04:19.800 the G seven that we were gonna do what it took. 0:04:20.080 --> 0:04:23.159 To use Mario drag famous phrase, I thought from there 0:04:23.160 --> 0:04:24.520 that we were going to find our way out, but 0:04:24.600 --> 0:04:26.960 it was still very tricky. It's such a luxury of 0:04:26.960 --> 0:04:29.880 a longer conversation with Ben Bernankey. We're going to touch 0:04:29.920 --> 0:04:33.080 on a number of the themes that we've got going 0:04:33.120 --> 0:04:35.280 on right now. And of course we will avoid, as 0:04:35.279 --> 0:04:38.520 we always do with any former FED official, the immediate 0:04:38.520 --> 0:04:41.320 talk as we go to the FED meeting this afternoons. 0:04:41.400 --> 0:04:45.239 I'm not gonna ask Ben Bernanke about how many interest 0:04:45.320 --> 0:04:47.720 rates will they do this year? Anything like that. That's 0:04:47.760 --> 0:04:49.680 part of the rules of the game. One of the 0:04:49.760 --> 0:04:52.560 joys is is to look back at your former speeches. 0:04:52.600 --> 0:04:55.039 I want to speak about the structure of the FED, 0:04:55.120 --> 0:04:57.839 and this goes back to your speak fifteen years ago 0:04:57.920 --> 0:05:02.039 almost now with Milton Freeman and presence his ninetie birthday. 0:05:02.080 --> 0:05:04.640 It's a great speech about something you're really good at, 0:05:04.720 --> 0:05:07.400 which is depression history. But at the end of it 0:05:07.720 --> 0:05:11.400 you talk about then, which is exactly like now, this 0:05:11.600 --> 0:05:16.720 uncertainty of FED leadership. Benjamin Strong in the Depression has 0:05:16.760 --> 0:05:19.720 the audacity to get sick and die, and you make 0:05:19.839 --> 0:05:23.359 clear they never recovered. Do we face that now with 0:05:23.400 --> 0:05:27.320 this this new administration into multi talk about John Taylor, 0:05:27.480 --> 0:05:30.120 they talk about Glenn Hubbard, but they talk about other 0:05:30.279 --> 0:05:34.120 names as well that don't have your pH d jobs. 0:05:34.279 --> 0:05:37.520 Do we have a risk of a leaderless FED with 0:05:37.640 --> 0:05:40.560 President Trump? Well, I think it's presumption is to say, 0:05:40.640 --> 0:05:42.719 we don't know who he's going to appoint. He could 0:05:42.880 --> 0:05:46.240 conceivably reappoint Jenny Yellen, which I think would be from 0:05:46.279 --> 0:05:48.960 his perspective, would be to reappoint Cherry Yellow. Jerry Yellen 0:05:49.040 --> 0:05:51.920 would be certainly, from his perspective, a very reasonable sensible 0:05:51.920 --> 0:05:54.640 thing to do. She's obviously highly competent, she's done a 0:05:54.640 --> 0:05:57.960 good job, she's got the confidence of the markets. But whoever, 0:05:58.960 --> 0:06:03.200 whoever is appointed, I'm sure will certainly work carefully with 0:06:03.360 --> 0:06:06.360 the rest of the FMC. And there's a reason why 0:06:06.520 --> 0:06:09.039 there's so many people on the Federal Market Committee making 0:06:09.040 --> 0:06:11.840 those decisions, including seven members of the board and then 0:06:12.200 --> 0:06:14.960 high quality staff which provides a lot of guidance and help. 0:06:15.480 --> 0:06:18.400 So I don't think we're quite in the situation by 0:06:18.400 --> 0:06:22.520 any means, And of course very hopeful that that um 0:06:22.560 --> 0:06:25.080 they will appoint, if not Janet Yell, and if they 0:06:25.080 --> 0:06:28.960 will appoint somebody strong and kind competent with within that 0:06:29.279 --> 0:06:32.040 is this sharp debate within the business media, and I 0:06:32.040 --> 0:06:34.840 would suggest with an economics as well, where if you've bet, 0:06:34.880 --> 0:06:37.159 I'm gonna pick on Gary Khne of the of the 0:06:37.200 --> 0:06:41.440 Trump administration. With great respect for Mr Kohn's abilities. Do 0:06:41.520 --> 0:06:44.120 you need to have a PhD in economics? You need 0:06:44.160 --> 0:06:46.320 