Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: This is Wall Street Week. I'm David Weston, bringing you
Speaker 2: stories of capitalism. Early childhood education is as important as
Speaker 2: it is challenging for millions of Americans. It turns out
Speaker 2: that it's also an investment opportunity. We look at the
Speaker 2: large and growing role of private equity in raising our children,
Speaker 2: plus what that one big beautiful bill means for childcare
Speaker 2: and healthcare. Our special contributor Larry Summers takes us through
Speaker 2: where he thinks we may be going wrong. And the
Speaker 2: World Cup is coming to North America with all the excitement,
Speaker 2: all the potential, and all the costs surrounding it. We
Speaker 2: bring you to the host city of Toronto to hear
Speaker 2: why it thinks it's making a sound investment. But we
Speaker 2: start with the question puzzling so many investors these days.
Speaker 2: Why are the US equity markets poised for growth while
Speaker 2: economists are predicting a slowdown. Rick Reader is Blackrug's Chief
Speaker 2: investment Officer of Global Fixed Income and head of the
Speaker 2: Global Allocation Investment Team.
Speaker 3: The service economy is what drives this economy today. It's
Speaker 3: not a goods oriented economy. It's not a commodity.
Speaker 4: It's not an.
Speaker 3: Export oriented, not a heavy manufacturing, service oriented, so most
Speaker 3: of what drives the economy is resilient to what is
Speaker 3: a goods slowdown in goods. Second thing that I wouldn't
Speaker 3: have anticipated. I would have thought, you've got more pricing
Speaker 3: transmission in but it's pretty incredible how companies moved. In fact,
Speaker 3: now some of it in the near term, companies took
Speaker 3: it into margin.
Speaker 2: So give us a sense rick of where this economy
Speaker 2: is headed, because if you look at the stock market,
Speaker 2: it looks really good, it's really going places. At the
Speaker 2: same time, if you look at the markets, they say,
Speaker 2: well, we're going to have a rip cutter two who this year.
Speaker 2: Normally you wouldn't cut rates into robustly growing market.
Speaker 3: So it's pretty extraordinary. I mean, it almost never happens
Speaker 3: in time. So the a couple things happen. First thing,
Speaker 3: I think all financial assets there is an extraordinary amount
Speaker 3: of cash and money that has to flow somewhere. And
Speaker 3: the technicals and equities are great because companies are buying
Speaker 3: back their stock. So I think the equity markets are
Speaker 3: reflecting really good technicals. Earnings have been pretty good. But
Speaker 3: I think there's something different at play in terms of inflation.
Speaker 3: What's going to happen with productivity and innovation, Inflation is
Speaker 3: going to come down. And the reason to bring interest
Speaker 3: rates down, which I'm a believer in, is the housing
Speaker 3: market is under pressure. So the real impact of interest
Speaker 3: rates on the economy today, I don't think it is
Speaker 3: in the historic sectors of who spends on coppacks, anything
Speaker 3: about AI spend, how the banks manage the risk. It's
Speaker 3: about housing and today if you look at the housing
Speaker 3: market and particularly what impacts lower income. The people that
Speaker 3: borrow today are lower income and they're adversely impacted infected
Speaker 3: by where these rates are. If we get the rate down,
Speaker 3: you actually can bring how home prices down, you build
Speaker 3: more houses, you'll actually reduce inflation. So I think it's
Speaker 3: quite consistent to bring the interest rate down even though
Speaker 3: the economy is operating at a pretty good level. Where
Speaker 3: we're going is to a lower level of inflation, and
Speaker 3: I think we can bring it down. I mean, think
Speaker 3: about inflation break evens today depending on which part of
Speaker 3: the curve are two and a half to two and
Speaker 3: three quarters. So the funes rate, even if you bring
Speaker 3: it down to three and a quarter you're still above
Speaker 3: the rate of inflation, so I think we got plenty
Speaker 3: of room to drop it. Even though the economy is
Speaker 3: operating well.
Speaker 2: Does the yield curve on the treasury indicate we do
Speaker 2: have a bigger problem in the place we think. Look
Speaker 2: at the thirty year for example, we're significally over five
Speaker 2: down hanging in up there. So the short end nice
Speaker 2: under control, long end not so much.
Speaker 3: So I think the long end of the yield curve
Speaker 3: becomes untethered. First of all, the Fed generally can control
Speaker 3: the front end, and the front end stays tethered to
Speaker 3: the Fed funds rate. Long end of the yield curve
Speaker 3: has a couple of things that I think are not
Speaker 3: to its benefit. One, we've got to issue a lot
Speaker 3: of debt going forward. I mean, think about the size
Speaker 3: of the bill side, the deficits. We're going to issue
Speaker 3: a lot of debt. The long end is a hard
Speaker 3: place to invest. It used to be that the long
Speaker 3: end protected you against the equity market. If inflation ends
Speaker 3: up being higher, which I don't necessarily anticipate, then what
Speaker 3: will happen is equities and long end will get hit.
Speaker 3: So the long end of the yield curve today, given
Speaker 3: that you can get so much yield if you're an
Speaker 3: investor in the front end, the long end doesn't become
Speaker 3: that attractive.
Speaker 2: You say, one of the problems with the long end
Speaker 2: of the yield curve actually how much debt the United
Speaker 2: States government has to take on, and the so called
Speaker 2: one big Beautiful Bill doesn't seem to be helping that
Speaker 2: situation much. How big a problem is that, and how
Speaker 2: much of the problem right now we're saying is we
Speaker 2: term premiu. People are starting to doubt a little bit
Speaker 2: whether we're going to repay it.
Speaker 3: So there's only one way to deliver the economy. You've
Speaker 3: got to outrun the debt. You've got to outgrow it.
Speaker 3: So there is a plausible outcome where you get nominal
Speaker 3: GDP running at four and a half to five. If
Speaker 3: we get that interest rate down to three, gosh, now
Speaker 3: you could start to deliver, but it takes a really
Speaker 3: long period of time. Listen, I think the one engine
Speaker 3: today's we are going to have a bigger debt burden.
Speaker 3: And not only do it, are we going to have
Speaker 3: a bigger debt burden, you have to fund it domestically
Speaker 3: because international doesn't buy as much as long as we grow,
Speaker 3: then you could work through it. You know what I
Speaker 3: worry about is you get shocks to the system.
