Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keen with
Speaker 1: David Gura. Daily we bring you insight from the best
Speaker 1: of economics, finance, investment, and international relations. Find Bloomberg Surveillance
Speaker 1: on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course
Speaker 1: on the Bloomberg and beg to Steve Whiting today. He's
Speaker 1: the global chief strategist at City Private Bank and he's
Speaker 1: here in her Bloomberg Lemon three. Ste It feels like
Speaker 1: it's been an age, Steve, It's been a wow. Great
Speaker 1: to see you once again. Thank you. Let me ask
Speaker 1: you first of all about a tax reform. As we
Speaker 1: watched this process unfold, I mentioned the delay, the one
Speaker 1: day at least delay that we've gotten from the house
Speaker 1: ways and means, how closely are you watching this? How
Speaker 1: closely our markets watching what's unfolding here. It's an incredibly
Speaker 1: tight a timeline of very narrow calendar, very narrow window
Speaker 1: for lawmakers to get something done here by the end
Speaker 1: of the calendar year. Well, I'm watching it very close, Slee.
Speaker 1: I think that markets all year long have been tempted
Speaker 1: to think that something was imminent. It's going to happen quickly.
Speaker 1: It's this vote or that vote, and they don't really
Speaker 1: have the patients to stay on this particular issue in
Speaker 1: the legislative process. If it turns out to be early
Speaker 1: two thousand eighteen, I would think that the probability of
Speaker 1: something passing is quite high and markets can actually focus
Speaker 1: on other things if for some reason there's a delay
Speaker 1: for a couple of weeks. But it is material. I mean,
Speaker 1: there's a lot of devil in the details here. I
Speaker 1: just took a look. For example, if you were to
Speaker 1: take a look at the original Trump campaign headlines, you're
Speaker 1: gonna getting a lot of those, but they seem to
Speaker 1: be with a one point five trillion dollar price tag
Speaker 1: sevent or more offset by offsetting revenues, which is what
Speaker 1: the really interesting details. You know, we'll see where all
Speaker 1: those other taxes have to go up in order to
Speaker 1: pay for this. Uh, that part will I'll hopefully learn tomorrow.
Speaker 1: Devils and the details, of course you have. But on
Speaker 1: the issue of growth, we hear from members of this administration,
Speaker 1: from economic advisors to it, UH that tax reform would
Speaker 1: lead to more growth. We get to that three or
Speaker 1: four percent range that they've been talking about since the campaign,
Speaker 1: any indications of that as you look at the at
Speaker 1: the data, I think that there are subtle positives here.
Speaker 1: If you take a look at the corporate tax rate,
Speaker 1: just having a globally competitive corporate tax rate will mean
Speaker 1: a difference. Now, of course there's some revenue lost for that,
Speaker 1: but we only collect about ten of all federal UH
Speaker 1: taxes are come from the corporate sector. And so in essence,
Speaker 1: if you can have a more globally competitive tax rate,
Speaker 1: you can incentivize domestic production. Now that will be a
Speaker 1: subtle but positive shift up. And then you have the
Speaker 1: other issues here that are we really cutting down on
Speaker 1: all the complexity? Are we really raising enough revenue on
Speaker 1: these other issues if it's really just a tax cutter
Speaker 1: or reform. But you know, I would not expect suddenly
Speaker 1: the economy has this tremendous new technological potential to grow,
Speaker 1: the population will grow more rapidly. You know, it's subtle,
Speaker 1: but it could be. It could be in the direction
Speaker 1: of a more positive direction. You've learned about bowl market
Speaker 1: psychology and the degree to which it's spreading around the world.
Speaker 1: What are you seeing there? How how unwilling are investors
Speaker 1: to reckon with central bank policy, political risk? Are they
Speaker 1: squarely focused here? What we're seeing is a rising still
Speaker 1: rising stock market. We'll just think about Catalonia versus Greece
Speaker 1: some years ago, and again, you know, the financial ramifications
Speaker 1: are very, very different, but the impact and market is
Speaker 1: so tremendously different. You know, we worried in two thousand
Speaker 1: and ten whether the you know, the horrible earthquake in
Speaker 1: Fukushima was going to derail the world economy. That's how
Speaker 1: how everyone felt so incredibly fragile about everything. And now
Speaker 1: what you see with North Korea has had no more
Speaker 1: impact than flammable smartphones. Right. So, these these types of
Speaker 1: things show that markets feel as if there's adorability, and
Speaker 1: that means that they're taking more risk and that future
Speaker 1: returns will be reduced because we're taking more risk right now.
Speaker 1: But I think it is more correct than incorrect that
Speaker 1: when we have problems, they tend to be regional, and
Speaker 1: that most recessions aren't act regional. And if you diversify
Speaker 1: across the world, you can uh you can actually take
Speaker 1: down rest. It's one of the few things we can
Speaker 1: do to mitigate risk. Stephen Wading with this city private
Speaker 1: bank getting and started here in this hour FED day,
Speaker 1: David grew up providing wisdom in the one hour on
Speaker 1: Bloomberg Television. Then I'll wander in on radio and television
Speaker 1: with the FED show, Scarlet Food leading our coverage with
Speaker 1: Alan Blinder and Bill Gross and Jeff Rosenberg with us
Speaker 1: as well. All the tax reform dynamic runs up against
Speaker 1: all the mail I get from listeners, which is about
Speaker 1: the fiscal deficit. I believe tax reform is really about
Speaker 1: cutting taxes. So far in the discussion I've heard when
Speaker 1: does the deficit impinge on the markets? Impinge on the markets?
Speaker 1: These are another thing that could be quite subtle, because
Speaker 1: the deficit does indeed matter to independently of the interest
Speaker 1: rate level. But this is how we use savings now.
Speaker 1: In the future, you know, what will we pay for?
Speaker 1: What will we give up? You know? Right now we
Speaker 1: certainly have a surplus of savings. Where you can see
Speaker 1: interest rates your pointing earlier on the air to the
Speaker 1: cost of capital for Apple in the debt market, for
Speaker 1: rate is three point or something. The personal savings rates
Speaker 1: in the neighborhood of five. Yeah, the national savings is higher.
