Speaker 1: This is Bloomberg Wall Street Week. What's the state of
Speaker 1: corporate governance? The deficit is a real issue. The US
Speaker 1: economy continues to send mixed signals to the financial stories
Speaker 1: that cheap our world fed action to con concerns over
Speaker 1: dollar liquidity and encouraging China data. The five hundred wealthiest
Speaker 1: people in the world. Through the eyes of the most
Speaker 1: influential voices Larry Summers, the former Treasury Secretary, Star CEO,
Speaker 1: Kevin Johnson sec Chairman j Clayton. Bloomberg wool Street Week
Speaker 1: with David Weston from Bloomberg Radio Science gave us some hope.
Speaker 1: The economic numbers they gave us none. This is Bloomberg
Speaker 1: Wall Street Week. I'm David Weston. Welcome back. Equity markets
Speaker 1: held up pretty well this week, although below the surface
Speaker 1: there are clearly some winners and some losers who are
Speaker 1: emerging and judging for what we saw this week, big
Speaker 1: tech is tending to come out on top. That's something
Speaker 1: we talked with Wall Street Week contributor Sam Paulmisano about.
Speaker 1: He is the former CEO of IBM. It's interesting, Dave,
Speaker 1: if you watch what's going on. I mean, the guys
Speaker 1: that are well position into the pandemic are continuing to
Speaker 1: do well, especially those that are providing services like you
Speaker 1: were mentioning connectivity in business as well as to the individual,
Speaker 1: and we all connect with our families that way. In
Speaker 1: this environment, issues associated with the entertainment in the home
Speaker 1: and those kinds of things facilitating that. And you see
Speaker 1: that also in the large tech companies, especially those that
Speaker 1: are have other business models, but also like YouTube with
Speaker 1: part of Google, etcetera, etcetera. Alphabet now, so fundamentally, you know,
Speaker 1: you see a lot of that going on. I think
Speaker 1: that the broader trend long term for tech is how
Speaker 1: behavior is changing and how tech isn't facilitating that change.
Speaker 1: There's some classic examples. One I think that leaps off
Speaker 1: the charts is telemedicine. I mean telling medicine obviously uses
Speaker 1: the connectivity technology, whether that be web bacs or zoom
Speaker 1: or whatever it happens to be, but fundamentally, at the
Speaker 1: end of the day, it's a whole different web of
Speaker 1: practicing medicine. Now, this has been around for a while,
Speaker 1: and their companies like Hell that I've known quite well,
Speaker 1: have been around, but as soon as it was approved
Speaker 1: from a payment perspective, the insurance companies in medicare, etcetera.
Speaker 1: These now approaches have lit up. Now that the point
Speaker 1: of that is that people will get used to that.
Speaker 1: And if you have the option of not going to
Speaker 1: the doctor's office and waiting and waiting in the reception
Speaker 1: area for as you know, a very long time sometimes
Speaker 1: because things happen, uh, you'll that could be attracted to you.
Speaker 1: It doesn't mean you'll never go see a doctor again,
Speaker 1: but it could be an attractive alternative. Uh. You look
Speaker 1: at things that are going on in commerce. Of course,
Speaker 1: everybody talks about the big commerce player being Amazon, and
Speaker 1: what they've been able to do in non prescription drugs
Speaker 1: is like a ninefold growth, if I'm not mistaken. But
Speaker 1: even small small groceries, small retailers and the stuff at
Speaker 1: least in our environment are using things like insta cart
Speaker 1: you can order and deliver everything to the home. So
Speaker 1: all those patterns are going to continue to expand. Tele
Speaker 1: medicine touched with payments, e commerce, those sorted down to
Speaker 1: the small retailers, while grocers those kinds of things I've
Speaker 1: leave that the consumer will change and as a result
Speaker 1: of the consumer changing their consumption patterns, it creates opportunities
Speaker 1: for big tech. Sam talk to us as the former
Speaker 1: head of a big public company as well, about the
Speaker 1: role of a public company in this In this world,
Speaker 1: we now have the government handing out a lot of money,
Speaker 1: sometimes in exchange for equity. At the same time, some
Speaker 1: companies are becoming criticized if they're not socially responsible. Is
Speaker 1: e s G more important than ever? First of all,
Speaker 1: I'll start with e s G or social responsibility. Connecting
Speaker 1: to your society was always fundamentally important. We can argue
Speaker 1: about the extent that people did that or not did that.
