1 00:00:03,240 --> 00:00:07,560 Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio. 2 00:00:08,119 --> 00:00:10,760 Speaker 1: Welcome to the podcast. I'm Barry Ridholts. You're listening to 3 00:00:10,840 --> 00:00:14,480 Speaker 1: Masters in Business on Bloomberg Radio. My guest today is 4 00:00:14,560 --> 00:00:18,640 Speaker 1: really one of the most storied economists, UH in America. 5 00:00:19,360 --> 00:00:22,360 Speaker 1: Other than the Nobel Prize, He's pretty much won every 6 00:00:22,400 --> 00:00:27,280 Speaker 1: award an economist can win. UH. He's a professor at Princeton. 7 00:00:27,520 --> 00:00:31,600 Speaker 1: He was the former chief economist at the Treasury Department. 8 00:00:31,640 --> 00:00:36,400 Speaker 1: He was chairman of the Council of Economic Advisors. UM 9 00:00:36,640 --> 00:00:40,440 Speaker 1: to the President, he was I, I like, the list 10 00:00:40,520 --> 00:00:42,320 Speaker 1: is so long. I could keep reading you this, but 11 00:00:42,680 --> 00:00:45,680 Speaker 1: I'll let you I'll let him tell you in his 12 00:00:45,720 --> 00:00:50,159 Speaker 1: own words. Alan Krueger is a labor economist. He's a 13 00:00:50,240 --> 00:00:54,880 Speaker 1: specialist in how various parts of the economy work, how 14 00:00:54,960 --> 00:01:00,080 Speaker 1: labor interacts with the broad economy. UM. He's just a 15 00:01:00,120 --> 00:01:07,000 Speaker 1: tremendously insightful person when it comes to analyzing economic policy, 16 00:01:07,240 --> 00:01:11,920 Speaker 1: analyzing the data that the economy produces. And he's one 17 00:01:11,959 --> 00:01:16,360 Speaker 1: of those rare birds who can actually explain these things 18 00:01:17,040 --> 00:01:19,920 Speaker 1: in plain English. You know, a lot of what we 19 00:01:20,000 --> 00:01:22,960 Speaker 1: talked about today is a little wonky. Those of you 20 00:01:23,040 --> 00:01:29,000 Speaker 1: who are either economic students or economists, or even just 21 00:01:29,200 --> 00:01:32,440 Speaker 1: portfolio managers who look at the macro world and are 22 00:01:32,440 --> 00:01:36,640 Speaker 1: curious what it means. This is about as plain English 23 00:01:36,760 --> 00:01:39,120 Speaker 1: of a conversation as you're ever gonna want to hear 24 00:01:39,880 --> 00:01:47,040 Speaker 1: relative to really wonky, complex sophisticated subjects. And he makes 25 00:01:47,080 --> 00:01:51,480 Speaker 1: it not only understandable but interesting. And I find that 26 00:01:51,520 --> 00:01:55,880 Speaker 1: to be a very rare quality um in someone who's 27 00:01:55,960 --> 00:02:00,520 Speaker 1: an economist. There there were no digressions into mathematical formulas, 28 00:02:00,560 --> 00:02:04,840 Speaker 1: there were no you know, footnoted abstractions. But see, it 29 00:02:04,920 --> 00:02:09,519 Speaker 1: was just really a fascinating and intelligent conversation. I find 30 00:02:09,600 --> 00:02:13,880 Speaker 1: him to be a really um neat person, very knowledgeable, 31 00:02:13,960 --> 00:02:19,640 Speaker 1: very informative. I think you'll find this conversation really quite interesting. 32 00:02:20,440 --> 00:02:24,280 Speaker 1: Without further ado, here is my conversation with Professor Alan 33 00:02:24,400 --> 00:02:32,000 Speaker 1: Krueger of Princeton. This is Masters in Business with Barry 34 00:02:32,080 --> 00:02:37,360 Speaker 1: Ridholts on Bloomberg Radio. My guest today is a what 35 00:02:37,440 --> 00:02:41,280 Speaker 1: can I say about Professor Alan Krueger of Princeton. He 36 00:02:41,480 --> 00:02:44,640 Speaker 1: was the Chief Economist for the Treasury Department and Assistant 37 00:02:44,680 --> 00:02:48,640 Speaker 1: Secretary of of Treasury. He was also Chairman of the 38 00:02:48,720 --> 00:02:53,400 Speaker 1: Council of Economic Advisors under President Obama. Professor Krueger, Welcome 39 00:02:53,440 --> 00:02:56,920 Speaker 1: to Bloomberg. My pleasure. So I didn't want to spend 40 00:02:56,960 --> 00:03:01,280 Speaker 1: too much time waxing eloquent on your curriculum, Vita, but 41 00:03:01,440 --> 00:03:04,880 Speaker 1: suffice it to say, you've pretty much won just about 42 00:03:04,880 --> 00:03:07,600 Speaker 1: every award you can come up with, at least in 43 00:03:07,639 --> 00:03:10,960 Speaker 1: the United States, UH, for economics. And you've had a 44 00:03:11,040 --> 00:03:15,760 Speaker 1: number of just really incredible UH posts. When both within 45 00:03:15,800 --> 00:03:19,359 Speaker 1: the government and out in the early nineties, you were 46 00:03:19,520 --> 00:03:24,840 Speaker 1: chief economist at the Department of Labor, I was. And 47 00:03:24,840 --> 00:03:28,919 Speaker 1: and what does the chief economist for um, the Labor 48 00:03:28,960 --> 00:03:33,320 Speaker 1: Department actually do? That's a good question. UH. It was 49 00:03:33,360 --> 00:03:37,760 Speaker 1: a new position. Secretary Rice created it, and I was 50 00:03:37,800 --> 00:03:40,680 Speaker 1: the second one to hold it. UH. I was very 51 00:03:40,760 --> 00:03:43,520 Speaker 1: who's the first first was my good friend Larry Katz 52 00:03:43,560 --> 00:03:47,440 Speaker 1: from Harvard. Larry did a brilliant job, and he left 53 00:03:47,520 --> 00:03:49,680 Speaker 1: very big shoes to fill. I'll give you an example. 54 00:03:50,920 --> 00:03:54,360 Speaker 1: One of the reasons why Secretary Rice created the job 55 00:03:54,760 --> 00:03:58,280 Speaker 1: was he wanted to have involvement with the National Economic Council, 56 00:03:58,640 --> 00:04:02,760 Speaker 1: which was also innovation and the way the NBC was 57 00:04:02,800 --> 00:04:08,720 Speaker 1: set up at that time. Bob Reuben was chairman and Treasury, Omb, Labor, 58 00:04:08,960 --> 00:04:13,120 Speaker 1: Commerce were the members. So this was like a think tank, 59 00:04:13,160 --> 00:04:16,360 Speaker 1: but with the old government representatives who it would advise 60 00:04:16,800 --> 00:04:21,000 Speaker 1: the president and the cabinet. It was the place that 61 00:04:21,120 --> 00:04:24,440 Speaker 1: ran the policy process, and it's different from a think 62 00:04:24,440 --> 00:04:30,359 Speaker 1: tank because it produced proposals that really mattered and it 63 00:04:30,480 --> 00:04:35,000 Speaker 1: had a direct connection to the president. So the way 64 00:04:35,040 --> 00:04:39,559 Speaker 1: that Bob Reuben ran this process was very organized. UH 65 00:04:39,800 --> 00:04:44,720 Speaker 1: budget went through the n EC process, UM trade issues 66 00:04:44,760 --> 00:04:48,080 Speaker 1: went through, and anyc was divided into domestic issues and 67 00:04:48,200 --> 00:04:52,240 Speaker 1: international issues. Other departments had a separate person who would 68 00:04:52,240 --> 00:04:56,039 Speaker 1: represent them on domestic and international issues. Larry Katz was 69 00:04:56,120 --> 00:04:59,480 Speaker 1: so UH skilled that he did both. So I had 70 00:04:59,520 --> 00:05:01,720 Speaker 1: to fill though shoes and do both, which meant being 71 00:05:01,760 --> 00:05:06,800 Speaker 1: involved in NAFTA as well as UH domestic issues like 72 00:05:06,880 --> 00:05:09,599 Speaker 1: the minimum wage. So so what were some of the 73 00:05:09,640 --> 00:05:13,240 Speaker 1: policies that came out of that Economic Council? So NAFTA 74 00:05:13,400 --> 00:05:16,520 Speaker 1: clearly was a big issue in the nineties. NAFTA was 75 00:05:16,520 --> 00:05:19,080 Speaker 1: a very big issue the first Clinton budget, which was 76 00:05:19,240 --> 00:05:22,880 Speaker 1: after UH sorry before I arrived, which I think put 77 00:05:23,000 --> 00:05:25,679 Speaker 1: us on a much stronger path in the early ninety nineties. 78 00:05:26,040 --> 00:05:29,479 Speaker 1: The one significant domestic policy that did not come from 79 00:05:29,480 --> 00:05:31,880 Speaker 1: it was healthcare reform, and I think one of the 80 00:05:31,920 --> 00:05:35,320 Speaker 1: reasons why healthcare reform in that period UH didn't do 81 00:05:35,360 --> 00:05:37,320 Speaker 1: as well as it should have was because it didn't 82 00:05:37,360 --> 00:05:40,120 Speaker 1: come through the NBC process, in other words, the way 83 00:05:40,120 --> 00:05:44,200 Speaker 1: it was formulated with the thought process of what's the impact, 84 00:05:44,240 --> 00:05:46,320 Speaker 1: what's the cost, what's the benefit? What what is the 85 00:05:46,400 --> 00:05:50,760 Speaker 1: thinking behind how some of these policies are developed. Well, 86 00:05:50,800 --> 00:05:54,800 Speaker 1: economists have I think, very systematic approach to think about policy. 87 00:05:54,800 --> 00:05:58,039 Speaker 1: To thinking about policy issues, we think about efficiency, we 88 00:05:58,120 --> 00:06:03,080 Speaker 1: think about equity, we think of about what's gonna use 89 00:06:03,120 --> 00:06:06,040 Speaker 1: our resources most efficiently, and we think about what's fair, 90 00:06:06,400 --> 00:06:08,960 Speaker 1: and we divide issues quite clearly in that way, and 91 00:06:09,000 --> 00:06:13,719 Speaker 1: we make trade offs and UM, now it might mean 92 00:06:13,760 --> 00:06:17,560 Speaker 1: that UH a lot of our proposals are not politically feasible, 93 00:06:18,120 --> 00:06:21,200 Speaker 1: but I think this is a very coherent framework, and 94 00:06:21,360 --> 00:06:25,360 Speaker 1: the process that was used for health care reform was 95 00:06:26,000 --> 00:06:29,240 Speaker 1: UM much more at hoc I would say, not nearly 96 00:06:29,240 --> 00:06:33,000 Speaker 1: a systematic So there's pretty much an ever going trade 97 00:06:33,040 --> 00:06:37,160 Speaker 1: off between what's optimal and what's politically feasible and what's 98 00:06:38,000 --> 00:06:41,200 Speaker 1: financially doable. Is that sort of the factors that that 99 00:06:41,320 --> 00:06:44,680 Speaker 1: get twisted about Sometimes you hit the sweet spot and 100 00:06:45,520 --> 00:06:48,039 Speaker 1: good policy is good politics, and it's nice when that 101 00:06:48,080 --> 00:06:52,039 Speaker 1: works out. Other times you have to make compromises between 102 00:06:52,080 --> 00:06:54,400 Speaker 1: what's politically feasible and what we'll do the most good 103 00:06:54,400 --> 00:06:57,320 Speaker 1: for the economy. And one of the lessons I learned 104 00:06:57,400 --> 00:07:03,280 Speaker 1: from having served in UH the government for five years 105 00:07:03,279 --> 00:07:06,760 Speaker 1: in my career is that you compromises not such a 106 00:07:06,760 --> 00:07:10,800 Speaker 1: bad thing as long as compromise leads to better policy, 107 00:07:10,880 --> 00:07:13,520 Speaker 1: to improvement for the American people. We shouldn't let the 108 00:07:13,520 --> 00:07:15,520 Speaker 1: best be the enemy of the good. That that's the 109 00:07:15,880 --> 00:07:19,160 Speaker 1: classic line. So you were at the Labor Department, and 110 00:07:19,200 --> 00:07:24,800 Speaker 1: the Bureau of Labor Statistics also has a huge group 111 00:07:25,000 --> 00:07:31,600 Speaker 1: of statisticians, economists, econometric modelers tell for people who may 112 00:07:31,600 --> 00:07:35,040 Speaker 1: not be quite as wonky as some of us are, 113 00:07:35,400 --> 00:07:39,200 Speaker 1: tell us what the BLS actually does over the course 114 00:07:39,200 --> 00:07:43,440 Speaker 1: of any given month or or quarter. The BLS is 115 00:07:43,480 --> 00:07:46,000 Speaker 1: housed within the Labor Department, but it has a tremendous 116 00:07:46,000 --> 00:07:50,040 Speaker 1: amount of independence. For example, there's only one employee of 117 00:07:50,120 --> 00:07:55,000 Speaker 1: the BLS who is a presidential appointee. That's the UM Commissioner. 118 00:07:55,320 --> 00:07:58,200 Speaker 1: Everyone else is his career civil servant. The Bureau of 119 00:07:58,320 --> 00:08:01,400 Speaker 1: List labor statistics. Together with the Census Bureau, conducts the 120 00:08:01,480 --> 00:08:05,200 Speaker 1: monthly Household Survey, the Current Population Survey, which produces the 121 00:08:05,280 --> 00:08:09,679 Speaker 1: unemployment rate. It also does a survey of establishments. Nearly 122 00:08:09,680 --> 00:08:12,760 Speaker 1: four hundred thousand establishments are interviewed on a monthly basis. 123 00:08:13,320 --> 00:08:16,040 Speaker 1: And what is amazing to me about the BLS those 124 00:08:16,080 --> 00:08:18,920 Speaker 1: are its two most important products, although it has many others, 125 00:08:19,560 --> 00:08:22,720 Speaker 1: is that on an ongoing basis, it collects, analysis and 126 00:08:22,760 --> 00:08:26,800 Speaker 1: releases those data every month. And if you think about 127 00:08:26,800 --> 00:08:29,480 Speaker 1: one an enormous effort, that is, and to do it 128 00:08:29,520 --> 00:08:32,920 Speaker 1: as carefully as they do it is quite impressive. And 129 00:08:33,160 --> 00:08:36,160 Speaker 1: I think they are given a tremendous amount of respect 130 00:08:36,160 --> 00:08:38,360 Speaker 1: and they've earned a great deal of credibility because they 131 00:08:38,360 --> 00:08:41,120 Speaker 1: do it in such a professional way. They collect other 132 00:08:41,200 --> 00:08:44,560 Speaker 1: data also, I would highlight the Employment Cost Index and 133 00:08:44,600 --> 00:08:47,120 Speaker 1: I think the employment costs in DEX. What exactly is 134 00:08:47,120 --> 00:08:49,800 Speaker 1: that the e c I Employment Cost Index is a 135 00:08:49,800 --> 00:08:54,040 Speaker 1: measure of how much it is costing for employers to 136 00:08:54,160 --> 00:08:57,240 Speaker 1: pay pay their workers, and it includes not only wages, 137 00:08:57,280 --> 00:09:01,960 Speaker 1: but also health insurance bun it's pension benefits, vacation time. 138 00:09:02,880 --> 00:09:05,800 Speaker 1: It's calculated very much like the consumer price index in 139 00:09:05,840 --> 00:09:09,000 Speaker 1: that the BLS goes back to the same companies quarter 140 00:09:09,120 --> 00:09:12,080 Speaker 1: after quarter, looks at the same jobs, and looks at 141 00:09:12,120 --> 00:09:15,360 Speaker 1: what's happening to compensation costs within those very narrow categories. 142 00:09:15,520 --> 00:09:18,200 Speaker 1: I'm Barrier Hults. You're listening to Masters in Business on 143 00:09:18,200 --> 00:09:22,600 Speaker 1: Bloomberg Radio. My special guest today Professor Alan Krueger of 144 00:09:22,800 --> 00:09:27,000 Speaker 1: Princeton University and former chair of the Council of Economic 145 00:09:27,000 --> 00:09:30,880 Speaker 1: Advisors to the President. We left or earlier talking about 146 00:09:31,480 --> 00:09:38,080 Speaker 1: UM the Economic Council as chairman of the President's Economic Advisors, 147 00:09:38,120 --> 00:09:40,600 Speaker 1: that's also part of that council? Is that? Is that correct? 