Speaker 1: Federal obviously have dis savings and in the long run,
Speaker 1: it will get worse. And you know what will we do, Well,
Speaker 1: we will finance a good deal of healthcare consumption, or
Speaker 1: will we finance plant and equipment. And that's a question
Speaker 1: of what the deficit is doing, and that it is
Speaker 1: the treasury will get financed that we will be able
Speaker 1: to borrow and spend. But what will we be giving
Speaker 1: up if we don't have an endless supply of savings
Speaker 1: in real savings UH inflation adjusted saving. And that's the
Speaker 1: question is to how we use capital, Steve, you talked
Speaker 1: about the need to to diverse f internationally. How how
Speaker 1: broadly does one do that? Or how broadly would you
Speaker 1: counsel one one to do that? Is it targeting one
Speaker 1: mark in particular, one sector in one market? How how
Speaker 1: broad a brush to you use when you when you
Speaker 1: talk about the international versification. Well, I'm a little worried
Speaker 1: when you know, for example, we're now overweight all emerging
Speaker 1: markets regionally, and that's in both equities and fixed income.
Speaker 1: We spent most of the last five years underweight. Instead,
Speaker 1: Now when we do that, people will say, well, I
Speaker 1: bought this one emerging market country E t F or
Speaker 1: something like that, and it didn't work well. The reality
Speaker 1: is is that there's a lot of idiosyncratic country level
Speaker 1: risk and you need to be careful. Things that look
Speaker 1: quite good have idiosyncratic risks. If you take a look
Speaker 1: at fixed income in Brazil, for example, give us give
Speaker 1: us a plus and a minus adios syncretic risk. We'll
Speaker 1: think about the elections of two thousand eighteen that are coming.
Speaker 1: In the case of Mexico and Brazil. These are markets
Speaker 1: where yields are tremendous compared to what you see and
Speaker 1: developed markets. In the case of Brazil, you also have
Speaker 1: a good equity valuation. But could you say that I
Speaker 1: put those into a portfolio of other emerging markets and
Speaker 1: I will probably have a good high expected return. Yes.
Speaker 1: Can you say that if I concentrate solely in that
Speaker 1: country and something goes wrong on the political front, then
Speaker 1: you have a problem. So that's why we need broadly
Speaker 1: diversified global portfolios. UH. And if we have an emerging
Speaker 1: market's overweight, it's not the entire portfolio. When when you
Speaker 1: when you look at Asia in particular, and we've heard
Speaker 1: so much about trade UH, and we're looking to the
Speaker 1: president heading over to Asia at the end of this
Speaker 1: this week, has that risk ebbed or subsided a bit? Uh?
Speaker 1: Do you have a better sense here what trade policy
Speaker 1: is likely to be. It is as big a risk
Speaker 1: factory as it was. Well. I think the notion that
Speaker 1: some had at the beginning of two thousand seventeen that
Speaker 1: if you can't make it in the United States, you
Speaker 1: can't buy it, that whole risk has diminished now it
Speaker 1: has fallen. Uh in terms of how the markets rate
Speaker 1: that political risk. You can see how the Mexican pay
Speaker 1: so has risen pretty tremendously and suddenly there's a little
Speaker 1: bit more risk there. So I think that market are
Speaker 1: coming around and could could face another relapse and concern
Speaker 1: about that. I think the issue of Asia, though, is
Speaker 1: that there's a greater adorability in Asia than many investors believe.
Speaker 1: I just spent a week in Shanghai a couple of
Speaker 1: weeks back, and it is amazing how differently investors there
Speaker 1: feel about China than Western investors. Do you know we've
Speaker 1: had declines on corporate debt in China since two thousand
Speaker 1: and sixteen? Where where do you read about that? You
Speaker 1: see large declines in capacity in industries that have problems
Speaker 1: with overcapacity. You know where do you read about that?
Speaker 1: Those are the things that I think are underappreciated right now,
Speaker 1: particularly about China. Do we treasure our guests, and we
Speaker 1: particularly treasure them for their proclivities, their oddities, their focus
Speaker 1: and weirdness. Within the game of economics, fans investment. So
Speaker 1: if you're speaking with Stephen Whiting and City Private Bank,
Speaker 1: and he has an intellectual skill to talk on eight
Speaker 1: nine things at once, it always comes back to corporate
Speaker 1: profits and their link in to the economy, and that
Speaker 1: means investment, dynamics, consumption sixty nine point five percent now
Speaker 1: of g DP. Do you do you know, by the way,
Speaker 1: the whole Medicare system is consumption is consumer spending that
Speaker 1: essentially all government healthcare benefits anything that goes Yeah, you know,
Speaker 1: it's one of these things that sort of folks don't
Speaker 1: want to always, you know, trot out sevent I'm going
Speaker 1: to put a chart out here on Twitter for Bloomberg
Speaker 1: Radio which will feature over the next coming days, that
Speaker 1: goes to that investment is the partial differential, It's the
Speaker 1: dynamics of g d P. Are we at a subpart
Speaker 1: g DP simply because we can't get investment going over
Speaker 1: the last several years, it's been across the board moderation
Speaker 1: in terms of the pace of ground. When I say moderation,
Speaker 1: I don't want to say, you know, lacks volatility. That
Speaker 1: would lead to another conversation. But consumption has not been powerful,
Speaker 1: income dynamics have not been powerful, and investment I've all
Speaker 1: been on the slow side. We're seeing a bit of
Speaker 1: a pickup now and I think the question I should
Speaker 1: probably spend a bit more time on this myself, is
Speaker 1: to the extent that the energy boom and bust. The
Speaker 1: one thing that boomed in the U. S economy last
Speaker 1: several years, it's a bit energy related investment. Then it
Speaker 1: went bust. And now it's coming back to what extent
Speaker 1: is that contributing to the rebound that we're seeing investment.
