1 00:00:00,320 --> 00:00:04,160 Speaker 1: Who you put your trust in matters. Investors have put 2 00:00:04,200 --> 00:00:07,640 Speaker 1: their trust in independent registered investment advisors to the tune 3 00:00:07,640 --> 00:00:12,240 Speaker 1: of four trillion dollars. Why learn more and find your 4 00:00:12,240 --> 00:00:27,240 Speaker 1: independent advisor dot com. Welcome to the Bloomberg Surveillance Podcast. 5 00:00:27,280 --> 00:00:31,320 Speaker 1: I'm Tom keane. Always with Michael McKee Daily we bring 6 00:00:31,360 --> 00:00:35,280 Speaker 1: you insight from the best in economics, finance, investment and 7 00:00:35,400 --> 00:00:41,519 Speaker 1: international relations. Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, 8 00:00:41,560 --> 00:00:47,839 Speaker 1: and of course on the Bloomberg. It is the Curse 9 00:00:48,040 --> 00:00:50,440 Speaker 1: of Surveillance. You have to listen every morning, and we 10 00:00:50,560 --> 00:00:54,280 Speaker 1: thank you for that worldwide on economics, finance, investment, on 11 00:00:54,400 --> 00:00:58,960 Speaker 1: international relations. For the next fifteen minutes, we celebrate Kenneth S. 12 00:00:59,080 --> 00:01:03,040 Speaker 1: Rogoff the book The Season The Curse of Cash. It 13 00:01:03,200 --> 00:01:06,640 Speaker 1: is highly readable. It is a glorious two d thirty 14 00:01:06,680 --> 00:01:10,280 Speaker 1: two pages about the obvious about cash. But we'll get 15 00:01:10,319 --> 00:01:13,160 Speaker 1: also talk about negative interest race. He folds in a 16 00:01:13,160 --> 00:01:17,400 Speaker 1: lot of economic history, as we always expect from Kenna Rogoff. 17 00:01:17,400 --> 00:01:19,600 Speaker 1: We'll get to that in a moment. I'm Tom keenan 18 00:01:19,600 --> 00:01:23,200 Speaker 1: New York. Michael McKeon in Atlanta. The National Association for 19 00:01:23,280 --> 00:01:28,320 Speaker 1: Business Economics meetings. Michael mckeeon Atlanta at the important NAB meetings. 20 00:01:28,959 --> 00:01:31,600 Speaker 1: Mr Lockhart spoke yesterday, what do you do today? You 21 00:01:31,640 --> 00:01:35,960 Speaker 1: can commitser rate over the Atlanta Braves. I don't think 22 00:01:36,000 --> 00:01:38,440 Speaker 1: there are a huge number of Atlanta Braves fans here 23 00:01:38,600 --> 00:01:40,880 Speaker 1: at an A B since the economists are from all 24 00:01:40,920 --> 00:01:43,319 Speaker 1: over the country. But there'll be a lot more talk 25 00:01:43,400 --> 00:01:45,600 Speaker 1: about the FED and what they're going to do after 26 00:01:45,800 --> 00:01:49,520 Speaker 1: lele Brainer's speech yesterday suggesting there's no reason to raise rates. 27 00:01:49,520 --> 00:01:53,000 Speaker 1: Of course everybody's priced out bad idea, but there's still 28 00:01:53,480 --> 00:01:56,280 Speaker 1: you know what it is, Tom, is there's almost universal 29 00:01:56,360 --> 00:01:58,840 Speaker 1: feeling here among the economists that what the FED is 30 00:01:58,880 --> 00:02:01,920 Speaker 1: doing isn't working. Where the disagreement company is what do 31 00:02:01,960 --> 00:02:03,840 Speaker 1: you do next? Well, let me get to the book 32 00:02:03,920 --> 00:02:06,280 Speaker 1: right now, Michael, and then we can dive into that 33 00:02:06,360 --> 00:02:08,440 Speaker 1: with Ken Rogoff. A too short time we have the 34 00:02:08,520 --> 00:02:13,120 Speaker 1: Professor Rogoff. Congratulations. I want you to explain why we 35 00:02:13,200 --> 00:02:17,440 Speaker 1: can't get rid of big dollar denomination paper because I 36 00:02:17,520 --> 00:02:20,119 Speaker 1: don't use it. Michael McKee doesn't use it. I would 37 00:02:20,160 --> 00:02:23,720 Speaker 1: sugges the rogueoff household uses it. Let's start with who 38 00:02:23,880 --> 00:02:27,880 Speaker 1: uses big denomination cash. Well, I mean people use it 39 00:02:28,040 --> 00:02:31,360 Speaker 1: a little. So I actually experimented with using hundred dollar 40 00:02:31,480 --> 00:02:34,160 Speaker 1: bills taking the supermarket that'd always have to show it 41 00:02:34,200 --> 00:02:36,600 Speaker 1: to three people, took it to a watch store and 42 00:02:36,680 --> 00:02:39,320 Speaker 1: one guy said, oh, I'm going to need three sources 43 00:02:39,360 --> 00:02:42,000 Speaker 1: of three pieces of identification if you want to cash this. 44 00:02:42,400 --> 00:02:45,680 Speaker 1: But most of it's being used in the world underground economy. 45 00:02:45,919 --> 00:02:48,160 Speaker 1: A lot of it's in the United States. There's a 46 00:02:48,160 --> 00:02:51,040 Speaker 1: lot of tax evasion, it makes it easier to hoard, hide, 47 00:02:51,200 --> 00:02:54,560 Speaker 1: move port, and there's a lot of illegal activity drugs, 48 00:02:54,639 --> 00:03:00,960 Speaker 1: human trafficking, extortion, racketeering, you name it can And the 49 00:03:01,080 --> 00:03:03,800 Speaker 1: question is, you know, it's easy for Tom and me 50 00:03:04,000 --> 00:03:07,840 Speaker 1: to adopt a non cash society with carrying around debit 51 00:03:07,880 --> 00:03:11,040 Speaker 1: cards and things in our pockets. But the criticism has 52 00:03:11,080 --> 00:03:12,960 Speaker 1: been what do you do about the unbanked, the people 53 00:03:13,040 --> 00:03:17,560 Speaker 1: without a lot of financial um background, of people who 54 00:03:17,760 --> 00:03:20,760 Speaker 1: you know, don't have bank accounts, who don't function in 55 00:03:20,800 --> 00:03:23,440 Speaker 1: a cash lest society. So, first of all, I am 56 00:03:23,520 --> 00:03:26,120 Speaker 1: not for a cashlest society. I am for a lass 57 00:03:26,200 --> 00:03:29,080 Speaker 1: cash society. So I'm getting rid of the hundreds and fifties, 58 00:03:29,760 --> 00:03:32,600 Speaker 1: and I propose over the very long term getting rid 59 00:03:32,600 --> 00:03:35,960 Speaker 1: of the twenties. I think the eight percent of Americans 60 00:03:36,000 --> 00:03:39,240 Speaker 1: who are unbanked are not you know, holding the hundred 61 00:03:39,280 --> 00:03:42,200 Speaker 1: dollar bills. They're not using them that much, and you 62 00:03:42,240 --> 00:03:44,840 Speaker 1: can still carry a hundred thousand dollars and tens in 63 00:03:44,880 --> 00:03:48,760 Speaker 1: a briefcase. My plan also calls for financial inclusion, which 64 00:03:48,880 --> 00:03:54,280 Speaker 1: many countries have done, basically providing free debit account accounts 65 00:03:54,640 --> 00:03:57,880 Speaker 1: to unbanked and the poor. And that's very straightforward to 66 00:03:57,920 --> 00:04:00,320 Speaker 1: do that. You most of them receive assistant and you 67 00:04:00,400 --> 00:04:03,240 Speaker 1: just pay the assistance through that. That's what Denmark and 68 00:04:03,240 --> 00:04:05,880 Speaker 1: Sweden have done. Let's go to the broader picture now. 69 00:04:06,000 --> 00:04:09,400 Speaker 1: Michael McKey mentioned of Professor Rogoff earlier the mystery over 70 00:04:09,440 --> 00:04:12,600 Speaker 1: FED policy. Right now, do you have a mystery of 71 00:04:12,720 --> 00:04:17,440 Speaker 1: Janet Yellen's policy? Well, she has to represent this very 72 00:04:17,560 --> 00:04:20,640 Speaker 1: divided FED, and I think when she speaks she tries 73 00:04:20,680 --> 00:04:24,280 Speaker 1: to represent them all, and that's inconsistent. It's very they're 74 00:04:24,279 --> 00:04:27,839 Speaker 1: probably some who think huge inflations around the corner. There 75 00:04:27,760 --> 00:04:30,760 Speaker 1: are authors who think they'll never be inflation. There's some 76 00:04:30,800 --> 00:04:33,560 Speaker 1: who are worried that inflation is going to go up 77 00:04:33,600 --> 00:04:36,279 Speaker 1: to uh, you know, seven percent, and they're not going 78 00:04:36,320 --> 00:04:38,680 Speaker 1: to be able to get it down, so it's not easy. 79 00:04:38,720 --> 00:04:41,359 Speaker 1: But I personally think it's pretty clear they're not going 80 00:04:41,400 --> 00:04:45,200 Speaker 1: to hike rates now, and if they possibly can, they 81 00:04:45,240 --> 00:04:50,240 Speaker 1: will in December to maintain their credibility. What value do 82 00:04:50,240 --> 00:04:54,760 Speaker 1: does it have for them to keep policy unchanged. Well, 83 00:04:54,960 --> 00:04:57,120 Speaker 1: they don't know where they're going in the long run. 84 00:04:57,279 --> 00:05:01,000 Speaker 1: That it's a real mystery why global real inflation adjusted 85 00:05:01,040 --> 00:05:04,119 Speaker 1: interest rates are so low. A lot of people say 86 00:05:04,160 --> 00:05:07,120 Speaker 1: they know the answer, but they're different. It's hard to quantify. 