148 00:09:40,960 --> 00:09:43,480 Speaker 1: That's right? The chairman of the CEO plays an important 149 00:09:43,559 --> 00:09:47,720 Speaker 1: role within the National Economic Council. So I think people 150 00:09:47,720 --> 00:09:50,600 Speaker 1: are aware of UM what the c e A is. 151 00:09:51,120 --> 00:09:53,560 Speaker 1: They know they're the U as the chairperson is the 152 00:09:53,600 --> 00:09:56,160 Speaker 1: advisor to the President. But I don't think people have 153 00:09:56,240 --> 00:09:59,080 Speaker 1: a clue as to how that works either within the 154 00:09:59,080 --> 00:10:03,520 Speaker 1: White House. Are you guys proactively suggesting policy? Is the 155 00:10:03,559 --> 00:10:06,079 Speaker 1: President coming to the Council and saying, hey have a 156 00:10:06,160 --> 00:10:09,880 Speaker 1: question about this, uh, this minimum wage issue? What does 157 00:10:09,920 --> 00:10:12,040 Speaker 1: it mean if we raise the minimum How does that work? 158 00:10:12,080 --> 00:10:14,880 Speaker 1: What's the back and forth with that. It works in 159 00:10:14,920 --> 00:10:20,079 Speaker 1: both directions. There are instances where the Council of Economic 160 00:10:20,080 --> 00:10:24,560 Speaker 1: Advisors would make proposals, typically within the NBC process, where 161 00:10:24,559 --> 00:10:28,200 Speaker 1: they get vetted and reviewed UH, and other relevant departments 162 00:10:28,240 --> 00:10:33,360 Speaker 1: would add to the analysis and help put together the proposal. UH. 163 00:10:33,440 --> 00:10:35,480 Speaker 1: And then there are other times where the President says, look, 164 00:10:35,520 --> 00:10:37,320 Speaker 1: go back to the drawing board, come up with more 165 00:10:37,400 --> 00:10:40,760 Speaker 1: suggestions in this area, or UH, you know, the way 166 00:10:40,800 --> 00:10:43,000 Speaker 1: I think about education is like this, here's what I 167 00:10:43,040 --> 00:10:45,400 Speaker 1: think you should develop a proposal on. So it works 168 00:10:45,400 --> 00:10:48,560 Speaker 1: in both directions. So I was I mentioned the minimum 169 00:10:48,600 --> 00:10:52,480 Speaker 1: wage earlier, and and you have an expertise in not 170 00:10:52,640 --> 00:10:56,880 Speaker 1: only UH labor economics, but you've studied the minimum wage extensively. 171 00:10:57,360 --> 00:11:01,600 Speaker 1: Let's let's start out with Walmart in February, and then 172 00:11:01,600 --> 00:11:04,079 Speaker 1: a month later it was Target and t J Max, 173 00:11:04,120 --> 00:11:07,800 Speaker 1: and then after that, McDonald's just announced an increase in 174 00:11:07,800 --> 00:11:11,839 Speaker 1: in their low wage workers too up the minimum wage. 175 00:11:11,840 --> 00:11:13,760 Speaker 1: In fact, they want to pay a dollar above the 176 00:11:13,800 --> 00:11:18,240 Speaker 1: minimum wage. What does this say about the economy today? 177 00:11:18,280 --> 00:11:19,800 Speaker 1: What does it say about where we are in the 178 00:11:19,800 --> 00:11:22,959 Speaker 1: economic cycle? I think it says a couple of things. 179 00:11:23,400 --> 00:11:25,880 Speaker 1: First of all, when it comes to the labor market. 180 00:11:26,160 --> 00:11:29,679 Speaker 1: The invisible hand doesn't always work perfectly. Sometimes the invisible 181 00:11:29,679 --> 00:11:32,400 Speaker 1: hand needs a little bit of help. In the past, 182 00:11:32,640 --> 00:11:35,120 Speaker 1: when we were in a situation like we are today, 183 00:11:35,160 --> 00:11:38,280 Speaker 1: where the economy is getting stronger, the job market is 184 00:11:38,760 --> 00:11:42,079 Speaker 1: clearly tightening, a minimum wage increase helped the labor market 185 00:11:42,120 --> 00:11:45,240 Speaker 1: to clear. And what we're seeing from companies like McDonald's 186 00:11:45,280 --> 00:11:48,320 Speaker 1: and from Walmart is they are stepping in and they're 187 00:11:48,360 --> 00:11:50,840 Speaker 1: raising their wages across the board. They are stepping into 188 00:11:50,880 --> 00:11:54,720 Speaker 1: set a minimum wage, imposing on themselves. That's not only 189 00:11:54,800 --> 00:11:57,840 Speaker 1: market forces, that's also I think a reflection of the 190 00:11:57,880 --> 00:12:01,439 Speaker 1: fact that the labor market is a social entity and 191 00:12:02,080 --> 00:12:05,640 Speaker 1: worker morale is important. I think these companies will find 192 00:12:05,679 --> 00:12:07,920 Speaker 1: that when they raise when they raise wages, they're going 193 00:12:07,960 --> 00:12:13,320 Speaker 1: to get greater productivity from the workers will have lower turnover. Uh. So, 194 00:12:14,160 --> 00:12:16,160 Speaker 1: I think we're in a situation in the economy now 195 00:12:16,160 --> 00:12:20,160 Speaker 1: where things are getting tight enough that companies are raising wages, 196 00:12:20,559 --> 00:12:22,800 Speaker 1: and I think they're doing it in a very interesting way, 197 00:12:23,200 --> 00:12:27,520 Speaker 1: which is imposing a floora on themselves, which highlights the 198 00:12:27,559 --> 00:12:32,560 Speaker 1: way the job market works, which is uh. Social factors 199 00:12:32,960 --> 00:12:34,920 Speaker 1: have a role to play in the job market. So 200 00:12:34,960 --> 00:12:37,679 Speaker 1: there are a couple of interesting things with both Walmart 201 00:12:37,760 --> 00:12:42,360 Speaker 1: and McDonald's. Um with Walmart, the data was that two 202 00:12:42,440 --> 00:12:45,840 Speaker 1: thirds of their employees already working states that have a 203 00:12:45,840 --> 00:12:49,520 Speaker 1: significantly higher minimum wage than the federal government, so this 204 00:12:49,600 --> 00:12:53,720 Speaker 1: only affected a third of their employees. And with McDonald's 205 00:12:53,840 --> 00:12:57,040 Speaker 1: it was only a company owned stores, which are of 206 00:12:57,120 --> 00:13:00,720 Speaker 1: their all the McDonald's in the country, they're it's almost 207 00:13:00,800 --> 00:13:05,839 Speaker 1: fifteen thousand McDonald's restaurants are are company owned, and so 208 00:13:07,000 --> 00:13:11,839 Speaker 1: of the stores, and assuming the math holds up, the 209 00:13:11,880 --> 00:13:17,040 Speaker 1: employees are not necessarily affected by this company owned mandate. 210 00:13:17,559 --> 00:13:21,680 Speaker 1: So how significant is what these companies are doing. Does 211 00:13:21,720 --> 00:13:25,440 Speaker 1: it vitiate the need for the minimum wage, which is 212 00:13:25,760 --> 00:13:28,160 Speaker 1: still at seven in a quartern, has seemingly been there 213 00:13:28,160 --> 00:13:31,080 Speaker 1: for decades for there to be an increase in the 214 00:13:31,080 --> 00:13:34,719 Speaker 1: minimum wage, And then we'll discuss what does raising the 215 00:13:34,760 --> 00:13:38,960 Speaker 1: minimum wage due to the economy. I think what these 216 00:13:39,000 --> 00:13:44,040 Speaker 1: companies have done is an important step. I think it's 217 00:13:44,040 --> 00:13:47,839 Speaker 1: an important symbol. McDonald's, for example, cannot dictate wages to 218 00:13:47,880 --> 00:13:51,920 Speaker 1: their franchise's. Uh, there're separate businesses in the legal sense, 219 00:13:52,240 --> 00:13:54,440 Speaker 1: So the same way that they can't dictate prices. They 220 00:13:54,520 --> 00:13:58,760 Speaker 1: always say at participating franchisees, it's the same thing. Now. 221 00:13:58,800 --> 00:14:02,080 Speaker 1: I hope that many of the franchises follow suit, and 222 00:14:02,200 --> 00:14:04,120 Speaker 1: do we do we have any history what happens when 223 00:14:04,200 --> 00:14:08,760 Speaker 1: McDonald's does this do Obviously not every franchise, but you 224 00:14:08,760 --> 00:14:11,280 Speaker 1: would assume that this sort of leadership is going to 225 00:14:11,480 --> 00:14:15,280 Speaker 1: drive a little more action amongst the non company owned stores. 226 00:14:16,200 --> 00:14:18,720 Speaker 1: We don't really have much experience with this. Uh. This 227 00:14:18,840 --> 00:14:21,960 Speaker 1: is an unusual step that they've done. I hope it 228 00:14:22,000 --> 00:14:26,920 Speaker 1: does drive action with franchises. UH. But it also highlights 229 00:14:26,920 --> 00:14:29,680 Speaker 1: the need for the federal minimum wage to increase. That 230 00:14:29,760 --> 00:14:31,840 Speaker 1: was my My next question is, so what would happen 231 00:14:31,880 --> 00:14:34,720 Speaker 1: if the Feds took the minimum wage up to you know, 232 00:14:34,760 --> 00:14:37,040 Speaker 1: I've seen three numbers get bantied about, and they're all 233 00:14:37,120 --> 00:14:40,720 Speaker 1: kind of interesting. At ten dollars an hour, it's a 234 00:14:40,760 --> 00:14:43,560 Speaker 1: significant increase in the states that haven't raised them. Innimum 235 00:14:43,600 --> 00:14:46,600 Speaker 1: wage at twelve dollars an hour, essentially you get the 236 00:14:46,640 --> 00:14:51,080 Speaker 1: inflation adjusted number from pick your point six seventy two, 237 00:14:51,080 --> 00:14:53,840 Speaker 1: whatever it is, and then fifteen dollars an hour takes 238 00:14:53,840 --> 00:14:56,720 Speaker 1: a full time person working forty hours a week and 239 00:14:56,800 --> 00:14:59,160 Speaker 1: pretty much gets them up to a level, and we 240 00:14:59,160 --> 00:15:01,760 Speaker 1: could talk about mart as well as the fast food 241 00:15:01,800 --> 00:15:05,480 Speaker 1: industry where they're no longer dependent on state and federal aid. 242 00:15:06,920 --> 00:15:09,560 Speaker 1: I think doubling or more than doubling the minimum wage, 243 00:15:09,600 --> 00:15:11,920 Speaker 1: it's a big step at once for companies to absorb 244 00:15:12,880 --> 00:15:14,760 Speaker 1: what we've seen in the past. If the minimum wage 245 00:15:14,800 --> 00:15:16,720 Speaker 1: went up to the equivalent of ten dollars an hour, 246 00:15:17,080 --> 00:15:20,480 Speaker 1: that's something that companies mostly can absorb. And in the past, 247 00:15:20,560 --> 00:15:22,960 Speaker 1: when states have raised their minimum wage to that level, 248 00:15:23,000 --> 00:15:27,720 Speaker 1: after adjusting for inflation, we haven't seen job losses. In fact, 249 00:15:27,720 --> 00:15:29,560 Speaker 1: what we've seen is that employees have more money in 250 00:15:29,600 --> 00:15:31,600 Speaker 1: their pockets and they spend that money in that tends 251 00:15:31,640 --> 00:15:35,000 Speaker 1: to help the economy over at it's a modest increase 252 00:15:35,040 --> 00:15:37,600 Speaker 1: in minimum wage or at least keeping up with inflation 253 00:15:38,200 --> 00:15:41,040 Speaker 1: isn't a job killer, because that's always the issue. Right. 254 00:15:41,120 --> 00:15:43,440 Speaker 1: People always say there was a great study done where 255 00:15:43,480 --> 00:15:45,840 Speaker 1: there was a change at a border I think was 256 00:15:45,880 --> 00:15:48,920 Speaker 1: New Jersey and Pennsylvania, and on one side of the 257 00:15:48,960 --> 00:15:51,840 Speaker 1: border the minimum wage went up, and a mile across 258 00:15:51,880 --> 00:15:55,040 Speaker 1: the border there was another one. Describe what happened there, well, 259 00:15:55,040 --> 00:15:57,200 Speaker 1: that was the study I did in the early nine 260 00:15:57,440 --> 00:16:00,760 Speaker 1: nineties with my colleague David cart and to our surprise, 261 00:16:00,840 --> 00:16:02,440 Speaker 1: I thought we were going to find that when New 262 00:16:02,480 --> 00:16:05,680 Speaker 1: Jersey raised its minimum wage, the fast food restaurants would 263 00:16:05,680 --> 00:16:08,280 Speaker 1: have grown more slowly, fewer of them would have opened. 264 00:16:08,560 --> 00:16:11,240 Speaker 1: And in fact we saw the opposite. They grew at 265 00:16:11,320 --> 00:16:13,320 Speaker 1: least as much, probably a little bit more than the 266 00:16:13,320 --> 00:16:15,360 Speaker 1: fast food restaurants on the other side of the border. 267 00:16:15,600 --> 00:16:17,480 Speaker 1: And we also found if you look within the state, 268 00:16:17,560 --> 00:16:20,200 Speaker 1: within New Jersey, the areas of the state where the 269 00:16:20,240 --> 00:16:23,080 Speaker 1: minimum wage was already above the new minimum UH and 270 00:16:23,200 --> 00:16:26,400 Speaker 1: wages didn't rise UH, they didn't grow as quickly as 271 00:16:26,440 --> 00:16:28,440 Speaker 1: the parts of the state where wages were low and 272 00:16:28,760 --> 00:16:31,400 Speaker 1: wages were boosted by the minimum wage. And I should 273 00:16:31,440 --> 00:16:33,640 Speaker 1: add Barry that that was study. I think that study 274 00:16:33,680 --> 00:16:36,480 Speaker 1: was a turning point in research on the minimum wage. 275 00:16:36,960 --> 00:16:39,440 Speaker 1: Most of the subsequent studies have reached the same conclusion. 276 00:16:39,480 --> 00:16:42,680 Speaker 1: And there's been some work, very careful work looking across 277 00:16:42,760 --> 00:16:48,600 Speaker 1: counties using UH government reported data from government tax records, 278 00:16:48,640 --> 00:16:51,320 Speaker 1: for example, which tends to find the exact same result 279 00:16:51,800 --> 00:16:55,200 Speaker 1: UH that at modest levels, the kinds of levels that 280 00:16:55,240 --> 00:16:58,360 Speaker 1: we've historically seen in the United States, minimum wage increases 281 00:16:58,400 --> 00:17:01,280 Speaker 1: do not have an adverse effect on employment. I'm Barry 282 00:17:01,320 --> 00:17:04,120 Speaker 1: rid Hults. You're listening to Masters in Business on Bloomberg Radio. 283 00:17:04,600 --> 00:17:08,240 Speaker 1: My special guest this week is Professor Alan Krueger of Princeton. 284 00:17:08,640 --> 00:17:11,679 Speaker 1: He's the former Chief Economist of the Treasury Department and 285 00:17:11,840 --> 00:17:16,280 Speaker 1: chairperson of the President's Council of Economic Advisors. Let's talk 286 00:17:16,320 --> 00:17:20,280 Speaker 1: a little bit about the Federal Reserve. What started in 287 00:17:20,320 --> 00:17:25,720 Speaker 1: the weeks before we recorded this was former Federal Reserve 288 00:17:25,800 --> 00:17:29,600 Speaker 1: Chairman Ben Bernanke launched a blog, Go figure the FED 289 00:17:29,680 --> 00:17:34,520 Speaker 1: Chairman is blogging and kind of got into this epic 290 00:17:34,640 --> 00:17:39,560 Speaker 1: debate with Lauren Summers, Secretary of the Treasury in the 291 00:17:39,640 --> 00:17:44,600 Speaker 1: first Obama White House about the concept of secular stagnation. 292 00:17:45,080 --> 00:17:49,240 Speaker 1: So so let's talk about all this stuff first. What 293 00:17:49,280 --> 00:17:52,360 Speaker 1: do you think about the FED chief blogging. I think 294 00:17:52,359 --> 00:17:56,720 Speaker 1: it's terrific that Ben Bernanke has started a blog. Um 295 00:17:56,920 --> 00:17:59,520 Speaker 1: he has I think quite a bit to add to 296 00:17:59,640 --> 00:18:02,800 Speaker 1: the public debate on these issues. Ben was a colleague 297 00:18:02,840 --> 00:18:05,440 Speaker 1: of mine at Princeton for two decades. I learned a 298 00:18:05,480 --> 00:18:08,679 Speaker 1: tremendous amount from him at the university. I worked with 299 00:18:08,720 --> 00:18:10,919 Speaker 1: him when he was chairman of the FED. So I 300 00:18:10,960 --> 00:18:13,480 Speaker 1: look forward to reading what he has to say. So 301 00:18:13,600 --> 00:18:18,440 Speaker 1: and that Princeton Economics department ur Nankee, Krueger, Krugman, who else? 302 00:18:18,480 --> 00:18:21,720 Speaker 1: Who else is in that department? Alan Blinder Blind. I mean, 303 00:18:21,760 --> 00:18:24,480 Speaker 1: that's like the you know, the murders row on the 304 00:18:24,560 --> 00:18:28,000 Speaker 1: Yankees back in the in the old days. So let's 305 00:18:28,000 --> 00:18:32,120 Speaker 1: talk secular stagnation Larry Summer's thesis. And it's been Bill 306 00:18:32,200 --> 00:18:34,480 Speaker 1: Gross the new normal, And a lot of people have 307 00:18:34,520 --> 00:18:37,680 Speaker 1: said this is, Hey, we've come off a multi decade 308 00:18:37,680 --> 00:18:41,640 Speaker 1: period of growth and expansion and now post crisis, it's 309 00:18:41,640 --> 00:18:44,600 Speaker 1: gonna be ugly for decades. What do you say about that? 310 00:18:45,480 --> 00:18:49,119 Speaker 1: I'm skeptical of of that view. I think the US 311 00:18:49,280 --> 00:18:53,680 Speaker 1: economy historically has managed to grow against a lot of obstacles. 