WEBVTT - Surveillance: Stanford Economists Win Nobel Prize 0:00:06.360 --> 0:00:12.960 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Lee. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.240 Bloomberg dot Com, and of course on the Bloomberg Didn't 0:00:27.240 --> 0:00:30.120 Turn It. Joining us now, Mar Risk Advice to see day. 0:00:30.200 --> 0:00:31.600 Can we just start with a little bit of a 0:00:31.640 --> 0:00:35.600 clinic on the volatility term structure, what it is, and 0:00:35.640 --> 0:00:38.640 the story around the election that's been priced in and 0:00:38.720 --> 0:00:42.040 now being priced out. Right, So when we look at 0:00:42.040 --> 0:00:44.680 the volatility, we can look at it, can you guys 0:00:44.720 --> 0:00:48.199 hear me, Yeah, we can hear you d Sorry, um, yes, 0:00:48.280 --> 0:00:50.239 So when we look at volatility, we can look at 0:00:50.240 --> 0:00:54.640 it both across strike and then across time. So when 0:00:54.640 --> 0:00:57.120 we look at it across time, that's uh, John, as 0:00:57.160 --> 0:00:59.520 you say that this thing called the volatility term structure. 0:00:59.600 --> 0:01:01.639 So we can look at the VIX. We can look 0:01:01.680 --> 0:01:05.520 at VIX futures that expire in October, November, December, and 0:01:05.800 --> 0:01:08.679 because there's been this date certain event on the calendar, 0:01:08.760 --> 0:01:13.960 the election, uh, for months, the market has differentiated, sometimes strongly, 0:01:14.160 --> 0:01:18.600 between options UH and volatility futures that expire before or 0:01:18.640 --> 0:01:22.720 after the election, with the premise that the election would 0:01:22.760 --> 0:01:26.000 create two things. One a potentially significant move in the 0:01:26.080 --> 0:01:28.840 smp UM in and around the date itself, so the 0:01:28.840 --> 0:01:31.720 outcome would result in a lot of folatility in the 0:01:31.800 --> 0:01:35.880 smp UM. And then the second one is that the market, 0:01:36.000 --> 0:01:38.120 at least as of a couple of weeks ago, started 0:01:38.160 --> 0:01:41.000 to think that um this, this notion of a contested 0:01:41.040 --> 0:01:44.240 election would lead to volatility on an ongoing basis. So 0:01:44.280 --> 0:01:47.440 we started to see longer dated vic's futures, those that 0:01:47.520 --> 0:01:52.240 expire in December. In January also bid up quite a bit. 0:01:53.360 --> 0:01:55.600 It's been interesting. A clinic there in the vix Dean 0:01:55.680 --> 0:01:57.880 current with us and he will continue with us through 0:01:57.920 --> 0:02:01.680 this important hour on the game theory of volatility and 0:02:01.720 --> 0:02:05.720 out folds into futures up fifteen. Right now, we need 0:02:05.760 --> 0:02:09.519 to listen to a moment in Sweden today. Once a 0:02:09.639 --> 0:02:14.400 year in October we listen this year's price. It's about 0:02:14.400 --> 0:02:20.400 auctions Andrada, the Royal Swedish Academy of Sciences, has today 0:02:20.400 --> 0:02:24.480 decided to award the Svatia six Bank Price in Economic 0:02:24.520 --> 0:02:29.240 Sciences in memory of Alfred no Belle jointly to Paul R. 0:02:29.320 --> 0:02:34.280 Milgram and Robert B. Wilson for improvements to auction theory 0:02:34.840 --> 0:02:40.840 and invention of new auction formats, and the celebration today 0:02:41.040 --> 0:02:44.320 in Palo out of California, more than anywhere else at 0:02:44.360 --> 0:02:48.440 Stanford University, I think of a frequent guest, Michael Spence, 0:02:48.520 --> 0:02:51.760 on all of his leadership and academics at Stanford, and 0:02:51.800 --> 0:02:55.400 it devolves down to the leadership and intellect of Robert 0:02:55.400 --> 0:02:59.120 Wilson out of Nebraska, with his academics at Harvard and 0:02:59.320 --> 0:03:02.840 his held core since nineteen sixty eight on the theory 0:03:02.880 --> 0:03:07.320 of syndicates at Stanford University. Professor Wilson, for all of us, 0:03:07.560 --> 0:03:13.600 for Michael McKee, congratulations on this award. Were you surprised? Yes, 0:03:13.680 --> 0:03:16.960 I was surprised because it seemed like the time had 0:03:16.960 --> 0:03:20.520 long