Speaker 2: Well, how big is AI? I mean you mentioned that's capex,
Speaker 2: a lot of capacks going for right now, a possible
Speaker 2: engine for growth, I guess in productivity principally right, how
Speaker 2: big could that be?
Speaker 3: I think if you take it with AI, you take robotics,
Speaker 3: you take automation, you take software, you take cloud, you
Speaker 3: take energy, you take cooling. I think people underestimate how
Speaker 3: dramatic this is going to be. And I think our
Speaker 3: world a year or two hence is going to see
Speaker 3: things that nobody's ever seen before in terms of innovation, productivity.
Speaker 3: And you think about what happens the things that you know,
Speaker 3: everybody talks about autonomous cars, but you talk about all
Speaker 3: the services, all the things that can be created at
Speaker 3: a lower price point. I think it's remarkable. I think
Speaker 3: it's remarkable. You know, part of why we talk about
Speaker 3: you know, who do you own in the equity market,
Speaker 3: these big cap company that utilize data effectively. It doesn't
Speaker 3: have to be necessarily the bag seven, although they're pretty
Speaker 3: good companies generally. Gosh, you think about the companies to
Speaker 3: utilize data to expand their mode and how they utilize
Speaker 3: how you know, the price points they got operated at,
Speaker 3: how they advertise, how they run their business efficiently using software,
Speaker 3: et cetera. Part of what I think this is the
Speaker 3: most exciting investment period I've ever been around. We're going
Speaker 3: to see more dramatic change than Internet, than really mobile telephony.
Speaker 3: It's a pretty amazing time.
Speaker 2: You mentioned Internet, which is the last time I reased
Speaker 2: when there was really a substantial increase in productivity the
Speaker 2: late nineties into the early ought we saw is AI
Speaker 2: bigger than that, So.
Speaker 3: You know, there's interesting thing around. I've spent a lot
Speaker 3: of time thinking through this. Internet took some time to
Speaker 3: develop and the adoption rate and by the way, if
Speaker 3: you go back in time, electricity, telephone, rail, it all
Speaker 3: took a period of time. This is almost instantaneous. How
Speaker 3: fast and by the way, you know, I think one
Speaker 3: of the incredible technologies the last couple of decades was
Speaker 3: GPS technology. Part of while literally get up every morning
Speaker 3: and in the weekends and you try and think about
Speaker 3: which companies are going to benefit from these all these
Speaker 3: new companies that are that are coming about. I said
Speaker 3: I think it's going to happen faster and be more profound.
Speaker 3: You know, it's hard to say the Internet was pretty incredible.
Speaker 3: It's hard to say it'll be bigger. But it's certainly
Speaker 3: gonna happen faster.
Speaker 2: But the market must be pricing in some of that already.
Speaker 2: We're seeing a lot of the AI. Why are you
Speaker 2: confident it's not pricing all of it in?
Speaker 3: You know, if you go back to the Internet public,
Speaker 3: you go back to ninety eight, ninety nine, two thousand,
Speaker 3: you were putting multiples on no cash flow. Most of
Speaker 3: these companies that I so first certainly when you look
Speaker 3: at the bags seven and you look at the multiples
Speaker 3: on those companies, actually they're not that scary. I mean,
Speaker 3: if you when you assume their growth rate, these companies
Speaker 3: throwing off thirty to thirty five forty percent return on
Speaker 3: equity or higher for a couple of them, and you're
Speaker 3: throwing off cash, which by the way, allows them to
Speaker 3: buy back their stock. You think about those companies in
Speaker 3: the ninety eight ninety nine he was sort of hoping
Speaker 3: that they would take off, and most of them didn't.
Speaker 3: These companies are well and trench and thought, now you
Speaker 3: go into other areas and you think about, gosh, you know,
Speaker 3: there are some parts of it, they're a bit of
Speaker 3: a flyer, and there are some multiples on some things,
Speaker 3: and so that you have to evaluate what is the
Speaker 3: business prospect, what's the available market. But I would say
Speaker 3: that you know, the big hyper scalers, the big semiconductor companies,
Speaker 3: the big software companies, and I would argue, you know,
Speaker 3: even the companies that utilize data efficiently, even the huge retailers,
Speaker 3: media delivery companies like Boy, they're pretty pretty spectacular as
Speaker 3: to their rate of growth and making money along the way.
Speaker 3: And that's that's different.
Speaker 2: Given that view on the economy and the markets where
Speaker 2: they are, where they're headed. What's the best way to invest?
Speaker 2: Give us your perspective from Blackrock. Yeah, what are you
Speaker 2: seeing that's particularly attractive right now?
Speaker 3: So, you know, I still believe in growth and technology
Speaker 3: and equities and and I think, you know, running more
Speaker 3: of a barbell, that is, you know, I don't like
Speaker 3: a lot of the small cap equities that you know,
Speaker 3: there's some and some areas that are okay. I like
Speaker 3: these big caps, particularly in and around tech by the way,
Speaker 3: healthcare technology, by the way, leisure and hospitality. I think
Speaker 3: the world part of this is the derivative ais people
Speaker 3: have more time. Leisure, travel, entertainment, I think is a
Speaker 3: big part. So that's what I like. On the equity side, well,
Speaker 3: I think rates should come down. I'm kind of hoping
Speaker 3: they don't because this environment, we can build six six
Speaker 3: and a half seven percent yielding assets or portfolios that
Speaker 3: don't really have to stretch and that can stay in an
Speaker 3: investment gray generally on average bad. I mean, if you
Speaker 3: could buy growth and income and then, by the way,
Speaker 3: maybe a little bit of hard asset, whether that's gold
Speaker 3: or some crypto, you know, not scale to the size
Speaker 3: of your debt and equity, but I think that creates
Speaker 3: balance in a portfolio.
Speaker 2: You mentioned crypto, which has become quite the topic in
Speaker 2: Washington these days, and to be stable coin, because all
Speaker 2: of a sudden everybody wants a stable coin. It seems
Speaker 2: like is that really fundamentally going to change the financial system.
