WEBVTT - Bloomberg Wall Street Week: Koch, Hubbard, Rubenstein 0:00:00.240 --> 0:00:04.960 This is Bloomberg Wall Street Week. Market shruggle, higher consumer prizes. 0:00:05.040 --> 0:00:07.360 The economy is in the process of rebounding. Will the 0:00:07.400 --> 0:00:10.479 Federal Reserve have its own digital currency? The financial stories 0:00:10.520 --> 0:00:12.879 that cheap hard work. Many people think the eels are 0:00:12.880 --> 0:00:15.080 just going to keep marching up. We have more spending 0:00:15.120 --> 0:00:17.200 coming out of Congress. One of the big questions I 0:00:17.200 --> 0:00:19.880 think on investor's minds inflations through the eyes of the 0:00:19.880 --> 0:00:23.560 most influential voices. Larry Summer is the former Treasury Secretary 0:00:23.640 --> 0:00:27.240 Bryan wynhand a backup America, Will Smart, CEO of Charlie Sharp. 0:00:27.360 --> 0:00:31.560 Bloomberg wool Street Week with David Weston from Bloomberg Radio. 0:00:32.240 --> 0:00:35.240 The new year picks up right where last year left 0:00:35.240 --> 0:00:39.199 off with COVID, the Fed and jobs. This is Bloomberg 0:00:39.240 --> 0:00:43.760 Wall Street Week. I'm David Weston. It was a whole 0:00:43.840 --> 0:00:46.400 new year this week, but in some ways it felt 0:00:46.440 --> 0:00:50.520 like an extension of one, with the explosion in omicron 0:00:50.600 --> 0:00:53.520 cases continuing to set new records in the United States 0:00:53.560 --> 0:00:57.160 and for that matter, around the world. COVID in the 0:00:57.320 --> 0:01:00.280 environment here and in the world is probably here to day, 0:01:00.320 --> 0:01:03.760 but COVID as we're dealing with it now is not 0:01:03.800 --> 0:01:06.720 here to state, but so far the cases appeared to 0:01:06.760 --> 0:01:09.400 be less severe, and the new mayor of New York, 0:01:09.560 --> 0:01:12.520 Eric Adams, spoke for many when he said, we just 0:01:12.720 --> 0:01:16.200 need to move forward and get our lives back. The 0:01:16.280 --> 0:01:19.160 city is going to function, going to be safe, and 0:01:19.200 --> 0:01:21.600 we're going to stay open. When it comes to the FED, 0:01:21.840 --> 0:01:24.240 we learned this week that it really means what it 0:01:24.280 --> 0:01:28.360 says about tightening monetary policy, releasing minutes from its December 0:01:28.400 --> 0:01:32.200 meeting saying that quote, it may become warranted to increase 0:01:32.280 --> 0:01:35.040 the federal funds rate sooner or at a faster pace, 0:01:35.480 --> 0:01:38.520 and even that reducing the balance sheet may come on 0:01:38.600 --> 0:01:42.520 the heels of any rates tightening, which Michael Cantopolis of 0:01:42.600 --> 0:01:47.400 Richard Bernstein said wasn't necessarily expected March a live meeting 0:01:47.440 --> 0:01:50.680 for hikes. I think the only surprise perhaps was sort 0:01:50.680 --> 0:01:53.360 of the view on the balance sheet runoff, and if 0:01:53.400 --> 0:01:56.000 we had any doubts remaining about the FED meeting being 0:01:56.120 --> 0:01:58.400 live in March, they may have been answered when the 0:01:58.480 --> 0:02:01.919 job's numbers came in on Friday, disappointing on the overall number, 0:02:01.960 --> 0:02:04.920 but showing robust growth in wages of four point seven 0:02:04.920 --> 0:02:07.720 percent year every year and an unemployment rate falling down 0:02:07.720 --> 0:02:10.800 to three point nine percent, way below what anyone expected 0:02:10.840 --> 0:02:14.079 at this point. The markets took this eventful week as 0:02:14.080 --> 0:02:16.920 a rerating of risk, with the SMP five hundred down 0:02:16.960 --> 0:02:19.400 almost two percent for the week, it's worse start to 0:02:19.480 --> 0:02:22.120 a year since two thousand sixteen, while the NAZAC was 0:02:22.200 --> 0:02:24.840 even worse, down over four and a half percent, and 0:02:25.000 --> 0:02:27.919 bonds sold off, with the ten year yield adding over 0:02:28.000 --> 0:02:30.919 twenty five basis points ending up over one point seven 0:02:31.040 --> 0:02:33.840 six percent. Here to explain this wild first week of 0:02:33.880 --> 0:02:36.480 the new year are Katie Coach Goldman Sachs Global co 0:02:36.639 --> 0:02:39.519 head of Fundamental Equity Funds and Greg Peters co c 0:02:39.680 --> 0:02:42.440 i O of PGIM Fixed Income. So welcome both of 0:02:42.440 --> 0:02:44.400 you to be back on Wall Street week. Greg'm gonna 0:02:44.400 --> 0:02:46.960 start with you, because to some exsect, fixed income bonds 0:02:47.000 --> 0:02:49.880 really drove a lot of the week. Explain what happened here, 0:02:49.880 --> 0:02:52.160 because we did have the Fed minutes, but but we 0:02:52.160 --> 0:02:55.360 were getting increased to rates even before we got to 0:02:55.440 --> 0:02:58.880 the minutes. Yea, So the markets were skinnish before the minutes, 0:02:59.000 --> 0:03:01.359 and then the minutes came Man, and as you mentioned, 0:03:01.440 --> 0:03:04.880 David it bits, they reaffirmed what they said before. The 0:03:04.960 --> 0:03:07.760 surprise was though the balance sheet runoff. I think that 0:03:08.080 --> 0:03:12.239 did take investors by surprise, But what you really experienced 0:03:12.240 --> 0:03:15.560 this week was just a rerating of the FED. Uh. 0:03:15.600 --> 0:03:19.959 And so you've seen FED hikes pulled forward more aggressive 0:03:20.560 --> 0:03:23.840 over the near term, and I think the markets didn't 0:03:23.919 --> 0:03:26.200 like that. Now. I think it's important to go back 0:03:26.240 --> 0:03:31.000 in time though, So March wasn't even on the table contemplated. Uh, 0:03:31.080 --> 0:03:33.359 you know, six months ago, three months ago, and now 0:03:33.400 --> 0:03:37.440 it's a live meeting, so it really representative of how 0:03:37.520 --> 0:03:42.000 quickly the FED has kind of shifted gears here. So 0:03:41.880 --> 0:03:44.840 it's okay. Over to you on the equity side. Equities 0:03:45.000 --> 0:03:47.640 might have reacted violent to this, I wouldn't say they did. 0:03:47.640 --> 0:03:49.720 The main story I thought from the week you correct 0:03:49.760 --> 0:03:52.200 me on equities was able to tech. Yeah, tech had 0:03:52.360 --> 0:03:55.000 a very disappointing week of performance. Let me let me 0:03:55.040 --> 0:03:58.160 just back up and say that we have had the 0:03:58.200 --> 0:04:01.000 worst start to equity market since two thousands and sixteen, 0:04:01.040 --> 0:04:03.440 and kind of big picture, we've had this twelve years 0:04:03.880 --> 0:04:06.600 um of a great environment of rates going down and 0:04:06.640 --> 0:04:08.960 markets going up, and we're all kind of getting used 0:04:09.000 --> 0:04:11.400 to a new normal um and so that's played out 0:04:11.440 --> 0:04:14.280 and the volatility that we've had, and we're now down 0:04:14.600 --> 0:04:16.400 more than one and a half percent year to date 0:04:16.440 --> 0:04:19.520 on equities. As you pointed out, the locus of a 0:04:19.560 --> 0:04:22.520 lot of that pressure has been in technology UM the 0:04:22.600 --> 0:04:25.040 reason for that, and people have varying levels of familiarity. 0:04:25.080 --> 0:04:27.039 So I'll just say is that UM, when you look 0:04:27.080 --> 0:04:29.600 at tech companies, most of the values far out at 0:04:29.680 --> 0:04:32.640 terminal values. So when the rate curve steepens, that part 0:04:32.640 --> 0:04:35.520 of the market sells off the most. It's really raising 0:04:35.560 --> 0:04:37.919 this question for everybody who's had a lot of capital 0:04:38.000 --> 0:04:41.240 allocated to tech UM is tech over UM? Is this 0:04:41.400 --> 0:04:44.000 the end of of tech out performance? We we don't 0:04:44.040 --> 0:04:46.640 think that's the case. We continue to have UM a 0:04:46.680 --> 0:04:49.640 lot of capital committed there. We appreciate there's gonna be 0:04:49.680 --> 0:04:53.040 some near term headwinds, but very long term, even medium 0:04:53.040 --> 0:04:55.680 to long term, we know that even the companies in 0:04:55.720 --> 0:04:57.400 the value part of the market that are leading the 0:04:57.480 --> 0:05:00.320 market market now. So take banks for example, one of 0:05:00.360 --> 0:05:02.320 the number one things that they're going to spend money 0:05:02.320 --> 0:05:06.600 on over the coming years is innovating themselves on AI, UH, 0:05:06.720 --> 0:05:10.360 cyber security, moving workloads to the cloud. And so we 0:05:10.400 --> 0:05:13.680 know that all companies, regardless of whether their value or growth, 0:05:13.880 --> 0:05:16.240 are going to be doing a lot of tech spending 0:05:16.520 --> 0:05:19.000 and that should actually included these companies over the medium 0:05:19.040 --> 0:05:21.680 to long term. So we would encourage people to look 0:05:21.680 --> 0:05:26.200 at these dislocations as as opportunities to pick up exposure selectively. 