WEBVTT - Winning In All Arenas | BlackRock’s Rick Rieder, US Child Care Crisis, FIFA in North America 0:00:02.720 --> 0:00:07.240 Bloomberg Audio Studios, podcasts, radio news. 0:00:18.960 --> 0:00:21.720 This is Wall Street Week. I'm David Weston, bringing you 0:00:21.920 --> 0:00:26.320 stories of capitalism. Early childhood education is as important as 0:00:26.360 --> 0:00:29.800 it is challenging for millions of Americans. It turns out 0:00:29.840 --> 0:00:33.040 that it's also an investment opportunity. We look at the 0:00:33.159 --> 0:00:36.800 large and growing role of private equity in raising our children, 0:00:37.400 --> 0:00:40.920 plus what that one big beautiful bill means for childcare 0:00:41.159 --> 0:00:45.240 and healthcare. Our special contributor Larry Summers takes us through 0:00:45.280 --> 0:00:48.559 where he thinks we may be going wrong. And the 0:00:48.640 --> 0:00:51.880 World Cup is coming to North America with all the excitement, 0:00:52.120 --> 0:00:55.800 all the potential, and all the costs surrounding it. We 0:00:55.840 --> 0:00:58.560 bring you to the host city of Toronto to hear 0:00:58.640 --> 0:01:02.200 why it thinks it's making a sound investment. But we 0:01:02.240 --> 0:01:05.520 start with the question puzzling so many investors these days. 0:01:06.000 --> 0:01:09.240 Why are the US equity markets poised for growth while 0:01:09.280 --> 0:01:13.440 economists are predicting a slowdown. Rick Reader is Blackrug's Chief 0:01:13.520 --> 0:01:16.520 investment Officer of Global Fixed Income and head of the 0:01:16.520 --> 0:01:19.560 Global Allocation Investment Team. 0:01:20.440 --> 0:01:23.679 The service economy is what drives this economy today. It's 0:01:23.680 --> 0:01:25.679 not a goods oriented economy. It's not a commodity. 0:01:25.720 --> 0:01:26.280 It's not an. 0:01:26.160 --> 0:01:30.400 Export oriented, not a heavy manufacturing, service oriented, so most 0:01:30.400 --> 0:01:34.200 of what drives the economy is resilient to what is 0:01:34.240 --> 0:01:38.120 a goods slowdown in goods. Second thing that I wouldn't 0:01:38.120 --> 0:01:40.560 have anticipated. I would have thought, you've got more pricing 0:01:40.640 --> 0:01:45.360 transmission in but it's pretty incredible how companies moved. In fact, 0:01:45.360 --> 0:01:47.480 now some of it in the near term, companies took 0:01:47.480 --> 0:01:48.200 it into margin. 0:01:48.520 --> 0:01:51.280 So give us a sense rick of where this economy 0:01:51.320 --> 0:01:53.160 is headed, because if you look at the stock market, 0:01:53.360 --> 0:01:56.240 it looks really good, it's really going places. At the 0:01:56.240 --> 0:01:58.160 same time, if you look at the markets, they say, 0:01:58.160 --> 0:02:01.240 well, we're going to have a rip cutter two who this year. 0:02:01.760 --> 0:02:05.600 Normally you wouldn't cut rates into robustly growing market. 0:02:05.920 --> 0:02:08.160 So it's pretty extraordinary. I mean, it almost never happens 0:02:08.200 --> 0:02:10.240 in time. So the a couple things happen. First thing, 0:02:10.280 --> 0:02:13.480 I think all financial assets there is an extraordinary amount 0:02:13.480 --> 0:02:15.920 of cash and money that has to flow somewhere. And 0:02:15.960 --> 0:02:18.120 the technicals and equities are great because companies are buying 0:02:18.160 --> 0:02:19.960 back their stock. So I think the equity markets are 0:02:19.960 --> 0:02:23.560 reflecting really good technicals. Earnings have been pretty good. But 0:02:23.639 --> 0:02:26.720 I think there's something different at play in terms of inflation. 0:02:27.000 --> 0:02:29.960 What's going to happen with productivity and innovation, Inflation is 0:02:30.000 --> 0:02:32.560 going to come down. And the reason to bring interest 0:02:32.600 --> 0:02:35.040 rates down, which I'm a believer in, is the housing 0:02:35.080 --> 0:02:38.240 market is under pressure. So the real impact of interest 0:02:38.280 --> 0:02:41.240 rates on the economy today, I don't think it is 0:02:41.360 --> 0:02:44.320 in the historic sectors of who spends on coppacks, anything 0:02:44.360 --> 0:02:47.800 about AI spend, how the banks manage the risk. It's 0:02:47.880 --> 0:02:50.320 about housing and today if you look at the housing 0:02:50.320 --> 0:02:53.120 market and particularly what impacts lower income. The people that 0:02:53.200 --> 0:02:57.240 borrow today are lower income and they're adversely impacted infected 0:02:57.280 --> 0:02:59.880 by where these rates are. If we get the rate down, 0:03:00.000 --> 0:03:02.400 you actually can bring how home prices down, you build 0:03:02.440 --> 0:03:05.280 more houses, you'll actually reduce inflation. So I think it's 0:03:05.360 --> 0:03:07.799 quite consistent to bring the interest rate down even though 0:03:07.800 --> 0:03:10.320 the economy is operating at a pretty good level. Where 0:03:10.320 --> 0:03:12.960 we're going is to a lower level of inflation, and 0:03:13.000 --> 0:03:14.440 I think we can bring it down. I mean, think 0:03:14.440 --> 0:03:17.240 about inflation break evens today depending on which part of 0:03:17.240 --> 0:03:19.440 the curve are two and a half to two and 0:03:19.520 --> 0:03:22.600 three quarters. So the funes rate, even if you bring 0:03:22.600 --> 0:03:24.520 it down to three and a quarter you're still above 0:03:24.560 --> 0:03:27.000 the rate of inflation, so I think we got plenty 0:03:27.040 --> 0:03:28.760 of room to drop it. Even though the economy is 0:03:28.800 --> 0:03:29.480 operating well. 0:03:29.680 --> 0:03:33.520 Does the yield curve on the treasury indicate we do 0:03:33.600 --> 0:03:35.360 have a bigger problem in the place we think. Look 0:03:35.360 --> 0:03:38.160 at the thirty year for example, we're significally over five 0:03:38.240 --> 0:03:41.600 down hanging in up there. So the short end nice 0:03:41.680 --> 0:03:43.480 under control, long end not so much. 0:03:43.840 --> 0:03:45.440 So I think the long end of the yield curve 0:03:45.560 --> 0:03:48.400 becomes untethered. First of all, the Fed generally can control 0:03:48.440 --> 0:03:50.320 the front end, and the front end stays tethered to 0:03:50.360 --> 0:03:52.680 the Fed funds rate. Long end of the yield curve 0:03:52.720 --> 0:03:54.760 has a couple of things that I think are not 0:03:54.920 --> 0:03:56.840 to its benefit. One, we've got to issue a lot 0:03:56.840 --> 0:03:58.840 of debt going forward. I mean, think about the size 0:03:59.240 --> 0:04:01.520 of the bill side, the deficits. We're going to issue 0:04:01.560 --> 0:04:03.080 a lot of debt. The long end is a hard 0:04:03.080 --> 0:04:05.600 place to invest. It used to be that the long 0:04:05.680 --> 0:04:09.200 end protected you against the equity market. If inflation ends 0:04:09.280 --> 0:04:12.000 up being higher, which I don't necessarily anticipate, then what 0:04:12.040 --> 0:04:14.400 will happen is equities and long end will get hit. 0:04:14.520 --> 0:04:17.159 So the long end of the yield curve today, given 0:04:17.160 --> 0:04:18.880 that you can get so much yield if you're an 0:04:18.920 --> 0:04:21.239 investor in the front end, the long end doesn't become 0:04:21.279 --> 0:04:21.960 that attractive. 0:04:22.080 --> 0:04:23.560 You say, one of the problems with the long end 0:04:23.560 --> 0:04:26.039 of the yield curve actually how much debt the United 0:04:26.040 --> 0:04:29.320 States government has to take on, and the so called 0:04:29.440 --> 0:04:31.440 one big Beautiful Bill doesn't seem to be helping that 0:04:31.480 --> 0:04:34.480 situation much. How big a problem is that, and how 0:04:34.520 --> 0:04:36.040 much of the problem right now we're saying is we 0:04:36.440 --> 0:04:38.640 term premiu. People are starting to doubt a little bit 0:04:38.680 --> 0:04:39.680 whether we're going to repay it. 0:04:40.040 --> 0:04:43.159 So there's only one way to deliver the economy. You've 0:04:43.160 --> 0:04:45.080 got to outrun the debt. You've got to outgrow it. 0:04:45.680 --> 0:04:48.839 So there is a plausible outcome where you get nominal 0:04:48.839 --> 0:04:52.160 GDP running at four and a half to five. If 0:04:52.160 --> 0:04:55.400 we get that interest rate down to three, gosh, now 0:04:55.400 --> 0:04:57.080 you could start to deliver, but it takes a really 0:04:57.160 --> 0:04:59.600 long period of time. Listen, I think the one engine 0:04:59.600 --> 0:05:01.599 today's we are going to have a bigger debt burden. 0:05:01.640 --> 0:05:02.800 And not only do it, are we going to have 0:05:02.800 --> 0:05:04.640 a bigger debt burden, you have to fund it domestically 0:05:04.880 --> 0:05:08.000 because international doesn't buy as much as long as we grow, 0:05:08.760 --> 0:05:10.640 then you could work through it. You know what I 0:05:10.680 --> 0:05:12.480 worry about is you get shocks to the system. 