Speaker 3: So crypto war stable coiner both, I mean, they're you know,
Speaker 3: relate it's stable coin. I actually think will be quite
Speaker 3: helpful in that it will utilize it a there's a
Speaker 3: benefit to the currency and the dollar utilization. Ultimately, b
Speaker 3: it will soak up some of it. Do we have
Speaker 3: a lot of treasures, We've got an issue. It will
Speaker 3: soak up some of that. Not a tremendous but it
Speaker 3: will soak up some of that. So I think that'll
Speaker 3: be real utility. How we moved in the tokenized assets,
Speaker 3: in tokenized investments, how we think about payments mechanism. I
Speaker 3: think stable coin will be a very big deal crypto.
Speaker 3: I think general crypto, I actually think. I mean, I
Speaker 3: own some of the portfolios. You talk about volatility. I
Speaker 3: own it in moderate size. But it's one of those things.
Speaker 3: The adoption rate around the world is so extraordinary coming up.
Speaker 2: We trust an awful lot to the markets, but does
Speaker 2: that include caring for our children. We look into the
Speaker 2: growing role of private equity in early childhood education. That's
Speaker 2: next on Wall Street Week. This is a story about
Speaker 2: having the markets raise our children. Since the days of
Speaker 2: Adam Smith, we've trusted the invisible hand to do all
Speaker 2: sorts of things for us, from telling us when our
Speaker 2: government is borrowing too much.
Speaker 4: The ninety three deaths production purgem it was very heavily
Speaker 4: focused on depth production, and I think rightly argument it
Speaker 4: turned out to be correct that markets would react very
Speaker 4: favorably if we were serious to guiding us in our
Speaker 4: career path.
Speaker 5: The number of jobs that we've created in life sciences
Speaker 5: over the last couple of years ago thousands of new
Speaker 5: life sciences jobs in Jersey. But we're making major investments
Speaker 5: because we know it's a crowded field.
Speaker 4: And another flat.
Speaker 2: As parents, our children are priceless, which means that any
Speaker 2: value attached to them or their well being cannot be enough.
Speaker 2: But there is a business built around early childcare, with
Speaker 2: consumers and suppliers setting prices based on revenue and costs,
Speaker 2: and even investors putting up capital on which they expect
Speaker 2: a return.
Speaker 6: I was kind of like, at my wits end at
Speaker 6: the end of twenty twenty four, I had taken a
Speaker 6: break from real estate because I was like, I don't
Speaker 6: know how to do this without full time childcare, okay,
Speaker 6: And I just remember opening up my journal and the
Speaker 6: first thing I wrote down was like fine childcare, and
Speaker 6: I was like, I don't know how to do this.
Speaker 6: The eggs are done now.
Speaker 2: Ashley Perdy's kids are one of roughly eleven million children
Speaker 2: under the age of fifteen who spend time in paid
Speaker 2: childcare in the United.
Speaker 6: States in the car, being home with three kids was
Speaker 6: amazing for time, but then it was like I would
Speaker 6: be home, just like daydreaming and like fantasizing about going back.
Speaker 7: To work here.
Speaker 2: Childcare is uniquely expensive in the US, comprising a higher
Speaker 2: proportion of average income than it does anywhere else in
Speaker 2: the world. According to Childcare Aware of America, the national
Speaker 2: average cost for children under school age for one year
Speaker 2: was eleven five hundred and eighty two dollars in twenty
Speaker 2: twenty three. But that cost is only the tip of
Speaker 2: the iceberg.
Speaker 1: This isn't a gym, right, This is a sector where
Speaker 1: educators are literally building the brains of young children and
Speaker 1: providing the care that families rely on to be able
Speaker 1: to flourish.
Speaker 2: Elliott Haspell is a senior fellow at Kapita and author
Speaker 2: of the forthcoming book Raising a Nation Right Now.
Speaker 1: We see middle income and upper middle income and affluent
Speaker 1: parents using licensed formal childcare. Largely that's because they can,
Speaker 1: they can afford it, or at least try to afford it,
Speaker 1: and also because those tend to have the highest proportion
Speaker 1: of families that have two earners in the workforce.
Speaker 2: What can be a major challenge for young parents turns
Speaker 2: out to be a potential opportunity for equity investors.
Speaker 1: They take up right now somewhere between ten to twelve
Speaker 1: percent of the childcare sector, and they're growing at a
Speaker 1: time when many childcare programs are struggling to stay open.
Speaker 1: The profit chains are growing because they're able to do
Speaker 1: debt financing right. They're able to access capital markets in
Speaker 1: a way that the individual programs, nonprofit programs, church based
Speaker 1: programs just can't.
Speaker 2: The strong demand for early childcare is one way for
Speaker 2: private equity investors to make money, but there is another
Speaker 2: potential revenue source, the real estate the centers occupy.
Speaker 1: Classic sort of part of the private equity playbook that
Speaker 1: we know from other sectors is what are no sale leasebacks?
Speaker 8: Right?
Speaker 1: This idea that you take a site that owns its
Speaker 1: own facility or owns the land and basically force it
Speaker 1: to sell off to to another landlord. The profits from
Speaker 1: those sale go up to the private equity firm as
Speaker 1: opposed to back into the site. The site now has
Speaker 1: to lease back the facility or the land that they
Speaker 1: previously own, so they now have a new line of
Speaker 1: debt We have definitely seen this strategy play out in childcare,
Speaker 1: and in fact, the childcare real estate is one of
Speaker 1: the most valuable pieces of assets that many of these
Speaker 1: chains have.
Speaker 2: Adam Newman is founder and managing partner of Titan Partners,
Speaker 2: specializing in early childhood education, and he knows the long history.
Speaker 7: Some of the first and earliest investors in early childhood
Speaker 7: education started back in the eighties. The two largest players today,
Speaker 7: KinderCare Learning and Bright Horizons Family Solutions, received investment from
Speaker 7: private equity firms late seventies mid eighties and really served
Speaker 7: as bellweathers for what has become over the last couple
Speaker 7: decades a much more active and vibrant private equity investment
Speaker 7: community focused on early childhood education.
Speaker 2: What about the nature of the marketplace in early childhood
Speaker 2: education makes it attractive for private equity? I mean, what's
Speaker 2: the opportunity?
Speaker 7: It is a capital intensive market that requires a degree
Speaker 7: of professionalism and investment that oftentimes exceeds what individual owner
Speaker 7: operators can do themselves. There's also a fair degree of complexity,
Speaker 7: particularly as you move across states. What they are doing
Speaker 7: is taking a fragmented ecosystem and striving to drive efficiency
Speaker 7: and scale in ways that more independent owner operators are
Speaker 7: oftentimes unable to do themselves.