87 00:05:07,200 --> 00:05:11,480 Speaker 1: We have secular stagnation, low productivity growth, but I think 88 00:05:11,480 --> 00:05:13,039 Speaker 1: there are a lot of us who think it's still 89 00:05:13,279 --> 00:05:16,599 Speaker 1: fear after the financial crisis. So the Fed doesn't know 90 00:05:16,680 --> 00:05:18,800 Speaker 1: what normal is. So it's sort of hard to head 91 00:05:18,839 --> 00:05:21,160 Speaker 1: for normal when you don't know what it is. When 92 00:05:21,279 --> 00:05:24,840 Speaker 1: John Taylor did his tailor rule, people thought the real 93 00:05:24,880 --> 00:05:28,320 Speaker 1: interest rate would be two percent inflation to percent. Here's 94 00:05:28,360 --> 00:05:30,720 Speaker 1: you four percent, and it had been two percent for 95 00:05:30,839 --> 00:05:34,080 Speaker 1: fifty years up to that point. Now, who knows what 96 00:05:34,200 --> 00:05:37,880 Speaker 1: neutral is? And johnet Yellen spoke about this at Jackson 97 00:05:37,920 --> 00:05:41,320 Speaker 1: Holland she said, I think it's one percent, might be zero. 98 00:05:41,720 --> 00:05:45,160 Speaker 1: One of the Matthew things about moving from undergraduate economics 99 00:05:45,160 --> 00:05:47,760 Speaker 1: to graduate is the idea of quadratics and curves, and 100 00:05:47,880 --> 00:05:51,240 Speaker 1: we talk about vectors. Do we have a belief in 101 00:05:51,279 --> 00:05:54,880 Speaker 1: an understanding that all central bankers when they institute a 102 00:05:54,960 --> 00:05:57,719 Speaker 1: policy have to look out and get on the vector, 103 00:05:57,839 --> 00:06:01,880 Speaker 1: as Greenspan cloked about measured where we do measured incremental 104 00:06:02,680 --> 00:06:06,279 Speaker 1: uh steps along a path that we're going to predict. Yeah, 105 00:06:06,320 --> 00:06:07,960 Speaker 1: I mean, I think there's a pretty good case that. 106 00:06:08,080 --> 00:06:10,760 Speaker 1: I remember Villin Powder told me when he joined the 107 00:06:10,760 --> 00:06:14,800 Speaker 1: Bank of England. He was let's why just go basis 108 00:06:14,839 --> 00:06:16,880 Speaker 1: points at a time? We know we're gonna move one 109 00:06:16,880 --> 00:06:22,200 Speaker 1: percent and big moves. Yeah. But and then he was told, hey, look, 110 00:06:22,200 --> 00:06:25,000 Speaker 1: you know financial markets just can't take this. You've got 111 00:06:25,000 --> 00:06:28,240 Speaker 1: to move a little. Why not, why, Professor Camp, financial 112 00:06:28,279 --> 00:06:31,040 Speaker 1: markets adapt to a fen that says we're gonna go 113 00:06:31,120 --> 00:06:33,800 Speaker 1: fifty basis points one and done to get away from 114 00:06:33,920 --> 00:06:37,480 Speaker 1: zero bound. Well, I mean, I think the problem is 115 00:06:37,600 --> 00:06:41,960 Speaker 1: that you know, they don't know if you overshoot, you know, 116 00:06:42,040 --> 00:06:44,400 Speaker 1: you want to move slowly. But I think at the 117 00:06:44,480 --> 00:06:48,320 Speaker 1: same time, the current policy, which is quote unquote data dependent, 118 00:06:48,839 --> 00:06:52,880 Speaker 1: creates a lot of volatility. One person said every FAT 119 00:06:52,920 --> 00:06:55,080 Speaker 1: meeting is a jump ball, and you don't want to 120 00:06:55,080 --> 00:06:57,719 Speaker 1: create that situation. You'd like to say, I'm moving, here's 121 00:06:57,720 --> 00:07:00,600 Speaker 1: what I'm gonna do. You'd like to have some predictive ability. 122 00:07:00,680 --> 00:07:03,400 Speaker 1: But to have predictability you have to know in your 123 00:07:03,440 --> 00:07:05,240 Speaker 1: own heart what you're gonna do, and I think the 124 00:07:05,279 --> 00:07:08,039 Speaker 1: FAT has a lot of uncertainty about that. Well. That's 125 00:07:08,040 --> 00:07:10,240 Speaker 1: one of the other criticisms though, is that the FED 126 00:07:10,720 --> 00:07:15,360 Speaker 1: got into this for legitimate reasons, experimental monetary policy, but 127 00:07:15,440 --> 00:07:18,040 Speaker 1: now doesn't know how to get out of it. They're 128 00:07:18,080 --> 00:07:21,000 Speaker 1: flying blind. They don't know what the result of their 129 00:07:21,080 --> 00:07:25,920 Speaker 1: exit strategy is going to be. Uh and UH. At 130 00:07:25,920 --> 00:07:30,080 Speaker 1: this point, doing additional you know, easing or keeping policies 131 00:07:30,120 --> 00:07:34,360 Speaker 1: low maybe counterproductive. It's a point that your co author 132 00:07:34,520 --> 00:07:36,960 Speaker 1: of this time it's different Carben Reinhardt made to us 133 00:07:37,000 --> 00:07:40,720 Speaker 1: out in Jackson Hole this year. Well, they absolutely don't 134 00:07:40,760 --> 00:07:43,760 Speaker 1: know the effects of these experimental policies, and I would 135 00:07:43,960 --> 00:07:48,040 Speaker 1: thinks like quantitative easing, uh forward guidance may not work 136 00:07:48,080 --> 00:07:51,440 Speaker 1: at all. Uh. That's why in my book I argue 137 00:07:51,520 --> 00:07:54,240 Speaker 1: that next time and think of a ten or twenty years, 138 00:07:54,520 --> 00:07:57,160 Speaker 1: we'd like to pave the way they can do monetary 139 00:07:57,240 --> 00:08:00,880 Speaker 1: policy in a more normal, predictable way. Because they have 140 00:08:00,960 --> 00:08:03,880 Speaker 1: lacked instruments, they have not been able to sort of 141 00:08:03,920 --> 00:08:07,720 Speaker 1: move inflation expectations back up. They have continued to drop 142 00:08:07,760 --> 00:08:10,880 Speaker 1: in Europe and Japan and the United States because people 143 00:08:10,920 --> 00:08:13,240 Speaker 1: don't think they have an instrument. I don't think you 144 00:08:13,280 --> 00:08:15,880 Speaker 1: can do anything soon, but I think over the long term, 145 00:08:16,280 --> 00:08:19,960 Speaker 1: UH developed paving the way for effective negative interest right 146 00:08:20,000 --> 00:08:22,400 Speaker 1: policy is the way to go. Cadrogo for this. The 147 00:08:22,440 --> 00:08:24,680 Speaker 1: book is a Curse of Cash, and we continue here 148 00:08:25,200 --> 00:08:27,800 Speaker 1: with him for a short time on radio this morning. 149 00:08:27,800 --> 00:08:31,000 Speaker 1: When I look at central bank theory, it is a 150 00:08:31,080 --> 00:08:35,160 Speaker 1: theory of watching inflation. There are like Howard Johnson's twenty 151 00:08:35,160 --> 00:08:39,320 Speaker 1: eight flavors of inflation, which inflation within all your work 152 00:08:39,360 --> 00:08:42,120 Speaker 1: at the I m F. Which inflation is the one 153 00:08:42,160 --> 00:08:44,880 Speaker 1: we should follow? Is it what's in our mailbox? Is 154 00:08:44,920 --> 00:08:47,960 Speaker 1: its service sector? Is it goods producing? Is it a 155 00:08:48,000 --> 00:08:50,840 Speaker 1: blend of that like Cleveland. Is it some form of 156 00:08:50,880 --> 00:08:54,400 Speaker 1: core or is it what the Fed uses PC. You 157 00:08:54,480 --> 00:08:57,320 Speaker 1: have Marty Feldstein coming on later on this program. He's 158 00:08:57,559 --> 00:09:00,200 Speaker 1: written a great new paper about this, and I think 159 00:09:00,240 --> 00:09:02,680 Speaker 1: the fact is in this age where more and more 160 00:09:02,720 --> 00:09:08,320 Speaker 1: things or services, technology it's very hard to know what 161 00:09:08,600 --> 00:09:11,319 Speaker 1: inflation is. You have to have a lot of humility 162 00:09:11,360 --> 00:09:15,000 Speaker 1: about your measure of inflation. I would guess I agree 163 00:09:15,040 --> 00:09:19,400 Speaker 1: with Martin Feldstein that probably inflation has been lower even 164 00:09:19,559 --> 00:09:23,280 Speaker 1: than we think it is because productivity growth is not 165 00:09:23,400 --> 00:09:25,920 Speaker 1: well measured. I want to congratulate you on the cursive 166 00:09:26,000 --> 00:09:28,400 Speaker 1: cash you you took, the level heat you took before 167 00:09:28,400 --> 00:09:30,800 Speaker 1: the book came out. It has only been exceeded by 168 00:09:30,800 --> 00:09:34,040 Speaker 1: the you're taking right now. The gun guys and the 169 00:09:34,600 --> 00:09:37,280 Speaker 1: drug guys, they don't like this book. So I got 170 00:09:37,360 --> 00:09:39,880 Speaker 1: a lot of email along the lines this is the 171 00:09:39,920 --> 00:09:45,040 Speaker 1: worst idea since banning semi automatic weapons. I got others saying, look, 172 00:09:45,160 --> 00:09:47,840 Speaker 1: you know, if I just pay more taxes because I 173 00:09:47,880 --> 00:09:51,200 Speaker 1: can't avoid it with cash, than Uncle Sam will just 174 00:09:51,280 --> 00:09:54,120 Speaker 1: waste the money. Uh. And there's certainly a lot of 175 00:09:54,120 --> 00:09:56,800 Speaker 1: people who don't understand that I'm for less cash, not 176 00:09:56,960 --> 00:10:00,120 Speaker 1: no cash. But I try, I think I try. I 177 00:10:00,160 --> 00:10:04,120 Speaker 1: do discuss the pros and cons with nuance, but that doesn't, 178 00:10:04,240 --> 00:10:07,840 Speaker 1: of course, always lend itself to modern Twitter conversation. Here's 179 00:10:07,840 --> 00:10:10,880 Speaker 1: what you need to know from Miles Kimball, Esteemed at Michigan, 180 00:10:11,160 --> 00:10:14,440 Speaker 1: a teacher at Michigan. The Curse of Cash is the 181 00:10:14,480 --> 00:10:18,160 Speaker 1: book everyone should read about negative interest rates. That's the 182 00:10:18,160 --> 00:10:20,920 Speaker 1: bonus round off of the debate over what we're gonna 183 00:10:20,960 --> 00:10:22,880 Speaker 1: do with cash. I'm going to lunch today with John 184 00:10:22,920 --> 00:10:25,679 Speaker 1: Farrell Bloomberg Television, Ken, and you know he's gonna be 185 00:10:25,760 --> 00:10:30,120 Speaker 1: dazzled when I pull up that five bills. Good for you. 186 00:10:30,400 --> 00:10:33,320 Speaker 1: That's what we're doing with our cash today, Ken, Rogoff, 187 00:10:33,640 --> 00:10:47,520 Speaker 1: the Curse of Cash can't say enough about it. Roger 188 00:10:47,559 --> 00:10:49,840 Speaker 1: Altman with us with ever Corey. He's here, Mike. I 189 00:10:49,840 --> 00:10:51,840 Speaker 1: know you've got a bunch of questions to Roger, but 190 00:10:51,920 --> 00:10:55,120 Speaker 1: I want to talk away from Secretary Clinton's illness and 191 00:10:55,240 --> 00:10:58,880 Speaker 1: what Mr Trump's doing about a longer view you have 192 00:11:00,120 --> 00:11:03,320 Speaker 1: of an America that's being un frustrated that they're not 193 00:11:03,520 --> 00:11:06,840 Speaker 1: part of Roger Altman's world. There's a whole America out there. 