0:05:12.600 --> 0:05:14.880 Well, how big is AI? I mean you mentioned that's capex, 0:05:14.920 --> 0:05:17.040 a lot of capacks going for right now, a possible 0:05:17.480 --> 0:05:21.280 engine for growth, I guess in productivity principally right, how 0:05:21.320 --> 0:05:21.960 big could that be? 0:05:22.279 --> 0:05:26.200 I think if you take it with AI, you take robotics, 0:05:26.240 --> 0:05:28.960 you take automation, you take software, you take cloud, you 0:05:29.000 --> 0:05:33.240 take energy, you take cooling. I think people underestimate how 0:05:33.320 --> 0:05:36.120 dramatic this is going to be. And I think our 0:05:36.279 --> 0:05:39.360 world a year or two hence is going to see 0:05:39.360 --> 0:05:43.039 things that nobody's ever seen before in terms of innovation, productivity. 0:05:43.720 --> 0:05:45.880 And you think about what happens the things that you know, 0:05:45.880 --> 0:05:48.960 everybody talks about autonomous cars, but you talk about all 0:05:49.000 --> 0:05:51.520 the services, all the things that can be created at 0:05:51.560 --> 0:05:54.760 a lower price point. I think it's remarkable. I think 0:05:54.800 --> 0:05:56.960 it's remarkable. You know, part of why we talk about 0:05:57.040 --> 0:05:58.760 you know, who do you own in the equity market, 0:05:59.000 --> 0:06:02.159 these big cap company that utilize data effectively. It doesn't 0:06:02.160 --> 0:06:04.040 have to be necessarily the bag seven, although they're pretty 0:06:04.080 --> 0:06:06.880 good companies generally. Gosh, you think about the companies to 0:06:07.000 --> 0:06:09.640 utilize data to expand their mode and how they utilize 0:06:09.680 --> 0:06:11.480 how you know, the price points they got operated at, 0:06:11.520 --> 0:06:15.760 how they advertise, how they run their business efficiently using software, 0:06:15.800 --> 0:06:17.480 et cetera. Part of what I think this is the 0:06:17.520 --> 0:06:20.200 most exciting investment period I've ever been around. We're going 0:06:20.279 --> 0:06:23.960 to see more dramatic change than Internet, than really mobile telephony. 0:06:24.279 --> 0:06:25.920 It's a pretty amazing time. 0:06:26.120 --> 0:06:28.479 You mentioned Internet, which is the last time I reased 0:06:28.480 --> 0:06:31.000 when there was really a substantial increase in productivity the 0:06:31.080 --> 0:06:34.880 late nineties into the early ought we saw is AI 0:06:35.360 --> 0:06:36.560 bigger than that, So. 0:06:36.560 --> 0:06:38.320 You know, there's interesting thing around. I've spent a lot 0:06:38.360 --> 0:06:41.479 of time thinking through this. Internet took some time to 0:06:41.560 --> 0:06:43.800 develop and the adoption rate and by the way, if 0:06:43.839 --> 0:06:49.560 you go back in time, electricity, telephone, rail, it all 0:06:49.600 --> 0:06:53.800 took a period of time. This is almost instantaneous. How 0:06:53.880 --> 0:06:55.800 fast and by the way, you know, I think one 0:06:55.839 --> 0:06:58.080 of the incredible technologies the last couple of decades was 0:06:58.120 --> 0:07:01.039 GPS technology. Part of while literally get up every morning 0:07:01.080 --> 0:07:03.080 and in the weekends and you try and think about 0:07:03.080 --> 0:07:05.520 which companies are going to benefit from these all these 0:07:05.560 --> 0:07:08.159 new companies that are that are coming about. I said 0:07:08.200 --> 0:07:10.600 I think it's going to happen faster and be more profound. 0:07:10.960 --> 0:07:13.160 You know, it's hard to say the Internet was pretty incredible. 0:07:13.160 --> 0:07:16.600 It's hard to say it'll be bigger. But it's certainly 0:07:16.600 --> 0:07:17.360 gonna happen faster. 0:07:17.760 --> 0:07:20.680 But the market must be pricing in some of that already. 0:07:20.760 --> 0:07:23.680 We're seeing a lot of the AI. Why are you 0:07:23.720 --> 0:07:25.240 confident it's not pricing all of it in? 0:07:25.720 --> 0:07:27.120 You know, if you go back to the Internet public, 0:07:27.160 --> 0:07:29.240 you go back to ninety eight, ninety nine, two thousand, 0:07:29.680 --> 0:07:33.120 you were putting multiples on no cash flow. Most of 0:07:33.120 --> 0:07:35.240 these companies that I so first certainly when you look 0:07:35.240 --> 0:07:38.120 at the bags seven and you look at the multiples 0:07:38.120 --> 0:07:40.840 on those companies, actually they're not that scary. I mean, 0:07:40.920 --> 0:07:43.320 if you when you assume their growth rate, these companies 0:07:43.360 --> 0:07:45.680 throwing off thirty to thirty five forty percent return on 0:07:45.720 --> 0:07:48.480 equity or higher for a couple of them, and you're 0:07:48.520 --> 0:07:50.400 throwing off cash, which by the way, allows them to 0:07:50.400 --> 0:07:53.200 buy back their stock. You think about those companies in 0:07:53.240 --> 0:07:55.720 the ninety eight ninety nine he was sort of hoping 0:07:56.200 --> 0:07:58.120 that they would take off, and most of them didn't. 0:07:58.920 --> 0:08:01.400 These companies are well and trench and thought, now you 0:08:01.480 --> 0:08:04.440 go into other areas and you think about, gosh, you know, 0:08:04.480 --> 0:08:06.240 there are some parts of it, they're a bit of 0:08:06.320 --> 0:08:09.080 a flyer, and there are some multiples on some things, 0:08:09.120 --> 0:08:10.880 and so that you have to evaluate what is the 0:08:10.920 --> 0:08:13.880 business prospect, what's the available market. But I would say 0:08:13.880 --> 0:08:17.440 that you know, the big hyper scalers, the big semiconductor companies, 0:08:17.440 --> 0:08:20.880 the big software companies, and I would argue, you know, 0:08:20.960 --> 0:08:26.440 even the companies that utilize data efficiently, even the huge retailers, 0:08:27.680 --> 0:08:32.600 media delivery companies like Boy, they're pretty pretty spectacular as 0:08:32.600 --> 0:08:35.920 to their rate of growth and making money along the way. 0:08:35.960 --> 0:08:37.000 And that's that's different. 0:08:37.120 --> 0:08:39.520 Given that view on the economy and the markets where 0:08:39.520 --> 0:08:42.160 they are, where they're headed. What's the best way to invest? 0:08:42.320 --> 0:08:45.559 Give us your perspective from Blackrock. Yeah, what are you 0:08:45.600 --> 0:08:47.160 seeing that's particularly attractive right now? 0:08:47.240 --> 0:08:49.359 So, you know, I still believe in growth and technology 0:08:49.400 --> 0:08:53.080 and equities and and I think, you know, running more 0:08:53.120 --> 0:08:55.840 of a barbell, that is, you know, I don't like 0:08:55.960 --> 0:08:58.760 a lot of the small cap equities that you know, 0:08:58.800 --> 0:09:02.120 there's some and some areas that are okay. I like 0:09:02.200 --> 0:09:04.679 these big caps, particularly in and around tech by the way, 0:09:04.679 --> 0:09:08.280 healthcare technology, by the way, leisure and hospitality. I think 0:09:08.320 --> 0:09:10.559 the world part of this is the derivative ais people 0:09:10.600 --> 0:09:14.400 have more time. Leisure, travel, entertainment, I think is a 0:09:14.400 --> 0:09:16.600 big part. So that's what I like. On the equity side, well, 0:09:16.640 --> 0:09:18.720 I think rates should come down. I'm kind of hoping 0:09:18.760 --> 0:09:22.120 they don't because this environment, we can build six six 0:09:22.160 --> 0:09:25.720 and a half seven percent yielding assets or portfolios that 0:09:25.840 --> 0:09:28.679 don't really have to stretch and that can stay in an 0:09:28.640 --> 0:09:32.560 investment gray generally on average bad. I mean, if you 0:09:32.559 --> 0:09:34.920 could buy growth and income and then, by the way, 0:09:34.920 --> 0:09:37.640 maybe a little bit of hard asset, whether that's gold 0:09:37.800 --> 0:09:40.760 or some crypto, you know, not scale to the size 0:09:40.760 --> 0:09:43.480 of your debt and equity, but I think that creates 0:09:43.559 --> 0:09:44.840 balance in a portfolio. 0:09:45.160 --> 0:09:48.360 You mentioned crypto, which has become quite the topic in 0:09:48.440 --> 0:09:51.320 Washington these days, and to be stable coin, because all 0:09:51.320 --> 0:09:53.720 of a sudden everybody wants a stable coin. It seems 0:09:53.760 --> 0:09:57.000 like is that really fundamentally going to change the financial system. 