1 00:00:02,240 --> 00:00:06,800 Speaker 1: This is Master's in Business with Barry Ridholts on Bloomberg Radio. 2 00:00:10,080 --> 00:00:13,200 Speaker 1: This week on the podcast, I have an extra special guest. 3 00:00:13,880 --> 00:00:18,279 Speaker 1: His name is Richard Clarida. He is Where do I begin? Uh. 4 00:00:18,320 --> 00:00:24,560 Speaker 1: He's a managing director and global strategist for investing giant Pimco. 5 00:00:25,000 --> 00:00:29,000 Speaker 1: He was also had served in the Bush White House 6 00:00:29,160 --> 00:00:34,680 Speaker 1: in the Treasury Department and uh informally as an advisor 7 00:00:34,680 --> 00:00:39,240 Speaker 1: to various senior people in that administration. What was kind 8 00:00:39,280 --> 00:00:43,000 Speaker 1: of interesting to me is that a lot of people 9 00:00:43,200 --> 00:00:46,720 Speaker 1: kind of came through that administration with their reputation a 10 00:00:46,760 --> 00:00:51,560 Speaker 1: little dinged up, and Clarida really had no such issue. Uh. 11 00:00:51,640 --> 00:00:56,080 Speaker 1: He went in and came out really highly respected. He 12 00:00:56,280 --> 00:01:03,600 Speaker 1: is incredibly insightful to things like the fiscal process and 13 00:01:03,640 --> 00:01:08,759 Speaker 1: how the Federal Reserve interacts with Congress and how their policies, 14 00:01:08,760 --> 00:01:13,040 Speaker 1: how monetary policies and fiscal policies affect each other. He 15 00:01:13,160 --> 00:01:20,479 Speaker 1: has really an amazing understanding of government programs and policies, economics, 16 00:01:20,720 --> 00:01:25,280 Speaker 1: investment theory, and where they all intersect. It really is 17 00:01:25,360 --> 00:01:32,680 Speaker 1: not the usual economics conversation. And so the process of 18 00:01:33,400 --> 00:01:37,120 Speaker 1: looking at the world to finance and looking at investing 19 00:01:37,480 --> 00:01:42,680 Speaker 1: through that lens really is is makes for for wonderful conversation, 20 00:01:43,120 --> 00:01:46,840 Speaker 1: and PIMCO has found that it's tremendously helpful uh to 21 00:01:46,959 --> 00:01:50,200 Speaker 1: their process. I think you'll really enjoy this conversation. So, 22 00:01:50,320 --> 00:01:55,640 Speaker 1: with no further ado, my conversation with Richard Clarada of PIMCO. 23 00:01:59,800 --> 00:02:03,000 Speaker 1: My special guest today is Richard Clarada. He is an 24 00:02:03,080 --> 00:02:07,920 Speaker 1: economist and Lowell Harris Professor of Economics and International Affairs 25 00:02:08,360 --> 00:02:12,040 Speaker 1: at the School of Public and International Affairs at Columbia University. 26 00:02:12,360 --> 00:02:16,200 Speaker 1: He has been the Global Strategic Advisor for PIMCO since 27 00:02:16,240 --> 00:02:20,880 Speaker 1: two thousand and six. He is the former Assistant Secretary 28 00:02:20,919 --> 00:02:25,160 Speaker 1: of the Treasury Department for Economic Policy under George W. Bush. 29 00:02:25,240 --> 00:02:28,840 Speaker 1: He is the recipient of the Treasury Medal. He earned 30 00:02:28,919 --> 00:02:32,840 Speaker 1: his BS from University of Illinois and a master's and 31 00:02:33,000 --> 00:02:39,200 Speaker 1: PhD in economics from Harvard University. Richard Clarada, Welcome to Bloomberg. Wow. 32 00:02:39,240 --> 00:02:40,960 Speaker 1: Great to be on your show, Barry. I'm a big, 33 00:02:41,000 --> 00:02:43,120 Speaker 1: big fan, so it's a treat to be in the studio. Well, 34 00:02:43,160 --> 00:02:44,840 Speaker 1: it's a treat to have you. You and I know 35 00:02:44,919 --> 00:02:47,079 Speaker 1: each other for a while. I've been a fan of 36 00:02:47,120 --> 00:02:50,280 Speaker 1: your work for quite a bit. I know of you 37 00:02:50,600 --> 00:02:53,720 Speaker 1: from your work in the Treasury Department. Let's begin talking 38 00:02:53,760 --> 00:02:57,360 Speaker 1: about your tenure as Assistant Secretary to the Treasury for 39 00:02:57,440 --> 00:03:01,680 Speaker 1: Economic Policy. You were there really as the dot com 40 00:03:01,800 --> 00:03:05,520 Speaker 1: bust was accelerating, as the recession was starting. What was 41 00:03:05,600 --> 00:03:08,120 Speaker 1: that like during that period, Well, you know, Barry, was 42 00:03:08,160 --> 00:03:11,240 Speaker 1: a very eventful time. In fact, interestingly enough, my first 43 00:03:11,360 --> 00:03:14,160 Speaker 1: day on the job at Treasury was September eleventh, two 44 00:03:14,160 --> 00:03:16,040 Speaker 1: thousand and one. So we all know, we all know 45 00:03:16,120 --> 00:03:19,200 Speaker 1: where we were. But I was just checking out my office, 46 00:03:19,200 --> 00:03:21,000 Speaker 1: and you may know Peter Fisher. I was in Peter 47 00:03:21,080 --> 00:03:24,600 Speaker 1: Fisher's office when when the second tower got hit and 48 00:03:24,639 --> 00:03:28,280 Speaker 1: then we were evacuated at Treasury. Actually saw people streaming 49 00:03:28,320 --> 00:03:31,639 Speaker 1: out out of the the White House and someone said 50 00:03:31,639 --> 00:03:33,440 Speaker 1: the Pentagon has been hit, so we're next. It was 51 00:03:33,440 --> 00:03:37,080 Speaker 1: actually quite quite scary, and I can imagine, but it 52 00:03:37,120 --> 00:03:40,920 Speaker 1: was an eventful time economically, um the dot com Of course, 53 00:03:40,960 --> 00:03:43,920 Speaker 1: we did have the bursting of the dot com bubble. 54 00:03:44,000 --> 00:03:47,000 Speaker 1: When I arrived in September Barry of two thousand and one, 55 00:03:47,520 --> 00:03:50,520 Speaker 1: the data was sort of close to indicating a recession. 56 00:03:50,560 --> 00:03:53,480 Speaker 1: On September t the nb R hadn't called it yet 57 00:03:53,480 --> 00:03:56,000 Speaker 1: certainly the day after we we thought we were going 58 00:03:56,080 --> 00:04:01,160 Speaker 1: into a recession. So in retrospect and everything that's happened 59 00:04:01,400 --> 00:04:03,920 Speaker 1: since then, it may seem like a pretty, uh, pretty 60 00:04:03,960 --> 00:04:06,520 Speaker 1: tame and quiet period, but it's pretty eventful. The dot 61 00:04:06,520 --> 00:04:09,000 Speaker 1: com bubble, we had, the the end Roun World calm 62 00:04:09,000 --> 00:04:14,720 Speaker 1: accounting scandals, uh and and obviously the financial system seizing 63 00:04:14,800 --> 00:04:17,520 Speaker 1: up for a while. So yeah, it was a very 64 00:04:17,560 --> 00:04:20,159 Speaker 1: eventful time. That that's some first day you know, you 65 00:04:20,240 --> 00:04:24,120 Speaker 1: mentioned it was nothing like the financial crisis. I believe, 66 00:04:24,160 --> 00:04:27,440 Speaker 1: if memory serves correctly, that recession began around March of 67 00:04:27,520 --> 00:04:30,440 Speaker 1: that year, and by the time nine eleven came around, 68 00:04:30,800 --> 00:04:33,360 Speaker 1: it was almost over. I think we dated in November, 69 00:04:33,440 --> 00:04:36,200 Speaker 1: is that, But that's of course with the benefit of hindsight. 70 00:04:36,240 --> 00:04:38,280 Speaker 1: At the time, the nb e R hadn't gotten around. 71 00:04:38,560 --> 00:04:41,000 Speaker 1: You're right now, we know started marching into November, and 72 00:04:41,120 --> 00:04:43,920 Speaker 1: you were an economist and researcher for nb e R. 73 00:04:43,920 --> 00:04:46,600 Speaker 1: I left that out of your your CV. Um what 74 00:04:46,640 --> 00:04:48,680 Speaker 1: did you do for them? Well? Nb R is an 75 00:04:48,680 --> 00:04:52,680 Speaker 1: incredible organization that I think dates back to the the twenties. 76 00:04:52,760 --> 00:04:58,440 Speaker 1: It's essentially an independent organization for doing applied economic research. 77 00:04:58,560 --> 00:05:02,479 Speaker 1: Really pioneering work and business cycle analysis. UM. I was 78 00:05:02,520 --> 00:05:04,960 Speaker 1: fortunate enough to do my graduate work at Harvard in 79 00:05:05,000 --> 00:05:08,200 Speaker 1: the in the late seventies and early nineteen eighties, right 80 00:05:08,200 --> 00:05:10,680 Speaker 1: about the time that Marty Feldstein moved the mb e 81 00:05:10,880 --> 00:05:13,840 Speaker 1: R from New York to Cambridge, and so it's really 82 00:05:13,839 --> 00:05:17,359 Speaker 1: an incredible organization. I started as a faculty of research 83 00:05:17,440 --> 00:05:20,920 Speaker 1: fellow and then now as a research associate and essentially 84 00:05:21,160 --> 00:05:23,719 Speaker 1: part of a group that publishes applied research in my 85 00:05:23,839 --> 00:05:27,960 Speaker 1: case and international macro economics. And for people who may 86 00:05:27,960 --> 00:05:32,840 Speaker 1: not realize, that's the organization that officially dates starts and 87 00:05:32,960 --> 00:05:37,400 Speaker 1: ends of US recessions exactly, the Business Cycle Dating Committee. 88 00:05:37,520 --> 00:05:39,200 Speaker 1: And by the way, for people who have never been 89 00:05:39,200 --> 00:05:43,000 Speaker 1: on the website, there's an enormous amount of of research 90 00:05:43,040 --> 00:05:46,360 Speaker 1: of data. It's really a tremendous resource for people who 91 00:05:46,600 --> 00:05:53,120 Speaker 1: have those fields. Absolutely, so since nine eleven, the immediate response, 92 00:05:53,120 --> 00:05:54,960 Speaker 1: so I think it was a week or so after that, 93 00:05:55,560 --> 00:05:59,240 Speaker 1: then FED chairman Allen Greenspan cut rates. He took them 94 00:06:00,000 --> 00:06:04,039 Speaker 1: at at a rep cutting um period where we were 95 00:06:04,120 --> 00:06:06,440 Speaker 1: under two percent for two or three years and then 96 00:06:06,440 --> 00:06:09,120 Speaker 1: at one percent for a full year. What was the 97 00:06:09,160 --> 00:06:12,760 Speaker 1: impact of those ultra low rates well at the time. 98 00:06:12,839 --> 00:06:16,920 Speaker 1: Interestingly enough, the time, there was a concern of of 99 00:06:16,920 --> 00:06:20,840 Speaker 1: a deflation UH scare UH. The economy was recovering, but 100 00:06:20,920 --> 00:06:24,159 Speaker 1: the recovery and two thousand and two UH was was 101 00:06:24,160 --> 00:06:27,840 Speaker 1: was pretty feeble UM and UM, and so as a result, 102 00:06:27,880 --> 00:06:31,600 Speaker 1: there was also a lot of changes impacting the financial 103 00:06:32,240 --> 00:06:35,960 Speaker 1: system as well UH, and so we did go through 104 00:06:35,960 --> 00:06:38,120 Speaker 1: a period of very low rates. I think in that cycle. 105 00:06:38,560 --> 00:06:42,200 Speaker 1: The FED cut the funds rate to one percent UH 106 00:06:42,279 --> 00:06:45,359 Speaker 1: in UH in June of two thousand and three and 107 00:06:45,440 --> 00:06:49,279 Speaker 1: kept it there for a year. Obviously since that period 108 00:06:49,279 --> 00:06:50,800 Speaker 1: of time, I must say at the time, I was 109 00:06:50,880 --> 00:06:53,400 Speaker 1: at Treasure and I would have weekly meetings at the 110 00:06:53,440 --> 00:06:55,840 Speaker 1: FED as part of that job. You know, I was 111 00:06:55,880 --> 00:06:58,240 Speaker 1: aware of that policy and was not a critic of 112 00:06:58,279 --> 00:07:01,680 Speaker 1: it at the time. It did seemed to be UH 113 00:07:01,680 --> 00:07:05,440 Speaker 1: an appropriate UH policy. I think since that point some 114 00:07:05,480 --> 00:07:07,800 Speaker 1: critics of the FED had pointed out that the FED 115 00:07:07,960 --> 00:07:10,320 Speaker 1: was very slow to begin raising raids in OH four 116 00:07:10,360 --> 00:07:12,080 Speaker 1: and oh five and six, And of course we also 117 00:07:12,160 --> 00:07:15,400 Speaker 1: had a housing bubble at the time, and so I 118 00:07:15,440 --> 00:07:17,520 Speaker 1: guess one can try to make a connection between that 119 00:07:17,560 --> 00:07:19,960 Speaker 1: policy and the housing bubble, and that may have been 120 00:07:19,960 --> 00:07:21,240 Speaker 1: a factor, But I think there are a lot of 121 00:07:21,240 --> 00:07:24,240 Speaker 1: other factors at work as well. Well. Let's discuss that. 122 00:07:24,240 --> 00:07:27,600 Speaker 1: That's an interesting issue. I mean, clearly, anything priced in 123 00:07:27,680 --> 00:07:30,440 Speaker 1: dollars or credit had a big move upwards. And whether 124 00:07:30,440 --> 00:07:35,000 Speaker 1: it was commodities, gold, or mortgages, what other factors did 125 00:07:35,000 --> 00:07:37,680 Speaker 1: you think were significant? Then? I think the other thing 126 00:07:37,760 --> 00:07:39,560 Speaker 1: is we we had what appeared to be and what 127 00:07:39,600 --> 00:07:44,040 Speaker 1: many including my self thought was a innovation uh in 128 00:07:44,200 --> 00:07:48,120 Speaker 1: finance securitization UH. And the fact that in mortgages, as 129 00:07:48,120 --> 00:07:50,280 Speaker 1: in other parts of the credit market, credits were being 130 00:07:50,280 --> 00:07:52,679 Speaker 1: securitized and they were no longer on the balance sheets 131 00:07:52,720 --> 00:07:55,120 Speaker 1: of banks and the FED another thought that made the 132 00:07:55,120 --> 00:07:58,640 Speaker 1: financial system safer uh. And in theory maybe it did. 133 00:07:58,680 --> 00:08:03,240 Speaker 1: But obviously in retrospect there were some accesses insecuritization and 134 00:08:03,280 --> 00:08:05,960 Speaker 1: in derivatives, and I think the system was more fragile 135 00:08:06,000 --> 00:08:08,880 Speaker 1: than a lot of folks thought at at the time. 136 00:08:08,920 --> 00:08:10,960 Speaker 1: And certainly, and I think that was a big part 137 00:08:10,960 --> 00:08:13,040 Speaker 1: of it. There was a lot of hey, the sausage 138 00:08:13,080 --> 00:08:15,800 Speaker 1: is only as good as put into it, and we 139 00:08:15,880 --> 00:08:18,320 Speaker 1: know there was a lot of bed you know, sub 140 00:08:18,320 --> 00:08:22,240 Speaker 1: prime mortgages that had gone in exactly clearly clearly a factor. 141 00:08:22,880 --> 00:08:25,600 Speaker 1: I have to ask you. You're the recipient of the 142 00:08:25,680 --> 00:08:29,760 Speaker 1: Treasury Medal for Distinguished Service. What is this award? What 143 00:08:29,760 --> 00:08:31,360 Speaker 1: what is it about? That has to be quite a 144 00:08:31,560 --> 00:08:35,520 Speaker 1: uh well, it was a real thrill um, and it's 145 00:08:35,559 --> 00:08:40,800 Speaker 1: not routinely awarded. I think in my case, the recognition 146 00:08:40,880 --> 00:08:44,440 Speaker 1: reflected the fact that because through the coincidence of timing 147 00:08:44,480 --> 00:08:47,640 Speaker 1: Berry I arrived, as I mentioned, during our recession. Remember, 148 00:08:47,679 --> 00:08:50,560 Speaker 1: the prior expansion had lasted ten years, and so a 149 00:08:50,559 --> 00:08:52,240 Speaker 1: lot of folks had sort of forgotten what does a 150 00:08:52,280 --> 00:08:54,840 Speaker 1: recession look like? How do we know when we're out 151 00:08:54,880 --> 00:08:58,960 Speaker 1: of it? Talk a little bit about monetary policy, and 152 00:08:59,040 --> 00:09:04,440 Speaker 1: since we were just gusting the financial crisis earlier, what 153 00:09:04,440 --> 00:09:07,319 Speaker 1: what are your views on how well the Federal Reserve 154 00:09:07,480 --> 00:09:12,760 Speaker 1: performs during that period? Uh, during coming out of the 155 00:09:12,760 --> 00:09:16,839 Speaker 1: financial crisis. Yeah, the global financial crisis. Well, I've said 156 00:09:17,280 --> 00:09:19,600 Speaker 1: many times on a lot on Bloomberg Air, I give 157 00:09:19,640 --> 00:09:25,400 Speaker 1: the Fed generally very high marks for crisis management under Bernankey. Obviously, 158 00:09:25,559 --> 00:09:27,520 Speaker 1: you cut rates as far as you can. The Fed 159 00:09:27,559 --> 00:09:30,440 Speaker 1: cut the funds rate to zero month or two after Lehman, 160 00:09:30,840 --> 00:09:33,200 Speaker 1: so you really go to Plan B. And Plan B 161 00:09:33,920 --> 00:09:38,040 Speaker 1: was doing quantitative easing, and in particular in the first 162 00:09:38,160 --> 00:09:41,760 Speaker 1: QUI program focused on the mortgage market, so signing up 163 00:09:41,800 --> 00:09:45,079 Speaker 1: all the as many as much mortgages as possible to 164 00:09:45,280 --> 00:09:48,800 Speaker 1: drive rates to drive. And also remember at that time 165 00:09:48,840 --> 00:09:52,120 Speaker 1: both Fannie and Freddie had been put into conservator ship, 166 00:09:52,320 --> 00:09:54,680 Speaker 1: and so there was just a huge amount of uncertainty 167 00:09:54,679 --> 00:09:57,000 Speaker 1: in the financial markets about what the mortgage market would 168 00:09:57,000 --> 00:09:59,840 Speaker 1: look like without that backstop, and so the FED got 169 00:09:59,840 --> 00:10:02,960 Speaker 1: in of the mortgage business. I think grudgingly. FED officials 170 00:10:02,960 --> 00:10:05,640 Speaker 1: have said many times publicly that they're not thrilled to 171 00:10:05,679 --> 00:10:08,640 Speaker 1: be the biggest holder of mortgages, but but they were 172 00:10:08,640 --> 00:10:11,040 Speaker 1: put into that position given the crisis. So so I 173 00:10:11,040 --> 00:10:14,559 Speaker 1: would give the FED quite high marks during that period 174 00:10:15,000 --> 00:10:19,079 Speaker 1: oh eight o nine ten uh in in crisis management. 175 00:10:19,080 --> 00:10:21,680 Speaker 1: I think if we fast forward more recently, if I 176 00:10:21,679 --> 00:10:26,240 Speaker 1: would have a disagreement with the FED, I think that UM, 177 00:10:26,559 --> 00:10:31,200 Speaker 1: the Fed's messaging has been inconsistent UM and a little 178 00:10:31,200 --> 00:10:35,680 Speaker 1: bit hard to follow in terms of normalization for for rates, 179 00:10:35,679 --> 00:10:37,520 Speaker 1: And in particular, an issue barrier that I look at 180 00:10:37,559 --> 00:10:41,040 Speaker 1: a lot is this idea that the fedist targeting inflation. 