194 00:11:07,280 --> 00:11:10,960 Speaker 1: Their median incomes have been flat or even down, where 195 00:11:11,000 --> 00:11:16,000 Speaker 1: technologies passed them by, where technology is not to their advantage, 196 00:11:16,280 --> 00:11:20,240 Speaker 1: how despaired, How apart is Roger Altman's world from the 197 00:11:20,280 --> 00:11:25,040 Speaker 1: rest of America, well apart from uh, the reality that 198 00:11:26,760 --> 00:11:30,400 Speaker 1: Americans have never heard of me and couldn't care less. UH. 199 00:11:30,480 --> 00:11:32,640 Speaker 1: The thing that concerns me the most, just just the 200 00:11:32,720 --> 00:11:36,000 Speaker 1: number one issue facing the United States foreigner domestic, I think, 201 00:11:36,679 --> 00:11:41,240 Speaker 1: is the fall in American living standards and the uh 202 00:11:41,440 --> 00:11:46,640 Speaker 1: natural unhappiness and anxiety that Americans are feeling as a 203 00:11:46,679 --> 00:11:49,559 Speaker 1: result of it. Just a couple of quick data points. 204 00:11:49,880 --> 00:11:55,600 Speaker 1: Median real household income currently is eight hundred in round 205 00:11:55,679 --> 00:12:01,120 Speaker 1: numbers a year. That's down from fifty eight thousand and nine, 206 00:12:01,880 --> 00:12:06,319 Speaker 1: quite a fall. And real wages per capita have increased 207 00:12:06,360 --> 00:12:10,120 Speaker 1: five over thirty years, not five percent a year, five 208 00:12:10,160 --> 00:12:14,360 Speaker 1: percent total over thirty years. So so I saw a 209 00:12:14,400 --> 00:12:19,319 Speaker 1: poll last night that fifty three percent of American instruct 210 00:12:19,320 --> 00:12:23,360 Speaker 1: to describe themselves as living paycheck to paycheck, and percent 211 00:12:23,440 --> 00:12:26,440 Speaker 1: of Americans think that their children are going to live 212 00:12:26,520 --> 00:12:31,120 Speaker 1: less well than they have now. That whole uh set 213 00:12:31,160 --> 00:12:37,000 Speaker 1: of concerns and data is a tremendous challenge for this 214 00:12:37,080 --> 00:12:41,920 Speaker 1: country because if we don't succeed in reversing these declines, 215 00:12:42,840 --> 00:12:45,480 Speaker 1: then the cohesion of the country is at stake. And 216 00:12:45,520 --> 00:12:49,240 Speaker 1: I personally think that the anger we've seen throughout the 217 00:12:49,280 --> 00:12:52,760 Speaker 1: selection reflected on the one hand by the rise of Trump, 218 00:12:52,840 --> 00:12:56,760 Speaker 1: and on the other hand earlier by the Sanders. A 219 00:12:56,800 --> 00:13:06,760 Speaker 1: phenomenon is explained by this, uh voter unhappiness over living standards. Why, Roger, 220 00:13:06,800 --> 00:13:09,240 Speaker 1: do you think that the candidates have not focused on 221 00:13:09,320 --> 00:13:12,560 Speaker 1: other than Bertie Sanders focused on this is the issue 222 00:13:12,600 --> 00:13:16,280 Speaker 1: in terms of coming up with a policy prescription for it. Well, actually, 223 00:13:16,320 --> 00:13:18,559 Speaker 1: I don't agree with that. I think Secretary Clinton has 224 00:13:18,559 --> 00:13:22,079 Speaker 1: done that. If you just go on her website, the 225 00:13:22,800 --> 00:13:25,560 Speaker 1: first one of the very first things you'll see is 226 00:13:26,640 --> 00:13:30,480 Speaker 1: h a statement that her economic strategy is aimed at 227 00:13:30,600 --> 00:13:35,880 Speaker 1: raising middle class incomes. And I think she and her 228 00:13:35,920 --> 00:13:38,959 Speaker 1: team would agree that this is the number one challenge 229 00:13:39,040 --> 00:13:45,199 Speaker 1: getting incomes which in real terms have been weak turned around. Uh, 230 00:13:45,240 --> 00:13:50,200 Speaker 1: it's it's it's a hard task. But uh, we have 231 00:13:50,320 --> 00:13:52,480 Speaker 1: to focus all of our energies on it because I 232 00:13:52,480 --> 00:13:54,280 Speaker 1: think the cohesion of the country is at stake. In 233 00:13:54,320 --> 00:13:57,360 Speaker 1: America the way we've always thought of it is at stake. 234 00:13:58,880 --> 00:14:00,800 Speaker 1: Let me ask you this. You are a supporter of 235 00:14:00,840 --> 00:14:03,239 Speaker 1: the Clintons, and you worked in the first Clinton administration 236 00:14:03,280 --> 00:14:05,920 Speaker 1: is deputy Treasury secretary, so you've known them for years. 237 00:14:06,679 --> 00:14:08,719 Speaker 1: Do we have the wrong impress when you see the 238 00:14:08,760 --> 00:14:11,040 Speaker 1: polls that say nobody trusts Hillary Clinton. Do we have 239 00:14:11,120 --> 00:14:15,480 Speaker 1: the wrong impression of her? I think so? Uh I am. 240 00:14:15,520 --> 00:14:22,640 Speaker 1: I am often mystified by those polls because, ah, the Secretary. 241 00:14:22,680 --> 00:14:25,640 Speaker 1: Clinton has been in public life for such a long time, 242 00:14:25,680 --> 00:14:29,840 Speaker 1: first ladies, two times senator from New York, Secretary of State. 243 00:14:30,560 --> 00:14:33,800 Speaker 1: It's so much is known about her, as she likes 244 00:14:33,800 --> 00:14:37,520 Speaker 1: to say herself, more is known about me, and the 245 00:14:37,560 --> 00:14:40,640 Speaker 1: way she puts it than any other figure in American history. 246 00:14:41,680 --> 00:14:46,240 Speaker 1: I don't quite understand why people have this uh skepticism 247 00:14:46,240 --> 00:14:52,600 Speaker 1: about her. She's a extraordinarily industrious person. Uh. She's dedicated, 248 00:14:52,680 --> 00:14:56,520 Speaker 1: you know, since since her twenties to h public service, 249 00:14:56,560 --> 00:14:58,680 Speaker 1: beginning with the Children's Defense Fund and so forth, and 250 00:14:58,800 --> 00:15:02,040 Speaker 1: way out of the public. I'm a little mystified by 251 00:15:02,040 --> 00:15:05,240 Speaker 1: this sense. How does I mean That's what this comes down. 252 00:15:05,400 --> 00:15:07,480 Speaker 1: She's got to go out and sell herself to a public. 253 00:15:07,880 --> 00:15:11,400 Speaker 1: It's seen her stumble from crisis to crisis. What's the 254 00:15:11,480 --> 00:15:15,880 Speaker 1: change behavior you would recommend? I don't. I don't think 255 00:15:16,400 --> 00:15:20,840 Speaker 1: she's she's I think what you see is the real Hillary, 256 00:15:20,960 --> 00:15:23,880 Speaker 1: unlike what many people think. And I don't think some 257 00:15:24,160 --> 00:15:31,120 Speaker 1: change in her demeanor or her approach is uh logical 258 00:15:31,240 --> 00:15:34,680 Speaker 1: because she's out there, we see her. She's been in 259 00:15:34,720 --> 00:15:38,200 Speaker 1: the public eye for such a long time. That's true. 260 00:15:40,160 --> 00:15:42,840 Speaker 1: And you know you hear you hear, you hear every 261 00:15:42,920 --> 00:15:46,200 Speaker 1: day or you see, excuse me, seeing the press every day. 262 00:15:46,680 --> 00:15:49,080 Speaker 1: People say, when you meet Hillary in a smaller setting, 263 00:15:50,040 --> 00:15:55,800 Speaker 1: she's warm and engaging and eminently likable. Uh. And I 264 00:15:55,840 --> 00:15:59,720 Speaker 1: don't I don't quite understand why that, Uh, why this 265 00:16:00,040 --> 00:16:05,240 Speaker 1: deicism or exists. Who you put your trust in matters. 