to be a front line academic out of m I 0:06:46.400 --> 0:06:49.320 t give me presumptuous to say that. I mean Paul 0:06:49.360 --> 0:06:52.600 Looker does not have a PhD. He was obviously very 0:06:52.600 --> 0:06:54.919 familiar with monetary policy and the FED, having been in 0:06:54.960 --> 0:06:58.600 the system for a number of years, and obviously new markets. Uh. Well, 0:06:59.000 --> 0:07:00.520 so I think there's a range of skills that you 0:07:00.560 --> 0:07:03.120 can have. But obviously you also have to be at 0:07:03.160 --> 0:07:07.279 least familiar obviously with monetary policy and how it works 0:07:07.279 --> 0:07:09.160 and what some of the issues are and and there 0:07:09.160 --> 0:07:12.000 are important technical components to it. But but leadership is 0:07:12.040 --> 0:07:16.520 not constrained by a narrow set of skills. There's there's 0:07:16.840 --> 0:07:20.040 I think different types of backgrounds that could generate create 0:07:20.080 --> 0:07:22.600 a good fair chair. But it is important, obviously to 0:07:22.680 --> 0:07:25.480 know a lot about monetary policy and the financial system. 0:07:25.520 --> 0:07:28.400 What do you envision that our vice chairman of what 0:07:28.400 --> 0:07:31.040 I'm gonna call generally regulation will do? This is a 0:07:31.080 --> 0:07:34.320 new position. There's talk Randy Coral's name, among others, has 0:07:34.360 --> 0:07:36.920 come up for a more regular I think it's it's 0:07:36.920 --> 0:07:40.200 not the romance of the FED that we cover Bloomberg 0:07:40.240 --> 0:07:43.240 and within all of business economics. What do you envision 0:07:43.280 --> 0:07:46.600 that job to be for that new kind of vice chairman. Well, 0:07:46.600 --> 0:07:50.520 it's a very important job obviously because, as they say, 0:07:50.640 --> 0:07:54.640 personnelitis policy and so even if the regulatory structure is 0:07:54.640 --> 0:07:58.120 only moderately changed, is not substantially changed the way it's 0:07:58.520 --> 0:08:02.520 applied in executable man are a lot in practice. So uh, 0:08:02.560 --> 0:08:04.679 you know, the people they've talked about generally are people 0:08:04.680 --> 0:08:07.040 who are I think highly qualified. I've had a lot 0:08:07.040 --> 0:08:09.880 of background in financial regulation. But it's also important to 0:08:09.880 --> 0:08:12.960 get somebody who will take very seriously. What I think 0:08:13.280 --> 0:08:15.400 we kind of learned from the from the Great Crisis 0:08:15.480 --> 0:08:18.200 was that it is not enough to be looking at 0:08:18.280 --> 0:08:21.760 individual banks and at the individual components of the system. 0:08:21.840 --> 0:08:24.200 Somebody has to think hard about the stability of the 0:08:24.200 --> 0:08:27.680 system as a whole. And that was something that really 0:08:27.840 --> 0:08:29.800 was course brought home to us when the system as 0:08:29.840 --> 0:08:34.080 a whole went into shock in two thousand eight. So, uh, 0:08:34.160 --> 0:08:36.440 that person will have a very important role coordinating with 0:08:36.480 --> 0:08:40.360 other regulators, the ft i C and other agencies trying 0:08:40.400 --> 0:08:43.160 to make sure not only are banks individually stable, but 0:08:43.280 --> 0:08:46.440 is the system as a whole resilient for the next 0:08:46.440 --> 0:08:49.120 shock that will come. One more question, and we look 0:08:49.160 --> 0:08:53.160 back to things we've learned. Another crisis, within the depression, 0:08:53.200 --> 0:08:57.079 within the great contraction, as many have called it, there's 0:08:57.120 --> 0:09:00.679 this single idea that we had to keep the banks afloat. 