181 00:10:41,120 --> 00:10:44,000 Speaker 1: It says that the targets two percent and yet since 182 00:10:44,000 --> 00:10:46,600 Speaker 1: they became an inflation target or formally in two thousand 183 00:10:46,679 --> 00:10:50,480 Speaker 1: and twelve, inflation has been below two percent ever every year, 184 00:10:50,679 --> 00:10:53,120 Speaker 1: and and so the FED sometimes says that that two 185 00:10:53,120 --> 00:10:56,480 Speaker 1: percent should be an average, but they also said they 186 00:10:56,520 --> 00:10:58,640 Speaker 1: don't want inflation to go about two percent, which means 187 00:10:58,679 --> 00:11:01,240 Speaker 1: the average, of course will be below. So I do 188 00:11:01,360 --> 00:11:03,880 Speaker 1: think that now that the FED has begun to normalize 189 00:11:04,480 --> 00:11:06,840 Speaker 1: policy and there and we're at with the FED things 190 00:11:06,840 --> 00:11:10,319 Speaker 1: of his full employment, UH, that I think it is 191 00:11:10,360 --> 00:11:14,120 Speaker 1: appropriate to continue that normalization UH in in rates. And 192 00:11:14,160 --> 00:11:16,080 Speaker 1: obviously the next issue, which I'm sure we'll want to 193 00:11:16,080 --> 00:11:19,560 Speaker 1: talk about, UH is the Fed's approach to normalizing and 194 00:11:19,559 --> 00:11:22,760 Speaker 1: shrinking that huge four point five twillion dollar balance sheet. 195 00:11:23,120 --> 00:11:25,840 Speaker 1: So two points. I have two questions I have to 196 00:11:26,840 --> 00:11:30,320 Speaker 1: ask you about. The first, is it sounds like when 197 00:11:30,360 --> 00:11:34,080 Speaker 1: the FED is on their rate tightening cycle or in 198 00:11:34,120 --> 00:11:37,160 Speaker 1: this case, normalization, they seem to be a little behind 199 00:11:37,200 --> 00:11:40,240 Speaker 1: the curve both this cycle and let's call it oh 200 00:11:40,280 --> 00:11:44,400 Speaker 1: three to oh six UM, seems that they're they'd rather 201 00:11:44,480 --> 00:11:49,240 Speaker 1: go slowly, too slowly then too fast. Is that a 202 00:11:49,360 --> 00:11:51,480 Speaker 1: fair well? I think I think it is, and I 203 00:11:51,520 --> 00:11:54,400 Speaker 1: think I think in both episodes of FED officials have 204 00:11:54,480 --> 00:11:59,120 Speaker 1: appealed to to risk management. UM. I think in particular, now, 205 00:11:59,440 --> 00:12:01,840 Speaker 1: given that you know rates are low and we're in 206 00:12:01,920 --> 00:12:03,920 Speaker 1: what what what I and others have called a new 207 00:12:03,920 --> 00:12:07,720 Speaker 1: neutral for monetary policy. So your listeners should remember, before 208 00:12:07,720 --> 00:12:10,679 Speaker 1: the crisis, there was a pretty broad consensus among central 209 00:12:10,679 --> 00:12:14,920 Speaker 1: bankers that the Fed's policy rate, the funds rate, should 210 00:12:14,960 --> 00:12:18,080 Speaker 1: be some number add or above four percent once you 211 00:12:18,120 --> 00:12:21,720 Speaker 1: get to full employment. UM And I believe, and I 212 00:12:21,760 --> 00:12:24,360 Speaker 1: think the evidence shows that for a variety of reasons, 213 00:12:24,480 --> 00:12:27,200 Speaker 1: there's a new destination for the FED rate, which is 214 00:12:27,200 --> 00:12:28,840 Speaker 1: gonna be say two or two and a half, not 215 00:12:29,040 --> 00:12:31,760 Speaker 1: not four. Four is not a realistic number? Well think 216 00:12:31,800 --> 00:12:33,480 Speaker 1: of think about it now, Think about how you would 217 00:12:33,520 --> 00:12:36,840 Speaker 1: value equities or any asset class if you were discounting 218 00:12:36,840 --> 00:12:40,600 Speaker 1: those cash flows at four percent as opposed to to 219 00:12:40,600 --> 00:12:43,200 Speaker 1: to one or two. And I think when when people ask, well, 220 00:12:43,200 --> 00:12:44,560 Speaker 1: why is it a new neutral? I think there are 221 00:12:44,559 --> 00:12:47,120 Speaker 1: a couple of reasons. One, growth rates have slowed down. 222 00:12:47,360 --> 00:12:49,800 Speaker 1: When you and I began our careers, growth in the 223 00:12:49,800 --> 00:12:51,520 Speaker 1: economy and a good year was three and a half 224 00:12:51,559 --> 00:12:54,800 Speaker 1: sometimes four percent. Productivity growth was two two and a 225 00:12:54,880 --> 00:12:58,640 Speaker 1: half percent. Look at in the nineties. And so in 226 00:12:58,679 --> 00:13:02,040 Speaker 1: a world where theo's growing up four percent, you sort 227 00:13:02,080 --> 00:13:04,000 Speaker 1: of need a four percent interest rate, but in a 228 00:13:04,040 --> 00:13:06,760 Speaker 1: world where the real growth in the economy is too 229 00:13:07,080 --> 00:13:10,440 Speaker 1: In fact, basically, one thing Barry about the last several 230 00:13:10,520 --> 00:13:14,240 Speaker 1: years that people may not know is that US has 231 00:13:14,280 --> 00:13:17,480 Speaker 1: been a very stable economy in terms of volatility GDP 232 00:13:17,600 --> 00:13:19,480 Speaker 1: growth in a good years two point three and a 233 00:13:19,480 --> 00:13:22,560 Speaker 1: week years one point seven, but very tightly centered around 234 00:13:22,600 --> 00:13:25,439 Speaker 1: that two percent number. And so with slow growth, slow 235 00:13:25,480 --> 00:13:29,440 Speaker 1: productivity growth, and slow labor force growth, uh, the FED 236 00:13:29,640 --> 00:13:32,560 Speaker 1: needs to normalize, but the destination will be much lower 237 00:13:32,559 --> 00:13:36,480 Speaker 1: than before. So let's talk about the Fed's balance sheet 238 00:13:36,679 --> 00:13:39,200 Speaker 1: four and a half trillion. I think that's off of 239 00:13:39,280 --> 00:13:43,720 Speaker 1: the highs slightly basically at the peak. So here's the question. 240 00:13:44,160 --> 00:13:48,720 Speaker 1: All these holdings, be the mortgage backed securities or treasuries, 241 00:13:49,320 --> 00:13:53,000 Speaker 1: they're all dated. None of these are perpetual bonds were 242 00:13:53,000 --> 00:13:57,720 Speaker 1: not like the UK, not yet. Why can't the FEDS 243 00:13:57,760 --> 00:14:01,160 Speaker 1: simply let these roll off as they naturally come up 244 00:14:01,160 --> 00:14:06,000 Speaker 1: on the maturity dates and gradually allow their book to normalize. 245 00:14:06,200 --> 00:14:09,080 Speaker 1: And that would be one very plausible scenario. And and 246 00:14:09,120 --> 00:14:11,360 Speaker 1: I think if you go back and read what FED 247 00:14:11,400 --> 00:14:14,080 Speaker 1: officials said five or six years ago. That's what they 248 00:14:14,160 --> 00:14:16,760 Speaker 1: thought they would be doing. They thought that eventually they 249 00:14:16,760 --> 00:14:19,120 Speaker 1: would just step back, they would stop buying, and there's 250 00:14:19,120 --> 00:14:22,440 Speaker 1: the treasuries mature. Uh, that balance sheet would shrank. And 251 00:14:22,480 --> 00:14:25,720 Speaker 1: there's the mortgages prepay or people move or refinance those 252 00:14:25,760 --> 00:14:30,440 Speaker 1: mortgages would would would roll off. Um. It's pretty clear now, 253 00:14:30,480 --> 00:14:33,160 Speaker 1: based upon the Fed minutes that have been released this year, 254 00:14:33,720 --> 00:14:37,240 Speaker 1: that they are not going to pursue that passive approach. 255 00:14:37,280 --> 00:14:38,880 Speaker 1: What they're going to do is they're gonna try to 256 00:14:38,960 --> 00:14:43,120 Speaker 1: smooth the path of balance sheet reduction. Uh. And I 257 00:14:43,160 --> 00:14:45,320 Speaker 1: think they're doing so for a couple of reasons. When 258 00:14:45,320 --> 00:14:47,480 Speaker 1: you say smooth, what do you mean by that? That 259 00:14:47,520 --> 00:14:50,400 Speaker 1: means not just let them roll off, but but replace 260 00:14:50,680 --> 00:14:53,400 Speaker 1: some of them as So. For example, what the FED 261 00:14:53,440 --> 00:14:57,240 Speaker 1: minutes suggested at the last meeting Barry was that in 262 00:14:57,280 --> 00:15:00,720 Speaker 1: any given month they would set a maximum cap on 263 00:15:00,760 --> 00:15:03,560 Speaker 1: the amount of treasuries and mortgages that could roll off, 264 00:15:04,040 --> 00:15:08,240 Speaker 1: and any any additional roll off above that cap, they 265 00:15:08,240 --> 00:15:11,040 Speaker 1: would then step into the market and buy. So the 266 00:15:11,040 --> 00:15:13,200 Speaker 1: Fed will be shrinking the balance sheet, but it will 267 00:15:13,240 --> 00:15:17,600 Speaker 1: still be buying. Along this normalization path. They want they 268 00:15:17,640 --> 00:15:21,720 Speaker 1: want to smooth it um and they're also in a 269 00:15:21,800 --> 00:15:24,840 Speaker 1: situation whereby they made the case, which I agree with 270 00:15:24,960 --> 00:15:27,640 Speaker 1: that when they did qwi at lowered rates. So if 271 00:15:27,640 --> 00:15:30,640 Speaker 1: you're reversing, QI is probably gonna raise rates, and they're 272 00:15:30,680 --> 00:15:34,520 Speaker 1: really unsure by how much. And because they're unsure, they 273 00:15:34,520 --> 00:15:37,960 Speaker 1: want to really smooth this process out, which means it's 274 00:15:37,960 --> 00:15:40,760 Speaker 1: going to be very gradual. And I think the other 275 00:15:40,840 --> 00:15:44,680 Speaker 1: issue that your listeners should know, Barry, is there two 276 00:15:44,720 --> 00:15:47,120 Speaker 1: big decisions for the FED to make. How fast do 277 00:15:47,160 --> 00:15:48,960 Speaker 1: they let it roll off? And then what is the 278 00:15:49,040 --> 00:15:52,600 Speaker 1: ultimate destination. They haven't really given us much insight on 279 00:15:52,640 --> 00:15:56,680 Speaker 1: the ultimate destination, and I suspect that this FED may 280 00:15:56,720 --> 00:15:59,600 Speaker 1: not in the end make a decision on the ultimate 281 00:15:59,640 --> 00:16:02,080 Speaker 1: side for the balance sheet that maybe for the next 282 00:16:02,080 --> 00:16:04,920 Speaker 1: FED chair to figure out. So I would expect that 283 00:16:04,960 --> 00:16:08,120 Speaker 1: what Yelling and company are likely to do in June 284 00:16:08,240 --> 00:16:10,920 Speaker 1: or later this year is to lay out, if you will, 285 00:16:10,960 --> 00:16:14,120 Speaker 1: a glide path or a scenario for balance sheet reduction. 286 00:16:14,440 --> 00:16:16,360 Speaker 1: They may begin to do that, and then it will 287 00:16:16,400 --> 00:16:19,600 Speaker 1: be up to the next FED chair to implement as 288 00:16:19,640 --> 00:16:22,360 Speaker 1: he or she sees fit. Let's talk a little bit 289 00:16:22,360 --> 00:16:26,760 Speaker 1: about modern economic theory and some interesting and perplexing things 290 00:16:26,800 --> 00:16:31,880 Speaker 1: that are taking place. Earlier, you mentioned productivity. It seems 291 00:16:31,920 --> 00:16:34,320 Speaker 1: that we've sort of hit a productivity slump, and that 292 00:16:34,400 --> 00:16:38,000 Speaker 1: raises the question do we have a productivity problem or 293 00:16:38,040 --> 00:16:42,120 Speaker 1: do we have a problem measuring productivity? Great point, and 294 00:16:42,160 --> 00:16:46,160 Speaker 1: I think the truth is it's probably some of both. Clearly, 295 00:16:46,200 --> 00:16:50,400 Speaker 1: there are enormous amount of innovation, especially web based innovation, 296 00:16:50,640 --> 00:16:53,560 Speaker 1: and it's tough to measure that we all we all 297 00:16:53,600 --> 00:16:56,760 Speaker 1: know that, um. But I do think that for a 298 00:16:56,840 --> 00:16:59,680 Speaker 1: variety of reasons, that there is also a real productivity 299 00:17:00,160 --> 00:17:02,160 Speaker 1: slow down. Part of it may simply be as you 300 00:17:02,200 --> 00:17:05,480 Speaker 1: move towards a service economy, it's intrinsically hard to measure, 301 00:17:05,520 --> 00:17:09,399 Speaker 1: even old fashioned you can you can measure, but you 302 00:17:09,440 --> 00:17:13,280 Speaker 1: can't measure if you subscribe to something on Apple iTunes 303 00:17:13,320 --> 00:17:16,720 Speaker 1: and you're getting that service exactly music service, how do 304 00:17:16,720 --> 00:17:19,680 Speaker 1: you actually measure? So I think, I think, I think 305 00:17:19,680 --> 00:17:21,560 Speaker 1: there is an element to that. But I but I 306 00:17:21,600 --> 00:17:24,240 Speaker 1: do think also that we're in a period of relatively 307 00:17:24,280 --> 00:17:26,959 Speaker 1: slow prot growth in part area because we haven't had 308 00:17:26,960 --> 00:17:29,119 Speaker 1: a lot of investment in this country really in about 309 00:17:29,119 --> 00:17:33,480 Speaker 1: a dozen years. Uh and in particular asked capital stock 310 00:17:33,520 --> 00:17:38,159 Speaker 1: has moved towards equipment that depreciates faster technology becomes obsolete. 311 00:17:38,359 --> 00:17:40,919 Speaker 1: We probably have more of an investment shortfall than than 312 00:17:40,960 --> 00:17:43,439 Speaker 1: we're even measuring. Is that at a corporate level, is 313 00:17:43,440 --> 00:17:45,439 Speaker 1: that at a household level, is at a government level, 314 00:17:45,560 --> 00:17:47,359 Speaker 1: or is it across the board? I think it's I 315 00:17:47,640 --> 00:17:50,600 Speaker 1: think it's across. It's across the board. Also, you know, 316 00:17:50,680 --> 00:17:53,840 Speaker 1: let's face it, in our system, we have different parts 317 00:17:53,840 --> 00:17:56,879 Speaker 1: of the tax code that encourage different activities real estate, 318 00:17:56,960 --> 00:18:00,399 Speaker 1: for example, and we have an abysmal tax when it 319 00:18:00,440 --> 00:18:03,800 Speaker 1: comes to taxing corporations really in senting them to move 320 00:18:04,000 --> 00:18:06,520 Speaker 1: to move abroad. So there's a lot we didn't we 321 00:18:06,640 --> 00:18:10,399 Speaker 1: change recently some of the both under Bush and Obama. 322 00:18:10,960 --> 00:18:15,919 Speaker 1: The capital depreciation that's been accelerated fairly rapidly versus you know, 323 00:18:15,960 --> 00:18:18,240 Speaker 1: you're not writing down a truck over ten years the 324 00:18:18,240 --> 00:18:20,560 Speaker 1: way there were. There were some elements of that, but 325 00:18:20,600 --> 00:18:22,240 Speaker 1: I think that they I think a lot of them 326 00:18:22,280 --> 00:18:26,000 Speaker 1: actually a lot of them actually expired. But getting back 327 00:18:26,040 --> 00:18:28,560 Speaker 1: to your initial point, um, I think there is a 328 00:18:28,600 --> 00:18:32,000 Speaker 1: measurement issue with productivity. But I do think apart from 329 00:18:32,000 --> 00:18:35,200 Speaker 1: the measurement issue, we're in globally a period of pretty 330 00:18:35,200 --> 00:18:37,800 Speaker 1: slow growth right now. But as I said, economists don't 331 00:18:37,840 --> 00:18:40,240 Speaker 1: have a good track record at inflection points, so we 332 00:18:40,240 --> 00:18:43,359 Speaker 1: can have a big surprise. Perfect example, who would have 333 00:18:43,400 --> 00:18:46,399 Speaker 1: said ten years ago or even eight years ago that 334 00:18:46,440 --> 00:18:49,040 Speaker 1: you would see the revolution and fracking and shale that 335 00:18:49,080 --> 00:18:52,240 Speaker 1: we've seen. That was a technological revolution that's transformed the 336 00:18:52,400 --> 00:18:55,960 Speaker 1: entire global energy market. Right. Remember, the thinking was, well, 337 00:18:56,000 --> 00:18:58,440 Speaker 1: what's the big deal with fracking with oil at a hundred, Well, 338 00:18:58,520 --> 00:19:00,840 Speaker 1: because of fracking oils at six and not a hundreds, 339 00:19:00,880 --> 00:19:03,920 Speaker 1: that's a huge impact that ten years ago, fifteen years ago, 340 00:19:04,000 --> 00:19:07,080 Speaker 1: nobody first and we haven't seen sixty in a long time. 341 00:19:07,720 --> 00:19:11,920 Speaker 1: When oil, which which kind of brings up the whole 342 00:19:12,000 --> 00:19:17,920 Speaker 1: debate about coal. When technology makes natural gas a with 343 00:19:18,119 --> 00:19:20,240 Speaker 1: the Saudi Arabia of natural gas as well as the 344 00:19:20,280 --> 00:19:22,920 Speaker 1: Saudi Arabia of coal, but when they make it so 345 00:19:23,160 --> 00:19:27,960 Speaker 1: accessible and so inexpensive, why move mountains to get cold 346 00:19:28,000 --> 00:19:30,720 Speaker 1: when it's so easy to pull gas out of the ground. Well, 347 00:19:30,760 --> 00:19:33,520 Speaker 1: and and also Barry, the fact is because of the 348 00:19:33,680 --> 00:19:37,880 Speaker 1: l en G technology, we can actually export our natural gas. 349 00:19:38,359 --> 00:19:40,920 Speaker 1: And ten years ago the talkers we needed important natural gas. 350 00:19:41,000 --> 00:19:44,880 Speaker 1: Now we're exportings. I just read the other day an 351 00:19:45,000 --> 00:19:49,080 Speaker 1: article that said, for the first time, liquid natural gas 352 00:19:49,280 --> 00:19:52,440 Speaker 1: is a global marketplace. It's not a regional market anymore. 