past. Most of the interests in auctions peaked, you know, 0:03:20.800 --> 0:03:24.480 ten years ago. Yeah, you know, I look Professor Wilson 0:03:24.480 --> 0:03:27.080 at this and we know from Stanford the monetary theory 0:03:27.120 --> 0:03:30.320 of John B. Taylor and the Hoover Institution in such 0:03:30.560 --> 0:03:35.920 describe what auction theory means for our organization, for our 0:03:35.960 --> 0:03:41.840 societal organization where Stanford has led for forty years, all 0:03:41.920 --> 0:03:44.640 we think of it more generally in terms of market design, 0:03:44.880 --> 0:03:48.680 that there are many ways and with the institutions, the 0:03:48.720 --> 0:03:52.200 procedural rules and so on, the ways in which we 0:03:52.280 --> 0:03:56.720 allocate resources can be improved. A lot of times. Uh, 0:03:57.000 --> 0:04:02.680 these interventions are really, let's say, minor changes on the margin. 0:04:02.800 --> 0:04:06.880 But in some cases there they create entirely new markets. 0:04:07.440 --> 0:04:11.480 So we saw that in the spectrum auctions. But uh, 0:04:11.560 --> 0:04:15.040 my colleague Elvin Ross, you know, he worked on a 0:04:15.120 --> 0:04:20.560 market for exchange of kidneys among donor donors and recipients. 0:04:21.120 --> 0:04:26.440 So there are many novel applications in which we create markets. 0:04:26.600 --> 0:04:31.120 People participate and they work and work efficiently and with 0:04:31.240 --> 0:04:34.480 good incentives. Well, you're modest there, then, Elvin Roth studied 0:04:34.560 --> 0:04:37.200 under you at Stanford a few years ago. I think, 0:04:37.320 --> 0:04:39.560 Robert Wilson of all this, and what I think of 0:04:39.680 --> 0:04:42.320 is my colleague John Farrell bidding for a piece of 0:04:42.480 --> 0:04:46.640 art at Christie's in London. Your work goes so far 0:04:46.839 --> 0:04:50.280 beyond the auctions that we understand the auctions of the 0:04:50.440 --> 0:04:54.279 art market, or maybe the auctions for a foreclosed house. 0:04:54.480 --> 0:04:58.120 What does our audience worldwide need to know about where 0:04:58.120 --> 0:05:02.280 the science of auctions is going in? What it means 0:05:02.360 --> 0:05:06.440 for US worldwide. Well, we could deal with very complex 0:05:06.720 --> 0:05:10.960 multi commodity kinds of situations. So there are many different 0:05:11.000 --> 0:05:16.679 spectrum licenses in electricity. We're talking about electricity at various times, 0:05:16.720 --> 0:05:21.040 at various places. So these are ones which were systems 0:05:21.040 --> 0:05:27.600 which were allocating a huge variety of resources continuously over time. 0:05:28.040 --> 0:05:33.960 In the case of electricity, uh, it's a complex uh 0:05:34.760 --> 0:05:39.240 so much more complex than a single piece of art 0:05:39.279 --> 0:05:41.760 being auctioned under a gavel and then the next one 0:05:41.800 --> 0:05:44.600 and then the next one. Instead, these are cases at 0:05:44.600 --> 0:05:49.320 which your people trying to buy or sell like packages 0:05:49.520 --> 0:05:52.640 of things or there. In a sense of electricity, you 0:05:52.680 --> 0:05:56.440 have to have the energy, the transmission lines, all of 0:05:56.480 --> 0:06:01.880 the connections that are necessary. So you're bitty for a 0:06:01.920 --> 0:06:06.360 complex commodity, and there are many of them. Professor, this 0:06:06.440 --> 0:06:09.719 is an incredibly relevant field of study in our digital 0:06:09.800 --> 0:06:12.680 era as well as an era of central bank intervention, 0:06:12.720 --> 0:06:15.720 where a lot of people are wondering whether efficient markets 0:06:15.720 --> 0:06:19.039 still exist among public equities and public debt. I know 0:06:19.120 --> 0:06:23.000 you focus on the less mainstream asset classes and how 0:06:23.080 --> 0:06:26.440 to auction them efficiently, but based on your intensive knowledge 0:06:26.640 --> 0:06:30.440 of efficient markets, how inefficient have public markets gotten with 0:06:30.480 --> 0:06:35.640 that Central Bank intervention. That's way beyond my expertise. I'm 0:06:35.680 --> 0:06:39.640 afraid I couldn't