266 00:16:05,880 --> 00:16:09,720 Speaker 1: Investors have put their trust in independent registered investment advisors 267 00:16:09,760 --> 00:16:14,120 Speaker 1: to the tune of four trillion dollars. Why they see 268 00:16:14,120 --> 00:16:17,840 Speaker 1: their role as to serve, not sell. That's why Charles 269 00:16:17,880 --> 00:16:20,600 Speaker 1: Schwab is committed to the success of over seven thousand 270 00:16:20,680 --> 00:16:25,800 Speaker 1: independent financial advisors who passionately dedicate themselves to helping people 271 00:16:25,800 --> 00:16:30,000 Speaker 1: achieve their financial goals. Learn more and find your independent 272 00:16:30,000 --> 00:16:37,320 Speaker 1: advisor dot com. We'll joining us now. Is an old 273 00:16:37,320 --> 00:16:41,320 Speaker 1: friend of Bloomberg Surveillance or America's Smarter Economists. He did 274 00:16:41,320 --> 00:16:43,400 Speaker 1: not make it down here to Atlanta. He's up in 275 00:16:43,440 --> 00:16:47,960 Speaker 1: New York. Marty Feldstine from Harvard the former president currently 276 00:16:47,960 --> 00:16:52,240 Speaker 1: president emeritus of National Bureau for Economic Research, the perhaps 277 00:16:52,320 --> 00:16:56,480 Speaker 1: most prestigious research point in economics, and Marty, I want 278 00:16:56,520 --> 00:17:00,000 Speaker 1: to go straight to I didn't even ask this question. Um. 279 00:17:00,120 --> 00:17:02,120 Speaker 1: Ken Rogoff was on the show just a few moments 280 00:17:02,120 --> 00:17:03,680 Speaker 1: ago and he said, you're the man to talk to 281 00:17:04,240 --> 00:17:07,240 Speaker 1: about what inflation measures we should be following and why 282 00:17:07,760 --> 00:17:10,040 Speaker 1: you've got a new paper out on that, and he 283 00:17:10,160 --> 00:17:14,960 Speaker 1: was praising it tremendously. So let me go straight to 284 00:17:15,000 --> 00:17:18,880 Speaker 1: you with with Ken's question is, so, what what inflation 285 00:17:18,960 --> 00:17:22,040 Speaker 1: are we looking at? What should we be following? Well, 286 00:17:22,080 --> 00:17:25,159 Speaker 1: I'm not quite sure what can had in mind? No, 287 00:17:25,280 --> 00:17:27,440 Speaker 1: we wanted to keep that a mystery from you. Okay, 288 00:17:27,720 --> 00:17:30,760 Speaker 1: he said, you've got a really really important paper so 289 00:17:30,920 --> 00:17:34,720 Speaker 1: on how we need to change how we study inflation, well, 290 00:17:34,760 --> 00:17:40,080 Speaker 1: how we study growth and inflation both. I think the 291 00:17:40,160 --> 00:17:46,800 Speaker 1: problem with the official statistics is that they don't capture, uh, 292 00:17:46,920 --> 00:17:53,080 Speaker 1: the impact of quality change. They don't capture the impact 293 00:17:53,240 --> 00:17:57,920 Speaker 1: of new products, and so to that extent, we're underestimating 294 00:17:58,000 --> 00:18:01,679 Speaker 1: growth and overestimating inflation. Well, how would you change it? 295 00:18:02,560 --> 00:18:05,040 Speaker 1: Or do you? Are you telling us that we know 296 00:18:05,160 --> 00:18:08,120 Speaker 1: that we're mismeasuring, but we don't know how to get 297 00:18:08,119 --> 00:18:10,800 Speaker 1: it right. At this point, we don't know how to 298 00:18:10,880 --> 00:18:14,040 Speaker 1: get it right. But I think it's very important that 299 00:18:14,280 --> 00:18:19,400 Speaker 1: we stop saying to the public we're growing at almost 300 00:18:19,520 --> 00:18:24,480 Speaker 1: no growth for average households, when in fact growth is real, 301 00:18:24,800 --> 00:18:28,919 Speaker 1: the standard of living is rising, and we're just underestimating it, 302 00:18:29,400 --> 00:18:33,879 Speaker 1: and by underestimating it where we're causing people to lose 303 00:18:33,920 --> 00:18:38,760 Speaker 1: confidence in our economic system, lose confidence in free trade. 304 00:18:39,400 --> 00:18:43,880 Speaker 1: So I think there's a real miscommunication, a real miss 305 00:18:44,000 --> 00:18:48,160 Speaker 1: um misperception of what's going on. I'd like to say, Professor, 306 00:18:48,240 --> 00:18:51,040 Speaker 1: without the rigorous academics that you are known for, that 307 00:18:51,080 --> 00:18:54,000 Speaker 1: we have tried as surveillance to measure this, and that 308 00:18:54,119 --> 00:18:57,080 Speaker 1: we get more mail on this issue than any other 309 00:18:57,240 --> 00:19:01,280 Speaker 1: male We get our listeners say this is the inflation 310 00:19:01,440 --> 00:19:05,800 Speaker 1: in my mailbox. What does Janet Yellen think? Do we 311 00:19:05,840 --> 00:19:11,199 Speaker 1: need to shift to a more consumer based service sector 312 00:19:11,320 --> 00:19:15,240 Speaker 1: analysis of price change? It's not It's not just a 313 00:19:15,320 --> 00:19:20,520 Speaker 1: question of where which prices were measuring. It's that, whether 314 00:19:20,600 --> 00:19:26,240 Speaker 1: it's new products or existing products or services, we are 315 00:19:26,440 --> 00:19:30,840 Speaker 1: understating the how much. I don't know how much I 316 00:19:30,880 --> 00:19:33,280 Speaker 1: wish and I knew, But my guess is, if we're 317 00:19:33,320 --> 00:19:38,159 Speaker 1: talking about real growth officially of numbers like one and 318 00:19:38,200 --> 00:19:42,199 Speaker 1: two percent, the reality could be three or four percent, 319 00:19:42,680 --> 00:19:47,720 Speaker 1: And that means where mismeasuring inflation by similar amounts. You're 320 00:19:47,760 --> 00:19:50,680 Speaker 1: saying inflation, you're you're run rate of inflation is higher 321 00:19:50,760 --> 00:19:54,600 Speaker 1: than three. No, the opposite. What I'm saying is that 322 00:19:55,760 --> 00:20:00,560 Speaker 1: in terms of the real standard of living are inflation 323 00:20:00,720 --> 00:20:04,520 Speaker 1: is less. So when people say to my wages are 324 00:20:04,960 --> 00:20:09,720 Speaker 1: rising in money terms at uh two and a half percent, 325 00:20:09,800 --> 00:20:13,760 Speaker 1: foot inflation is two percent, So there's really no growth. 326 00:20:14,119 --> 00:20:18,560 Speaker 1: I think that's what that story misses out is what's 327 00:20:18,560 --> 00:20:21,720 Speaker 1: been happening to the quality of products and what's been 328 00:20:21,800 --> 00:20:26,240 Speaker 1: happening to the infroduction of new goods, new new services 329 00:20:26,280 --> 00:20:28,919 Speaker 1: that we didn't have now for Martin Felstein with us 330 00:20:28,920 --> 00:20:32,560 Speaker 1: of Harvard University, Uh, much to talk about here, Marty Felstein, 331 00:20:32,680 --> 00:20:35,919 Speaker 1: Lawrence Summers rights today as he has written consistently on 332 00:20:35,960 --> 00:20:40,680 Speaker 1: a need for infrastructure. You exceptionally presciently two years ago 333 00:20:41,280 --> 00:20:46,200 Speaker 1: mentioned infrastructure in terms of a new fiscal policy. How 334 00:20:46,320 --> 00:20:50,920 Speaker 1: easy is it to implement a national infrastructure program. Of course, 335 00:20:51,000 --> 00:20:54,960 Speaker 1: most infrastructure and most of the infrastructure we we see 336 00:20:54,960 --> 00:20:58,639 Speaker 1: in our daily lives that needs improving, Uh, that's local. 337 00:20:58,920 --> 00:21:02,240 Speaker 1: It's done by local cities and by towns rather than 338 00:21:02,240 --> 00:21:05,919 Speaker 1: by the federal government. And when the so called stimulus 339 00:21:06,000 --> 00:21:09,920 Speaker 1: package back in two thousand and nine, UH talked about 340 00:21:09,960 --> 00:21:13,480 Speaker 1: shovel ready projects, Boy, there really weren't a lot of 341 00:21:13,520 --> 00:21:16,359 Speaker 1: shovel ready projects. So that's how do we fix that? 342 00:21:16,520 --> 00:21:19,760 Speaker 1: Within your decades of experience on this, can the federal 343 00:21:19,800 --> 00:21:25,720 Speaker 1: government provided impulse to local infrastructure projects? Yeah, it's called money. 344 00:21:25,960 --> 00:21:29,679 Speaker 1: If the federal government makes money available to local governments 345 00:21:30,080 --> 00:21:32,720 Speaker 1: and we're not in a hurry to do it, then 346 00:21:32,760 --> 00:21:37,520 Speaker 1: over time we could see some maintenance projects and other 347 00:21:37,600 --> 00:21:41,520 Speaker 1: infrastructure projects. But you know, it's not a big priority. 348 00:21:41,920 --> 00:21:44,960 Speaker 1: A few years ago, I would have said, the economy 349 00:21:45,119 --> 00:21:50,760 Speaker 1: is not moving, Unemployment is stuck at seven percent, so 350 00:21:50,880 --> 00:21:53,480 Speaker 1: maybe we need to have some fiscal stimulus. So you 351 00:21:53,520 --> 00:21:56,480 Speaker 1: don't think infrastructure is a priority. I don't think it's 352 00:21:56,480 --> 00:21:58,639 Speaker 1: a priority. I don't think it's a bad thing. I 353 00:21:58,680 --> 00:22:01,879 Speaker 1: think there are some unmet needs that could be and 354 00:22:02,040 --> 00:22:06,600 Speaker 1: we we could improve conditions and in cities and roads 355 00:22:06,680 --> 00:22:09,800 Speaker 1: and so on. I think the private sector could do 356 00:22:10,119 --> 00:22:12,320 Speaker 1: more of that. You look around the world and you 357 00:22:12,400 --> 00:22:18,680 Speaker 1: see major airports that are privately owned. So I think 358 00:22:18,800 --> 00:22:21,959 Speaker 1: that there are much more important things in terms of 359 00:22:22,000 --> 00:22:25,920 Speaker 1: the economy. We don't need more demand, we need better incentives. 