353 00:19:52,840 --> 00:19:55,399 Speaker 1: And it once was, and it's and you're actually starting 354 00:19:55,480 --> 00:19:57,639 Speaker 1: to see that gas, which used to be very, very 355 00:19:57,720 --> 00:20:01,200 Speaker 1: geographically segmented, there's basically now approaching a global market. And 356 00:20:01,280 --> 00:20:06,520 Speaker 1: gash right, So you you referenced earlier UM the holdings 357 00:20:06,560 --> 00:20:12,200 Speaker 1: in treasuries and the relative um rarity or or the 358 00:20:12,359 --> 00:20:16,119 Speaker 1: limited supply of of of quality sovereign bonds. What are 359 00:20:16,160 --> 00:20:18,760 Speaker 1: your thoughts on this talk about a fifty or a 360 00:20:18,840 --> 00:20:22,200 Speaker 1: hundred year bonds here in the United States. Well, you know, 361 00:20:22,320 --> 00:20:24,960 Speaker 1: there is a there is a an issue which is 362 00:20:25,040 --> 00:20:28,080 Speaker 1: historically the Treasury is not issued beyond thirty years, no 363 00:20:28,240 --> 00:20:32,200 Speaker 1: pun intended. UH. There is globally a demand. There's a 364 00:20:32,280 --> 00:20:36,120 Speaker 1: certain community. UH. I think insurance companies, think other managers 365 00:20:36,200 --> 00:20:39,480 Speaker 1: that really have an appetite for very long duration assets 366 00:20:39,880 --> 00:20:43,919 Speaker 1: on match actuarial tables exactly UM, and so I think 367 00:20:43,960 --> 00:20:47,040 Speaker 1: there could be a case for for doing so, UH, 368 00:20:47,119 --> 00:20:51,600 Speaker 1: in particular long duration inflation index securities. UM. Say that again, 369 00:20:51,880 --> 00:20:55,680 Speaker 1: long duration and so you have inflation, so we have tips, 370 00:20:55,800 --> 00:20:59,080 Speaker 1: but they're relatively short again, well, but they go out 371 00:20:59,119 --> 00:21:03,879 Speaker 1: to thirty years, but beyond beyond that because because essentially, 372 00:21:04,600 --> 00:21:08,520 Speaker 1: for many individual investors, UH, potentially the biggest risk they 373 00:21:08,560 --> 00:21:11,440 Speaker 1: face over the life cycle is you you do hall 374 00:21:11,520 --> 00:21:13,760 Speaker 1: this hard saving, earned some decent returns, and then two 375 00:21:13,800 --> 00:21:16,440 Speaker 1: or three years of fifteen percent inflation, and of course 376 00:21:16,600 --> 00:21:19,119 Speaker 1: your younger listeners are saying, oh, fifteen percent inflation, that 377 00:21:19,200 --> 00:21:21,320 Speaker 1: can't happen. That was my senior year in college. That 378 00:21:21,440 --> 00:21:24,879 Speaker 1: was that was me in in grammar school, having to 379 00:21:24,960 --> 00:21:27,560 Speaker 1: go to the gas. They get guests to mow the lawn, 380 00:21:28,200 --> 00:21:32,000 Speaker 1: and um, we had, we had rates that we're pretty 381 00:21:32,040 --> 00:21:34,159 Speaker 1: crazy back. So so I do think Barry that that 382 00:21:34,280 --> 00:21:37,359 Speaker 1: I think there is a case for it. Apparently the 383 00:21:37,440 --> 00:21:42,639 Speaker 1: Treasury under Secretary Manuch is exploring this, uh this idea. 384 00:21:42,720 --> 00:21:45,320 Speaker 1: I think what gives them some pause is compared to 385 00:21:45,359 --> 00:21:47,919 Speaker 1: the UK, where there's a voracious appetite for very long 386 00:21:48,000 --> 00:21:50,520 Speaker 1: duration assets, there may not be so much of one 387 00:21:50,600 --> 00:21:52,600 Speaker 1: in the US, and so the Treasury doesn't want to 388 00:21:52,600 --> 00:21:54,960 Speaker 1: get into an area where it's having to offer up 389 00:21:55,000 --> 00:21:57,240 Speaker 1: a much higher yield to lock in that money for 390 00:21:57,440 --> 00:22:00,080 Speaker 1: fifty years. So I think it's under discussion. So the 391 00:22:00,440 --> 00:22:03,960 Speaker 1: fear is that the Treasury is going to overpay to 392 00:22:04,160 --> 00:22:07,520 Speaker 1: borrow that money. Yeah, what as if it was tied 393 00:22:07,640 --> 00:22:11,040 Speaker 1: to something like infrastructure or some other Is that the 394 00:22:11,200 --> 00:22:13,879 Speaker 1: politics of it or is that the structure of it? No, 395 00:22:14,040 --> 00:22:15,800 Speaker 1: I think I think it could be tied to It 396 00:22:15,840 --> 00:22:18,520 Speaker 1: could surely could be tied to infrastructure. And again I 397 00:22:18,600 --> 00:22:22,280 Speaker 1: think it's under it's under discussion, But I think ultimately 398 00:22:22,359 --> 00:22:25,080 Speaker 1: the decision is going to come down to how big 399 00:22:25,280 --> 00:22:27,320 Speaker 1: is the appetite, Because if there really is an appetite 400 00:22:27,320 --> 00:22:29,879 Speaker 1: for very long duration instruments, and the Treasury would not 401 00:22:29,960 --> 00:22:32,480 Speaker 1: have to offer much higher yield in order to to 402 00:22:32,560 --> 00:22:34,960 Speaker 1: sell those bonds, and I think they're still figuring that out. 403 00:22:35,280 --> 00:22:37,439 Speaker 1: Let's talk a little bit about some of the private 404 00:22:37,520 --> 00:22:41,800 Speaker 1: sector working done, because some of that stuff is really fascinating. 405 00:22:41,920 --> 00:22:45,760 Speaker 1: You've you've consulted for the likes of JP Morgan, Credit Swiss, 406 00:22:46,119 --> 00:22:49,040 Speaker 1: the Federal Reserve Bank of New York. What does that 407 00:22:49,119 --> 00:22:52,760 Speaker 1: work look like, what's that process like? Well, it depends. 408 00:22:52,880 --> 00:22:55,320 Speaker 1: I think in the case of Credit Swiss, that was 409 00:22:55,720 --> 00:22:58,520 Speaker 1: almost twenty years ago, and I was essentially working with 410 00:22:58,600 --> 00:23:01,960 Speaker 1: their facts team to build them econometric models of the 411 00:23:02,119 --> 00:23:05,840 Speaker 1: of the currency market and currency evaluation, so they're essentially 412 00:23:05,880 --> 00:23:08,160 Speaker 1: outsourcing some of that to me. I was actually sort 413 00:23:08,200 --> 00:23:10,359 Speaker 1: of proud they actually still they were running that model 414 00:23:10,400 --> 00:23:13,399 Speaker 1: about for about fifteen years or so. They since retired it, 415 00:23:13,520 --> 00:23:16,359 Speaker 1: but uh so that was a good project. You know, 416 00:23:16,440 --> 00:23:18,800 Speaker 1: the New York Fed has a lot of programs. In 417 00:23:18,920 --> 00:23:21,600 Speaker 1: the case of there, I visited during the summer, worked 418 00:23:21,640 --> 00:23:25,480 Speaker 1: on some papers, co authored with their staff. Spent some 419 00:23:25,640 --> 00:23:28,080 Speaker 1: time back in the nineties when Rick Michigan was the 420 00:23:28,160 --> 00:23:30,119 Speaker 1: director of research at the New York Fed, where he 421 00:23:30,160 --> 00:23:32,679 Speaker 1: had a little kitchen cabinet of people who would come 422 00:23:32,720 --> 00:23:37,080 Speaker 1: down every Friday and have have uh lunch. I love 423 00:23:37,160 --> 00:23:39,440 Speaker 1: that idea of a kitchen cabinet around the New York 424 00:23:40,119 --> 00:23:42,200 Speaker 1: Is that still going on, I believe so. I have 425 00:23:42,280 --> 00:23:43,840 Speaker 1: not done it in in in a while, but it's 426 00:23:43,880 --> 00:23:46,040 Speaker 1: quite an impressive group. You had. Chris Simms is a 427 00:23:46,080 --> 00:23:49,080 Speaker 1: Nobel laureate, someone named Ben Bernanke was there every week, 428 00:23:49,440 --> 00:23:52,359 Speaker 1: Rick Michigan, Mike Woodford, So it was it was a 429 00:23:52,440 --> 00:23:54,960 Speaker 1: real treat to be part of that group. If you 430 00:23:55,119 --> 00:23:58,960 Speaker 1: remember the book from the sixties, The Money Game by 431 00:23:59,160 --> 00:24:03,479 Speaker 1: Adam Smith was the nomen Yes, he describes a similar 432 00:24:03,560 --> 00:24:08,560 Speaker 1: sort of kitchen cabinet um that was run by Scarsdale Fats, 433 00:24:08,680 --> 00:24:11,520 Speaker 1: and it was movers and shakers on Wall Street would 434 00:24:11,520 --> 00:24:15,480 Speaker 1: get together on a Friday afternoon and discuss what they 435 00:24:15,520 --> 00:24:17,480 Speaker 1: were doing, what they were looking at, what they were seeing, 436 00:24:17,960 --> 00:24:21,399 Speaker 1: and there was all sorts of conspiratorial overtones. Meanwhile, it 437 00:24:21,480 --> 00:24:23,399 Speaker 1: was just six guys sitting around chewing the fat over 438 00:24:23,520 --> 00:24:26,120 Speaker 1: what stocks they liked and didn't and they they had 439 00:24:26,200 --> 00:24:29,280 Speaker 1: far less power than than was ascribed to them. But 440 00:24:29,359 --> 00:24:32,200 Speaker 1: I like the idea that taking place, UH with with 441 00:24:32,280 --> 00:24:35,399 Speaker 1: the New York Fed. Speaking of the FED, you did 442 00:24:35,480 --> 00:24:38,640 Speaker 1: work with a former FED chairman, Paul Volcan. I did, 443 00:24:38,720 --> 00:24:41,200 Speaker 1: and there was one of the thrills of my professional career. 444 00:24:41,320 --> 00:24:45,560 Speaker 1: So so tell Paul Volker, better known as Tall Paul, 445 00:24:46,560 --> 00:24:48,960 Speaker 1: also known as Paul Volker for many years after he 446 00:24:49,119 --> 00:24:51,520 Speaker 1: left that I should say, Paul Volkers one of my 447 00:24:52,119 --> 00:24:55,560 Speaker 1: one of my heroes. You know, you talking about profiles 448 00:24:55,600 --> 00:25:00,199 Speaker 1: and courage. But what Paul Volker did under enorm us 449 00:25:00,560 --> 00:25:03,840 Speaker 1: UH pressure and with very high stakes to break the 450 00:25:03,920 --> 00:25:07,879 Speaker 1: back of inflation UH in the early nineteen eighties and 451 00:25:08,040 --> 00:25:11,600 Speaker 1: really bequeath really the foundations for a twenty five year 452 00:25:11,640 --> 00:25:14,560 Speaker 1: bull market and bonds and stocks he gets far less 453 00:25:14,600 --> 00:25:18,200 Speaker 1: credit than he showed. Is really the prime market. He's 454 00:25:18,280 --> 00:25:22,440 Speaker 1: truly a thirty year bull market. And the recovery in 455 00:25:22,560 --> 00:25:25,360 Speaker 1: both the U S economy and the U S stock market. Yeah, 456 00:25:25,520 --> 00:25:29,040 Speaker 1: and and all based upon basically making the right decisions 457 00:25:29,119 --> 00:25:31,480 Speaker 1: in a in a four or five year period. So 458 00:25:31,760 --> 00:25:33,680 Speaker 1: literally one of the giants of economics. But to answer 459 00:25:33,680 --> 00:25:35,960 Speaker 1: your question, after he left the FED, he spent many 460 00:25:36,080 --> 00:25:38,200 Speaker 1: years at something called the Group of Thirty, which is 461 00:25:38,280 --> 00:25:42,640 Speaker 1: basically an informal organization of former policymakers, and the Group 462 00:25:42,680 --> 00:25:44,920 Speaker 1: of thirty commissioned to paper by me. I'm not a 463 00:25:45,000 --> 00:25:46,880 Speaker 1: member of the Group of thirty. I'm not in that club, 464 00:25:46,960 --> 00:25:50,320 Speaker 1: but they occasionally commissioned papers uh. And so Paul and 465 00:25:50,480 --> 00:25:53,040 Speaker 1: his team asked me to write a paper right after 466 00:25:53,119 --> 00:25:57,480 Speaker 1: the Asia financial crisis on sort of what the what 467 00:25:57,640 --> 00:26:01,960 Speaker 1: the global UH currency markets would look like in the 468 00:26:02,200 --> 00:26:04,840 Speaker 1: in the aftermath of that crisis. And so I took 469 00:26:04,880 --> 00:26:07,919 Speaker 1: it as an opportunity to write along sixty page scholarly 470 00:26:08,640 --> 00:26:12,879 Speaker 1: paper thinking about the foreign exchange markets after the Asia crisis. 471 00:26:12,920 --> 00:26:15,280 Speaker 1: So it's a real, real treat to work, to work 472 00:26:15,320 --> 00:26:19,160 Speaker 1: with him that that's that's quite fascinating. Yeah. Um, let's 473 00:26:19,200 --> 00:26:22,080 Speaker 1: talk a little bit about PIMCO. Yeah, you're you're global 474 00:26:22,119 --> 00:26:26,760 Speaker 1: strategist for them. Yeah, you're a managing partner and right, 475 00:26:26,920 --> 00:26:29,040 Speaker 1: that's right. Tell us what that that work is like. 476 00:26:29,240 --> 00:26:31,920 Speaker 1: So I've been with PIMCO for eleven years. It seems 477 00:26:32,000 --> 00:26:34,880 Speaker 1: just like yesterday. So you've been there through a lot 478 00:26:35,119 --> 00:26:37,719 Speaker 1: of pre and post here and a lot of indeed 479 00:26:38,160 --> 00:26:40,920 Speaker 1: a lot of interesting times. And and so what do 480 00:26:41,040 --> 00:26:44,600 Speaker 1: I do for Pimco. Well, I I basically work on 481 00:26:44,680 --> 00:26:48,240 Speaker 1: global macro, focusing on the G ten economies. Given my 482 00:26:48,359 --> 00:26:51,240 Speaker 1: interest in my research, I spent a lot of time 483 00:26:51,320 --> 00:26:55,679 Speaker 1: thinking about the FED and other central banks. Obviously central 484 00:26:55,720 --> 00:26:59,400 Speaker 1: banks are key to value bonds. PIMCO has a lot 485 00:26:59,680 --> 00:27:04,280 Speaker 1: of clients, especially around the world, who I go see 486 00:27:04,359 --> 00:27:08,000 Speaker 1: and then more recently, since two thousand and fourteen, the 487 00:27:08,080 --> 00:27:11,159 Speaker 1: folks that have asked me to oversee our annual Secontar 488 00:27:11,280 --> 00:27:14,280 Speaker 1: Forum process, which is really an integral part of pimco's 489 00:27:14,280 --> 00:27:16,800 Speaker 1: investment process. We've been doing it for thirty six years. 490 00:27:17,280 --> 00:27:20,320 Speaker 1: We bring an outside speakers three days a year just 491 00:27:20,560 --> 00:27:23,760 Speaker 1: for the investors and the executives of the firm. To 492 00:27:24,240 --> 00:27:26,119 Speaker 1: think about what the global economy is going to look 493 00:27:26,160 --> 00:27:27,639 Speaker 1: like over the next three or five years. So you 494 00:27:27,680 --> 00:27:30,240 Speaker 1: mentioned the new Normal and one of the earlier segments 495 00:27:30,280 --> 00:27:32,760 Speaker 1: I talked about the New Neutral. Those are both themes 496 00:27:32,880 --> 00:27:36,480 Speaker 1: that emerged from our Secontar Forum process, and so that's 497 00:27:36,520 --> 00:27:40,280 Speaker 1: now essentially my my role is to coordinate that that effort. 498 00:27:40,440 --> 00:27:45,480 Speaker 1: That that's fascinating. How do you integrate global monetary and 499 00:27:46,040 --> 00:27:52,560 Speaker 1: global fiscal policy into ideas of either fixed income investing 500 00:27:52,840 --> 00:27:55,800 Speaker 1: or any type of investing. Yeah, well, and I think 501 00:27:55,840 --> 00:27:58,920 Speaker 1: that's obviously that's that's that's crucial for me to add 502 00:27:59,000 --> 00:28:02,960 Speaker 1: value to to the operation. I think I'll give you 503 00:28:03,400 --> 00:28:06,880 Speaker 1: I'll give you a concrete um example. Uh, this whole 504 00:28:06,920 --> 00:28:09,720 Speaker 1: idea that we talked about it a moment ago, about 505 00:28:09,760 --> 00:28:12,520 Speaker 1: the new about the new neutral. That is something that 506 00:28:12,640 --> 00:28:16,600 Speaker 1: I began to think about based on my academic work, uh, 507 00:28:17,119 --> 00:28:19,800 Speaker 1: working with something that we would call a forward looking 508 00:28:19,920 --> 00:28:22,840 Speaker 1: version of a tailor rule. Work I did with Mark 509 00:28:22,920 --> 00:28:25,639 Speaker 1: Gertler and Jardy Galliott at n y U. So we 510 00:28:25,760 --> 00:28:28,280 Speaker 1: were pretty early on in the in the late nineties 511 00:28:28,359 --> 00:28:32,200 Speaker 1: and sort of focusing on a rules based monetary policy. 512 00:28:32,480 --> 00:28:35,000 Speaker 1: But one of the things about the original tailor rules, 513 00:28:35,080 --> 00:28:38,400 Speaker 1: it assumed that this neutral policy rate was constant, and 514 00:28:38,600 --> 00:28:40,760 Speaker 1: I began to be persuaded that, in fact, we're in 515 00:28:40,840 --> 00:28:43,560 Speaker 1: a world where where neutral is not constant. In fact, 516 00:28:43,640 --> 00:28:45,959 Speaker 1: it's going to be lower the destination for the funds rate. 517 00:28:46,360 --> 00:28:49,000 Speaker 1: And so I basically was making the case internally that 518 00:28:49,080 --> 00:28:51,120 Speaker 1: we needed to factor this in. That became what we 519 00:28:51,240 --> 00:28:54,240 Speaker 1: call our new neutral thesis, and it's been a really 520 00:28:54,320 --> 00:28:56,520 Speaker 1: important part of the way that we've been investing for 521 00:28:56,600 --> 00:28:58,600 Speaker 1: the last three years. So so let me get you 522 00:28:58,680 --> 00:29:04,680 Speaker 1: to define this. Yeah, dynamic stochastic general equilibrium modeling. Oh, 523 00:29:04,800 --> 00:29:08,360 Speaker 1: my mouthful, And that's pretty much the name of one 524 00:29:08,400 --> 00:29:11,200 Speaker 1: of your papers. Yeah, well, and that's that's the that's 525 00:29:11,240 --> 00:29:15,120 Speaker 1: the name of the branch of economics that I work in. Uh. 526 00:29:15,240 --> 00:29:18,040 Speaker 1: That's an example where the jargon is probably relevant to 527 00:29:18,160 --> 00:29:20,120 Speaker 1: other members of that club, but I think to the 528 00:29:20,200 --> 00:29:23,000 Speaker 1: general public is probably not all that important. Essentially, what 529 00:29:23,160 --> 00:29:25,040 Speaker 1: it means is that you're building a model of the 530 00:29:25,120 --> 00:29:28,840 Speaker 1: economy which is going to be modeling the economy over time, 531 00:29:28,960 --> 00:29:32,240 Speaker 1: so it's dynamic over time, but it also allows for 532 00:29:32,640 --> 00:29:36,320 Speaker 1: stuff to happen. Stuff happened, so shocks to happen, so 533 00:29:36,400 --> 00:29:38,600 Speaker 1: you want to know how the economy evolves when it's 534 00:29:38,680 --> 00:29:42,800 Speaker 1: hit by shocks, you know, oil shocks, supply shocks, fiscal shocks, 535 00:29:42,880 --> 00:29:46,880 Speaker 1: and so that's the stochastic part of the equation. It's 536 00:29:47,000 --> 00:29:50,000 Speaker 1: um it's in Otherwise it sounds much worse than it 537 00:29:50,560 --> 00:29:55,600 Speaker 1: really yah, than it really is exactly. UM. I previously 538 00:29:56,200 --> 00:30:00,640 Speaker 1: had your PIMCO colleague Paul McCulley on. He's somebody I 539 00:30:01,160 --> 00:30:04,600 Speaker 1: met fishing in Maine, of all places, and he is 540 00:30:04,640 --> 00:30:08,480 Speaker 1: a big Himan Minsky fan who was infamous for saying 541 00:30:09,280 --> 00:30:14,160 Speaker 1: um stability breeds instability. Do you think that's true? And 542 00:30:14,320 --> 00:30:17,200 Speaker 1: given this period of stability we've seen, are we potentially 543 00:30:17,880 --> 00:30:21,040 Speaker 1: breeding a more instability? Well, first of all, just since 544 00:30:21,080 --> 00:30:23,800 Speaker 1: you mentioned Paul, just to know he's teaching at Cornel. 545 00:30:24,400 --> 00:30:28,640 Speaker 1: Just just mentioned I. One of the real high points 546 00:30:28,800 --> 00:30:32,000 Speaker 1: of of my time at PEMCA was a chance to 547 00:30:32,040 --> 00:30:35,000 Speaker 1: work very closely with Paul for six, seven or eight 548 00:30:35,520 --> 00:30:39,880 Speaker 1: years uh. And I learned so much from him. Uh. 549 00:30:40,040 --> 00:30:42,680 Speaker 1: And in particular when when I got there and oh six, 550 00:30:42,920 --> 00:30:46,880 Speaker 1: he was already on the Minsky uh soapbox. And I 551 00:30:46,960 --> 00:30:49,680 Speaker 1: must admit at that time I had some vague recollection 552 00:30:49,720 --> 00:30:52,720 Speaker 1: of reading miss Minsky and graduate school. But but obviously 553 00:30:52,920 --> 00:30:55,960 Speaker 1: that was a very very prescient call on On on 554 00:30:56,080 --> 00:30:59,680 Speaker 1: his part to your broader question. Clearly in retrospect, and 555 00:30:59,720 --> 00:31:01,640 Speaker 1: believe me, Barry, I did not have a crystal ball 556 00:31:01,720 --> 00:31:05,560 Speaker 1: in oh five and oh six, but but clearly in retrospect, Uh, 557 00:31:05,800 --> 00:31:08,800 Speaker 1: the stability of the of the two thousands did breed 558 00:31:08,880 --> 00:31:12,080 Speaker 1: instability through as we mentioned, the securitization and the credit 559 00:31:12,200 --> 00:31:14,840 Speaker 1: derivatives and all of that, on all of that stuff. 