Speaker 1: But we are seeing stronger investment now that we've seen
Speaker 1: for a very long period of time. Ideally it's more
Speaker 1: broad based than interest energy. We're looking at the conclusion
Speaker 1: of the FED meeting today Tomorrow we're likely to hear
Speaker 1: from the President, who has picked to head the FEED
Speaker 1: is going to to be tell us a bit about
Speaker 1: how you from investing perspective. See Jerome Powell, the gentleman
Speaker 1: who's reportedly in the running to get that job. You've
Speaker 1: written about him being sort of a benign, predictable UH.
Speaker 1: Maybe not guy, But in terms of policy choice, what
Speaker 1: do we know about him and what might that mean
Speaker 1: for markets? I think we said something about, you know,
Speaker 1: the principal teaching an art class, you get these people
Speaker 1: are really passionate about monetary policy, and and you know
Speaker 1: you obviously the carrot Kevin Warsh for example. So this
Speaker 1: is UH an environment where the marketplace probably overreacts some
Speaker 1: to the practical impact of the choice of FED share
Speaker 1: that it is a committee, that the institution is very powerful. UM.
Speaker 1: I've never served in the Federal Reserve system, so you know,
Speaker 1: others can speak to this much better. But the idea
Speaker 1: here is that in the very short term, when it
Speaker 1: comes to confidence and clarity about monetary policy, how market
Speaker 1: participants feel they can forecast the FED staying with someone
Speaker 1: who is part of the yelling FED. UH, and it's
Speaker 1: laid out conditions for unwinding monetary accommodation the way Jerome
Speaker 1: Powell has it seems much more predictable, UH than going
Speaker 1: to an outsider. Right now, a great value of horizon investments,
Speaker 1: writing this morning in his note about Janet Yellen likely
Speaker 1: not to be a FED chair for another term, saying
Speaker 1: should go out on top widely praise for engineering an
Speaker 1: economic recovery and presiding over a historic stock market rally.
Speaker 1: Lucky Janet Yellen getting out just in time. How much
Speaker 1: your thing is going to change here when you look
Speaker 1: at what she's set up with this committee has has
Speaker 1: set up. How likely is it to change under the
Speaker 1: leadership of some buty else, Well, if it is J Powell.
Speaker 1: I do think that monetary policy is not going to be,
Speaker 1: you know, the driving force that changes the whole economic outlook.
Speaker 1: You know, I think there are many economists who go
Speaker 1: out and say, well, you know, the federal reserve and
Speaker 1: monetary tightening, all the recessions are about that. Only if
Speaker 1: we just it would almost give you the notion that
Speaker 1: if you stayed easy forever, you'd never have a downturn.
Speaker 1: And I think that that, you know, is a real mistake.
Speaker 1: That the imbalances that you can build in an economy
Speaker 1: by having monetary policy off sides or otherwise um irrational exuberance,
Speaker 1: these sorts of things, whether but it has to be
Speaker 1: I think real side as well as financial When you
Speaker 1: get that, I think you can have downturns, and clearly
Speaker 1: what you saw I know eight, which I don't think
Speaker 1: has to happen again in any by any means. You know,
Speaker 1: these are things that were not well predicted by the
Speaker 1: stance of monetary policy alone. I just came up with
Speaker 1: a phrase. I'm not saying it's original, but it goes
Speaker 1: back to the military industrial complex of the fifties. Is
Speaker 1: there such a thing as the medical industrial complex? When
Speaker 1: you look at the hybridization of government investment, combine them
Speaker 1: all in a where medicine is just become the beast
Speaker 1: of all of our dynamics. Are GDP dynamics, well, that is,
Speaker 1: it is the secular grower. And the United States just
Speaker 1: stands out though. I mean, this is this is a
Speaker 1: problem for us because you know, a good deal of
Speaker 1: our health care is sort of like a stock option
Speaker 1: going into the money when you turn sixty five. You know,
Speaker 1: the Medicare system covers those and outside the United States,
Speaker 1: people if they have government healthcare programs, you know, they're
Speaker 1: covered for the entire of their life. So there's not
Speaker 1: this massive kink up and expenditures that occur like that.
Speaker 1: But you know, around the world, one of the interesting
Speaker 1: things to to note is that healthcare expenditures are less
Speaker 1: cyclical in income. Most you know, things go up and
Speaker 1: down even more than income, and healthcare only goes brilliant.
Speaker 1: Thank you so much. He is with City Private thank
Speaker 1: or Global chief investment strategist. Futures Up eleven del Futures
Speaker 1: Up a big one five the vix nine point eight six.
Speaker 1: This is Bloomberg. This is an honor. What we are
Speaker 1: humbled by the guests we have in their perspective. Frederick
Speaker 1: Michigan is at Colombia. You've heard me rave about his textbook,
Speaker 1: which is policy driven, particularly back half of it. He
Speaker 1: holds court at Colombian Dark in the door of the
Speaker 1: Echoes Building. Years ago as a Fed governor. Rick in
Speaker 1: few years ago you wrote a chapter in Crashes and
Speaker 1: Panics and Historical Perspective comment on who put the mania
Speaker 1: and tulip mania? And this goes to the This goes
Speaker 1: to the idea of asset bubbles. Are we bubblicious now?
Speaker 1: If we skewed things to such a manner that we
Speaker 1: have a mania within our financial systems, well, I think
Speaker 1: you have to be very careful in terms of thinking
Speaker 1: about two different kinds of bubbles, and one is very
Speaker 1: dangerous and one much less so. So as at prices
Speaker 1: do wild and crazy things. And who knows whether in
Speaker 1: fact the stock market is too high right now. This
Speaker 1: is something that economists have a really hard time uh
Speaker 1: predicting or even explaining even after the fact. But uh,
Speaker 1: currently the stock market may be very high, but we're
Speaker 1: not seeing excessive risk taking on in terms of credit markets,
Speaker 1: and that's really very very different. We get many bubbles,
Speaker 1: which are the ones that are very dangerous. We like
Speaker 1: when we had preceding these global financial crisis we had recently,
Speaker 1: where in fact there's a huge incluse and asset prices,
Speaker 1: but they're fueled by credit. And if the fueled by credit,
Speaker 1: when they've ascid, bubble births, now you have a contraction
Speaker 1: of credit and that destroys the economy. And that's what
Speaker 1: happened in this in this recent episode. That's not what
Speaker 1: we see going on now. And we've had many cases
Speaker 1: where stock market has gone way up, it's sometimes crashed.