0:05:26.480 --> 0:05:28.440 So thank you mentioned the jobs numbers. Why don't you 0:05:28.480 --> 0:05:30.200 unpack that a little bit? What jumped out at you. 0:05:30.480 --> 0:05:32.279 One of the things that I noticed, obviously was the 0:05:32.360 --> 0:05:36.560 increase in wages. Absolutely, uh. That was a clear focus 0:05:36.680 --> 0:05:40.760 from a market perspective. The headline number was disappointing. Let's say, 0:05:40.839 --> 0:05:43.680 you know, a hundred ninety nine new ads, but I 0:05:43.680 --> 0:05:46.200 think you have to look at the four month average, 0:05:46.200 --> 0:05:49.240 which is substantially higher. It's about three sixty nine. So 0:05:49.360 --> 0:05:54.040 what the market really looked at closely was the acceleration 0:05:54.480 --> 0:05:57.560 uh in wages, and so I will say, we haven't 0:05:57.560 --> 0:06:02.039 seen those wages create of broader inflation pressures. But that's 0:06:02.080 --> 0:06:05.640 the worry. I think that's the classic economic worry, uh 0:06:05.680 --> 0:06:09.240 that the many have, and that's why you've you've seen 0:06:09.279 --> 0:06:12.160 the rhetoric really shift and get cemented around that March 0:06:12.240 --> 0:06:15.960 meeting be being in place. So it's really about wages. 0:06:16.440 --> 0:06:20.479 As UH investors and economists in particular are worried about 0:06:21.160 --> 0:06:25.560 wages really kind of infiltrating the entire system, thereby creating 0:06:25.600 --> 0:06:29.200 broad based inflation. But the wage issue, in my mind, 0:06:29.480 --> 0:06:33.000 is an important positive development, not a negative one, and 0:06:33.040 --> 0:06:36.479 I think it's been flipped around unnecessarily. Yeah, it's always 0:06:36.480 --> 0:06:38.200 easier to criticize when we're off with the bleachers. And 0:06:38.279 --> 0:06:40.599 that's on the arena, right, Thank you so much. Greg 0:06:40.640 --> 0:06:42.560 Peters and Katie Cash. They're both gonna stay with us 0:06:42.720 --> 0:06:44.680 as we turn from this week in the market's the 0:06:44.800 --> 0:06:47.760 longer term implications for investors. That's gonna up next on 0:06:47.800 --> 0:06:59.680 Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week. 0:07:00.000 --> 0:07:03.560 If David Weston from Bloomberg Radio. Still with us are 0:07:03.600 --> 0:07:06.599 Greg Peters of PGM Fixed Income and Katie Cotch of 0:07:06.600 --> 0:07:09.200 Goldman Sachs. So, Katie, let's turn from this week to 0:07:09.240 --> 0:07:11.360 the longer term with respect to equities first, and we'll 0:07:11.360 --> 0:07:15.200 turn to Greg on fixed income as we go into two. 0:07:15.480 --> 0:07:19.280 You draw an interesting distinction between disruptors and disrupt dead. 0:07:19.800 --> 0:07:21.720 Tell us about some of the disruptions you're looking at 0:07:21.760 --> 0:07:24.400 coming up this year for equities or whenever we turned 0:07:24.480 --> 0:07:26.440 the page on the calendar for a new year. We 0:07:26.480 --> 0:07:29.200 do like to do some longer term thinking about where 0:07:29.200 --> 0:07:31.320 we've come from an equity markets and where we're going. 0:07:31.400 --> 0:07:33.640 And I just think it's really interesting to know we 0:07:33.680 --> 0:07:36.360 were looking at the top ten companies as at the 0:07:36.400 --> 0:07:39.280 beginning of two and if you go back twenty years, 0:07:39.320 --> 0:07:42.520 there's actually only one that's still a top ten company, 0:07:42.520 --> 0:07:46.320 which is Microsoft UM and it's five x over that period. 