0:09:57.200 --> 0:09:59.520 So crypto war stable coiner both, I mean, they're you know, 0:09:59.600 --> 0:10:02.240 relate it's stable coin. I actually think will be quite 0:10:02.240 --> 0:10:05.680 helpful in that it will utilize it a there's a 0:10:05.720 --> 0:10:09.560 benefit to the currency and the dollar utilization. Ultimately, b 0:10:09.960 --> 0:10:11.560 it will soak up some of it. Do we have 0:10:11.600 --> 0:10:13.840 a lot of treasures, We've got an issue. It will 0:10:13.880 --> 0:10:15.760 soak up some of that. Not a tremendous but it 0:10:15.800 --> 0:10:17.480 will soak up some of that. So I think that'll 0:10:17.480 --> 0:10:21.400 be real utility. How we moved in the tokenized assets, 0:10:21.920 --> 0:10:25.679 in tokenized investments, how we think about payments mechanism. I 0:10:25.720 --> 0:10:28.400 think stable coin will be a very big deal crypto. 0:10:28.480 --> 0:10:31.760 I think general crypto, I actually think. I mean, I 0:10:31.800 --> 0:10:35.480 own some of the portfolios. You talk about volatility. I 0:10:35.520 --> 0:10:37.760 own it in moderate size. But it's one of those things. 0:10:37.800 --> 0:10:42.480 The adoption rate around the world is so extraordinary coming up. 0:10:42.640 --> 0:10:45.320 We trust an awful lot to the markets, but does 0:10:45.360 --> 0:10:48.480 that include caring for our children. We look into the 0:10:48.480 --> 0:10:52.640 growing role of private equity in early childhood education. That's 0:10:52.720 --> 0:11:03.360 next on Wall Street Week. This is a story about 0:11:03.400 --> 0:11:06.920 having the markets raise our children. Since the days of 0:11:06.960 --> 0:11:10.400 Adam Smith, we've trusted the invisible hand to do all 0:11:10.440 --> 0:11:12.800 sorts of things for us, from telling us when our 0:11:12.840 --> 0:11:14.400 government is borrowing too much. 0:11:14.640 --> 0:11:16.839 The ninety three deaths production purgem it was very heavily 0:11:16.840 --> 0:11:19.080 focused on depth production, and I think rightly argument it 0:11:19.080 --> 0:11:21.600 turned out to be correct that markets would react very 0:11:21.600 --> 0:11:24.880 favorably if we were serious to guiding us in our 0:11:24.960 --> 0:11:25.640 career path. 0:11:25.840 --> 0:11:29.400 The number of jobs that we've created in life sciences 0:11:29.400 --> 0:11:31.200 over the last couple of years ago thousands of new 0:11:31.280 --> 0:11:34.480 life sciences jobs in Jersey. But we're making major investments 0:11:34.480 --> 0:11:37.199 because we know it's a crowded field. 0:11:38.679 --> 0:11:39.480 And another flat. 0:11:40.280 --> 0:11:44.240 As parents, our children are priceless, which means that any 0:11:44.320 --> 0:11:47.560 value attached to them or their well being cannot be enough. 0:11:48.160 --> 0:11:51.480 But there is a business built around early childcare, with 0:11:51.600 --> 0:11:55.760 consumers and suppliers setting prices based on revenue and costs, 0:11:56.280 --> 0:11:59.480 and even investors putting up capital on which they expect 0:11:59.559 --> 0:12:00.280 a return. 0:12:00.760 --> 0:12:02.840 I was kind of like, at my wits end at 0:12:02.880 --> 0:12:04.880 the end of twenty twenty four, I had taken a 0:12:04.880 --> 0:12:07.400 break from real estate because I was like, I don't 0:12:07.440 --> 0:12:11.760 know how to do this without full time childcare, okay, 0:12:12.480 --> 0:12:14.840 And I just remember opening up my journal and the 0:12:14.880 --> 0:12:17.920 first thing I wrote down was like fine childcare, and 0:12:18.040 --> 0:12:19.679 I was like, I don't know how to do this. 0:12:19.960 --> 0:12:21.120 The eggs are done now. 0:12:21.400 --> 0:12:25.280 Ashley Perdy's kids are one of roughly eleven million children 0:12:25.400 --> 0:12:28.560 under the age of fifteen who spend time in paid 0:12:28.720 --> 0:12:30.360 childcare in the United. 0:12:30.000 --> 0:12:36.000 States in the car, being home with three kids was 0:12:36.040 --> 0:12:38.960 amazing for time, but then it was like I would 0:12:39.000 --> 0:12:43.680 be home, just like daydreaming and like fantasizing about going back. 0:12:43.559 --> 0:12:45.040 To work here. 0:12:45.600 --> 0:12:49.920 Childcare is uniquely expensive in the US, comprising a higher 0:12:49.960 --> 0:12:53.320 proportion of average income than it does anywhere else in 0:12:53.360 --> 0:12:57.840 the world. According to Childcare Aware of America, the national 0:12:57.920 --> 0:13:01.160 average cost for children under school age for one year 0:13:01.360 --> 0:13:04.679 was eleven five hundred and eighty two dollars in twenty 0:13:04.720 --> 0:13:07.960 twenty three. But that cost is only the tip of 0:13:08.000 --> 0:13:08.679 the iceberg. 0:13:09.160 --> 0:13:12.319 This isn't a gym, right, This is a sector where 0:13:12.840 --> 0:13:16.719 educators are literally building the brains of young children and 0:13:16.760 --> 0:13:19.400 providing the care that families rely on to be able 0:13:19.400 --> 0:13:19.920 to flourish. 0:13:20.200 --> 0:13:23.840 Elliott Haspell is a senior fellow at Kapita and author 0:13:23.880 --> 0:13:27.320 of the forthcoming book Raising a Nation Right Now. 0:13:27.360 --> 0:13:30.080 We see middle income and upper middle income and affluent 0:13:30.120 --> 0:13:33.760 parents using licensed formal childcare. Largely that's because they can, 0:13:33.840 --> 0:13:36.840 they can afford it, or at least try to afford it, 0:13:37.000 --> 0:13:39.319 and also because those tend to have the highest proportion 0:13:39.400 --> 0:13:42.119 of families that have two earners in the workforce. 0:13:42.840 --> 0:13:45.920 What can be a major challenge for young parents turns 0:13:45.960 --> 0:13:49.640 out to be a potential opportunity for equity investors. 0:13:50.040 --> 0:13:52.679 They take up right now somewhere between ten to twelve 0:13:52.760 --> 0:13:56.240 percent of the childcare sector, and they're growing at a 0:13:56.280 --> 0:13:59.199 time when many childcare programs are struggling to stay open. 0:13:59.520 --> 0:14:02.440 The profit chains are growing because they're able to do 0:14:02.559 --> 0:14:06.040 debt financing right. They're able to access capital markets in 0:14:06.080 --> 0:14:10.160 a way that the individual programs, nonprofit programs, church based 0:14:10.200 --> 0:14:11.400 programs just can't. 0:14:12.360 --> 0:14:15.360 The strong demand for early childcare is one way for 0:14:15.480 --> 0:14:18.720 private equity investors to make money, but there is another 0:14:18.800 --> 0:14:22.680 potential revenue source, the real estate the centers occupy. 0:14:23.640 --> 0:14:26.160 Classic sort of part of the private equity playbook that 0:14:26.200 --> 0:14:29.080 we know from other sectors is what are no sale leasebacks? 0:14:29.120 --> 0:14:29.240 Right? 0:14:29.240 --> 0:14:31.640 This idea that you take a site that owns its 0:14:31.680 --> 0:14:34.760 own facility or owns the land and basically force it 0:14:34.800 --> 0:14:37.760 to sell off to to another landlord. The profits from 0:14:37.760 --> 0:14:39.880 those sale go up to the private equity firm as 0:14:39.920 --> 0:14:42.120 opposed to back into the site. The site now has 0:14:42.160 --> 0:14:45.280 to lease back the facility or the land that they 0:14:45.360 --> 0:14:47.320 previously own, so they now have a new line of 0:14:47.360 --> 0:14:51.360 debt We have definitely seen this strategy play out in childcare, 0:14:51.400 --> 0:14:53.640 and in fact, the childcare real estate is one of 0:14:53.680 --> 0:14:57.920 the most valuable pieces of assets that many of these 0:14:58.080 --> 0:14:58.760 chains have. 0:15:00.000 --> 0:15:03.560 Adam Newman is founder and managing partner of Titan Partners, 0:15:03.800 --> 0:15:08.560 specializing in early childhood education, and he knows the long history. 0:15:08.840 --> 0:15:12.240 Some of the first and earliest investors in early childhood 0:15:12.520 --> 0:15:17.360 education started back in the eighties. The two largest players today, 0:15:17.880 --> 0:15:23.480 KinderCare Learning and Bright Horizons Family Solutions, received investment from 0:15:23.520 --> 0:15:28.080 private equity firms late seventies mid eighties and really served 0:15:28.120 --> 0:15:31.160 as bellweathers for what has become over the last couple 0:15:31.240 --> 0:15:35.760 decades a much more active and vibrant private equity investment 0:15:35.840 --> 0:15:38.200 community focused on early childhood education. 0:15:38.800 --> 0:15:42.240 What about the nature of the marketplace in early childhood 0:15:42.360 --> 0:15:45.520 education makes it attractive for private equity? I mean, what's 0:15:45.520 --> 0:15:46.280 the opportunity? 0:15:46.720 --> 0:15:50.640 It is a capital intensive market that requires a degree 0:15:50.640 --> 0:15:57.400 of professionalism and investment that oftentimes exceeds what individual owner 0:15:57.480 --> 0:16:02.000 operators can do themselves. There's also a fair degree of complexity, 0:16:02.200 --> 0:16:06.320 particularly as you move across states. What they are doing 0:16:06.400 --> 0:16:11.240 is taking a fragmented ecosystem and striving to drive efficiency 0:16:11.280 --> 0:16:16.840 and scale in ways that more independent owner operators are 0:16:16.880 --> 0:16:18.880 oftentimes unable to do themselves. 