560 00:31:15,600 --> 00:31:17,600 Speaker 1: So what I'd like to say is, I think general 561 00:31:17,720 --> 00:31:19,400 Speaker 1: the old saying is, you know, generals are good at 562 00:31:19,440 --> 00:31:22,120 Speaker 1: fighting the last war. So I'm very convinced, Barry that 563 00:31:22,720 --> 00:31:25,640 Speaker 1: two things, there will be another financial crisis, and I'm 564 00:31:25,640 --> 00:31:27,400 Speaker 1: convinced of the other thing is it will not look 565 00:31:27,440 --> 00:31:29,600 Speaker 1: like the last crisis. Is We're always quite good at 566 00:31:29,640 --> 00:31:32,640 Speaker 1: making sure the next crisis looks different. And that's where 567 00:31:32,640 --> 00:31:34,800 Speaker 1: I think the real power of Ryan Harton Rogoff is 568 00:31:34,920 --> 00:31:38,520 Speaker 1: is we keep persuading ourselves that things are different because 569 00:31:38,560 --> 00:31:42,120 Speaker 1: we're not going to have another you know, subprime meltdown, 570 00:31:42,200 --> 00:31:44,040 Speaker 1: but it will show up somewhere else. You know, greed 571 00:31:44,160 --> 00:31:47,080 Speaker 1: is a constant fact of life. And I think in 572 00:31:47,360 --> 00:31:51,440 Speaker 1: some ways the system still is fragile because of the 573 00:31:51,520 --> 00:31:54,800 Speaker 1: interconnectedness Now globally, it's no longer a US market or 574 00:31:54,840 --> 00:31:57,600 Speaker 1: a French market. What happens in Beijing or ri Odd 575 00:31:57,640 --> 00:32:01,240 Speaker 1: impacts all of our markets as well. Ow uh So, 576 00:32:01,640 --> 00:32:03,200 Speaker 1: I think one thing that we do know is the 577 00:32:03,280 --> 00:32:08,200 Speaker 1: big global huge banks have much more capital uh than 578 00:32:08,280 --> 00:32:10,120 Speaker 1: they did before, and as we mentioned, they have more 579 00:32:10,240 --> 00:32:13,600 Speaker 1: liquid assets. But that just means I think the risk 580 00:32:13,680 --> 00:32:16,440 Speaker 1: migration is somewhere else in the system, and I think 581 00:32:16,480 --> 00:32:18,920 Speaker 1: we know less about that. Frankly, we have been speaking 582 00:32:19,000 --> 00:32:22,960 Speaker 1: with Professor Richard Clarida, global strategist for Pimco and professor 583 00:32:23,000 --> 00:32:26,000 Speaker 1: at Columbia University. Be sure and check out my daily 584 00:32:26,120 --> 00:32:29,040 Speaker 1: column on Bloomberg View dot com. You can follow me 585 00:32:29,280 --> 00:32:33,760 Speaker 1: on Twitter at rihlts. We love your comments, feedback and 586 00:32:33,920 --> 00:32:38,040 Speaker 1: suggestions right to us at m IB podcast at Bloomberg 587 00:32:38,120 --> 00:32:41,280 Speaker 1: dot net. I'm Barry Hults. You've been listening to Masters 588 00:32:41,320 --> 00:32:53,760 Speaker 1: in Business on Bloomberg Radio. People think that when you 589 00:32:53,800 --> 00:32:56,520 Speaker 1: are a refugee in very seculated to America, they know 590 00:32:56,600 --> 00:32:58,640 Speaker 1: your problems and that they don't understand that that's the 591 00:32:58,680 --> 00:33:02,080 Speaker 1: beginning of everything. I was not born a refuge I 592 00:33:02,240 --> 00:33:06,080 Speaker 1: was made one learn More and Embrace Refugees dot org, 593 00:33:06,200 --> 00:33:13,920 Speaker 1: brought to you by the AD Council. Welcome to the podcast, Richard. 594 00:33:13,960 --> 00:33:17,160 Speaker 1: Thank you so much for doing this. This is fascinating 595 00:33:17,400 --> 00:33:20,200 Speaker 1: And um you were on my my shortlist of people 596 00:33:20,320 --> 00:33:23,000 Speaker 1: to reach out to, so I'm glad we managed to 597 00:33:23,080 --> 00:33:27,160 Speaker 1: get together. Yeah, there are a bunch of things I 598 00:33:27,280 --> 00:33:30,840 Speaker 1: want to get to before I get to my standard questions. 599 00:33:30,960 --> 00:33:34,680 Speaker 1: This is me going through all my pages. I hate 600 00:33:34,680 --> 00:33:39,440 Speaker 1: when it gets printed two sided because I can't find stuff. Um, 601 00:33:40,360 --> 00:33:44,400 Speaker 1: I asked about dynamic stochastic general equilibrium modeling. You went 602 00:33:44,680 --> 00:33:47,560 Speaker 1: You went right into academia straight out of college. Is 603 00:33:47,640 --> 00:33:51,760 Speaker 1: that always the plan? Well, it was so I went 604 00:33:51,840 --> 00:33:54,600 Speaker 1: straight from the University of Illinois, where I must say 605 00:33:54,640 --> 00:33:57,640 Speaker 1: I got an incredible education, one of the great land 606 00:33:57,680 --> 00:34:02,800 Speaker 1: grant universities and was an economics major land grant universities. 607 00:34:02,840 --> 00:34:05,240 Speaker 1: What is that that? That was a program that started 608 00:34:05,320 --> 00:34:09,640 Speaker 1: under Abraham Lincoln and the idea was that there would 609 00:34:09,680 --> 00:34:14,840 Speaker 1: be federal land given to states if they would build universities. 610 00:34:15,120 --> 00:34:17,680 Speaker 1: UM on it and there were some support. Yeah, so 611 00:34:18,040 --> 00:34:22,280 Speaker 1: very very much public private partnership. You know. Alexander Hamilton's 612 00:34:22,520 --> 00:34:25,799 Speaker 1: approach yes, and so University of Illinois, Michigan. They're called 613 00:34:25,840 --> 00:34:30,080 Speaker 1: the Land Grant UH Universities UM, and I think tuitioning 614 00:34:30,160 --> 00:34:32,160 Speaker 1: was six d dollars a term or a year in 615 00:34:32,200 --> 00:34:35,719 Speaker 1: incredible education. And then was an econ major UH and 616 00:34:36,440 --> 00:34:40,280 Speaker 1: applied to graduate school and in one of the huge 617 00:34:40,680 --> 00:34:43,759 Speaker 1: surprises and life changing events of my life, actually got 618 00:34:43,840 --> 00:34:48,000 Speaker 1: into Harvard. No, no expectation that would happen. And so 619 00:34:48,239 --> 00:34:51,560 Speaker 1: which was where were you expecting to go? Well, I 620 00:34:51,600 --> 00:34:54,200 Speaker 1: applied to some other good, good schools, but you know, 621 00:34:54,400 --> 00:34:59,400 Speaker 1: kids from coal mining towns and downstate Illinois UH didn't 622 00:34:59,600 --> 00:35:03,200 Speaker 1: didn't go to Harvard. But but but I was admitted 623 00:35:03,280 --> 00:35:05,600 Speaker 1: and went there. And then in those days you could 624 00:35:05,640 --> 00:35:07,799 Speaker 1: get a PhD in four years. Typically now it takes 625 00:35:07,880 --> 00:35:10,080 Speaker 1: five or six. And so that I went straight from 626 00:35:10,120 --> 00:35:12,520 Speaker 1: college to Harvard, and then I went straight from Harvard 627 00:35:12,560 --> 00:35:15,880 Speaker 1: to my first job as an assistant professor at at 628 00:35:16,000 --> 00:35:19,919 Speaker 1: Yale back in not not a bad set of affiliations, 629 00:35:20,000 --> 00:35:22,560 Speaker 1: and my office was right next to someone named Jim Tobin. 630 00:35:22,840 --> 00:35:26,080 Speaker 1: So talk about talk about an eye opening experience as 631 00:35:26,120 --> 00:35:28,920 Speaker 1: a twenty six year old assistant professor. And the fellow 632 00:35:29,000 --> 00:35:32,359 Speaker 1: next door is Nobel laureate and legend Jim Toe. Did 633 00:35:32,400 --> 00:35:35,319 Speaker 1: you get to interact with you very much? Absolutely? Yeah. 634 00:35:35,760 --> 00:35:38,880 Speaker 1: It's funny because as I speak with people over the 635 00:35:38,960 --> 00:35:42,040 Speaker 1: course of the show, it's always fascinating when you find 636 00:35:42,080 --> 00:35:47,280 Speaker 1: out Mayer Stateman, the professor at Santa Clara, his thesis 637 00:35:47,360 --> 00:35:51,879 Speaker 1: advisor was Peter Bernstein. Yeah, like just crazy. I really 638 00:35:52,120 --> 00:35:55,440 Speaker 1: had no idea he was an academic. That just that. 639 00:35:55,640 --> 00:35:59,040 Speaker 1: That's fascinating. So so that was the plan. Yes, right, 640 00:35:59,239 --> 00:36:03,840 Speaker 1: so and then him yell, you've been since nine almost 641 00:36:03,880 --> 00:36:08,040 Speaker 1: thirty years. How have students changed over that period? Wow, 642 00:36:08,200 --> 00:36:10,799 Speaker 1: that's a great question. I would make the following observations. 643 00:36:10,840 --> 00:36:13,080 Speaker 1: First of all, there's a lot more interest in economics 644 00:36:13,160 --> 00:36:15,640 Speaker 1: now than thirty years ago. So the number of economics 645 00:36:15,760 --> 00:36:19,320 Speaker 1: majors at places like Columbia University of Illinois is double 646 00:36:19,440 --> 00:36:22,760 Speaker 1: or triple what it was one of your thirty years 647 00:36:23,480 --> 00:36:27,040 Speaker 1: at whose expense? Is it that much less frenchise or 648 00:36:27,320 --> 00:36:29,560 Speaker 1: they're coming up coming out of somewhere. I won't I 649 00:36:29,600 --> 00:36:33,160 Speaker 1: won't speculate where, but they're coming into economics. Given the 650 00:36:33,280 --> 00:36:37,880 Speaker 1: given the cost of colleges, one would think that a 651 00:36:38,080 --> 00:36:40,360 Speaker 1: move towards is this going to help me get a 652 00:36:40,440 --> 00:36:42,839 Speaker 1: job and paying off these loans might be driving something 653 00:36:43,080 --> 00:36:45,000 Speaker 1: that that could that could well that could well be 654 00:36:45,520 --> 00:36:49,120 Speaker 1: so I the other the other things. Certainly when I'm 655 00:36:49,120 --> 00:36:52,960 Speaker 1: now talking about maybe in the graduate program, is it 656 00:36:53,120 --> 00:36:56,960 Speaker 1: is truly now a global market for students who are 657 00:36:56,960 --> 00:36:59,880 Speaker 1: applying to graduate school. So when I was a graduate student, 658 00:37:00,000 --> 00:37:02,240 Speaker 1: I think in my class at Harvard, of the twenty 659 00:37:02,280 --> 00:37:05,480 Speaker 1: five students who I entered with, I think twenty one 660 00:37:06,200 --> 00:37:10,480 Speaker 1: were educated in US UH colleges um and I think 661 00:37:10,520 --> 00:37:13,040 Speaker 1: in the typical US pH d program now a fewer 662 00:37:13,120 --> 00:37:15,279 Speaker 1: than half the students are US students because there's a 663 00:37:15,320 --> 00:37:18,800 Speaker 1: global market from people in Europe, South America, Asia, and 664 00:37:18,880 --> 00:37:21,560 Speaker 1: so the number of applications to US pH d programs 665 00:37:21,600 --> 00:37:24,280 Speaker 1: from around the world has just gone up by leaps. 666 00:37:24,360 --> 00:37:27,960 Speaker 1: And also it's a very international student body. You know. 667 00:37:28,040 --> 00:37:30,840 Speaker 1: I've seen data that says half of the sea level 668 00:37:30,960 --> 00:37:36,840 Speaker 1: Silicon Valley UM executives are farm born. Come here and say, hey, 669 00:37:36,920 --> 00:37:39,320 Speaker 1: we like it here, let's be let's build a company. 670 00:37:40,040 --> 00:37:42,719 Speaker 1: Are you seeing these students staying here, getting jobs, staying 671 00:37:42,719 --> 00:37:44,960 Speaker 1: in America or do they take this knowledge and go 672 00:37:45,080 --> 00:37:48,600 Speaker 1: back to wherever it It depends? I think many of 673 00:37:48,680 --> 00:37:51,759 Speaker 1: them desire to stay here, uh if if they can, 674 00:37:52,680 --> 00:37:56,000 Speaker 1: but certainly there are global opportunities as well. But I 675 00:37:56,080 --> 00:37:57,960 Speaker 1: think the third thing I would mention, and now I'm 676 00:37:58,000 --> 00:38:02,560 Speaker 1: gonna maybe a little bit of an odd thing to say, um, 677 00:38:03,280 --> 00:38:07,319 Speaker 1: but I think the amount that the mathematical background now 678 00:38:07,520 --> 00:38:11,560 Speaker 1: of students in US PhD programs, um it is really 679 00:38:11,640 --> 00:38:14,560 Speaker 1: off the charts. So programs do now do a very 680 00:38:14,600 --> 00:38:18,319 Speaker 1: good job of sorting students by pure math ability. UM. 681 00:38:19,600 --> 00:38:23,279 Speaker 1: I don't know if that's necessarily an unallied positive. I 682 00:38:23,320 --> 00:38:25,640 Speaker 1: think there's more to economics than math, and I think 683 00:38:25,680 --> 00:38:28,400 Speaker 1: in some ways that maybe dates my vintage of people. 684 00:38:28,440 --> 00:38:31,840 Speaker 1: So for me, economics is always about understanding the economy 685 00:38:31,880 --> 00:38:33,480 Speaker 1: and tutorly, and then the math was sort of a 686 00:38:33,560 --> 00:38:35,719 Speaker 1: tool to to get at it. But I do think 687 00:38:35,800 --> 00:38:39,800 Speaker 1: now that there is the pendulum is definitely swung towards 688 00:38:39,960 --> 00:38:42,920 Speaker 1: beginning with the math and sort of reverse engineering the economics, 689 00:38:42,960 --> 00:38:45,520 Speaker 1: which always makes me uncomfortable. So even when I teach 690 00:38:45,560 --> 00:38:48,279 Speaker 1: a PhD course, before I launch into the math, I 691 00:38:48,400 --> 00:38:50,960 Speaker 1: try to do the intuitive version, and so I may 692 00:38:51,000 --> 00:38:53,440 Speaker 1: be the last generation of people who still do it 693 00:38:53,560 --> 00:38:55,520 Speaker 1: that that way, where you start with the economics and 694 00:38:55,520 --> 00:38:58,480 Speaker 1: then you do the math later. Your your Columbia colleague, 695 00:38:58,520 --> 00:39:02,880 Speaker 1: Emmanuel Derman. Yeah, this financial engineering school. And he was 696 00:39:02,960 --> 00:39:06,120 Speaker 1: telling me that he's just watched over twenty years it 697 00:39:06,400 --> 00:39:11,000 Speaker 1: go from more mostly Americans with a smattering of um 698 00:39:12,320 --> 00:39:15,800 Speaker 1: foreign born students to more and more farign born students. 699 00:39:16,040 --> 00:39:20,320 Speaker 1: And he said, the quality of the math skills of 700 00:39:20,880 --> 00:39:26,120 Speaker 1: kids coming in these are all PhD level, brilliant students. 701 00:39:26,239 --> 00:39:29,840 Speaker 1: And that's just the cost of entry. If you build 702 00:39:29,880 --> 00:39:33,640 Speaker 1: from there, it's quite it's quite fascinating. Um So, let's 703 00:39:33,719 --> 00:39:36,120 Speaker 1: let's go over a couple of other questions I missed. 704 00:39:37,320 --> 00:39:41,160 Speaker 1: I want to see what I didn't get to that 705 00:39:41,239 --> 00:39:45,200 Speaker 1: I thought was important. Oh so we we talked about 706 00:39:45,239 --> 00:39:48,960 Speaker 1: the financial crisis. What do you think are some of 707 00:39:49,000 --> 00:39:55,840 Speaker 1: the bigger misconceptions about monetary and fiscal policy? And following 708 00:39:55,920 --> 00:40:00,320 Speaker 1: the crisis, we we had a huge monetary response but 709 00:40:00,480 --> 00:40:03,040 Speaker 1: not much of a fiscal response. What what do you 710 00:40:03,160 --> 00:40:05,520 Speaker 1: what was the impact of that. Well, let's let's start 711 00:40:05,600 --> 00:40:09,160 Speaker 1: with with the second part of your question. Uh. There, 712 00:40:09,800 --> 00:40:14,480 Speaker 1: um So, I think the consensus among academic and economist 713 00:40:14,480 --> 00:40:18,960 Speaker 1: and policymakers going into the crisis was that in practice 714 00:40:19,040 --> 00:40:23,680 Speaker 1: in the US fiscal policy UH is not a particularly 715 00:40:23,760 --> 00:40:27,279 Speaker 1: effective tool because of the lags and implementation and the 716 00:40:27,400 --> 00:40:30,440 Speaker 1: politics involved in getting bills through. In the view as 717 00:40:30,480 --> 00:40:33,399 Speaker 1: you should really just have monetary policy focusing on counter 718 00:40:33,520 --> 00:40:37,439 Speaker 1: cyclical objectives. You know, as rates have gone to zero, 719 00:40:37,600 --> 00:40:40,359 Speaker 1: we've gone into quantitative easing, and the year if they've 720 00:40:40,360 --> 00:40:42,920 Speaker 1: gone to negative rates, I think certainly the profession is 721 00:40:43,000 --> 00:40:47,600 Speaker 1: more receptive to thinking about fiscal UH. Fiscal policy. You know, Barry, 722 00:40:47,640 --> 00:40:49,640 Speaker 1: we did have a big fiscal response in two thousand 723 00:40:49,680 --> 00:40:52,439 Speaker 1: and nine. We had a one trillion dollar deficit that year. 724 00:40:52,520 --> 00:40:55,399 Speaker 1: So but but you're right that we went actually from 725 00:40:55,440 --> 00:40:59,360 Speaker 1: stimulus and O nine to a period of a fiscal 726 00:40:59,440 --> 00:41:05,279 Speaker 1: austeria D after two thousand and ten or or or so. UH. 727 00:41:05,440 --> 00:41:08,719 Speaker 1: And and and I think I think as a practical matter, 728 00:41:09,560 --> 00:41:11,880 Speaker 1: UH most of commers would agree that there are a 729 00:41:11,920 --> 00:41:14,440 Speaker 1: lot there's a lot of positive that fiscal policy can 730 00:41:14,480 --> 00:41:18,360 Speaker 1: do in terms of infrastructure, in terms of encouraging investment 731 00:41:18,880 --> 00:41:20,960 Speaker 1: and the like. But I think in terms of being 732 00:41:21,000 --> 00:41:25,520 Speaker 1: a supple tool for countercyclical UH uses it it has 733 00:41:25,560 --> 00:41:28,040 Speaker 1: a lot of problems. How how long of a lag 734 00:41:28,160 --> 00:41:33,200 Speaker 1: do we typically see with monetary policies implementation, How soon 735 00:41:33,239 --> 00:41:36,959 Speaker 1: as it felt well the old Yeah, exactly. So there's 736 00:41:37,000 --> 00:41:40,160 Speaker 1: no implementation lag of monetary policy. In fact, the Fed 737 00:41:40,239 --> 00:41:41,920 Speaker 1: doesn't even have to wait for a meeting if if 738 00:41:41,960 --> 00:41:44,680 Speaker 1: the situation calls that you can have an intermeding move 739 00:41:44,760 --> 00:41:47,359 Speaker 1: as we know. So there's no there's no implementation lag 740 00:41:47,440 --> 00:41:50,000 Speaker 1: of monetary policy. But there is a lag from when 741 00:41:50,200 --> 00:41:54,160 Speaker 1: policy impacts the real economy. You know. Milton Friedman famously 742 00:41:54,239 --> 00:41:58,280 Speaker 1: said at one time that you know, monetary policy operates 743 00:41:58,320 --> 00:42:01,400 Speaker 1: with long and variable lags. I think more recent research 744 00:42:01,520 --> 00:42:04,840 Speaker 1: is indicated that the lags perhaps because the economy has 745 00:42:04,880 --> 00:42:08,480 Speaker 1: become more financialized, the lags that perhaps not so uh, 746 00:42:08,719 --> 00:42:11,520 Speaker 1: not so long. And in particular now FED officials like 747 00:42:11,640 --> 00:42:13,839 Speaker 1: Bill Dudley, who I think does a great job, talk 748 00:42:13,880 --> 00:42:19,279 Speaker 1: about financial conditions as being an input into the FEDS calculation. Um. 749 00:42:19,600 --> 00:42:22,160 Speaker 1: I think the best example of the challenges with counter 750 00:42:22,239 --> 00:42:25,240 Speaker 1: circle fiscal policy as you look back in the President 751 00:42:25,320 --> 00:42:28,640 Speaker 1: Obama administration when we had a big recession, they wanted 752 00:42:28,680 --> 00:42:31,359 Speaker 1: to do kind of circle policy. Uh, there's some talk 753 00:42:31,400 --> 00:42:33,520 Speaker 1: about doing infrastructure. I think you can look it up 754 00:42:33,520 --> 00:42:36,719 Speaker 1: on Google. President already yeah, he said, I found the 755 00:42:36,760 --> 00:42:38,120 Speaker 1: herd out the hard way. There aren't a lot of 756 00:42:38,160 --> 00:42:40,440 Speaker 1: shovel ready projects. So that's sort of an example of 757 00:42:40,520 --> 00:42:43,279 Speaker 1: the implementation. But if you think about it, coming out 758 00:42:43,360 --> 00:42:47,799 Speaker 1: of a financial crisis, you don't want shovel ready products projects. 