0:07:46.520 --> 0:07:49.280 The nine others on that list have actually detracted a 0:07:49.360 --> 0:07:53.200 total of two thirty five billion of market cap over 0:07:53.240 --> 0:07:56.240 that period, and I think that just underscores the importance 0:07:56.280 --> 0:07:58.880 of of being on the right side of the disruption 0:07:59.280 --> 0:08:01.440 um and picking the companies that you think are going 0:08:01.520 --> 0:08:04.640 to drive forward good fortunes in the future. We're really 0:08:04.680 --> 0:08:07.400 focused just to end on on three main themes going 0:08:07.440 --> 0:08:09.120 into this year, but I actually think they're going to 0:08:09.200 --> 0:08:12.600 be relevant for investors for most of the decade. And 0:08:12.640 --> 0:08:15.840 those themes are the future of healthcare, everything from genomics 0:08:15.840 --> 0:08:18.760 to robotic surgery. The future of the planet, So this 0:08:18.840 --> 0:08:21.840 idea of transitioning to a more sustainable planet. Yes it's 0:08:21.880 --> 0:08:27.400 about renewables, but also UM sustainable consumption, circular economy, were 0:08:27.440 --> 0:08:30.360 invested in a company, for example, that recycles genes. And 0:08:30.360 --> 0:08:33.760 then finally we're talking about tech earlier. We're big believers 0:08:33.800 --> 0:08:36.400 that we need to invest beyond the fangs, down the 0:08:36.440 --> 0:08:39.199 market cap and around the world because tech power is 0:08:39.200 --> 0:08:42.440 going to get diffused out of Silicon Valley um into 0:08:42.480 --> 0:08:44.480 the smaller cap part of the market. But also have 0:08:44.559 --> 0:08:48.640 many local winners around emerging markets. Take pack Sagora, for example, 0:08:48.640 --> 0:08:51.400 and a company listed in Brazil. It's a micro merchant 0:08:51.480 --> 0:08:54.040 expert and payments in Brazil. And so these are some 0:08:54.080 --> 0:08:55.640 of the themes that we think are gonna matter in 0:08:56.360 --> 0:09:00.120 two but well beyond. For long term oriented investors, those 0:09:00.160 --> 0:09:02.480 are some great macro things. That's keep an eye and 0:09:02.520 --> 0:09:04.880 Greg come over to you. I'm gonna make it simple. 0:09:04.960 --> 0:09:07.040 Perhaps it is. It looks at me for fixed income 0:09:07.080 --> 0:09:09.600 it's really all about the FED and frankly, whether there 0:09:09.640 --> 0:09:11.440 might be a policy error. I mean, because now we 0:09:11.480 --> 0:09:13.880 know we're gonna have some tapering of the buying, we're 0:09:13.880 --> 0:09:15.880 gonna have some rate increases, and now this week we 0:09:15.880 --> 0:09:18.520 found out we're gonna actually have some quanditive tape tightening. 0:09:18.520 --> 0:09:20.920 It looks like no, I completely agree. I think the 0:09:21.000 --> 0:09:24.360 fundamental risk for the markets this year, not just fixed 0:09:24.360 --> 0:09:28.080 income but broadly speaking UH is a central bank policy 0:09:28.160 --> 0:09:32.360 error and it looks like we're creaning towards that. And look, 0:09:32.400 --> 0:09:36.240 it is a very difficult environment to ascertain UH. You 0:09:36.280 --> 0:09:42.199 know that so much is clouded by COVID opening, reopening, closures, 0:09:42.320 --> 0:09:46.280 those types of things. But but for us, we're looking 0:09:46.320 --> 0:09:49.200 at the fixed income market in several ways. First from 0:09:49.240 --> 0:09:52.800 a yield perspective, with the tenure currently just called it, 0:09:53.880 --> 0:09:56.600 that's exactly where we hit in March of last year. 0:09:57.280 --> 0:09:59.839 That was the top. I think we're getting close to 0:10:00.040 --> 0:10:03.520 the top in yield once again, so it might overshoot. 0:10:03.559 --> 0:10:06.080 So the near term is always more difficult, of course, 0:10:06.440 --> 0:10:09.840 but I think you know, looking out over time at 0:10:09.880 --> 0:10:13.360 one seventy five ten year we actually see value there. 0:10:13.440 --> 0:10:16.920 And we see value because we think there's a gravitational 0:10:17.200 --> 0:10:21.880 pull towards disinflation. There's a demographic issue here in the 0:10:22.000 --> 0:10:25.360 U S and globally UH and UH in many resuspects. 