Speaker 1: We could talk about the pressure of short term investment, etcetera, etcetera,
Speaker 1: But fundamentally it's it's it was strategically important to your
Speaker 1: brand because if you do things that are valuable to
Speaker 1: your individual customers or to society, your brand will be enhanced,
Speaker 1: Your value will be created that will show up in
Speaker 1: your shareholder price as well. So I think it's always
Speaker 1: been important. I believe, quite honestly, large companies that have
Speaker 1: been extremely responsible. If you look at what people are doing,
Speaker 1: whether it's three AM or whether it's going on in biotech.
Speaker 1: You just heard about talking about Gilead, what they've been
Speaker 1: able to do in a very short period of time
Speaker 1: as well. You talk about what other guys are doing
Speaker 1: to help in the pandemic. Even the energy companies that
Speaker 1: are constantly maligned, you know from sustainability activists and those
Speaker 1: sorts of things, turned over their chemical facilities to produce
Speaker 1: the chemicals that go into the products such as PPE
Speaker 1: and those kinds of things. So and automotive with four
Speaker 1: GM and ventilators, all those things. I mean, those guys
Speaker 1: have been phenomenally responsible. So I believe that you know
Speaker 1: that kind of behavior. When you get into a crisis,
Speaker 1: big companies are stepping up. I mean yeah, I mean
Speaker 1: there's there's no business case to justify some of these
Speaker 1: things in this environment, which we do all do understand,
Speaker 1: but fundamentally they're doing the responsible thing. You even see
Speaker 1: some creative things in small companies. Uh there's a small
Speaker 1: little company in Connecticut in New York. It's actually created
Speaker 1: the platform and technology that allows people to get back
Speaker 1: to work faster. I mean I won't go take it
Speaker 1: through all the details, but basically it certifies your test
Speaker 1: results in your hell and whether you're working in the
Speaker 1: work or you're going into a restaurant for that matter,
Speaker 1: or you and I in the studio again, it'll say, hey,
Speaker 1: Sam's technically healthy. He's passed all these tests, and it's
Speaker 1: on his phone, and you let him in and he
Speaker 1: goes on and we can do this again like we
Speaker 1: used to do it live in your studio. Sam, You've
Speaker 1: had a lot of experience with supply chains and a
Speaker 1: lot of experience with China. Do you anticipate that one
Speaker 1: of the consequences of this pandemic when we come out
Speaker 1: of it, which we will at some point, will be
Speaker 1: some permanent changes in our relations are business relations with
Speaker 1: China and for that matter, and extended supply chains around
Speaker 1: the world. Supply chains should have been designed for resiliency.
Speaker 1: By that, I mean you have multiple alternatives. So you
Speaker 1: weren't you weren't you didn't have a major component in
Speaker 1: one geography wherever it happened to be, so you could
Speaker 1: read balance. If a crisis occurred, that could have been
Speaker 1: a tsunami, it could be whether it could be lots
Speaker 1: of things, it could have been a military action, and
Speaker 1: we all designed our supply chains so if those events
Speaker 1: occurred on the global basis, you could readjust if you
Speaker 1: look at the companies that have not been as impacted
Speaker 1: as dramatically by this. They're the ones that had a
Speaker 1: I'll called resilient balance supply chain. What's good at what's
Speaker 1: driving the changes to the supply chain, quite honestly, David,
Speaker 1: is the fact that technology more so than low cost.
Speaker 1: Uh So, therefore, which drove it up until I'd say
Speaker 1: maybe ten years ago was cost. Where do you locate
Speaker 1: for costs? And you see that over the world, Yes,
Speaker 1: a lot with the China. China became the manufacturing hub
Speaker 1: of the world, There's no doubt about it. However, that
Speaker 1: was more of a cost driven scenario. It started with
Speaker 1: the trade negotiations, but fundamentally people were looking at this
Speaker 1: thing and say, look, I need to have flexibility in
Speaker 1: my supply chain. I also want to be close to
Speaker 1: the market so I could respond quickly. That was Wall
Speaker 1: Street Week contributor Sam Paulmisano coming up on Wall Street Week.
Speaker 1: China is two months ahead of the United States in
Speaker 1: dealing with the coronavirus, and Starbucks is seeing both sides.