312 00:18:54,040 --> 00:18:56,560 Speaker 1: I think that will happen again. I think the financial 313 00:18:56,600 --> 00:18:59,920 Speaker 1: crisis did have a lasting effect. On the other hand, 314 00:19:00,200 --> 00:19:02,399 Speaker 1: I put a lot of confidence in the ingenuity of 315 00:19:02,400 --> 00:19:07,440 Speaker 1: American entrepreneurs. You know, the sensation I always had coming 316 00:19:07,480 --> 00:19:11,119 Speaker 1: out of the financial crisis that was very nineteen seventies, 317 00:19:11,160 --> 00:19:13,879 Speaker 1: Like I was a teenager in the seventies and I 318 00:19:13,960 --> 00:19:17,359 Speaker 1: just the word malaise really sums it up. And people 319 00:19:17,359 --> 00:19:20,199 Speaker 1: in the seventies thought America was over. They never regained 320 00:19:20,200 --> 00:19:23,080 Speaker 1: their mojo. And then the next thing, you know, the 321 00:19:23,119 --> 00:19:28,480 Speaker 1: eighties hit and everything from technology to semiconductors to the 322 00:19:28,520 --> 00:19:33,280 Speaker 1: Internet to mobile the universe exploded. And and that it's 323 00:19:33,280 --> 00:19:36,520 Speaker 1: always been a bad bet, says my pal Lowry Caudlow 324 00:19:36,600 --> 00:19:39,840 Speaker 1: betting against America? Is that? Is that a fair statement? 325 00:19:40,400 --> 00:19:42,400 Speaker 1: I think that's absolutely right. I mean, if you go 326 00:19:42,480 --> 00:19:47,200 Speaker 1: back uh to uh the end of World War Two, 327 00:19:47,400 --> 00:19:49,840 Speaker 1: there were economists who thought exactly what you just said, 328 00:19:49,880 --> 00:19:53,200 Speaker 1: that malays would set in, even Paul Samuels and thought 329 00:19:53,240 --> 00:19:55,840 Speaker 1: we would slip back to a recession. And then others said, 330 00:19:55,920 --> 00:19:59,720 Speaker 1: you know what, We've got very creative entrepreneurs, they'll figure 331 00:19:59,720 --> 00:20:01,879 Speaker 1: out products. There was a lot of pent up demand 332 00:20:01,920 --> 00:20:04,760 Speaker 1: coming out of the war. Then immigration helped to fuel 333 00:20:04,800 --> 00:20:07,879 Speaker 1: the US economy, and I think those forces can can 334 00:20:08,240 --> 00:20:11,760 Speaker 1: work again. And you know, you go look at the 335 00:20:11,800 --> 00:20:16,600 Speaker 1: equity markets from to nineteen sixty six, that's an epic 336 00:20:16,880 --> 00:20:20,239 Speaker 1: bull market. That's a huge run, only surpassed by the 337 00:20:20,280 --> 00:20:25,960 Speaker 1: next malaise at two thousand, another epic bull market. So 338 00:20:26,240 --> 00:20:29,720 Speaker 1: let's turn our attention now to interest rates. Rates are low, 339 00:20:30,280 --> 00:20:32,919 Speaker 1: they seem to be going lower. They're low around the world. 340 00:20:33,280 --> 00:20:36,800 Speaker 1: Germany's interest rates are now below Japan's interest rates. If 341 00:20:36,840 --> 00:20:41,440 Speaker 1: you want to buy bonds um from the Swiss, they 342 00:20:41,440 --> 00:20:44,480 Speaker 1: will charge you for the privilege. It's a negative interest rate. 343 00:20:45,440 --> 00:20:48,359 Speaker 1: We've never really seen an environment where rates are this low, 344 00:20:48,640 --> 00:20:51,040 Speaker 1: and what does that mean about the economy and what 345 00:20:51,080 --> 00:20:54,159 Speaker 1: does it say to us about the impact of of 346 00:20:54,240 --> 00:20:58,520 Speaker 1: central banks. This has been an extraordinary period. There's no question. 347 00:20:59,080 --> 00:21:01,800 Speaker 1: It's hard to believe there aren't sufficient investments that could 348 00:21:01,800 --> 00:21:06,760 Speaker 1: be taken by private companies or by the government at 349 00:21:06,800 --> 00:21:09,280 Speaker 1: such low interest rates that that they would make a 350 00:21:09,320 --> 00:21:12,480 Speaker 1: lot of sense. I think we're seeing some big imbalances 351 00:21:12,520 --> 00:21:15,040 Speaker 1: in the world economy. Uh. This is a point that 352 00:21:15,320 --> 00:21:18,840 Speaker 1: Ben Bernanki made about the global savings plot, where we 353 00:21:18,960 --> 00:21:22,360 Speaker 1: have countries which are running up very big current accounts 354 00:21:22,359 --> 00:21:27,920 Speaker 1: surpluses and that's depressing interest rates. Uh. But I think 355 00:21:27,960 --> 00:21:31,320 Speaker 1: if you look at countries like say China, there's tremendous 356 00:21:31,320 --> 00:21:34,000 Speaker 1: amount of scope for them to increase their domestic consumption. 357 00:21:34,480 --> 00:21:36,680 Speaker 1: I think as they slow and I think here Larry 358 00:21:36,680 --> 00:21:39,520 Speaker 1: Somers has done very good work predicting a slowdown a 359 00:21:39,600 --> 00:21:42,959 Speaker 1: growth rates in in China. Uh. I think they're going 360 00:21:43,000 --> 00:21:46,400 Speaker 1: to turn more towards domestic consumption to continue to keep 361 00:21:46,440 --> 00:21:50,360 Speaker 1: people happy, to make them feel like their situation is improving. 362 00:21:50,880 --> 00:21:52,800 Speaker 1: So in the last minute we have in this segment, 363 00:21:53,280 --> 00:21:56,040 Speaker 1: I've heard the complaint that, oh, it's the Federal Reserve 364 00:21:56,119 --> 00:21:59,160 Speaker 1: that has driven rates so low around the world. How 365 00:21:59,160 --> 00:22:01,800 Speaker 1: do you respond to that? It the Federal Reserve has 366 00:22:01,840 --> 00:22:04,399 Speaker 1: carried out its dual mandate extremely well. It has a 367 00:22:04,480 --> 00:22:08,320 Speaker 1: dual mandate to try to create maximum employment and stable 368 00:22:08,680 --> 00:22:14,160 Speaker 1: prices um full. So create jobs and reduce inflation. Let's 369 00:22:14,240 --> 00:22:17,720 Speaker 1: keep inflation steady at shooting for around two percent. It's 370 00:22:17,760 --> 00:22:19,600 Speaker 1: not too far off of that in the grand scheme 371 00:22:19,640 --> 00:22:23,000 Speaker 1: of things. So I think the Federal Reserve has helped 372 00:22:23,000 --> 00:22:26,600 Speaker 1: the economy tremendously over the past five years. I think 373 00:22:26,600 --> 00:22:29,280 Speaker 1: we're in a much stronger position than say Europe because 374 00:22:29,280 --> 00:22:31,840 Speaker 1: of the actions are are central back has taken. I'm 375 00:22:31,880 --> 00:22:34,399 Speaker 1: Barry rid Helps. You're listening to Masters in Business on 376 00:22:34,440 --> 00:22:39,000 Speaker 1: Bloomberg Radio. My special guest today is Princeton's professor Alan Krueger. 377 00:22:39,080 --> 00:22:43,000 Speaker 1: He is the former chief Economist at the Treasury Department, 378 00:22:43,160 --> 00:22:46,160 Speaker 1: at the Department of Labor and chairperson of the Council 379 00:22:46,160 --> 00:22:49,720 Speaker 1: of Economic Advisors to the President. So you have a 380 00:22:49,720 --> 00:22:53,080 Speaker 1: background in labor economics. You've done a lot of studies, 381 00:22:53,119 --> 00:22:57,280 Speaker 1: a lot of really interesting things UM with labor. So 382 00:22:57,359 --> 00:23:00,240 Speaker 1: let's talk a little bit about the labor for this 383 00:23:00,280 --> 00:23:02,639 Speaker 1: whole recovery. One of the things we hear all the 384 00:23:02,680 --> 00:23:05,240 Speaker 1: time is, Gee, there's a lot of slack in the 385 00:23:05,320 --> 00:23:08,240 Speaker 1: labor force. What does that mean for a lay person? 386 00:23:09,160 --> 00:23:12,040 Speaker 1: Slack means that we're not using all the resources that 387 00:23:12,080 --> 00:23:15,919 Speaker 1: we can be using. And the implication of slack is 388 00:23:15,960 --> 00:23:19,199 Speaker 1: that it put downward pressure on wages, which would then 389 00:23:19,240 --> 00:23:22,600 Speaker 1: put downward pressure on inflation. So we mentioned in a 390 00:23:22,640 --> 00:23:25,879 Speaker 1: previous segment that Walmart has raised their minimum wage and 391 00:23:25,880 --> 00:23:29,720 Speaker 1: and McDonald's had done something similar. Are we coming to 392 00:23:29,840 --> 00:23:33,800 Speaker 1: the end of the slack period of of the cycle 393 00:23:33,920 --> 00:23:37,119 Speaker 1: for for labor? Is that the positive read in this 394 00:23:37,680 --> 00:23:40,280 Speaker 1: I think we are. I think what we've seen with 395 00:23:40,320 --> 00:23:43,160 Speaker 1: the decline in labor force participation is what you would 396 00:23:43,200 --> 00:23:47,520 Speaker 1: expect giving the aging of the workforce, given that women's 397 00:23:47,560 --> 00:23:51,359 Speaker 1: labor force participation peaked in the early two thousands UM, 398 00:23:51,640 --> 00:23:54,520 Speaker 1: and given that we had so many long term unemployed, 399 00:23:55,160 --> 00:23:57,639 Speaker 1: it's the natural evolution of the job market that they 400 00:23:57,680 --> 00:23:59,920 Speaker 1: exit the labor force, and that's what's been taking place. 401 00:24:00,119 --> 00:24:02,520 Speaker 1: So so let's describe this. When when we look at 402 00:24:02,560 --> 00:24:05,800 Speaker 1: the population, you have the total civilian population in the 403 00:24:05,840 --> 00:24:09,560 Speaker 1: United States is three hundred and ten or so million people. 404 00:24:10,119 --> 00:24:13,560 Speaker 1: We then have a labor force, all the people who 405 00:24:13,560 --> 00:24:17,240 Speaker 1: were either working or essentially looking for work at a 406 00:24:17,320 --> 00:24:20,240 Speaker 1: hundred and fifty five or so, where are we Bullpark 407 00:24:20,320 --> 00:24:24,280 Speaker 1: hundred fifty five million? And then you have people who 408 00:24:24,359 --> 00:24:27,960 Speaker 1: are leaving the labor force. They basically said, either they're 409 00:24:27,960 --> 00:24:31,240 Speaker 1: retiring or they just kind of give up on looking 410 00:24:31,320 --> 00:24:33,840 Speaker 1: for a job. And people have been making a big 411 00:24:33,840 --> 00:24:37,359 Speaker 1: deal about the declining participation rate in the labor force. 412 00:24:37,920 --> 00:24:41,119 Speaker 1: If I'm hearing you correctly, you're saying, some of this 413 00:24:41,240 --> 00:24:43,640 Speaker 1: is a function of just the aging of the baby boomers. 414 00:24:43,640 --> 00:24:47,440 Speaker 1: You have sixty people a day retiring and some of 415 00:24:47,480 --> 00:24:50,800 Speaker 1: them it is just the peak participation of women. Explained 416 00:24:50,840 --> 00:24:54,280 Speaker 1: that a little bit. What had been fueling our rise 417 00:24:54,320 --> 00:24:57,760 Speaker 1: in labor force participation from the nineteen fifties up until 418 00:24:57,840 --> 00:25:00,840 Speaker 1: two thousand was more and more women join the labor force. 419 00:25:01,400 --> 00:25:04,680 Speaker 1: That reached a peak in two thousand. The puzzle y 420 00:25:04,880 --> 00:25:08,400 Speaker 1: labor force participation has since declined. For women, it declined 421 00:25:08,400 --> 00:25:10,960 Speaker 1: in the last recovery, so this is not new in 422 00:25:11,000 --> 00:25:15,159 Speaker 1: the current recovery. And it's declined an approach pretty broad base, 423 00:25:15,920 --> 00:25:19,159 Speaker 1: well educated women as well as less educated women, women 424 00:25:19,200 --> 00:25:22,080 Speaker 1: with children, women who were not married and don't have children. 425 00:25:22,359 --> 00:25:25,600 Speaker 1: So it's been a pretty ubiquitous phenomenon, and that had 426 00:25:25,640 --> 00:25:28,399 Speaker 1: been fueling the rise in labor force participation, and now 427 00:25:28,440 --> 00:25:30,400 Speaker 1: we're starting to see a little bit of a reversal 428 00:25:30,440 --> 00:25:32,880 Speaker 1: of that. We've seen a little bit of a reversal 429 00:25:32,920 --> 00:25:36,440 Speaker 1: over the last decade. So more recently, the labor force 430 00:25:36,520 --> 00:25:41,520 Speaker 1: participation rates seemed to stop falling and actually started to increase. 431 00:25:42,240 --> 00:25:44,560 Speaker 1: Is this just a little noise in the data series, 432 00:25:44,680 --> 00:25:47,960 Speaker 1: or or perhaps we're seeing that drop come to a halt. 433 00:25:48,680 --> 00:25:51,280 Speaker 1: I think that's noise. I think at best we could 434 00:25:51,280 --> 00:25:54,720 Speaker 1: say labor force participation is stabilized. Maybe some of the 435 00:25:54,760 --> 00:25:57,160 Speaker 1: young people who left the labor force to go back 436 00:25:57,200 --> 00:26:00,280 Speaker 1: to school are coming back. I think that's the positives line. 437 00:26:00,520 --> 00:26:04,200 Speaker 1: But that's against the backdrop, as you said, of increasing 438 00:26:04,280 --> 00:26:07,679 Speaker 1: number of baby boomers reaching the retirement age and retiring. 439 00:26:08,280 --> 00:26:10,760 Speaker 1: So we've been talking a little bit about baby boomers 440 00:26:10,760 --> 00:26:13,560 Speaker 1: and we've been talking about that post War War two era. 441 00:26:14,160 --> 00:26:18,359 Speaker 1: Let's talk a bit about the middle class, which, based 442 00:26:18,400 --> 00:26:22,040 Speaker 1: on what we've seen recently, almost appears to be a 443 00:26:22,160 --> 00:26:25,600 Speaker 1: post War War two phenomena. Following World War Two, did 444 00:26:25,600 --> 00:26:28,800 Speaker 1: everybody come back? You had all these UH servicemen come 445 00:26:28,800 --> 00:26:31,000 Speaker 1: back on the g I Bill, and it seemed we 446 00:26:31,040 --> 00:26:35,600 Speaker 1: had this giant, multi decade boom and the middle class 447 00:26:35,640 --> 00:26:38,960 Speaker 1: just exploded in terms of size and wealth, and that 448 00:26:39,040 --> 00:26:41,960 Speaker 1: seems to be unwinding. What's really going on with the 449 00:26:42,000 --> 00:26:45,120 Speaker 1: middle class these days. The middle class has been under 450 00:26:45,119 --> 00:26:48,479 Speaker 1: a lot of pressure, and we've seen the middle class shrink. 