360 00:22:27,080 --> 00:22:28,800 Speaker 1: What would those incentis me? I mean, how do you 361 00:22:28,840 --> 00:22:32,280 Speaker 1: get us out? Uh? It sounds like you're saying there's 362 00:22:32,320 --> 00:22:36,959 Speaker 1: no role for fiscal policy in terms of trying to 363 00:22:37,040 --> 00:22:41,840 Speaker 1: raise the UH stagnant low growth rate. Now, so a 364 00:22:41,880 --> 00:22:45,760 Speaker 1: couple of thoughts about that. When we talk about fiscal policy, 365 00:22:45,880 --> 00:22:50,240 Speaker 1: for some people that just means UH, fiscal deficits. But 366 00:22:50,320 --> 00:22:54,399 Speaker 1: fiscal policy is also about the structure of our tax system. 367 00:22:54,440 --> 00:22:58,879 Speaker 1: So we have a tax system that, UM in terms 368 00:22:58,880 --> 00:23:04,080 Speaker 1: of corporate taxes, discourages investment, encourages firms to do their 369 00:23:04,080 --> 00:23:06,879 Speaker 1: investing elsewhere in the world. So I think there's a 370 00:23:06,880 --> 00:23:10,520 Speaker 1: growing understanding that we need a major reform of our 371 00:23:10,600 --> 00:23:16,680 Speaker 1: corporate taxes. UH. I think in terms of the personal taxes, 372 00:23:17,040 --> 00:23:20,840 Speaker 1: I think there's more that we can do by lowering 373 00:23:20,960 --> 00:23:24,960 Speaker 1: rates and closing loopholes that wouldn't increase the size of 374 00:23:24,960 --> 00:23:28,480 Speaker 1: the fiscal deficit, but that would make the tax system 375 00:23:28,560 --> 00:23:34,280 Speaker 1: better and would help us to UH have a stronger economy. 376 00:23:34,520 --> 00:23:38,560 Speaker 1: Have you spoken to Mr Trump? I have not. How 377 00:23:38,600 --> 00:23:41,919 Speaker 1: could Mr Trump not call upon Martin Feldstone? Did you 378 00:23:41,960 --> 00:23:47,239 Speaker 1: please explain the new Republican fiscal politics. Uh, there are 379 00:23:47,280 --> 00:23:50,600 Speaker 1: a lot of people Mr Trump hasn't called upon. When 380 00:23:50,640 --> 00:23:54,200 Speaker 1: I talked to some of my uh my friends who 381 00:23:54,240 --> 00:23:59,400 Speaker 1: have served in Republican administrations, economists have served in Republican administrations, 382 00:23:59,760 --> 00:24:03,800 Speaker 1: they say that their phone has not wrong. So Uh, 383 00:24:03,840 --> 00:24:08,159 Speaker 1: I think there's a general feeling that Trump is focusing 384 00:24:08,240 --> 00:24:11,399 Speaker 1: on getting elected and if he gets elected, then he 385 00:24:11,440 --> 00:24:15,359 Speaker 1: will figure out what he wants to do about policy. Michael, 386 00:24:15,359 --> 00:24:18,640 Speaker 1: That's one of the themes in Atlanta, isn't it? Well? 387 00:24:18,640 --> 00:24:20,680 Speaker 1: There are an awful lot of people who are questioning 388 00:24:21,000 --> 00:24:24,040 Speaker 1: what would happen. We spoke yesterday with the CEO of 389 00:24:24,080 --> 00:24:29,240 Speaker 1: Pulty Holmes who said that his government relations people have 390 00:24:29,400 --> 00:24:33,840 Speaker 1: presented him with a detailed opinion on what would happen 391 00:24:33,880 --> 00:24:36,160 Speaker 1: if Hillary Clinton, what would happen to housing if Hillary 392 00:24:36,200 --> 00:24:39,480 Speaker 1: Clinton were elected president? And they have no idea what 393 00:24:39,520 --> 00:24:44,600 Speaker 1: would happen if Donald Trump were elected president? What's that uncertainty? 394 00:24:44,640 --> 00:24:49,679 Speaker 1: There's a mathematical equation, Professor Feldstein, we have to fold uncertainty. 395 00:24:49,680 --> 00:24:53,400 Speaker 1: And yes, I think there's no question that there's more uncertainty, 396 00:24:53,440 --> 00:24:56,640 Speaker 1: and that's holding back business investment. They don't know what's 397 00:24:56,640 --> 00:24:59,000 Speaker 1: going to happen to the tax structure. They don't know 398 00:24:59,040 --> 00:25:02,119 Speaker 1: what's gonna happen to regulation. So I think that's one 399 00:25:02,160 --> 00:25:05,119 Speaker 1: of the reasons why we're seeing less business investments today. 400 00:25:05,119 --> 00:25:08,800 Speaker 1: At our Bloomberg headquarters, we celebrate your colleague Kenneth Rogoff's book, 401 00:25:09,040 --> 00:25:12,760 Speaker 1: Yes on Cash. It has been controversial. He gets lots 402 00:25:12,760 --> 00:25:16,840 Speaker 1: of hate mail from the criminal and tax of Asian element. 403 00:25:16,920 --> 00:25:20,360 Speaker 1: How big is the black economy in America? How big 404 00:25:20,400 --> 00:25:24,200 Speaker 1: are the people against Ken rogofs book The Curse of Cash? Gee, 405 00:25:24,280 --> 00:25:28,200 Speaker 1: I have no idea, but we don't need hundred dollar bills. 406 00:25:28,240 --> 00:25:32,399 Speaker 1: But I think small businesses UH still like UM to 407 00:25:32,520 --> 00:25:36,399 Speaker 1: have the convenience of dealing in cash. They don't want 408 00:25:36,920 --> 00:25:40,720 Speaker 1: credit cards, they don't want all that. And and Mike, 409 00:25:40,720 --> 00:25:44,320 Speaker 1: Professor Rogoff was adamant He's not He's not requesting the 410 00:25:44,440 --> 00:25:48,880 Speaker 1: elimination of cash, just big bills. I think that would help. 411 00:25:48,960 --> 00:25:51,160 Speaker 1: I think it would help for tax evasion, it would 412 00:25:51,200 --> 00:25:54,480 Speaker 1: help for criminal activities, and so yes, that would be 413 00:25:54,520 --> 00:25:57,879 Speaker 1: a good thing. I think Ken has made a a 414 00:25:58,000 --> 00:26:02,680 Speaker 1: very convincing case on that. What do you think of 415 00:26:02,720 --> 00:26:04,720 Speaker 1: the FED and where they are now and what they 416 00:26:04,840 --> 00:26:09,200 Speaker 1: should be doing? UM fail. Brainerd seemed to be dispositive yesterday, 417 00:26:09,280 --> 00:26:12,800 Speaker 1: even though she's not one of the more important voices 418 00:26:12,840 --> 00:26:17,680 Speaker 1: on the FED. Well, I think the FED is continuing 419 00:26:17,760 --> 00:26:22,040 Speaker 1: to find excuses not to raise interest rates. So every 420 00:26:22,080 --> 00:26:25,879 Speaker 1: time they meet, they find a new excuse. It's China, 421 00:26:26,160 --> 00:26:30,160 Speaker 1: it's the stock market, it's the currency. But they don't 422 00:26:30,160 --> 00:26:32,080 Speaker 1: want to raise rates. So what do I think they're 423 00:26:32,119 --> 00:26:35,280 Speaker 1: really doing. I think the FED is going to keep 424 00:26:35,520 --> 00:26:42,080 Speaker 1: real rates negative, and that means keeping regular rates very 425 00:26:42,160 --> 00:26:45,520 Speaker 1: low in order to push up the rate of inflation. 426 00:26:46,080 --> 00:26:49,560 Speaker 1: As a byproduct, they'll get lower unemployment. But I think 427 00:26:49,560 --> 00:26:52,880 Speaker 1: the real goal is to have a higher inflation rate 428 00:26:53,200 --> 00:26:56,120 Speaker 1: a couple of years out. So by higher I mean 429 00:26:56,240 --> 00:26:58,760 Speaker 1: three three and a half percent, so that they can 430 00:26:58,840 --> 00:27:05,159 Speaker 1: then raise they fail term rates my failed, it's no, 431 00:27:05,400 --> 00:27:07,760 Speaker 1: I don't think so. I don't. They haven't gotten there yet, 432 00:27:07,800 --> 00:27:10,600 Speaker 1: but inflation is definitely How do you respond to neo 433 00:27:10,680 --> 00:27:14,720 Speaker 1: Fisherian critics looking at Irving Fisher's work from a hundred 434 00:27:14,760 --> 00:27:18,040 Speaker 1: years ago, eighty years ago? How do you respond to 435 00:27:18,080 --> 00:27:19,919 Speaker 1: people that go, if you push rates lower, you end 436 00:27:20,000 --> 00:27:24,000 Speaker 1: up with disinflation or outright deflation within society. I look 437 00:27:24,000 --> 00:27:26,919 Speaker 1: at the evidence and the evidence tells me that the 438 00:27:27,040 --> 00:27:31,240 Speaker 1: core cp I, taking out energy and food, the core 439 00:27:31,320 --> 00:27:35,199 Speaker 1: CPI is up two point two percent relative to twelve 440 00:27:35,200 --> 00:27:37,879 Speaker 1: months ago. If you go back twelve months and you 441 00:27:38,000 --> 00:27:41,000 Speaker 1: do the same calculation, it was one point seven. So 442 00:27:41,080 --> 00:27:44,879 Speaker 1: inflation is gradually moving up. Vice Chairman Fisher speaks of 443 00:27:44,920 --> 00:27:48,760 Speaker 1: an ultra accommodative federal reserve. How do we get out 444 00:27:48,760 --> 00:27:53,480 Speaker 1: of this? Traffically in the accommodative trappics called raising interest rates? 445 00:27:53,840 --> 00:27:56,639 Speaker 1: What would happen? We raise interest rates? They listen to Feldstein. 