Speaker 1: We talked with CEO Kevin Johnson about what their experience
Speaker 1: in China taught them about getting back to business in
Speaker 1: the United States. That's next on Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Will Street Week with David Weston from
Speaker 1: Bloomberg Radio. Businesses in the United States have been closed
Speaker 1: for about seven weeks now, but in China it's been
Speaker 1: closer to fifteen weeks, and China is well on its
Speaker 1: way back in many of its businesses. Starbucks has seen
Speaker 1: it in both places, and we talked with Starbucks CEO
Speaker 1: and president Kevin Johnson about what they learned in China
Speaker 1: that might help us get back to business here in
Speaker 1: the United States. We started working on the COVID nineteam
Speaker 1: response in China in mid January, and so we're now
Speaker 1: in week fifteen in China, and we've learned some very
Speaker 1: important things from that experience. You know. The first is
Speaker 1: that there are phases that everyone, every market around the
Speaker 1: world goes through. And the first phase, you know, we
Speaker 1: we really refer to that as sort of the mitigate
Speaker 1: and contain phase, and that's that period lasted for three
Speaker 1: weeks in China where uh people were asked to shelter
Speaker 1: at home, businesses were shut down, social distancing all with
Speaker 1: the focus on how to flatten the curve and slow
Speaker 1: the spread of the virus. Coming out of the mitigating
Speaker 1: contained phase in China, we then transition into a phase
Speaker 1: that we call monitor and adapt. And monitor and adapt
Speaker 1: basically means we begin to reopen stores, but we reopened
Speaker 1: them with different store protocols, you know, amplifying safety. Oftentimes
Speaker 1: it's for mobile order for pickup only UH and and
Speaker 1: we did that in China, while at the same time
Speaker 1: we monitor the number of COVID cases that that that
Speaker 1: might pop up in certain in cities around China and UH.
Speaker 1: In the US here we are now just coming out
Speaker 1: of the mitigating contained phase. We've been in that for
Speaker 1: six weeks now in the US, and as we transition
Speaker 1: into this monitor and adapt phase, you know, we plan
Speaker 1: to open reopen over our Starbucks stores by early June.
Speaker 1: In fact, next week, the majority of those stores in
Speaker 1: the United States will reopen, and we will reopen using
Speaker 1: safety protocols that we developed in China and have adapted
Speaker 1: for the US. We'll reopen in a way that provides
Speaker 1: our customers a safe, familiar, and convenient experience. And so
Speaker 1: we're excited for next week. Many of our Starbucks partners
Speaker 1: are referring to it as homecoming week. Because they too,
Speaker 1: like all of us, have been sheltering at home, and
Speaker 1: we're ready to to to get out and do something,
Speaker 1: but do something that's safe and responsible. And that's the
Speaker 1: balance that we work to strike in this monitor and
Speaker 1: adapt phase. As you say, Kevin, as you came back
Speaker 1: online and you have the vast majority of your stores
Speaker 1: now in China back up and running, as I understand
Speaker 1: you have modified your hours, modified how many people can
Speaker 1: be there. I see that the same store sales, even
Speaker 1: though you have almost all the stores open, are down somewhat.
Speaker 1: Can you tell how much of that is just reluctance
Speaker 1: on the part of consumers to come back out and
Speaker 1: buy things, as opposed to just having fewer people in
Speaker 1: the stores and shorter hours. Yeah, it's a combination of
Speaker 1: all of those things, David, and I can't I can't
Speaker 1: necessarily attribute it to anyone, although I do know that
Speaker 1: you know in our store protocols, for example, UH, in China,
Speaker 1: you know most stores are not open for seating. They're
Speaker 1: open for customer was to come in for takeaway in China,
Speaker 1: and some stores have limited seating so that we can
Speaker 1: enforce social distancing. UH. And one of the differences between
Speaker 1: China and the US. In the US pre COVID, over
Speaker 1: of our customer occasions in the US were for takeaway
Speaker 1: or to go, and so, uh, the US consumer was
Speaker 1: much more sort of on the go, and so we
Speaker 1: think opening in the US, we're going to get a
Speaker 1: very significant result. But the positive news is every week
Speaker 1: we see continuous improvement in China as we monitor and adapt.