0:16:19.520 --> 0:16:21.840 But that's not to say that private equity plays as 0:16:21.960 --> 0:16:25.320 large role in all parts of the early childcare business. 0:16:25.840 --> 0:16:28.840 At least thus far, investors have been careful to pick 0:16:28.880 --> 0:16:29.560 their spots. 0:16:30.000 --> 0:16:32.840 The part that the private equity world tends to play 0:16:32.840 --> 0:16:36.760 in are those two middle segments, the national chains and 0:16:36.800 --> 0:16:38.040 the independent centers. 0:16:38.720 --> 0:16:42.200 Newman estimates that the two segments targeted by private equity, 0:16:42.520 --> 0:16:46.560 national chains and independent centers account for about thirty nine 0:16:46.600 --> 0:16:50.200 percent of the children in care today, and he expects 0:16:50.240 --> 0:16:52.600 that portion of the business to grow to about forty 0:16:52.640 --> 0:16:55.480 five percent of the total market over the next five years. 0:16:56.080 --> 0:17:00.320 But all that private equity participation is not without its detracts. 0:17:00.840 --> 0:17:04.479 There's a for profit chain called Guidepost Monatssory, and it 0:17:04.560 --> 0:17:07.760 was it's a venture capital backed chain, and what happened 0:17:07.840 --> 0:17:11.600 is they ended up growing so fast, they got way 0:17:11.600 --> 0:17:13.960 over leveraged, they stopped being able to pay their rent, 0:17:14.000 --> 0:17:17.440 and they actually ended up having to close over forty 0:17:17.800 --> 0:17:20.360 to fifty of their sites in a matter of months, 0:17:20.640 --> 0:17:23.520 and then the parent company just a few weeks ago 0:17:23.600 --> 0:17:28.240 actually filed for bankruptcy. Other countries have seen childcare chain collapses. 0:17:28.359 --> 0:17:32.000 The largest for profit chain in the Netherlands in the 0:17:32.040 --> 0:17:35.520 twenty tens, which was private equity owned, collapse the government 0:17:35.560 --> 0:17:38.120 had to step in. In Australia in two thousand and eight, 0:17:38.480 --> 0:17:41.880 the largest for profit childcare company in the world, called 0:17:41.920 --> 0:17:45.919 ABC Learning, collapsed because it was again over leveraged. 0:17:46.640 --> 0:17:50.000 On the other hand, those who deal regularly with private 0:17:50.080 --> 0:17:53.920 equity investments in early childhood care say that in some 0:17:53.960 --> 0:17:57.720 ways it's the safest form of investment, as investors will 0:17:57.760 --> 0:18:00.840 make sure things go right for their own self interest. 0:18:01.280 --> 0:18:04.320 If you think about it, the headline risk for a 0:18:04.359 --> 0:18:09.720 bad investment in early childhood business is pretty significant. If 0:18:09.720 --> 0:18:12.119 you think about the LPs that sit behind a lot 0:18:12.160 --> 0:18:14.880 of these private equity firms, the last thing they want 0:18:14.920 --> 0:18:18.040 to read about or see is an investment made by 0:18:18.119 --> 0:18:22.840 one of their private equity firms that has had a 0:18:22.840 --> 0:18:26.960 pretty nasty headline because of quality or other concerns. So 0:18:27.000 --> 0:18:30.960 in many ways, a private equity owner theoretically should be 0:18:30.960 --> 0:18:34.119 bringing a greater degree of rigor and attention to some 0:18:34.160 --> 0:18:37.440 of those issues. Now, the reality is, as some of 0:18:37.480 --> 0:18:42.000 these chains get increasingly large, you're still dealing with hundreds 0:18:42.000 --> 0:18:45.479 of sites and there is a degree to which you 0:18:45.560 --> 0:18:48.960 lose control over what might happen at the edges of 0:18:49.000 --> 0:18:51.360 that network, but that can happen in any environment. 0:18:51.800 --> 0:18:56.040 Two investors rolling up childcare centers requires careful calculation to 0:18:56.080 --> 0:18:59.960 stay profitable, But to parents, the math isn't as important 0:19:00.280 --> 0:19:00.920 as the care. 0:19:01.560 --> 0:19:04.320 Kids are not widgets, kids are not products, and you 0:19:04.400 --> 0:19:07.399 really don't see the outcome for years to come. 0:19:08.040 --> 0:19:11.840 Becca Balance is now a Democratic congresswoman representing her home 0:19:11.840 --> 0:19:15.399 state of Vermont. She earlier served for eight years in 0:19:15.440 --> 0:19:19.560 the Vermont Senate, including as Majority Leader and as President 0:19:19.640 --> 0:19:24.080 pro Tempore, where she worked to get legislation passed addressing 0:19:24.119 --> 0:19:26.560 the lack of adequate childcare in her state. 0:19:27.000 --> 0:19:31.360 It's been a challenging landscape for many years now. We 0:19:31.440 --> 0:19:34.280 have a confluence of forces that has made it very 0:19:34.320 --> 0:19:38.240 challenging for us here in this very rural state. So 0:19:38.280 --> 0:19:42.239 we have a demographic crisis. We have a lot of 0:19:42.760 --> 0:19:46.119 elderly folks here in Vermont, not as many young families. 0:19:46.520 --> 0:19:50.240 You have had a situation from out where there hasn't 0:19:50.320 --> 0:19:55.119 been enough childcare slots in childcare centers for the number 0:19:55.160 --> 0:19:58.520 of people that want to go back into the workforce. 0:19:58.920 --> 0:20:02.199 In twenty twenty three, Vermont passed a childcare bill that 0:20:02.280 --> 0:20:05.480 provides one hundred and twenty five million dollars of public funding, 0:20:05.880 --> 0:20:10.000 giving more than seven thousand families access to childcare assistance. 0:20:10.480 --> 0:20:14.520 Over the early years of this, you know, ten year push, 0:20:14.880 --> 0:20:18.520 we set benchmarks for ourselves, and some of them were 0:20:18.680 --> 0:20:22.720 very ambitious trying to get to a solution. By twenty 0:20:22.800 --> 0:20:26.280 twenty five, you had champions within the legislature, you had 0:20:26.280 --> 0:20:29.960 a governor who also understood that it was holding us back, 0:20:30.040 --> 0:20:34.240 and you had a democratic legislature a Republican governor. 0:20:34.320 --> 0:20:36.560 It was clearly a bipartisan issue. 0:20:36.960 --> 0:20:39.160 And then we worked really hard to bring in business 0:20:39.160 --> 0:20:42.879 partners from across the state in all different industries for 0:20:43.000 --> 0:20:45.199 them to make the case that this was not just 0:20:45.280 --> 0:20:48.159 good for the individual kids and their families, it was 0:20:48.200 --> 0:20:50.440 good for businesses, it was good for the economy. 0:20:50.480 --> 0:20:52.320 And it's not easy to raise a payroll tax. 0:20:52.520 --> 0:20:55.080 You know, you can imagine all of the forces at 0:20:55.119 --> 0:20:58.760 work there that didn't necessarily want to go down that road. 0:20:59.320 --> 0:21:03.439 But we had so many large scale meetings with so 0:21:03.520 --> 0:21:06.120 many stakeholders from across the states saying, well, what are 0:21:06.160 --> 0:21:09.520 all the different possibilities that we could look at and 0:21:10.200 --> 0:21:12.959 in the end, that was the one that we felt 0:21:13.040 --> 0:21:16.720 like in Vermont was the case that we could make 0:21:16.840 --> 0:21:17.920 because we had. 0:21:17.760 --> 0:21:19.520 So many businesses already on board. 0:21:19.520 --> 0:21:23.840 That might not be the case in another state or municipality. 0:21:24.760 --> 0:21:28.760 A Vermont nonprofit organization estimates that the law will serve 0:21:28.800 --> 0:21:31.399 as a three hundred and seventy five million dollars boost 0:21:31.400 --> 0:21:34.639 to the economy when parents are able to enter or 0:21:34.720 --> 0:21:38.520 re enter the workforce. Vermont's efforts may be a step 0:21:38.520 --> 0:21:42.560 in the right direction, but nationally, early childhood education is 0:21:42.640 --> 0:21:47.399 still a pressing problem for many American parents. Whatever the 0:21:47.560 --> 0:21:51.080 risks and opportunities in private equity's growing role in early 0:21:51.160 --> 0:21:57.800 childcare for both investors and for children and their parents, 0:21:58.200 --> 0:22:01.159 everyone agrees that it's not the ultimate answer for the 0:22:01.280 --> 0:22:05.280 lack of affordable care, and it doesn't address large segments 0:22:05.320 --> 0:22:08.960 of the population where the needs don't match investors' goals. 0:22:09.359 --> 0:22:12.160 The portion of the population right now that is probably 0:22:12.280 --> 0:22:16.600 underserved are not the affluent, but it is probably the 0:22:16.600 --> 0:22:20.479 bottom two quartiles who are desperately looking for options that 0:22:20.520 --> 0:22:24.119 are reasonably high quality, but where there's just a fixed 0:22:24.160 --> 0:22:26.800 number of seats available at the local public pre K 0:22:26.960 --> 0:22:30.320 program or the local head start program. So I think 0:22:30.440 --> 0:22:35.320 private equity, you know, increases capacity a bit, but doesn't 0:22:35.359 --> 0:22:38.280 I don't think fundamentally change solving for the demand that 0:22:38.359 --> 0:22:39.080 exists out there. 