Speaker 1: Just think about the tech bubble um in in the
Speaker 1: early two thousand's that crashed and the economy had very
Speaker 1: little impacts from it. So I think the key issue
Speaker 1: is not that we need need to predict what's going
Speaker 1: to happen asset prices. If I could do that, I
Speaker 1: would own Bloomberg. On the other hand, uh, not that
Speaker 1: good and so. But in the other hand, we can
Speaker 1: tell whether a very high asset price are associated with
Speaker 1: a lot of risky credit taking, and in that case
Speaker 1: we've got to get very nervous and we have to
Speaker 1: do something about it. That's not the situation now, but
Speaker 1: that's one of the lessons we learned from the last crisis. Rick,
Speaker 1: let me ask you about the evolution of rules basedness.
Speaker 1: I gather you were at the Boston FED conference a
Speaker 1: couple of weeks back when John Taylor spoke about his
Speaker 1: rule in a new broader context of you know, not
Speaker 1: go ahead. In fact, by the way he let he
Speaker 1: led off the conference, and I was the count or conference. Well,
Speaker 1: I just I wonder what you made of what he
Speaker 1: had to say, the fact that he suggested there could
Speaker 1: be some discretion infused with that rule that could be
Speaker 1: used in tannem are we're seeing an evolution in the
Speaker 1: way that we have roach rules based monetary policy. You know,
Speaker 1: it's hard to say, uh that I think if John
Speaker 1: was actually put in the position of being FED chair, uh,
Speaker 1: he'd be more flexible. But that's nearly not what what
Speaker 1: what he said. He he actually talked about that the
Speaker 1: fact that that the kind of discretion that Ben Bernanky
Speaker 1: in the FED used was way weight too much, and
Speaker 1: in fact, I think he mischaracterized what happened during that period.
Speaker 1: I would describe the the operation under the Banancy FED
Speaker 1: as very rulelike. The key thing that Ben Banankey emphasized
Speaker 1: was that he wanted to anchor inflation expectations. One of
Speaker 1: the huge successes of that period is in this case,
Speaker 1: he anchored inflation expectations so they didn't fall. So remember
Speaker 1: at one point we actually had a huge negative shock.
Speaker 1: We actually had deflation for a very brief period of time,
Speaker 1: but it was very temporary. The fact it was so
Speaker 1: temporary that inflation expectations stayed around two percent. That's very ruleike,
Speaker 1: that's looking to the future. That's exactly the great success
Speaker 1: of the to reserve. And I think that that that
Speaker 1: John just doesn't get that, and in fact I called
Speaker 1: him out on that in the conference And how did
Speaker 1: you d you respond? Well, you responded that he disagreed
Speaker 1: with me, but that's you know, Uh, one thing about
Speaker 1: economist John is a wonderful person, by the way. One
Speaker 1: thing about economist is we love to disagree. But I
Speaker 1: do have a very formal, very strong disagreements with views,
Speaker 1: very strong disagreements with the bill that he has helped,
Speaker 1: uh encouraged through Congress, which actually requires to have a
Speaker 1: directed policy. I think this is incredibly important because of time,
Speaker 1: Professor Michigan, we got to cut to the chase. Are
Speaker 1: we gonna have these debates and discussions if we have
Speaker 1: a non PhD economists running the FED? Well? I think
Speaker 1: the answer is these debates and discussions will always take place.
Speaker 1: That there are some very strong reason why rules have advantages,
Speaker 1: and also some strong reasons why pure discretion, which is
Speaker 1: not with Ben Bernaki was doing at the FED and
Speaker 1: not what Janet Yellen is doing at the FED. That Uh,
Speaker 1: that that can have real problems too. So we do
Speaker 1: need to think about how we if we do exactly that.
Speaker 1: In fact, the paper I presented the conference was actually
Speaker 1: directed as saying, how do we get the use of
Speaker 1: discretion the use of rules? Just right? You didn't answer
Speaker 1: my question will we have these discussions if we have
Speaker 1: a mckesley Martin, William G. Miller J Powell type running
Speaker 1: the FED. Well, first of all, let's not talk about
Speaker 1: William and Miller. He was a disaster, but Besnie Martin
Speaker 1: was actually very capable, and I think J. Powell is
Speaker 1: very capable. Uh So I think that that, uh that
Speaker 1: my view is, I think Jay will do a terrific job.
Speaker 1: I think the Janet would be even better because Janet
Speaker 1: really uh has shown great performance and it's a terrific,
Speaker 1: terrific economist. But Jay is extremely capable. I interacted with
Speaker 1: him a lot over time. Uh. He's extremely sensible. He
Speaker 1: understands how to listen. He also understands how they actually
Speaker 1: use the staff in the where it should be used.
Speaker 1: Should be a very good choice. This has been a
Speaker 1: great briefing Rick Michigan as a Columbia and I'll say
Speaker 1: it again, folks, he did a wonderful econ one on
Speaker 1: one macro text a couple of years ago, which is
Speaker 1: an act of God because it's a little less Matthew
Speaker 1: than some of them and a lot more policy driven.
Speaker 1: Rick Michigan is at Football Power Columbia. Columbia University. Let's
Speaker 1: turn out to a friend of the show, Austin Gulsby,
Speaker 1: who was for a long time the Chairman of the
Speaker 1: Council Economic Advisors in the Obama White House. He's now
Speaker 1: back at the Booth School for Business at the University
Speaker 1: of Chicago. He joins us now as we continue to
Speaker 1: look at the prospects for taxio for him, talk a
Speaker 1: little bit about the prospects for for further growth as well.