give a reliable answer. Sorry, all right. Well, 0:06:39.720 --> 0:06:42.359 in that in that case, are there other asset classes 0:06:42.400 --> 0:06:46.000 that you foresee moving to a sort of auction format 0:06:46.320 --> 0:06:48.880 in our digital era that perhaps haven't been thought of 0:06:48.880 --> 0:06:53.039 in that way? Well, a good one to think about 0:06:53.480 --> 0:06:58.359 is uh something like electricity, because we have all these 0:06:58.720 --> 0:07:04.840 UH needs now for solar powered energy from from solar 0:07:04.880 --> 0:07:07.919 power and from wind, and it's quite variable, so we 0:07:08.000 --> 0:07:12.800 need to create new kinds of markets for those kinds 0:07:12.800 --> 0:07:17.400 of variable resources, you know, to keep the supply provided 0:07:17.520 --> 0:07:20.440 to beat the demand. So that that's a new and 0:07:20.480 --> 0:07:23.720 different kind of application. Robert Wilson, I want to take 0:07:23.800 --> 0:07:27.000 you beyond the theory of syndicates and what seems like 0:07:27.120 --> 0:07:30.760 ancient auction theory to what we're dealing with every day, 0:07:30.800 --> 0:07:34.160 which is our new digital dominance, the auctions that take 0:07:34.240 --> 0:07:38.280 part obviously on eBay, but far more the auctions and 0:07:38.320 --> 0:07:42.160 the information flow led by Apple, led by Google and 0:07:42.200 --> 0:07:45.240 the rest as well. What would you presume to be 0:07:45.360 --> 0:07:52.480 the future for how we bid each day within technology? Well, 0:07:52.720 --> 0:07:56.320 I think if you take those kinds of auctions as examples. 0:07:56.360 --> 0:07:59.080 What you see is that mostly automated that these are. 0:07:59.600 --> 0:08:02.520 They're a minute by minute or second by second, and 0:08:02.560 --> 0:08:09.160 they're done with bidding bots. You know, robots are algorithmic methods. 0:08:09.840 --> 0:08:13.720 So there's a continuous reallocation of resources, and I think 0:08:13.720 --> 0:08:15.480 you're going to see a lot more of that in 0:08:15.560 --> 0:08:18.840 many fields. Robert Wilson, thank you so much for joining 0:08:18.880 --> 0:08:22.600 us the Nobel Prize winner with Professor Milgram, Paul Milgram 0:08:22.600 --> 0:08:24.920 as well Michael mckeeon, and I say thank you as 0:08:25.000 --> 0:08:29.600 this all of Bloomberg Economics. John just to call one 0:08:29.600 --> 0:08:33.120 point one million dollar prize this year, Tom an upgrade 0:08:33.240 --> 0:08:35.040 from the year before. So we see how you can 0:08:35.040 --> 0:08:36.560 put that money to work. With Dean Kern and the 0:08:36.559 --> 0:08:39.640 macro risk advice, how the professor get a trade? How 0:08:39.679 --> 0:08:41.680 the professor get a trade? Dean, we were talking about 0:08:41.720 --> 0:08:45.360 the volatility term structure just before turning to him. It's 0:08:45.360 --> 0:08:47.920 been faded volatility in the back half of this year 0:08:47.960 --> 0:08:49.760 over the last couple of weeks. How do you navigate 0:08:49.760 --> 0:08:52.680 these issues now? Dean, I think one of the things 0:08:52.679 --> 0:08:55.400 we should really step back and contemplate in terms of 0:08:55.440 --> 0:08:59.320 volatility is that, like any market, it's just a it's 0:08:59.360 --> 0:09:03.120 an outcome of supply and demand, meaning, you know, the 0:09:03.160 --> 0:09:05.600 price of alatility of the market just reflects where two 0:09:05.600 --> 0:09:08.719 people found a way to do a trade. And one 0:09:08.720 --> 0:09:10.800 of the dynamics that was occurring over the summer that 0:09:10.880 --> 0:09:14.720 started to ease off is this tech stock mania. So 0:09:14.800 --> 0:09:17.160 look at indices like the New York Fang Index or 0:09:17.200 --> 0:09:20.160 just picked Tesla or Amazon. The speed with which these 0:09:20.160 --> 0:09:23.960 stocks were going up and then the retail almost reflective 0:09:23.960 --> 0:09:27.520 participation in that led to a tremendous amount of call 0:09:27.600 --> 0:09:29.960 buying in the high flying tech stocks. And if you 0:09:30.040 --> 0:09:33.040 look almost to the day when the tech stocks peaked 