0:22:39.359 --> 0:22:45.399 That kind of investment is really looking at short term 0:22:45.480 --> 0:22:52.560 gains and looking at solutions that are very much oriented 0:22:52.600 --> 0:22:53.399 towards the. 0:22:53.800 --> 0:22:55.160 Economy of the thing. 0:22:55.880 --> 0:23:00.320 And I think when you're dealing with children, those be 0:23:00.400 --> 0:23:03.520 the drivers. You have kids who are coming from all 0:23:03.520 --> 0:23:07.240 different backgrounds right now, and it's critically important that the 0:23:07.320 --> 0:23:12.359 childcare facility, that early education site is meeting the needs 0:23:12.400 --> 0:23:16.400 of those kids and their experiences as they come through 0:23:16.440 --> 0:23:20.119 the door. And the experiences of families here in Brattleborough 0:23:20.119 --> 0:23:22.080 are not going to be the same as families up 0:23:22.119 --> 0:23:25.679 in Little Fairfax, Vermont, or in Burlington, Vermont. And so 0:23:26.400 --> 0:23:30.240 that is my hesitation with believing that the solution is. 0:23:30.320 --> 0:23:33.120 Private equity investing in these chains. 0:23:33.400 --> 0:23:37.280 And I also think it's not a great solution for 0:23:37.560 --> 0:23:44.159 rural America because families want to know the people and 0:23:44.200 --> 0:23:47.720 the entities that are watching their children. It's the most 0:23:47.720 --> 0:23:48.680 precious thing that you. 0:23:48.680 --> 0:23:53.480 Have coming up. Speaking of children, what does that one big, 0:23:53.560 --> 0:23:57.080 beautiful bill mean for the children of America? And the sick. 0:23:57.680 --> 0:24:01.159 Our special contributor Larry Summers, that's why he doesn't like 0:24:01.480 --> 0:24:15.800 what he sees. This is a story about borrowing from 0:24:15.840 --> 0:24:19.920 Peter to pay Paul. President Trump's One Big Beautiful Bill 0:24:20.080 --> 0:24:22.560 found a way to pay a lot of Paul's through 0:24:22.600 --> 0:24:26.439 reduced taxes, but taking funds away from Peters who have 0:24:26.520 --> 0:24:30.200 been dependent on things like Medicaid. Our special contributor Larry 0:24:30.240 --> 0:24:33.359 Summers of Harvard has been outspoken about what he says 0:24:33.400 --> 0:24:35.639 it will cost us over the long run. 0:24:37.520 --> 0:24:40.800 David, this is the biggest cutback in the US social 0:24:40.840 --> 0:24:46.560 safety net in history. Measured relative to GDP. It's substantially 0:24:46.680 --> 0:24:50.919 larger than anything that happened in Ronald Reagan's revolutionary nineteen 0:24:50.960 --> 0:24:55.840 eighty one tax cut legislation. It's substantially larger relative to 0:24:56.440 --> 0:24:59.960 the economy than the welfare reform that took place during 0:25:00.119 --> 0:25:06.080 Bill Clinton's time. So this is a big deal. It's 0:25:06.080 --> 0:25:09.280 going to mean that some number it's hard to evaluate exactly, 0:25:09.440 --> 0:25:12.560 might be ten million, might be twelve million. People are 0:25:12.600 --> 0:25:16.320 going to lose their Medicaid benefits. It's going to mean 0:25:16.359 --> 0:25:21.399 that ancillary services that are hugely important for people getting 0:25:21.440 --> 0:25:25.480 a ride to the hospital, so they can get their dialysis, 0:25:26.119 --> 0:25:28.720 being able to go to a rehab facility when they 0:25:28.800 --> 0:25:31.480 can't take care of themselves, but they no longer need 0:25:31.520 --> 0:25:34.199 to be in a hospital. That kind of thing is 0:25:34.280 --> 0:25:36.879 going to be cut back. It's going to mean no 0:25:37.040 --> 0:25:43.080 economic lifeline for desperately important rural hospitals, some of which 0:25:43.200 --> 0:25:48.639 are going to close. But here's a crucial point that 0:25:48.680 --> 0:25:51.760 I don't think has gotten enough attention in the debate. 0:25:52.320 --> 0:25:56.000 People focus on the moral aspect, and that's important what's 0:25:56.040 --> 0:25:59.399 going to happen to some of the most vulnerable among us, 0:26:00.119 --> 0:26:04.280 But this has consequences for everybody. When people come to 0:26:04.320 --> 0:26:09.239 the hospital later and secker with more that needs to 0:26:09.280 --> 0:26:13.480 be done and there's no government support for their care, 0:26:14.200 --> 0:26:16.879 the bills of all the rest of us are going 0:26:16.960 --> 0:26:21.400 to go up. When hospitals are filled with people who 0:26:21.440 --> 0:26:24.200 don't need to be in a hospital, but are there 0:26:24.359 --> 0:26:27.120 only because there's no other place for them to go, 0:26:27.800 --> 0:26:32.840 there's less access to care for others when they have 0:26:34.000 --> 0:26:41.000 an emergency. When rural hospitals close, that means less access, 0:26:41.200 --> 0:26:49.160 not just for the poorest people. When these costs mountain 0:26:49.480 --> 0:26:53.679 ultimately have to be born, that's ultimately going to translate 0:26:53.800 --> 0:26:59.919 into higher taxes and greater premiums when the people have 0:27:00.000 --> 0:27:06.959 eventually get second enough that they qualify for the supported 0:27:08.000 --> 0:27:08.840 medical care. 0:27:09.320 --> 0:27:11.720 So this is both. 0:27:11.480 --> 0:27:17.600 Immral and wrong, and it is imprudent and is going 0:27:17.720 --> 0:27:21.520 to burden the American middle class. 0:27:22.000 --> 0:27:25.240 It's part of a larger pattern I think many people 0:27:25.280 --> 0:27:28.520 have detected in the bill overall, which is a shift 0:27:29.200 --> 0:27:33.239 in wealth from some of the poorest among us to 0:27:33.320 --> 0:27:36.000 some of the wealthiest among us. We can talk about 0:27:36.000 --> 0:27:37.919 whether that's a moral thing to do or an immoral 0:27:37.960 --> 0:27:41.080 thing to do, but what does it mean in macroeconomic terms, 0:27:41.160 --> 0:27:44.080 in terms of growth over the long term. 0:27:44.080 --> 0:27:48.760 David, My values point me towards wanting us to be 0:27:48.920 --> 0:27:55.200 a more equal society. I don't think that those making 0:27:56.040 --> 0:28:00.320 a state wills to their children of thirty million dollar 0:28:01.119 --> 0:28:05.800 should be the beneficiary of new large esh at a 0:28:05.840 --> 0:28:11.040 time when we've got a massive budget deficit. But I'm 0:28:11.080 --> 0:28:15.119 going to be honest with you. I don't think honest 0:28:15.280 --> 0:28:20.960 economists should make all arguments in favor of the policies 0:28:21.080 --> 0:28:25.720 they prefer. And the reason to oppose this bill is 0:28:25.760 --> 0:28:31.480 that it's unfair, that it's inefficient, that the deficits are 0:28:31.520 --> 0:28:35.600 going to do a great deal of damage. But I'm 0:28:35.640 --> 0:28:39.760 not going to tell you that because of the inequality, 0:28:40.280 --> 0:28:44.280 we're going to get major reductions in economic growth. Yes, 0:28:44.400 --> 0:28:47.560 we're gonna get major reductions in economic growth because we're 0:28:47.600 --> 0:28:50.920 on a trajectory to cutting back R and D in 0:28:51.080 --> 0:28:56.080 very dangerous ways. Yes, we're going to get reductions in 0:28:56.640 --> 0:29:00.280 economic growth because we're going to cut back support or 0:29:00.760 --> 0:29:06.600 other kinds of public investment in education and in infrastructure. 0:29:07.080 --> 0:29:12.920 But the main reason to be against inequality is because 0:29:13.320 --> 0:29:17.000 it's wrong, and because some of the investments you make 0:29:17.160 --> 0:29:22.080 to reduce inequality have very high payoffs. 0:29:22.640 --> 0:29:23.840 But while it. 0:29:23.800 --> 0:29:28.400 Would support the policies I generally favor, I am not, 0:29:28.520 --> 0:29:31.960 as an economist going to say that we have convincing 0:29:32.040 --> 0:29:38.480 evidence that as a systematic matter, reducing inequality raises economic growth. 0:29:39.280 --> 0:29:42.440 Even as Trump's big bill will shrink the country's social 0:29:42.520 --> 0:29:46.320 safety net, overall, one increase in federal spending will go 0:29:46.400 --> 0:29:49.960 towards supporting families, including through a single payment of one 0:29:50.000 --> 0:29:53.520 thousand dollars for a savings account for newborns. But Summer 0:29:53.600 --> 0:29:55.720 says he's worried it isn't enough. 