451 00:26:49,000 --> 00:26:51,840 Speaker 1: I think that's unhealthy for the economy. I think it 452 00:26:51,840 --> 00:26:54,440 Speaker 1: it's one of the reasons why we are facing problems 453 00:26:54,480 --> 00:26:57,200 Speaker 1: when it comes to aggregate demand, because the middle class 454 00:26:57,200 --> 00:27:00,280 Speaker 1: tends to spend their income unlike very high inc people 455 00:27:00,320 --> 00:27:02,520 Speaker 1: who have a higher savings rate. And I think it's 456 00:27:02,560 --> 00:27:04,760 Speaker 1: bad for the country because I think our country works 457 00:27:04,800 --> 00:27:07,680 Speaker 1: better when we have a broad middle with a common interest. 458 00:27:08,480 --> 00:27:10,879 Speaker 1: So when we look at the people who are doing 459 00:27:11,040 --> 00:27:14,280 Speaker 1: best in the country, the top one percent has done 460 00:27:14,280 --> 00:27:17,359 Speaker 1: really well, top ten percent has done pretty well. But 461 00:27:17,400 --> 00:27:19,320 Speaker 1: when we take the top one percent of the top 462 00:27:19,320 --> 00:27:24,120 Speaker 1: one percent, the point oh one percent, they've done phenomenally. Well, 463 00:27:24,200 --> 00:27:29,040 Speaker 1: what what is behind that trend? They've done well in 464 00:27:29,200 --> 00:27:32,520 Speaker 1: part because uh, there are people there have come up 465 00:27:32,560 --> 00:27:37,040 Speaker 1: with new products, very innovative people. In part because there're 466 00:27:37,080 --> 00:27:40,359 Speaker 1: people who inherited wealth, and increasingly that top tenth of 467 00:27:40,400 --> 00:27:42,719 Speaker 1: one percent are going to be those who inherited their 468 00:27:42,720 --> 00:27:46,879 Speaker 1: wealth as opposed to those who were successful entrepreneurs. But 469 00:27:47,000 --> 00:27:50,959 Speaker 1: also we've seen enormous changes in the bottom. You know, 470 00:27:51,040 --> 00:27:54,280 Speaker 1: if you look along education lines, Uh, I find the 471 00:27:54,320 --> 00:27:57,400 Speaker 1: following calculation quite revealing. If you took the top one 472 00:27:57,400 --> 00:27:59,600 Speaker 1: percent and said we're going to keep their income at 473 00:27:59,600 --> 00:28:03,119 Speaker 1: the same shares it was nineteen seventy nine, and redistributed 474 00:28:03,160 --> 00:28:06,480 Speaker 1: that to the bottom if one could, uh, that would 475 00:28:06,560 --> 00:28:09,600 Speaker 1: raise the average families income by about seven thousand dollars 476 00:28:09,640 --> 00:28:13,760 Speaker 1: a year. But if you then compare a family where 477 00:28:13,800 --> 00:28:17,240 Speaker 1: you have a household headed by a college graduate versus 478 00:28:17,240 --> 00:28:20,120 Speaker 1: a household headed by a high school graduate, the difference 479 00:28:20,119 --> 00:28:23,879 Speaker 1: in the earnings since nineteen seventy nine has increased by 480 00:28:23,920 --> 00:28:27,160 Speaker 1: twenty three thousand dollars, over three times as much. So 481 00:28:27,280 --> 00:28:30,399 Speaker 1: it's not only the top one percent that's causing the 482 00:28:30,440 --> 00:28:32,960 Speaker 1: shifts and inequality that we're seeing and putting pressure on 483 00:28:33,000 --> 00:28:35,760 Speaker 1: the middle class. You know, one of the fascinating stats 484 00:28:35,760 --> 00:28:39,280 Speaker 1: I saw related to that was the unemployment rate amongst 485 00:28:39,320 --> 00:28:42,520 Speaker 1: people with college degrees, and then the unemployment rate amongst 486 00:28:42,520 --> 00:28:47,760 Speaker 1: people with graduate degrees or science, technology, engineering, and mathematics degrees. 487 00:28:48,440 --> 00:28:51,680 Speaker 1: It was low, low single digits. Even when the unemployment 488 00:28:51,760 --> 00:28:55,120 Speaker 1: rate was eight nine, it was in the Two's quite 489 00:28:55,160 --> 00:28:59,120 Speaker 1: amazing that there's such a strong demand for those sort 490 00:28:59,160 --> 00:29:04,040 Speaker 1: of employee ease. Increasingly, the US economy has been demanding 491 00:29:04,080 --> 00:29:06,240 Speaker 1: workers with higher levels of skills, and you see that 492 00:29:06,280 --> 00:29:09,800 Speaker 1: really throughout the distribution, not just graduate degrees, but if 493 00:29:09,800 --> 00:29:13,719 Speaker 1: you compare people who have skills in manufacturing skills and welding, 494 00:29:13,720 --> 00:29:16,960 Speaker 1: they're doing better than people who have, uh, just a 495 00:29:17,000 --> 00:29:19,520 Speaker 1: high school degree and not a specific training in an 496 00:29:19,560 --> 00:29:22,720 Speaker 1: area BLS. One of the things we talked a little 497 00:29:22,720 --> 00:29:26,160 Speaker 1: bit about the Bureau of Labor Statistics earlier. I found 498 00:29:26,160 --> 00:29:28,680 Speaker 1: that anytime I had a question about a report or 499 00:29:28,680 --> 00:29:30,960 Speaker 1: anything that came out, I had the ability to pick 500 00:29:31,040 --> 00:29:33,440 Speaker 1: up the phone and actually get that economist on the 501 00:29:33,440 --> 00:29:37,120 Speaker 1: phone who would walk me through what they did. Is 502 00:29:37,160 --> 00:29:40,480 Speaker 1: this pretty standard operating procedure there. I was astonished by that. 503 00:29:41,120 --> 00:29:44,240 Speaker 1: BLS is a very transparent organization. They're there to help. 504 00:29:44,560 --> 00:29:46,760 Speaker 1: They want people to understand what it is that they're doing. 505 00:29:47,000 --> 00:29:49,920 Speaker 1: They don't want people to misinterpret their data, so they're 506 00:29:50,000 --> 00:29:52,400 Speaker 1: very open in that. In that way, What is it 507 00:29:52,480 --> 00:29:56,600 Speaker 1: like producing the sort of data they crank out every month? 508 00:29:56,760 --> 00:30:01,360 Speaker 1: How many economists and statisticians work there, and what is 509 00:30:01,400 --> 00:30:06,280 Speaker 1: the process like creating those models? Well, it's more data 510 00:30:06,320 --> 00:30:10,240 Speaker 1: than models, you know, it's really more uh, interviewing households, 511 00:30:10,240 --> 00:30:16,239 Speaker 1: interviewing businesses for the unemployment report, the Census Bureau on 512 00:30:16,280 --> 00:30:19,000 Speaker 1: the behalf of the BLS goes door to door to 513 00:30:19,280 --> 00:30:23,080 Speaker 1: over fifty households. That's every month, every month. Now, they 514 00:30:23,120 --> 00:30:24,720 Speaker 1: don't go door to door every month. They go door 515 00:30:24,760 --> 00:30:26,440 Speaker 1: to door the first time they interview them, and then 516 00:30:26,480 --> 00:30:28,400 Speaker 1: they say next month, is it okay if we call you? 517 00:30:29,720 --> 00:30:33,720 Speaker 1: But on a rotating basis, they're interviewing over fifty households 518 00:30:33,720 --> 00:30:38,120 Speaker 1: a month, giving them a short questionnaire, and then they're 519 00:30:38,120 --> 00:30:43,800 Speaker 1: processing the data, uh, screening out mistakes uh uh if 520 00:30:43,800 --> 00:30:48,640 Speaker 1: somebody misreported their income, for example, and then producing the 521 00:30:48,720 --> 00:30:52,480 Speaker 1: unemployment rate and related statistics. This is all done by 522 00:30:52,560 --> 00:30:58,400 Speaker 1: career employees. Uh, they don't inform the administration about the 523 00:30:58,480 --> 00:31:02,160 Speaker 1: results until the night before the data are released to 524 00:31:02,200 --> 00:31:05,440 Speaker 1: the public. So the so the President gets a phone call, Hey, 525 00:31:05,480 --> 00:31:09,240 Speaker 1: tomorrow's non farm payroll a hundred. He finds that out 526 00:31:09,280 --> 00:31:13,120 Speaker 1: twelve hours before everybody else. The President receives a visit 527 00:31:13,120 --> 00:31:16,360 Speaker 1: from the Chairman of the Council of Economic Advisors with 528 00:31:16,600 --> 00:31:20,480 Speaker 1: a memo in hand describing what the next day's report 529 00:31:20,520 --> 00:31:24,680 Speaker 1: will be. The Chairman of the Federal Reserve receives a 530 00:31:24,760 --> 00:31:28,560 Speaker 1: one page sheet called the Chairman's Data Sheet with some 531 00:31:28,600 --> 00:31:30,440 Speaker 1: of the key statistics that are going to come out 532 00:31:30,520 --> 00:31:33,240 Speaker 1: the next day, also provided by the Chairman of the 533 00:31:33,280 --> 00:31:36,120 Speaker 1: Council of Economic Advisors, as does the Treasury Secretary. So 534 00:31:36,360 --> 00:31:40,600 Speaker 1: I picture someone with the briefcase that's handcuffed to the 535 00:31:40,600 --> 00:31:43,600 Speaker 1: the the secret Agent walking into the Federal Reserve, walking 536 00:31:43,640 --> 00:31:47,040 Speaker 1: into the White House. It's really not that cloaken dagger, 537 00:31:47,160 --> 00:31:50,680 Speaker 1: is it. Well, it's a secure facts, a secure facts. 538 00:31:50,680 --> 00:31:54,160 Speaker 1: Oh that's fascinating. And um. One of the things I 539 00:31:54,200 --> 00:31:59,560 Speaker 1: found fascinating about the BLS was about ten years ago, 540 00:31:59,720 --> 00:32:02,920 Speaker 1: maybe a little longer, they changed the birth death model 541 00:32:03,040 --> 00:32:07,560 Speaker 1: and this caused all sorts of of mayhem amongst the 542 00:32:07,600 --> 00:32:12,320 Speaker 1: tinfoil hat types for people who aren't economic wanks. What 543 00:32:12,480 --> 00:32:15,800 Speaker 1: is the birth death adjustment? Well, this is really inside baseball, 544 00:32:15,880 --> 00:32:18,760 Speaker 1: but in the establishment survey that the BLS does every month, 545 00:32:19,360 --> 00:32:23,480 Speaker 1: they don't do a very good job bringing in new companies. 546 00:32:23,720 --> 00:32:27,000 Speaker 1: Where a company has failed, they don't know for sure 547 00:32:27,040 --> 00:32:29,600 Speaker 1: that it failed. Maybe it just failed to respond. It 548 00:32:29,640 --> 00:32:32,200 Speaker 1: doesn't mean necessarily it's gone out of business. So to 549 00:32:32,320 --> 00:32:35,560 Speaker 1: adjust for the births and the deaths, they have an 550 00:32:35,600 --> 00:32:38,880 Speaker 1: additive factor. Could be positive, could be negative, and that's 551 00:32:38,920 --> 00:32:42,840 Speaker 1: based on information that's coming in from payroll tax records, 552 00:32:42,880 --> 00:32:45,520 Speaker 1: where the BLS could judge how far off it's been 553 00:32:45,560 --> 00:32:47,920 Speaker 1: in recent months and use that to make an adjustment. 554 00:32:48,480 --> 00:32:51,600 Speaker 1: I think the outside world tends to focus a lot 555 00:32:51,640 --> 00:32:57,200 Speaker 1: on the birth death model as opposed to, uh, the 556 00:32:57,280 --> 00:32:59,920 Speaker 1: data that's coming in and the data that's coming in 557 00:33:00,040 --> 00:33:02,400 Speaker 1: from the establishments are really much more important than the 558 00:33:02,440 --> 00:33:05,640 Speaker 1: birth death adjustment. Thank you so much for your your time, 559 00:33:05,640 --> 00:33:09,080 Speaker 1: Professor Krueger. We've been speaking with Professor Alan Krueger, former 560 00:33:09,240 --> 00:33:13,000 Speaker 1: Chief Economists at the Treasury Department and chairperson of the 561 00:33:13,040 --> 00:33:16,280 Speaker 1: Council of Economic Advisors to the President. If you enjoy 562 00:33:16,360 --> 00:33:19,920 Speaker 1: this conversation, be sure and check out the full podcast version, 563 00:33:20,000 --> 00:33:23,200 Speaker 1: where we keep chatting about all sorts of fascinating and 564 00:33:23,200 --> 00:33:26,040 Speaker 1: wonky things. Uh, be sure and check out my daily 565 00:33:26,080 --> 00:33:29,440 Speaker 1: column on Bloomberg View dot com or follow me on 566 00:33:29,440 --> 00:33:33,240 Speaker 1: Twitter at rid Holts. I'm Barry Ridholts. You've been listening 567 00:33:33,240 --> 00:33:37,360 Speaker 1: to Masters in Business on Bloomberg Radio. Welcome back to 568 00:33:37,400 --> 00:33:40,600 Speaker 1: the podcast portion of our show. This is Barry Ridholts, 569 00:33:40,640 --> 00:33:43,680 Speaker 1: and you've been listening to Masters in Business on Bloomberg Radio. 570 00:33:44,000 --> 00:33:49,640 Speaker 1: My guest today Professor aller At, Professor Alan Krueger, not Krugman, 571 00:33:49,840 --> 00:33:54,000 Speaker 1: not Alan Blinder, Professor Alan Krueger. People get that wrong 572 00:33:54,000 --> 00:33:56,280 Speaker 1: all the time, don't they all the time? Krugman and 573 00:33:56,320 --> 00:33:59,920 Speaker 1: I we get each other's mail. True story about ten 574 00:34:00,080 --> 00:34:03,200 Speaker 1: years ago. I my office was three Park Avenue. I 575 00:34:03,280 --> 00:34:06,040 Speaker 1: have a cousin with the same name as me, Barry Ridholtz. 576 00:34:06,480 --> 00:34:09,120 Speaker 1: He's a lawyer. He was working for Golden Tree Mutual Funds. 577 00:34:09,120 --> 00:34:11,360 Speaker 1: There's no T at the end of his name, so 578 00:34:11,400 --> 00:34:14,360 Speaker 1: he's O LZ. And we're in the same building. We 579 00:34:14,360 --> 00:34:16,279 Speaker 1: would get each other's male. What are the odds that 580 00:34:16,560 --> 00:34:18,520 Speaker 1: someone with the same name, and it's not, you know, 581 00:34:18,560 --> 00:34:22,279 Speaker 1: if you're John Smith statistically right, but it was just 582 00:34:22,360 --> 00:34:26,839 Speaker 1: always always sort of sort of fun. So Krueger not Krugman. Um. 583 00:34:26,880 --> 00:34:28,480 Speaker 1: I have so many other things I want to I 584 00:34:28,520 --> 00:34:30,320 Speaker 1: want to talk to you about before we have to 585 00:34:31,000 --> 00:34:34,279 Speaker 1: send you on on your way. We talked a lot 586 00:34:34,320 --> 00:34:37,400 Speaker 1: of a lot of misconceptions, a lot of heras people have. 587 00:34:37,520 --> 00:34:41,239 Speaker 1: What do you think about economics or the BLS data 588 00:34:41,280 --> 00:34:44,040 Speaker 1: or whatever. What do you think is the biggest misconception 589 00:34:44,600 --> 00:34:51,400 Speaker 1: about economics out there? Well, I don't know if it's 590 00:34:51,400 --> 00:34:56,640 Speaker 1: a misconception. There's kind of uh paranoia that the BLS 591 00:34:56,800 --> 00:34:59,360 Speaker 1: is a tool of the administration and is pressured to 592 00:34:59,400 --> 00:35:04,280 Speaker 1: come up with uh particular results. And you know, former 593 00:35:04,840 --> 00:35:09,640 Speaker 1: I'll say this, former g E CEO Jack Welsh, Right 594 00:35:09,719 --> 00:35:15,640 Speaker 1: before the November twenty twelve election, there was a fairly 595 00:35:15,760 --> 00:35:20,440 Speaker 1: decent employment number, and he infamously tweeted out, Hey, those 596 00:35:20,520 --> 00:35:23,960 Speaker 1: Chicago guys will do anything to win election. They doctored 597 00:35:24,000 --> 00:35:27,279 Speaker 1: these numbers and and people were really astonished about it. 598 00:35:27,760 --> 00:35:32,919 Speaker 1: He ultimately ended up getting pissy with fortune quitting storming off, 599 00:35:33,760 --> 00:35:36,759 Speaker 1: how often do you run into oh, the president is 600 00:35:36,800 --> 00:35:42,200 Speaker 1: manipulating these numbers. What was unusual about that episode? And 601 00:35:42,239 --> 00:35:46,000 Speaker 1: I remember it very well. It was October of two 602 00:35:46,000 --> 00:35:49,600 Speaker 1: thousand