0:10:25.840 --> 0:10:28.240 And let's not forget we put on a lot of 0:10:28.320 --> 0:10:32.000 debt to fight the virus and that acts as a 0:10:32.800 --> 0:10:36.360 draw and growth. So for that reason we're we're actually 0:10:36.360 --> 0:10:41.640 pretty constructive as yields kind of hit these levels here. Uh, 0:10:41.640 --> 0:10:43.720 and so we might be wrong over the near term, 0:10:43.800 --> 0:10:46.400 of course, as things have a tendency of overshooting. I 0:10:46.520 --> 0:10:49.800 think six months and twelve months from now, Uh, you'll 0:10:49.800 --> 0:10:52.440 be rewarded. So I'm gonna guess, Katie. But I'm gonna 0:10:52.440 --> 0:10:54.320 guess that if in fact Greg is right that we're 0:10:54.320 --> 0:10:56.520 talking one seventy five, it could overshoot for a time 0:10:56.520 --> 0:10:58.400 to come back down. You're gonna be fine with that. 0:10:58.400 --> 0:11:00.920 On the equity side, yeah, we should it. Equity markets 0:11:00.920 --> 0:11:03.120 should be able to digest them. Just to be very 0:11:03.160 --> 0:11:05.840 clear on our outlook. While we do expect volatility and 0:11:05.880 --> 0:11:07.640 as you mentioned at the outset, we haven't had a 0:11:07.679 --> 0:11:10.720 great start, we do actually think equity markets at golden 0:11:10.760 --> 0:11:13.240 success that management. We believe that they will out perform 0:11:13.320 --> 0:11:14.960 cash and bonds. So we do think it's the right 0:11:15.000 --> 0:11:17.880 asset class to be in. One might need to look 0:11:17.920 --> 0:11:20.280 further than the broad US equity market, which has been 0:11:20.480 --> 0:11:22.959 a great thing to own the last twelve years. That 0:11:23.040 --> 0:11:24.560 was the best thing to own in the markets. You 0:11:24.559 --> 0:11:26.959 may need to look further to that abroad to emerging 0:11:27.000 --> 0:11:29.760 markets for small cap but we do expect equity markets 0:11:29.800 --> 0:11:32.200 to outperform, and that field level should be should be 0:11:32.240 --> 0:11:34.000 fine for equity market. Well, let's just pick up on 0:11:34.000 --> 0:11:35.760 that emerging markets here and go back to Greg for 0:11:35.800 --> 0:11:37.640 a moment, because Greg, and You've thought a fair amount 0:11:37.640 --> 0:11:39.360 about what's going on with China, because China is off 0:11:39.400 --> 0:11:41.440 to a rather rocky start at the beginning of years 0:11:41.440 --> 0:11:44.240 as well in their property market, and so the debt 0:11:44.320 --> 0:11:46.640 over there, what do you make of emerging market debt, 0:11:46.679 --> 0:11:50.840 either China or otherwise. So China and emerging market probably 0:11:50.920 --> 0:11:54.080 have been a value trap, right, Uh, until one of 0:11:54.080 --> 0:11:57.000 the oddities of the recovery here that typically kind of 0:11:57.040 --> 0:12:01.959 emerging markets have a higher beta component versus developed markets, 0:12:01.960 --> 0:12:04.079 and you haven't seen that, and there's reasons behind it, 0:12:04.200 --> 0:12:07.920 of course. Uh. And so in fixed income uh e 0:12:08.200 --> 0:12:11.199 M has underperformed UM, and so I think it might 0:12:11.240 --> 0:12:13.960 be a tad early still. But you know, as I 0:12:14.040 --> 0:12:17.559 look at two thousand and twenty two, I'm looking at 0:12:17.559 --> 0:12:23.360 emerging markets as an area for real alpha opportunity. So UM, 0:12:23.520 --> 0:12:26.640 I think it's been a value trap for good reason. 0:12:26.840 --> 0:12:30.240 But I think it's changing and pricing is changing. Uh. 0:12:30.280 --> 0:12:33.320 And of course it's predicated on central bank policy there 0:12:33.360 --> 0:12:36.120 as well as UH you need to see inflation kind 0:12:36.120 --> 0:12:39.319 of come off the boil, but but see real opportunities 0:12:39.360 --> 0:12:42.200 and China is not what it used to be, and 0:12:42.240 --> 0:12:45.199 I think investors need to kind of get a grip 0:12:45.240 --> 0:12:49.160 around that new reality, which is China is slowing and 0:12:49.160 --> 0:12:53.360 will continue to slow UM and it's just a natural 0:12:53.440 --> 0:12:56.920 kind of maturation process right of the economy. So it 0:12:56.960 --> 0:13:01.000 has a very different UH input into the global economy 0:13:01.040 --> 0:13:04.440 as a result, and I think over time investors will 0:13:04.440 --> 0:13:08.040 continue to kind of understand what that really beats Kenny. 