Speaker 1: Professor Goolsby, great to have you with us, and I
Speaker 1: want to just get you to react, first of all,
Speaker 1: to the delay that we learned about yesterday, that there's
Speaker 1: gonna be another day until we get this legislation from
Speaker 1: the House Ways and Means Committee, and maybe just react,
Speaker 1: if you could, to the timetable for all of this happening.
Speaker 1: Give us your sense of of how possible it is
Speaker 1: to get some sort of comprehensive reform done here over
Speaker 1: these next few months. Well that's a how fast it's
Speaker 1: going to happen is perhaps the key question. I would
Speaker 1: disagree a little with the premise about comprehensive tax reform,
Speaker 1: though I don't think that's an accurate description. I think
Speaker 1: what they're what they're seeing is what's been the reality
Speaker 1: that they that they did not want to admit all along,
Speaker 1: which is they're not trying. They're not even remotely trying
Speaker 1: to do a six style comprehensive thing. They're just gonna
Speaker 1: try to figure out a way to cut some taxes.
Speaker 1: And I think the delay, you know, you you may
Speaker 1: disagree with me, but I think the delay of one
Speaker 1: day my harbor delays of more days because ultimately they've
Speaker 1: agreed that they are going to increase the deficit by
Speaker 1: one point five trillion in doing this, but they've described
Speaker 1: in the President's framework, what he calls his framework, more
Speaker 1: than five trillion of tax cuts. So to get to
Speaker 1: the one point five number, they have to raise three
Speaker 1: and a half trillion. Austin, I don't think they'll be
Speaker 1: able to do it. We had too short a time
Speaker 1: with you today, but just one more question and we'll
Speaker 1: let you go on and get you for a longer
Speaker 1: time again. I had huge response to the idea that
Speaker 1: they would play around with the four oh one K funding.
Speaker 1: People were just baffled um by by that. With within
Speaker 1: these limits, what is the constraint of the federal deficit?
Speaker 1: Is that a valid constraint to the legislative process forward.
Speaker 1: I think it's only a political constraint. Certainly in the
Speaker 1: short run, the dead capacity of the U. S. Government
Speaker 1: is vastly in excess of where we are, so I
Speaker 1: don't think that that's a market constraint. I do think
Speaker 1: that there are a fair number of Republicans who so
Speaker 1: put their credibility on the line attacking President Obama for
Speaker 1: the stimulus that for them already to be calling for
Speaker 1: a tax cut twice as large as the stimulus. That's
Speaker 1: about the limit of how far they're willing to go.
Speaker 1: Because of the services at the New York Stocks, James,
Speaker 1: Austin is too short of visit with you. Would like
Speaker 1: to get you on again, and particularly to talk to
Speaker 1: the Cubs, talk to you about the Cubs fan, the
Speaker 1: laureate Richard Taylor. We haven't had that moment with you yet,
Speaker 1: but we'd like to get Austin goes beyond again. Professor Gouldsby,
Speaker 1: thank you so much. With Chicago, of course, Ken Griffith,
Speaker 1: citcal Citadel donating hundred and fifty million to the institution.
Speaker 1: Austin will get his fair share of David. I think
Speaker 1: as what we thank Uh, things I could say. No,
Speaker 1: probably get a copy of Samuelson. Austin goes to be
Speaker 1: the former chairman of the President's Council of Economic Advisors.
Speaker 1: David gurl has got lots of intelligent questions and technology
Speaker 1: for the author of The Four, The Hidden DNA of Amazon, Apple, Facebook,
Speaker 1: and Google. But I've just got one question for Scott
Speaker 1: Galloway of New York University on Amazon, I mean, you're
Speaker 1: living the benefits of Amazon twenty eight dollars for your
Speaker 1: book The Four. They're walking out the door at eighteen
Speaker 1: dollars thirty cents prime free one day shipping. That's a
Speaker 1: discount of thirty Is Amazon your friend or enemy when
Speaker 1: you're flogging a book? I think the answer is yes. Uh,
Speaker 1: they're They're so dominant in the book business that I
Speaker 1: think they've reshaped it. What's interesting about the book business, though,
Speaker 1: is that Amazon has arguably done less damage or less
Speaker 1: disruption of the book business than a lot of the categories.
Speaker 1: It's kind of too after that. So they're, you know,
Speaker 1: they're the biggest player in books. But at the same time,
Speaker 1: as an author, they're very good at figuring out how
Speaker 1: to track people who maybe have checked out your book,
Speaker 1: you'll start getting haunted by ads. For the four few
Speaker 1: I have I have, you know they'll start stalking you.
Speaker 1: So there. I almost wanted Scott Galloway last night for Halloween.
Speaker 1: That is a terrifying costume. And trust me, it doesn't
Speaker 1: work anywhere. Um doesn't get you into restaurants and doesn't
Speaker 1: it doesn't help anywhere. So yeah, Amazon, Amazon, look it dominant,
Speaker 1: I would say on the whole good for authors. Okay,
Speaker 1: David Garrol, why din't you start on the tech frenzy
Speaker 1: is people know, I think it's just a bunch of blooming.
Speaker 1: But David trying to be more intelligent than I could be.
Speaker 1: What we learn yesterday? You had three representatives from three
Speaker 1: of the Big four on Capitol Hill yesterday testifying before
Speaker 1: the Senate Judiciary Committee, a subcommittee of that committee. Today,
Speaker 1: move over to the House and we'll see a repeat
Speaker 1: of what we saw yesterday when it comes to what
Speaker 1: these companies did and are doing to change their behaviors.
Speaker 1: What do we learn? So what you the new sort
Speaker 1: of non denial denial or non apology apology is the
Speaker 1: term we must do better and the key to it's
Speaker 1: not a crisis itself to damage is a firm. It's
Speaker 1: the response to the crisis. Mar the student Martha Sturgeon
Speaker 1: go to jail for insider trading because she went to
Speaker 1: jail for denying it, specifically obstruction, obstruction of justice. And
Speaker 1: the only thing you really have to remember in crisis
Speaker 1: management is to overcorrect or at least be perceived is overcorrecting.