twelve. The unemployment rate fell from eight point one 603 00:35:49,640 --> 00:35:53,239 Speaker 1: to seven point eight percent. And he's not a giant drop, 604 00:35:53,280 --> 00:35:58,759 Speaker 1: a fairly a healthy full, but not anything ridiculous. So 605 00:35:59,280 --> 00:36:02,200 Speaker 1: certainly not on precedented. Look at it with hindsight is 606 00:36:02,239 --> 00:36:04,319 Speaker 1: now five and a half percent. We were clearly on 607 00:36:04,400 --> 00:36:06,719 Speaker 1: a path then when the economy was getting better and 608 00:36:06,719 --> 00:36:11,040 Speaker 1: he was denying it um And I was asked to 609 00:36:11,080 --> 00:36:13,680 Speaker 1: respond to what he said, and I'll I said then 610 00:36:13,680 --> 00:36:17,360 Speaker 1: what I'll say today. No serious person doubts the credibility 611 00:36:17,400 --> 00:36:20,440 Speaker 1: of the Bureau of Labor Statistics. That it's it's a 612 00:36:20,480 --> 00:36:24,880 Speaker 1: civil sermon group. It's not political appointees. Only one person 613 00:36:25,040 --> 00:36:29,359 Speaker 1: BLS is a presidential appointee that earlier the commissioner, and 614 00:36:29,440 --> 00:36:35,799 Speaker 1: all these people are just lifetime economist, statisticians and others. Look, 615 00:36:35,880 --> 00:36:39,960 Speaker 1: the numbers may not be perfect, but it's not some 616 00:36:40,239 --> 00:36:45,280 Speaker 1: grand the president is telling them. Now, we've to be fair. 617 00:36:45,920 --> 00:36:49,240 Speaker 1: We've seen massive changes in the way things are done 618 00:36:49,360 --> 00:36:52,360 Speaker 1: that have had a tendency to have an upward bias. 619 00:36:52,880 --> 00:36:57,319 Speaker 1: We we talk about the civilian Labor force when you 620 00:36:57,400 --> 00:36:59,319 Speaker 1: had a chain was it. I don't remember if it 621 00:36:59,360 --> 00:37:02,759 Speaker 1: was Korean War or Vietnam VIETNAE war. Somebody changed how 622 00:37:02,800 --> 00:37:05,920 Speaker 1: that was counted to not include military and it had 623 00:37:05,920 --> 00:37:09,239 Speaker 1: a beneficial effect. There have been tweaks like that. Look, 624 00:37:09,280 --> 00:37:11,799 Speaker 1: when the Beer of Labor Statistics makes changes, it does 625 00:37:11,840 --> 00:37:14,719 Speaker 1: it in a very deliberate fashion, usually with an outside 626 00:37:14,719 --> 00:37:19,040 Speaker 1: group giving it advice. It made a major change when 627 00:37:19,080 --> 00:37:23,479 Speaker 1: it redesigned the survey, which probably raised the measured unemployment rate. 628 00:37:24,080 --> 00:37:28,000 Speaker 1: So uh. It certainly makes changes to try to keep 629 00:37:28,040 --> 00:37:30,080 Speaker 1: up with changes that are going on in the economy 630 00:37:30,200 --> 00:37:32,879 Speaker 1: or to improve its measures. But it would not make 631 00:37:32,920 --> 00:37:36,279 Speaker 1: a change in the middle of an election. And I've 632 00:37:36,360 --> 00:37:39,680 Speaker 1: noticed that whenever they make a change, there's an there's 633 00:37:39,719 --> 00:37:44,240 Speaker 1: a footnote six months before we're reviewing this, we're taking 634 00:37:44,280 --> 00:37:48,279 Speaker 1: comments about that. Here's the proposed set of changes. I've 635 00:37:48,320 --> 00:37:52,360 Speaker 1: been critical of the over focus on the BLS number 636 00:37:52,400 --> 00:37:56,440 Speaker 1: because it's a series and everybody obsesses about each month, 637 00:37:56,760 --> 00:37:58,560 Speaker 1: when you really have to look at the long term 638 00:37:58,600 --> 00:38:01,160 Speaker 1: trend and you could have a really good number, a 639 00:38:01,200 --> 00:38:04,240 Speaker 1: really bad number in any given month that's still within 640 00:38:04,400 --> 00:38:08,839 Speaker 1: that channel and being off of the average. Very often 641 00:38:08,880 --> 00:38:12,560 Speaker 1: as just noisy, and as you've mentioned, the upward revisions. 642 00:38:12,560 --> 00:38:16,399 Speaker 1: So so the most recent non farm payroll UM I 643 00:38:16,480 --> 00:38:19,279 Speaker 1: believe was a pretty soft number and some of the 644 00:38:19,280 --> 00:38:22,120 Speaker 1: revisions were kind of negative. Also, now, is that the 645 00:38:22,160 --> 00:38:24,239 Speaker 1: beginning of the end or does that look just like 646 00:38:24,360 --> 00:38:27,879 Speaker 1: it's a noisy data series? I thought we were due 647 00:38:27,920 --> 00:38:30,880 Speaker 1: for a singer. And uh, you know, what are the 648 00:38:30,920 --> 00:38:33,040 Speaker 1: odds that you'd get twelve months in a row over 649 00:38:33,080 --> 00:38:35,879 Speaker 1: two hundred thousand if the true underlying growth was over 650 00:38:35,920 --> 00:38:40,200 Speaker 1: two hundred thousand. It's not all that high. So, uh, 651 00:38:40,280 --> 00:38:42,440 Speaker 1: it's not a surprise to me in a way that 652 00:38:42,480 --> 00:38:45,640 Speaker 1: we see one number which is out of line. Um, 653 00:38:46,280 --> 00:38:48,359 Speaker 1: we get two or three more in a row. Hey, 654 00:38:48,400 --> 00:38:50,920 Speaker 1: that's a problem. Two or three more of unemployment insurance 655 00:38:50,920 --> 00:38:52,799 Speaker 1: claims start to pick up if some of the other 656 00:38:52,800 --> 00:38:56,080 Speaker 1: indicators come in. Let me jump in on that, because 657 00:38:56,120 --> 00:38:59,359 Speaker 1: before in my office we were previewing these numbers and 658 00:38:59,600 --> 00:39:03,719 Speaker 1: talking about this conversation, and my head of research said, hey, 659 00:39:03,760 --> 00:39:05,920 Speaker 1: be you sure to say to Professor Krueger, see if 660 00:39:05,920 --> 00:39:10,040 Speaker 1: he's familiar with the fact that we're at some crazy 661 00:39:10,160 --> 00:39:13,640 Speaker 1: record low for initial unemployment claims. I think you said 662 00:39:13,640 --> 00:39:16,520 Speaker 1: it's back to where we haven't seen lows like this 663 00:39:16,560 --> 00:39:21,520 Speaker 1: in fifteen years? Is that accurate weekly initial claims are 664 00:39:21,680 --> 00:39:24,920 Speaker 1: very low? Uh, I think we have seen them this 665 00:39:25,000 --> 00:39:26,799 Speaker 1: low in the in the recovery, but they're at the 666 00:39:26,840 --> 00:39:29,080 Speaker 1: lowest point that they've been in the recovery. You know 667 00:39:29,120 --> 00:39:32,480 Speaker 1: one thing I'll add, Barry, When I worked in the administration, 668 00:39:33,400 --> 00:39:36,920 Speaker 1: I reached the conclusion that the UI claims are very informative, 669 00:39:37,040 --> 00:39:39,680 Speaker 1: and we haven't changed the information that are coming out 670 00:39:39,719 --> 00:39:42,360 Speaker 1: with the UI claims in fifty years. Why don't we 671 00:39:42,400 --> 00:39:46,680 Speaker 1: try to extract more from it? Which industries are laying 672 00:39:46,680 --> 00:39:49,680 Speaker 1: off people, what education groups, which age groups, And that's 673 00:39:49,719 --> 00:39:52,920 Speaker 1: something which the Labor Department has been looking into into 674 00:39:52,960 --> 00:39:56,040 Speaker 1: doing so, in other words, take the data and try 675 00:39:56,080 --> 00:39:59,040 Speaker 1: and slice it a little finer, by by sector, by 676 00:39:59,239 --> 00:40:03,080 Speaker 1: education level, by geography. Exactly what else do you look 677 00:40:03,120 --> 00:40:06,640 Speaker 1: at their Well, those are the main things, and um 678 00:40:06,680 --> 00:40:08,880 Speaker 1: they do produce it by geography already, they do that 679 00:40:08,920 --> 00:40:12,480 Speaker 1: with a weak delay, so that's already available. But I 680 00:40:12,480 --> 00:40:14,640 Speaker 1: think we could learn a lot from industry because we 681 00:40:14,680 --> 00:40:18,240 Speaker 1: know that manufacturing and construction tend to be more cyclical industries, 682 00:40:18,280 --> 00:40:21,080 Speaker 1: and in some sense they're leading indicators, So I think 683 00:40:21,120 --> 00:40:24,319 Speaker 1: we can extract more from these data, and also knowing 684 00:40:24,320 --> 00:40:27,719 Speaker 1: about the demographics I think would be very helpful. So 685 00:40:28,000 --> 00:40:31,319 Speaker 1: let's talk briefly about the non farm payroll. You know, 686 00:40:31,400 --> 00:40:35,560 Speaker 1: it's considered a coincidental or lagging indicator. It lags the 687 00:40:35,600 --> 00:40:37,560 Speaker 1: business cycle. But there are parts of it that I 688 00:40:37,560 --> 00:40:42,040 Speaker 1: always find fascinating. Within within the non farm payroll data, 689 00:40:42,480 --> 00:40:45,960 Speaker 1: I've always found the numbers for temp help to be 690 00:40:46,120 --> 00:40:51,160 Speaker 1: very insightful because if companies are unsure about where we 691 00:40:51,200 --> 00:40:54,440 Speaker 1: are in the economic growth cycle, but they're starting to 692 00:40:54,440 --> 00:40:56,960 Speaker 1: see a slide uptick in demand, they might hire a 693 00:40:56,960 --> 00:40:59,160 Speaker 1: bunch of temp workers and hey, if it works out, 694 00:40:59,520 --> 00:41:02,480 Speaker 1: they become full time workers. I've argued that that's a 695 00:41:02,520 --> 00:41:06,040 Speaker 1: little bit of a leading indicator. How wrong am I? 696 00:41:06,040 --> 00:41:08,279 Speaker 1: I was gonna say, you're pretty much in line with 697 00:41:08,320 --> 00:41:11,439 Speaker 1: the research, and the research has found that temporary help 698 00:41:11,880 --> 00:41:15,879 Speaker 1: trends are leading indicator. And then what about hours work? 699 00:41:16,000 --> 00:41:18,040 Speaker 1: That's another thing. When you start to see the hours 700 00:41:18,080 --> 00:41:20,919 Speaker 1: tick up, it's always easier to say to somebody who's 701 00:41:20,960 --> 00:41:24,319 Speaker 1: got twenty or thirty hours, hey, here's a little more time. 702 00:41:24,360 --> 00:41:27,399 Speaker 1: Instead of going out and hiring a brand new person well. 703 00:41:27,400 --> 00:41:30,320 Speaker 1: Hours worked are extremely important for a number of reasons. 704 00:41:30,440 --> 00:41:33,560 Speaker 1: One because it says how much labor is being utilized 705 00:41:33,560 --> 00:41:35,920 Speaker 1: in production, and that could be more important. If you 706 00:41:36,000 --> 00:41:38,440 Speaker 1: have a two tense three tents of an hour increase 707 00:41:39,280 --> 00:41:41,680 Speaker 1: in weekly hours, that could be more important than the 708 00:41:41,719 --> 00:41:45,040 Speaker 1: headline jobs number in terms of total labor input. It's 709 00:41:45,040 --> 00:41:47,279 Speaker 1: also important to people because it affects the income that 710 00:41:47,320 --> 00:41:50,799 Speaker 1: they're receiving. So I closely watched hours worked, and one 711 00:41:50,800 --> 00:41:53,160 Speaker 1: thing I'll mention, which I don't think it's gotten enough attention, 712 00:41:53,719 --> 00:41:57,440 Speaker 1: is everyone's focused on the slack that's coming from workers 713 00:41:57,480 --> 00:41:59,239 Speaker 1: who are part time who want to be full time. 714 00:41:59,480 --> 00:42:02,239 Speaker 1: But hours worked you're actually reasonably high and back to 715 00:42:02,280 --> 00:42:04,439 Speaker 1: where they were before the recession. That was a question, 716 00:42:04,600 --> 00:42:07,720 Speaker 1: So where hours work? Because I remember, oh, nine ten, 717 00:42:07,960 --> 00:42:10,160 Speaker 1: when you're coming out of the we were in like 718 00:42:10,360 --> 00:42:13,360 Speaker 1: thirty point one in that ring. I don't remember if 719 00:42:13,400 --> 00:42:15,880 Speaker 1: we got below thirty, but it was really the bottom 720 00:42:15,960 --> 00:42:19,439 Speaker 1: of the thirties. We're we're hours work now they're back 721 00:42:19,440 --> 00:42:21,920 Speaker 1: to where they were in two thousand and eight, And 722 00:42:22,040 --> 00:42:25,759 Speaker 1: if you draw the crisis pre crisis, uh two thousand seven, 723 00:42:25,800 --> 00:42:27,279 Speaker 1: they're back to where they were in two thousands. How 724 00:42:27,320 --> 00:42:31,120 Speaker 1: many is that per week? On average? It's in the thirties. 725 00:42:33,160 --> 00:42:34,960 Speaker 1: Because I normally should know this off the top of 726 00:42:35,000 --> 00:42:37,560 Speaker 1: my head, and I don't. So he's going for the 727 00:42:37,719 --> 00:42:41,320 Speaker 1: secret facts that he got from the labor Department. We 728 00:42:41,440 --> 00:42:43,800 Speaker 1: just saw this King show. I got some blue sheets 729 00:42:43,800 --> 00:42:47,799 Speaker 1: which had it, but I don't. I'll build up. So 730 00:42:47,880 --> 00:42:51,160 Speaker 1: but it's a significant improvement and we're back to and 731 00:42:51,160 --> 00:42:53,120 Speaker 1: it's back to the trend that we were on prior 732 00:42:53,160 --> 00:42:58,160 Speaker 1: to the crisis. It's a yes. So we've returned to trend. 733 00:42:58,320 --> 00:43:01,040 Speaker 1: And so that's kind of that's enough fascinating. So I 734 00:43:01,080 --> 00:43:03,279 Speaker 1: don't think there's that much hidden slack in terms of 735 00:43:03,320 --> 00:43:07,319 Speaker 1: work hours. So you had mentioned, um, let's let's talk 736 00:43:07,360 --> 00:43:09,120 Speaker 1: a little bit about the FED. You had mentioned you 737 00:43:09,200 --> 00:43:12,360 Speaker 1: thought the FED had done a really good job. You 738 00:43:12,400 --> 00:43:16,600 Speaker 1: know what didn't happen this recovery, whether it's the Federal 739 00:43:16,640 --> 00:43:25,160 Speaker 1: Congress or what have you, that would have made it better, faster, stronger. Well, 740 00:43:25,200 --> 00:43:27,719 Speaker 1: I think Congress made a major mistake with the sequester. 741 00:43:28,480 --> 00:43:31,640 Speaker 1: We cut back discretionary spending. We did it in an 742 00:43:31,719 --> 00:43:36,279 Speaker 1: arbitrary way. We should be investing more in research and development, 743 00:43:36,360 --> 00:43:41,080 Speaker 1: more in infrastructure, more in education and Congress cut that back. 744 00:43:42,360 --> 00:43:44,760 Speaker 1: On top of that, I think Congress could have extended 745 00:43:44,760 --> 00:43:52,840 Speaker 1: the payroll tax cut into we had it in Uh, 746 00:43:52,840 --> 00:43:56,160 Speaker 1: Why is this still that just mad pursuit of austerity, 747 00:43:56,239 --> 00:43:59,960 Speaker 1: that misguided pursuit of austerity. Has that argument been laid 748 00:44:00,080 --> 00:44:02,880 Speaker 1: to rest when you see the austerity put in place 749 00:44:03,000 --> 00:44:06,400 Speaker 1: by Europe and the much more moderate austerity in the 750 00:44:06,480 --> 00:44:10,279 Speaker 1: United States, How the two two regions had recovered. H 751 00:44:10,920 --> 00:44:12,359 Speaker 1: I don't know if it's been put to rest, but 752 00:44:12,480 --> 00:44:15,840 Speaker 1: I certainly take that as pretty strong evidence that the 753 00:44:15,920 --> 00:44:18,360 Speaker 1: US is doing better because we pursued a different fiscal 754 00:44:18,400 --> 00:44:21,640 Speaker 1: policy and a different monetary policy for that matter. But 755 00:44:21,760 --> 00:44:25,480 Speaker 1: we were pretty in terms of historical fiscal stimulations. You 756 00:44:25,600 --> 00:44:29,800 Speaker 1: had the stimulus plan, but it was different than previous 757 00:44:29,800 --> 00:44:33,320 Speaker 1: stimulus plans, and that a big chunk of it was temporary, 758 00:44:33,440 --> 00:44:37,080 Speaker 1: was temporary tax cuts, it was temporary unemployment extensions. It 759 00:44:37,160 --> 00:44:40,759 Speaker 1: wasn't like a massive infrastructure build out. And then you 760 00:44:40,840 --> 00:44:44,560 Speaker 1: had all these ongoing layoffs at the state and local level. 