0:09:33.120 --> 0:09:36.120 right around the first day of September. Since then, as 0:09:36.120 --> 0:09:38.600 things have been um you know, down a little bit, 0:09:38.600 --> 0:09:41.800 not tremendously, but certainly not that high performance to the upside, 0:09:42.160 --> 0:09:45.199 the volumes and tech stock options have declined, in some 0:09:45.280 --> 0:09:49.120 cases dramatically. And so what what's happened is, against thinking 0:09:49.120 --> 0:09:52.480 about it from a supply demand perspective, the demand for 0:09:52.520 --> 0:09:55.760 optionality in the market has started to recede because the 0:09:55.800 --> 0:09:59.120 payoff to being long upside calls has started to recede. 0:09:59.480 --> 0:10:01.560 And so that that's one part of the story is 0:10:01.600 --> 0:10:05.280 that because there's less demand, the price of volatility is 0:10:05.320 --> 0:10:08.640 going down. UM. So as we started trying to disentangle 0:10:08.679 --> 0:10:11.400 what's happening, some of it, I do think is Biden 0:10:11.480 --> 0:10:14.960 pulling away sufficiently such that this notion of a contested 0:10:15.000 --> 0:10:18.200 election may be less of an issue for the market. Um. 0:10:18.240 --> 0:10:20.640 But but again, some of it is just a fall 0:10:20.640 --> 0:10:23.640 off in demand and that's allowing volatility to clear the 0:10:23.679 --> 0:10:26.720 market at a lower level than it was doing, you know, 0:10:26.760 --> 0:10:30.200 in the peak several weeks ago. So Jana had this 0:10:30.240 --> 0:10:32.760 conversation with Muhammadalarian on Friday, and I do think it's 0:10:32.760 --> 0:10:35.439 important the price seems to be shaping narrative. It's not 0:10:35.480 --> 0:10:37.880 the narrative driving the price. Do you see some of 0:10:37.880 --> 0:10:41.160 that going on here as well? Oh, tremendous amount. I mean, 0:10:41.800 --> 0:10:45.680 the street is in some ways hopelessly addicted to backfilling 0:10:45.679 --> 0:10:49.360 the narrative. Um. There's a lot of confirmation bias in it. Um. 0:10:49.400 --> 0:10:51.480 You know, we stare at prices and we try to 0:10:51.480 --> 0:10:53.400 figure out what the market is telling us. I think 0:10:53.400 --> 0:10:57.240 that's a useful exercise. We're supposed to do it. But again, 0:10:57.280 --> 0:11:01.000 I think a framework that brings to just this notion 0:11:01.080 --> 0:11:05.079 of of supply and demand, especially as it comes to volve. 0:11:05.200 --> 0:11:08.960 It's been a really interesting year for volatility because we've 0:11:08.960 --> 0:11:11.280 had a couple of these dynamics. One, as I mentioned, 0:11:11.280 --> 0:11:15.600 this incredible demand from an unusual source, the retail source 0:11:15.679 --> 0:11:18.200 for for calls UH in tech stocks, and then the 0:11:18.240 --> 0:11:20.840 second one UM I'd point to two things on the 0:11:20.880 --> 0:11:24.680 supply side of volatility that are important. One, UH March 0:11:24.920 --> 0:11:29.400 was a year even worse than the worst part of 0:11:29.400 --> 0:11:31.400 two thousand and eight in terms of the explosion of 0:11:31.480 --> 0:11:34.880 alatility and what it did to short volatility strategies. There 0:11:34.960 --> 0:11:38.320 was a massive destruction of capital UH in the space, 0:11:38.480 --> 0:11:42.720 so all ell sequel, there's less supply of volatility. And 0:11:42.720 --> 0:11:44.920 then the second thing is just in and around the election, 0:11:45.280 --> 0:11:48.959 an incredibly political event for our country, polarizing, but even 0:11:49.080 --> 0:11:52.520 for the markets themselves. My senses and just talking to 0:11:52.559 --> 0:11:55.840 people that UM risk managers would would prefer not to 0:11:55.920 --> 0:11:58.160 lose money on the election. You know. It's it's one 0:11:58.200 --> 0:12:01.679 of these things that uh as, especially as time draws nearer, 0:12:01.720 --> 0:12:04.200 I think people's risk limits are going to be called 0:12:04.240 --> 0:12:09.199 into question, and the ability to provide capital hedging type 0:12:09.200 --> 0:12:12.640 capital into that event is going to be called into question. 