0:09:00.760 --> 0:09:02.880 This has been a great theme of yours. What's so 0:09:03.000 --> 0:09:05.280 interesting is you're in speech. If you don't go back 0:09:05.320 --> 0:09:08.160 to nineteen twenty nine, you go back to challenges of 0:09:08.240 --> 0:09:12.160 nineteen eight. Do you worry that right now we have 0:09:12.240 --> 0:09:16.520 any of the precursors or setups, not of the hysteria 0:09:16.520 --> 0:09:20.320 of a depression, but of nineteen eight when everything was perfect, 0:09:20.440 --> 0:09:23.840 and yet it wasn't. Wasn't, No, it wasn't. I wouldn't 0:09:23.840 --> 0:09:27.080 say so. I see strong parallels there, and among other things, 0:09:27.120 --> 0:09:29.200 the FED is in a much better position, and I 0:09:29.200 --> 0:09:31.760 think it's much stronger, smarter than we used to be. Well, 0:09:32.720 --> 0:09:35.640 one hopes so, One hopes so. You know, sometimes sometimes 0:09:35.640 --> 0:09:39.240 things go in cycles, but certainly our financial system is 0:09:39.240 --> 0:09:41.520 a lot stronger. And one of the problems of the 0:09:41.559 --> 0:09:44.040 thirties was that the FED, which was at that point 0:09:44.040 --> 0:09:46.120 it was very young institution and only been created in 0:09:46.200 --> 0:09:50.360 nineteen fourteen, essentially uh and one of its its objectives 0:09:50.559 --> 0:09:53.000 was to help maintain stability in the banking system. It 0:09:53.080 --> 0:09:56.319 did not succeed in doing that, and in the United States, 0:09:56.360 --> 0:09:59.040 something like eight thousand banks failed in the nineteen thirties, 0:09:59.080 --> 0:10:01.880 which not only had menacing negative impacts on the money supply, 0:10:01.960 --> 0:10:04.600 but also in credit as you would imagine. And one 0:10:04.600 --> 0:10:07.599 of the lessons we took in the financial crisis of 0:10:07.640 --> 0:10:10.480 two thousand and eight was that the financial system is 0:10:10.600 --> 0:10:14.000 a critical input to the health of the economy as 0:10:14.000 --> 0:10:16.600 a whole. You can't let it collapse because it will 0:10:16.600 --> 0:10:18.800 bring down the rest of the economy. And I think 0:10:18.800 --> 0:10:20.599 that was certainly something we learned with the benefit of 0:10:20.679 --> 0:10:22.959 hindsight seeing what happened in the nineteen thirties. If you're 0:10:22.960 --> 0:10:25.960 just joining us on Bloomberg Television and Bloomberg Radio, lengthy 0:10:25.960 --> 0:10:30.560 conversation with a former chairman of the Third System, Ben Bernanke. 0:10:30.720 --> 0:10:32.720 The book is The Courage to Act. It is out 0:10:32.720 --> 0:10:36.320 with a new afterward where he speaks uh interestingly and 0:10:36.360 --> 0:10:39.920 I would say, perhaps sharply about the president administration and 0:10:39.920 --> 0:10:41.920 their view for it will get to that in a moment. 0:10:41.960 --> 0:10:44.120 I want to talk about investment. It's a theme that 0:10:44.200 --> 0:10:47.760 constantly occurs with another work that all of our economic 0:10:48.080 --> 0:10:51.120 team does. It's why equal see plus I plus G 0:10:51.320 --> 0:10:55.520 plus annex and I isn't there. In oh seven o eight, 0:10:55.600 --> 0:10:58.960 Ken Rogolf identified this to me. Bill Pole identified this 0:10:59.160 --> 0:11:02.199 to me. Now everyone knows that where is the investment? 0:11:02.520 --> 0:11:07.000 What the mystery of the lack of investment? Now? Well, Uh, 0:11:07.240 --> 0:11:10.079 it has been weaker than we would like capital investment, 0:11:10.080 --> 0:11:13.960 new factories, new buildings and so on. UM, it hasn't 0:11:13.960 --> 0:11:16.600 been catastrophically bad, but certainly should should be better. And 0:11:16.600 --> 0:11:18.959 that would be better not only in terms of driving demand, 0:11:19.480 --> 0:11:22.160 you know, for for output, but also in creating more 0:11:22.200 --> 0:11:24.719 capacity and increasing productivity and helping us grow more in 0:11:24.760 --> 0:11:27.959 the long run. UM. I think you know, Larry Summers 0:11:27.960 --> 0:11:31.120 talks about secular stagnation, and I have some sympathy with