761 00:44:45,040 --> 00:44:48,479 Speaker 1: So net net up until only a few months ago, 762 00:44:49,160 --> 00:44:54,400 Speaker 1: total government hiring um has been a dreg unemployment absolutely. 763 00:44:54,400 --> 00:44:56,040 Speaker 1: You know, if you look at the big picture, which 764 00:44:56,040 --> 00:44:59,840 Speaker 1: is government spending, including state and local together with federal. 765 00:45:00,600 --> 00:45:03,840 Speaker 1: The stimulus only lasted about three quarters It was just 766 00:45:04,640 --> 00:45:08,279 Speaker 1: uh the end of two thousand nine early and since 767 00:45:08,320 --> 00:45:12,120 Speaker 1: then it's been phasing out. One might have said in 768 00:45:12,160 --> 00:45:14,520 Speaker 1: two thousand nine that a risk of this stimulus was 769 00:45:14,560 --> 00:45:17,960 Speaker 1: that it would become permanent, but that hasn't happened. And 770 00:45:18,000 --> 00:45:20,440 Speaker 1: if you look at state and local governments, while they 771 00:45:20,440 --> 00:45:23,479 Speaker 1: were receiving support from the Recovery Act, from the stimulus bill, 772 00:45:23,800 --> 00:45:27,319 Speaker 1: they weren't laying off teachers and firefighters and police. And 773 00:45:27,360 --> 00:45:29,400 Speaker 1: it was only after that money ran out that we 774 00:45:29,480 --> 00:45:33,439 Speaker 1: saw layoffs reach really historically high levels in the state 775 00:45:33,440 --> 00:45:35,520 Speaker 1: and local government sector. Right, And when we look at 776 00:45:35,560 --> 00:45:38,360 Speaker 1: the two thousand one recovery, that was a huge additive 777 00:45:38,440 --> 00:45:41,239 Speaker 1: to to what the economy was doing two thousand one 778 00:45:41,320 --> 00:45:44,680 Speaker 1: and the early eighties. So only Democrats seem to be 779 00:45:45,480 --> 00:45:50,040 Speaker 1: UH president when fiscal policy is working against the recovery. Well, well, 780 00:45:50,040 --> 00:45:53,120 Speaker 1: my argument has long been that the party out of power, 781 00:45:53,280 --> 00:45:55,879 Speaker 1: and I hope I'm not engaging in any false equivalency here, 782 00:45:56,160 --> 00:45:59,200 Speaker 1: but the party out of power always complains about budgets 783 00:45:59,200 --> 00:46:02,640 Speaker 1: and deficits, and you know they're arguing What they're really 784 00:46:02,680 --> 00:46:07,200 Speaker 1: doing is arguing against the policy of the opposing party, 785 00:46:07,280 --> 00:46:09,799 Speaker 1: and Republicans do it, and Democrats do it. It just 786 00:46:09,840 --> 00:46:12,640 Speaker 1: seems that this time, with this president, it was an 787 00:46:12,640 --> 00:46:16,879 Speaker 1: effective argument that had gained traction from people who previously 788 00:46:17,080 --> 00:46:19,840 Speaker 1: were the furthest thing in the world from deficit hawks. 789 00:46:20,200 --> 00:46:23,920 Speaker 1: You know, if you supported Medicare Section D and unfunded 790 00:46:23,960 --> 00:46:27,640 Speaker 1: tax cuts and and a war of choice in Iraq, 791 00:46:27,800 --> 00:46:30,520 Speaker 1: you're spending a lot of money. I'm not arguing about 792 00:46:30,520 --> 00:46:33,719 Speaker 1: those policies. You're not a deficit hawk if you're gonna 793 00:46:33,719 --> 00:46:37,040 Speaker 1: deficit spend for those things. When the roles reverse who's 794 00:46:37,080 --> 00:46:40,080 Speaker 1: in the White House, suddenly you become very concerned about 795 00:46:40,080 --> 00:46:43,239 Speaker 1: debt and deficits. It it seems a little disingenuous. Oh 796 00:46:43,239 --> 00:46:45,839 Speaker 1: it's even worse than that, in that it wasn't only 797 00:46:45,880 --> 00:46:48,080 Speaker 1: the war that was costing money. It was also adding 798 00:46:48,120 --> 00:46:51,680 Speaker 1: Medicare Part D prescription draws without paying for it, and 799 00:46:51,680 --> 00:46:55,279 Speaker 1: cutting taxes in large measure for high income earners, and 800 00:46:55,360 --> 00:47:00,040 Speaker 1: also without offsetting that with spending cuts elsewhere. So I 801 00:47:00,040 --> 00:47:02,279 Speaker 1: I guess I'd take a somewhat more partisan view. Having 802 00:47:02,280 --> 00:47:05,560 Speaker 1: worked for President Clinton and President Obama. You know, President 803 00:47:05,600 --> 00:47:09,960 Speaker 1: Clinton signed the Balanced Budget Act, uh, physically Responsible Act. 804 00:47:10,239 --> 00:47:13,760 Speaker 1: President Obama wanted to address the drivers of our deficit, 805 00:47:13,800 --> 00:47:16,960 Speaker 1: which is healthcare costs and entitlements. That was part of 806 00:47:16,960 --> 00:47:22,000 Speaker 1: the Grand Bargain negotiations along with military spending. Was was 807 00:47:22,040 --> 00:47:25,640 Speaker 1: a big issue that had had an impact in the sequester. Right, 808 00:47:26,280 --> 00:47:30,080 Speaker 1: that's right, Um, but military spendings winding down on its own. 809 00:47:30,120 --> 00:47:33,360 Speaker 1: It's been coming down on its own as we um 810 00:47:33,600 --> 00:47:39,200 Speaker 1: reduce our engagement in the Middle East. So uh, you know, actually, 811 00:47:39,200 --> 00:47:41,560 Speaker 1: if you look at the trends, it's quite remarkable because 812 00:47:42,000 --> 00:47:44,520 Speaker 1: we saw a pretty sharp decline in military spending in 813 00:47:44,560 --> 00:47:49,239 Speaker 1: two thousand and uh twelve, two thousand and thirteen, and 814 00:47:49,280 --> 00:47:51,960 Speaker 1: that was a drag on the economy. Ultimately, I think 815 00:47:51,960 --> 00:47:56,120 Speaker 1: it's better for those resources to be used for civilian purposes. Uh. 816 00:47:56,120 --> 00:48:00,520 Speaker 1: But we haven't really addressed the drivers of the deficit 817 00:48:00,880 --> 00:48:04,080 Speaker 1: in spite of the emphasis and austerity, because we haven't 818 00:48:04,120 --> 00:48:07,480 Speaker 1: done much to address the long run entitlement costs and 819 00:48:07,520 --> 00:48:12,200 Speaker 1: healthcare costs. So that seems to be a partisan policy 820 00:48:12,239 --> 00:48:16,760 Speaker 1: debate where the philosophies are so far apart. There's almost 821 00:48:17,239 --> 00:48:20,400 Speaker 1: not a you know, normally you can horse trade a 822 00:48:20,400 --> 00:48:23,240 Speaker 1: little bit. Back in the days of of Ronald Reagan 823 00:48:23,280 --> 00:48:25,880 Speaker 1: and Tip O'Neill, there was a lot of back and forth, 824 00:48:25,920 --> 00:48:28,480 Speaker 1: and they weren't so far apart that I got something, 825 00:48:28,520 --> 00:48:30,440 Speaker 1: You've got something. All right, we come up with some 826 00:48:31,120 --> 00:48:34,080 Speaker 1: a policy that everybody can live with, declare victory and 827 00:48:34,120 --> 00:48:36,560 Speaker 1: move on to the next thing. As the parties get 828 00:48:36,600 --> 00:48:39,319 Speaker 1: further and further apart, and I don't know if I 829 00:48:39,320 --> 00:48:42,319 Speaker 1: would argue that both parties aren't moving away from the 830 00:48:42,360 --> 00:48:45,440 Speaker 1: center at an equal pace. As a former Republican, I 831 00:48:45,440 --> 00:48:49,479 Speaker 1: could tell you that the right has moved further away 832 00:48:49,480 --> 00:48:53,600 Speaker 1: from the middle much faster than the left has. Um. 833 00:48:53,640 --> 00:48:55,279 Speaker 1: I haven't changed my you know, I grew up a 834 00:48:55,400 --> 00:48:59,759 Speaker 1: Jacob Javits Republican, which today puts me too far to 835 00:48:59,800 --> 00:49:03,520 Speaker 1: the left of you know, anybody who's a Democrat in 836 00:49:03,600 --> 00:49:06,560 Speaker 1: half of the anyone who's a Republican and half of 837 00:49:06,600 --> 00:49:08,719 Speaker 1: the Democrats. By the way, I just pulled up the 838 00:49:08,719 --> 00:49:13,720 Speaker 1: BLS data. Manufacturing work week decreased at point one hours 839 00:49:13,719 --> 00:49:17,640 Speaker 1: to forty point nine. Manufacturing work work weeks always longer, 840 00:49:17,920 --> 00:49:22,520 Speaker 1: and then um total employees on private non fun pay 841 00:49:22,640 --> 00:49:26,560 Speaker 1: rolls thirty four declined point one to thirty four point five. So, 842 00:49:26,680 --> 00:49:29,839 Speaker 1: but that's still substantially above where we began thirty four 843 00:49:29,880 --> 00:49:33,160 Speaker 1: and a half as normal, that's about that. That's I 844 00:49:33,200 --> 00:49:36,200 Speaker 1: would say, that's about where you would predict we should 845 00:49:36,200 --> 00:49:40,000 Speaker 1: be based on the trend before the recession. Factory over 846 00:49:40,080 --> 00:49:44,960 Speaker 1: time three point four hours, is that considered substantial? That's high. 847 00:49:45,360 --> 00:49:49,080 Speaker 1: And you know, the adorable good sector has made a 848 00:49:49,080 --> 00:49:51,520 Speaker 1: remarkable recovery. You look at the auto sector, it's made 849 00:49:51,520 --> 00:49:56,080 Speaker 1: a remarkable recovery in this uh economic climate. Let's let's 850 00:49:56,080 --> 00:49:58,120 Speaker 1: talk about that because it brings to mind a really 851 00:49:58,120 --> 00:50:02,240 Speaker 1: fascinating conversation I had with Jonathan Miller, who is UM 852 00:50:02,520 --> 00:50:04,680 Speaker 1: one of the best known real estate appraisers. He's on 853 00:50:05,120 --> 00:50:09,360 Speaker 1: all the time with Tom and others. Wherever credit is tight, 854 00:50:09,960 --> 00:50:15,360 Speaker 1: that sector is doing poorly. And wherever there's loosening of credit, 855 00:50:16,120 --> 00:50:18,680 Speaker 1: such as automobiles, you know, people are now saying, hey, 856 00:50:18,719 --> 00:50:21,480 Speaker 1: we have a subprime problem in automobiles. We're on a 857 00:50:21,520 --> 00:50:24,480 Speaker 1: pace to sell seventeen million automobiles in the United States. 858 00:50:24,880 --> 00:50:29,360 Speaker 1: That's a record number even as total miles driving still, 859 00:50:29,400 --> 00:50:31,120 Speaker 1: I think, are we still below where we were a 860 00:50:31,200 --> 00:50:34,839 Speaker 1: pre crisis? There was a huge dip. We've recovered some 861 00:50:34,880 --> 00:50:37,520 Speaker 1: of it. I think we're about halfway back, but that's 862 00:50:37,560 --> 00:50:40,800 Speaker 1: a massive number, seventeen million. It's remarkable. I mean it 863 00:50:40,880 --> 00:50:43,440 Speaker 1: shows how much pent up demand there was, and it 864 00:50:43,520 --> 00:50:45,759 Speaker 1: also shows I think that our auto companies are doing 865 00:50:45,800 --> 00:50:48,399 Speaker 1: a better job. They're producing better cars. If you look 866 00:50:48,440 --> 00:50:50,839 Speaker 1: at Chrysler today, it's a totally different kind of car 867 00:50:51,239 --> 00:50:54,359 Speaker 1: and now owned by Fiat instead of and same thing 868 00:50:54,360 --> 00:50:57,160 Speaker 1: with GM when you look at GM. I'm not a 869 00:50:57,160 --> 00:51:00,520 Speaker 1: GM guy, but I have to tell you the the 870 00:51:00,600 --> 00:51:02,839 Speaker 1: catalogs that have come out are really nice. The new 871 00:51:02,920 --> 00:51:07,600 Speaker 1: Corvette is a spectacular car. And their competition for the 872 00:51:07,640 --> 00:51:10,680 Speaker 1: camera and the accord um it begins with an Allen. 873 00:51:11,080 --> 00:51:15,720 Speaker 1: I'm not accessing that word. No, no, no, that's Chevy Lumina, 874 00:51:15,880 --> 00:51:18,560 Speaker 1: is it. Maybe it's Lumina. Oh no, it's the um 875 00:51:18,640 --> 00:51:21,719 Speaker 1: Impala and the new Impala. You think of Impali, think 876 00:51:21,719 --> 00:51:24,920 Speaker 1: of a giant car, but it's their camera slash Honda 877 00:51:25,040 --> 00:51:29,560 Speaker 1: chord competitor. They're winning all sorts of awards. It's amazing 878 00:51:29,600 --> 00:51:34,279 Speaker 1: how far the US owner industry has come post bailout. Absolutely. 879 00:51:34,760 --> 00:51:37,600 Speaker 1: I actually just wrote a new study together with Austin Gulsby, 880 00:51:37,680 --> 00:51:39,800 Speaker 1: who was my predecessor as Chairman of the c e 881 00:51:39,920 --> 00:51:43,279 Speaker 1: A on the Auto bailout, and it has been far 882 00:51:43,360 --> 00:51:47,319 Speaker 1: more successful than we expected. In two thousand nine, UM, 883 00:51:47,360 --> 00:51:49,239 Speaker 1: I find Austin to be a fascinating guy. Was on 884 00:51:49,280 --> 00:51:51,799 Speaker 1: a panel with him in Las Vegas some years ago 885 00:51:51,920 --> 00:51:58,120 Speaker 1: about the bailouts and the conversation was, why don't we 886 00:51:58,160 --> 00:52:00,720 Speaker 1: do for the banks what we had on for GM 887 00:52:00,719 --> 00:52:03,399 Speaker 1: and Chrysler. You know, it always seems that when there's 888 00:52:03,440 --> 00:52:08,479 Speaker 1: a Wall Street person as UM Treasury in the Chief 889 00:52:08,480 --> 00:52:11,480 Speaker 1: Treasury Department, Wall Street gets treated well. When you get 890 00:52:11,480 --> 00:52:14,520 Speaker 1: a like you did in the most of the prior century, 891 00:52:14,600 --> 00:52:18,239 Speaker 1: when you have an industrialist or a manufacturer, somebody from 892 00:52:18,280 --> 00:52:23,399 Speaker 1: that side of UM the economy, Wall Street doesn't seem 893 00:52:23,400 --> 00:52:25,719 Speaker 1: to get bailed out. The manufacturers get bailed out. Is 894 00:52:25,719 --> 00:52:29,720 Speaker 1: that just the nature of people protecting their own industry? 895 00:52:29,880 --> 00:52:33,160 Speaker 1: Or asked differently, why did we not treat the banks 896 00:52:33,200 --> 00:52:37,360 Speaker 1: the way we treated GM and Chrysler. Well, it's a 897 00:52:37,440 --> 00:52:41,760 Speaker 1: very good question. Uh. First of all, I was involved 898 00:52:41,800 --> 00:52:44,719 Speaker 1: when Tim Geitner was Secretary, and Tim really is not 899 00:52:44,800 --> 00:52:47,400 Speaker 1: a Wall Street person. He was a public servant. He 900 00:52:47,440 --> 00:52:50,440 Speaker 1: spent his whole career at Treasury or the i m 901 00:52:50,560 --> 00:52:52,640 Speaker 1: F for then the New York Fed. But people have 902 00:52:52,680 --> 00:52:55,399 Speaker 1: accused him as president in the New York Fed being 903 00:52:55,520 --> 00:52:59,400 Speaker 1: very close to Wall Street. Is that not an accurate description? 