Speaker 2: But that's not to say that private equity plays as
Speaker 2: large role in all parts of the early childcare business.
Speaker 2: At least thus far, investors have been careful to pick
Speaker 2: their spots.
Speaker 7: The part that the private equity world tends to play
Speaker 7: in are those two middle segments, the national chains and
Speaker 7: the independent centers.
Speaker 2: Newman estimates that the two segments targeted by private equity,
Speaker 2: national chains and independent centers account for about thirty nine
Speaker 2: percent of the children in care today, and he expects
Speaker 2: that portion of the business to grow to about forty
Speaker 2: five percent of the total market over the next five years.
Speaker 2: But all that private equity participation is not without its detracts.
Speaker 1: There's a for profit chain called Guidepost Monatssory, and it
Speaker 1: was it's a venture capital backed chain, and what happened
Speaker 1: is they ended up growing so fast, they got way
Speaker 1: over leveraged, they stopped being able to pay their rent,
Speaker 1: and they actually ended up having to close over forty
Speaker 1: to fifty of their sites in a matter of months,
Speaker 1: and then the parent company just a few weeks ago
Speaker 1: actually filed for bankruptcy. Other countries have seen childcare chain collapses.
Speaker 1: The largest for profit chain in the Netherlands in the
Speaker 1: twenty tens, which was private equity owned, collapse the government
Speaker 1: had to step in. In Australia in two thousand and eight,
Speaker 1: the largest for profit childcare company in the world, called
Speaker 1: ABC Learning, collapsed because it was again over leveraged.
Speaker 2: On the other hand, those who deal regularly with private
Speaker 2: equity investments in early childhood care say that in some
Speaker 2: ways it's the safest form of investment, as investors will
Speaker 2: make sure things go right for their own self interest.
Speaker 7: If you think about it, the headline risk for a
Speaker 7: bad investment in early childhood business is pretty significant. If
Speaker 7: you think about the LPs that sit behind a lot
Speaker 7: of these private equity firms, the last thing they want
Speaker 7: to read about or see is an investment made by
Speaker 7: one of their private equity firms that has had a
Speaker 7: pretty nasty headline because of quality or other concerns. So
Speaker 7: in many ways, a private equity owner theoretically should be
Speaker 7: bringing a greater degree of rigor and attention to some
Speaker 7: of those issues. Now, the reality is, as some of
Speaker 7: these chains get increasingly large, you're still dealing with hundreds
Speaker 7: of sites and there is a degree to which you
Speaker 7: lose control over what might happen at the edges of
Speaker 7: that network, but that can happen in any environment.
Speaker 2: Two investors rolling up childcare centers requires careful calculation to
Speaker 2: stay profitable, But to parents, the math isn't as important
Speaker 2: as the care.
Speaker 9: Kids are not widgets, kids are not products, and you
Speaker 9: really don't see the outcome for years to come.
Speaker 2: Becca Balance is now a Democratic congresswoman representing her home
Speaker 2: state of Vermont. She earlier served for eight years in
Speaker 2: the Vermont Senate, including as Majority Leader and as President
Speaker 2: pro Tempore, where she worked to get legislation passed addressing
Speaker 2: the lack of adequate childcare in her state.
Speaker 9: It's been a challenging landscape for many years now. We
Speaker 9: have a confluence of forces that has made it very
Speaker 9: challenging for us here in this very rural state. So
Speaker 9: we have a demographic crisis. We have a lot of
Speaker 9: elderly folks here in Vermont, not as many young families.
Speaker 9: You have had a situation from out where there hasn't
Speaker 9: been enough childcare slots in childcare centers for the number
Speaker 9: of people that want to go back into the workforce.
Speaker 2: In twenty twenty three, Vermont passed a childcare bill that
Speaker 2: provides one hundred and twenty five million dollars of public funding,
Speaker 2: giving more than seven thousand families access to childcare assistance.
Speaker 9: Over the early years of this, you know, ten year push,
Speaker 9: we set benchmarks for ourselves, and some of them were
Speaker 9: very ambitious trying to get to a solution. By twenty
Speaker 9: twenty five, you had champions within the legislature, you had
Speaker 9: a governor who also understood that it was holding us back,
Speaker 9: and you had a democratic legislature a Republican governor.
Speaker 10: It was clearly a bipartisan issue.
Speaker 9: And then we worked really hard to bring in business
Speaker 9: partners from across the state in all different industries for
Speaker 9: them to make the case that this was not just
Speaker 9: good for the individual kids and their families, it was
Speaker 9: good for businesses, it was good for the economy.
Speaker 10: And it's not easy to raise a payroll tax.
Speaker 9: You know, you can imagine all of the forces at
Speaker 9: work there that didn't necessarily want to go down that road.
Speaker 9: But we had so many large scale meetings with so
Speaker 9: many stakeholders from across the states saying, well, what are
Speaker 9: all the different possibilities that we could look at and
Speaker 9: in the end, that was the one that we felt
Speaker 9: like in Vermont was the case that we could make
Speaker 9: because we had.
Speaker 10: So many businesses already on board.
Speaker 9: That might not be the case in another state or municipality.
Speaker 2: A Vermont nonprofit organization estimates that the law will serve
Speaker 2: as a three hundred and seventy five million dollars boost
Speaker 2: to the economy when parents are able to enter or
Speaker 2: re enter the workforce. Vermont's efforts may be a step
Speaker 2: in the right direction, but nationally, early childhood education is
Speaker 2: still a pressing problem for many American parents. Whatever the
Speaker 2: risks and opportunities in private equity's growing role in early
Speaker 2: childcare for both investors and for children and their parents,
Speaker 2: everyone agrees that it's not the ultimate answer for the
Speaker 2: lack of affordable care, and it doesn't address large segments
Speaker 2: of the population where the needs don't match investors' goals.
Speaker 7: The portion of the population right now that is probably
Speaker 7: underserved are not the affluent, but it is probably the
Speaker 7: bottom two quartiles who are desperately looking for options that
Speaker 7: are reasonably high quality, but where there's just a fixed
Speaker 7: number of seats available at the local public pre K
Speaker 7: program or the local head start program. So I think
Speaker 7: private equity, you know, increases capacity a bit, but doesn't
Speaker 7: I don't think fundamentally change solving for the demand that
Speaker 7: exists out there.