0:13:08.120 --> 0:13:10.839 One thing that we dealt with in we're still dealing 0:13:10.880 --> 0:13:13.960 with today is semiconductors, And I wonder about the semiconductor 0:13:14.040 --> 0:13:16.360 sector and how you see it developing because obviously we've 0:13:16.400 --> 0:13:19.360 had a real shortage, real supply chain problems there as 0:13:19.400 --> 0:13:22.120 a fairly concentrated supply. At the same time, there's a 0:13:22.120 --> 0:13:24.839 lot of talk about huge investment in production, including in 0:13:24.840 --> 0:13:28.040 the United States. Yeah, SEMy, when we look at twenty 0:13:28.080 --> 0:13:30.680 two is a year. Last year was recovery markets up. 0:13:31.520 --> 0:13:34.240 We're really focused on resilience across a lot of things 0:13:34.280 --> 0:13:36.719 as being a great investment opportunity in the supply chain 0:13:36.800 --> 0:13:39.319 is certainly one, and Sammy's is the most important part 0:13:39.400 --> 0:13:42.439 of it. Also very relevant to China, which Greg just 0:13:42.480 --> 0:13:45.800 spoke about so very big picture. Twelve percent of US 0:13:45.840 --> 0:13:49.960 GDP roughly runs through the factory floors of Taiwan because 0:13:50.080 --> 0:13:52.800 there is one company in Taiwan that has the ability 0:13:52.880 --> 0:13:55.240 to manufacture at the leading edge of logic, which is 0:13:55.280 --> 0:13:57.560 about five nimes. And I'm not going to go into 0:13:57.600 --> 0:13:59.720 too much detail, but the headline is in the US 0:13:59.800 --> 0:14:02.880 we really can only manufacture at ten nanometers and that's 0:14:02.920 --> 0:14:05.720 a problem because all of the technology we've spoken about 0:14:05.760 --> 0:14:08.000 on this segment that we're so excited about, whether it's 0:14:08.000 --> 0:14:12.719 the cloud, ai Fi, g et cetera, their chip dependent technologies, 0:14:13.200 --> 0:14:15.880 and we do not as a country, and actually the 0:14:15.960 --> 0:14:18.640 Chinese feel the same way, want to be dependent on 0:14:18.640 --> 0:14:21.240 one public company. From the perspective of the US and 0:14:21.280 --> 0:14:24.400 what many people would argue as a hot geopolitical zone 0:14:24.760 --> 0:14:27.840 for the manufacturing of our most important technologies and for 0:14:27.920 --> 0:14:30.600 a very significant portion of GDP. Thank you so much 0:14:30.640 --> 0:14:32.280 for great peters of Peach and fix income and to 0:14:32.360 --> 0:14:37.000 Katie Catch of Golden Sacks coming up, the threat to 0:14:37.040 --> 0:14:40.320 capitalism if we don't start building bridges to a dynamic 0:14:40.480 --> 0:14:43.760 and disruptive future instead of building walls to try to 0:14:43.840 --> 0:14:46.400 keep it away. We talked with Glenn Hubbard of the 0:14:46.400 --> 0:14:49.720 Columbia Business School about his new book, The Wall and 0:14:49.840 --> 0:14:53.360 the Bridge. We all often talk about the growth and 0:14:53.520 --> 0:14:56.800 dynamism side of capitalism. That's why we're in the game. 0:14:56.880 --> 0:15:02.200 It's hugely important. The web site of it's des This 0:15:02.440 --> 0:15:07.680 is Wall Street Week on Bloomberg. This is Bloomberg Wall 0:15:07.720 --> 0:15:14.400 Street Week with David Weston from Bloomberg Radio. Walls, we 0:15:14.480 --> 0:15:17.040 spent much of the nineties tearing them down, whether the 0:15:17.080 --> 0:15:24.080 physical kind Mr garbuschov teared down this wall or the 0:15:24.120 --> 0:15:27.880 walls of tariffs and regulation. But then competition from foreign 0:15:27.920 --> 0:15:30.760 goods and from technologies started to hit people where it 0:15:30.920 --> 0:15:35.040 hurt in their jobs. Our jobs are going to Mexico, 0:15:35.440 --> 0:15:38.800 our jobs are going to other countries. China and others 0:15:38.920 --> 0:15:41.840 are making our product. We don't make it anymore, and 0:15:41.880 --> 0:15:45.520 so some have started building walls again. But former Columbia 0:15:45.560 --> 0:15:48.600 Business School dean Glenn Hubbard says it's bridges to help 0:15:48.600 --> 0:15:52.000 workers a just