0:29:56.560 --> 0:30:00.800 My suspicion is that it is so sub scale that 0:30:01.600 --> 0:30:05.720 most of the costs will go into administering the thing 0:30:06.400 --> 0:30:11.200 relative to benefits that will change people's lives. So I 0:30:11.240 --> 0:30:13.840 don't think we know yet. And maybe this will be 0:30:13.920 --> 0:30:17.600 an acorn that plants a very valuable trade that will 0:30:17.680 --> 0:30:24.240 grow over time. But I haven't yet seen the blueprint 0:30:24.600 --> 0:30:30.880 that convinces me of feasibility. At the current scale. 0:30:29.640 --> 0:30:31.760 We put in some of the lowest percentage of our 0:30:31.800 --> 0:30:34.840 GDP into early care and education in the United States 0:30:34.840 --> 0:30:37.480 of any developed country, and it's because we haven't yet 0:30:37.520 --> 0:30:40.680 made that leap from the idea that actually the care 0:30:40.800 --> 0:30:44.280 and learning of young children is very much a public concern. 0:30:44.920 --> 0:30:48.640 Elliott Haspell at the think tank Campita says market forces 0:30:48.680 --> 0:30:51.720 alone aren't enough to solve the childcare crisis in the 0:30:51.800 --> 0:30:55.000 United States, and the government needs to be doing more. 0:30:55.960 --> 0:30:58.800 Child care is not a market good. This fair former 0:30:58.880 --> 0:31:01.720 Terachery Secretary Janet and Is called it a textbook example 0:31:01.760 --> 0:31:04.200 of the failed market doesn't work, so you're going to 0:31:04.280 --> 0:31:06.840 need some sort of government intervention. We can also look 0:31:06.840 --> 0:31:10.360 across the world and see other countries inclaning just above 0:31:10.440 --> 0:31:12.640 us in Canada that have made major reforms in the 0:31:12.640 --> 0:31:17.560 past few decades, all of which are underpinned by significant 0:31:17.920 --> 0:31:22.280 permanent increases in public support of a public private system 0:31:22.920 --> 0:31:26.600 to make sure that families have access to good childcare options, 0:31:26.800 --> 0:31:30.440 that educators are paid well, programs are high quality, and 0:31:30.480 --> 0:31:33.960 again there are guardrails in place to make sure that 0:31:34.240 --> 0:31:36.080 public money is serving the public good. 0:31:36.800 --> 0:31:39.760 Haspell's view that government should play a bigger role in 0:31:39.840 --> 0:31:43.960 helping new parents is shared by Congresswoman Becca Ballant, who 0:31:44.040 --> 0:31:45.640 was a former teacher herself. 0:31:46.200 --> 0:31:49.080 The struggles that working families have right now, they are 0:31:49.120 --> 0:31:52.600 not the same struggles as people had twenty years ago. 0:31:52.920 --> 0:31:55.000 You know, you've got young people carrying. 0:31:54.720 --> 0:31:55.640 A lot more debt. 0:31:56.520 --> 0:32:00.720 They have costs that did not keep paid with inflation. 0:32:00.800 --> 0:32:03.680 They exceeded them, whether they were housing costs or healthcare costs. 0:32:03.680 --> 0:32:06.440 So I always say to people, I'm in my fifties, 0:32:06.480 --> 0:32:10.560 I always say to voters who are grousing about younger families, 0:32:10.600 --> 0:32:14.440 I say, what they're doing actually is something very different. 0:32:14.080 --> 0:32:14.800 Than I did. 0:32:15.440 --> 0:32:20.200 And what folks in you know, my parents' generation did 0:32:20.640 --> 0:32:25.440 that the economic strain on them is more acute. And 0:32:25.480 --> 0:32:29.480 so there is this understanding that we need to gain 0:32:30.000 --> 0:32:34.680 that you've got families who are absolutely stretched, and it 0:32:34.720 --> 0:32:39.160 is within our best interest as legislators, as people looking 0:32:39.200 --> 0:32:44.120 for solutions to see this as part of the ecosystem 0:32:44.200 --> 0:32:47.160 of the economy and not an add on. This is 0:32:47.200 --> 0:32:50.440 how you make economies thrive, and certainly other countries have 0:32:50.520 --> 0:32:52.000 figured this out before we did. 0:32:52.840 --> 0:32:56.120 Even as state and federal lawmakers take steps to invest 0:32:56.200 --> 0:33:00.680 more in American families and childcare, Summers says, we shouldn't 0:33:00.720 --> 0:33:03.160 be looking to Trump's big bill to save our kids. 0:33:03.680 --> 0:33:08.760 The costs might well outweigh the benefits, especially for future generations. 0:33:09.640 --> 0:33:13.800 I think the borrowing that we're engaging in and the 0:33:13.920 --> 0:33:17.800 risks that that posures to the economy may well do 0:33:18.080 --> 0:33:22.320 more harm to my children and my one year old 0:33:22.360 --> 0:33:31.400 granddaughter than the putative new programs that are contained. 0:33:32.640 --> 0:33:35.600 Up Next, the World Cup is coming to North America 0:33:35.680 --> 0:33:39.200 in a year's time. Cities across the US, Mexico, and 0:33:39.360 --> 0:33:42.280 Canada are stepping up big time to make it possible. 0:33:42.560 --> 0:33:46.040 But is the investment likely to pay off? That's next 0:33:46.120 --> 0:34:01.120 on Wall Street Week. If this is a story about 0:34:01.120 --> 0:34:05.240 the beautiful game. From Maradona to Messi, Pelly to Pushkash, 0:34:05.760 --> 0:34:08.359 the biggest stars in the world have left their mark 0:34:08.400 --> 0:34:11.040 on the FIFA World Cup, and whether you call it 0:34:11.080 --> 0:34:14.399 football or soccer. The world will be watching as new 0:34:14.440 --> 0:34:17.680 stars are born when the US, Canada and Mexico play 0:34:17.760 --> 0:34:20.360 host the next year. While many of us will be 0:34:20.400 --> 0:34:23.319 focused on who wins on the pitch, the sixteen host 0:34:23.440 --> 0:34:26.160 cities face a challenge to make sure they win off 0:34:26.200 --> 0:34:33.000 of it. The FIFA World Cup is one of the 0:34:33.040 --> 0:34:37.000 biggest spectacles in sport. Forty eight teams, one hundred and 0:34:37.000 --> 0:34:41.800 four matches, one winner or maybe two. Sure one team 0:34:41.920 --> 0:34:45.240 will lift the iconic trophy, but with an estimated eleven 0:34:45.400 --> 0:34:48.839 billion dollars in revenue coming in, FIFA might be the 0:34:48.880 --> 0:34:51.640 real winner before a single ball is kicked. 0:34:52.200 --> 0:34:56.880 It's the biggest event ever. It's more than four billion 0:34:57.080 --> 0:35:00.680 viewers all around the world, and we will make it 0:35:01.239 --> 0:35:04.680 the biggest not only sports event, but the biggest social 0:35:04.719 --> 0:35:06.400 event that we can think of. 0:35:06.680 --> 0:35:09.400 Johnny, We're going to have to extend my second term 0:35:09.880 --> 0:35:12.600 because twenty twenty six, I'm going to have to extend 0:35:12.640 --> 0:35:14.879 it for a couple of years. I don't think any 0:35:14.920 --> 0:35:17.360 of you would have a problem with that, but I 0:35:17.400 --> 0:35:20.000 hope you're going to remember me in twenty four for sure. 0:35:20.600 --> 0:35:23.440 Since the World Cup was awarded to the US Canada, 0:35:23.480 --> 0:35:27.680 and Mexico. During President Trump's first term, sixteen host cities 0:35:27.719 --> 0:35:31.400 have been ramping up infrastructure spending to prepare for the tournament. 0:35:31.920 --> 0:35:33.640 I think as a host city, you know, we know 0:35:33.840 --> 0:35:34.960 this is a big investment. 0:35:35.400 --> 0:35:39.040 Sharon Bollenbach is the executive director of the FIFA World 0:35:39.080 --> 0:35:41.880 Cup twenty twenty six Toronto Secretariat. 0:35:42.239 --> 0:35:44.480 Our budget here in Toronto is three hundred and eighty 0:35:44.520 --> 0:35:48.480 million and that has been approved by council. It is 0:35:48.920 --> 0:35:52.560 in terms of funding partners, we have significant funding partners 0:35:52.600 --> 0:35:56.440 from our federal government as well as our provincial government 0:35:56.480 --> 0:35:58.520 and then of course the City of Toronto, so it's 0:35:58.560 --> 0:36:02.560 really all three levels government are contributing and the City 0:36:02.600 --> 0:36:05.520 of Toronto's portion is around one hundred and eighty million, 0:36:05.719 --> 0:36:08.120 and much of that comes from so that we can 0:36:08.239 --> 0:36:12.359 reduce the burden on sort of the tax space. Much 0:36:12.360 --> 0:36:15.480 of that portion that the city is contributing to the 0:36:15.520 --> 0:36:18.719 event is coming from some reserve funds. We're putting in 0:36:18.760 --> 0:36:22.400 place a municipal accommodation tax as a source of revenue 0:36:22.680 --> 0:36:25.719 for a temporary period over the course leading into the 0:36:25.719 --> 0:36:29.120 tournament and for the couple of months after as well. 0:36:29.160 --> 0:36:33.640 We have a big commercial revenue strategy around bringing in 0:36:34.239 --> 0:36:39.640 host city supporters and other hospitality, sales and opportunities for 0:36:40.040 --> 0:36:43.640 corporate and other businesses and so on in the city. 0:36:44.400 --> 0:36:48.080 Toronto's upgrades include better public transit and the development of 0:36:48.120 --> 0:36:51.279 training centers, but a sizable portion of the budget is 0:36:51.320 --> 0:36:54.840 going towards upgrading Bimo Field, where Nick Eves is the 0:36:54.920 --> 0:36:56.240 Chief Operating Officer. 