759 00:42:48,200 --> 00:42:52,440 Speaker 1: You want long scale things that will put people back 760 00:42:52,480 --> 00:42:55,480 Speaker 1: to work. Start that. You know, if you're really dealing 761 00:42:55,560 --> 00:42:59,640 Speaker 1: with a keensie stimulus to replace the private sector shortfall, 762 00:43:00,080 --> 00:43:02,560 Speaker 1: well why not have a two three four year post 763 00:43:02,640 --> 00:43:05,960 Speaker 1: crisis project instead of all right, we're going to repay 764 00:43:06,000 --> 00:43:08,239 Speaker 1: a few roads and then we're done. Yeah, yeah, no, 765 00:43:08,360 --> 00:43:10,880 Speaker 1: I I agree, and I and I think that that 766 00:43:11,120 --> 00:43:13,560 Speaker 1: We'll see what comes out of the discussions in Washington 767 00:43:13,840 --> 00:43:17,920 Speaker 1: on on on infrastructure. But I think clearly the economy 768 00:43:18,040 --> 00:43:21,480 Speaker 1: needs better and more infrastructure. But but so far there's 769 00:43:21,480 --> 00:43:25,160 Speaker 1: a staleman about putting more in place. Is it is 770 00:43:25,239 --> 00:43:27,400 Speaker 1: it the spending aspect of it is or is it 771 00:43:28,080 --> 00:43:32,480 Speaker 1: a lack of consensus on what needs to be spent upon. 772 00:43:32,880 --> 00:43:35,839 Speaker 1: I think it's all the above. I mean, infra infrastructure, 773 00:43:35,920 --> 00:43:40,120 Speaker 1: if it's done appropriately, UH should generate future tax revenues 774 00:43:40,160 --> 00:43:43,920 Speaker 1: with more economic growth, I think. I think so that 775 00:43:44,080 --> 00:43:46,279 Speaker 1: needs to be factored in. I think the element is 776 00:43:46,280 --> 00:43:50,320 Speaker 1: how you select projects and how you prioritize obviously, you 777 00:43:50,400 --> 00:43:55,160 Speaker 1: know that that sometimes is also a bottleneck in these 778 00:43:55,480 --> 00:44:01,040 Speaker 1: uh in these things. Yeah. So, but by the way, 779 00:44:01,440 --> 00:44:04,359 Speaker 1: here are my my standard questions, and I'm holding them 780 00:44:04,400 --> 00:44:07,080 Speaker 1: off because I know so many of these we we 781 00:44:07,239 --> 00:44:13,320 Speaker 1: blew through because as we were chatting, Um, each of 782 00:44:13,440 --> 00:44:16,760 Speaker 1: your comments led to a different question, and so I really, 783 00:44:17,360 --> 00:44:23,840 Speaker 1: I really hardly used my my usual questions, UM, new normal, 784 00:44:24,040 --> 00:44:31,200 Speaker 1: no signs inflation? Uh, okay, so we could talk next question. 785 00:44:31,840 --> 00:44:34,640 Speaker 1: So I referenced the FED as as being the only 786 00:44:34,719 --> 00:44:37,840 Speaker 1: game in town when there was monetary policy but not 787 00:44:38,200 --> 00:44:42,480 Speaker 1: fiscal policy. Is that still the case today because we 788 00:44:42,640 --> 00:44:45,520 Speaker 1: haven't seen a whole we were expecting a wall, We 789 00:44:45,600 --> 00:44:49,439 Speaker 1: were expecting some infrastructure respecting a lot of things. Hey, 790 00:44:49,520 --> 00:44:52,640 Speaker 1: we're kinda you know, it's it's we're halfway through the 791 00:44:52,719 --> 00:44:55,439 Speaker 1: first year. We really haven't seen a lot of motion 792 00:44:55,520 --> 00:44:57,920 Speaker 1: on any of these things. Yeah, well, exactly so. And 793 00:44:58,000 --> 00:45:00,960 Speaker 1: I think the economy right now East, according to the FED, 794 00:45:01,080 --> 00:45:04,240 Speaker 1: is close to full uh employment. So you're we're probably 795 00:45:04,280 --> 00:45:06,080 Speaker 1: not at a point bearer where we need, you know, 796 00:45:06,200 --> 00:45:09,160 Speaker 1: a lot of counter cyclical policy. But you're right, there 797 00:45:09,200 --> 00:45:10,960 Speaker 1: had been some view coming out of the election. By 798 00:45:11,040 --> 00:45:14,920 Speaker 1: now we would have some tax reform, infrastructure and uh 799 00:45:15,239 --> 00:45:19,719 Speaker 1: the like patriation of which could be which could be used. 800 00:45:19,760 --> 00:45:21,680 Speaker 1: And I mentioned in an earlier segment, you know, our 801 00:45:21,760 --> 00:45:24,840 Speaker 1: our corporate tax code is really an abomination. It doesn't 802 00:45:24,880 --> 00:45:27,759 Speaker 1: raise a whole lot of money, and it encourages multinational 803 00:45:27,800 --> 00:45:29,759 Speaker 1: companies to locate abroad. So there's a lot that we 804 00:45:29,840 --> 00:45:32,759 Speaker 1: can do there. But but I think really the mode 805 00:45:32,800 --> 00:45:35,000 Speaker 1: that we're in now is, you know, the FED wants 806 00:45:35,040 --> 00:45:38,439 Speaker 1: to normalize. I think a point I've made uh many 807 00:45:38,560 --> 00:45:41,560 Speaker 1: times on on Bloomberg and other places is I think 808 00:45:41,719 --> 00:45:43,719 Speaker 1: right now we have to think of the FED with 809 00:45:43,840 --> 00:45:46,160 Speaker 1: the funds rate at less than a percent, with inflation 810 00:45:46,239 --> 00:45:50,360 Speaker 1: around two, policy is now still very accommodative in the US. 811 00:45:50,480 --> 00:45:53,359 Speaker 1: So I prefer not to call the Fed as as 812 00:45:53,440 --> 00:45:56,359 Speaker 1: necessarily tightening rates. I think I think here Yelling's correct. 813 00:45:56,400 --> 00:45:59,200 Speaker 1: I think the Fed is removing accommodation. I think as 814 00:45:59,200 --> 00:46:01,239 Speaker 1: we remove a common addation, we get to a point, 815 00:46:01,360 --> 00:46:04,680 Speaker 1: perhaps uh into into team where you can think of 816 00:46:04,760 --> 00:46:07,720 Speaker 1: policy as being tight. But with a fully employed economy 817 00:46:07,760 --> 00:46:09,880 Speaker 1: and inflation around too and the federal funds rate at 818 00:46:09,960 --> 00:46:12,360 Speaker 1: ninety basis points, this is not a tight monetary policy. 819 00:46:12,360 --> 00:46:17,879 Speaker 1: You've used the phrase normalization. We're moving from a emergency footing, yeah, 820 00:46:18,160 --> 00:46:21,040 Speaker 1: back to a more normal rate, and the emergency is over. 821 00:46:21,239 --> 00:46:24,920 Speaker 1: That's the emergency is over. So so I have to 822 00:46:25,440 --> 00:46:28,960 Speaker 1: go to the abomination that is the tax code. This 823 00:46:29,320 --> 00:46:34,319 Speaker 1: is very much a series of Christmas ornaments, unrelated, all 824 00:46:34,520 --> 00:46:39,480 Speaker 1: hung on on the tax code as as responses to 825 00:46:39,640 --> 00:46:44,120 Speaker 1: specific lobbying by specific things. Let's talk about what the 826 00:46:44,360 --> 00:46:48,440 Speaker 1: US corporate tax code should look like. So what do 827 00:46:48,520 --> 00:46:51,879 Speaker 1: you think would make the most amount of sense if 828 00:46:51,960 --> 00:46:55,160 Speaker 1: you had if you got tagged by this White House 829 00:46:55,760 --> 00:46:57,960 Speaker 1: and they said, give us five things we should do. 830 00:46:58,239 --> 00:47:01,239 Speaker 1: What would your response base? Well, I would I would 831 00:47:01,520 --> 00:47:03,480 Speaker 1: make a couple of points with a proviso that I'm 832 00:47:03,520 --> 00:47:06,279 Speaker 1: not a tax expert, but but what I would say 833 00:47:06,719 --> 00:47:11,000 Speaker 1: is we need lower rate, lower rates and a broader base, 834 00:47:11,400 --> 00:47:13,080 Speaker 1: and we need a code. I would go through the 835 00:47:13,160 --> 00:47:16,359 Speaker 1: code with a magnifying glass and a microscope to get 836 00:47:16,480 --> 00:47:19,800 Speaker 1: rid of anything that would encourage a US company to 837 00:47:19,960 --> 00:47:23,279 Speaker 1: locate production abroad when it could do that production in 838 00:47:23,600 --> 00:47:26,759 Speaker 1: in the US. UM. And there are different ways to 839 00:47:26,880 --> 00:47:30,279 Speaker 1: do that, UM. But I, to me, my principle would 840 00:47:30,320 --> 00:47:32,759 Speaker 1: be lower rates because we do have very high rates 841 00:47:32,840 --> 00:47:39,040 Speaker 1: now a base actual rates effectively there about but effectively 842 00:47:39,080 --> 00:47:43,120 Speaker 1: because of all the especially for multinational companies, and if 843 00:47:43,120 --> 00:47:45,680 Speaker 1: you're a US based company, you more or lesser paying 844 00:47:45,760 --> 00:47:48,840 Speaker 1: close to that rate. So multinationals I would really go 845 00:47:49,080 --> 00:47:51,560 Speaker 1: I guess my bottom principle be lower rates, a broader base, 846 00:47:51,880 --> 00:47:55,200 Speaker 1: and really go through with a magnifying glass and a microscope. 847 00:47:55,280 --> 00:47:58,640 Speaker 1: Any item in the code that actively encourages a company 848 00:47:58,680 --> 00:48:00,600 Speaker 1: to locate abroad, and we have a out of those now, 849 00:48:01,040 --> 00:48:04,279 Speaker 1: so what what about the repatriated earnings? For example? Those 850 00:48:04,280 --> 00:48:09,200 Speaker 1: are sitting abroad doing doing, doing nothing, um. And the 851 00:48:09,280 --> 00:48:11,279 Speaker 1: reason they're broad is our code is said, if you 852 00:48:11,840 --> 00:48:14,279 Speaker 1: quote keep your form profits abroad, you know you're not 853 00:48:14,360 --> 00:48:17,160 Speaker 1: facing a US level of tensation. So I think any 854 00:48:17,239 --> 00:48:20,120 Speaker 1: deal that we do see in Washington will have you know, 855 00:48:20,280 --> 00:48:23,440 Speaker 1: a levy on those overseas profits brought into the US. 856 00:48:23,480 --> 00:48:25,840 Speaker 1: And then going forward, we really need a code that 857 00:48:25,920 --> 00:48:28,200 Speaker 1: doesn't encourage companies to do that in the first place. 858 00:48:28,440 --> 00:48:33,719 Speaker 1: What's a reasonable rate for corporate taxes? Trump wants. The 859 00:48:33,840 --> 00:48:37,440 Speaker 1: number we've been hearing from from people in the House 860 00:48:37,880 --> 00:48:42,600 Speaker 1: has been what what do you think is both reasonable 861 00:48:42,880 --> 00:48:46,640 Speaker 1: economically and politically feasible. I don't put you on the spot, No, 862 00:48:46,880 --> 00:48:49,440 Speaker 1: I understood. I I think. I think if you actually 863 00:48:49,520 --> 00:48:53,120 Speaker 1: do a real reform all a Reagan in eighties six, uh, 864 00:48:53,480 --> 00:48:56,520 Speaker 1: when you're doing when you are broadening the base, uh, 865 00:48:56,760 --> 00:49:00,080 Speaker 1: and you could afford much lower rates, certainly some in 866 00:49:00,200 --> 00:49:03,879 Speaker 1: the range of in a serious tax reform I think 867 00:49:03,960 --> 00:49:06,880 Speaker 1: would be would be feasible and appropriate and would make 868 00:49:06,960 --> 00:49:10,320 Speaker 1: us competitive. And then the conversation that's come out of 869 00:49:10,360 --> 00:49:15,480 Speaker 1: Paul Ryan's office was making small businesses theoretically one of 870 00:49:15,560 --> 00:49:19,440 Speaker 1: the prime economic engines of growth, and he wants to 871 00:49:19,520 --> 00:49:25,280 Speaker 1: make the LLC rate the small companies, partnerships, etcetera. Wants 872 00:49:25,360 --> 00:49:28,279 Speaker 1: that rate to be the equivalent of the corporate rates. 873 00:49:28,880 --> 00:49:32,520 Speaker 1: Is that a realistic possibility? Well, I think, I think, 874 00:49:32,560 --> 00:49:34,759 Speaker 1: And again with the proviser that I I focus on 875 00:49:34,920 --> 00:49:39,160 Speaker 1: money and not taxes. My understanding of that issue, um, 876 00:49:39,760 --> 00:49:41,880 Speaker 1: is that it would have to be structured in a 877 00:49:42,040 --> 00:49:45,960 Speaker 1: very careful way, or otherwise you open up a big 878 00:49:46,040 --> 00:49:49,799 Speaker 1: gap between the personal rate and the corporate because, as 879 00:49:49,800 --> 00:49:52,040 Speaker 1: you know, a lot of those LLCs are now probably 880 00:49:52,040 --> 00:49:54,719 Speaker 1: familiar with that pay at the personal rate, and so 881 00:49:55,440 --> 00:49:59,759 Speaker 1: um and so um it would it would not be 882 00:50:00,000 --> 00:50:01,640 Speaker 1: ample to go down that road. I'm not saying it 883 00:50:01,680 --> 00:50:04,080 Speaker 1: couldn't happen, but but it would have to be structured 884 00:50:04,520 --> 00:50:07,239 Speaker 1: in a way that you're not essentially uh, you know, 885 00:50:07,360 --> 00:50:11,440 Speaker 1: eliminating tax at the individual as individuals, we can all 886 00:50:11,560 --> 00:50:16,239 Speaker 1: become corporations to lower at tax rates. Partnerships so so 887 00:50:17,640 --> 00:50:22,280 Speaker 1: so the rate the base. What about all those favored 888 00:50:22,680 --> 00:50:28,719 Speaker 1: UM one office and and specific UH special interest lobbied 889 00:50:29,800 --> 00:50:33,480 Speaker 1: UH breaks for in the tax code. Is it possible 890 00:50:33,520 --> 00:50:35,520 Speaker 1: to get rid of those in exchange for a lower 891 00:50:35,640 --> 00:50:40,600 Speaker 1: rate or is that just not realistic? You know, doing 892 00:50:40,800 --> 00:50:44,560 Speaker 1: Barry doing true tax reform UH is actually hard. The 893 00:50:44,640 --> 00:50:46,800 Speaker 1: last time we really did in the US was was 894 00:50:46,920 --> 00:50:52,960 Speaker 1: thirty plus years ago. UH. So I think that the 895 00:50:53,080 --> 00:50:57,680 Speaker 1: most likely scenario, based on history, UM, is that we 896 00:50:57,960 --> 00:51:00,080 Speaker 1: do get a reduction in corporate race, we get some 897 00:51:00,160 --> 00:51:05,960 Speaker 1: base broadening UM potentially some movement on infrastructure. But but 898 00:51:06,120 --> 00:51:07,799 Speaker 1: I think that it's a pretty much of a large 899 00:51:07,840 --> 00:51:10,719 Speaker 1: shot now that we get a true tax reform UH 900 00:51:10,920 --> 00:51:12,759 Speaker 1: in this process. I hope I'm wrong. I'd love to 901 00:51:12,840 --> 00:51:15,200 Speaker 1: see it. But but is that a function of just 902 00:51:15,800 --> 00:51:18,920 Speaker 1: a loss of momentum and other politics or is it. 903 00:51:19,640 --> 00:51:22,480 Speaker 1: It's so complex, and I have to I think the 904 00:51:22,560 --> 00:51:25,320 Speaker 1: eighties six episodes instructive and so of my some of 905 00:51:25,360 --> 00:51:27,680 Speaker 1: my friends get bored when I say this, but well, 906 00:51:27,680 --> 00:51:29,880 Speaker 1: it was instructive about that episode. And I should mention 907 00:51:30,000 --> 00:51:32,680 Speaker 1: that that I had the good fortune early in my 908 00:51:32,760 --> 00:51:35,640 Speaker 1: career to work at the Counts of Economic Advisors in 909 00:51:35,680 --> 00:51:38,040 Speaker 1: the Reagan administration. So on my wall is a picture 910 00:51:38,080 --> 00:51:41,719 Speaker 1: with me and the Oval President Reagan UM and so 911 00:51:41,880 --> 00:51:44,160 Speaker 1: I was there in eighties six as a junior economist, 912 00:51:44,280 --> 00:51:47,279 Speaker 1: and so it was a vivid impression on me. And 913 00:51:47,320 --> 00:51:49,400 Speaker 1: what people have to remember about that is that that 914 00:51:49,560 --> 00:51:52,759 Speaker 1: process was bipartisan from the get go. Bill Bradley, you know, 915 00:51:52,840 --> 00:51:56,480 Speaker 1: hall of fame basketball player and legendary senator from New Jersey, 916 00:51:56,719 --> 00:51:59,759 Speaker 1: was a big proponative doing tax form. Dick Geppard in 917 00:51:59,800 --> 00:52:03,440 Speaker 1: the House, Dan Rostenkowski, you know, the kingmaker from Illinois, 918 00:52:03,520 --> 00:52:06,400 Speaker 1: were big parts of of that. So I think the 919 00:52:06,520 --> 00:52:10,600 Speaker 1: long shot now is, at least as of June two seventeen, 920 00:52:10,760 --> 00:52:13,399 Speaker 1: we don't see a lot of bipartisan consensus on tax 921 00:52:13,480 --> 00:52:16,000 Speaker 1: reform like we did in eighty six. And was Jack 922 00:52:16,080 --> 00:52:19,600 Speaker 1: Kemp around that point is we're just getting just getting 923 00:52:19,640 --> 00:52:23,120 Speaker 1: started in the House. Yeah, so that that's you're describing 924 00:52:23,160 --> 00:52:28,600 Speaker 1: what is essentially a different era, different both economics, tax policy, 925 00:52:28,800 --> 00:52:31,440 Speaker 1: and politics. And when that bill passed, I don't have 926 00:52:31,480 --> 00:52:33,680 Speaker 1: the exact numbers in front of me, but I as 927 00:52:33,719 --> 00:52:36,040 Speaker 1: I recall when it did pass the Senate, it was 928 00:52:36,120 --> 00:52:38,680 Speaker 1: with well over sixty votes and and so yeah, it 929 00:52:38,760 --> 00:52:41,400 Speaker 1: was definitely a bipartisan bill. So I have a friend 930 00:52:41,520 --> 00:52:45,360 Speaker 1: who will go nameless, but he's involved in the Trump 931 00:52:45,400 --> 00:52:50,880 Speaker 1: administration and he knows that fiscally, I'm fairly conservative. Socially, 932 00:52:50,920 --> 00:52:55,000 Speaker 1: I'm much more liberal than than Trump is. And when 933 00:52:55,239 --> 00:52:59,919 Speaker 1: the travel Band first came out the direct messages back 934 00:53:00,040 --> 00:53:03,320 Speaker 1: and forth, I said, listen, you have a narrow window 935 00:53:03,440 --> 00:53:06,440 Speaker 1: to get some corporate tax reform through. I know he 936 00:53:06,520 --> 00:53:09,720 Speaker 1: doesn't like to take counsel from other people. You gotta 937 00:53:09,800 --> 00:53:12,759 Speaker 1: get this nonsense to stop, because this window isn't gonna 938 00:53:12,800 --> 00:53:15,719 Speaker 1: be open forever. And this is really the single most 939 00:53:15,800 --> 00:53:18,920 Speaker 1: important thing facing the U. S. Economy. If you could 940 00:53:18,960 --> 00:53:22,839 Speaker 1: get a major corporate of corporate tax reform, a lower 941 00:53:22,920 --> 00:53:26,680 Speaker 1: rate of broader brace, and repatriate a few turillion dollars overseas, 942 00:53:27,280 --> 00:53:30,480 Speaker 1: you're teeing up the next two or three decades of economics. 