904 00:53:00,880 --> 00:53:03,040 Speaker 1: You know. I think he should be judged by his actions, 905 00:53:03,280 --> 00:53:07,840 Speaker 1: and I think he was consistent in the principles that 906 00:53:07,880 --> 00:53:09,960 Speaker 1: he applied to the bailout to the extent that he 907 00:53:09,960 --> 00:53:14,000 Speaker 1: could have been. He was constrained by the law. UM. 908 00:53:14,040 --> 00:53:18,759 Speaker 1: I think he did a remarkable job protecting taxpayers. You know, 909 00:53:19,000 --> 00:53:21,319 Speaker 1: all of the money came back and then some the 910 00:53:21,320 --> 00:53:24,239 Speaker 1: money that went to the financial sector during the bailout. 911 00:53:25,000 --> 00:53:30,440 Speaker 1: He protected our system of the hierarchy for investors and 912 00:53:30,480 --> 00:53:35,640 Speaker 1: bond investors and senior UH creditors UH. And I think 913 00:53:36,320 --> 00:53:38,839 Speaker 1: our recovery is a lot stronger because of the very 914 00:53:38,880 --> 00:53:44,879 Speaker 1: difficult decisions that he he was forced to make. UM. 915 00:53:45,000 --> 00:53:47,960 Speaker 1: The role of banks, I think it's pretty special in 916 00:53:48,000 --> 00:53:50,600 Speaker 1: the economy. So I think one could make a case 917 00:53:50,760 --> 00:53:54,400 Speaker 1: for treating the financial sector differently in the midst of 918 00:53:54,440 --> 00:53:58,640 Speaker 1: a financial panic. UM, the problems that the auto companies 919 00:53:58,680 --> 00:54:01,400 Speaker 1: were facing were very long in the making, and they 920 00:54:01,480 --> 00:54:05,800 Speaker 1: needed to restructure. It was not just a temporary problem 921 00:54:05,840 --> 00:54:08,240 Speaker 1: that they were facing because of a run on banks, 922 00:54:09,280 --> 00:54:13,160 Speaker 1: which was uh in in some sense the issue in 923 00:54:13,200 --> 00:54:18,040 Speaker 1: the financial sector. So I think one could fault the 924 00:54:18,040 --> 00:54:21,000 Speaker 1: financial bailout personally, I would have liked to have seen 925 00:54:21,080 --> 00:54:24,439 Speaker 1: us put more restrictions on the banks when it came 926 00:54:24,480 --> 00:54:26,600 Speaker 1: to lending. I would have liked to have seen some 927 00:54:26,680 --> 00:54:30,880 Speaker 1: requirements which eventually were put on there We're done, for example, 928 00:54:30,880 --> 00:54:33,480 Speaker 1: in the Small Business Lending Fund to encourage banks to 929 00:54:33,600 --> 00:54:37,000 Speaker 1: lend more to small businesses. UH. I would have liked 930 00:54:37,000 --> 00:54:42,160 Speaker 1: to have seen the executive compensation restrictions last longer. UM. 931 00:54:42,200 --> 00:54:45,800 Speaker 1: But having said that, UH, I think the stress tests 932 00:54:46,120 --> 00:54:52,920 Speaker 1: and the UM use of TARP funds UH did rescue 933 00:54:53,000 --> 00:54:57,120 Speaker 1: the system, did make it possible for the recovery to begin. 934 00:54:57,840 --> 00:55:04,080 Speaker 1: So to to bullet points, one observation and then a question. 935 00:55:04,120 --> 00:55:07,759 Speaker 1: I have to ask you one of I'm an automotive enthusiast. 936 00:55:07,880 --> 00:55:11,080 Speaker 1: I love cars. My mother will tell you car was 937 00:55:11,200 --> 00:55:14,360 Speaker 1: literally the first word I ever said. And one of 938 00:55:14,400 --> 00:55:16,520 Speaker 1: the sites I used to read all the time, I 939 00:55:16,560 --> 00:55:20,160 Speaker 1: mean long before the financial crisis was called The Truth 940 00:55:20,200 --> 00:55:23,759 Speaker 1: about Cars, and they had a segment called GM Bankruptcy 941 00:55:23,840 --> 00:55:27,680 Speaker 1: Watch Part one through you know two hundred, and they 942 00:55:27,680 --> 00:55:31,480 Speaker 1: were saying here's the math. It's unsustainable. GM can't keep 943 00:55:32,040 --> 00:55:37,160 Speaker 1: generous pension, generous healthcare, nine levels of executives. They can 944 00:55:37,239 --> 00:55:39,600 Speaker 1: operate like this. It's a house of cards. That asked 945 00:55:39,640 --> 00:55:43,040 Speaker 1: the collapse, and it turned out that was accurate. But 946 00:55:43,400 --> 00:55:47,200 Speaker 1: so the restructuring and the bailout and the resurrection of 947 00:55:47,280 --> 00:55:49,840 Speaker 1: GM and CHRIST will tend out to be a great 948 00:55:49,880 --> 00:55:52,280 Speaker 1: thing for the economy, a great thing for the auto sector. 949 00:55:52,760 --> 00:55:58,719 Speaker 1: So here's the question I always ask about the banks. Yes, 950 00:55:58,800 --> 00:56:02,000 Speaker 1: banks are important, banks are special, and that's why we 951 00:56:02,160 --> 00:56:06,279 Speaker 1: can't allow insolvent banks to put the entire system at risk. 952 00:56:06,360 --> 00:56:11,400 Speaker 1: We can't allow crazy leverage, we can't allow reckless spending 953 00:56:11,480 --> 00:56:15,640 Speaker 1: and lending and speculation to put the economy at risk. 954 00:56:15,800 --> 00:56:19,000 Speaker 1: So here's what the counterfact rule I want to ask 955 00:56:19,120 --> 00:56:23,320 Speaker 1: is what would have happened early in the financial crisis. 956 00:56:23,600 --> 00:56:28,080 Speaker 1: If so, let's refresh people's timeline. You had March O eight, 957 00:56:28,120 --> 00:56:31,880 Speaker 1: you had Bear Stearns go under, and and the Federal 958 00:56:31,920 --> 00:56:36,880 Speaker 1: Reserve essentially guaranteed to JP Morgan they would backstop Bears 959 00:56:36,920 --> 00:56:39,719 Speaker 1: books and it was sold first for two dollars a year, 960 00:56:39,760 --> 00:56:41,120 Speaker 1: then ten dollars a share. It turned out to be 961 00:56:41,120 --> 00:56:45,000 Speaker 1: a phenomenal acquisition for JP Morgan, a huge home run. 962 00:56:46,120 --> 00:56:48,600 Speaker 1: Then as we worked our way through the summer, things 963 00:56:48,600 --> 00:56:50,839 Speaker 1: started to get a little dicey. We had issues with 964 00:56:51,280 --> 00:56:54,440 Speaker 1: Fannie and Freddie and the G S c S. I'm 965 00:56:54,480 --> 00:56:57,160 Speaker 1: still not convinced that the American taxpayer's men made whole. 966 00:56:57,239 --> 00:57:00,360 Speaker 1: There were tax waivers given UM and off sets, and 967 00:57:00,400 --> 00:57:02,600 Speaker 1: Fannie and Freddie's have been throwing off a lot of money. 968 00:57:02,640 --> 00:57:04,800 Speaker 1: I don't know if that's break even. I think a 969 00:57:05,000 --> 00:57:08,359 Speaker 1: I G is now break even even including the tax 970 00:57:08,400 --> 00:57:11,080 Speaker 1: benefits they got. I'm not positive about that. So we're 971 00:57:11,200 --> 00:57:14,600 Speaker 1: almost but not quite made whole. We certainly didn't get 972 00:57:14,640 --> 00:57:18,120 Speaker 1: the benefits of that very risky investment. If I was 973 00:57:18,160 --> 00:57:22,920 Speaker 1: an investor, Hey, here's a billions of dollars one day, 974 00:57:22,960 --> 00:57:25,640 Speaker 1: I hope to break even on it. Not not what 975 00:57:25,640 --> 00:57:29,400 Speaker 1: Wall Street typically looks for. But the counterfactual is what 976 00:57:29,520 --> 00:57:32,960 Speaker 1: would have happened if we would have set to City Bank. Okay, 977 00:57:33,200 --> 00:57:36,760 Speaker 1: you guys have had problems every twenty years, it seems, 978 00:57:37,320 --> 00:57:42,960 Speaker 1: let's temporarily put you into receivership with Uncle Sam acting 979 00:57:43,160 --> 00:57:48,200 Speaker 1: as the debtor, you know, creditor in possession, the the 980 00:57:48,440 --> 00:57:52,680 Speaker 1: provider of UM the creditor acting as um offering all 981 00:57:52,720 --> 00:57:57,560 Speaker 1: of the debt funding during this reorganization, will wipe out 982 00:57:57,600 --> 00:58:00,320 Speaker 1: the shareholders, will give a haircut to the bond holders, 983 00:58:00,640 --> 00:58:03,960 Speaker 1: will fire fire that top level of senior management who 984 00:58:04,000 --> 00:58:07,560 Speaker 1: clearly have driven the bus off the off the road, 985 00:58:07,640 --> 00:58:12,080 Speaker 1: into the into the lake, and we'll spin them out 986 00:58:12,120 --> 00:58:14,360 Speaker 1: as a as a brand new entity. Same thing with 987 00:58:14,440 --> 00:58:16,760 Speaker 1: Bank of America. The argument I used to say is, 988 00:58:17,240 --> 00:58:19,320 Speaker 1: we'll clean up Merrill Lynch, We'll get rid of their debt, 989 00:58:19,320 --> 00:58:21,360 Speaker 1: will spin them out as a free standing entity, will 990 00:58:21,400 --> 00:58:24,840 Speaker 1: take countrywide the biggest mortgage underwriters, will clean them up, 991 00:58:25,080 --> 00:58:28,800 Speaker 1: will spend them out there now a freestanding debt free, 992 00:58:29,400 --> 00:58:32,360 Speaker 1: clean company. Will take Bank of America. Same thing. Then 993 00:58:32,400 --> 00:58:34,959 Speaker 1: we'll take all of this what people are calling toxic debt, 994 00:58:35,440 --> 00:58:37,760 Speaker 1: which is on toxic assets, which is really a bit 995 00:58:37,880 --> 00:58:41,120 Speaker 1: that's toxic at hundred cents on the dollar, but there's 996 00:58:41,160 --> 00:58:45,200 Speaker 1: some price ten cents where that's a good investment, and 997 00:58:45,200 --> 00:58:48,560 Speaker 1: we'll auction that off and net net will go. We'll 998 00:58:48,640 --> 00:58:51,520 Speaker 1: tear the band aid off. We'll go through this painful process, 999 00:58:51,520 --> 00:58:54,280 Speaker 1: but then we'll be much healthier on the other side. 1000 00:58:54,920 --> 00:58:57,800 Speaker 1: What's wrong with that counter factual. I think there are 1001 00:58:57,800 --> 00:59:02,000 Speaker 1: a few things, and fortunately the economy didn't get so 1002 00:59:02,280 --> 00:59:05,600 Speaker 1: bad that that was necessary. There was something. How close 1003 00:59:05,600 --> 00:59:07,600 Speaker 1: will we to that point? Though people have said we 1004 00:59:07,600 --> 00:59:11,320 Speaker 1: were The phrase I heard from Ben Bernanki was we 1005 00:59:11,320 --> 00:59:14,600 Speaker 1: were staring into the abyss. We were staring into the abyss. 1006 00:59:14,640 --> 00:59:17,919 Speaker 1: There's no question we were staring into the abyss. How 1007 00:59:17,960 --> 00:59:21,000 Speaker 1: close did we come? Well, the turning point was the 1008 00:59:21,040 --> 00:59:25,360 Speaker 1: stress tests. So had the stress tests shown that the 1009 00:59:25,560 --> 00:59:30,240 Speaker 1: city was as insolvent as you uh suggested, I think 1010 00:59:30,240 --> 00:59:32,680 Speaker 1: in different course of action would have been taken. But 1011 00:59:32,840 --> 00:59:35,120 Speaker 1: given that the stress tests helped things to turn around, 1012 00:59:35,200 --> 00:59:39,040 Speaker 1: Given that the stress tests provided investors with the information 1013 00:59:39,080 --> 00:59:40,920 Speaker 1: that they needed and the confidence that they had that 1014 00:59:40,920 --> 00:59:43,640 Speaker 1: they can invest, Given that city was able to raise 1015 00:59:43,680 --> 00:59:47,000 Speaker 1: money at that time, was able to uh, we'll raise 1016 00:59:47,040 --> 00:59:50,040 Speaker 1: money from the government. Or which which stress tests are 1017 00:59:50,080 --> 00:59:52,480 Speaker 1: we talking about? What the stress test was at the 1018 00:59:52,520 --> 00:59:56,640 Speaker 1: March of oh nine, But I'm talking October in October 1019 00:59:56,800 --> 00:59:59,360 Speaker 1: eight when the when the tarp was first dress. If 1020 00:59:59,600 --> 01:00:02,120 Speaker 1: that and he didn't go to these banks, if they 1021 01:00:02,600 --> 01:00:05,240 Speaker 1: go to the banks, the but but had we pursued 1022 01:00:05,280 --> 01:00:09,240 Speaker 1: the strategy that you laid out, uh, taxpayers would have 1023 01:00:09,240 --> 01:00:12,160 Speaker 1: paid much much more instead of actually making money on 1024 01:00:12,280 --> 01:00:15,200 Speaker 1: these TARP investments. They would have lost hundreds of billions 1025 01:00:15,200 --> 01:00:17,560 Speaker 1: of dollars. When I are where would those losses have 1026 01:00:17,640 --> 01:00:20,960 Speaker 1: come from. The losses would have come from wiping out 1027 01:00:21,000 --> 01:00:23,720 Speaker 1: the debt that you mentioned, from recapitalizing the banks with 1028 01:00:23,800 --> 01:00:27,080 Speaker 1: government money. On top of that, I think you would 1029 01:00:27,080 --> 01:00:29,680 Speaker 1: be looking at at least five years, maybe a decade 1030 01:00:29,680 --> 01:00:32,880 Speaker 1: of having having those companies under government receivership. That long. 1031 01:00:32,960 --> 01:00:35,280 Speaker 1: It's not a twelve month or an eighteen month process, 1032 01:00:35,320 --> 01:00:38,560 Speaker 1: clean them up and then take them public again. Look 1033 01:00:38,600 --> 01:00:40,640 Speaker 1: at some of the bank failures that we've seen, they've 1034 01:00:40,680 --> 01:00:44,120 Speaker 1: taken they've taken years, and that's banks that are one 1035 01:00:44,200 --> 01:00:48,040 Speaker 1: hundredth as large as a city. On top of that, 1036 01:00:49,120 --> 01:00:53,360 Speaker 1: had UH Treasury done what some people were in my 1037 01:00:53,440 --> 01:00:56,640 Speaker 1: view irresponsibly urging the Treasury to do, which was to 1038 01:00:56,720 --> 01:00:58,560 Speaker 1: take over those banks, we would have seen a run 1039 01:00:58,600 --> 01:01:01,040 Speaker 1: on other banks and it would have the problem much worse. 1040 01:01:01,080 --> 01:01:03,560 Speaker 1: If you're gonna wipe out the shareholders of city, what 1041 01:01:03,560 --> 01:01:06,000 Speaker 1: are you gonna do. If you're a shareholder Bank of America, 1042 01:01:06,040 --> 01:01:08,480 Speaker 1: You're gonna sell that's gonna make Bank of Americans problems 1043 01:01:08,560 --> 01:01:11,120 Speaker 1: much worse, uh, and then so on down the line. 1044 01:01:11,240 --> 01:01:15,680 Speaker 1: So I think we would have seen um a um 1045 01:01:15,720 --> 01:01:18,120 Speaker 1: a wave of bank failures which would have cost the 1046 01:01:18,160 --> 01:01:20,760 Speaker 1: taxpayers billions of dollars and which would have set the 1047 01:01:20,800 --> 01:01:24,280 Speaker 1: recovery back years. So you think this was the healthier 1048 01:01:24,960 --> 01:01:28,000 Speaker 1: way to proceed. So I only think in retrospect there's 1049 01:01:28,000 --> 01:01:32,240 Speaker 1: no question. I mean, you could say, um u that 1050 01:01:32,360 --> 01:01:35,200 Speaker 1: it was a mistake because it costs taxpayers so much money, 1051 01:01:35,240 --> 01:01:38,280 Speaker 1: but it hasn't. In the end. Well, the taxpayers had 1052 01:01:38,320 --> 01:01:40,360 Speaker 1: a lot of money at risk, and now we know 1053 01:01:40,440 --> 01:01:43,920 Speaker 1: what the benefit of hindsight, all or nearly all, or 1054 01:01:43,960 --> 01:01:47,000 Speaker 1: maybe even a little more than all have has been recovered. 1055 01:01:47,240 --> 01:01:51,040 Speaker 1: So net net, the cost to the taxpayers was not great. 