Speaker 9: That kind of investment is really looking at short term
Speaker 9: gains and looking at solutions that are very much oriented
Speaker 9: towards the.
Speaker 10: Economy of the thing.
Speaker 9: And I think when you're dealing with children, those be
Speaker 9: the drivers. You have kids who are coming from all
Speaker 9: different backgrounds right now, and it's critically important that the
Speaker 9: childcare facility, that early education site is meeting the needs
Speaker 9: of those kids and their experiences as they come through
Speaker 9: the door. And the experiences of families here in Brattleborough
Speaker 9: are not going to be the same as families up
Speaker 9: in Little Fairfax, Vermont, or in Burlington, Vermont. And so
Speaker 9: that is my hesitation with believing that the solution is.
Speaker 10: Private equity investing in these chains.
Speaker 9: And I also think it's not a great solution for
Speaker 9: rural America because families want to know the people and
Speaker 9: the entities that are watching their children. It's the most
Speaker 9: precious thing that you.
Speaker 2: Have coming up. Speaking of children, what does that one big,
Speaker 2: beautiful bill mean for the children of America? And the sick.
Speaker 2: Our special contributor Larry Summers, that's why he doesn't like
Speaker 2: what he sees. This is a story about borrowing from
Speaker 2: Peter to pay Paul. President Trump's One Big Beautiful Bill
Speaker 2: found a way to pay a lot of Paul's through
Speaker 2: reduced taxes, but taking funds away from Peters who have
Speaker 2: been dependent on things like Medicaid. Our special contributor Larry
Speaker 2: Summers of Harvard has been outspoken about what he says
Speaker 2: it will cost us over the long run.
Speaker 8: David, this is the biggest cutback in the US social
Speaker 8: safety net in history. Measured relative to GDP. It's substantially
Speaker 8: larger than anything that happened in Ronald Reagan's revolutionary nineteen
Speaker 8: eighty one tax cut legislation. It's substantially larger relative to
Speaker 8: the economy than the welfare reform that took place during
Speaker 8: Bill Clinton's time. So this is a big deal. It's
Speaker 8: going to mean that some number it's hard to evaluate exactly,
Speaker 8: might be ten million, might be twelve million. People are
Speaker 8: going to lose their Medicaid benefits. It's going to mean
Speaker 8: that ancillary services that are hugely important for people getting
Speaker 8: a ride to the hospital, so they can get their dialysis,
Speaker 8: being able to go to a rehab facility when they
Speaker 8: can't take care of themselves, but they no longer need
Speaker 8: to be in a hospital. That kind of thing is
Speaker 8: going to be cut back. It's going to mean no
Speaker 8: economic lifeline for desperately important rural hospitals, some of which
Speaker 8: are going to close. But here's a crucial point that
Speaker 8: I don't think has gotten enough attention in the debate.
Speaker 8: People focus on the moral aspect, and that's important what's
Speaker 8: going to happen to some of the most vulnerable among us,
Speaker 8: But this has consequences for everybody. When people come to
Speaker 8: the hospital later and secker with more that needs to
Speaker 8: be done and there's no government support for their care,
Speaker 8: the bills of all the rest of us are going
Speaker 8: to go up. When hospitals are filled with people who
Speaker 8: don't need to be in a hospital, but are there
Speaker 8: only because there's no other place for them to go,
Speaker 8: there's less access to care for others when they have
Speaker 8: an emergency. When rural hospitals close, that means less access,
Speaker 8: not just for the poorest people. When these costs mountain
Speaker 8: ultimately have to be born, that's ultimately going to translate
Speaker 8: into higher taxes and greater premiums when the people have
Speaker 8: eventually get second enough that they qualify for the supported
Speaker 8: medical care.
Speaker 10: So this is both.
Speaker 8: Immral and wrong, and it is imprudent and is going
Speaker 8: to burden the American middle class.
Speaker 2: It's part of a larger pattern I think many people
Speaker 2: have detected in the bill overall, which is a shift
Speaker 2: in wealth from some of the poorest among us to
Speaker 2: some of the wealthiest among us. We can talk about
Speaker 2: whether that's a moral thing to do or an immoral
Speaker 2: thing to do, but what does it mean in macroeconomic terms,
Speaker 2: in terms of growth over the long term.
Speaker 8: David, My values point me towards wanting us to be
Speaker 8: a more equal society. I don't think that those making
Speaker 8: a state wills to their children of thirty million dollar
Speaker 8: should be the beneficiary of new large esh at a
Speaker 8: time when we've got a massive budget deficit. But I'm
Speaker 8: going to be honest with you. I don't think honest
Speaker 8: economists should make all arguments in favor of the policies
Speaker 8: they prefer. And the reason to oppose this bill is
Speaker 8: that it's unfair, that it's inefficient, that the deficits are
Speaker 8: going to do a great deal of damage. But I'm
Speaker 8: not going to tell you that because of the inequality,
Speaker 8: we're going to get major reductions in economic growth. Yes,
Speaker 8: we're gonna get major reductions in economic growth because we're
Speaker 8: on a trajectory to cutting back R and D in
Speaker 8: very dangerous ways. Yes, we're going to get reductions in
Speaker 8: economic growth because we're going to cut back support or
Speaker 8: other kinds of public investment in education and in infrastructure.
Speaker 8: But the main reason to be against inequality is because
Speaker 8: it's wrong, and because some of the investments you make
Speaker 8: to reduce inequality have very high payoffs.
Speaker 10: But while it.
Speaker 8: Would support the policies I generally favor, I am not,
Speaker 8: as an economist going to say that we have convincing
Speaker 8: evidence that as a systematic matter, reducing inequality raises economic growth.
Speaker 2: Even as Trump's big bill will shrink the country's social
Speaker 2: safety net, overall, one increase in federal spending will go
Speaker 2: towards supporting families, including through a single payment of one
Speaker 2: thousand dollars for a savings account for newborns. But Summer
Speaker 2: says he's worried it isn't enough.
Speaker 8: My suspicion is that it is so sub scale that
Speaker 8: most of the costs will go into administering the thing
Speaker 8: relative to benefits that will change people's lives. So I
Speaker 8: don't think we know yet. And maybe this will be
Speaker 8: an acorn that plants a very valuable trade that will
Speaker 8: grow over time. But I haven't yet seen the blueprint
Speaker 8: that convinces me of feasibility. At the current scale.