943 00:53:31,320 --> 00:53:35,880 Speaker 1: So stop messing around with a travel ban, and you 944 00:53:36,120 --> 00:53:38,600 Speaker 1: think this window is gonna be open forever. It's not. 945 00:53:38,960 --> 00:53:41,120 Speaker 1: And what I'm hearing from you is a sense that 946 00:53:41,640 --> 00:53:44,600 Speaker 1: that window is closing. Well it it. I hope I'm wrong. 947 00:53:44,640 --> 00:53:47,840 Speaker 1: I hope we're wrong, but right now it appears to 948 00:53:47,920 --> 00:53:50,640 Speaker 1: be the The other thing. Remember Barry about the way 949 00:53:50,719 --> 00:53:53,040 Speaker 1: Washington works, and again I spent most of my career 950 00:53:53,080 --> 00:53:55,120 Speaker 1: outside of Washington, but a couple of tours of duty 951 00:53:55,200 --> 00:53:57,399 Speaker 1: there is We think about a president having a four 952 00:53:57,480 --> 00:54:01,520 Speaker 1: year term, but if you to people who have actually 953 00:54:01,600 --> 00:54:03,960 Speaker 1: done it. I've gotten to know some former chiefs of staff. 954 00:54:04,000 --> 00:54:06,919 Speaker 1: For example, when you're in the White House, you don't 955 00:54:06,920 --> 00:54:09,359 Speaker 1: think you've got four years. You're thinking you've maybe got 956 00:54:09,440 --> 00:54:14,160 Speaker 1: fourteen months because basically you've got the midterm elections and 957 00:54:14,320 --> 00:54:17,880 Speaker 1: your popularity. And at that point we'll determine whether the 958 00:54:17,960 --> 00:54:22,920 Speaker 1: coomass gritters are gonna either be accommodative or are going 959 00:54:22,960 --> 00:54:24,480 Speaker 1: to run away from you in the next day. And 960 00:54:24,560 --> 00:54:26,319 Speaker 1: then you might say, well, but then in year three 961 00:54:26,440 --> 00:54:28,440 Speaker 1: you get past the midterm elections, well, then in year 962 00:54:28,560 --> 00:54:32,880 Speaker 1: three that we're all speculating on what the next presidential 963 00:54:32,920 --> 00:54:36,120 Speaker 1: election is gonna look like so it's fourteen an eight 964 00:54:36,200 --> 00:54:39,800 Speaker 1: year president maybe has twenty four months. That's amazing to 965 00:54:39,880 --> 00:54:42,640 Speaker 1: actually get stuff done. Reagan was the exception because he 966 00:54:42,719 --> 00:54:45,319 Speaker 1: got a lot done at the end of his second term. 967 00:54:45,680 --> 00:54:50,080 Speaker 1: But but in his popularity also people forget his popularity 968 00:54:50,160 --> 00:54:52,959 Speaker 1: then was through the roof. I mean, if you look 969 00:54:53,160 --> 00:54:57,439 Speaker 1: at the past couple of presidents, Bush had a huge 970 00:54:57,520 --> 00:55:02,120 Speaker 1: popularity surgeon, you know, one and eleven, and that gradually faded. 971 00:55:02,480 --> 00:55:06,480 Speaker 1: And Obama's popularity really was the last six last year 972 00:55:06,520 --> 00:55:10,560 Speaker 1: of his presidency and beyond he was most popular out 973 00:55:10,600 --> 00:55:15,200 Speaker 1: of office. And I'm not saying that sarcastically. If you 974 00:55:15,360 --> 00:55:20,120 Speaker 1: really only have fourteen months, that really changes the dynamic 975 00:55:20,400 --> 00:55:23,680 Speaker 1: of what can be accomplished. Reagan really is the except, 976 00:55:24,120 --> 00:55:26,680 Speaker 1: I guess to some degree, Clinton Clinton got a lot 977 00:55:26,800 --> 00:55:29,680 Speaker 1: done as well, not counting notwithstanding the impeachment and and 978 00:55:29,840 --> 00:55:32,320 Speaker 1: and by the way, in both cases, it helps to 979 00:55:32,400 --> 00:55:35,440 Speaker 1: have a booming economy and seven of your you know, 980 00:55:35,520 --> 00:55:38,839 Speaker 1: Clinton's economy and Reagan's economy were a lot of ways 981 00:55:38,960 --> 00:55:41,640 Speaker 1: very similar, and that they had legs. They had strong 982 00:55:41,719 --> 00:55:45,080 Speaker 1: growth in year seven, year year eight, and very much 983 00:55:45,120 --> 00:55:48,879 Speaker 1: technology driven a whole lot of new industrial about absolutely 984 00:55:49,520 --> 00:55:53,600 Speaker 1: and to our earlier point, both enjoying the fruits of 985 00:55:53,719 --> 00:55:57,560 Speaker 1: Paul Wolkers. Thank you, thank you, Paul my hero. So 986 00:55:57,719 --> 00:56:01,040 Speaker 1: on that note, let's jump to some of our favorite questions. 987 00:56:01,320 --> 00:56:04,120 Speaker 1: So the standard questions I ask all of my guests, 988 00:56:04,600 --> 00:56:06,799 Speaker 1: some of which I created, some of which actually came 989 00:56:06,840 --> 00:56:11,440 Speaker 1: from listeners, including uh no, this question is my question, 990 00:56:11,520 --> 00:56:15,440 Speaker 1: which is tell us something that people don't know about 991 00:56:15,520 --> 00:56:19,359 Speaker 1: your background. Well, very I'll tell I'll tell you something. 992 00:56:19,520 --> 00:56:22,319 Speaker 1: A lot of people to know my background. I am 993 00:56:22,480 --> 00:56:26,600 Speaker 1: a very avid amateur musician, and I've recorded my first CD. 994 00:56:27,880 --> 00:56:32,680 Speaker 1: I have a copy for you and all original tunes 995 00:56:33,160 --> 00:56:36,120 Speaker 1: and which absolutely recorded with some of the best session 996 00:56:36,200 --> 00:56:39,600 Speaker 1: players on the planet, and two of the tracks were 997 00:56:39,680 --> 00:56:45,280 Speaker 1: recorded at Abbey Road Studios for those of us Studio studio. 998 00:56:46,200 --> 00:56:49,719 Speaker 1: So that's a little present for you and I. Well, 999 00:56:49,800 --> 00:56:52,160 Speaker 1: I play a little acoustic guitar and some bass. But 1000 00:56:52,360 --> 00:56:56,879 Speaker 1: my real my real realization is I'm at a point 1001 00:56:56,960 --> 00:56:59,560 Speaker 1: now where if I hear a song, I am able 1002 00:56:59,600 --> 00:57:02,840 Speaker 1: to work top session players through this technology, send them 1003 00:57:02,880 --> 00:57:05,759 Speaker 1: my song files. They overdubbed their parts and I mixed 1004 00:57:05,800 --> 00:57:08,560 Speaker 1: them in my home studio on Connecticut. Yeah, so that's 1005 00:57:08,600 --> 00:57:14,160 Speaker 1: how um Ben Gibbert of of Deathcap for Cuties created 1006 00:57:14,320 --> 00:57:18,080 Speaker 1: Postal Service, the name of the now today you do 1007 00:57:18,160 --> 00:57:21,560 Speaker 1: it electronically. The name Postal Service comes from them mailing 1008 00:57:21,600 --> 00:57:24,360 Speaker 1: tapes back and forth up from I think it was 1009 00:57:24,440 --> 00:57:27,320 Speaker 1: California to Seattle and back. So you're doing this all 1010 00:57:27,400 --> 00:57:31,120 Speaker 1: digitally online and you're you're, yeah, working with tops in anyway. 1011 00:57:31,200 --> 00:57:34,200 Speaker 1: It's available on iTunes. Richard Clarena. The album is called 1012 00:57:34,320 --> 00:57:38,960 Speaker 1: Time No Changes. So that's that's amazing. And we were 1013 00:57:39,040 --> 00:57:44,880 Speaker 1: talking earlier about Lawrence Juber. Yeah, go to YouTube search 1014 00:57:44,960 --> 00:57:48,280 Speaker 1: for for Lawrence Juber Beatles. I mean he has a 1015 00:57:48,360 --> 00:57:52,439 Speaker 1: whole universe of his own original recordings, which if you're 1016 00:57:52,600 --> 00:57:58,080 Speaker 1: at all a guitarist you'll find. Yeah, but the Beatles 1017 00:57:58,120 --> 00:58:04,640 Speaker 1: stuff is back back to Derrick Thompson's comment, it's familiar 1018 00:58:04,800 --> 00:58:07,960 Speaker 1: enough that it catches your ear, but it's different enough 1019 00:58:08,080 --> 00:58:12,520 Speaker 1: that it it throws you off step and and that Um, 1020 00:58:12,760 --> 00:58:15,920 Speaker 1: I'm trying to remember who the graphic designer was an 1021 00:58:16,280 --> 00:58:21,400 Speaker 1: engine architect in the thirties who called it um most 1022 00:58:22,600 --> 00:58:29,000 Speaker 1: advanced yet acceptable. Maya was Musically, it's how far away 1023 00:58:29,000 --> 00:58:31,680 Speaker 1: can you get? From what you're familiar with and yet 1024 00:58:31,760 --> 00:58:35,160 Speaker 1: still have enough recognition that it's accessible. And that's one 1025 00:58:35,200 --> 00:58:38,600 Speaker 1: of the reasons I find the Juber Beatles and McCartney stuff. 1026 00:58:39,160 --> 00:58:42,160 Speaker 1: It's it's clearly, oh I know this song, I know 1027 00:58:42,320 --> 00:58:46,040 Speaker 1: this melody, but it's such a different arrangement that it stands. 1028 00:58:46,720 --> 00:58:48,560 Speaker 1: It's not just a cover. I mean, when you hear 1029 00:58:48,600 --> 00:58:52,400 Speaker 1: Beatles covers, they're either too similar or two different. It's 1030 00:58:52,600 --> 00:58:54,840 Speaker 1: very tough to cover the Beatles. Believe me, I tried 1031 00:58:54,920 --> 00:58:58,160 Speaker 1: it earlier. When when you hear Juber stuff, you can say, oh, 1032 00:58:58,360 --> 00:59:01,840 Speaker 1: that is the sweet spot. Beat mean, the melody is 1033 00:59:01,960 --> 00:59:05,000 Speaker 1: note for note perfectly, the arrangement is so and there's 1034 00:59:05,040 --> 00:59:08,200 Speaker 1: no overdubs or electronics. It's just him plants remarkable, Um 1035 00:59:09,000 --> 00:59:11,840 Speaker 1: cutting room this week you should use definitely, and I 1036 00:59:12,000 --> 00:59:15,080 Speaker 1: it's an early show. It's like seven thirty that I 1037 00:59:15,160 --> 00:59:18,480 Speaker 1: was gonna say for an early rising is great. So 1038 00:59:18,800 --> 00:59:20,960 Speaker 1: thank you for the c D. I will definitely uh 1039 00:59:21,360 --> 00:59:25,240 Speaker 1: reference that uh and and listen to it this weekend. Um, 1040 00:59:25,560 --> 00:59:28,320 Speaker 1: you mentioned James Tobin. Tell us about some of your 1041 00:59:28,440 --> 00:59:32,680 Speaker 1: early mentors. Well, I would list three. Um. I was 1042 00:59:32,880 --> 00:59:36,520 Speaker 1: very lucky in college to have a mentor professor University 1043 00:59:36,520 --> 00:59:41,040 Speaker 1: of Illinois, gentleman who I'm still great professors at Georgetown now, 1044 00:59:41,120 --> 00:59:44,040 Speaker 1: guy named Matthew CANZONERI and went to Matt's office as 1045 00:59:44,080 --> 00:59:47,120 Speaker 1: a sophomore, and I basically said, I've taken your course, 1046 00:59:47,600 --> 00:59:49,959 Speaker 1: So what does someone have to do to actually become 1047 00:59:49,960 --> 00:59:52,440 Speaker 1: an economics professor? Like what is how do you actually 1048 00:59:52,520 --> 00:59:55,760 Speaker 1: go from being an undergraduate and economics professor? And he 1049 00:59:55,840 --> 00:59:57,720 Speaker 1: took out a legal pat and he said, you need 1050 00:59:57,760 --> 01:00:00,160 Speaker 1: to take these courses and you need to do have 1051 01:00:00,320 --> 01:00:03,080 Speaker 1: this math and this preparation. And he basically gave me 1052 01:00:03,160 --> 01:00:06,120 Speaker 1: a template that I followed. And so that mentorship and 1053 01:00:06,240 --> 01:00:08,440 Speaker 1: that support as a ninth year old, twenty year old 1054 01:00:08,520 --> 01:00:11,520 Speaker 1: undergraduate was was incredibly viable for me. And I'll be 1055 01:00:11,640 --> 01:00:15,439 Speaker 1: forever grateful. And we're still friends and I we still 1056 01:00:15,800 --> 01:00:18,080 Speaker 1: you know, with each other. At Harvard, I had the 1057 01:00:18,160 --> 01:00:20,840 Speaker 1: good fortune to work with a guy named Benjamin Friedman. 1058 01:00:20,920 --> 01:00:24,040 Speaker 1: Ben is an incredible economist, and one thing I learned 1059 01:00:24,080 --> 01:00:27,560 Speaker 1: from Ben is Ben always thought good economics was about 1060 01:00:27,600 --> 01:00:30,880 Speaker 1: the questions that we asked, not about the methodology we use. 1061 01:00:31,200 --> 01:00:33,760 Speaker 1: And I've always tried to remember that because economics can 1062 01:00:33,800 --> 01:00:36,160 Speaker 1: get our Kane in mathematical So in my own work, 1063 01:00:36,200 --> 01:00:38,920 Speaker 1: I always try to start with with an interesting question 1064 01:00:39,040 --> 01:00:42,240 Speaker 1: and then let the methodology work out as it will. 1065 01:00:42,320 --> 01:00:44,400 Speaker 1: And I learned that from from Ben. So I think 1066 01:00:44,400 --> 01:00:49,120 Speaker 1: i'd name those those two. That's that's that's really quite fascinating. 1067 01:00:49,560 --> 01:00:53,080 Speaker 1: You knew it nineteen exactly what you wanted to do. Yeah, 1068 01:00:53,240 --> 01:00:55,720 Speaker 1: I know it was clear. I mean not everybody that 1069 01:00:55,920 --> 01:00:58,400 Speaker 1: that's quite I actually lived. I I knew at eighteen 1070 01:00:58,440 --> 01:01:00,800 Speaker 1: because I took principles of economy much at the University 1071 01:01:00,800 --> 01:01:04,320 Speaker 1: of Illinois from a very dynamic professor, and I just said, 1072 01:01:04,320 --> 01:01:05,960 Speaker 1: that's that's what I'm doing. I want to be an 1073 01:01:06,000 --> 01:01:10,320 Speaker 1: economics professor. Yeah, I won't tell you what my first 1074 01:01:10,360 --> 01:01:13,800 Speaker 1: economics course was like, not have made any sense to me. Wait, 1075 01:01:14,080 --> 01:01:21,080 Speaker 1: humans are rational profit um so, so what about investors? 1076 01:01:21,200 --> 01:01:24,120 Speaker 1: What investors out there have influenced the way you look 1077 01:01:24,160 --> 01:01:27,840 Speaker 1: at markets and the economy. Yeah, I think I would. 1078 01:01:27,880 --> 01:01:30,400 Speaker 1: I would name you mentioned him in an earlier segment. 1079 01:01:30,440 --> 01:01:33,840 Speaker 1: I bring it up again, Paul McAuley. I think given 1080 01:01:33,920 --> 01:01:36,960 Speaker 1: that my background is in macro economics, I tend to 1081 01:01:37,040 --> 01:01:39,760 Speaker 1: be influenced by people who try to use macro to 1082 01:01:39,840 --> 01:01:43,120 Speaker 1: think about markets, and I think I think Paul is 1083 01:01:43,160 --> 01:01:46,960 Speaker 1: a genius in that he's very creative, he's not tethered 1084 01:01:47,040 --> 01:01:51,120 Speaker 1: to convention or custom, and has got a great gut 1085 01:01:51,320 --> 01:01:54,360 Speaker 1: for macro and markets. So I probably mentioned Paul very 1086 01:01:54,440 --> 01:01:58,280 Speaker 1: much in that in that category. Now he's gonna come 1087 01:01:58,320 --> 01:02:00,200 Speaker 1: to me and said, you know, Clara said I was 1088 01:02:00,280 --> 01:02:04,360 Speaker 1: a genius. I have to listen to that. When I do, 1089 01:02:04,800 --> 01:02:09,040 Speaker 1: it's like, now, now you pay corner. Let me give 1090 01:02:09,040 --> 01:02:11,760 Speaker 1: you an anecdote. So I did a paper for a 1091 01:02:11,880 --> 01:02:13,960 Speaker 1: Boston FED conference in two thousand and ten on the 1092 01:02:14,040 --> 01:02:17,360 Speaker 1: financial crisis, and so in researching that, I went back 1093 01:02:17,680 --> 01:02:21,240 Speaker 1: and read all of the people who claimed they had 1094 01:02:21,320 --> 01:02:25,040 Speaker 1: called the financial crisis uh, and I basically concluded that 1095 01:02:25,280 --> 01:02:27,840 Speaker 1: there are only two people who basically not only got 1096 01:02:28,160 --> 01:02:31,040 Speaker 1: it right, but got the reasoning right. And McCauley was one, 1097 01:02:31,560 --> 01:02:34,120 Speaker 1: and Rogy Roger and mcgreing rog And at Chicago was 1098 01:02:34,240 --> 01:02:35,520 Speaker 1: the other. So a lot of people are saying we 1099 01:02:35,560 --> 01:02:38,040 Speaker 1: could have a crisis, but they got the reasons wrong. 1100 01:02:38,120 --> 01:02:40,680 Speaker 1: The other the people who actually saw the fragility in 1101 01:02:40,760 --> 01:02:44,840 Speaker 1: the financial system and the Minsky stability creating instability, really 1102 01:02:44,920 --> 01:02:49,120 Speaker 1: McCulley and to some extent roging. That's that's fascinating. If 1103 01:02:49,160 --> 01:02:54,600 Speaker 1: I remember Rajin spoke at Jackson Hall in seven, very 1104 01:02:55,200 --> 01:02:57,760 Speaker 1: people like what is this guy talking? Yeah, it was 1105 01:02:57,960 --> 01:03:01,240 Speaker 1: very much not only prescient, but timely, because there have 1106 01:03:01,320 --> 01:03:04,040 Speaker 1: been people who have been calling the calling for the 1107 01:03:04,160 --> 01:03:06,840 Speaker 1: crisis every year for the past twenty years. They don't 1108 01:03:06,920 --> 01:03:10,040 Speaker 1: they don't get credit exactly, but oh seven, yeah, August 1109 01:03:10,080 --> 01:03:13,400 Speaker 1: of seven. That's a good call. That's a really good call. 1110 01:03:14,080 --> 01:03:17,880 Speaker 1: Let's talk about books. This is very often listeners favorite 1111 01:03:18,560 --> 01:03:21,200 Speaker 1: UM segment. What what sort of books do you read? What? 1112 01:03:21,440 --> 01:03:23,760 Speaker 1: What have you enjoyed? What do you recommend? Well, I'll 1113 01:03:24,040 --> 01:03:26,040 Speaker 1: I'll just give you ones that have made an impact 1114 01:03:26,120 --> 01:03:28,480 Speaker 1: on me as opposed to what's on my nightstand now 1115 01:03:28,600 --> 01:03:31,920 Speaker 1: I named I name three UM. I would start with, 1116 01:03:32,240 --> 01:03:36,800 Speaker 1: I think a classic in both its scholarship and influences, 1117 01:03:36,840 --> 01:03:38,680 Speaker 1: a book that some of your listeners may or may 1118 01:03:38,720 --> 01:03:40,680 Speaker 1: not know, called The Best and the Brightest by David 1119 01:03:40,760 --> 01:03:43,640 Speaker 1: Howiebert Stam, which is a model of how to do 1120 01:03:43,880 --> 01:03:49,040 Speaker 1: concise biographies of a number of individuals who were all interacting. 