446 00:27:57,119 --> 00:27:59,320 Speaker 1: Chairman Feldstein comes in and says, we're going to raise 447 00:27:59,359 --> 00:28:04,119 Speaker 1: interest rates. What happens? Market falls apart, surveillance ratings go up. 448 00:28:04,560 --> 00:28:08,280 Speaker 1: I think if they keep I think, if they keep 449 00:28:08,320 --> 00:28:12,160 Speaker 1: making it clear that they're gonna not raise rates, well, 450 00:28:12,240 --> 00:28:14,399 Speaker 1: then it will come as a surprise and the market 451 00:28:14,480 --> 00:28:17,880 Speaker 1: won't like it. But if they start signaling as now 452 00:28:17,920 --> 00:28:21,639 Speaker 1: a number of the FED leaders have begun to do so. 453 00:28:21,760 --> 00:28:25,919 Speaker 1: Lele Brainard was really an outlier when she stuck to 454 00:28:26,000 --> 00:28:29,600 Speaker 1: her traditional, very devilish view. But you look at Eric 455 00:28:29,720 --> 00:28:34,800 Speaker 1: rosen Grin, thoughtful head of the Boston Fed, or John 456 00:28:34,840 --> 00:28:39,480 Speaker 1: Williams similarly at the San Francisco Fed. These guys have 457 00:28:39,600 --> 00:28:43,440 Speaker 1: been signaling recently that they think the time has come 458 00:28:43,520 --> 00:28:47,880 Speaker 1: to start tightening up. So I think it'll happen. But 459 00:28:48,000 --> 00:28:51,760 Speaker 1: I think right now the Fed is preferring to have 460 00:28:52,160 --> 00:28:57,600 Speaker 1: a super low rate of interest driving up the inflation rate. 461 00:28:58,720 --> 00:29:01,640 Speaker 1: Just thirty seconds left. The predicate for the dove's argument 462 00:29:01,800 --> 00:29:04,080 Speaker 1: is the Phillips curve. Do you believe the Phillips curve 463 00:29:04,160 --> 00:29:07,560 Speaker 1: still holds? Still works? I just gave you the evidence. 464 00:29:07,600 --> 00:29:11,120 Speaker 1: I think it does two point two percent inflation now. 465 00:29:11,520 --> 00:29:14,760 Speaker 1: A year ago it was one point seven. So these 466 00:29:14,800 --> 00:29:18,600 Speaker 1: things don't shoot up, but they're beginning to move, just 467 00:29:18,720 --> 00:29:22,480 Speaker 1: as you expect with super low unemployment. We could talk 468 00:29:22,680 --> 00:29:26,680 Speaker 1: for six hours. Martin Feldstein of Harvard University, thank you 469 00:29:26,760 --> 00:29:30,600 Speaker 1: so much, greatly appreciated, professor. I felt. Were you the 470 00:29:30,600 --> 00:29:35,160 Speaker 1: inventor of eck ten? Uh? No, I don't think so. 471 00:29:35,240 --> 00:29:37,640 Speaker 1: It used to be called When I was an undergraduate, 472 00:29:37,680 --> 00:29:43,800 Speaker 1: it was called E one, And well it's called inflation. 473 00:29:43,960 --> 00:29:47,920 Speaker 1: We've pushed up the numbers. Make you teach No, he's 474 00:29:47,960 --> 00:30:02,160 Speaker 1: teaching ten? Okay, thank you so much for Harvard University. 475 00:30:05,480 --> 00:30:08,680 Speaker 1: Are we exuberant? That's are we irrational about it all? 476 00:30:08,720 --> 00:30:11,040 Speaker 1: That's the question. The man who invented the term, of course, 477 00:30:11,160 --> 00:30:15,600 Speaker 1: is yells Robert Schiller. Uh. He has written any number 478 00:30:15,600 --> 00:30:18,600 Speaker 1: of books about irretional exuberts the stock market. He studied 479 00:30:18,600 --> 00:30:21,200 Speaker 1: it for years. He is the Nobel laureate. And uh, 480 00:30:21,440 --> 00:30:23,240 Speaker 1: he's kind enough to stop by here at the National 481 00:30:23,240 --> 00:30:27,600 Speaker 1: Association for Business Economics meeting. Tom went there, Bob, because 482 00:30:28,400 --> 00:30:32,760 Speaker 1: we for what the last three four or five months, 483 00:30:32,920 --> 00:30:36,000 Speaker 1: the stock market has done nothing. Then all of a 484 00:30:36,080 --> 00:30:38,800 Speaker 1: sudden on Friday, it collapses, the Dow Jones industrials go 485 00:30:38,840 --> 00:30:42,840 Speaker 1: down almost four hundred points. And then yesterday, uh, when 486 00:30:42,840 --> 00:30:44,440 Speaker 1: we were on, Tom and I were on the futures 487 00:30:44,440 --> 00:30:46,640 Speaker 1: market says we're gonna be down another hundred twenty points. 488 00:30:46,640 --> 00:30:48,760 Speaker 1: By the end of the day, we're up two hundred 489 00:30:48,800 --> 00:30:51,280 Speaker 1: and forty points. What do you what do you make 490 00:30:51,280 --> 00:30:53,880 Speaker 1: of that? And what do you make of valuations in 491 00:30:53,920 --> 00:30:57,920 Speaker 1: the markets these days? Well, this is a kind of 492 00:30:58,360 --> 00:31:02,280 Speaker 1: normal surprise. We say, have events like this all the time. 493 00:31:02,880 --> 00:31:06,640 Speaker 1: It comes across always as a puzzle. Why did the 494 00:31:06,680 --> 00:31:10,080 Speaker 1: market move so much last Friday? And why did it recover? 495 00:31:10,560 --> 00:31:14,160 Speaker 1: You know what really has changed? It's always been a puzzle. 496 00:31:14,200 --> 00:31:16,520 Speaker 1: It doesn't seem to make any sense, and you just 497 00:31:16,560 --> 00:31:19,720 Speaker 1: wonder how do people all reach different opinions. It was 498 00:31:19,760 --> 00:31:22,880 Speaker 1: done over two and then in Europe and Asia too 499 00:31:22,880 --> 00:31:27,400 Speaker 1: there was a feedback onto them. Uh so what to 500 00:31:27,440 --> 00:31:29,960 Speaker 1: make of it? The story that came out was something 501 00:31:30,000 --> 00:31:33,680 Speaker 1: about Eric rosen Gren, who's president of the Boston FED, 502 00:31:34,240 --> 00:31:37,160 Speaker 1: who gave a talk at some local chamber of commerce 503 00:31:37,640 --> 00:31:42,920 Speaker 1: and he expressed optim worries about the economy overheating. That 504 00:31:43,040 --> 00:31:45,360 Speaker 1: was it so that maybe they would tighten at the 505 00:31:45,400 --> 00:31:50,320 Speaker 1: next meeting of the Fed. But that seems so insubstantial. 506 00:31:51,480 --> 00:31:54,320 Speaker 1: Why would you think that what one member of the 507 00:31:54,440 --> 00:31:58,560 Speaker 1: f O m C said at some meeting should change 508 00:31:58,560 --> 00:32:01,800 Speaker 1: your evaluation of the market over two percent and then 509 00:32:01,920 --> 00:32:04,560 Speaker 1: change your mind again on Monday when he didn't take 510 00:32:04,560 --> 00:32:08,800 Speaker 1: it back. Well, it raises kind of the question in 511 00:32:08,880 --> 00:32:11,320 Speaker 1: my mind, in a lot of people's mind, is whether, uh, 512 00:32:11,360 --> 00:32:16,160 Speaker 1: this long period of extraordinary monetary policy is distorting markets, 513 00:32:16,200 --> 00:32:19,840 Speaker 1: distorting prices. Uh, at the same time that we have 514 00:32:19,920 --> 00:32:22,800 Speaker 1: seen what seems to be a fundamental change in the 515 00:32:22,840 --> 00:32:28,080 Speaker 1: way people trade, humans moving aside, computers moving in. Yeah, 516 00:32:28,160 --> 00:32:32,040 Speaker 1: Well they've we are really in a funny period. You know, 517 00:32:32,160 --> 00:32:35,880 Speaker 1: history is always useless because we're always in a this 518 00:32:35,960 --> 00:32:39,400 Speaker 1: time is different. So you you find out we've had 519 00:32:39,440 --> 00:32:44,360 Speaker 1: a longer period of low interest rates than ever before. Uh, 520 00:32:44,400 --> 00:32:47,880 Speaker 1: and we have this computer revolution going on. Those are 521 00:32:47,920 --> 00:32:51,640 Speaker 1: exactly the issues, and we don't history isn't a guy. 522 00:32:51,720 --> 00:32:54,160 Speaker 1: They won't tell you what's going to happen next because 523 00:32:54,640 --> 00:32:58,960 Speaker 1: we're out of the historical range. We've never before had 524 00:32:59,040 --> 00:33:03,120 Speaker 1: a robotics revolution like we're going through now, and we've 525 00:33:03,320 --> 00:33:06,160 Speaker 1: never before had such a long period of low interest 526 00:33:06,320 --> 00:33:10,440 Speaker 1: especially long term interest rates. Professor Schiller, from your Nobel 527 00:33:10,560 --> 00:33:14,920 Speaker 1: Prize lecture, which I thought was exceptionally thoughtful and Mike 528 00:33:15,120 --> 00:33:19,400 Speaker 1: wonderfully less math than some choice morsels that I've seen, 529 00:33:20,240 --> 00:33:25,600 Speaker 1: Robert Schiller, My definition puts the epidemic nature, the emotions 530 00:33:25,640 --> 00:33:30,520 Speaker 1: of investors, and the nature of the news and information media, 531 00:33:30,640 --> 00:33:35,680 Speaker 1: including Bloomberg surveillance, at center of the definition of bubbles. 532 00:33:36,280 --> 00:33:38,840 Speaker 1: Bob Schiller or Mike McKie and I the reason we 533 00:33:38,880 --> 00:33:45,120 Speaker 1: have bubbles. I don't want to flatter you too much. 534 00:33:45,280 --> 00:33:48,200 Speaker 1: Maybe you are part of it, but it goes to 535 00:33:48,240 --> 00:33:53,000 Speaker 1: the hype of the day. It goes within our unorthodox economics. 536 00:33:53,080 --> 00:33:57,200 Speaker 1: The original stuff being done by central bankers are they 537 00:33:57,320 --> 00:34:00,520 Speaker 1: just app adapting to the hype in the high purpole 538 00:34:00,720 --> 00:34:04,200 Speaker 1: of the day. You know, I wish central banking were 539 00:34:04,240 --> 00:34:07,280 Speaker 1: more of a science. Unfortunately, I think it was. Roy 540 00:34:07,360 --> 00:34:10,480 Speaker 1: Hawtrey wrote a book called The Art of Central Banking, 541 00:34:11,160 --> 00:34:14,759 Speaker 1: because it really is an art, and uh, you can 542 00:34:14,800 --> 00:34:18,840 Speaker 1: get it wrong because it involves judgments of human nature. 