Speaker 1: We turned the dial up slowly and start to open
Speaker 1: limited seating, open other services. And now as we begin
Speaker 1: that path in the US, we're very optimistic that uh,
Speaker 1: you know, by the end of the end of May,
Speaker 1: early June, you know, we're gonna have a much better
Speaker 1: perspective on how quickly this is going to recover. Kevin,
Speaker 1: do you have any projections on how the overall state
Speaker 1: of the economy and the employment situation might affect the
Speaker 1: consumers coming back to Starbucks stories, but right here in
Speaker 1: the United States, we now know officially we are intercession.
Speaker 1: It's going to get worse. Is this something that really
Speaker 1: could put pressure downward pressure on your volume? Well, you know, certainly, Starbucks,
Speaker 1: we've we've gone through recessions in the past, and if
Speaker 1: the past is an indicator of of of how customers behave. Uh.
Speaker 1: You know, we think we're going to be in a
Speaker 1: very very strong position. We work to have a premium
Speaker 1: experience uh and build long term loyal customers and you
Speaker 1: know what we offer as an affordable luxury and even
Speaker 1: in times uh you know of a recession. Uh, you know,
Speaker 1: customers are looking for something to uplift the every day
Speaker 1: and if it's if it's their daily Starbucks, or maybe
Speaker 1: they cut back a little bit, but there's an affinity
Speaker 1: that customers have for Starbucks and we work hard to
Speaker 1: earn that loyalty and that trust, and and that's what
Speaker 1: has carried us through recessions in the past. But I
Speaker 1: think competitively, we we understand that we differentiate by by
Speaker 1: the work that we do to create a great customer
Speaker 1: experience in our stores through the beverage innovation and through
Speaker 1: those digital customer relationships. And that model was working pre COVID.
Speaker 1: In fact, the first part of this UH this quarter
Speaker 1: in the United States, we were posting an eight comp
Speaker 1: with four percent growth and transaction. And so going through COVID,
Speaker 1: being responsible, thoughtful, focusing on that safe, familiar, convenient experience,
Speaker 1: we think that's going to become the on ramp, and
Speaker 1: then as we go forward, we're going to continue to
Speaker 1: do everything we can to provide that great experience to customers.
Speaker 1: And in the past that has gotten us through recessions
Speaker 1: and I think that's gonna that's gonna play out through
Speaker 1: this one as well. Kevin, you have any sense at
Speaker 1: this point what what might be permanent or long term
Speaker 1: changes in Starbucks business, For example, percentage of digital orders,
Speaker 1: percentage of takeouts. You said it was already high in
Speaker 1: the United States, But are we facing a world where
Speaker 1: maybe we won't have any sit down in Starbucks stores. Well,
Speaker 1: I don't think it's gonna be that extreme, but certainly
Speaker 1: right now, what customers are going to look for safe, familiar,
Speaker 1: and convenient. And you know, we've all been sheltering in
Speaker 1: our homes for six weeks. We've got a little stir crazy.
Speaker 1: People want to get out and do something, but they
Speaker 1: want to be responsible. They don't want to, you know,
Speaker 1: create an unsafe situation or do things that create sort
Speaker 1: of reignite the spread of the virus. And so that's
Speaker 1: what we've tuned these initial experiences for. But longer term,
Speaker 1: you know, you think about you know, once we get
Speaker 1: a vaccine and treatments for this, then I think consumer
Speaker 1: behavior can start to adapt even more. And it'll take time.
Speaker 1: You know, the effect in this experience of COVID nineteam
Speaker 1: will affect all of us for the rest of our lifetimes.
Speaker 1: But the fact is that as human beings, we have
Speaker 1: this natural gravitational pull to interact with other humans, and
Speaker 1: so the need state of community and feeling a part
Speaker 1: of the community really is what the third place is about.
Speaker 1: It's a mindset and UH and and people people have
Speaker 1: that inherent in them as just part of humanity. And
Speaker 1: so as we focus on being safe and familiar and
Speaker 1: convenient coming out of this, we're gonna slowly open up
Speaker 1: stores and uh provide the opportunity for customers to connect
Speaker 1: with one another in a in a safe and social
Speaker 1: distance way. But I think, uh, you know, I think
Speaker 1: long term the Starbucks third Place is going to be
Speaker 1: as relevant as ever. It's just gonna take time. So
Speaker 1: as a last question, Kevin, talk about the long term
Speaker 1: about growth for Starbucks in this new world. Where do
Speaker 1: you see growth? And let me be a very specific.