0:12:12.679 --> 0:12:15.240 Now again, it may be a little bit less so 0:12:15.320 --> 0:12:18.880 if if the market becomes so convinced that a Biden 0:12:19.480 --> 0:12:22.600 uh win is is uh you know, baked in the cake, 0:12:22.679 --> 0:12:26.000 and the Senate win increasingly as well is baked in 0:12:26.040 --> 0:12:28.320 the cake. But I think that's just another thing to 0:12:28.400 --> 0:12:32.240 really watch is the streets ability to provide hedges over 0:12:32.280 --> 0:12:36.520 this period is compromised by just the unusual nature of 0:12:36.559 --> 0:12:39.360 the event and the reality that it's just not analyzable 0:12:39.520 --> 0:12:41.800 in the in the traditional sense that Wall Street likes 0:12:41.840 --> 0:12:44.760 to analyze things. Dean, given where positioning is now, and 0:12:44.800 --> 0:12:47.880 given the fact there does seem to be a complacency 0:12:47.920 --> 0:12:52.360 around a bowl a long call, how susceptible or markets 0:12:52.480 --> 0:12:54.800 right now to a violent move should there be a 0:12:54.800 --> 0:12:59.240 contested election or an outcome that people aren't expecting right well, 0:12:59.400 --> 0:13:01.840 I think price would tell you more so than a 0:13:01.840 --> 0:13:03.920 couple of weeks ago. As John pointed out, there there's 0:13:03.960 --> 0:13:08.160 been a fading of of things that measure volatility, whether 0:13:08.160 --> 0:13:12.240 it's option prices or vicked features. December, vicked features are 0:13:12.280 --> 0:13:14.400 down from thirty two to twenty eight over the last 0:13:14.400 --> 0:13:16.800 couple of weeks. That's actually quite quite a big move 0:13:17.160 --> 0:13:19.480 for that so I think more so than the peak 0:13:19.480 --> 0:13:22.000 a couple of weeks ago. There there is this complacency 0:13:22.679 --> 0:13:24.680 and a risk. I think one of the big risks 0:13:24.720 --> 0:13:28.040 is that the polls start to narrow, uh significantly. I 0:13:28.080 --> 0:13:32.120 think that's gonna, you know, uh enable Trump to potentially 0:13:32.200 --> 0:13:34.920 gen of controversy, and I think the market will be 0:13:35.600 --> 0:13:38.480 uh not well suited for that given current pricing. Jean Curnin, 0:13:38.520 --> 0:13:45.400 thank you so much. Macros Advisors. Betsy Stevenson enjoys now 0:13:45.440 --> 0:13:50.160 at Michigan, the Fourth School at Michigan, Professor of Public Policy. Betsy, 0:13:50.240 --> 0:13:51.840 what I want to do to start is go back 0:13:51.840 --> 0:13:54.440 to first principles, which you know is Carl Case so 0:13:54.480 --> 0:13:58.320 I'm sure you studied with at Wellesley a few years ago. 0:13:58.640 --> 0:14:01.880 The first principle is if you have debt, you need 0:14:02.040 --> 0:14:06.000 economic growth and a growth rate that is better than good. 0:14:06.480 --> 0:14:09.200 Are we anyway as certain that we will have a 0:14:09.240 --> 0:14:12.280 growth rate to help us out of this huge amount 0:14:12.320 --> 0:14:16.640 of debt. Well, you know the thing is, we got 0:14:16.760 --> 0:14:19.240 to do the stimulus spending in order to get the 0:14:19.280 --> 0:14:22.840 growth rate that will help us out of the debt. 0:14:22.840 --> 0:14:26.000 I mean, it is absolutely the case that one of 0:14:26.000 --> 0:14:27.840 the best ways to deal with debt is just to 0:14:27.960 --> 0:14:30.920 grow so fast that the debt shrinks as a percent 0:14:30.960 --> 0:14:35.280 of GDP. But you know what, you were the idea 0:14:35.400 --> 0:14:39.560 that when the stimulus comes, that it needs to come fast. 0:14:40.120 --> 0:14:42.600 That the whole point there is that we need to 0:14:43.320 --> 0:14:46.880 restore potential GDP. We need to be able to get 0:14:46.880 --> 0:14:49.640 to potential and go back to growing if we put 0:14:49.640 --> 0:14:55.080 ourselves on a permanently lower level of GDP. So we're 0:14:55.440 --> 0:14:58.920 we're sort of never quite getting back to potential in 0:14:58.960 --> 0:15:01.520 a lower growth path, so we're never like quite back 0:15:01.520 --> 0:15:04.640 to where we were. Well, then that's a problem, and 0:15:04.800 --> 0:15:07.240 now there's lots of reasons we