Speaker 1: We put in some of the lowest percentage of our
Speaker 1: GDP into early care and education in the United States
Speaker 1: of any developed country, and it's because we haven't yet
Speaker 1: made that leap from the idea that actually the care
Speaker 1: and learning of young children is very much a public concern.
Speaker 2: Elliott Haspell at the think tank Campita says market forces
Speaker 2: alone aren't enough to solve the childcare crisis in the
Speaker 2: United States, and the government needs to be doing more.
Speaker 1: Child care is not a market good. This fair former
Speaker 1: Terachery Secretary Janet and Is called it a textbook example
Speaker 1: of the failed market doesn't work, so you're going to
Speaker 1: need some sort of government intervention. We can also look
Speaker 1: across the world and see other countries inclaning just above
Speaker 1: us in Canada that have made major reforms in the
Speaker 1: past few decades, all of which are underpinned by significant
Speaker 1: permanent increases in public support of a public private system
Speaker 1: to make sure that families have access to good childcare options,
Speaker 1: that educators are paid well, programs are high quality, and
Speaker 1: again there are guardrails in place to make sure that
Speaker 1: public money is serving the public good.
Speaker 2: Haspell's view that government should play a bigger role in
Speaker 2: helping new parents is shared by Congresswoman Becca Ballant, who
Speaker 2: was a former teacher herself.
Speaker 9: The struggles that working families have right now, they are
Speaker 9: not the same struggles as people had twenty years ago.
Speaker 9: You know, you've got young people carrying.
Speaker 10: A lot more debt.
Speaker 9: They have costs that did not keep paid with inflation.
Speaker 9: They exceeded them, whether they were housing costs or healthcare costs.
Speaker 9: So I always say to people, I'm in my fifties,
Speaker 9: I always say to voters who are grousing about younger families,
Speaker 9: I say, what they're doing actually is something very different.
Speaker 10: Than I did.
Speaker 9: And what folks in you know, my parents' generation did
Speaker 9: that the economic strain on them is more acute. And
Speaker 9: so there is this understanding that we need to gain
Speaker 9: that you've got families who are absolutely stretched, and it
Speaker 9: is within our best interest as legislators, as people looking
Speaker 9: for solutions to see this as part of the ecosystem
Speaker 9: of the economy and not an add on. This is
Speaker 9: how you make economies thrive, and certainly other countries have
Speaker 9: figured this out before we did.
Speaker 2: Even as state and federal lawmakers take steps to invest
Speaker 2: more in American families and childcare, Summers says, we shouldn't
Speaker 2: be looking to Trump's big bill to save our kids.
Speaker 2: The costs might well outweigh the benefits, especially for future generations.
Speaker 8: I think the borrowing that we're engaging in and the
Speaker 8: risks that that posures to the economy may well do
Speaker 8: more harm to my children and my one year old
Speaker 8: granddaughter than the putative new programs that are contained.
Speaker 2: Up Next, the World Cup is coming to North America
Speaker 2: in a year's time. Cities across the US, Mexico, and
Speaker 2: Canada are stepping up big time to make it possible.
Speaker 2: But is the investment likely to pay off? That's next
Speaker 2: on Wall Street Week. If this is a story about
Speaker 2: the beautiful game. From Maradona to Messi, Pelly to Pushkash,
Speaker 2: the biggest stars in the world have left their mark
Speaker 2: on the FIFA World Cup, and whether you call it
Speaker 2: football or soccer. The world will be watching as new
Speaker 2: stars are born when the US, Canada and Mexico play
Speaker 2: host the next year. While many of us will be
Speaker 2: focused on who wins on the pitch, the sixteen host
Speaker 2: cities face a challenge to make sure they win off
Speaker 2: of it. The FIFA World Cup is one of the
Speaker 2: biggest spectacles in sport. Forty eight teams, one hundred and
Speaker 2: four matches, one winner or maybe two. Sure one team
Speaker 2: will lift the iconic trophy, but with an estimated eleven
Speaker 2: billion dollars in revenue coming in, FIFA might be the
Speaker 2: real winner before a single ball is kicked.
Speaker 11: It's the biggest event ever. It's more than four billion
Speaker 11: viewers all around the world, and we will make it
Speaker 11: the biggest not only sports event, but the biggest social
Speaker 11: event that we can think of.
Speaker 12: Johnny, We're going to have to extend my second term
Speaker 12: because twenty twenty six, I'm going to have to extend
Speaker 12: it for a couple of years. I don't think any
Speaker 12: of you would have a problem with that, but I
Speaker 12: hope you're going to remember me in twenty four for sure.
Speaker 2: Since the World Cup was awarded to the US Canada,
Speaker 2: and Mexico. During President Trump's first term, sixteen host cities
Speaker 2: have been ramping up infrastructure spending to prepare for the tournament.
Speaker 13: I think as a host city, you know, we know
Speaker 13: this is a big investment.
Speaker 2: Sharon Bollenbach is the executive director of the FIFA World
Speaker 2: Cup twenty twenty six Toronto Secretariat.
Speaker 13: Our budget here in Toronto is three hundred and eighty
Speaker 13: million and that has been approved by council. It is
Speaker 13: in terms of funding partners, we have significant funding partners
Speaker 13: from our federal government as well as our provincial government
Speaker 13: and then of course the City of Toronto, so it's
Speaker 13: really all three levels government are contributing and the City
Speaker 13: of Toronto's portion is around one hundred and eighty million,
Speaker 13: and much of that comes from so that we can
Speaker 13: reduce the burden on sort of the tax space. Much
Speaker 13: of that portion that the city is contributing to the
Speaker 13: event is coming from some reserve funds. We're putting in
Speaker 13: place a municipal accommodation tax as a source of revenue
Speaker 13: for a temporary period over the course leading into the
Speaker 13: tournament and for the couple of months after as well.
Speaker 13: We have a big commercial revenue strategy around bringing in
Speaker 13: host city supporters and other hospitality, sales and opportunities for
Speaker 13: corporate and other businesses and so on in the city.
Speaker 2: Toronto's upgrades include better public transit and the development of
Speaker 2: training centers, but a sizable portion of the budget is
Speaker 2: going towards upgrading Bimo Field, where Nick Eves is the
Speaker 2: Chief Operating Officer.