Speaker 1: You and I have talked in the past about how
Speaker 1: many stories you're opening in China. Is it gonna be
Speaker 1: fewer stories you're opening in China? I saw luck and
Speaker 1: is really having some trouble. Can you take market share there? Well,
Speaker 1: you know, I think we've been taking market share, you know,
Speaker 1: throughout this entire period and Uh, but what's important is
Speaker 1: we've been in China for for over twenty years now, David,
Speaker 1: and throughout that twenty year period, we have worked to
Speaker 1: establish an admired and trusted brand UH in a way
Speaker 1: that resonates with our with our Chinese customers. And and
Speaker 1: that's by showing respect to the Chinese culture. It's it's
Speaker 1: it's designing stores that are that are that are appropriate,
Speaker 1: that that have you know, artwork and built by local craftsmen.
Speaker 1: And our our partners in China are fantastic. They create
Speaker 1: that magical Starbucks experience. That was Starbucks President CEO Kevin Johnson.
Speaker 1: Coming up, We've talked with our Wall Street contributor and
Speaker 1: senior executive editor for Economic It's at Bloomberg, Stephanie Flanders,
Speaker 1: about just how bad those European numbers are. That's next
Speaker 1: on Wall Street Week on Bloomberg. This is Bloomberg Wall
Speaker 1: Street Week with David Western from Bloomberg Radio. The economic
Speaker 1: numbers kept coming in worse this week, and the central bankers, well,
Speaker 1: they were listening. We talked with our Wall Street Week
Speaker 1: contributor and Senior executive editor for Economics at Bloomberg, Stephanie Flanders,
Speaker 1: about just how bad those European numbers are. I am
Speaker 1: a little bit assured in the funny kind of way
Speaker 1: by these numbers, which obviously relate to the first quarter,
Speaker 1: so not even before we had some of the biggest
Speaker 1: lockdown measures in some of the economies, because it suggests
Speaker 1: that we have a handle on how this is affecting
Speaker 1: the economy. It's not much of a silver lining, but actually,
Speaker 1: our economist at Bloomberg Economics we have been looking at
Speaker 1: more high frequency data and looking at some data that
Speaker 1: the French Ship School together on the impact of lockdown,
Speaker 1: and our numbers were a bit bigger than the consensus,
Speaker 1: and they've been kind of borne out by this. So
Speaker 1: not not to gloat, but at least it suggests that
Speaker 1: we have a handle on what the second quarter is
Speaker 1: going to look like, what the impact of these broader
Speaker 1: lockdowns is going to be, and we might also start
Speaker 1: to take some heart from the high frequency numbers. We're looking,
Speaker 1: for example at Germany where electricity usage is starting to
Speaker 1: pick back up. You know, we are starting to see
Speaker 1: some benefits from that slow move away from total lockdown,
Speaker 1: but of course the big picture is still a historic
Speaker 1: decline Stefinitely. You have a handle perhaps on the numbers
Speaker 1: and how bad they're like to get. Do we have
Speaker 1: a handle on what needs to be done about it.
Speaker 1: We had the e c V come out and make
Speaker 1: some changes today to try to help things. At the
Speaker 1: same time, Animal Guard said we really need a coordinated
Speaker 1: fiscal stimulus. I think it's fair to say that both
Speaker 1: the United States ever in Europe, the first responses we
Speaker 1: have to supply a fact I have to really protect
Speaker 1: the supply side. But how do we get the demand
Speaker 1: and going in well, all the consumers having sat home
Speaker 1: for so long and frankly being concerned about their health. Yeah,
Speaker 1: and we've seen that as you know, and Mohan, some
Speaker 1: of the places that have had, you know, a removal
Speaker 1: of the supply side shock if you're like, you know,
Speaker 1: people are going to work there in the factories, but
Speaker 1: the demands not coming back. People are not going back
Speaker 1: to restaurants and not going out suspense of course that
Speaker 1: is a worry, and I think the fiscal programs so far,
Speaker 1: the national policies have been all about keeping the economy
Speaker 1: and suspended animation, keeping jobs in place, and they've been
Speaker 1: quite successful at that, I think, probably more successful than
Speaker 1: the stakes. But where they may be missing, and where
Speaker 1: certainly Leguard the European Central Bank will be looking for
Speaker 1: more for governments than from the European Commission. Is that