change, rather than walls to protect workers 0:15:52.000 --> 0:15:54.680 that we really need. In the Wall and the Bridge, 0:15:54.760 --> 0:15:57.840 Hubbard proposes a series of private and government programs to 0:15:57.880 --> 0:16:01.000 help workers build a bridge to the future, because in 0:16:01.040 --> 0:16:05.360 the end, even painful change is essential to capitalism, which, 0:16:05.560 --> 0:16:08.680 echoing Ken Langon, is the system that in the long 0:16:08.760 --> 0:16:12.400 run will do the most people the most good, which 0:16:12.440 --> 0:16:19.400 works better for everybody. There's no doubt in my mind capitalism. 0:16:19.400 --> 0:16:21.560 And we're delighted to be joined now by one of 0:16:21.560 --> 0:16:24.000 our regular contributors here in Wall Street. He's Glenn Hubbard, 0:16:24.080 --> 0:16:28.320 former chairman of the coustal chanoccivisers, certainly of Columbia Business School, 0:16:28.440 --> 0:16:30.480 and most important for this purpose, the author of the 0:16:30.480 --> 0:16:32.640 new book, The Wall and the Bridge. Glenn, thank you 0:16:32.720 --> 0:16:35.360 so much for being back with this. It's a fascinating book, 0:16:35.400 --> 0:16:37.920 an important book. In reading through it, I have the 0:16:37.960 --> 0:16:40.640 strong sense part of your motivation was you have some 0:16:40.760 --> 0:16:44.360 concerns for the future of capitalism because to some extent, 0:16:44.680 --> 0:16:47.800 inherent in capitalism is a dynamism and creativity that can 0:16:47.880 --> 0:16:50.640 lead to some destructive qualities. I think it's under present 0:16:50.800 --> 0:16:52.720 right data. You know, it's it's like a coin with 0:16:52.800 --> 0:16:58.160 two sides, economists, policymakers, business people. We often talk about 0:16:58.160 --> 0:17:01.760 the growth and dynamism side of capitalism. That's why we're 0:17:01.760 --> 0:17:04.840 in the game. That's hugely important. The flip side of 0:17:04.880 --> 0:17:08.920 its disruption. Many of us, frankly, most of us win 0:17:09.160 --> 0:17:11.199 from a lot of the disruptions I talked about in 0:17:11.240 --> 0:17:13.840 the book, but not everybody. And I think we have 0:17:13.920 --> 0:17:17.119 to notice those who have been left behind and figure 0:17:17.119 --> 0:17:19.240 out how do we get everybody to be able to 0:17:19.280 --> 0:17:22.320 participate in our economy. Not a new idea, it was 0:17:22.359 --> 0:17:25.640 actually Adam Smith's idea. We need to put the liberal 0:17:25.800 --> 0:17:30.399 back in neoliberalism, classical liberal, that is aut Smith. Let 0:17:30.400 --> 0:17:34.399 me ask you, as an economist, does dynamic capitalism and 0:17:34.440 --> 0:17:38.000 inherently lead to increasing inequality? I don't know about that, 0:17:38.040 --> 0:17:41.720 but it certainly needs to generate churn and disruption. You know, 0:17:41.800 --> 0:17:44.960 many jobs and industries that exist today didn't exist a 0:17:45.080 --> 0:17:49.280 hundred years ago. That's the good news. The flip side 0:17:49.280 --> 0:17:53.560 of that is that people's livelihoods, communities, firms, and industries 0:17:53.600 --> 0:17:57.000 can be at risk. That too, is not a bad 0:17:57.040 --> 0:17:59.880 thing as long as we prepare people. You know, when 0:18:00.000 --> 0:18:02.879 Adam Smith talked about the wealth of nations, he talked 0:18:02.880 --> 0:18:06.280 about competition and openness, and those are good things. But 0:18:06.359 --> 0:18:08.720 I think if Smith were alive today, he would talk 0:18:08.760 --> 0:18:11.679 about the ability to compete in the world we have 0:18:11.840 --> 0:18:15.920 with technological change and globalization. Is everybody really at the 0:18:16.040 --> 0:18:19.320 starting line. I think that's the inequality that would have 0:18:19.320 --> 0:18:22.639 worried Smith and should worry us glat In your book, 0:18:22.840 --> 0:18:25.840 there's a lot of talk about dynamism, creativity, innovation, and 0:18:25.880 --> 0:18:28.399 how important it is for a society for growth and 0:18:28.440 --> 0:18:30.320 for the individuals in it. At the same time, you 0:18:30.400 --> 0:18:33.879 have a distributive notion as