Speaker 14: FIFA minimum requirement is to get the stadium up to
Speaker 14: a forty five thousan five hundred capacity. Today the stadium
Speaker 14: holds about thirty thousand, so we'll be building a temporary
Speaker 14: ten thousand on the north end, another seven thousand on
Speaker 14: the south end. The north end structure in addition to
Speaker 14: that temporary seating, will also have a permanent two levels
Speaker 14: of hospitality suites, which of course will be usable for
Speaker 14: the World Cup matches. All of that work must be
Speaker 14: complete by March in order for us to then go
Speaker 14: and host some test matches here to really sort of
Speaker 14: dry run and experience some of this new infrastructure that's
Speaker 14: been put into place.
Speaker 11: So on the first phase of.
Speaker 14: Construction we're on schedule. We will be on schedule for
Speaker 14: the second phase because ultimately we have to hit that
Speaker 14: March date. To host the test matches and then we
Speaker 14: need to hand the stadium over to FIFA thirty days
Speaker 14: from the opening match.
Speaker 2: As it turns out, FIFA requires a lot from hosts
Speaker 2: beyond just stadium capacity. In a published list of government guarantees,
Speaker 2: FIFA lists the quote significant mid and long term socioeconomic
Speaker 2: benefits for host countries that to justify a list of
Speaker 2: requirements that include tax exemptions for the tournament and support
Speaker 2: in security, public transport and infrastructure. And it also takes
Speaker 2: over external advertising spaces. So Toronto's Beimo Field becomes Toronto
Speaker 2: Stadium and MetLife Stadium becomes New York New Jersey Stadium.
Speaker 13: It's the biggest, broadest, most diverse, kind of far reaching
Speaker 13: World Cup there has ever been, and so with that
Speaker 13: has come a lot of learnings, and I think FIFA
Speaker 13: have learned a lot quite frankly as well about working
Speaker 13: with three countries, working with sixteen host cities. So there's
Speaker 13: been some things and elements of the agreement and of
Speaker 13: the requirements that have been laid out from day one,
Speaker 13: there's been some elements that have shifted, and that's been
Speaker 13: open dialogue and open communication and an understanding of what
Speaker 13: are some of the realities that are happening in Toronto
Speaker 13: that might be different than the realities happening in Vancouver
Speaker 13: or happening in Los angele are happening in New York
Speaker 13: or Dallas. So there's been some shifts and some ability
Speaker 13: for us to work together with FIFA to determine what
Speaker 13: some of those things are. But FIFA, definitely, you know,
Speaker 13: this is their tournament. This is their tournament. They own
Speaker 13: the property as it were, and so they will come
Speaker 13: in I think it's May early May and sort of
Speaker 13: take over the stadium. They will manage their portions of
Speaker 13: this tournament and work with us. They understand our budget,
Speaker 13: they know what our budget is. We've had to push
Speaker 13: back on some things. You know, there's been some good
Speaker 13: dialogue on some of the items where we just don't
Speaker 13: have the budget to maybe meet some of some of
Speaker 13: the requirements that have been in place, and so that's
Speaker 13: been a bit of give and take. You know, what
Speaker 13: are the primary things that we want to make sure
Speaker 13: in place and what are those things that maybe we
Speaker 13: can we can adjust and change a little bit. So
Speaker 13: that's again been an open dialogue FIFA. So I have
Speaker 13: to say I have been great partners. We've had the
Speaker 13: ability to really discuss openly some of the elements, understanding
Speaker 13: it's their tournament and they've run it for many, many
Speaker 13: years as we all know.
Speaker 2: And FIFA certainly knows how to make money off of it.
Speaker 2: The eleven billion dollars in revenue it expects to receive
Speaker 2: will come largely from broadcast deals, ticket packages and sponsorships.
Speaker 2: Andrew Zimboleist is a professor of economics at Smith College
Speaker 2: and author of Circus Maximus, The economic gamble behind hosting
Speaker 2: the World Cup and Olympics. There's a good deal of
Speaker 2: revenue that doesn't come back to the cities who are
Speaker 2: sponsoring these things, particularly, it goes to FIFA. What happens
Speaker 2: to the money to FIFA? Where does that money go?
Speaker 15: Well, it goes to making sure that Jiohnny Infantino has
Speaker 15: a very comfortable and luxurious life for one and his
Speaker 15: various deputies. But more importantly, the vast majority of the
Speaker 15: money goes to soccer federations around the world. So each
Speaker 15: of the participants in FIFA, the Internet Soccer Association, each
Speaker 15: of the country participants has a national soccer association and
Speaker 15: they're in charge of developing soccer in their country. They
Speaker 15: spend money for youth youth soccer programs, They spend money
Speaker 15: for facilities, they spend money to train referees and officials
Speaker 15: and so on. So most of the money, the overwhelming majority,
Speaker 15: probably ninety percent of the money that is generated for
Speaker 15: FEVER gets reinvested back into reinvested back into the soccer
Speaker 15: development worldwide.
Speaker 2: So where do the host cities see a return. They
Speaker 2: get none of FIFA's windfall, but expect to make money
Speaker 2: through revenue streams like increased tourism, job creation, and global exposure.
Speaker 2: For Toronto, that's expected to result in six hundred and
Speaker 2: eighty six million dollars of positive economic output for the
Speaker 2: greater area, according to a report from Deloitte and FIFA.
Speaker 2: Adam vancouverden Is Canada's Secretary of State for Sport and
Speaker 2: a former Olympic champion in kayaking.
Speaker 16: It is a big upfront investment, but we know that
Speaker 16: it's going to pay off. For example, the federal government
Speaker 16: is investing two hundred and twenty million dollars between Toronto
Speaker 16: and Vancouver to ensure that these thirteen games are world class,
Speaker 16: safe and really really exciting for Canadians. The provincial governments
Speaker 16: are also coming forward with hundreds of millions of dollars,
Speaker 16: and the cities are also investing, as our private companies
Speaker 16: and FIFA especially, So it's an exercise and collaboration, like
Speaker 16: I said, but the result is a massive positive economic
Speaker 16: output that Canadians, Canada, Canadian businesses, everybody will see the
Speaker 16: benefit from that. Likely we're going to see about two
Speaker 16: billion dollars increase to our GDP, as well as about
Speaker 16: three point eight billion dollars efforts of four billion dollars
Speaker 16: in positive economic output. We're talking about almost twenty five
Speaker 16: thousand jobs to be attributed to the FIFA World Cup
Speaker 16: in twenty twenty six, So the economics are very very sound.