Speaker 1: And I would argue these guys have yet to really
Speaker 1: put out the necessary statement and that's it. That is
Speaker 1: the following. The CEO needs to stand in front of
Speaker 1: America comm Risk consumer, sheha olders and say I'm personally
Speaker 1: committing to making sure this never happens again. And they
Speaker 1: haven't done that. How difficult is that? From a technical perspective,
Speaker 1: how much some ppathy do you have for these companies
Speaker 1: who say to do the kind of screening with the
Speaker 1: individulants have the kind of vidulance that would be required
Speaker 1: is technically an impossibility. I have almost no sympathy because
Speaker 1: we're not talking about the realm of the possible. We're
Speaker 1: talking about the realm of the profitable. And that is
Speaker 1: if The New York Times can protect us from the
Speaker 1: weaponization of their platform. On ninety million dollars in cash flow,
Speaker 1: Facebook can figure it out. With twelve billion, Facebook could
Speaker 1: hire ten thousand people to screen content. They could spend
Speaker 1: half a billion dollars a year on artificial intelligence to
Speaker 1: help those ten people identify and flag that content, and
Speaker 1: it would dent their free cash flow five or ten percent.
Speaker 1: When big tech tells you something is impossible, that's Latin
Speaker 1: for it. We would be less profitable if we did this.
Speaker 1: This is look a better business model for our country
Speaker 1: club is to have no lifeguard to the pool, and
Speaker 1: that's what they've done. But for some reason they've co
Speaker 1: opted us into believing it's impossible. That's just ridiculous. Why
Speaker 1: are they the police of all this? They're just a
Speaker 1: kind of it. They're just a distribution system, aren't they.
Speaker 1: That's a fair point. And that's the argument that they're
Speaker 1: a quote unquote platform. This alterms are that platform or
Speaker 1: the media? I would argue, I would argue the part
Speaker 1: of the fourth of state. You create content, you spend
Speaker 1: a billion dollars in original content, you run ads against
Speaker 1: that content, boom. Should they be regulated by the FCC?
Speaker 1: I mean back then, you know, I remember in Douglas
Speaker 1: Brinkley's wonderful one volume and Walter Cronkite the whole radio
Speaker 1: regulation when Cronkite was nobody in Kansas City. I don't
Speaker 1: see why they shouldn't be subject to the same scrutiny.
Speaker 1: The rest of the media is media to I looked
Speaker 1: at the definition last night. Media is a medium that
Speaker 1: is used to influence and reach people. Facebook defines what
Speaker 1: it is to be a media company, and they still
Speaker 1: haven't admitted their media company. They keep saying that they're
Speaker 1: a platform. This would be like McDonald's serving of their
Speaker 1: hamburgers or fake can we get encephalitis and make bad decisions?
Speaker 1: And McDonald's defense would be, We're not a fast food restaurant,
Speaker 1: We're a fast food platform. Facebook defines what it is
Speaker 1: to be a media company and should and should live
Speaker 1: up to the interesting to the responsibilities of being part
Speaker 1: of the fourth of State. How much self awareness to
Speaker 1: these company these have? I always have flended funding when
Speaker 1: I go out to San Francisco Silicon Valley, the rhetoric
Speaker 1: that you hear people toiling away to change the world.
Speaker 1: They have these broad, big ambitions, and I wonder if
Speaker 1: there are sense of of of place in the United
Speaker 1: States in the world in society generally, UH is somehow
Speaker 1: skill show. And this is gonna sound cynical, but I
Speaker 1: believe what Peter Drucker said that organizations are here to
Speaker 1: create a middle class and four profit entities, which these
Speaker 1: companies are, are primarily there to create economic security for
Speaker 1: their employees and their shareholders, not in that order. And
Speaker 1: the notion that they're there to connect the world or
Speaker 1: save the planet or do no evil, I think it
Speaker 1: is more marketing than it is reality. And every quarter
Speaker 1: people analysts don't ask them if they're saving the world,
Speaker 1: are connecting the earth, They ask them what were your earnings?
Speaker 1: And I think they are very focused on profitability, as
Speaker 1: they should be. I don't. I think they're doing exactly
Speaker 1: what they're supposed to be. The problem is we've personified
Speaker 1: these companies and we think they're almost christ like. We've
Speaker 1: given them the mother of all hall passes because we've
Speaker 1: decided who's we us society. I think we look at
Speaker 1: these companies differently. Even even these questions if they should
Speaker 1: be subject to the same regulation as radio, why wouldn't
Speaker 1: they Why why wouldn't these companies be subject If if
Speaker 1: a company is weaponized by Russia and other media firms
Speaker 1: were not. Then isn't the obvious and answer or logic
Speaker 1: 'to our more regulations. Let's let's take all the clicks
Speaker 1: that fit to print. I mean, do the analog of
Speaker 1: Facebook to the New York Times, do the analog of facebooks?
Speaker 1: And how is Facebook? Well, it's because you know, I'm
Speaker 1: I'm at I'm recently, sir, Professor Gellow. Compare the New
Speaker 1: York Times, then the Facebook, the the pressures that the
Speaker 1: Sulzburgs have, yeah versus Zuckerberg. Okay, So I was on
Speaker 1: the board of the New York Times for a couple
Speaker 1: of years, and in my second board meeting, and this
Speaker 1: might be inside baseball, I suggested we shut off Google.
Speaker 1: I think it's ridiculous. The stupidest thing we've done in
Speaker 1: old media was buy into this lie that information wants
Speaker 1: to be free. Your boss doesn't think information wants to
Speaker 1: be free. And there's a reason why this firm is
Speaker 1: still fabulously successful. But we at the New York Times.
Speaker 1: Let Google show up with a dump truck and start
Speaker 1: taking cash from us, crawling our data, slicing it up,
Speaker 1: serving it against ads that they could monetize a ten
Speaker 1: act what we could monetize and debased our gorgeous content.