1056 01:01:51,320 --> 01:01:54,080 Speaker 1: The risk to test payer money was fairly high. So 1057 01:01:54,120 --> 01:01:56,480 Speaker 1: the question I want to ask is, you know, pre 1058 01:01:56,680 --> 01:02:00,200 Speaker 1: crisis we had and I understand Sweden as much small 1059 01:02:00,200 --> 01:02:02,240 Speaker 1: in the United States, but we had the Swedish approach, 1060 01:02:02,640 --> 01:02:05,400 Speaker 1: which was throw everybody into receivership, clean them up, spin 1061 01:02:05,480 --> 01:02:08,760 Speaker 1: them out. And then we had the Japanese approach, which is, hey, 1062 01:02:08,880 --> 01:02:11,760 Speaker 1: we have these vertically stacked Kurt Susan, you can't kill 1063 01:02:11,800 --> 01:02:15,120 Speaker 1: back of Minsubishi because you have Mitsubishi heavy industries in 1064 01:02:15,240 --> 01:02:18,760 Speaker 1: Msrsubishi Aerospace and Missubishi real estate on top of that. 1065 01:02:19,240 --> 01:02:21,919 Speaker 1: And to to go Swedish and the United States would 1066 01:02:21,960 --> 01:02:27,520 Speaker 1: have wiped out Goldman sachs um Macy's general mode. It right, 1067 01:02:28,000 --> 01:02:30,560 Speaker 1: it would have been that sort of collapse. But why 1068 01:02:30,600 --> 01:02:33,960 Speaker 1: did this sort of thing work in other countries with 1069 01:02:34,040 --> 01:02:37,919 Speaker 1: financial crises? Is it just that Sweden is so much 1070 01:02:37,960 --> 01:02:41,360 Speaker 1: smaller than us. Their financial crisis was just so much 1071 01:02:41,400 --> 01:02:46,880 Speaker 1: more you know, manageable or or what is philosophically different there? 1072 01:02:46,960 --> 01:02:49,720 Speaker 1: I think Sweden had maybe four major banks. You know, 1073 01:02:49,800 --> 01:02:53,160 Speaker 1: it's just a totally different scale. And don't delude yourself. 1074 01:02:53,520 --> 01:02:56,160 Speaker 1: Taxpayers would have been at tremendous risk if the government 1075 01:02:56,160 --> 01:02:59,200 Speaker 1: would have taken over the major banks in the US. 1076 01:02:59,240 --> 01:03:02,160 Speaker 1: So it's not as if a risky strategy was pursued 1077 01:03:02,200 --> 01:03:03,960 Speaker 1: and it paid off and you got to take into 1078 01:03:03,960 --> 01:03:06,120 Speaker 1: account the cost of the risk. There was risk on 1079 01:03:06,160 --> 01:03:09,680 Speaker 1: either side. So it's it was a choice amongst risky strategies. 1080 01:03:09,760 --> 01:03:14,040 Speaker 1: It was the least bad solution, the least that had solutions. 1081 01:03:14,080 --> 01:03:16,600 Speaker 1: So let's let's go back to the FED a second. 1082 01:03:16,920 --> 01:03:19,880 Speaker 1: What else should the Fed have done, and I have 1083 01:03:19,920 --> 01:03:25,160 Speaker 1: to remind people there were many very creative, very innovative 1084 01:03:26,240 --> 01:03:30,160 Speaker 1: policies put into place. If anybody was going to be 1085 01:03:30,280 --> 01:03:32,800 Speaker 1: the perfect FED chairman, it was the guy who was 1086 01:03:32,840 --> 01:03:35,520 Speaker 1: the student of the Great Depression and who was committed 1087 01:03:35,520 --> 01:03:39,360 Speaker 1: to not repeating those mistakes. So what else could or 1088 01:03:39,360 --> 01:03:43,439 Speaker 1: should the FED have done post crisis? A couple of things. 1089 01:03:43,880 --> 01:03:47,960 Speaker 1: And uh, first of all, I think the FED could 1090 01:03:48,000 --> 01:03:50,440 Speaker 1: have done more to prevent the crisis. It could have 1091 01:03:50,480 --> 01:03:53,560 Speaker 1: raised lending standards, and that's something that Ned Gramleck had 1092 01:03:53,640 --> 01:03:57,120 Speaker 1: absolutely within the FED. And I think it had to 1093 01:03:57,160 --> 01:03:59,400 Speaker 1: do with the mindset of the FED, which is probably 1094 01:03:59,440 --> 01:04:02,360 Speaker 1: still there that the banks could regulate themselves, that they 1095 01:04:02,400 --> 01:04:04,560 Speaker 1: didn't need to be very So let's let's back. Let 1096 01:04:04,560 --> 01:04:07,040 Speaker 1: me interrupt you right here. Ed Gramleck was a FED 1097 01:04:07,120 --> 01:04:09,400 Speaker 1: governor who had gone to Alan Greenspan, who was the 1098 01:04:09,440 --> 01:04:11,960 Speaker 1: FED chairman, and said, we have a problem. We have 1099 01:04:12,040 --> 01:04:13,760 Speaker 1: a problem with some problem lending. We have a problem 1100 01:04:13,760 --> 01:04:17,360 Speaker 1: with predatory loans. We have banks mending making loans to 1101 01:04:17,480 --> 01:04:20,800 Speaker 1: people who clearly can't pay them back, and when these default, 1102 01:04:20,840 --> 01:04:24,080 Speaker 1: it's going to cause a domino cascade. And and Ed 1103 01:04:24,160 --> 01:04:27,880 Speaker 1: unfortunately passed away before the crisis, But it turned out 1104 01:04:28,040 --> 01:04:31,480 Speaker 1: all of his warnings were tremendously President he was a 1105 01:04:31,560 --> 01:04:35,000 Speaker 1: hundred percent correct. That's absolutely right. And the FED had 1106 01:04:35,000 --> 01:04:37,320 Speaker 1: it within their preview to say we're gonna require ten 1107 01:04:37,320 --> 01:04:40,200 Speaker 1: percent down payment, and if you had ten percent down payment, 1108 01:04:40,920 --> 01:04:43,240 Speaker 1: the value of a house falls by six seven percent 1109 01:04:44,520 --> 01:04:47,760 Speaker 1: owners not underwater, and you're in a very different situation 1110 01:04:47,800 --> 01:04:50,560 Speaker 1: than if you have loans with nothing down or one 1111 01:04:50,640 --> 01:04:54,600 Speaker 1: two percent down. They were actually cash out homeport purchases 1112 01:04:54,880 --> 01:04:57,240 Speaker 1: where you could buy a house and take a second 1113 01:04:57,280 --> 01:04:59,680 Speaker 1: at the same time, So you walk into the house 1114 01:05:00,000 --> 01:05:03,200 Speaker 1: fifty thousand dollars richer, no skin in the game, and 1115 01:05:03,240 --> 01:05:06,640 Speaker 1: every incentive to walk away. That's right. So I do 1116 01:05:06,840 --> 01:05:11,760 Speaker 1: hold the FED responsible UH for a very core component 1117 01:05:11,840 --> 01:05:14,960 Speaker 1: of the crisis. Not not exclusively, but they certainly were 1118 01:05:15,000 --> 01:05:17,880 Speaker 1: a major factor. Look, I mean, if the private sector 1119 01:05:17,880 --> 01:05:20,880 Speaker 1: didn't have the collective delusion that home prices would continue 1120 01:05:20,880 --> 01:05:22,680 Speaker 1: to grow, we wouldn't have had the crisis too. So 1121 01:05:22,720 --> 01:05:26,240 Speaker 1: that there were many UH factors that led to the crisis. 1122 01:05:26,280 --> 01:05:27,640 Speaker 1: I don't think that one could say there was a 1123 01:05:27,640 --> 01:05:31,680 Speaker 1: single cause on the recovery. UM. I think where I 1124 01:05:31,720 --> 01:05:37,040 Speaker 1: would fault the FED was in prematurely ending uh quantitative easing. 1125 01:05:37,360 --> 01:05:40,560 Speaker 1: You would have extended it further. Uh. Not QUE three, 1126 01:05:41,680 --> 01:05:43,960 Speaker 1: but say q E two, so I would have had 1127 01:05:43,960 --> 01:05:46,400 Speaker 1: a more continuous QUE two. I think they took the 1128 01:05:46,520 --> 01:05:50,120 Speaker 1: photo off the gas a little bit too soon. Uh. 1129 01:05:50,160 --> 01:05:52,680 Speaker 1: And that's led to this stop and start in terms 1130 01:05:52,720 --> 01:05:54,840 Speaker 1: of in terms of QUI, so I, I know we 1131 01:05:54,920 --> 01:05:56,960 Speaker 1: don't have you for very much longer. Let let me 1132 01:05:57,000 --> 01:06:01,160 Speaker 1: ask you one more related question on the D before 1133 01:06:01,160 --> 01:06:05,400 Speaker 1: we send you off to uh NPR. Bill Gross had 1134 01:06:05,440 --> 01:06:09,360 Speaker 1: an interesting observation about FED rates, and he said, you know, 1135 01:06:09,400 --> 01:06:12,040 Speaker 1: if the Fed didn't take rates down to zero, had 1136 01:06:12,080 --> 01:06:15,560 Speaker 1: they stopped at one percent, it would have allowed the 1137 01:06:15,600 --> 01:06:18,040 Speaker 1: economy to appear a little more normal. It would have 1138 01:06:18,080 --> 01:06:20,880 Speaker 1: allowed them to have a little more flexibility, and then 1139 01:06:20,920 --> 01:06:23,560 Speaker 1: all the screaming about zerup and zero bound than everything 1140 01:06:23,600 --> 01:06:27,440 Speaker 1: else would have gone away, and the process of normalizing 1141 01:06:28,320 --> 01:06:31,320 Speaker 1: of federal reserve policy would have been a little easier. 1142 01:06:31,840 --> 01:06:36,760 Speaker 1: What are your thoughts on that. I find that argument 1143 01:06:36,840 --> 01:06:39,680 Speaker 1: hard to accept, given that the tailor rule says we 1144 01:06:39,720 --> 01:06:42,480 Speaker 1: should have negative rates. So the Fed went as far 1145 01:06:42,520 --> 01:06:44,640 Speaker 1: as it could go, and then it actually reinvented the 1146 01:06:44,680 --> 01:06:49,800 Speaker 1: playbook by going a quantitative easing. So uh, to me, 1147 01:06:49,880 --> 01:06:52,000 Speaker 1: that argument doesn't make much sense. And I think we've 1148 01:06:52,000 --> 01:06:55,000 Speaker 1: seen some countries make that mistake and then they decided 1149 01:06:55,040 --> 01:06:56,440 Speaker 1: to go all the way down to zero or as 1150 01:06:56,480 --> 01:06:59,320 Speaker 1: close as they can go. So in the final few 1151 01:06:59,320 --> 01:07:01,840 Speaker 1: minutes we have let me ask you, um, one or 1152 01:07:01,880 --> 01:07:04,320 Speaker 1: two more questions and and I have my favorite question. 1153 01:07:04,320 --> 01:07:08,280 Speaker 1: I ask everybody first, UM, what shifts do you see 1154 01:07:08,320 --> 01:07:11,520 Speaker 1: coming up? What? What are people not really thinking about 1155 01:07:12,040 --> 01:07:15,440 Speaker 1: that they really might should be aware of. Well, I'm 1156 01:07:15,480 --> 01:07:18,440 Speaker 1: sure people are thinking about it, but demographic shifts are 1157 01:07:18,480 --> 01:07:21,600 Speaker 1: having a tremendous effect on the US. Slower growth in 1158 01:07:21,680 --> 01:07:25,600 Speaker 1: the working age population, uh, slower rate of immigration to 1159 01:07:25,720 --> 01:07:31,120 Speaker 1: the US. I think, uh, we missed a major opportunity 1160 01:07:31,160 --> 01:07:35,080 Speaker 1: to reform our immigration system. Disappointed that Congress wasn't able 1161 01:07:35,120 --> 01:07:37,560 Speaker 1: to pass the bill. The Senate bill, which was not 1162 01:07:37,680 --> 01:07:40,040 Speaker 1: a perfect bill, would have been a big improvement over 1163 01:07:40,080 --> 01:07:43,800 Speaker 1: our current system. UM. And I think businesses need to 1164 01:07:43,800 --> 01:07:47,080 Speaker 1: give a lot of thought to how the aging of 1165 01:07:47,120 --> 01:07:52,600 Speaker 1: the US population, the slower or decline in labor force 1166 01:07:52,680 --> 01:07:55,480 Speaker 1: participation of women, how that's going to affect their business model. 1167 01:07:55,640 --> 01:07:57,720 Speaker 1: How can they make work more flexible? So they can 1168 01:07:58,240 --> 01:08:01,880 Speaker 1: attract more workers. And then my final question, I ask 1169 01:08:01,960 --> 01:08:05,200 Speaker 1: everybody the same thing, and I'll ask you this, what 1170 01:08:05,280 --> 01:08:09,440 Speaker 1: do you know about your profession about economics today that 1171 01:08:09,520 --> 01:08:14,440 Speaker 1: you wish you understood when you first started out? Oh, 1172 01:08:14,440 --> 01:08:17,200 Speaker 1: there are a lot of things. Um uh, you know, 1173 01:08:17,240 --> 01:08:22,920 Speaker 1: the economics profession is an amazing, amazing field. Economics for me, 1174 01:08:22,960 --> 01:08:25,920 Speaker 1: it was attractive because it's about people, about what matters 1175 01:08:25,920 --> 01:08:28,240 Speaker 1: in people's lives. And I don't think there's anything more 1176 01:08:28,280 --> 01:08:31,960 Speaker 1: important than having a job so you can support a family. Uh. 1177 01:08:32,040 --> 01:08:35,920 Speaker 1: So that's why I went into labor economics. Uh. I 1178 01:08:35,960 --> 01:08:38,400 Speaker 1: think we don't have enough diversity of views in economics. 1179 01:08:38,600 --> 01:08:41,040 Speaker 1: I think people cling very tightly to their views and 1180 01:08:41,080 --> 01:08:44,160 Speaker 1: maybe that human nature, people are slow to update, to 1181 01:08:44,280 --> 01:08:50,920 Speaker 1: change their mind in spite of evidence. And uh, I 1182 01:08:50,960 --> 01:08:53,519 Speaker 1: think it would be healthier for economics if we took 1183 01:08:53,520 --> 01:08:56,280 Speaker 1: a broader view. Just just one very simple area is 1184 01:08:56,400 --> 01:09:01,120 Speaker 1: more economic history. Uh. We tend not to emphasize economic 1185 01:09:01,200 --> 01:09:04,960 Speaker 1: history and graduate education in economics, and the crisis that 1186 01:09:05,000 --> 01:09:08,519 Speaker 1: we lived through had many elements in common with past 1187 01:09:08,920 --> 01:09:11,720 Speaker 1: financial crisis, and I think one would have done very 1188 01:09:11,720 --> 01:09:15,080 Speaker 1: well to understand Charles kindle Burger's work work on manias 1189 01:09:15,080 --> 01:09:20,200 Speaker 1: and panics and crashes, understand the Great Depression. Uh So 1190 01:09:20,240 --> 01:09:24,760 Speaker 1: I'd like to see economic history become a part of 1191 01:09:24,760 --> 01:09:27,080 Speaker 1: the core and economics. You know, there's there's the old 1192 01:09:27,120 --> 01:09:30,559 Speaker 1: quote Wolf Street. People are notorious about failing to learn 1193 01:09:30,600 --> 01:09:33,360 Speaker 1: from the past. Um, and there are all sorts of 1194 01:09:33,439 --> 01:09:36,840 Speaker 1: variations of that. If someone wanted to find your work, UM, 1195 01:09:36,960 --> 01:09:39,000 Speaker 1: where would they go? How do they How do they 1196 01:09:39,000 --> 01:09:42,519 Speaker 1: track down things you're producing? I have a web page 1197 01:09:42,520 --> 01:09:45,920 Speaker 1: which has all of my research on it www dot 1198 01:09:46,080 --> 01:09:49,400 Speaker 1: Krueger k are you e G e R dot Princeton 1199 01:09:49,479 --> 01:09:53,160 Speaker 1: dot e du and the link there will will bring 1200 01:09:53,160 --> 01:09:56,560 Speaker 1: people to my research, or just google Alan Krueger and 1201 01:09:56,600 --> 01:09:59,320 Speaker 1: you'll find um find more. Thank you so much for 1202 01:09:59,360 --> 01:10:01,839 Speaker 1: being so gener us with your time. We've been speaking 1203 01:10:01,880 --> 01:10:05,400 Speaker 1: with Professor Allan Krueger of Princeton UM. If you enjoy 1204 01:10:05,520 --> 01:10:07,880 Speaker 1: this podcast, be sure and look up an Inch or 1205 01:10:07,920 --> 01:10:11,320 Speaker 1: Down an Inch on Apple iTunes and you'll see the 1206 01:10:11,400 --> 01:10:16,080 Speaker 1: other forty something podcasts we've been doing. Check out my 1207 01:10:16,320 --> 01:10:20,240 Speaker 1: daily column on Bloomberg View dot com or my Twitter 1208 01:10:20,320 --> 01:10:23,800 Speaker 1: feed at Ridholts or the blog at Ridholts dot com. 1209 01:10:23,840 --> 01:10:27,040 Speaker 1: I'm Barry Ridhults. You've been listening to Masters in Business 1210 01:10:27,040 --> 01:10:28,160 Speaker 1: on Bloomberg Radio.