well, called mass flourishing that 0:18:34.040 --> 0:18:36.320 you actually go back to Adam Smith and say Mas 0:18:36.359 --> 0:18:40.480 was consistent with Adam Smith talked to us about mass flourishing. Well, 0:18:40.480 --> 0:18:43.480 mass flourishing is more than GDP. You know, when Smith 0:18:43.480 --> 0:18:46.680 wrote The Wealth of Nations, there was no GDP, although 0:18:46.760 --> 0:18:51.080 he did talk about maximizing the size of output. I 0:18:51.119 --> 0:18:54.159 also think of the Smith of the theory of moral sentiments, 0:18:54.160 --> 0:18:57.840 where he used an expression mutual sympathy that today we 0:18:57.920 --> 0:19:01.920 might call empathy. I think the eyed economic ideas everybody 0:19:01.920 --> 0:19:06.480 in the book, everybody participating, everybody flourishing into the minds 0:19:06.520 --> 0:19:11.440 of the classical economists, flourishing men participating in the economy, 0:19:11.720 --> 0:19:15.480 the ability to have meaningful work, And I think that's 0:19:15.520 --> 0:19:17.480 really what the book is about how do you build 0:19:17.520 --> 0:19:20.320 bridges to that kind of work. A bridge either takes 0:19:20.320 --> 0:19:23.119 you to somewhere or brings you back, and taking you 0:19:23.240 --> 0:19:26.359 two could be preparing you for the jobs of today 0:19:26.359 --> 0:19:30.520 and tomorrow, and taking you back is rethinking social insurance. 0:19:30.600 --> 0:19:33.720 We have a way to reconnect people who fall out 0:19:33.720 --> 0:19:36.159 of the boat to the boat. And what if you 0:19:36.280 --> 0:19:38.879 knew for a certainty that in order to have truly 0:19:39.000 --> 0:19:41.520 mass flourishing you had to give up some of the dynamism. 0:19:41.600 --> 0:19:44.399 Would you make that trade? I wouldn't, And that's the 0:19:44.440 --> 0:19:46.199 point of the book. It's I think there are a 0:19:46.280 --> 0:19:49.760 number of people that I note in the book that 0:19:49.800 --> 0:19:52.320 Adam Smith would school if you were here today, to 0:19:52.480 --> 0:19:55.480 suggests that you can just sort of haircut dynamism. The 0:19:55.520 --> 0:19:59.480 real issue is compensating people who have been left behind. 0:19:59.600 --> 0:20:02.640 We we have old expressions in economics. The same professor 0:20:02.720 --> 0:20:06.160 who told you that on trade is good, or technological 0:20:06.200 --> 0:20:09.720 advances are good, he or she also told you that's 0:20:09.800 --> 0:20:13.840 because the gainers can compensate the losers. And by compensation, 0:20:14.000 --> 0:20:16.399 what I talk about is not writing people of check 0:20:16.640 --> 0:20:21.080 or pinching them off, but investing in getting people connect, 0:20:21.560 --> 0:20:26.240 preparing people for work, and preparing people who got left behind. 0:20:26.760 --> 0:20:28.800 That's something we used to do in the country, the 0:20:28.920 --> 0:20:31.679 land grant colleges of the nineteenth century, the g I 0:20:31.760 --> 0:20:34.800 Bill of the twentieth century. I suggest ways we can 0:20:34.840 --> 0:20:38.000 bring those life to life today. Glenn Hubbard, thank you 0:20:38.040 --> 0:20:40.600 so very much. He's the author of this terrific, fascinating 0:20:40.600 --> 0:20:42.840 and really important new book, The Wall in the Bridge. 0:20:42.840 --> 0:20:45.520 Of course, he's from Columbia Business School. Thank you, Glenn. 0:20:47.560 --> 0:20:49.760 Coming up, we wrap up the week, as we always 0:20:49.760 --> 0:20:56.200 do with special contributor Larry Summers of Harvard work irustrating um. 0:20:56.400 --> 0:21:02.600 The turning down the temperature in the economy. I think 0:21:02.760 --> 0:21:06.600 is uh going to be very challenging. From here. That's 0:21:06.640 --> 0:21:13.040 next on Wall Street Week on Bloomberg. This is Bloomberg 0:21:13.119 --> 0:21:17.320 Wall Street Week with David Weston from Bloomberg Radio. This 0:21:17.400 --> 0:21:19.400 is Wall Stree Week, clim David west Center, and we're 0:21:19.400 --> 0:21:21.520 delighted now to be joined once again for the first 0:21:21.560 --> 0:21:23.679 time in the new year by our special contributor, his 0:21:23.760 --> 0:21:26.400