Speaker 1: We took Birken bags and distributed them through Walmart. Information
Speaker 1: Wants to Be Free one of the stupidest things we've
Speaker 1: ever bought into. We're talking with Scott Galloway of New
Speaker 1: York University's book The Four. I have a rave review
Speaker 1: on it, the hidden DNA of Amazon, Apple, Facebook, and Google.
Speaker 1: It's incredibly refreshing given the other business books that are
Speaker 1: out there. And what's refreshing about you, Scott, as you've
Speaker 1: been on both sides of the fences. J Putney migrates
Speaker 1: down under three dollars per share? What was it like advising,
Speaker 1: consulting and being on the board of Edward Bauer old Line?
Speaker 1: What Seattle Retailer? Yeah, Seattle retail are kind of an
Speaker 1: icon brand in the in the Northwest. I was put
Speaker 1: on late by the hedge funds who wanted to kind
Speaker 1: of muscle it into reorganizations. So you know, I was
Speaker 1: there when it was kind of near the end. But
Speaker 1: what's interesting is it got bought again in another bout,
Speaker 1: and it's about to do kind of chapter twelve. I
Speaker 1: think it's about to go bankrupt again. But you're seeing
Speaker 1: brands everywhere under attack. The era of what I would
Speaker 1: refer to as a brand era, the sun has passed
Speaker 1: midday on traditional kind of brand, brand building and shareholder
Speaker 1: value through through a marginal product with great associations. That's over.
Speaker 1: How much is what we're seeing here a governance issue?
Speaker 1: Of course, Uber is an outlier example of problems with
Speaker 1: the with the board of directories. But with these big companies,
Speaker 1: are they adequately governed by folks who know business and
Speaker 1: know about what historically business has been and stood for.
Speaker 1: So in media companies, media has and this is not
Speaker 1: just YOURR Facebook and Google, but all media companies have
Speaker 1: talked themselves or most of them into believing that they're
Speaker 1: special and that the founders have some sort of special insight,
Speaker 1: that they need protection from shareholders and the owners. So
Speaker 1: they typically have two classes of stock. And that's true
Speaker 1: of UM, It's true the New York Times Company. I
Speaker 1: believe it's true of news Core, and I know it's
Speaker 1: true of Google and Facebook. Now it's also true of Snap.
Speaker 1: You have a twenty seven year old will you buy
Speaker 1: a share? And Snap you have no rights, you have
Speaker 1: no say, you have no ability to put anyone on
Speaker 1: the board, and it's run by a twenty seven year
Speaker 1: old whose company is now worth more than Vatcom, the
Speaker 1: New York Times and combined, It's like, what could go wrong? Right?
Speaker 1: So corporate governance, there isn't a lot of corporate governance.
Speaker 1: Here's the board of directors of these companies aren't really
Speaker 1: a board. They're an advisory board because they don't get
Speaker 1: to fire the CEO and they don't don't get to
Speaker 1: buy or sell the company, which at the end of
Speaker 1: the day is really the only two things that matters
Speaker 1: for board. How do we get to that point? I
Speaker 1: look at the sort of social side of things and
Speaker 1: our willingness or to be complicit, to give away data,
Speaker 1: to give away information because it's convenient or easy, And
Speaker 1: I look at it on the other side, led you
Speaker 1: with the with governance and management and just the way
Speaker 1: these companies are run. How did we we become we
Speaker 1: society again? Talk and that it with it with a
Speaker 1: capitalists become so comfortable with that happening. Sure we were
Speaker 1: talking about this during the break. I believe that we
Speaker 1: no longer worship at the altar of character and kindness,
Speaker 1: but the altar of innovators and shareholder value, and we
Speaker 1: believe that these people are good for society, good people.
Speaker 1: I think they're incredibly savvy, they're incredibly impressive, and there's
Speaker 1: a political bend here. I believe they've wrapped themselves in
Speaker 1: a pink or rainbow or a neon blue blanket. Because progressives,
Speaker 1: as a general rule are perceived as being very nice
Speaker 1: and weak. It's a great foil for for a company
Speaker 1: that acts like Darth Vader and in a rand during
Speaker 1: the day, wrap yourself in a progressive blanket and you're
Speaker 1: not seeing this threatening. Look. At Microsoft, they were perceived
Speaker 1: as more conservative, and conservatives are largely seen as being
Speaker 1: smart but mean. So the foil, the illusionist trick is
Speaker 1: to come off as very very progressive and liberal and
Speaker 1: caring about other people, because then during the day you
Speaker 1: can be Darth Vader. But give the parallel. Then then
Speaker 1: you do this a bit. In the book before of
Speaker 1: these giants and John d Rockefe are literally the first
Speaker 1: business book I ever read was I did tarrible. To
Speaker 1: this day, I can't tell you why I pulled it
Speaker 1: off the shelf at Fairport High School a million years ago.
Speaker 1: How do they relate to John D. Rockefeller, Well, you
Speaker 1: mean in terms of concentration, concentration and come on power
Speaker 1: simply so. So I would argue that at share of
Speaker 1: search and search is now a bigger business than the
Speaker 1: entire advertising business by dollar volume of any country except
Speaker 1: in the US. And you have one company that controls
Speaker 1: nine percent of it. It's Google. So I would argue,
Speaker 1: I would bet Google it has more power and concentration
Speaker 1: of market share than the railroads? Are mob Bel did
Speaker 1: when they were broken? Are we waiting for I did
Speaker 1: Tarble to come along to break up Google? Well? Are
Speaker 1: the equip analog to that? And the only regulator in
Speaker 1: the world now who I would describe whose testicles have
Speaker 1: descended is Marguerite Messenger. She's the one that's going after them.