that. 0:11:31.200 --> 0:11:33.480 I have some other thoughts about that. But but there 0:11:33.520 --> 0:11:37.160 is some evidence that around the world that U there's 0:11:37.160 --> 0:11:41.319 a lot of savings looking for good investments to make UM. 0:11:41.320 --> 0:11:46.480 But for variety of reasons slower growth, slower growing labor force, UH, 0:11:46.760 --> 0:11:51.160 relatively weak productivity gains, and advanced industrial economies, that the 0:11:51.240 --> 0:11:55.320 number of strong capital projects that pay a high return 0:11:55.440 --> 0:11:57.079 is just limited and with the amount of saving that 0:11:57.120 --> 0:12:00.360 we see looking for returns that's driving down the olds 0:12:00.400 --> 0:12:03.640 keeping interest rates a little globally. Uh, we have to 0:12:03.679 --> 0:12:07.480 look for new sources of growth, new industries, new technologies, 0:12:07.480 --> 0:12:09.679 those things are becoming I think, which is why I 0:12:09.720 --> 0:12:14.120 don't buy secondistagnation as a permanent situation. But right now, 0:12:14.400 --> 0:12:16.679 and partly because of the after effects of course of 0:12:16.760 --> 0:12:20.400 the crisis itself. Uh, we just we just don't have 0:12:20.440 --> 0:12:22.839 the opportunities out there that that we would like. Can 0:12:22.880 --> 0:12:27.760 there be a policy prescription to jump start investment that 0:12:28.040 --> 0:12:31.680 is modern and forward looking, or do we risk having 0:12:31.720 --> 0:12:34.320 a nostalgic investment where we build you know, as they 0:12:34.320 --> 0:12:36.640 did in Japan years ago, bill roads. Well, those there's 0:12:36.679 --> 0:12:39.880 different There's there's different elements. There's cost, the capital and 0:12:40.080 --> 0:12:43.280 tax policy obviously know it's got a discussion about core protectorates. 0:12:43.760 --> 0:12:47.680 There is technology. We need to continue to support technological 0:12:47.760 --> 0:12:52.240 advance and the adaptation of new technologies into commercial purposes. 0:12:53.000 --> 0:12:57.080 Um skilled workers to provide complements to those uh, to 0:12:57.200 --> 0:13:02.120 those uh investments. Uh. Even you mentioned roads and buildings, 0:13:02.320 --> 0:13:03.760 you know, in the United States, I don't think we're 0:13:03.840 --> 0:13:06.120 quite in the state where we couldn't benefit from some 0:13:06.200 --> 0:13:09.800 improved infrastructure in New York as well. I mean, you know, 0:13:10.120 --> 0:13:11.720 you were talking the other day about how long it 0:13:11.760 --> 0:13:15.199 took you to get from Washington hosts DC l G 0:13:15.440 --> 0:13:18.480 A fix. If you want you want people spend less 0:13:18.520 --> 0:13:22.720 time in traffic jams and uh less time traveling from 0:13:22.760 --> 0:13:26.000 city to city, which is the detriment to productivity, then 0:13:26.559 --> 0:13:29.560 you know infrastructure is is one way to prove that 0:13:29.920 --> 0:13:31.800 to mension, so that there's a number of different things 0:13:31.840 --> 0:13:34.920 that can can can help. But it's a slow process. 0:13:34.920 --> 0:13:39.360 You can't expect people make firms make capital investments over five, ten, 0:13:39.480 --> 0:13:41.880 twenty year horizons. You can't expect everything to turn on 0:13:41.920 --> 0:13:44.320 a dime. But I'm hopeful that there will be some 0:13:44.360 --> 0:13:47.439 improvement in that. I had the clearest memory Chairman Bernanke, 0:13:47.920 --> 0:13:52.720 Chairman Greenspan, not baffled but almost bewildered by the buoyant 0:13:52.760 --> 0:13:56.959 productivity of another time and place. Every chairman of a FED, 0:13:57.440 --> 0:14:02.120 all with courage to act, are their productivity cards. Cherry 0:14:02.160 --> 0:14:05.880 Yelling has been out a very tough deck on productivity. 