Speaker 1: piece you're talking about, the spiny list. Once we start
Speaker 1: to see economy slowly moving out of lockdown as we
Speaker 1: now are, what's going to be there to actually stimulate
Speaker 1: economies as opposed to just keeping them keeping them on hold,
Speaker 1: which is effectively what they've been doing for this seriod
Speaker 1: of lockdown. But so many, so much uncertainty about the
Speaker 1: path of that lockdown from here, because we know Germany,
Speaker 1: for example, is starting to see a push back up
Speaker 1: an infection, so other countries are looking and saying, maybe
Speaker 1: we can't follow some Germany's footsteps. So Stephanie to bring
Speaker 1: it back to the United States for a moment and
Speaker 1: compare and contrast. We heard from the FED and the
Speaker 1: FED chair j Pal yesterday, and one of the things
Speaker 1: he said was over the medium term, not just the
Speaker 1: short term. The medium term, we really health challenges, and
Speaker 1: he's suggested even there might be longer turn damage. We
Speaker 1: have had the fiscal stimulus, at least a lot of
Speaker 1: it here in the United States. How can we learn
Speaker 1: from the US experience as it applies to Europe? You know,
Speaker 1: I think it's took me. I mean, I think we
Speaker 1: have seen a thing. If you'd like to have more
Speaker 1: people learning out employment soles and then increase that support
Speaker 1: for people who aren't employed, so we have more double
Speaker 1: acclaimed numbers today from the US. You know, that's been
Speaker 1: if you like the US way, that they've been less
Speaker 1: protective of employment but pushing a lot more money to
Speaker 1: the economy and perhaps getting into businesses as well, though
Speaker 1: we know not some states more than others, So I
Speaker 1: guess there is a lesson there. But the worry that
Speaker 1: said is stating is putting all these people out of work.
Speaker 1: You know, it would be nice to think that a
Speaker 1: lot of this work will immediately spring back. You know,
Speaker 1: big workers, younger workers may be able to be flexible,
Speaker 1: but we know historically once you lose your job, even
Speaker 1: especially if perhaps if you're at the beginning of your career.
Speaker 1: You can have a permanent hit in terms of wages,
Speaker 1: and you can find it permanently harder to get jobs.
Speaker 1: So that's the kind of longer term hits that the
Speaker 1: FED is talking about, and thankfully why they're seeing maybe
Speaker 1: unemployment not getting back in the four or five range
Speaker 1: for several years. And it's a hit that is not
Speaker 1: necessarily evenly distributed. We're seeing dispersion. For example, let's just
Speaker 1: take big tech in the United States. It's doing really,
Speaker 1: really well. We've had earnings out this week are very
Speaker 1: very good. Are you seeing that in Europe as well
Speaker 1: as the United States? In effect, you're seeing some parts
Speaker 1: of the economy that are likely to come back faster
Speaker 1: and better, others are really much more challenged. Yeah, I mean,
Speaker 1: it's one of those things. Of course, we've also had
Speaker 1: that of a story of the sort of market performance
Speaker 1: of the lab few years, like one of the reasons
Speaker 1: why Europe has consistently lagged because it was the tech
Speaker 1: sector that was doing so well, and you have just
Speaker 1: had a smaller tech sector. So that's definitely a concern
Speaker 1: if you think that that one that sector is the
Speaker 1: one that's also coming out of the strongest I think
Speaker 1: in Europe's favor was the point and made earlier, that
Speaker 1: you are they have perhaps done a better job of
Speaker 1: preserving work in places like Germany and face that you
Speaker 1: can get the demand back, you possibly don't have quite
Speaker 1: such a health decline in terms of getting people back
Speaker 1: into work. But I think that sexual breakdown is going
Speaker 1: to be a concern in the US as well, because
Speaker 1: we know that for example, you know women and lower
Speaker 1: paid workers who had actually been doing a bit better
Speaker 1: the last four or five years in the US after
Speaker 1: a long time of problems. But that certainly to the
Speaker 1: low wage sector. It's that bit of the labor market
Speaker 1: that has now been really hit and of course you
Speaker 1: have to worry about that on both sides of the Atlantis.
Speaker 1: That was words Stephanie Flanders coming up the Central Banks
Speaker 1: got to work. This week. We talked with former FED
Speaker 1: chairman Alan Greenspan about how different it is this time.