could end up doing 0:15:07.240 --> 0:15:10.880 a lot of permanent destructions. The more businesses that would 0:15:10.880 --> 0:15:14.200 have been viable that would be hard to to put 0:15:14.240 --> 0:15:19.320 back together again, that disappear um, that causes problems, Families 0:15:19.360 --> 0:15:22.080 that you know, go to bankruptcy that are just never 0:15:22.160 --> 0:15:24.480 quite able to get back on their feet again. These 0:15:24.480 --> 0:15:27.680 things happen, and that's why it's so important for government 0:15:28.000 --> 0:15:31.240 to respond in a timely way. But it's also important 0:15:31.240 --> 0:15:34.280 for government to respond in a timely way because it 0:15:34.320 --> 0:15:38.440 alleviates the suffering. So we can tell the economic story really, 0:15:38.520 --> 0:15:41.520 you know, get us back to where we were as 0:15:41.560 --> 0:15:45.080 quickly as possible get us on a strong past, but 0:15:45.200 --> 0:15:48.240 realized every day they delay, there's somebody's not put food 0:15:48.240 --> 0:15:50.440 on the table, who's at risking in their I don't 0:15:50.440 --> 0:15:52.600 need a single point estimate from you, because that's what 0:15:52.640 --> 0:15:55.400 we do in market economics, and you're clearly under the 0:15:55.440 --> 0:15:58.440 academic purview. But where is potential g d P. There's 0:15:58.440 --> 0:16:02.160 a belief in Mourning America that we go back nostalgically 0:16:02.280 --> 0:16:06.080 to a time of what we would call substantial GDP growth. 0:16:06.240 --> 0:16:11.720 Are those days gone? Well? I mean, you know, I 0:16:12.240 --> 0:16:17.000 you guys know the whole secular stagnation argument as well 0:16:17.040 --> 0:16:20.600 as as I do. Um. You know, estimates I've seen 0:16:20.720 --> 0:16:23.760 of where growth can be is that it's it's lower. 0:16:23.960 --> 0:16:26.640 You know, there's concern that we've run out of ideas 0:16:26.880 --> 0:16:28.760 in a way that's just gonna make it harder for 0:16:28.880 --> 0:16:32.160 us to to, you know, grow faster. But I have 0:16:32.320 --> 0:16:35.640 to tell you, you you know, I go to UH tech 0:16:35.720 --> 0:16:40.360 conferences every year sort of UH is artificial intelligence gonna 0:16:40.400 --> 0:16:43.880 take our job but make us rich, And I'm impressed 0:16:44.000 --> 0:16:46.920 every year by the amount of progress I've been seeing there. 0:16:47.040 --> 0:16:50.080 So I think there's actually you know a lot of 0:16:50.840 --> 0:16:55.400 room for us to do things better, faster, cheaper. That's 0:16:55.440 --> 0:16:58.640 where our growth comes from. And and I'm always an optimist, 0:16:58.640 --> 0:17:00.040 we can do it. I also think we have a 0:17:00.080 --> 0:17:03.560 lot of untapped potential in people, um and that's why 0:17:03.840 --> 0:17:08.320 investing in people is so important, because we can harness 0:17:08.359 --> 0:17:12.440 all that untapped potential. You know, that's what will fuel growth. 0:17:12.920 --> 0:17:15.280 And realize, if you know, if you go back to 0:17:15.320 --> 0:17:19.080 the nineteen seventies, nineteen eighties, you know, a large chunk 0:17:19.160 --> 0:17:21.560 of our growth just came from the rise of female 0:17:21.600 --> 0:17:27.200 labor force participation. If female labor force participation in twenty 0:17:27.359 --> 0:17:31.600 nineteen had been back where it was in the nineteen seventies, 0:17:31.920 --> 0:17:35.639 are in g d P would be about fifteen percent smaller. 0:17:36.200 --> 0:17:39.639 So just think about that and then realize that women's 0:17:39.720 --> 0:17:43.199 labor force participation right now is back where it was 0:17:43.480 --> 0:17:47.600 in the mid primate. Women's labor force participation is back 0:17:47.640 --> 0:17:51.320 where it was in the mid nineteen eighties. So if 0:17:51.359 --> 0:17:53.040 you want us to get back, we got to get 0:17:53.040 --> 0:17:56.879 all these people back in the labor force. So, Betsy, 0:17:57.040 --> 0:18:00.480 two really powerful concepts you've touched on in just minutes. 