0:14:05.960 --> 0:14:09.000 It's a mischief. Speaking with my colleague Michael McKee about this, 0:14:09.240 --> 0:14:12.880 it is at the top of Mike mckey's list, capital dynamics, 0:14:13.160 --> 0:14:17.079 labor dynamics, and with a great honor to Robert Solo, 0:14:17.240 --> 0:14:19.920 this odd thing off to the right side of the equation. 0:14:20.280 --> 0:14:24.280 What is wrong with America's productivity right now? Well, some 0:14:24.320 --> 0:14:26.800 of it may be after effects of the financial crisis. 0:14:26.880 --> 0:14:29.480 After all, the crisis led to a fewer startups of 0:14:29.520 --> 0:14:32.280 new firms. Let's venture capital, less r and D, less 0:14:32.320 --> 0:14:35.560 capital investment, all those things that generate productivity over time. 0:14:35.840 --> 0:14:37.960 I think we're moving away from that now. It's almost 0:14:37.960 --> 0:14:40.600 a decade since since the crisis. The other thing is 0:14:40.640 --> 0:14:43.840 the line pursued by Bob Gordon, you know his work 0:14:43.880 --> 0:14:46.600 on to Rise and Fall of American Growth, and he 0:14:46.720 --> 0:14:49.880 argues that the period after World War Two, the fifties 0:14:49.920 --> 0:14:52.320 sixties was kind of unusual period. There was a lot 0:14:52.320 --> 0:14:55.200 of catch up after World War two. Um, a lot 0:14:55.200 --> 0:14:58.560 of transformation is happening in the American economy, which we're 0:14:58.560 --> 0:15:01.680 not quite seeing that degree of change at this time. 0:15:02.080 --> 0:15:04.680 And so the slower productivity gains are just reflecting the 0:15:04.720 --> 0:15:08.160 fact that technology comes and eds and flows. You mentioned 0:15:08.360 --> 0:15:10.960 Greenspans technology boom in the nineties. That was a period 0:15:11.040 --> 0:15:15.440 where the new I T revolution. Information technology revolution was 0:15:15.480 --> 0:15:19.920 really first having its big impact on productivity from areas 0:15:19.960 --> 0:15:24.800 from office work to retail, you know, to engineering. Um 0:15:24.880 --> 0:15:27.440 that seems to have slowed in two thousand five. Appears 0:15:27.560 --> 0:15:29.400 by that time that a lot of that first wave 0:15:29.480 --> 0:15:32.440 of I T productivity had been absorbed. It may we 0:15:32.520 --> 0:15:34.280 may get another wave, but at the mother we're kind 0:15:34.280 --> 0:15:36.480 of in a little bit of a flat spot. Within 0:15:36.600 --> 0:15:40.560 this flat spot of productivity is the clearly, with Mr 0:15:40.560 --> 0:15:43.240 Trump doing so well in Senator Sanders and the populism 0:15:43.280 --> 0:15:47.720 and other elections around the world, there's a primal scream 0:15:47.880 --> 0:15:52.800 to do something about how do you lift wages? Where 0:15:52.840 --> 0:15:56.040 does wage growth? Where does that sense as Mr Gordon 0:15:56.080 --> 0:15:59.040 talked about with a wonderful twining center that you and 0:15:59.120 --> 0:16:03.200 I live, Where does that prosperity come from? Well, it's 0:16:03.200 --> 0:16:05.480 not just prosperity. I think there's an interesting in the 0:16:05.480 --> 0:16:08.600 following sense. There's an interesting paradox, which is that if 0:16:08.640 --> 0:16:10.880 you look at the economy as a whole, you talk 0:16:10.920 --> 0:16:14.160 about the unemployment rate and job creation and GDP growth 0:16:14.200 --> 0:16:16.800 and all those things. You know, the recovery has been 0:16:16.800 --> 0:16:20.280 pretty good overall unemployments for and a half percent, we 0:16:20.360 --> 0:16:23.800 created sixteen million jobs. But then, of course Donald Trump 0:16:23.840 --> 0:16:26.320 was elected president because a lot of people are very dissatisfied. 