0:36:56.880 --> 0:36:59.200 FIFA minimum requirement is to get the stadium up to 0:36:59.200 --> 0:37:02.600 a forty five thousan five hundred capacity. Today the stadium 0:37:02.640 --> 0:37:06.120 holds about thirty thousand, so we'll be building a temporary 0:37:06.400 --> 0:37:08.960 ten thousand on the north end, another seven thousand on 0:37:09.800 --> 0:37:12.120 the south end. The north end structure in addition to 0:37:12.120 --> 0:37:15.360 that temporary seating, will also have a permanent two levels 0:37:16.040 --> 0:37:19.200 of hospitality suites, which of course will be usable for 0:37:19.280 --> 0:37:23.640 the World Cup matches. All of that work must be 0:37:23.680 --> 0:37:26.120 complete by March in order for us to then go 0:37:26.160 --> 0:37:28.600 and host some test matches here to really sort of 0:37:28.680 --> 0:37:31.440 dry run and experience some of this new infrastructure that's 0:37:31.719 --> 0:37:32.560 been put into place. 0:37:32.600 --> 0:37:33.920 So on the first phase of. 0:37:33.840 --> 0:37:36.640 Construction we're on schedule. We will be on schedule for 0:37:36.680 --> 0:37:39.040 the second phase because ultimately we have to hit that 0:37:39.120 --> 0:37:41.799 March date. To host the test matches and then we 0:37:41.800 --> 0:37:43.920 need to hand the stadium over to FIFA thirty days 0:37:44.120 --> 0:37:45.360 from the opening match. 0:37:45.640 --> 0:37:48.520 As it turns out, FIFA requires a lot from hosts 0:37:48.560 --> 0:37:53.440 beyond just stadium capacity. In a published list of government guarantees, 0:37:53.920 --> 0:37:57.880 FIFA lists the quote significant mid and long term socioeconomic 0:37:57.920 --> 0:38:01.799 benefits for host countries that to justify a list of 0:38:01.840 --> 0:38:05.320 requirements that include tax exemptions for the tournament and support 0:38:05.400 --> 0:38:09.520 in security, public transport and infrastructure. And it also takes 0:38:09.520 --> 0:38:14.960 over external advertising spaces. So Toronto's Beimo Field becomes Toronto 0:38:15.000 --> 0:38:19.800 Stadium and MetLife Stadium becomes New York New Jersey Stadium. 0:38:20.040 --> 0:38:25.280 It's the biggest, broadest, most diverse, kind of far reaching 0:38:25.320 --> 0:38:28.560 World Cup there has ever been, and so with that 0:38:28.719 --> 0:38:31.000 has come a lot of learnings, and I think FIFA 0:38:31.040 --> 0:38:33.760 have learned a lot quite frankly as well about working 0:38:33.800 --> 0:38:37.560 with three countries, working with sixteen host cities. So there's 0:38:37.600 --> 0:38:41.480 been some things and elements of the agreement and of 0:38:41.520 --> 0:38:44.839 the requirements that have been laid out from day one, 0:38:45.400 --> 0:38:48.120 there's been some elements that have shifted, and that's been 0:38:48.280 --> 0:38:52.200 open dialogue and open communication and an understanding of what 0:38:52.239 --> 0:38:54.960 are some of the realities that are happening in Toronto 0:38:55.080 --> 0:38:58.400 that might be different than the realities happening in Vancouver 0:38:58.840 --> 0:39:01.520 or happening in Los angele are happening in New York 0:39:01.600 --> 0:39:05.960 or Dallas. So there's been some shifts and some ability 0:39:06.000 --> 0:39:09.279 for us to work together with FIFA to determine what 0:39:09.440 --> 0:39:12.520 some of those things are. But FIFA, definitely, you know, 0:39:12.560 --> 0:39:15.640 this is their tournament. This is their tournament. They own 0:39:15.800 --> 0:39:18.239 the property as it were, and so they will come 0:39:18.280 --> 0:39:20.920 in I think it's May early May and sort of 0:39:21.080 --> 0:39:24.600 take over the stadium. They will manage their portions of 0:39:24.640 --> 0:39:28.800 this tournament and work with us. They understand our budget, 0:39:29.040 --> 0:39:31.880 they know what our budget is. We've had to push 0:39:31.920 --> 0:39:35.560 back on some things. You know, there's been some good 0:39:35.600 --> 0:39:38.919 dialogue on some of the items where we just don't 0:39:38.960 --> 0:39:41.400 have the budget to maybe meet some of some of 0:39:41.440 --> 0:39:43.680 the requirements that have been in place, and so that's 0:39:43.719 --> 0:39:45.440 been a bit of give and take. You know, what 0:39:45.520 --> 0:39:47.760 are the primary things that we want to make sure 0:39:47.760 --> 0:39:49.799 in place and what are those things that maybe we 0:39:49.840 --> 0:39:52.160 can we can adjust and change a little bit. So 0:39:52.360 --> 0:39:56.560 that's again been an open dialogue FIFA. So I have 0:39:56.680 --> 0:39:59.160 to say I have been great partners. We've had the 0:39:59.239 --> 0:40:05.080 ability to really discuss openly some of the elements, understanding 0:40:05.120 --> 0:40:08.440 it's their tournament and they've run it for many, many 0:40:08.560 --> 0:40:09.600 years as we all know. 0:40:10.480 --> 0:40:13.120 And FIFA certainly knows how to make money off of it. 0:40:13.600 --> 0:40:16.720 The eleven billion dollars in revenue it expects to receive 0:40:16.880 --> 0:40:20.720 will come largely from broadcast deals, ticket packages and sponsorships. 0:40:21.280 --> 0:40:24.600 Andrew Zimboleist is a professor of economics at Smith College 0:40:24.800 --> 0:40:29.200 and author of Circus Maximus, The economic gamble behind hosting 0:40:29.200 --> 0:40:32.360 the World Cup and Olympics. There's a good deal of 0:40:32.400 --> 0:40:34.839 revenue that doesn't come back to the cities who are 0:40:34.880 --> 0:40:39.280 sponsoring these things, particularly, it goes to FIFA. What happens 0:40:39.320 --> 0:40:41.000 to the money to FIFA? Where does that money go? 0:40:41.920 --> 0:40:45.600 Well, it goes to making sure that Jiohnny Infantino has 0:40:45.600 --> 0:40:49.279 a very comfortable and luxurious life for one and his 0:40:49.400 --> 0:40:53.680 various deputies. But more importantly, the vast majority of the 0:40:53.680 --> 0:40:57.560 money goes to soccer federations around the world. So each 0:40:57.560 --> 0:41:02.320 of the participants in FIFA, the Internet Soccer Association, each 0:41:02.360 --> 0:41:05.799 of the country participants has a national soccer association and 0:41:05.840 --> 0:41:09.680 they're in charge of developing soccer in their country. They 0:41:09.719 --> 0:41:12.919 spend money for youth youth soccer programs, They spend money 0:41:12.960 --> 0:41:17.480 for facilities, they spend money to train referees and officials 0:41:17.480 --> 0:41:20.200 and so on. So most of the money, the overwhelming majority, 0:41:20.239 --> 0:41:23.440 probably ninety percent of the money that is generated for 0:41:23.560 --> 0:41:29.480 FEVER gets reinvested back into reinvested back into the soccer 0:41:29.520 --> 0:41:30.800 development worldwide. 0:41:31.440 --> 0:41:34.440 So where do the host cities see a return. They 0:41:34.480 --> 0:41:37.520 get none of FIFA's windfall, but expect to make money 0:41:37.520 --> 0:41:42.239 through revenue streams like increased tourism, job creation, and global exposure. 0:41:42.600 --> 0:41:45.400 For Toronto, that's expected to result in six hundred and 0:41:45.400 --> 0:41:49.360 eighty six million dollars of positive economic output for the 0:41:49.400 --> 0:41:52.600 greater area, according to a report from Deloitte and FIFA. 0:41:53.440 --> 0:41:57.200 Adam vancouverden Is Canada's Secretary of State for Sport and 0:41:57.280 --> 0:41:59.719 a former Olympic champion in kayaking. 0:42:00.160 --> 0:42:02.400 It is a big upfront investment, but we know that 0:42:02.440 --> 0:42:04.960 it's going to pay off. For example, the federal government 0:42:05.040 --> 0:42:08.120 is investing two hundred and twenty million dollars between Toronto 0:42:08.239 --> 0:42:12.040 and Vancouver to ensure that these thirteen games are world class, 0:42:12.080 --> 0:42:15.480 safe and really really exciting for Canadians. The provincial governments 0:42:15.480 --> 0:42:18.040 are also coming forward with hundreds of millions of dollars, 0:42:18.120 --> 0:42:22.360 and the cities are also investing, as our private companies 0:42:22.400 --> 0:42:26.719 and FIFA especially, So it's an exercise and collaboration, like 0:42:26.760 --> 0:42:29.920 I said, but the result is a massive positive economic 0:42:30.000 --> 0:42:34.040 output that Canadians, Canada, Canadian businesses, everybody will see the 0:42:34.080 --> 0:42:36.680 benefit from that. Likely we're going to see about two 0:42:36.760 --> 0:42:39.399 billion dollars increase to our GDP, as well as about 0:42:39.400 --> 0:42:41.919 three point eight billion dollars efforts of four billion dollars 0:42:41.960 --> 0:42:44.839 in positive economic output. We're talking about almost twenty five 0:42:44.880 --> 0:42:47.799 thousand jobs to be attributed to the FIFA World Cup 0:42:47.800 --> 0:42:51.160 in twenty twenty six, So the economics are very very sound. 