Speaker 16: It looks like it's going to be a huge boon
Speaker 16: for Canada's economy, but I'm sure the same is true
Speaker 16: in the United States and New Mexico as well.
Speaker 2: Yet not everyone is convinced.
Speaker 15: So you put the costs and the revenues together, you
Speaker 15: can get a variety of different outcomes, but more likely
Speaker 15: than not, there's not a financial benefit for the host city,
Speaker 15: although virtually every one of the sixteen cities in North
Speaker 15: America will have an increased flow of tourism into the city.
Speaker 15: Virtually everyone I suspect very often the soccer tourists, the
Speaker 15: soccer fans, replace the normal fans. So somebody who might
Speaker 15: otherwise be thinking about a trip to Vancouver, Canada to
Speaker 15: watch some of the World Cup games might decide Ge
Speaker 15: is as nice as Vancouver is, and it is a
Speaker 15: great city. As nice as it is, I'm not going
Speaker 15: to go there when the World Cup is happening because
Speaker 15: I'm not going to be able to get a ticket
Speaker 15: to the game, or I don't want to spend five
Speaker 15: hundred dollars to get a ticket to the game, and
Speaker 15: so why would I want to put up with the
Speaker 15: congestion and the higher hotel prices. And so what happens
Speaker 15: is the soccer tourists substitute for the normal tourists. The
Speaker 15: normal tourists are the ones that spread the word best
Speaker 15: about the city, and tourism in cities is best at
Speaker 15: advertised by the actual visitors who come and they go
Speaker 15: home and they talk to their friends, neighbors and relatives
Speaker 15: about what a nice city it is and the different
Speaker 15: pleasures that they had when they were in the city.
Speaker 15: If the World Cup tourists are replacing the normal tourists.
Speaker 15: That's not good for long run tourism as a general principle.
Speaker 15: The other thing that's true is that FIFA requires the
Speaker 15: host city to basically cancel all sales taxes and related
Speaker 15: taxes on things that are related to the games. If
Speaker 15: the tourists come to the city and they go to
Speaker 15: what's called the fan fest for the World Cup in
Speaker 15: the city, the city is required to put on a
Speaker 15: fan fest and they buy things at the fan fest,
Speaker 15: say they buy food, that's money being spent on hamburgers
Speaker 15: and hot dogs. That's not being spent at a normal
Speaker 15: tourist restaurant in the city. A normal tourist restaurant in
Speaker 15: the city will produce sales taxes and revenue for the
Speaker 15: host city, but if it's being spent at FanFest, there's
Speaker 15: no taxes allowed. Same thing with ticket prices. They're not
Speaker 15: allowed to charge a sales tax on ticket prices. So
Speaker 15: the city can actually be losing money because if they
Speaker 15: were playing a normal sport in the summertime and people
Speaker 15: were buying tickets to be a sales tax on that,
Speaker 15: that would be revenue to the city. But when they're
Speaker 15: hosting the World Cup, they're not allowed to have that.
Speaker 2: There's a lot of talk about long term benefits from
Speaker 2: hosting World Cup Games. How sure can we ever be
Speaker 2: that in fact it's worth it.
Speaker 15: There's always the hope when you host a sport mega
Speaker 15: event and you're put in quotes onto the world stage
Speaker 15: to a degree that you hadn't been before. There's always
Speaker 15: the hope that there'll be more people around the world
Speaker 15: who now want to visit your city, and there'll be
Speaker 15: more companies around the world who now want to trade
Speaker 15: with them for your products, and there'll be more investors
Speaker 15: around the world who now want to invest in your city.
Speaker 15: We don't have any evidence that that happens. Those claims
Speaker 15: have been made frequently, they're made, certainly abundantly in the
Speaker 15: case of London in twenty twelve when they hosted the
Speaker 15: Summer Games, but there really isn't any evidence. Good companies
Speaker 15: don't trade with a city or the country because they
Speaker 15: hosted a sport mega event, and they don't invest in
Speaker 15: a city for that reason. They invest in cities because
Speaker 15: they have good resources, because they have a good labor force,
Speaker 15: because they have good fiscal legislation, because they have good transportation,
Speaker 15: and good location visa via their markets. And I think
Speaker 15: that if everything aligns properly, if the city already has
Speaker 15: the ready made soccer stadium or stadiums, and they already
Speaker 15: have the transportation infrastructure and security infrastructure, and FIFA is
Speaker 15: giving them some of the more interesting games during the
Speaker 15: course of the World Cup, then the revenue side could
Speaker 15: go up a little bit and the cost side could
Speaker 15: be moderated, and at the end of the day, maybe
Speaker 15: they generate a small surplus.
Speaker 2: Ultimately surplus or not. The World Cup's reach goes far
Speaker 2: beyond the spreadsheet, and perhaps few know that better than
Speaker 2: Canada's Olympic champion turned politician.
Speaker 16: I know the power of sport. It has the power
Speaker 16: to change lives for the better. When we invest in
Speaker 16: physical activity programs and recreation opportunities young people, for families,
Speaker 16: and for older folks alike, we get positive social outcomes.
Speaker 16: But we also see the economic benefits. We see reductions
Speaker 16: in healthcare costs, we see less of a strain on
Speaker 16: our judicial system. We see kids happier, healthier and more connected,
Speaker 16: and our community is really coming to life. And that's
Speaker 16: what I expect to see with FIFA when it comes
Speaker 16: to town We're going to celebrate the beautiful game. We're
Speaker 16: going to celebrate the opportunity to play host for six
Speaker 16: incredible games here in Toronto and seven across the country
Speaker 16: in Vancouver. But I know that in every city across Canada,
Speaker 16: you're going to be celebrating the great game of soccer.
Speaker 2: Much has been made in recent years about the booming
Speaker 2: business of sports, and next year's World Cup looks set
Speaker 2: to be no different. But perhaps the lasting legacy of
Speaker 2: a successful tournament won't lie on the bottom line, but
Speaker 2: what happens inside the white lines that does it for us.
Speaker 2: Here at Wall Street Week, I'm David Weston. See you
Speaker 2: next week for more stories of capitalism.