0:16:26.760 --> 0:16:30.040 So it's not just the overall strength of the economy 0:16:30.120 --> 0:16:32.200 with the United States is frankly the envy of a 0:16:32.240 --> 0:16:34.640 lot of other economies in the world, but the fact 0:16:34.680 --> 0:16:37.680 that those games are not being broadly shared, that social mobility, 0:16:37.760 --> 0:16:41.080 upward mobility is is not what it was forty or 0:16:41.080 --> 0:16:43.400 fifty years ago in the United States. So a big 0:16:43.440 --> 0:16:46.120 part of the overall growth picture is also trying to 0:16:46.120 --> 0:16:49.760 make sure that everyone is contributing, everyone is sharing in prosperity. 0:16:50.440 --> 0:16:53.800 I think that is that is where we have fallen down, 0:16:53.840 --> 0:16:57.240 where we have not helped provide the opportunity that that 0:16:57.320 --> 0:17:00.640 we need. Is it a cultural dearth of productivity? Page five, 0:17:00.720 --> 0:17:02.920 eighties six? Here this so it's five eighties six, and 0:17:02.960 --> 0:17:05.399 it reads faster than that. It's not more in peace, 0:17:05.480 --> 0:17:09.639 don't be don't be afraid, Bernankee. I called on Congress 0:17:09.640 --> 0:17:13.399 to increase spending or cut taxes, or at least to 0:17:13.640 --> 0:17:19.359 avoid new austerity. Are we victims of our cultural economics, 0:17:19.400 --> 0:17:22.840 almost our cultural religion where we can't spend money when 0:17:22.880 --> 0:17:26.320 we need to? What it's it's ironic because of course 0:17:26.359 --> 0:17:28.920 now we're talking about big tax cuts. You know, from 0:17:29.200 --> 0:17:31.480 at least from the perspective of putting people back to work, 0:17:32.000 --> 0:17:34.960 it would have made more sensitive had more tax cuts 0:17:35.000 --> 0:17:38.240 and more spending twelve, which is when I was asking 0:17:38.280 --> 0:17:40.720 for that. I think that from at least from that perspective, 0:17:40.920 --> 0:17:42.880 with unemployment at four and a half percent, the case 0:17:43.000 --> 0:17:46.000 today is a little weaker. Although there's always a case 0:17:46.040 --> 0:17:48.320 for improving the quality of the tax colle making it 0:17:48.400 --> 0:17:50.600 more the fish and fair simple and so on. But 0:17:50.920 --> 0:17:53.840 in terms of adding demand to the economy, you know 0:17:53.920 --> 0:17:55.359 that that would have been a little bit better a 0:17:55.359 --> 0:17:57.240 few years ago. Let's make some news. Here are these 0:17:57.240 --> 0:18:00.240 tax cuts, tax cuts you can support is proposed, and 0:18:00.440 --> 0:18:04.680 particularly are these tax cuts within a gilded age where 0:18:04.720 --> 0:18:08.160 all those benefits go too narrowly to the affluence. Well, 0:18:08.200 --> 0:18:12.280 if I talk about the proposal, the income tax proposal 0:18:12.320 --> 0:18:15.920 for personal income, I guess I have a couple of concerns. 0:18:15.960 --> 0:18:19.920 One is that it is more demand side, I think 0:18:19.960 --> 0:18:22.600 oriented than supply side. That is, it's going to generate 0:18:22.680 --> 0:18:25.000 more consumer spending. It's not obvious it's going to increase 0:18:25.320 --> 0:18:28.399 the potential of the economy very much and as they're saying, 0:18:28.760 --> 0:18:30.640 four or five years ago, we could have used more 0:18:30.760 --> 0:18:34.800 demand side uh stimulus. Today it's not as obvious that 0:18:34.840 --> 0:18:37.760 we do need that. The other aspect of it, uh 0:18:37.880 --> 0:18:40.280 is that has written down. Of course we don't know 0:18:40.320 --> 0:18:42.160 the details. That appears like it would create a bunch 0:18:42.160 --> 0:18:45.679 bigger deficit. I'm not opposed to increasing depths under our 0:18:45.720 --> 0:18:48.399 circumstances by any means. But if we're going to increase 0:18:48.440 --> 0:18:51.679 the depthit, why not think about improving the efficiency of 0:18:51.680 --> 0:18:54.560 the corporate tax code or doing infrastructure that I think 0:18:54.600 --> 0:18:58.720 would have more direct effects on supply potential output than 0:18:59.359 --> 0:19:02.520 personal tax You didn't suffer the pain of working