1121 01:03:49,160 --> 01:03:52,000 Speaker 1: So there's been so much mythology about the Kennedy administration, 1122 01:03:52,440 --> 01:03:56,640 Speaker 1: but Halbert Stam is of course passed away brilliant writer 1123 01:03:56,840 --> 01:04:00,040 Speaker 1: and reporter and just goes these wonderful character sketches of 1124 01:04:00,080 --> 01:04:03,040 Speaker 1: all the people from different backgrounds McNamara, the Kennedy's, the 1125 01:04:03,080 --> 01:04:05,200 Speaker 1: Bundyes and Hall the how they all led to this 1126 01:04:05,360 --> 01:04:08,440 Speaker 1: what we now know group think in crisis collapse over Vietnam. 1127 01:04:08,680 --> 01:04:11,520 Speaker 1: So I name that. I would also name a book 1128 01:04:11,600 --> 01:04:14,120 Speaker 1: that's been very often cited but had a big impact 1129 01:04:14,200 --> 01:04:18,320 Speaker 1: on me, Jared Diamonds, Guns, Germs and Steel, as a 1130 01:04:18,440 --> 01:04:21,320 Speaker 1: model of how to What's great about him is that 1131 01:04:21,480 --> 01:04:25,880 Speaker 1: he spans multiple disciplines, and so academics oftentimes focus very 1132 01:04:26,000 --> 01:04:30,600 Speaker 1: narrowly on one little thing, and his understanding and breadth 1133 01:04:30,720 --> 01:04:35,120 Speaker 1: of pulling in different disciplines history and sociology and anthropology 1134 01:04:35,600 --> 01:04:39,760 Speaker 1: is really uh remarkable in that Another one which very 1135 01:04:39,800 --> 01:04:42,280 Speaker 1: popular but I thought was a model of of being 1136 01:04:42,400 --> 01:04:45,520 Speaker 1: both clever and well thought through as the Gladwell tipping 1137 01:04:45,560 --> 01:04:48,440 Speaker 1: point argument, which I remember from an essay he did 1138 01:04:48,480 --> 01:04:50,480 Speaker 1: in The New Yorker and then turned that into a 1139 01:04:50,560 --> 01:04:53,640 Speaker 1: book and now in an industry. Uh So, those those 1140 01:04:53,680 --> 01:04:56,200 Speaker 1: would be three that I would that that I would 1141 01:04:56,840 --> 01:04:59,720 Speaker 1: mention in terms of recently, again getting back to the 1142 01:04:59,800 --> 01:05:05,120 Speaker 1: muse Element. There's a wonderful, uh exhaustive biography of the 1143 01:05:05,160 --> 01:05:10,000 Speaker 1: Beatles by Mark Lewison called uh all those Years. Uh. 1144 01:05:10,120 --> 01:05:12,960 Speaker 1: He's spent eleven years just doing the period from nineteen 1145 01:05:13,040 --> 01:05:17,280 Speaker 1: fifty five to sixty two. It's come out in two versions. 1146 01:05:17,440 --> 01:05:19,800 Speaker 1: One is the version that that's about four hundred pages 1147 01:05:19,880 --> 01:05:21,680 Speaker 1: that you can get, you know, at any place. And 1148 01:05:21,760 --> 01:05:25,240 Speaker 1: then in the UK they released actually the first manuscript 1149 01:05:25,280 --> 01:05:28,040 Speaker 1: he submitted, which is fourteen hundred pages. And so if 1150 01:05:28,200 --> 01:05:30,840 Speaker 1: if you want to know everything on every day, what 1151 01:05:31,000 --> 01:05:33,240 Speaker 1: newspaper they were reading, and how much they paid for 1152 01:05:33,640 --> 01:05:35,920 Speaker 1: a beer at the pub in ninety six, then you 1153 01:05:36,000 --> 01:05:39,440 Speaker 1: want you want the original manuscript version of have you 1154 01:05:39,520 --> 01:05:44,520 Speaker 1: seen the Black Um Black Covered Beatles Book? I think 1155 01:05:44,640 --> 01:05:48,240 Speaker 1: Spitzer Spit Bob Spitz that one too. I haven't gotten 1156 01:05:48,280 --> 01:05:51,120 Speaker 1: to it yet, but it's like also almost a thousand pages. 1157 01:05:51,200 --> 01:05:53,919 Speaker 1: It's monstrous, and people who have plowed through it said 1158 01:05:53,960 --> 01:05:56,960 Speaker 1: it's wonderful. It is, but it's just an intimidating but 1159 01:05:57,520 --> 01:06:00,560 Speaker 1: but but Louis but Lewison is the is the gold stand. 1160 01:06:02,640 --> 01:06:06,160 Speaker 1: Give me one more that you're reading recently or currently. Um, 1161 01:06:06,600 --> 01:06:09,720 Speaker 1: I'm I'm I'm trying to keep up on um. I'm 1162 01:06:09,760 --> 01:06:13,200 Speaker 1: trying to keep up on on geopolitics and China actually, 1163 01:06:13,280 --> 01:06:16,160 Speaker 1: and for for the most part, books are not as useful. 1164 01:06:16,280 --> 01:06:18,760 Speaker 1: So I'm trying to get step I'm trying to get 1165 01:06:18,840 --> 01:06:21,760 Speaker 1: steeped because I think what's going on now Barry is 1166 01:06:22,000 --> 01:06:25,480 Speaker 1: a remarkable transition. And the thing about China is one 1167 01:06:25,520 --> 01:06:28,280 Speaker 1: of my friends told me a guy named Dave Smick. 1168 01:06:28,280 --> 01:06:29,520 Speaker 1: I don't know if you know Dave Spick, but by 1169 01:06:29,520 --> 01:06:32,640 Speaker 1: the way, would be a great guest recommend Dave. Dave 1170 01:06:32,800 --> 01:06:36,080 Speaker 1: is a fascinating fellow. And in Dave's line on on 1171 01:06:36,240 --> 01:06:39,240 Speaker 1: China was um thing he said, Rich. The thing about 1172 01:06:39,280 --> 01:06:42,400 Speaker 1: China is that they're billion people, but they're only six 1173 01:06:42,480 --> 01:06:44,120 Speaker 1: who know what's going on, and they're not and they're 1174 01:06:44,160 --> 01:06:47,640 Speaker 1: not talking. So I think we're all we're sort of 1175 01:06:47,760 --> 01:06:50,040 Speaker 1: all on the fly with with China. But what's going 1176 01:06:50,080 --> 01:06:54,400 Speaker 1: on there, both economically and now the transition potentially geopolitically 1177 01:06:54,480 --> 01:06:58,000 Speaker 1: and militarily, it's really going to transform the next ten years. 1178 01:06:58,040 --> 01:06:59,880 Speaker 1: And so anything I can get on China by and 1179 01:07:00,160 --> 01:07:03,000 Speaker 1: for I guess of those Kissingers probably the best. So 1180 01:07:03,160 --> 01:07:06,560 Speaker 1: Kissingers written really written a book on China that is 1181 01:07:06,920 --> 01:07:12,600 Speaker 1: a must must read. I've been the CFRs regular updates 1182 01:07:12,640 --> 01:07:15,840 Speaker 1: on China are they have boots on the ground. They're fascinating, 1183 01:07:16,240 --> 01:07:19,640 Speaker 1: and the thought of any sort of book is immediately 1184 01:07:19,800 --> 01:07:23,760 Speaker 1: dated because seen stuff seems to be changing so rapid. 1185 01:07:23,840 --> 01:07:26,600 Speaker 1: But that that's scenario where the Internet and having networks 1186 01:07:26,680 --> 01:07:30,120 Speaker 1: of people either directly or indirectly can be very valuable 1187 01:07:30,120 --> 01:07:33,320 Speaker 1: because you know, we can assemble things now. Uh, you 1188 01:07:33,360 --> 01:07:36,280 Speaker 1: know on our computer screens that twenty years ago would 1189 01:07:36,280 --> 01:07:38,800 Speaker 1: have been possible, it would have been impossible. So on China, 1190 01:07:38,920 --> 01:07:41,600 Speaker 1: I'm doing it sort of on the fly. Yeah, So 1191 01:07:41,760 --> 01:07:45,560 Speaker 1: let's talk about what's changed since you became an economist. 1192 01:07:45,920 --> 01:07:51,840 Speaker 1: What is different in the industry today versus ten years ago. Well, 1193 01:07:51,880 --> 01:07:54,320 Speaker 1: as I said, I think the preparation, I think the 1194 01:07:54,480 --> 01:07:58,280 Speaker 1: sorting in terms of getting into graduate programs is is 1195 01:07:58,680 --> 01:08:02,360 Speaker 1: very effective at word, getting in people with like six 1196 01:08:02,440 --> 01:08:04,720 Speaker 1: sigma math skills. I guess I'm a bit of a 1197 01:08:05,160 --> 01:08:07,520 Speaker 1: bit of a skeptic that that's all you need to 1198 01:08:07,600 --> 01:08:10,280 Speaker 1: do economics. So that would be one thing. The other thing, 1199 01:08:10,360 --> 01:08:12,640 Speaker 1: of course, is big data. That's the buzzword now. But 1200 01:08:13,160 --> 01:08:16,360 Speaker 1: I think about my early efforts as an empirical macro economist, 1201 01:08:16,400 --> 01:08:18,080 Speaker 1: and how what a big deal it was, you know, 1202 01:08:18,320 --> 01:08:20,599 Speaker 1: to get a data set and to clean a data set, 1203 01:08:20,680 --> 01:08:22,600 Speaker 1: and we just now take it for granted because on 1204 01:08:22,640 --> 01:08:28,000 Speaker 1: our Bloomberg term. I mean still I'm not that Bloomberg 1205 01:08:28,080 --> 01:08:30,240 Speaker 1: needs the plug, but I'm a kid in the candy 1206 01:08:30,320 --> 01:08:32,439 Speaker 1: store in a Bloomberg terminal. I mean, the amount of 1207 01:08:32,560 --> 01:08:36,160 Speaker 1: data available is just astonishing. It's astonishing, and your ability 1208 01:08:36,240 --> 01:08:38,240 Speaker 1: to to sort it and compare and into it. So 1209 01:08:38,680 --> 01:08:41,040 Speaker 1: so I think we're just at the infancy, you know, 1210 01:08:41,280 --> 01:08:43,639 Speaker 1: in the sort of baseball analogy. We're not even out 1211 01:08:43,640 --> 01:08:45,519 Speaker 1: of the first ending in terms of what big data 1212 01:08:45,560 --> 01:08:47,559 Speaker 1: is going to do. The challenge a big data, of course, 1213 01:08:47,960 --> 01:08:49,439 Speaker 1: is there's gonna be a lot of a lot of 1214 01:08:49,560 --> 01:08:52,120 Speaker 1: dead ends and a lot of false promises. But I'm 1215 01:08:52,120 --> 01:08:55,960 Speaker 1: absolutely convinced in next ten years, someone or some group 1216 01:08:56,080 --> 01:08:59,080 Speaker 1: of entrepreneurs are going to get big data right, and 1217 01:08:59,200 --> 01:09:03,200 Speaker 1: it's gonna it's to transform economics and probably every other 1218 01:09:03,360 --> 01:09:06,320 Speaker 1: social science. I read the policy I read not too 1219 01:09:06,360 --> 01:09:11,080 Speaker 1: long ago. Steve Balmer, former CEO and Microsoft, has been 1220 01:09:11,320 --> 01:09:14,800 Speaker 1: assembling and releasing these giant data sets for people to play. 1221 01:09:14,880 --> 01:09:17,679 Speaker 1: You know, for example, earlier we talked about now casting 1222 01:09:17,760 --> 01:09:20,160 Speaker 1: the idea that instead of forecasting the future, you're trying 1223 01:09:20,200 --> 01:09:23,479 Speaker 1: to track the present. Uh And now casting is all 1224 01:09:23,560 --> 01:09:25,920 Speaker 1: about about big data. And we could be at a 1225 01:09:25,960 --> 01:09:28,280 Speaker 1: point in ten years where when by the time the 1226 01:09:28,320 --> 01:09:31,120 Speaker 1: GDP numbers come out, nobody even really cares because we 1227 01:09:31,160 --> 01:09:33,880 Speaker 1: will have processed all of that on our Bloomberg terminal. Now, 1228 01:09:34,040 --> 01:09:36,519 Speaker 1: don't you think day to day, week to week, month 1229 01:09:36,560 --> 01:09:41,080 Speaker 1: and month GDP activity is so volatile, Not that it's 1230 01:09:41,160 --> 01:09:44,559 Speaker 1: volatile in a negative way, but the weekly and monthly 1231 01:09:44,640 --> 01:09:47,640 Speaker 1: cycle is so all over the map that it's very 1232 01:09:47,720 --> 01:09:51,680 Speaker 1: hard to extract a credible because so far, I think 1233 01:09:51,720 --> 01:09:54,240 Speaker 1: it's the Atlanta and the New York beds have the 1234 01:09:54,360 --> 01:09:58,440 Speaker 1: GDP now exactly, and neither of them have been especially 1235 01:09:58,640 --> 01:10:01,040 Speaker 1: active well, and in it shows you how hard it 1236 01:10:01,160 --> 01:10:04,680 Speaker 1: is to look. US economy makes seventeen trillion dollars worth 1237 01:10:04,760 --> 01:10:07,240 Speaker 1: of stuff every year, and that doesn't even count all 1238 01:10:07,280 --> 01:10:11,400 Speaker 1: the churning of existing assets. So it is a complex beast. 1239 01:10:12,520 --> 01:10:15,640 Speaker 1: But but I but I think that there are there 1240 01:10:15,680 --> 01:10:17,640 Speaker 1: are things we're learning from from this that are going 1241 01:10:17,720 --> 01:10:19,960 Speaker 1: to be useful. And I am Barry I can tell 1242 01:10:19,960 --> 01:10:23,559 Speaker 1: you I definitely see it in financial markets look, for example, 1243 01:10:23,640 --> 01:10:27,479 Speaker 1: the Bloomberg surprise index. So this whole idea instead of 1244 01:10:27,680 --> 01:10:30,360 Speaker 1: is the data stronger weak? Is the data stronger weaker 1245 01:10:30,400 --> 01:10:34,080 Speaker 1: than expected? That's that's revolutionizing the way people think about everything. 1246 01:10:35,000 --> 01:10:39,160 Speaker 1: Every everything's relative expectation. When people before, folks like Bloomberg 1247 01:10:39,320 --> 01:10:41,280 Speaker 1: archive that you sort of knew it, but there was 1248 01:10:41,320 --> 01:10:44,400 Speaker 1: no data set on primet. We used to see it 1249 01:10:44,520 --> 01:10:48,599 Speaker 1: with quotaly earning surprise and sometimes you'd have a good 1250 01:10:48,720 --> 01:10:51,120 Speaker 1: number in the market, stock would sell off, and sometimes 1251 01:10:51,120 --> 01:10:53,400 Speaker 1: you'd have a lousy number and it would rally. And 1252 01:10:53,760 --> 01:10:56,559 Speaker 1: really the question isn't what are the earnings, it's exactly 1253 01:10:56,600 --> 01:10:59,200 Speaker 1: what you reference. What are the earnings relative to expectations? 1254 01:10:59,600 --> 01:11:02,720 Speaker 1: Is this an upside or downside surprise? A negative number 1255 01:11:02,760 --> 01:11:05,120 Speaker 1: could be an upside surprise, and positive number could be 1256 01:11:05,120 --> 01:11:08,479 Speaker 1: a downside. It's very countintuitive until you start realized thinking 1257 01:11:08,520 --> 01:11:12,040 Speaker 1: about what's already reflecting. But that's an area where the 1258 01:11:12,160 --> 01:11:15,040 Speaker 1: data is now available, and even fifteen years ago it 1259 01:11:15,200 --> 01:11:18,720 Speaker 1: wasn't that that that's quite fascinating. What do you so 1260 01:11:18,960 --> 01:11:21,439 Speaker 1: big data? What do you see as the next major 1261 01:11:21,560 --> 01:11:27,519 Speaker 1: shifts in economics? Well, everyone says behavioral and I don't 1262 01:11:27,520 --> 01:11:29,519 Speaker 1: want to reign too much on the behavioral parade. I 1263 01:11:29,560 --> 01:11:32,200 Speaker 1: think that already had well. I think behavioral economics is 1264 01:11:32,320 --> 01:11:36,120 Speaker 1: very important. Here's what the stumbling block is. The stumbling 1265 01:11:36,160 --> 01:11:41,160 Speaker 1: block is we have very good insights into individual behavioral 1266 01:11:41,680 --> 01:11:44,560 Speaker 1: um departures from rationality, and we focus on this a 1267 01:11:44,600 --> 01:11:47,080 Speaker 1: lot of pin power. Our c I. O. Dan Iverson 1268 01:11:47,160 --> 01:11:49,000 Speaker 1: is very interested in this. In fact that our form 1269 01:11:49,080 --> 01:11:51,479 Speaker 1: we had a speaker, a woman named talently share It, who, 1270 01:11:51,520 --> 01:11:56,559 Speaker 1: by the way, with beating on optimism bias. Yes, yes, 1271 01:11:56,640 --> 01:11:59,160 Speaker 1: and so she does the neuroscience. Our brains are wired 1272 01:11:59,200 --> 01:12:01,439 Speaker 1: to be optimists, dig and it's pretty neat stop. So, 1273 01:12:02,000 --> 01:12:04,720 Speaker 1: by the way, there's an evolutionary reason for that, and 1274 01:12:04,800 --> 01:12:10,400 Speaker 1: that's her argument. If you're not optimistic, so ten of 1275 01:12:10,479 --> 01:12:12,200 Speaker 1: us are going to go down and were kill a mammoth. 1276 01:12:12,240 --> 01:12:14,920 Speaker 1: And if we're successful, hey, the group will have meat 1277 01:12:15,000 --> 01:12:17,400 Speaker 1: well winter. Yeah, a few of us may not make 1278 01:12:17,439 --> 01:12:20,479 Speaker 1: it back, but the species you've you've nailed. And so 1279 01:12:20,640 --> 01:12:22,679 Speaker 1: we actually had her at our forum and may talking 1280 01:12:22,800 --> 01:12:25,320 Speaker 1: about optimism bias to a bunch of bond traders. So 1281 01:12:26,200 --> 01:12:30,280 Speaker 1: so so behavior is very relevant the the area that 1282 01:12:30,400 --> 01:12:32,360 Speaker 1: it's either going to be a stumbling block or will 1283 01:12:32,360 --> 01:12:36,599 Speaker 1: be a breakthrough is to put behavioral economics in general 1284 01:12:36,680 --> 01:12:40,240 Speaker 1: equilibrium with markets. Right, So, yes, you know you've done 1285 01:12:40,280 --> 01:12:43,560 Speaker 1: this very successfully as an investor. You know that there's momentum, 1286 01:12:43,640 --> 01:12:47,200 Speaker 1: there's pessimism, optimism, and markets there there's a psychology in 1287 01:12:47,320 --> 01:12:50,760 Speaker 1: markets um. But at some point people are buying and 1288 01:12:50,880 --> 01:12:53,080 Speaker 1: selling and it's got to add up. So I think 1289 01:12:53,160 --> 01:12:56,040 Speaker 1: we're still falling short of having a general equilibrium model 1290 01:12:56,360 --> 01:13:01,080 Speaker 1: of how different behaviors interact. Uh, But that would be 1291 01:13:01,160 --> 01:13:02,519 Speaker 1: the next big thing if we could get what I 1292 01:13:02,560 --> 01:13:05,479 Speaker 1: would call a general equilibrium of behavioral economics. You know, 1293 01:13:05,560 --> 01:13:08,320 Speaker 1: I'm in the middle of a I'm reluctant to call 1294 01:13:08,360 --> 01:13:10,840 Speaker 1: it a debate. It's really an argument within this seemed 1295 01:13:10,880 --> 01:13:15,880 Speaker 1: to lab about the issue of how we perceive or 1296 01:13:15,960 --> 01:13:19,600 Speaker 1: misperceived risk. And I think when you look at the 1297 01:13:19,640 --> 01:13:23,320 Speaker 1: actual numbers of a total number of deaths relative to 1298 01:13:23,439 --> 01:13:27,439 Speaker 1: things like heart disease, cancer, falling out of bed, more 1299 01:13:27,800 --> 01:13:30,000 Speaker 1: many more people diets, you you're falling out of bed 1300 01:13:30,240 --> 01:13:32,519 Speaker 1: or in the shower, that that that are killed by terrorists. 