543 00:34:19,160 --> 00:34:22,880 Speaker 1: In this financial crisis, I think what Bernanke had to 544 00:34:22,960 --> 00:34:29,319 Speaker 1: go through with a collapsing financial sector and the risk 545 00:34:29,360 --> 00:34:33,760 Speaker 1: of a string of bankruptcies, so, you know, and and 546 00:34:33,760 --> 00:34:37,000 Speaker 1: and looking at how mob psychled I say, mob psychol 547 00:34:37,160 --> 00:34:41,439 Speaker 1: crowd psychology was changing so fast they had to play 548 00:34:41,480 --> 00:34:44,239 Speaker 1: it by gut instincts. There's no one could tell them 549 00:34:44,280 --> 00:34:48,719 Speaker 1: what to do. Uh, and I think probably they did 550 00:34:48,760 --> 00:34:53,240 Speaker 1: a reasonable thing. Uh. They've saved us from a worst disaster. 551 00:34:53,680 --> 00:34:55,879 Speaker 1: But we're you know, we're not just climbing back into 552 00:34:56,040 --> 00:35:02,879 Speaker 1: normalcy either. So Uh, I'm glad I'm not fed, chairman. Actually, well, 553 00:35:02,920 --> 00:35:07,600 Speaker 1: they will tell you privately, And you know, the consensus 554 00:35:07,640 --> 00:35:09,960 Speaker 1: of the economists here at an Abe seems to be 555 00:35:10,320 --> 00:35:13,040 Speaker 1: that they didn't know what they were getting into, but 556 00:35:13,080 --> 00:35:15,560 Speaker 1: they had to do something. Uh. And now they don't 557 00:35:15,560 --> 00:35:17,479 Speaker 1: know how to get out of it because they don't 558 00:35:17,480 --> 00:35:21,400 Speaker 1: know what the unintended consequences of moving the other way is. 559 00:35:21,840 --> 00:35:25,280 Speaker 1: So if that's the case, then what's the hippocratic ideal 560 00:35:25,719 --> 00:35:27,520 Speaker 1: if you're going to first do no harm? Is it 561 00:35:27,600 --> 00:35:30,200 Speaker 1: that you sit there given what we were talking about 562 00:35:30,239 --> 00:35:33,680 Speaker 1: with distorted markets, or you try to get back to 563 00:35:33,840 --> 00:35:37,719 Speaker 1: whatever the definition of normal is. Well, I think that 564 00:35:37,760 --> 00:35:41,960 Speaker 1: if we don't have a science, that we have some 565 00:35:42,120 --> 00:35:47,719 Speaker 1: idea that quantitative easing probably helped. You know, Uh, low 566 00:35:47,800 --> 00:35:52,680 Speaker 1: interest rates are you know, even negative interest rates. Uh, 567 00:35:53,239 --> 00:35:55,560 Speaker 1: you feel uncomfortable because you wish it were more of 568 00:35:55,600 --> 00:35:59,000 Speaker 1: a science. But I think that's what we're stuck with 569 00:35:59,160 --> 00:36:03,640 Speaker 1: and and you know, it's it's the real world. And uh, 570 00:36:03,680 --> 00:36:05,879 Speaker 1: you know, I personally think a lot of people are 571 00:36:05,960 --> 00:36:11,160 Speaker 1: increasingly fearful about how technology is changing the landscape in 572 00:36:11,320 --> 00:36:15,839 Speaker 1: so many dramatic ways. Uh that I think that that 573 00:36:16,480 --> 00:36:20,000 Speaker 1: anxiety is part of our problem, part of the reason 574 00:36:20,120 --> 00:36:24,920 Speaker 1: we have low interest rates and low markets and many 575 00:36:24,960 --> 00:36:28,160 Speaker 1: other countries of the world if we just don't know 576 00:36:28,200 --> 00:36:33,400 Speaker 1: where it's going, So it doesn't bring tremendous enthusiasm for 577 00:36:33,760 --> 00:36:38,720 Speaker 1: capital expenditure. That uh, even if interest rates are zero, 578 00:36:39,040 --> 00:36:42,080 Speaker 1: we're in Atlanta at the National Association for Business Economics 579 00:36:42,120 --> 00:36:46,120 Speaker 1: Annual Conference, and we are talking with Robert Schiller. He is, 580 00:36:46,480 --> 00:36:49,400 Speaker 1: of course of the Yale University Economics Professor Nobel Laureate 581 00:36:49,880 --> 00:36:54,440 Speaker 1: and author of so many books and and different um 582 00:36:55,520 --> 00:36:57,879 Speaker 1: studying different aspects of financing. You don't even know where 583 00:36:57,920 --> 00:36:59,680 Speaker 1: to begin, But I want to go back to what 584 00:36:59,760 --> 00:37:02,000 Speaker 1: we were talking about before the break it, and that's 585 00:37:02,000 --> 00:37:05,360 Speaker 1: the stock market. You came up with the sickly cyclically 586 00:37:05,400 --> 00:37:09,719 Speaker 1: adjusted UH price equity ratio, the CAPE ratio that a 587 00:37:09,800 --> 00:37:11,839 Speaker 1: lot of people like to follow, doesn't get as much 588 00:37:11,840 --> 00:37:15,640 Speaker 1: publicity as regular PE s UH. When you look at 589 00:37:15,640 --> 00:37:17,919 Speaker 1: it now, it's at like twenty six point six, which 590 00:37:17,960 --> 00:37:21,080 Speaker 1: is historically quite high. What do you make of of 591 00:37:21,200 --> 00:37:26,640 Speaker 1: market valuations these days? But more importantly, how accurate is 592 00:37:26,640 --> 00:37:31,400 Speaker 1: it in a world where UH prices are distorted by 593 00:37:31,640 --> 00:37:35,600 Speaker 1: central bank policies? Can you really get an accurate multiple 594 00:37:35,680 --> 00:37:39,279 Speaker 1: these days? Well? The big yeah, the elephant in the 595 00:37:39,360 --> 00:37:43,799 Speaker 1: room is the very low long term interest rates. So yeah, 596 00:37:43,880 --> 00:37:47,799 Speaker 1: you you'd think that if interest rates are low, the 597 00:37:47,800 --> 00:37:52,080 Speaker 1: stock market should be high. Otherwise there isn't balanced between 598 00:37:52,120 --> 00:37:55,160 Speaker 1: the two markets. So that brings us back to them 599 00:37:55,239 --> 00:37:57,759 Speaker 1: the big unknown. Well, interest rates are low. They've been 600 00:37:57,840 --> 00:38:02,400 Speaker 1: low now ever since the crisis financial crisis, they've gotten 601 00:38:02,400 --> 00:38:06,560 Speaker 1: really low. Um, but what's the outlook for them? If 602 00:38:06,600 --> 00:38:10,480 Speaker 1: if the interest rates go back up, bond prices fall, 603 00:38:11,360 --> 00:38:13,920 Speaker 1: you might think that this reason for a high stock 604 00:38:14,000 --> 00:38:17,879 Speaker 1: market disappears too. On the other hand, I don't think 605 00:38:17,960 --> 00:38:21,760 Speaker 1: that it's a very clear theory because right now in Europe, 606 00:38:21,840 --> 00:38:25,480 Speaker 1: for example, stock markets are not particularly high, but their 607 00:38:25,560 --> 00:38:28,319 Speaker 1: interest rates, the interest rates are low. So, you know, 608 00:38:28,400 --> 00:38:32,719 Speaker 1: don't believe this theory as God's truth. It's just something 609 00:38:32,800 --> 00:38:37,040 Speaker 1: that seems plausible. So I kind of think the stock 610 00:38:37,120 --> 00:38:40,760 Speaker 1: market in the US is a little bit vulnerable at least, 611 00:38:40,840 --> 00:38:43,920 Speaker 1: you know, I nobody can predict it accurately, but it 612 00:38:44,000 --> 00:38:49,200 Speaker 1: is vulnerable because interest rates are not a secure base 613 00:38:49,360 --> 00:38:52,080 Speaker 1: for the market to be so high. Well, that's kind 614 00:38:52,120 --> 00:38:54,560 Speaker 1: of the issue is how do you model something when 615 00:38:54,880 --> 00:38:58,279 Speaker 1: rate I mean a twenty six point six he tells 616 00:38:58,320 --> 00:39:00,560 Speaker 1: you something. Maybe if you're in a normal interest rate 617 00:39:00,640 --> 00:39:03,920 Speaker 1: environment where you might be three or four percentage points, 618 00:39:03,920 --> 00:39:07,320 Speaker 1: but when you're at thirty seven basis points, that would 619 00:39:07,360 --> 00:39:11,920 Speaker 1: justify much higher you know, stock market multiples. And yet 620 00:39:11,960 --> 00:39:17,080 Speaker 1: it's that realistic. Well, I wish I knew. My guess is, 621 00:39:17,600 --> 00:39:21,759 Speaker 1: if you look at historically, uh, moving out of the 622 00:39:21,800 --> 00:39:24,760 Speaker 1: stock market when it's been high into the bondo market, 623 00:39:24,800 --> 00:39:28,600 Speaker 1: let's say, has been a good move when the bond 624 00:39:28,680 --> 00:39:31,120 Speaker 1: market isn't also high. But we're just not in a 625 00:39:31,560 --> 00:39:34,960 Speaker 1: nine nine. My model says, get out of the stock market. 626 00:39:35,000 --> 00:39:37,279 Speaker 1: I wish I were around then, I would have done it, 627 00:39:37,880 --> 00:39:40,920 Speaker 1: but we're not in nineteen twenty nine because we have 628 00:39:41,040 --> 00:39:43,560 Speaker 1: these very low interest rates. See Tom how he did 629 00:39:43,600 --> 00:39:45,799 Speaker 1: a segue to set you up. He set me up. 630 00:39:46,800 --> 00:39:50,480 Speaker 1: I was sitting there going Bob Schiller's studied under Irving Fisher. 