Speaker 1: That's next on Wall Street Week on Bloomberg. This is
Speaker 1: Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
Speaker 1: One thing that the FED confirmed for us this week
Speaker 1: is that the old rules, well they've sort of gone
Speaker 1: away at least for the time being, including things like
Speaker 1: concern or a fiscal discipline. We talked with former FED
Speaker 1: Chairman Alan Greenspan about whether this pandemic crisis maybe fundamentally
Speaker 1: altering the way the government regulates the economy. Well, I
Speaker 1: think it's going to be longer ways expect, largely because
Speaker 1: the defining characteristic of the next century will be an
Speaker 1: inexorable aging of the population. More than of the population
Speaker 1: of the industrialized countries of the world are age sixty
Speaker 1: five and older, and until the last century, the vast
Speaker 1: proportion of the population worked until they died. Retirement was
Speaker 1: a rare outcome. As a consequence of this, the US
Speaker 1: retirement benefits, especially social security and health care, have escalated
Speaker 1: significantly and are projected to expand materially further in the
Speaker 1: decades has it And that is an issue which I
Speaker 1: can explain in some considerable details for you after what
Speaker 1: I think is going to happen. But I think it's
Speaker 1: going to be a dominant force in slowing down the
Speaker 1: rate of growth. And it's unclear at this stage whether
Speaker 1: we are going to be looking at the type of
Speaker 1: Gotturn that Sweden looked out for a number of years
Speaker 1: and cured were we're going to be in trouble. But
Speaker 1: but but Mr Chairman, what is the solution to that
Speaker 1: or the answer to that? Because if anything, this pandemic
Speaker 1: I think will push countries, the United States and other
Speaker 1: countries perhaps in the direction of greater social support, of
Speaker 1: greater social benefit programs because so many people are being
Speaker 1: hurt so badly. I absolutely agree with that. I think
Speaker 1: that uh um. The bottom line as a retirement benefits
Speaker 1: and essentially social security and medicare in the life are
Speaker 1: going to be major forces in the years ahead and
Speaker 1: in government programs. At the same time, as the Federal
Speaker 1: Reserve meets today, should they be more concerned about deflation?
Speaker 1: At this point in inflation we've had as you, oil
Speaker 1: futures contracts actually trade well into the negative numbers, commodities
Speaker 1: are weak around the world, and the go forward inflation
Speaker 1: numbers are quite disturbing. Is there a real risk of
Speaker 1: deflation right now in the United States and globally? Let
Speaker 1: me just say, I'll answer it generically, but uh Since
Speaker 1: I was left office, I've been very scrupulous and not
Speaker 1: commenting specifically on what my successors we're doing. But as
Speaker 1: a general question, there's no doubt that the problems involved was.
Speaker 1: The difficulties of recent weeks are having a profound effect,
Speaker 1: and you can judge them as well as any are there.
Speaker 1: Glenn Hubbard, whom you know the economists now at Columbia,
Speaker 1: has warn't warned about demand destruction and the possibility what
Speaker 1: he calls a doom loop. Do we face even the
Speaker 1: procect of possible depression, not just recession, and not that
Speaker 1: that's a little bit that presumes that we don't do
Speaker 1: take the type of actions that Sweden did and resolved
Speaker 1: the problems which are very similar to those in which
Speaker 1: we have been confronted with. And what that would be
Speaker 1: fundamentally entail is solving the whole question of how you
Speaker 1: go from us socialist society and which Sweden was and
Speaker 1: it finally came collapsed in the ratees h and made
Speaker 1: major visions of the type that were we to make,
Speaker 1: would make our social security medicure and other problems are resolved.
Speaker 1: But we have nowhere near that as yet. And it's
Speaker 1: a lot of issues which I'm not sure we wanted
Speaker 1: get into, but the problems are aren't there, and right
Speaker 1: I hope we come to grips certain sooner rather than later.