1301 01:13:32,880 --> 01:13:35,840 Speaker 1: But but his argument is, well, you're looking at it 1302 01:13:36,000 --> 01:13:39,240 Speaker 1: in a normal distribution. It's really a fat tail event. 1303 01:13:39,560 --> 01:13:41,600 Speaker 1: And if a terrorist gets a biological weapon or a 1304 01:13:41,680 --> 01:13:44,840 Speaker 1: nuclear weapon and the numbers are just throw those all out, 1305 01:13:44,880 --> 01:13:48,160 Speaker 1: it's millions. And part of me is I understand the 1306 01:13:48,280 --> 01:13:50,920 Speaker 1: fat tail to the guy who wrote the black swan, though, 1307 01:13:51,560 --> 01:13:54,439 Speaker 1: does everything begin to look like a fat tail? And 1308 01:13:54,640 --> 01:13:59,479 Speaker 1: are we being pessimistic and fearful and giving into a 1309 01:13:59,560 --> 01:14:03,680 Speaker 1: worst things which is kind of how terrorists operate and 1310 01:14:03,760 --> 01:14:06,080 Speaker 1: they want to and and Barry, I have to tell 1311 01:14:06,120 --> 01:14:09,560 Speaker 1: you that certainly, one thing that I've observed and that 1312 01:14:09,680 --> 01:14:12,960 Speaker 1: we've noticed again compared when we began our career, if 1313 01:14:13,040 --> 01:14:16,000 Speaker 1: you had told us in the nineteen late eighties or 1314 01:14:16,000 --> 01:14:19,360 Speaker 1: early nineties, fast forward in the seventeen there will be five, 1315 01:14:19,400 --> 01:14:21,200 Speaker 1: six or seven wars in the Middle East. They're all 1316 01:14:21,200 --> 01:14:23,720 Speaker 1: shooting each other. Everybody's blowing each other up. Oh. And 1317 01:14:23,800 --> 01:14:25,839 Speaker 1: by the way, North Korea has got a nuclear warhead, 1318 01:14:25,880 --> 01:14:28,479 Speaker 1: and and I see BM Oh and by the way, 1319 01:14:28,560 --> 01:14:31,120 Speaker 1: someone full plane into the World Trade Center. You would 1320 01:14:31,160 --> 01:14:34,439 Speaker 1: basically say, you know, the SMP will be down right. 1321 01:14:34,640 --> 01:14:37,240 Speaker 1: So we're in a world where there is this overlay 1322 01:14:37,960 --> 01:14:40,320 Speaker 1: of all the stuff that can happen, all these black 1323 01:14:40,360 --> 01:14:43,160 Speaker 1: swarms that can happen, and you have financial markets you know, 1324 01:14:44,680 --> 01:14:47,800 Speaker 1: move on. So I the one way to look at 1325 01:14:47,840 --> 01:14:49,800 Speaker 1: that is to say the market has looked at it 1326 01:14:50,360 --> 01:14:54,679 Speaker 1: discounted the likely possibility of that occurring, and is looking 1327 01:14:54,720 --> 01:15:00,280 Speaker 1: at the probabilities that although the that that something awful 1328 01:15:00,280 --> 01:15:02,800 Speaker 1: isn't gonna happen. And then the counter argument as well, 1329 01:15:02,880 --> 01:15:04,920 Speaker 1: the markets seem to think the same thing around oh 1330 01:15:04,960 --> 01:15:08,000 Speaker 1: seven and look what happened. Man. So it's really a 1331 01:15:08,120 --> 01:15:12,360 Speaker 1: fascinating um question. Let's let's talk about failure. Tell us 1332 01:15:12,360 --> 01:15:15,839 Speaker 1: about a time something you try to do uh and failed. 1333 01:15:16,560 --> 01:15:19,200 Speaker 1: What was that? Why? What did you learn from the 1334 01:15:19,280 --> 01:15:22,800 Speaker 1: experience of something not working out as expected? Well, I 1335 01:15:22,920 --> 01:15:25,960 Speaker 1: think what I would I would say early in my 1336 01:15:26,160 --> 01:15:31,200 Speaker 1: career I made a misjudgment of failure to think that 1337 01:15:31,400 --> 01:15:35,559 Speaker 1: I was going to be a mathematical economist and make 1338 01:15:35,680 --> 01:15:39,240 Speaker 1: my breakthrough by sitting in a room with equations and 1339 01:15:39,520 --> 01:15:43,040 Speaker 1: some and reveal some ultimate mathematical truth. And I spent 1340 01:15:43,080 --> 01:15:47,000 Speaker 1: about five years doing that, not very successfully to myself 1341 01:15:47,080 --> 01:15:49,680 Speaker 1: for others. And I really realized that what I got 1342 01:15:49,720 --> 01:15:52,400 Speaker 1: into economics was to actually be trying to understand the 1343 01:15:52,439 --> 01:15:54,840 Speaker 1: world the way it was, not the way it fit 1344 01:15:54,960 --> 01:15:56,760 Speaker 1: into a model. So I had to shift gears away 1345 01:15:56,800 --> 01:16:00,479 Speaker 1: from thinking of myself as an abstract mathematician to someone 1346 01:16:00,640 --> 01:16:03,960 Speaker 1: who began to think of himself as doing empirical work too, 1347 01:16:04,280 --> 01:16:07,000 Speaker 1: more or less understand the world as messy as it was. 1348 01:16:07,040 --> 01:16:08,599 Speaker 1: And I get back to the point I made about 1349 01:16:08,640 --> 01:16:12,280 Speaker 1: Ben Freedman, give me the advice, which is economics is 1350 01:16:12,320 --> 01:16:15,160 Speaker 1: about the questions we asked, not about the methodology that 1351 01:16:15,640 --> 01:16:17,679 Speaker 1: that we use. But it took me about five years 1352 01:16:17,760 --> 01:16:21,719 Speaker 1: to to sort of realize that that that's really interesting. 1353 01:16:21,880 --> 01:16:23,840 Speaker 1: It was I don't I don't picture you as a 1354 01:16:24,960 --> 01:16:30,360 Speaker 1: equation guy. I was a question. I was, um, tell 1355 01:16:30,439 --> 01:16:32,600 Speaker 1: us about something you do outside of the office, What 1356 01:16:32,680 --> 01:16:36,479 Speaker 1: do you do to keep I already I already plugged 1357 01:16:36,560 --> 01:16:41,760 Speaker 1: the plug to c D. So that's the relax Oh, absolutely, 1358 01:16:42,520 --> 01:16:45,280 Speaker 1: a method of unwinding. Well. It also helps me to 1359 01:16:45,320 --> 01:16:47,880 Speaker 1: commute because I live in Connecticut, so I spend you know, 1360 01:16:48,000 --> 01:16:49,760 Speaker 1: two and a half hours plus a day on Metro 1361 01:16:50,000 --> 01:16:53,360 Speaker 1: North and through the wonders of technology. Thank you, Steve Jobs. 1362 01:16:53,520 --> 01:16:55,240 Speaker 1: You know, I have a lot of my musical projects 1363 01:16:55,320 --> 01:16:57,200 Speaker 1: on my iPad, so I can do editing and stuff 1364 01:16:57,240 --> 01:17:00,439 Speaker 1: on the train. In terms of away from that, I'm 1365 01:17:00,680 --> 01:17:03,679 Speaker 1: sort of a weekend golfer with my boys. Uh, they're 1366 01:17:03,760 --> 01:17:05,880 Speaker 1: much better than I am. So it's it counts as 1367 01:17:05,920 --> 01:17:08,680 Speaker 1: both some golf time and family time. And you know, 1368 01:17:09,120 --> 01:17:11,559 Speaker 1: in my forties I took up downhill skiing and I'll 1369 01:17:11,600 --> 01:17:14,080 Speaker 1: never be great, but one week a year I go 1370 01:17:14,240 --> 01:17:16,200 Speaker 1: skiing and I love it. So that's sort of my 1371 01:17:17,200 --> 01:17:20,120 Speaker 1: sort of my outside the office. And I love to 1372 01:17:20,160 --> 01:17:23,240 Speaker 1: go for walks with my wife in eectiquette. Yeah, where 1373 01:17:23,280 --> 01:17:25,880 Speaker 1: do you go skiing? Well, that's the great thing. We've 1374 01:17:25,920 --> 01:17:27,679 Speaker 1: been skiing a lot of people. So we've been to Europe, 1375 01:17:27,680 --> 01:17:29,800 Speaker 1: We've been to the Dolomines in Italy, we've been to 1376 01:17:30,080 --> 01:17:32,240 Speaker 1: to the Swiss Alps, we've been out to Deer Valley, 1377 01:17:32,439 --> 01:17:34,880 Speaker 1: to Taws and so you get to see different parts 1378 01:17:34,920 --> 01:17:37,800 Speaker 1: of the world that way. One week a year, yeah, 1379 01:17:38,040 --> 01:17:41,080 Speaker 1: maybe two. Yeah, that's all I can afford. So so 1380 01:17:41,400 --> 01:17:46,000 Speaker 1: quick footnote in grad school, my best friends undergrad had 1381 01:17:46,040 --> 01:17:48,160 Speaker 1: been Dartmouth and he had been on the ski team 1382 01:17:48,640 --> 01:17:51,280 Speaker 1: and I used to go to Hunter another local mountains 1383 01:17:51,320 --> 01:17:56,320 Speaker 1: and I thought I was okay, and he suggested we 1384 01:17:56,479 --> 01:17:59,680 Speaker 1: join a ski group in our last year of grad 1385 01:17:59,720 --> 01:18:02,439 Speaker 1: school where we would take a bunch of college kids 1386 01:18:03,160 --> 01:18:05,800 Speaker 1: on some ski tour group and this way, broke grad 1387 01:18:05,880 --> 01:18:10,479 Speaker 1: students would get transportation, lift tickets, food housing. And so 1388 01:18:10,640 --> 01:18:14,760 Speaker 1: we did that and he was just amazing. And all 1389 01:18:14,840 --> 01:18:17,240 Speaker 1: I would do is try and keep up with him 1390 01:18:17,280 --> 01:18:20,160 Speaker 1: and not hit a tree. Those were my two goals. 1391 01:18:20,320 --> 01:18:23,120 Speaker 1: And you really it's one of those things I mentioned 1392 01:18:23,439 --> 01:18:25,800 Speaker 1: done in Kruger earlier. It's one of those things where 1393 01:18:26,240 --> 01:18:30,880 Speaker 1: you quickly are disabused of any false impression that you 1394 01:18:31,000 --> 01:18:34,120 Speaker 1: have some sort of skills in that area. It's like, oh, 1395 01:18:34,400 --> 01:18:36,720 Speaker 1: I can make it down the mountain without falling down. 1396 01:18:37,200 --> 01:18:42,439 Speaker 1: He's plowing through moguls at sixty and just blowing my mind. 1397 01:18:42,760 --> 01:18:45,160 Speaker 1: But that's what four years at Dartmouth will get you 1398 01:18:45,840 --> 01:18:51,240 Speaker 1: into a decent grad school and and great uh skiing skills. Um. 1399 01:18:51,840 --> 01:18:53,760 Speaker 1: So you work with a lot of students, you work 1400 01:18:53,840 --> 01:18:56,960 Speaker 1: with millennials. What sort of advice would you give to 1401 01:18:57,080 --> 01:19:00,920 Speaker 1: someone who was just starting their care year or thinking 1402 01:19:01,000 --> 01:19:05,360 Speaker 1: about starting a career in economics. Well, I've been doing 1403 01:19:05,439 --> 01:19:08,400 Speaker 1: some thinking on that and and I guess the one 1404 01:19:08,439 --> 01:19:11,200 Speaker 1: thing I would mentioned in this regard because I think 1405 01:19:11,240 --> 01:19:14,240 Speaker 1: relative to when when we were coming up, it's students 1406 01:19:14,320 --> 01:19:17,920 Speaker 1: have more of a choice now. Um, And I think 1407 01:19:18,080 --> 01:19:22,720 Speaker 1: that a lot of students starting out are attracted uh 1408 01:19:23,040 --> 01:19:26,640 Speaker 1: naturally to you know, being the next Mark Zuckerberg or 1409 01:19:27,520 --> 01:19:33,639 Speaker 1: or you know, or Bill Gates, and you know, sort 1410 01:19:33,680 --> 01:19:36,759 Speaker 1: of you sort of immediately go into an entrepreneurial wage 1411 01:19:36,840 --> 01:19:40,760 Speaker 1: or not an organization, and obviously that worked out great 1412 01:19:40,840 --> 01:19:43,640 Speaker 1: for them. I guess the thing that I observe is, 1413 01:19:44,240 --> 01:19:47,040 Speaker 1: I think I've always been part of organizations that I've 1414 01:19:47,040 --> 01:19:49,880 Speaker 1: been proud of, I've learned enormously, and obviously you know 1415 01:19:50,360 --> 01:19:53,280 Speaker 1: I So I'm a big believer that if you have 1416 01:19:53,400 --> 01:19:58,400 Speaker 1: some choices in your career, aligning yourself with quality organizations 1417 01:19:58,520 --> 01:20:01,360 Speaker 1: is a positive. You know, we think of negatives in 1418 01:20:01,400 --> 01:20:04,719 Speaker 1: this corporate politics and there's back stepping and all that stuff, 1419 01:20:04,800 --> 01:20:07,200 Speaker 1: but that's also true in the entrepreneurial world as well. 1420 01:20:07,439 --> 01:20:10,200 Speaker 1: So I think I think a career path where you 1421 01:20:10,320 --> 01:20:13,719 Speaker 1: if you have some choice both working within and learning 1422 01:20:13,800 --> 01:20:18,439 Speaker 1: within quality organizations and and also doing the entrepreneurial path 1423 01:20:18,560 --> 01:20:20,840 Speaker 1: at some point makes sense. But I think some folks 1424 01:20:20,960 --> 01:20:23,640 Speaker 1: immediately go from college, eating without college, right into that 1425 01:20:23,800 --> 01:20:25,680 Speaker 1: I'm going to be the next Mark Zuckerberg, And I 1426 01:20:25,720 --> 01:20:28,200 Speaker 1: don't know if that's necessarily going to serve them well. 1427 01:20:28,600 --> 01:20:30,599 Speaker 1: You need the skill set that you can only learn 1428 01:20:30,840 --> 01:20:34,080 Speaker 1: learning an organization. As a kid, I used to hear 1429 01:20:34,680 --> 01:20:37,519 Speaker 1: people want to become the next Michael Jordan's. The odds 1430 01:20:37,600 --> 01:20:40,599 Speaker 1: of that are just so hard, so long. And think 1431 01:20:40,640 --> 01:20:43,120 Speaker 1: he played in North Carolina, which is a very good organization. 1432 01:20:43,439 --> 01:20:45,519 Speaker 1: That's why I went right from high school to the NBA. 1433 01:20:45,920 --> 01:20:49,080 Speaker 1: That's why in a good organization. So so there are 1434 01:20:49,160 --> 01:20:53,960 Speaker 1: things to be garnered from from quality um UH surroundings 1435 01:20:54,080 --> 01:20:56,879 Speaker 1: And and our final question, and one of my favorites, 1436 01:20:57,439 --> 01:20:59,320 Speaker 1: what is it that you know about the world of 1437 01:20:59,400 --> 01:21:04,560 Speaker 1: economic ex global macroeconomics, investing today that you wish you 1438 01:21:04,640 --> 01:21:08,760 Speaker 1: knew years Yeah, And and I think to me the 1439 01:21:09,840 --> 01:21:14,040 Speaker 1: financial crisis UH was a real eye opener on this. 1440 01:21:14,400 --> 01:21:18,200 Speaker 1: I you know, I think the one thing that at 1441 01:21:18,240 --> 01:21:20,120 Speaker 1: least I and I think a lot of us understand 1442 01:21:20,200 --> 01:21:24,920 Speaker 1: now about global the global financial system UM is that, 1443 01:21:25,040 --> 01:21:30,680 Speaker 1: in some very important respects UM, it only operates with 1444 01:21:31,640 --> 01:21:39,000 Speaker 1: a level of transparency and oversight and regulation UM because 1445 01:21:39,080 --> 01:21:40,840 Speaker 1: in the absence of that, there are just too many 1446 01:21:40,840 --> 01:21:43,880 Speaker 1: incentives and there's too much money floating around. And I'm 1447 01:21:43,920 --> 01:21:46,160 Speaker 1: talking about things that are illegal. But I'm saying that 1448 01:21:46,600 --> 01:21:48,800 Speaker 1: I think a lot of the global financial system before 1449 01:21:48,840 --> 01:21:52,320 Speaker 1: the crisis was essentially priced and traded on a view 1450 01:21:52,520 --> 01:21:54,880 Speaker 1: that there was an implicit put option to some central 1451 01:21:54,920 --> 01:21:59,559 Speaker 1: bank somewhere the Greenspan put well as it had been 1452 01:21:59,560 --> 01:22:03,640 Speaker 1: alluded to um and and I think the failure to 1453 01:22:03,760 --> 01:22:08,559 Speaker 1: recognize that was was very was very costly. So now 1454 01:22:08,640 --> 01:22:12,360 Speaker 1: whenever I look at global macro, anything involving credit, or 1455 01:22:12,360 --> 01:22:15,479 Speaker 1: anything involving lending and borrowing, the first question I asked, 1456 01:22:16,800 --> 01:22:19,080 Speaker 1: how who do Marcus think has got the put option 1457 01:22:19,200 --> 01:22:21,160 Speaker 1: on this? And how and how is it priced? And 1458 01:22:21,280 --> 01:22:23,800 Speaker 1: I think a lot of a lot of mistakes and 1459 01:22:23,880 --> 01:22:27,639 Speaker 1: finance are about either opaque or miss price put options 1460 01:22:27,720 --> 01:22:31,519 Speaker 1: to central banks or governments. We have been speaking with 1461 01:22:31,680 --> 01:22:34,200 Speaker 1: Professor Richard Clarida. Richard, thank you so much for being 1462 01:22:34,280 --> 01:22:38,719 Speaker 1: so generous with your time. If you want to find 1463 01:22:38,840 --> 01:22:42,400 Speaker 1: more of Professor Clarda's writings, you can go to the 1464 01:22:42,640 --> 01:22:47,120 Speaker 1: NBER website. You have a page at Columbia University. And 1465 01:22:47,280 --> 01:22:50,280 Speaker 1: where else can they find information about your c D 1466 01:22:50,520 --> 01:22:52,600 Speaker 1: or anything else? Well, this the the CD is on 1467 01:22:52,760 --> 01:22:56,000 Speaker 1: iTunes and on Apple Music. So you just type in 1468 01:22:56,600 --> 01:22:59,040 Speaker 1: Richard Clarida and the name is Time no changes. It 1469 01:22:59,040 --> 01:23:03,160 Speaker 1: will pop right up. Fantastic. If you enjoyed this conversation, 1470 01:23:03,320 --> 01:23:05,080 Speaker 1: be sure and look up an Inch or down an 1471 01:23:05,080 --> 01:23:09,240 Speaker 1: inch on Apple iTunes or SoundCloud overcast Bloomberg dot com 1472 01:23:09,320 --> 01:23:12,240 Speaker 1: and you can see any of the other hundred plus 1473 01:23:12,400 --> 01:23:14,880 Speaker 1: g We're coming up on a hundred and fifty other 1474 01:23:15,040 --> 01:23:18,920 Speaker 1: such conversations. I would be remiss if I did not 1475 01:23:19,160 --> 01:23:24,480 Speaker 1: thank my engineer uh Medina Parwana, my booker and producer 1476 01:23:24,960 --> 01:23:27,639 Speaker 1: Taylor Riggs, and my head of research Michael bat Nick, 1477 01:23:28,000 --> 01:23:30,800 Speaker 1: for all of their assistance in putting these questions and 1478 01:23:31,000 --> 01:23:36,400 Speaker 1: interviews together. We love your comments, feedback and suggestions right 1479 01:23:36,479 --> 01:23:40,680 Speaker 1: to me at m IB podcast at Bloomberg dot net. 1480 01:23:41,280 --> 01:23:44,559 Speaker 1: I'm Barry Ridholts. You've been listening to Masters in Business 1481 01:23:44,960 --> 01:23:46,080 Speaker 1: on Bloomberg Radio.