0:18:00.600 --> 0:18:02.880 Something that I've heard from other prominent economists as well. 0:18:02.920 --> 0:18:05.560 The longer we are below potential, the lower potential growth 0:18:05.680 --> 0:18:08.960 might be in the future. But when you talk about policy, 0:18:08.960 --> 0:18:11.800 you're talking about structural initiatives as well, not just throwing 0:18:11.840 --> 0:18:14.320 money at the issue. At the moment, Bessie can put 0:18:14.320 --> 0:18:19.840 those two concepts together, and the urgency to do something quickly, well, 0:18:19.840 --> 0:18:22.280 I think, you know, we need to do something quickly, 0:18:22.560 --> 0:18:24.719 and that's the idea that we need to get money 0:18:24.880 --> 0:18:27.400 out the door, and that's, you know, the same thing 0:18:27.440 --> 0:18:29.440 that they did with the CARES act. I think that's 0:18:29.480 --> 0:18:32.760 money to individuals, to families to make sure that they 0:18:32.800 --> 0:18:36.840 can keep spending so that we don't end up with 0:18:36.880 --> 0:18:41.000 demand driven problems. Um and we are seeing demand driven 0:18:41.000 --> 0:18:44.160 problems starting to pick up. We thought demand driven problems 0:18:44.520 --> 0:18:47.920 we're huge in the spring. So that's getting money to people. 0:18:48.280 --> 0:18:51.960 You get money to businesses to help businesses that can 0:18:52.680 --> 0:18:55.879 make it to the other side survive. We're gonna lose 0:18:56.000 --> 0:18:59.080 some of some businesses for sure, and that's why the 0:18:59.160 --> 0:19:02.120 next step for government is going to be thinking about 0:19:02.200 --> 0:19:05.320 how do we transition people, how do we provide the 0:19:05.400 --> 0:19:10.520 drop job training programs, how do we provide the liquidity 0:19:10.640 --> 0:19:14.040 in markets? For new businesses to be able to get started. 0:19:14.560 --> 0:19:19.639 How do we foster the creation of change? And there 0:19:19.720 --> 0:19:22.960 I think we need a government with as strong as 0:19:22.960 --> 0:19:27.440 set of plans on that as on the stimulus package. 0:19:27.480 --> 0:19:29.640 And so I think the second is what we're gonna 0:19:29.640 --> 0:19:32.680 have to wait and see after the election, just because 0:19:32.680 --> 0:19:36.440 I think, you know, nobody can take um that kind 0:19:36.480 --> 0:19:40.160 of strong initiative now. But now that would be where 0:19:40.320 --> 0:19:43.439 I would hope we see, you know, in the early 0:19:43.480 --> 0:19:47.520 spring of next year, you know, comprehensive plans around how 0:19:47.640 --> 0:19:50.800 we move the economy to the next stage, because there 0:19:50.960 --> 0:19:54.760 is going to be some permanent realignment, some permanent sectoral 0:19:54.840 --> 0:19:57.520 shifts to build on what John was talking about. With 0:19:57.560 --> 0:19:59.439 the timing of this plan on it maybe not the 0:19:59.480 --> 0:20:02.720 one next year that focuses more on these skills gap 0:20:02.840 --> 0:20:05.639 issues that you focus on is the question of fiscal 0:20:05.640 --> 0:20:08.359 austerity at a state level, the idea that states and 0:20:08.400 --> 0:20:11.879 local governments are saying to the federal government, we can't 0:20:11.920 --> 0:20:13.679 go into debt the way that you can, and we 0:20:13.720 --> 0:20:15.480 are running out of cash. We're going to have to 0:20:15.520 --> 0:20:18.919 lay people off and cut services. How different is the 0:20:18.960 --> 0:20:21.960 scarring that comes from an acceleration of fiscal austerity on 0:20:22.000 --> 0:20:25.040 the state level that you see as posing a risk 0:20:25.080 --> 0:20:28.240 to the economy if there isn't this near term fiscal 0:20:28.280 --> 0:20:33.560 support bill that's passed. So I think that the fiscal 0:20:33.600 --> 0:20:37.680 austerity the states go through UM in modern times has 0:20:37.760 --> 0:20:42.360 really caused recessions to drag on to deepen UM. And 0:20:42.480 --> 0:20:45.639 it's the case that the federal government should just prevent 0:20:45.720 --> 0:20:48.480 that from happening. But it's even worse right now because 0:20:49.200 --> 0:20:53.040 what happens if the states have to start letting off teachers, 0:20:53.200 --> 0:20:57.119 which they will. UM. We're already in the situation where 0:20:57.400 --> 0:21:00.920 there are a lot of parents who have cut hours 0:21:01.040 --> 0:21:03.280 or who have quit jobs because they've got kids at 0:21:03.280 --> 0:21:05.399 home from school. And we've got a lot of kids 0:21:05.680 --> 0:21:10.159 who are struggling from you know, this period of you know, 0:21:10.320 --> 0:21:13.200 eight ish months where their school hasn't been normal. They're 0:21:13.200 --> 0:21:16.000 gonna be going back to school in a world where 0:21:16.040 --> 0:21:19.520 they're you know, wearing the ones who are our in school, 0:21:19.560 --> 0:21:22.040 or in a in a world where they're wearing masks. 0:21:22.119 --> 0:21:24.280 They have to keep distance. How do we do that 0:21:24.320 --> 0:21:28.000 with fewer teachers in the classroom? Do parents feel comfortable 0:21:28.040 --> 0:21:31.240 but that's the place they can done their kids? UM? 0:21:31.359 --> 0:21:33.840 And what we're doing with these kids. You know, I 0:21:33.880 --> 0:21:37.600 just saw someone talk about future US productivity in future 0:21:37.640 --> 0:21:39.600 US growth and he was saying, you know, one of 0:21:39.640 --> 0:21:41.800 the big open questions is what are we doing with 0:21:41.880 --> 0:21:44.200 these kids? And is there some sort of permanent loss 0:21:44.200 --> 0:21:47.320 of human capital? So this could not be a worse 0:21:47.400 --> 0:21:51.520 recession for states to have to lay off UM, state 0:21:51.680 --> 0:21:55.800 and local workers and um, you know, is there is 0:21:55.800 --> 0:21:59.760 there permanent you know, problems there. It really depends on 0:22:00.280 --> 0:22:03.920 what they're choosing to do. Are they having rolling furloughs 0:22:04.359 --> 0:22:07.440 that will cause a lot of a lot of harm 0:22:07.520 --> 0:22:11.720 and hurt in in terms of state employees, households, um. 0:22:11.760 --> 0:22:14.600 But maybe we'll keep them attached to the job, or 0:22:14.680 --> 0:22:19.600 do we see you know, government workers decide that it's 0:22:19.600 --> 0:22:21.040 not worth that they're not going to stick it to 0:22:21.080 --> 0:22:24.880 these jobs, or do they do permanent layoffs um. In particular, 0:22:24.960 --> 0:22:28.400 One thing I don't hear anybody talking about is we've 0:22:28.440 --> 0:22:31.560 never seen such a decline in the labor force participation 0:22:31.600 --> 0:22:33.840 of people over the age of fifty five. And I 0:22:33.840 --> 0:22:36.960 think you're gonna see a lot of older workers deciding 0:22:37.000 --> 0:22:39.480 to retire a little bit early, and that's gonna put 0:22:39.720 --> 0:22:45.959 enormous strain on social security, on medicare um as well 0:22:46.000 --> 0:22:48.360 as again, you know, on the economy. As we take 0:22:48.359 --> 0:22:51.919 all these experienced people out early, that's going to give 0:22:52.000 --> 0:22:55.040 us a bumpy road over the next five years before 0:22:55.119 --> 0:22:59.880 sort of losing too many older workers at once. That's 0:23:00.040 --> 0:23:02.560 great to catch up on a really important policy conversation, 0:23:02.600 --> 0:23:06.199 Betty Stevenson, their professor of public policy and economics at 0:23:06.200 --> 0:23:12.119 the University of Michigan, Rat pob Donovan, get to it 0:23:12.240 --> 0:23:15.360 very quickly. You'll um us in a global chief economist 0:23:15.359 --> 0:23:18.800 in the Zitgeist this weekend, Parl. There's no question about it. 0:23:18.840 --> 0:23:23.240 Can you believe China's recovery? Can you? Yes? I think 0:23:23.320 --> 0:23:26.360 China has had a genuine recovery. China's recovery was very 0:23:26.440 --> 0:23:30.639 different from what we saw in Europe and in the States, 0:23:30.720 --> 0:23:34.480 because in Europe and in the States, people acquired savings 0:23:34.600 --> 0:23:38.399 during lockdown and then as soon as they're released from lockdown, 0:23:38.800 --> 0:23:41.359 you know, you've just spent three months sat at home 0:23:41.400 --> 0:23:44.760 watching home makeover shows on Netflix. What are you gonna do? 0:23:44.800 --> 0:23:46.919