Speaker 1: But I wonder Dr Greensman, whether we haven't taken a step,
Speaker 1: and maybe it was the right step, but a step
Speaker 1: in the direction of what you call socialized economy, uh,
Speaker 1: starting with the two thousand eight, two and nine, but
Speaker 1: certainly now with the extent in which the federal government,
Speaker 1: through fiscal means, is really intervening into the economy very regularly,
Speaker 1: and for that matter, the central banks, not just the
Speaker 1: Federal Reserve but others, have grown their balance sheet to
Speaker 1: increasing degree. Investment decisions even depend as much on what
Speaker 1: we think the government's going to do, is on what
Speaker 1: we think the economy is doing or the consumer. Well
Speaker 1: we've been I would say the investment process of of
Speaker 1: all the companies with whom I doubt I could not
Speaker 1: get around the fact that what the government is doing
Speaker 1: is having a very significant impact on financial world. And
Speaker 1: the financial world is where the bottom line and this
Speaker 1: profits and which you're working at. So our fully can
Speaker 1: concur what you're saying, and we we are moving in
Speaker 1: directions which are quite surprising, and obviously the virus issue
Speaker 1: coming up has made us a very much more difficult
Speaker 1: problem to deal with. But how we come out of
Speaker 1: this thing, it's going to depend very much on fundamental
Speaker 1: issues with dispect the government. And it seems ironic, but
Speaker 1: I'm saying we ought to be looking at Sweden, which
Speaker 1: used to be the crintessential socialist society, as a measure
Speaker 1: which we are to direct ourselves to get our system
Speaker 1: and more balanced. And I speak to a lot of people,
Speaker 1: pres people listen. Well, so we're listening and we want
Speaker 1: to hear what you have to suggest, because any crisis,
Speaker 1: from from what I've read in history, can give opportunities
Speaker 1: as well as real perils. If we were to forgive
Speaker 1: the expression, use this crisis to move the economy, move
Speaker 1: the government in the direction you think would be more constructive,
Speaker 1: how would we do that? Well, I think the first
Speaker 1: thing is to recognize that, uh, what the data are
Speaker 1: arkably show is that for the last fifty years, AH
Speaker 1: social benefits have been crowding out gross domestic savings in
Speaker 1: the United States, uh, dollar for dollar. And that is
Speaker 1: meant effectively that if gross domestic savings is being reduced,
Speaker 1: that's being the major source of gross domestic investment. Then
Speaker 1: we are dealing with the situation where productivity growth slows down,
Speaker 1: which is precisely what has been happening, and if what
Speaker 1: we need to do. We're now at a one percent
Speaker 1: annual rate productivity growth that's intolerably low and unlessen until
Speaker 1: we can turn it up, and the only way we
Speaker 1: can do that is by structuring our investment towards capital goods,
Speaker 1: and we're not doing that and then does not earth
Speaker 1: At the moment. There are some who are very concerned
Speaker 1: about what's going on in the government right now because
Speaker 1: of what is called moral hazard that in the effort
Speaker 1: to bail out companies that we are bailing out some
Speaker 1: who have been profligate, not just those who have been prudent, uh,
Speaker 1: including investing in things like high yield bonds and things
Speaker 1: like that. Is this a time to be concerned about
Speaker 1: moral hazard or should we put that to one side
Speaker 1: and deal with the much bigger hazard of the coronavirus.
Speaker 1: I think that's it's not. I mean, I agree it's
Speaker 1: an issue, but there are lots of issues which we
Speaker 1: can deal with without really being concerned about. And Dr Greenspan,
Speaker 1: how do you assess the situation with unemployment? Obviously, we've
Speaker 1: lost twenty six million jobs or so in five weeks
Speaker 1: and projections it will get worse, some people saying it
Speaker 1: may even get to an unemployment level that beats what
Speaker 1: was going on during the Great Depression. What do you
Speaker 1: project in terms of unemployment through the rest of the years.
Speaker 1: The problem basically is, uh, we we actually are looking
Speaker 1: at the terrible first quarter. Obviously second quarters pretty awful.
Speaker 1: But if the issue of the virus works, it's way
Speaker 1: we the way we expect. We probably have a very
Speaker 1: strong third quarter. But my concern is going is the
Speaker 1: fourth quarter and beyond Uh, it's it's the years they
Speaker 1: had where the changes have got to be made. Uh.
Speaker 1: And I would be less concerned about many of the
Speaker 1: issues which confront us today, although I dude say importantly
Speaker 1: the Irish issue has got to be resolved in a
Speaker 1: rational and sensible matter and change, for examples, social security
Speaker 1: benefits and the way they are paid so that we
Speaker 1: don't run in to the crisis that's reading right into
Speaker 1: as a consequence that was former FED chair Alan Greensband.
Speaker 1: This has been another edition of Wall Street Week. See
Speaker 1: you next week.