0:42:51.480 --> 0:42:53.680 It looks like it's going to be a huge boon 0:42:53.760 --> 0:42:56.480 for Canada's economy, but I'm sure the same is true 0:42:56.520 --> 0:42:58.560 in the United States and New Mexico as well. 0:42:58.680 --> 0:43:01.280 Yet not everyone is convinced. 0:43:01.520 --> 0:43:03.800 So you put the costs and the revenues together, you 0:43:03.800 --> 0:43:06.479 can get a variety of different outcomes, but more likely 0:43:06.520 --> 0:43:09.680 than not, there's not a financial benefit for the host city, 0:43:09.920 --> 0:43:14.239 although virtually every one of the sixteen cities in North 0:43:14.280 --> 0:43:18.960 America will have an increased flow of tourism into the city. 0:43:19.360 --> 0:43:23.680 Virtually everyone I suspect very often the soccer tourists, the 0:43:23.760 --> 0:43:27.440 soccer fans, replace the normal fans. So somebody who might 0:43:27.480 --> 0:43:31.799 otherwise be thinking about a trip to Vancouver, Canada to 0:43:31.800 --> 0:43:34.080 watch some of the World Cup games might decide Ge 0:43:34.239 --> 0:43:36.239 is as nice as Vancouver is, and it is a 0:43:36.239 --> 0:43:38.759 great city. As nice as it is, I'm not going 0:43:38.840 --> 0:43:40.439 to go there when the World Cup is happening because 0:43:40.480 --> 0:43:41.600 I'm not going to be able to get a ticket 0:43:41.640 --> 0:43:43.120 to the game, or I don't want to spend five 0:43:43.200 --> 0:43:44.960 hundred dollars to get a ticket to the game, and 0:43:45.000 --> 0:43:46.279 so why would I want to put up with the 0:43:46.280 --> 0:43:49.600 congestion and the higher hotel prices. And so what happens 0:43:49.640 --> 0:43:53.640 is the soccer tourists substitute for the normal tourists. The 0:43:53.680 --> 0:43:56.320 normal tourists are the ones that spread the word best 0:43:56.360 --> 0:43:59.919 about the city, and tourism in cities is best at 0:44:00.000 --> 0:44:02.680 advertised by the actual visitors who come and they go 0:44:02.719 --> 0:44:04.840 home and they talk to their friends, neighbors and relatives 0:44:05.080 --> 0:44:06.960 about what a nice city it is and the different 0:44:07.000 --> 0:44:08.840 pleasures that they had when they were in the city. 0:44:08.960 --> 0:44:11.800 If the World Cup tourists are replacing the normal tourists. 0:44:11.840 --> 0:44:15.000 That's not good for long run tourism as a general principle. 0:44:15.080 --> 0:44:17.799 The other thing that's true is that FIFA requires the 0:44:17.800 --> 0:44:22.120 host city to basically cancel all sales taxes and related 0:44:22.160 --> 0:44:25.399 taxes on things that are related to the games. If 0:44:25.440 --> 0:44:27.719 the tourists come to the city and they go to 0:44:27.800 --> 0:44:30.440 what's called the fan fest for the World Cup in 0:44:30.480 --> 0:44:32.200 the city, the city is required to put on a 0:44:32.239 --> 0:44:34.160 fan fest and they buy things at the fan fest, 0:44:34.160 --> 0:44:37.279 say they buy food, that's money being spent on hamburgers 0:44:37.280 --> 0:44:40.960 and hot dogs. That's not being spent at a normal 0:44:41.160 --> 0:44:44.279 tourist restaurant in the city. A normal tourist restaurant in 0:44:44.320 --> 0:44:47.759 the city will produce sales taxes and revenue for the 0:44:47.800 --> 0:44:50.719 host city, but if it's being spent at FanFest, there's 0:44:50.719 --> 0:44:53.920 no taxes allowed. Same thing with ticket prices. They're not 0:44:53.920 --> 0:44:56.480 allowed to charge a sales tax on ticket prices. So 0:44:56.520 --> 0:44:58.640 the city can actually be losing money because if they 0:44:58.640 --> 0:45:02.799 were playing a normal sport in the summertime and people 0:45:02.840 --> 0:45:04.920 were buying tickets to be a sales tax on that, 0:45:04.920 --> 0:45:06.960 that would be revenue to the city. But when they're 0:45:07.000 --> 0:45:09.080 hosting the World Cup, they're not allowed to have that. 0:45:09.239 --> 0:45:13.040 There's a lot of talk about long term benefits from 0:45:13.080 --> 0:45:17.279 hosting World Cup Games. How sure can we ever be 0:45:17.760 --> 0:45:18.960 that in fact it's worth it. 0:45:19.520 --> 0:45:22.400 There's always the hope when you host a sport mega 0:45:22.400 --> 0:45:26.239 event and you're put in quotes onto the world stage 0:45:26.920 --> 0:45:29.960 to a degree that you hadn't been before. There's always 0:45:29.960 --> 0:45:33.080 the hope that there'll be more people around the world 0:45:33.400 --> 0:45:35.400 who now want to visit your city, and there'll be 0:45:35.440 --> 0:45:37.640 more companies around the world who now want to trade 0:45:38.120 --> 0:45:41.520 with them for your products, and there'll be more investors 0:45:41.560 --> 0:45:44.920 around the world who now want to invest in your city. 0:45:45.480 --> 0:45:47.920 We don't have any evidence that that happens. Those claims 0:45:47.920 --> 0:45:51.360 have been made frequently, they're made, certainly abundantly in the 0:45:51.360 --> 0:45:53.719 case of London in twenty twelve when they hosted the 0:45:53.760 --> 0:45:57.520 Summer Games, but there really isn't any evidence. Good companies 0:45:57.960 --> 0:46:00.920 don't trade with a city or the country because they 0:46:00.920 --> 0:46:03.600 hosted a sport mega event, and they don't invest in 0:46:03.640 --> 0:46:05.960 a city for that reason. They invest in cities because 0:46:06.080 --> 0:46:08.440 they have good resources, because they have a good labor force, 0:46:08.480 --> 0:46:12.000 because they have good fiscal legislation, because they have good transportation, 0:46:12.200 --> 0:46:14.759 and good location visa via their markets. And I think 0:46:14.840 --> 0:46:18.439 that if everything aligns properly, if the city already has 0:46:18.480 --> 0:46:22.080 the ready made soccer stadium or stadiums, and they already 0:46:22.120 --> 0:46:27.759 have the transportation infrastructure and security infrastructure, and FIFA is 0:46:27.760 --> 0:46:31.040 giving them some of the more interesting games during the 0:46:31.040 --> 0:46:33.959 course of the World Cup, then the revenue side could 0:46:34.000 --> 0:46:35.640 go up a little bit and the cost side could 0:46:35.680 --> 0:46:37.760 be moderated, and at the end of the day, maybe 0:46:38.040 --> 0:46:40.920 they generate a small surplus. 0:46:41.640 --> 0:46:45.359 Ultimately surplus or not. The World Cup's reach goes far 0:46:45.480 --> 0:46:49.120 beyond the spreadsheet, and perhaps few know that better than 0:46:49.160 --> 0:46:51.719 Canada's Olympic champion turned politician. 0:46:52.080 --> 0:46:53.920 I know the power of sport. It has the power 0:46:54.000 --> 0:46:56.600 to change lives for the better. When we invest in 0:46:56.600 --> 0:47:01.360 physical activity programs and recreation opportunities young people, for families, 0:47:01.400 --> 0:47:04.760 and for older folks alike, we get positive social outcomes. 0:47:04.960 --> 0:47:07.440 But we also see the economic benefits. We see reductions 0:47:07.440 --> 0:47:09.840 in healthcare costs, we see less of a strain on 0:47:09.840 --> 0:47:13.920 our judicial system. We see kids happier, healthier and more connected, 0:47:13.960 --> 0:47:16.480 and our community is really coming to life. And that's 0:47:16.480 --> 0:47:18.279 what I expect to see with FIFA when it comes 0:47:18.320 --> 0:47:20.200 to town We're going to celebrate the beautiful game. We're 0:47:20.239 --> 0:47:22.839 going to celebrate the opportunity to play host for six 0:47:22.920 --> 0:47:26.560 incredible games here in Toronto and seven across the country 0:47:26.560 --> 0:47:29.440 in Vancouver. But I know that in every city across Canada, 0:47:29.520 --> 0:47:31.320 you're going to be celebrating the great game of soccer. 0:47:35.239 --> 0:47:37.840 Much has been made in recent years about the booming 0:47:37.880 --> 0:47:41.160 business of sports, and next year's World Cup looks set 0:47:41.200 --> 0:47:44.440 to be no different. But perhaps the lasting legacy of 0:47:44.480 --> 0:47:47.480 a successful tournament won't lie on the bottom line, but 0:47:47.600 --> 0:47:51.440 what happens inside the white lines that does it for us. 0:47:51.480 --> 0:47:53.960 Here at Wall Street Week, I'm David Weston. See you 0:47:54.040 --> 0:48:06.680 next week for more stories of capitalism.