at CBO, right, 0:19:03.400 --> 0:19:05.159 Uh No, But I was in the White House for 0:19:05.200 --> 0:19:08.120 a while and I had my connections with o MB 0:19:08.359 --> 0:19:10.960 that officers and management budget. Do you have in your 0:19:11.000 --> 0:19:15.640 head a deficit to GDP percent? Where for ben Burn 0:19:15.680 --> 0:19:19.240 Nankey it becomes problematic? Is it five right now? Folks 0:19:19.240 --> 0:19:23.240 worth three give or take a little five? Does does 0:19:23.280 --> 0:19:26.520 your caution click in at six percent? Where is it? Well? 0:19:26.560 --> 0:19:28.680 I think that what the way I think about this 0:19:28.840 --> 0:19:33.560 is the CBO, the Professional Budget Office, does these um 0:19:34.000 --> 0:19:39.280 projections of the debt and the depths out for years, 0:19:40.000 --> 0:19:42.000 and so I think about it that way. I mean, 0:19:42.040 --> 0:19:44.840 I think you can always have I was supportive of 0:19:45.000 --> 0:19:47.840 the fiscal program in two thousand nine in the depth 0:19:47.880 --> 0:19:50.240 of the recession, where where because the recession was so 0:19:50.280 --> 0:19:52.760 bad we needed some fiscal stimulus that a big deficit 0:19:52.840 --> 0:19:55.120 was kind of inevitable at that point. So I tend 0:19:55.160 --> 0:19:57.880 to think about the longer term perspective, and so how 0:19:57.960 --> 0:20:01.840 much will changes in paul See effect that longer term trajectory. 0:20:02.240 --> 0:20:03.760 And by the way, I think one of the key 0:20:03.800 --> 0:20:06.120 elements to that is really what's going to happen to healthcare. 0:20:06.400 --> 0:20:08.440 Not that I really want to get into the deep 0:20:08.480 --> 0:20:13.000 details of healthcare policy, but but uh, the federal government, 0:20:13.560 --> 0:20:15.959 which some people have described as being an insurance company 0:20:15.960 --> 0:20:18.200 with an army, you know, that's basically the two things 0:20:18.200 --> 0:20:21.359 it does. It It ensures people for health and retirement, 0:20:21.400 --> 0:20:25.440 and it and runs the military. Um, if if the 0:20:25.480 --> 0:20:28.959 cost of healthcare in our aging society continue along the 0:20:28.960 --> 0:20:31.080 lines we you know, we've seen in the past few decades, 0:20:31.640 --> 0:20:34.760 that's gonna be a huge fiscal burden. Years ago, I'm 0:20:34.760 --> 0:20:36.879 gonna go I'm gonna take debate, folks. Here we go 0:20:36.920 --> 0:20:40.440 on healthcare, which is the theme in Washington this afternoon. 0:20:40.880 --> 0:20:45.160 It was sevent of GDP. It's ridiculous how much more 0:20:45.200 --> 0:20:48.800 we spend in every other prosperous nation in this world. 0:20:48.840 --> 0:20:52.280 Would you suggest that the Affordable Care Act, Obamacare or 0:20:52.359 --> 0:20:57.440 trump Care can lower that contribution to GDP of healthcare, Well, 0:20:57.480 --> 0:21:00.000 there's been some success on that in the last few years, 0:21:00.040 --> 0:21:02.359 and that the rate of growth of healthcare costs is 0:21:02.400 --> 0:21:06.720 diminished somewhat. But the quite honestly, the focus of both 0:21:07.080 --> 0:21:09.640 Obamacare and and some of the proposals here are more 0:21:09.680 --> 0:21:11.879 about coverage. I mean, how many people are covered and 0:21:11.920 --> 0:21:17.280 at what cost, and the tough decisions about quality, what 0:21:17.400 --> 0:21:20.600 we're gonna pay for, how much is gonna cost. That 0:21:20.600 --> 0:21:23.239 that's there, but it hasn't gotten as much attention as 0:21:23.240 --> 0:21:24.840 the coverage. To take a memo, we're going to a 0:21:24.840 --> 0:21:26.399 three hour and maybe we got too many things to 0:21:26.520 --> 0:21:28.720 talk about here today. A couple more minutes with Ben 0:21:28.760 --> 0:21:31.760 Berniky here, and we're gonna come back on some important themes, 0:21:31.760 --> 0:21:34.560