631 00:39:50,560 --> 00:39:54,480 Speaker 1: In that's what I thought, folks. Irving Fisher took the 632 00:39:54,520 --> 00:39:57,120 Speaker 1: first pH d at Yale, and to give you an 633 00:39:57,160 --> 00:40:00,800 Speaker 1: idea when he did his dissertation, No, no than Francis 634 00:40:00,920 --> 00:40:05,520 Speaker 1: Edgeworth of England, who is beloved and economics raved about 635 00:40:05,520 --> 00:40:08,440 Speaker 1: his work. And as you know, Bob Schiller, Irving Fisher 636 00:40:08,480 --> 00:40:12,399 Speaker 1: set the foundation for so much of American economics. There 637 00:40:12,480 --> 00:40:16,440 Speaker 1: is a theory wandering out now, not neo Schiller, but 638 00:40:16,640 --> 00:40:22,360 Speaker 1: neo Fisherian economics, which basically says, if you lower interest rates, 639 00:40:22,920 --> 00:40:27,400 Speaker 1: odd things can happen with what you've observed in this 640 00:40:27,560 --> 00:40:31,960 Speaker 1: crisis and in our dashed lower interest rates. Do those 641 00:40:32,120 --> 00:40:39,880 Speaker 1: lower interest rates feedback into disinflation and outright deflation? Uh? Okay, 642 00:40:40,920 --> 00:40:45,040 Speaker 1: this is a long question started out with Irving Fisher. Well. Now, 643 00:40:46,480 --> 00:40:50,560 Speaker 1: Irving Fisher was very concerned about inflation. Yes, but I 644 00:40:50,800 --> 00:40:53,600 Speaker 1: I don't know what he would say if he were alive. 645 00:40:53,880 --> 00:40:57,960 Speaker 1: I'm I am indeed an admirer of Irving Fisher. Well, 646 00:40:58,000 --> 00:41:01,319 Speaker 1: I agree with you strongly that people have grabbed the 647 00:41:01,440 --> 00:41:06,720 Speaker 1: legacy of Professor Fisher, and folks, this is not stand Fisher, 648 00:41:06,800 --> 00:41:10,239 Speaker 1: this is Irving Fisher from eighty years ago. But I 649 00:41:10,360 --> 00:41:14,000 Speaker 1: agree with you strongly, Professor that they've they've co opted 650 00:41:14,480 --> 00:41:18,680 Speaker 1: Irving Fisher over to this debate. But within the present debate, 651 00:41:18,800 --> 00:41:23,200 Speaker 1: does Bob Schiller suggest that lower interest rates feed on 652 00:41:23,280 --> 00:41:30,240 Speaker 1: themselves into disinflation and at times deflation. Well, normally lower 653 00:41:30,320 --> 00:41:34,520 Speaker 1: interest rates I thought to be inflationary, but that's not 654 00:41:34,640 --> 00:41:39,680 Speaker 1: what we've seen. Uh So, I can't quite put this 655 00:41:39,800 --> 00:41:42,439 Speaker 1: in neo fishery in terms as far as I might, 656 00:41:42,560 --> 00:41:45,759 Speaker 1: but I think that I think that what's happening now 657 00:41:45,960 --> 00:41:49,600 Speaker 1: is if you want a simple story and it's oversimplified. 658 00:41:50,200 --> 00:41:53,520 Speaker 1: Is that we're fearful for the future. We don't see 659 00:41:53,600 --> 00:41:59,160 Speaker 1: great investment opportunities. The FED, sensing the weakness, has cut 660 00:41:59,200 --> 00:42:01,840 Speaker 1: interest rates, not just the FED, but other central banks 661 00:42:01,880 --> 00:42:06,360 Speaker 1: as well. This is a worldwide phenomenon, and they're they're 662 00:42:06,400 --> 00:42:09,840 Speaker 1: just out of ammunition. They're doing what they can that 663 00:42:10,000 --> 00:42:13,719 Speaker 1: the fundamental problem doesn't come from the central banks. It 664 00:42:13,840 --> 00:42:18,360 Speaker 1: comes from the technological revolution the whole world is going through. 665 00:42:18,640 --> 00:42:22,080 Speaker 1: Different countries are reacting to it differently, but it's all 666 00:42:22,160 --> 00:42:25,719 Speaker 1: an anxious reaction. Does the FED have the ability to 667 00:42:25,760 --> 00:42:30,399 Speaker 1: generate inflation anymore? I would think so. You would think 668 00:42:30,440 --> 00:42:32,759 Speaker 1: that they control the money supply. There is this thing 669 00:42:32,800 --> 00:42:38,439 Speaker 1: called helicopter money that the central bankers are talking about 670 00:42:38,600 --> 00:42:43,360 Speaker 1: very carefully. Uh. But you know if that that's refers 671 00:42:43,400 --> 00:42:47,640 Speaker 1: to an old metaphor that Milton Friedman started half a 672 00:42:47,680 --> 00:42:50,800 Speaker 1: century ago. They have to be able to create inflation 673 00:42:50,840 --> 00:42:54,160 Speaker 1: because he could always get a bunch of helicopters print 674 00:42:54,200 --> 00:42:57,719 Speaker 1: money and fly over all the major cities and just 675 00:42:57,880 --> 00:43:02,000 Speaker 1: drop it. And if there's all this money, people would 676 00:43:02,040 --> 00:43:04,080 Speaker 1: spend it. Right, it would have to be spent, and 677 00:43:04,120 --> 00:43:07,040 Speaker 1: it would push prices up. So I think that's where 678 00:43:07,040 --> 00:43:09,520 Speaker 1: I think they ought to be able to. But it's 679 00:43:09,600 --> 00:43:14,239 Speaker 1: funny that they haven't been more successful. Uh recently, Well, 680 00:43:14,600 --> 00:43:17,520 Speaker 1: when you were writing your textbook, Uh, did the idea 681 00:43:17,600 --> 00:43:22,400 Speaker 1: that helicopter money would seriously be discussed as monetary policy 682 00:43:22,400 --> 00:43:26,120 Speaker 1: option ever occurred to you? You know, it's been ever 683 00:43:26,200 --> 00:43:30,200 Speaker 1: since I read as a kid or a Milton Freedman. 684 00:43:30,239 --> 00:43:33,160 Speaker 1: It's been sort of on my mind, and it seems 685 00:43:33,160 --> 00:43:36,399 Speaker 1: like we heard little noises from fed people. They don't 686 00:43:36,400 --> 00:43:39,080 Speaker 1: want to bring it up, but in a time when 687 00:43:39,120 --> 00:43:41,520 Speaker 1: we're kind of desperate, maybe they are a little bit 688 00:43:41,560 --> 00:43:45,200 Speaker 1: freer to talk about it. When you look, Professor Schiller 689 00:43:45,480 --> 00:43:49,239 Speaker 1: at what you would teach Yale is the orthodoxy of 690 00:43:49,280 --> 00:43:51,640 Speaker 1: the modern ages that gone. I mean we had a 691 00:43:51,719 --> 00:43:55,080 Speaker 1: simpler economics, which you led the charge on that photo 692 00:43:55,120 --> 00:43:57,960 Speaker 1: of you and the Digliani from forty years ago when 693 00:43:58,000 --> 00:44:00,520 Speaker 1: you were a young kid. I mean where we are 694 00:44:00,560 --> 00:44:03,360 Speaker 1: now with our mathinnus and what we've been through the crisis, 695 00:44:03,719 --> 00:44:06,080 Speaker 1: are we in search of a new economics or do 696 00:44:06,160 --> 00:44:10,359 Speaker 1: we use the existing models? He used this word mathin Nous, 697 00:44:10,360 --> 00:44:13,480 Speaker 1: which I associate with Paul Romer at n y U. 698 00:44:13,600 --> 00:44:15,880 Speaker 1: He just came by Yale and gave a talk on 699 00:44:15,960 --> 00:44:20,800 Speaker 1: what's wrong with macro economics and Uh, there's I think 700 00:44:20,840 --> 00:44:25,279 Speaker 1: that the uh focusing on mathematics has diminished people of 701 00:44:25,320 --> 00:44:29,839 Speaker 1: mistrust of models with too much of an emphasis on math. 702 00:44:29,960 --> 00:44:32,840 Speaker 1: But it's not gone in the profession, not by any means. 703 00:44:33,239 --> 00:44:36,839 Speaker 1: And I think math has a fundamental role in economics 704 00:44:36,880 --> 00:44:40,080 Speaker 1: that we have to maintain. On the other hand, it 705 00:44:40,160 --> 00:44:43,560 Speaker 1: shouldn't be a purely mathematical discipline. So there's this other 706 00:44:43,600 --> 00:44:48,480 Speaker 1: revolution of behavioral economic looking at psychology, and I think 707 00:44:48,520 --> 00:44:52,440 Speaker 1: this is gradually sinking into the econ profession. We really 708 00:44:52,480 --> 00:44:55,359 Speaker 1: have to think events like happened last Friday. We just 709 00:44:55,400 --> 00:44:58,719 Speaker 1: talked about when the stock markets of the world fell 710 00:44:58,840 --> 00:45:02,600 Speaker 1: a couple of percent for no apparent reason. What is it? 711 00:45:02,680 --> 00:45:06,640 Speaker 1: Must be something like crowd psychology, and now the whole 712 00:45:06,719 --> 00:45:10,760 Speaker 1: world is a crowd with the internet and with other communications. 713 00:45:11,280 --> 00:45:13,760 Speaker 1: Bob Schiller, thank you very much for stopping by today 714 00:45:14,000 --> 00:45:17,360 Speaker 1: about from Yale University and of course uh Nobel laureate 715 00:45:17,400 --> 00:45:23,520 Speaker 1: and fascinating as always, alright the equity markets today. Thanks 716 00:45:23,560 --> 00:45:27,680 Speaker 1: for listening to the Bloomberg Surveillance podcast. Subscribe and listen 717 00:45:27,960 --> 00:45:33,360 Speaker 1: to interviews on iTunes, SoundCloud, or whichever podcast platform you prefer. 718 00:45:33,960 --> 00:45:37,439 Speaker 1: I'm on Twitter at Tom Keane. Michael McKee is at 719 00:45:37,560 --> 00:45:41,799 Speaker 1: Economy Before the Podcast. You can always catch us worldwide. 720 00:45:42,160 --> 00:45:52,000 Speaker 1: I'm Bloomberg Radio. Who you put your trust in matters. 721 00:45:52,640 --> 00:45:56,480 Speaker 1: Investors have put their trust in independent registered investment advisors 722 00:45:56,520 --> 00:46:00,560 Speaker 1: to the tune of four trillion dollars. Why learn more 723 00:46:01,000 --> 00:46:05,120 Speaker 1: and find your independent advisor dot com m