Speaker 1: And it's because as war, the war against big tech
Speaker 1: is going to break out where all the other big
Speaker 1: conflicts have broken out, It's going to break out in Europe, Tom,
Speaker 1: because we register a lot of benefit here and a
Speaker 1: lot of downside in Europe they register all of the
Speaker 1: downside and a fractory I'll agree with that analysis, But
Speaker 1: then how do you respond to the natural lockey in
Speaker 1: individualistic We're American we're gonna do it ourselves attitude that
Speaker 1: pushes against Mr Investiger in Europe. I mean we push
Speaker 1: against that theme, don't we? Yeah? No, I don't. I
Speaker 1: don't think people say what could get in the way
Speaker 1: of these guys and people. I believe the only thing
Speaker 1: that standing between any of them and a trillion dollars
Speaker 1: in market cap right now is Washington or Brussels, and
Speaker 1: it's definitely more likely going to be Brussels. But I
Speaker 1: don't you know, at some point Tom one of these
Speaker 1: Northern European nations is going to say, is the model
Speaker 1: of letting these guys in worked out better? Or is
Speaker 1: the Chinese model where you let them in just long
Speaker 1: enough to steal their i P and then prop up
Speaker 1: a local competitor and capture all the value. Do the
Speaker 1: Chinese have it wrong? Who are the dumb ones here? So?
Speaker 1: I wouldn't be surprised if we see a small European
Speaker 1: nation actually outright ban one or more of these companies.
Speaker 1: I think the worm has turned against big Tech. I've
Speaker 1: had a case to talk to to Margaret Vesker in Washington,
Speaker 1: and she's kind of seen, at least as I perceived
Speaker 1: it as a curiosity there in terms of where she's
Speaker 1: coming from, what she's trying to do, and I think
Speaker 1: she's probably the subject of a lot of ire there,
Speaker 1: of course in the Bay Area as well. What accounts
Speaker 1: for the cultural difference there between where Brussels is and
Speaker 1: where Washington is And are there any indications that our
Speaker 1: sense of competition is going to change or revolve as
Speaker 1: a result of what we saw in this election, of
Speaker 1: what we've see in terms of the micro or size
Speaker 1: of these companies there, there's a big difference. And it
Speaker 1: said in the US, it's hard to deny we register
Speaker 1: a great deal of benefit from these firms. Amazon is
Speaker 1: the largest recruiter from my class. You have the real
Speaker 1: estate prices in California or northern California skyrocketed because of
Speaker 1: the wealth created there. They they're sources of national pride there.
Speaker 1: You know they are ours. It's a huge sort. They
Speaker 1: create competition, economic growth, the all the concerns around privacy, job,
Speaker 1: job just direction, weaponization by foreign adversaries are a real conversation.
Speaker 1: We're having it. But in Europe there aren't a lot
Speaker 1: of university buildings or hospital wings named after Facebook or Google.
Speaker 1: Billionaires show the question is if if if I don't
Speaker 1: get the upside and I get all the downside, that
Speaker 1: stiffens the regulators backbones in Europe. David, just to point
Speaker 1: things out, and you know, I've read most of Galloway's
Speaker 1: tone here. I've read the first point of the Old Testament,
Speaker 1: but not the New. Did I know, David Gura, that
Speaker 1: Amazon has five d forty one thousand employees. I don't
Speaker 1: believe I knew that. Is there a point at which
Speaker 1: got you push against the company becoming too big? And others?
Speaker 1: We can talk about how regulation might curb the growth
Speaker 1: through the influence of a company, but just I guess
Speaker 1: it's a principle of physical Can it get too big?
Speaker 1: Can a company get two sides of Can Google and
Speaker 1: Amazon become too big? I don't know if they've become
Speaker 1: too big. They're definitely not too big. Keep in mind,
Speaker 1: I mean Tom talked about the half a million employees
Speaker 1: at Amazon. The more interesting fact is that Facebook is
Speaker 1: now I think, the fourth most valuable company in the world.
Speaker 1: They do with twenty two th employees. And if you
Speaker 1: take these companies combined, it's the population of the Lower
Speaker 1: East Side with the GDP of India so GDP of
Speaker 1: India spread across the Lower East Side. They outside. It's
Speaker 1: not that can they become too big? Is it? Can
Speaker 1: they become too powerful? And that's a that's a legitimate question.
Speaker 1: You do your gen mooriss imitation at the back end
Speaker 1: of the book and you say the four in you
Speaker 1: what should you do about this moment? And this is
Speaker 1: a profoundly American issue, which is the de peopling of
Speaker 1: America to the cities, and this has to do with
Speaker 1: our American politics. Get to a city, Yeah, what do
Speaker 1: you mean by that? Two thirds of economic value is
Speaker 1: going to be created in a city. When you're in
Speaker 1: a city of bump into people who are better or
Speaker 1: you know, are the best in the world. It's when
Speaker 1: you play tennis, so someone who's better than you, you
Speaker 1: get better. So rally with someone who's great and the
Speaker 1: best in the world. Are gravitating to cities because that's
Speaker 1: where the economic value is. To get to a city
Speaker 1: and pump off in rally with better tennis. Twenty five
Speaker 1: year old in Brooklyn, they can't afford to live large,
Speaker 1: Like David Girl, which city should they move to? Where's
Speaker 1: Galloway's favorite city right now? Oh? Gosh, Tom, if you
Speaker 1: can afford to, you want to live in New York
Speaker 1: or San Francisco because it's a very endeah. But come on,
Speaker 1: they can't. I mean no, you know it's outrageous. Give
Speaker 1: me a secondary city here. I gotta make some news
Speaker 1: and sell serious XM Channel one nineteen somewhere Miami, a
Speaker 1: small city like Miami, Miam is fantastic. Nashville, Um, Queens, Yeah,
Speaker 1: there's there's there's a ton of great cities. Uh. St. Louis,
Speaker 1: Wash you that probably the fastest. There we go. We'll
Speaker 1: leave at their Washington University, St. Louis. Riley from St. Louis,
Speaker 1: we say good morning to you. Scott Galloway. The book
Speaker 1: is The Four Even Riley from St. Louis is going
Speaker 1: to read it. This is Bloomberg. Thanks for listening to
Speaker 1: the Bloomberg Surveillas podcast. Subscribe and listen to interviews on
Speaker 1: Apple Pie, Guests, SoundCloud, or whichever podcast platform you prefer.
Speaker 1: I'm on Twitter at Tom Keene, David Gura is at
Speaker 1: David Gura. Before the podcast, you can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio