1 00:00:05,800 --> 00:00:08,720 Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox. 2 00:00:08,760 --> 00:00:11,520 Speaker 1: Along with my co host Lisa Bramowitz. Each day we 3 00:00:11,640 --> 00:00:15,120 Speaker 1: bring you the most important, noteworthy, and useful interviews for 4 00:00:15,200 --> 00:00:17,840 Speaker 1: you and your money, whether you're at the grocery store 5 00:00:17,960 --> 00:00:20,720 Speaker 1: or the trading floor. Find the Bloomberg p m L 6 00:00:20,840 --> 00:00:32,559 Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. The 7 00:00:32,840 --> 00:00:36,599 Speaker 1: c f p B has been under a lot of scrutiny. 8 00:00:36,640 --> 00:00:40,479 Speaker 1: Recently Mcmlviney came in as the new head. The former 9 00:00:40,520 --> 00:00:43,440 Speaker 1: head was pushed out, and this has become a sort 10 00:00:43,440 --> 00:00:47,159 Speaker 1: of fertile ground. I suppose you should say, uh, for 11 00:00:47,320 --> 00:00:51,360 Speaker 1: debate around Consumer of Financial Sumer Financial Protection Bureau, thank 12 00:00:51,400 --> 00:00:54,000 Speaker 1: you here to come on and weigh it on. This 13 00:00:54,080 --> 00:00:56,440 Speaker 1: is Todd Ziwicki, Professor of Law at the George Mason 14 00:00:56,640 --> 00:00:59,960 Speaker 1: University School of Law. He joins us from Fairfax, virgin 15 00:01:00,000 --> 00:01:02,200 Speaker 1: and thank you so much for being with us. It's 16 00:01:02,320 --> 00:01:04,920 Speaker 1: great to be with you. So Todd, you wrote an 17 00:01:05,040 --> 00:01:07,600 Speaker 1: up ed for the Wall Street Journal that caught my 18 00:01:07,640 --> 00:01:11,360 Speaker 1: attention where you basically were saying, uh, that it is 19 00:01:11,880 --> 00:01:15,000 Speaker 1: good for the CFPP to be loosening of on some 20 00:01:15,120 --> 00:01:18,319 Speaker 1: of its restrictions and that will actually help the economy 21 00:01:18,360 --> 00:01:20,160 Speaker 1: and consumers. Can you just sort of give us the 22 00:01:20,200 --> 00:01:24,399 Speaker 1: broad brush of your argument. Sure, there's the big question 23 00:01:24,440 --> 00:01:28,040 Speaker 1: for CFPB is it's had a very controversial structure. As 24 00:01:28,120 --> 00:01:31,920 Speaker 1: you know, it's been under court litigation for a while here, 25 00:01:32,160 --> 00:01:33,800 Speaker 1: and we're still waiting to see whether it's going to 26 00:01:33,880 --> 00:01:37,000 Speaker 1: go to the Supreme Court or not. So setting that aside, 27 00:01:37,040 --> 00:01:39,480 Speaker 1: I think that the interesting question going forward then is 28 00:01:40,000 --> 00:01:44,200 Speaker 1: what does a Trump CFPB look like compared to what 29 00:01:44,240 --> 00:01:48,560 Speaker 1: we've seen during the Obama administration when Richard Cordrey was 30 00:01:48,600 --> 00:01:52,080 Speaker 1: the head of the CFPB, And Cordrey actually left in 31 00:01:52,280 --> 00:01:55,800 Speaker 1: November and announced is running for the governorship of Ohio, 32 00:01:56,200 --> 00:01:58,560 Speaker 1: And so that's what's kind of put everything into the air. 33 00:01:59,120 --> 00:02:01,160 Speaker 1: And when you look back over the past few years, 34 00:02:01,200 --> 00:02:05,640 Speaker 1: I think it's really a story of um unintended consequences, 35 00:02:05,680 --> 00:02:09,280 Speaker 1: which is I actually agree with the idea of streamlining 36 00:02:09,360 --> 00:02:13,160 Speaker 1: and sort of creating one place for consumer financial protection 37 00:02:13,520 --> 00:02:16,000 Speaker 1: in the federal government. That's based on both studying and 38 00:02:16,040 --> 00:02:18,680 Speaker 1: also my experience at the Federal Trade Commission. But I 39 00:02:18,680 --> 00:02:20,520 Speaker 1: think that what we've seen over the past few years 40 00:02:20,600 --> 00:02:24,440 Speaker 1: is wild. Consumer protection is very essential. While it can 41 00:02:24,480 --> 00:02:26,800 Speaker 1: be good for not only consumers but also lenders, but 42 00:02:27,080 --> 00:02:30,880 Speaker 1: also the economy by giving people confidence to be able 43 00:02:30,880 --> 00:02:32,840 Speaker 1: to uh to to borrow, to be able to get 44 00:02:32,880 --> 00:02:35,480 Speaker 1: access to the products they need. At the same time, 45 00:02:35,480 --> 00:02:37,400 Speaker 1: over the past few years, I think maybe the pendulum 46 00:02:37,600 --> 00:02:39,760 Speaker 1: swung a little too far in one direction, and not 47 00:02:40,240 --> 00:02:43,840 Speaker 1: just so much too much regulation, but regulation that I 48 00:02:43,880 --> 00:02:48,200 Speaker 1: think wasn't very economically informed um and ended up restricting 49 00:02:48,240 --> 00:02:52,120 Speaker 1: access to mortgages, restricting access to credit cards uh, and 50 00:02:52,200 --> 00:02:56,239 Speaker 1: in particular hurting low income consumers and middle class consumers. 51 00:02:56,240 --> 00:03:00,720 Speaker 1: The most professor z a wiki. Uh d you agree 52 00:03:00,800 --> 00:03:06,400 Speaker 1: that the cf p B dropped investigations into payday lenders 53 00:03:06,440 --> 00:03:11,760 Speaker 1: that we're charging up to on loans? Well, what did 54 00:03:11,760 --> 00:03:14,000 Speaker 1: they do? I agree with it? Yeah, I mean you 55 00:03:14,040 --> 00:03:17,640 Speaker 1: agree that that happened, of course, Yes, Okay, they obviously 56 00:03:17,840 --> 00:03:21,760 Speaker 1: dropped those investigations. UH. And I don't know anything more 57 00:03:21,800 --> 00:03:24,320 Speaker 1: about why they did or did not. Okay, all right, 58 00:03:24,360 --> 00:03:26,239 Speaker 1: I just wanted just so we're playing with the same 59 00:03:26,280 --> 00:03:30,520 Speaker 1: facts here now. The CFPP also decided, as part of 60 00:03:30,520 --> 00:03:33,280 Speaker 1: this to drop an investigation into a company called World 61 00:03:33,320 --> 00:03:37,760 Speaker 1: Acceptance Corps based in Greenville, South Carolina. You know about this. 62 00:03:38,320 --> 00:03:44,400 Speaker 1: They happened to offer. They gave forty dollars to Mr 63 00:03:44,480 --> 00:03:48,760 Speaker 1: mulvahney during his time as a lawmaker. Um, do you 64 00:03:48,800 --> 00:03:50,800 Speaker 1: think that it makes sense to have someone who has 65 00:03:50,840 --> 00:03:55,760 Speaker 1: accepted money running the organization from the federal government's point 66 00:03:55,760 --> 00:03:58,680 Speaker 1: of view, that is supposed to be a fair and 67 00:03:58,680 --> 00:04:05,960 Speaker 1: impartial overseer. Well, obviously Mr mulveney is no longer in Congress, Um, 68 00:04:05,960 --> 00:04:09,280 Speaker 1: and it's but he's running the CFPOP. Yeah, I mean 69 00:04:10,000 --> 00:04:12,800 Speaker 1: what we have, I mean what we you know, you 70 00:04:12,840 --> 00:04:16,800 Speaker 1: know obviously, I mean it's it's up to the president 71 00:04:16,839 --> 00:04:19,719 Speaker 1: to appoint, right, uh return, But I'm asking you, do 72 00:04:19,839 --> 00:04:23,000 Speaker 1: you think it makes sense to have someone running the 73 00:04:23,080 --> 00:04:27,440 Speaker 1: Consumer Financial Protection Bureau who, when he was a lawmaker 74 00:04:28,000 --> 00:04:30,440 Speaker 1: accepted and that was just from the one company. But 75 00:04:30,520 --> 00:04:35,840 Speaker 1: the estimate is that he accepted about sixty three dollars. Yeah, 76 00:04:35,839 --> 00:04:40,000 Speaker 1: I think personally, I think that, uh that that I 77 00:04:40,040 --> 00:04:44,640 Speaker 1: think that obviously mcmulveney is appropriately appointed. I think he's 78 00:04:44,640 --> 00:04:47,839 Speaker 1: doing an excellent job. I think that to the extent 79 00:04:48,240 --> 00:04:51,280 Speaker 1: that the decision is made by any president to appoint 80 00:04:51,279 --> 00:04:54,039 Speaker 1: a politician, these sort of issues arise. So, for example, 81 00:04:54,120 --> 00:04:58,160 Speaker 1: Richard Cordray was appointed after being Attorney General of Ohio. 82 00:04:58,560 --> 00:05:00,400 Speaker 1: He accepted a lot of money during that time from 83 00:05:00,400 --> 00:05:02,680 Speaker 1: trial lawyers when he ran for office, and now he's 84 00:05:02,760 --> 00:05:06,320 Speaker 1: running for governor and he's accepting money from trial lawyers 85 00:05:06,320 --> 00:05:09,200 Speaker 1: and other people who have interest before the CFPP, I 86 00:05:09,240 --> 00:05:12,080 Speaker 1: think to the extent that the decision is made to 87 00:05:12,120 --> 00:05:16,080 Speaker 1: appoint somebody who's been in politics, that's partly what's what's 88 00:05:16,080 --> 00:05:18,680 Speaker 1: going to happen, right, Uh, And you know, and it's 89 00:05:18,680 --> 00:05:21,560 Speaker 1: the same way with Elizabeth Warren or anybody else. And 90 00:05:21,560 --> 00:05:24,600 Speaker 1: so I think, you know, that's what the democratic processes 91 00:05:24,920 --> 00:05:27,960 Speaker 1: is for. And uh, and I'm not going to second 92 00:05:27,960 --> 00:05:31,240 Speaker 1: guess that decision. And I have no inside knowledge as 93 00:05:31,240 --> 00:05:34,559 Speaker 1: to why those investigations were opened in the first place 94 00:05:34,560 --> 00:05:36,760 Speaker 1: are closed. In the second part from Todd, I want 95 00:05:36,760 --> 00:05:39,559 Speaker 1: to get into the concept of paid a lending because 96 00:05:39,560 --> 00:05:43,080 Speaker 1: I think that the CFPB under Rob Cordrey was uh, 97 00:05:43,320 --> 00:05:45,919 Speaker 1: pretty much not against it, but but they took a 98 00:05:45,960 --> 00:05:50,839 Speaker 1: pretty harsh stance with these lenders basically that agreed to 99 00:05:50,880 --> 00:05:54,279 Speaker 1: accept someone's paycheck and charge them high interest rates. Um, 100 00:05:54,320 --> 00:05:57,640 Speaker 1: you're arguing that they can be helpful for lower and 101 00:05:57,720 --> 00:06:02,080 Speaker 1: middle income family is can you explain that, sure, yeah, 102 00:06:02,080 --> 00:06:04,960 Speaker 1: and I and you know that what's going on with 103 00:06:05,000 --> 00:06:09,000 Speaker 1: payday loans now is pretty well known and it's, you know, 104 00:06:09,040 --> 00:06:12,239 Speaker 1: one of those difficult trade offs that's that's hard in life, 105 00:06:12,240 --> 00:06:15,400 Speaker 1: which is people who use payday loans are people who 106 00:06:15,480 --> 00:06:19,320 Speaker 1: don't have access to better credit products. Are people either 107 00:06:19,400 --> 00:06:21,800 Speaker 1: don't have credit cards or maxed out on their credit cards, 108 00:06:21,800 --> 00:06:25,400 Speaker 1: they've got poor credits um. And the evidence is pretty 109 00:06:25,400 --> 00:06:27,719 Speaker 1: clear that people who use it use it to deal 110 00:06:27,800 --> 00:06:33,479 Speaker 1: with pressing expenses in life mortgage, insurance, payments, utilities, that 111 00:06:33,560 --> 00:06:35,800 Speaker 1: sort of thing. And so we have is a situation 112 00:06:35,839 --> 00:06:39,839 Speaker 1: in which we've got people with limited choices trying to 113 00:06:39,880 --> 00:06:43,120 Speaker 1: do the best the best they can. And I think 114 00:06:43,120 --> 00:06:44,960 Speaker 1: there's two things that can draw from that, which is 115 00:06:45,000 --> 00:06:47,600 Speaker 1: one is when we've got people already have limited choices, 116 00:06:48,000 --> 00:06:50,640 Speaker 1: you should be very careful about denying them the choices 117 00:06:50,680 --> 00:06:53,039 Speaker 1: that they already make. So, for example, we know is 118 00:06:53,080 --> 00:06:56,840 Speaker 1: that we're payday lending is banned by and large, a 119 00:06:56,880 --> 00:06:59,360 Speaker 1: lot of people end up using bank over draft protection, 120 00:06:59,440 --> 00:07:02,799 Speaker 1: which is off than more expensive or pawn shops, which 121 00:07:02,800 --> 00:07:06,039 Speaker 1: are you know, force them to part with personal goods 122 00:07:06,040 --> 00:07:08,320 Speaker 1: that they that they may need I think the way 123 00:07:08,360 --> 00:07:10,960 Speaker 1: to think about it is to look at why is 124 00:07:11,000 --> 00:07:14,080 Speaker 1: it that what is shutting off access from people to 125 00:07:14,200 --> 00:07:17,720 Speaker 1: better credit products, whether it's bank accounts, whether it's UM 126 00:07:18,200 --> 00:07:21,520 Speaker 1: credit cards. And that's what I think is the the 127 00:07:21,520 --> 00:07:24,960 Speaker 1: the unfortunate consequences that happened over the past few years, 128 00:07:25,000 --> 00:07:28,440 Speaker 1: which is because of Dodd Frank, because of some other regulations, 129 00:07:28,800 --> 00:07:32,160 Speaker 1: people in the lower income spectrum have found it more 130 00:07:32,200 --> 00:07:35,520 Speaker 1: difficult to get credit cards, They've lost access to bank accounts, 131 00:07:35,560 --> 00:07:38,160 Speaker 1: they found it more difficult to get mortgages. And I 132 00:07:38,200 --> 00:07:44,080 Speaker 1: think that's where focusing on UH financial inclusion and respecting 133 00:07:44,120 --> 00:07:48,840 Speaker 1: people's UH ability to choose for themselves, I think is 134 00:07:49,160 --> 00:07:51,400 Speaker 1: something that's kind of been lost in the shuffle, and 135 00:07:51,440 --> 00:07:54,320 Speaker 1: I think should be waged more in the balance going forward. 136 00:07:54,680 --> 00:07:57,400 Speaker 1: We gotta leave it there. Todd Zwicki is a professor 137 00:07:57,440 --> 00:08:01,400 Speaker 1: of law at George Mason University School of Law based 138 00:08:01,480 --> 00:08:18,400 Speaker 1: in Fairfax of Virginia. Let's bring in brook Sutherland now, 139 00:08:18,440 --> 00:08:22,080 Speaker 1: our mergers and acquisitions columnist for Bloomberg Gadfly. You can 140 00:08:22,160 --> 00:08:26,640 Speaker 1: follow Brooke on Twitter at b L South s U 141 00:08:26,880 --> 00:08:31,840 Speaker 1: t H. I imagine that's just short indeed, all right, 142 00:08:31,920 --> 00:08:34,680 Speaker 1: so B l South. What is this about the U 143 00:08:34,840 --> 00:08:39,720 Speaker 1: S Government issuing an interim order to block an investor meeting? 144 00:08:39,960 --> 00:08:42,880 Speaker 1: And this has to do with the bid by Broadcom 145 00:08:43,200 --> 00:08:48,680 Speaker 1: to buy Qualcom for more than ten billion dollars. Yes, 146 00:08:48,800 --> 00:08:52,280 Speaker 1: and so Sipious, which is the U S. Regulatory body 147 00:08:52,320 --> 00:08:55,240 Speaker 1: that's charged with reviewing deals for national security risk says 148 00:08:55,600 --> 00:08:58,559 Speaker 1: they want to take a look at this before Qualcom's 149 00:08:58,600 --> 00:09:00,800 Speaker 1: annual meeting. That meeting was the puposed to take place 150 00:09:00,800 --> 00:09:03,600 Speaker 1: on Tuesday. It will now be delayed for up to 151 00:09:03,679 --> 00:09:07,280 Speaker 1: thirty days while Siffius reviews this deal. And the reason 152 00:09:07,320 --> 00:09:10,160 Speaker 1: why they're sort of intervening now, and personally, I think 153 00:09:10,160 --> 00:09:13,400 Speaker 1: it makes sense is there was some concern about what 154 00:09:13,440 --> 00:09:15,920 Speaker 1: type of message it might send or what sort of 155 00:09:15,920 --> 00:09:18,520 Speaker 1: precedent it would send if sifias did not look at 156 00:09:18,520 --> 00:09:22,320 Speaker 1: this deal. Because Broadcom is a Singapore based company and 157 00:09:22,360 --> 00:09:24,920 Speaker 1: it's trying to move its location to the US, but 158 00:09:24,960 --> 00:09:28,400 Speaker 1: it's waging this proxy fight as a means of hopefully 159 00:09:28,440 --> 00:09:31,280 Speaker 1: getting board candidates on there that are more favorable to 160 00:09:31,360 --> 00:09:34,720 Speaker 1: its takeover bid. So some US lawmakers have said, could 161 00:09:34,800 --> 00:09:37,240 Speaker 1: there be copycats who would look at what it's done 162 00:09:37,640 --> 00:09:40,560 Speaker 1: and maybe think about a proxy fight is a way 163 00:09:40,559 --> 00:09:42,679 Speaker 1: to gain effective control of a you over a U 164 00:09:42,800 --> 00:09:45,439 Speaker 1: S company without ever having to go through a SIFIAS review, 165 00:09:45,480 --> 00:09:50,679 Speaker 1: because typically sifia's reviews only happen when there's an actual deal. Well, Brook, 166 00:09:50,840 --> 00:09:55,680 Speaker 1: you know, it's interesting because I believe that Qualcom requested 167 00:09:55,760 --> 00:10:00,439 Speaker 1: this review. Well, so there's been some back and fourth 168 00:10:00,480 --> 00:10:03,679 Speaker 1: on that, So that is what Broadcom said. Qualcom is 169 00:10:03,679 --> 00:10:06,240 Speaker 1: out with the statement, I think five minutes ago saying 170 00:10:06,280 --> 00:10:10,840 Speaker 1: that Broadcom has you know, given to written, uh, you know, 171 00:10:10,920 --> 00:10:13,880 Speaker 1: submissions to SIFFI as they've been engaged with the regulatory 172 00:10:13,920 --> 00:10:17,600 Speaker 1: agency for several weeks. So the surprise element of this 173 00:10:17,720 --> 00:10:21,160 Speaker 1: as it was conveyed by Broadcom may not entirely be accurate. Well, 174 00:10:21,200 --> 00:10:22,960 Speaker 1: the reason why I ask is because I'm wondering how 175 00:10:23,040 --> 00:10:26,520 Speaker 1: much this further sours relations between the two companies. If 176 00:10:26,559 --> 00:10:30,880 Speaker 1: there was some kind of uh encouragement, shall I say, 177 00:10:30,960 --> 00:10:33,640 Speaker 1: from Qualcom side to have SIFIAS come in and add 178 00:10:33,679 --> 00:10:39,160 Speaker 1: some pressure. Sure, I'm skeptical how much encouragement Qualcom actually 179 00:10:39,200 --> 00:10:41,679 Speaker 1: gave in this um. You know, there's been numerous reports 180 00:10:41,720 --> 00:10:44,360 Speaker 1: from from US and from other news organizations that Ciffiest 181 00:10:44,400 --> 00:10:46,880 Speaker 1: members were already concerned, So I don't know if this 182 00:10:47,080 --> 00:10:49,960 Speaker 1: just nudged them along the path that they were already on. 183 00:10:50,040 --> 00:10:52,280 Speaker 1: But I mean, look, there's no love lost between these 184 00:10:52,320 --> 00:10:56,560 Speaker 1: two companies, and that's not unusual in a hostile takeover situation. 185 00:10:56,559 --> 00:10:59,120 Speaker 1: I always laugh at these because you see these crazy 186 00:10:59,200 --> 00:11:01,760 Speaker 1: press releases where they're calling each other liars and all 187 00:11:01,800 --> 00:11:03,480 Speaker 1: this back and forth stuff, and then if a deal 188 00:11:03,520 --> 00:11:06,040 Speaker 1: ever gets announced, it's like nothing's ever happened and they're 189 00:11:06,080 --> 00:11:09,000 Speaker 1: best friends. But um, look, I you know, I think 190 00:11:09,040 --> 00:11:13,800 Speaker 1: that Qualcomm has obviously been very resistant to this idea 191 00:11:13,840 --> 00:11:16,920 Speaker 1: with Broadcom, and they've made some valid points about their concerns, 192 00:11:16,920 --> 00:11:21,079 Speaker 1: and Broadcom has really sort of been unbending and unwilling 193 00:11:21,160 --> 00:11:23,720 Speaker 1: to sort of meat Qualcom in the middle or give 194 00:11:23,760 --> 00:11:26,719 Speaker 1: any real sort of details, especially along the lines of 195 00:11:26,760 --> 00:11:30,680 Speaker 1: antitrust risks. Isn't Singapore and ally of the United States? 196 00:11:31,280 --> 00:11:33,720 Speaker 1: It is, but you know, it's still a foreign entity, 197 00:11:33,760 --> 00:11:35,719 Speaker 1: So I don't know, I understand that, but I mean, 198 00:11:35,760 --> 00:11:38,160 Speaker 1: but I mean Singapore's and ally of the United States, 199 00:11:38,160 --> 00:11:42,079 Speaker 1: it is. Yes, broad Comm is headquartered in Singapore. They 200 00:11:42,120 --> 00:11:44,480 Speaker 1: want to move to the United States and established the 201 00:11:44,559 --> 00:11:49,319 Speaker 1: domicile here in the US. Why other than the price 202 00:11:49,360 --> 00:11:53,520 Speaker 1: of the deal. Would this really be an issue? And why? Now? So, 203 00:11:54,320 --> 00:11:57,240 Speaker 1: Broadcom m is sort of known for being a cost cutter, 204 00:11:57,440 --> 00:12:00,640 Speaker 1: and it's known for financial engineer for lack of a 205 00:12:00,679 --> 00:12:03,040 Speaker 1: better word, And so I think the concern among US 206 00:12:03,120 --> 00:12:06,800 Speaker 1: lawmakers is that Broadcom would come in and significantly cut 207 00:12:06,840 --> 00:12:10,240 Speaker 1: back R and D cost at Qualcom. They've sort of 208 00:12:10,280 --> 00:12:14,320 Speaker 1: alluded to this idea of maybe winding down Qualcom's licensing business. 209 00:12:14,320 --> 00:12:18,440 Speaker 1: If you remember, that's them selling it. But that and 210 00:12:18,480 --> 00:12:20,160 Speaker 1: that's the one that's given them sort of all these 211 00:12:20,160 --> 00:12:23,079 Speaker 1: issues with Apple. But that isn't that a strategic business decision? 212 00:12:23,120 --> 00:12:25,520 Speaker 1: I mean, how does that end up being a sort 213 00:12:25,520 --> 00:12:29,040 Speaker 1: of US political security decision. Yeah, So what I was 214 00:12:29,040 --> 00:12:31,160 Speaker 1: getting to is, if you're cutting all of these costs, 215 00:12:31,160 --> 00:12:34,360 Speaker 1: what the US is concerned about is that then hamstrings 216 00:12:34,440 --> 00:12:37,240 Speaker 1: Qualcom in this race for five G technology. This is 217 00:12:37,280 --> 00:12:40,040 Speaker 1: the next front. What the US does not want to 218 00:12:40,080 --> 00:12:43,040 Speaker 1: happen is Whahwei is the other big leader in this technology. 219 00:12:43,120 --> 00:12:45,480 Speaker 1: They do not want Whahwei to have a virtual lock 220 00:12:45,559 --> 00:12:48,360 Speaker 1: on five G. Wawe is a Chinese company the US 221 00:12:48,520 --> 00:12:50,920 Speaker 1: wants to be a player in this. Qualcom is really 222 00:12:50,920 --> 00:12:53,440 Speaker 1: one of its better bets, so they're wary of sort 223 00:12:53,440 --> 00:12:56,880 Speaker 1: of giving control over that technology over this company to 224 00:12:57,840 --> 00:13:00,120 Speaker 1: you know, as of now a foreign buyer that that 225 00:13:00,160 --> 00:13:03,079 Speaker 1: has sort of a reputation for for cutting costs. Well, 226 00:13:03,120 --> 00:13:05,560 Speaker 1: I'm sure that the stag will end very quickly and neatly, 227 00:13:05,679 --> 00:13:07,880 Speaker 1: so we'll never talk about it again. Brook Southerland, thank 228 00:13:07,880 --> 00:13:09,240 Speaker 1: you so much for joining us. I'm sure we will 229 00:13:09,240 --> 00:13:12,240 Speaker 1: be talking about it again. Hashtag sarcasm. Bloomberg m and 230 00:13:12,280 --> 00:13:16,040 Speaker 1: A and industrial columnists with gad fly, and she's been 231 00:13:16,080 --> 00:13:20,160 Speaker 1: incredibly busy. She weartes fabulous columns. Check them out online 232 00:13:20,280 --> 00:13:22,840 Speaker 1: and you can see her on TV and she'll be back. 233 00:13:37,120 --> 00:13:41,080 Speaker 1: Does government spending discourage work? Here to help us understand 234 00:13:41,080 --> 00:13:44,319 Speaker 1: this topic is Edward Lizier. He is an economist and 235 00:13:44,520 --> 00:13:47,840 Speaker 1: he is also a Senior Fellow at the Hoover Institution 236 00:13:47,920 --> 00:13:51,319 Speaker 1: at Stanford University, formerly Chairman of the Council of Economic 237 00:13:51,360 --> 00:13:55,679 Speaker 1: Advisors from two thousand six to two thousand nine and 238 00:13:56,400 --> 00:14:00,360 Speaker 1: as Chairman Chief Economic Advisor to President George W. Bush. 239 00:14:00,440 --> 00:14:03,360 Speaker 1: Ed Lozier, thank you very much for being with us. 240 00:14:03,920 --> 00:14:07,439 Speaker 1: Maybe just speak a little bit about this notion that 241 00:14:07,559 --> 00:14:11,880 Speaker 1: government spending discourages work and I offer that it's really 242 00:14:11,920 --> 00:14:15,160 Speaker 1: in the context of a recent up ed piece that 243 00:14:15,240 --> 00:14:19,920 Speaker 1: she was penned and published in the Wall Street Journal. Sure, well, 244 00:14:19,960 --> 00:14:24,680 Speaker 1: the basic idea is this spending by itself doesn't discourage work. 245 00:14:24,800 --> 00:14:27,800 Speaker 1: But the problem is that the more we spend, the 246 00:14:27,840 --> 00:14:30,240 Speaker 1: more we have to tax. That's going to be true 247 00:14:30,280 --> 00:14:33,280 Speaker 1: whether we tax now or whether we borrow in tax later, 248 00:14:34,000 --> 00:14:39,120 Speaker 1: and taxes reduce capital formation and work. So the problem 249 00:14:39,280 --> 00:14:41,280 Speaker 1: is that if we spend a lot, we're going to 250 00:14:41,400 --> 00:14:43,680 Speaker 1: tax a lot, and if we tax a lot, we're 251 00:14:43,720 --> 00:14:48,800 Speaker 1: going to put disincentive effects on both capital formation and work. 252 00:14:49,160 --> 00:14:51,120 Speaker 1: The easiest way to see this is that if you 253 00:14:51,200 --> 00:14:54,440 Speaker 1: look at the data across say the G seven countries. 254 00:14:54,640 --> 00:14:56,880 Speaker 1: Um I looked at it across all O E C 255 00:14:56,960 --> 00:14:59,400 Speaker 1: D countries, which is a larger group than the G seven, 256 00:14:59,640 --> 00:15:01,360 Speaker 1: but the seven or the big ones. And if you 257 00:15:01,400 --> 00:15:03,600 Speaker 1: look at the big ones, what you see is those 258 00:15:03,640 --> 00:15:07,520 Speaker 1: countries that have high tax rates also tend to have 259 00:15:08,360 --> 00:15:11,760 Speaker 1: much lower work hours. And that takes two forms. One 260 00:15:11,880 --> 00:15:14,960 Speaker 1: is individuals work less per week given that they're working. 261 00:15:15,320 --> 00:15:18,680 Speaker 1: But the main effect is that individuals are less likely 262 00:15:18,800 --> 00:15:21,520 Speaker 1: to participate in the labor market. So if you look 263 00:15:21,520 --> 00:15:25,120 Speaker 1: at the United States versus say, France, the French work 264 00:15:25,120 --> 00:15:27,400 Speaker 1: about thirty percent less than we do per person in 265 00:15:27,440 --> 00:15:30,920 Speaker 1: the working age population. Professor Lazier, I think it's interesting 266 00:15:30,920 --> 00:15:33,680 Speaker 1: the way that you phrase it, which is that spending, 267 00:15:34,160 --> 00:15:38,160 Speaker 1: uh doesn't necessarily doesn't encourage people to work more. But 268 00:15:38,400 --> 00:15:40,840 Speaker 1: isn't this really about the budget deficit? Isn't this really 269 00:15:40,880 --> 00:15:43,880 Speaker 1: about sort of the need to plug some kind of 270 00:15:43,960 --> 00:15:48,640 Speaker 1: gap in the financial situation of a nation. Yeah, so, 271 00:15:48,640 --> 00:15:51,120 Speaker 1: so the way I think the easiest way to see it, 272 00:15:51,160 --> 00:15:53,200 Speaker 1: because it is a little surprising that you know, in 273 00:15:53,240 --> 00:15:56,520 Speaker 1: some sense deficits don't matter. Uh. It's not so much 274 00:15:56,560 --> 00:15:59,920 Speaker 1: that deficits don't matter, it's that, once we take spending 275 00:16:00,000 --> 00:16:02,440 Speaker 1: into account, whether you finance that now or whether you 276 00:16:02,480 --> 00:16:04,880 Speaker 1: finance it later is kind of a second order effect. 277 00:16:05,240 --> 00:16:07,200 Speaker 1: The easiest way to think about that is, you know, 278 00:16:07,280 --> 00:16:11,040 Speaker 1: suppose someone goes out and buys a home entertainment system 279 00:16:11,080 --> 00:16:14,400 Speaker 1: by spending their entire month's salary on it. Question is 280 00:16:14,440 --> 00:16:16,880 Speaker 1: are they better off by paying for that now and 281 00:16:16,920 --> 00:16:20,760 Speaker 1: depleting their entire earnings or are they better off borrowing 282 00:16:20,760 --> 00:16:23,000 Speaker 1: and say, and paying it off over time. So not 283 00:16:23,080 --> 00:16:25,800 Speaker 1: so obvious which one is better. What is obvious is 284 00:16:25,800 --> 00:16:28,000 Speaker 1: they probably shouldn't have bought the thing in the first place. 285 00:16:29,200 --> 00:16:31,120 Speaker 1: Ahead I'm sorry, I know, I'm sorry. I'm sorry to interrupt. 286 00:16:31,120 --> 00:16:34,120 Speaker 1: The reason why I was making that distinction is because 287 00:16:34,320 --> 00:16:38,400 Speaker 1: when uh, the congress members who are passing the tax 288 00:16:38,440 --> 00:16:41,120 Speaker 1: plan more arguing for it, they said, look, we want 289 00:16:41,200 --> 00:16:44,120 Speaker 1: a smaller deficit, we want less spending. Yes, we're going 290 00:16:44,160 --> 00:16:46,240 Speaker 1: to do this tax plan that's going to increase the 291 00:16:46,280 --> 00:16:49,600 Speaker 1: deficit substantially. We just now need to go cut spending. 292 00:16:49,640 --> 00:16:52,800 Speaker 1: And it was sort of this artificial distinction between spending 293 00:16:53,000 --> 00:16:55,520 Speaker 1: and not collecting as much money. But you think it's 294 00:16:55,560 --> 00:16:58,440 Speaker 1: it's a it's a real distinction. Well, no, I say, 295 00:16:58,880 --> 00:17:01,480 Speaker 1: let's put it this way. I think, uh, there are 296 00:17:02,200 --> 00:17:06,920 Speaker 1: misstatements on both sides. So the Democrats who were saying, oh, gee, 297 00:17:06,920 --> 00:17:09,760 Speaker 1: you know, this is terrible because we're increasing the deficit 298 00:17:10,320 --> 00:17:13,760 Speaker 1: um probably didn't have that quite right, because it's not 299 00:17:13,840 --> 00:17:16,720 Speaker 1: so much the fact that the deficit went up when 300 00:17:16,720 --> 00:17:20,040 Speaker 1: we cut taxes. Again, that's not great, but that's kind 301 00:17:20,040 --> 00:17:23,440 Speaker 1: of a minor consideration. But on the other side, the 302 00:17:23,520 --> 00:17:27,240 Speaker 1: Republicans also didn't have it quite right, because cutting taxes 303 00:17:27,280 --> 00:17:31,240 Speaker 1: by itself, right, now without also cutting spending means that 304 00:17:31,359 --> 00:17:33,760 Speaker 1: in the long run, growth is not going to continue 305 00:17:33,800 --> 00:17:36,920 Speaker 1: to be sustained. The reason that we get growth out 306 00:17:36,960 --> 00:17:39,400 Speaker 1: of the current tax bill is because it is a 307 00:17:39,440 --> 00:17:42,640 Speaker 1: plan that reduced the cut reduced the taxes on capitol, 308 00:17:43,080 --> 00:17:46,560 Speaker 1: and almost all economists on again on both sides of 309 00:17:46,600 --> 00:17:50,840 Speaker 1: the political spectrum, agree that taxes on capitol are the 310 00:17:51,080 --> 00:17:53,960 Speaker 1: are the ones that are the most harmful to economic 311 00:17:54,000 --> 00:17:57,640 Speaker 1: growth because capital can move. But neither side really had 312 00:17:57,680 --> 00:18:00,920 Speaker 1: it quite right. So the problem is, unless we get 313 00:18:00,960 --> 00:18:04,720 Speaker 1: spending under control, we're still going to have to tax 314 00:18:04,800 --> 00:18:07,120 Speaker 1: to pay for that spending, either in the long run 315 00:18:07,240 --> 00:18:09,639 Speaker 1: or the short run, and that will affect both work 316 00:18:09,800 --> 00:18:13,160 Speaker 1: and uh AN investment incentives. Ed Lozier, can I turn 317 00:18:13,200 --> 00:18:18,320 Speaker 1: your attention to tariff wars and particularly the president's effort 318 00:18:18,359 --> 00:18:24,680 Speaker 1: to impose tariffs on imported steel and aluminum. What's your response. Well, 319 00:18:24,720 --> 00:18:28,520 Speaker 1: I'm not an admirer of that policy. I have never 320 00:18:28,560 --> 00:18:32,200 Speaker 1: thought that getting involved in tariffs is a good idea, 321 00:18:32,359 --> 00:18:35,119 Speaker 1: even from the point of view of the country that 322 00:18:35,200 --> 00:18:39,040 Speaker 1: imposes the tariffs itself without any repercussions from other countries. 323 00:18:39,560 --> 00:18:41,320 Speaker 1: So I don't think that there's going to be much 324 00:18:41,359 --> 00:18:44,480 Speaker 1: of an effect, much of a positive positive effect, even 325 00:18:44,520 --> 00:18:48,400 Speaker 1: on the industry is directly affected, like steel, but certainly 326 00:18:48,440 --> 00:18:51,520 Speaker 1: other industries that you steal as an input will be 327 00:18:51,560 --> 00:18:55,080 Speaker 1: adversely affected. So on net, this is as far as 328 00:18:55,080 --> 00:18:57,879 Speaker 1: I'm concerned, this is a loser. Uh. It's just not 329 00:18:57,960 --> 00:19:00,000 Speaker 1: a good idea to do it, even if there were 330 00:19:00,080 --> 00:19:02,440 Speaker 1: not a trade war to follow. And of course, uh, 331 00:19:02,440 --> 00:19:04,720 Speaker 1: you know other countries are threatening that they are going 332 00:19:04,760 --> 00:19:08,840 Speaker 1: to retaliate. If that is going to happen, what do 333 00:19:08,920 --> 00:19:12,399 Speaker 1: you perceive the effect will be on economic growth in 334 00:19:12,440 --> 00:19:15,320 Speaker 1: the United States? Well, I think it will be negative. 335 00:19:15,400 --> 00:19:19,600 Speaker 1: I do think that the reaction and as I always 336 00:19:19,640 --> 00:19:22,439 Speaker 1: hate to outguess the market, but obviously the market's reaction 337 00:19:22,520 --> 00:19:25,880 Speaker 1: was pretty negative to this thing. Um, I don't think 338 00:19:25,880 --> 00:19:29,520 Speaker 1: that the effect on economic growth will be as pronounced 339 00:19:29,560 --> 00:19:33,760 Speaker 1: as as it appears right now from the dramatic movements 340 00:19:33,760 --> 00:19:35,800 Speaker 1: in the market. There will be a negative effect, but 341 00:19:35,840 --> 00:19:38,040 Speaker 1: I don't think it will be that large. Uh. We 342 00:19:38,160 --> 00:19:40,760 Speaker 1: do have a precedent on this. The guy I served, 343 00:19:40,960 --> 00:19:44,720 Speaker 1: President Bush, of course, impost steal tariffs early in his term, 344 00:19:45,320 --> 00:19:48,680 Speaker 1: and that was followed by you know a few years 345 00:19:48,680 --> 00:19:51,280 Speaker 1: of pretty good growth. Now Of course, he did remove 346 00:19:51,320 --> 00:19:54,639 Speaker 1: those tariffs a bit later, so one can argue that 347 00:19:55,240 --> 00:19:59,040 Speaker 1: President Trump will have the same opportunity, but it was 348 00:19:59,160 --> 00:20:02,840 Speaker 1: not that detrimental even in the short run. Edward Lizzier, 349 00:20:02,920 --> 00:20:06,000 Speaker 1: thank you so much for being with us, really interesting ideas. 350 00:20:06,320 --> 00:20:10,720 Speaker 1: Edward Lazier, labor economist and professor at Stanford University's Graduate 351 00:20:10,960 --> 00:20:14,520 Speaker 1: School of Business, coming to us from Palo Alto, California. 352 00:20:14,760 --> 00:20:17,719 Speaker 1: I'm Lisa Bramoy. It's along with my co host Pim Fox. 353 00:20:17,920 --> 00:20:35,879 Speaker 1: This is Bloomberg. The voters in initially in Italy have 354 00:20:36,080 --> 00:20:39,920 Speaker 1: had their say and it has actually produced a bit 355 00:20:39,960 --> 00:20:43,320 Speaker 1: of a muddled result, although populist five Star and the 356 00:20:43,400 --> 00:20:46,000 Speaker 1: League are vying for power right now here. To help 357 00:20:46,080 --> 00:20:49,680 Speaker 1: us understand what's going on in Italy is Dan leaf Green. 358 00:20:49,800 --> 00:20:52,680 Speaker 1: He is our Milan bureau chief for Bloomberg. Dan, thanks 359 00:20:52,720 --> 00:20:54,639 Speaker 1: so much for being with us. Tell us what are 360 00:20:54,760 --> 00:20:57,880 Speaker 1: what are the election results and what do they mean? Well, 361 00:20:58,080 --> 00:21:03,480 Speaker 1: the election results basically that there's a hung parliament, which 362 00:21:03,600 --> 00:21:08,200 Speaker 1: which was expected. The polls before a blackout fifteen day 363 00:21:08,200 --> 00:21:11,920 Speaker 1: blackout period UM showed that that was likely. I'd say 364 00:21:11,960 --> 00:21:15,960 Speaker 1: that there are two surprises. Um. One is the you 365 00:21:16,000 --> 00:21:21,040 Speaker 1: know the strength the increase in popularity of the five 366 00:21:21,080 --> 00:21:26,119 Speaker 1: Star UH anti establishment party, and I think the surprising 367 00:21:26,840 --> 00:21:32,040 Speaker 1: UM showing by the Populist League UM, which is part 368 00:21:32,080 --> 00:21:37,960 Speaker 1: of Silvio Berlusconi's alliance. UM, they actually outpolled Berlsconi's fort 369 00:21:37,960 --> 00:21:42,400 Speaker 1: Staliate party and I don't think anyone had predicted that. DAN. 370 00:21:42,600 --> 00:21:45,560 Speaker 1: As we head into it will inevitably be weeks, uh 371 00:21:45,760 --> 00:21:49,480 Speaker 1: possibly longer of negotiations as Italy tries to create a government. 372 00:21:49,680 --> 00:21:52,200 Speaker 1: Can you just explain to us how does this all work? 373 00:21:52,240 --> 00:21:55,000 Speaker 1: How does their government work? Because there's six hundred or 374 00:21:55,040 --> 00:21:57,080 Speaker 1: more members and they have to agree on some kind 375 00:21:57,080 --> 00:22:02,719 Speaker 1: of coalition to make it work. Yeah, it's UM not surprising. 376 00:22:02,760 --> 00:22:07,480 Speaker 1: It's a complicated process. But UM. On the upside, Italy 377 00:22:07,520 --> 00:22:10,760 Speaker 1: has done this before. Only five years ago in the 378 00:22:10,760 --> 00:22:13,919 Speaker 1: previous national election there was a similar result and it 379 00:22:14,000 --> 00:22:17,399 Speaker 1: took about two months to put together a government. This 380 00:22:17,560 --> 00:22:23,159 Speaker 1: time again, the Italian president UM really is the key figure. 381 00:22:23,440 --> 00:22:26,199 Speaker 1: There are a number of bureaucratic things that have to 382 00:22:26,240 --> 00:22:30,000 Speaker 1: occur over over the coming weeks. UM. That is, they 383 00:22:30,000 --> 00:22:32,520 Speaker 1: actually have to swear in the new parliament, They have 384 00:22:32,640 --> 00:22:36,560 Speaker 1: to elect the two speakers in the Chamber of Deputies, 385 00:22:36,640 --> 00:22:39,960 Speaker 1: Lower House and and then the President of the Senate. 386 00:22:40,480 --> 00:22:45,080 Speaker 1: Then the Italian President will actually start formal talks with 387 00:22:45,119 --> 00:22:48,480 Speaker 1: those leaders about trying to find a solution. He basically 388 00:22:48,600 --> 00:22:52,840 Speaker 1: gives a mandate. He picks uh someone to try and 389 00:22:52,880 --> 00:22:56,520 Speaker 1: form a government. UM. So all of that probably that 390 00:22:56,520 --> 00:23:01,720 Speaker 1: that preliminary bureaucratic um step. Those will probably take about 391 00:23:01,800 --> 00:23:05,439 Speaker 1: three weeks to a month before the Italian president actually 392 00:23:05,480 --> 00:23:09,320 Speaker 1: asked someone to form a government. Can you tell us 393 00:23:09,359 --> 00:23:12,840 Speaker 1: about the Five Star movement? Who is John Roberto Casta 394 00:23:12,920 --> 00:23:20,040 Speaker 1: Leggio and his son Yes, Um basically Um Cassa Lejo 395 00:23:20,240 --> 00:23:23,760 Speaker 1: was who who passed away about a year ago, I believe, UM, 396 00:23:23,800 --> 00:23:27,440 Speaker 1: and then his son sort of took took over. Um. 397 00:23:28,040 --> 00:23:32,000 Speaker 1: Were the inspirations, if you will, of this movement that started, 398 00:23:32,400 --> 00:23:35,919 Speaker 1: you know as a as a big internet um, you know, 399 00:23:36,040 --> 00:23:41,720 Speaker 1: populist following UM without a particular ideology, UM picking up 400 00:23:41,960 --> 00:23:44,840 Speaker 1: you know, disenchanted voters from both you know, the left, 401 00:23:44,960 --> 00:23:50,600 Speaker 1: right and center. UM. They chose for this election as 402 00:23:50,600 --> 00:23:55,920 Speaker 1: their prime minister candidate Luigi di Mayo, very young, early thirties, 403 00:23:56,600 --> 00:24:00,920 Speaker 1: UM guy without any government experience and likes to wear 404 00:24:00,920 --> 00:24:04,199 Speaker 1: a suit and tie, you know, casting a very you know, 405 00:24:04,280 --> 00:24:10,160 Speaker 1: serious businesslike image if you will, um as as their candidate. Um. 406 00:24:10,960 --> 00:24:14,280 Speaker 1: The problem is, while they improved on their performance you 407 00:24:14,280 --> 00:24:17,200 Speaker 1: know from five years ago, years ago, and got close 408 00:24:17,280 --> 00:24:21,199 Speaker 1: to of the vote, Um, they still don't have a 409 00:24:21,240 --> 00:24:26,680 Speaker 1: majority and hence we're in this situation of political gridlock again. 410 00:24:27,359 --> 00:24:30,800 Speaker 1: So Dan, you know, Berlusconi as soon as the comeback kid, 411 00:24:30,840 --> 00:24:32,480 Speaker 1: and it was sort of shocking to see him re 412 00:24:32,560 --> 00:24:35,199 Speaker 1: emerge on the scene after being banned from politics for 413 00:24:35,240 --> 00:24:38,480 Speaker 1: a number of years. But it seems like we have 414 00:24:38,600 --> 00:24:41,160 Speaker 1: seen that he is not as resilient as he had 415 00:24:41,200 --> 00:24:42,879 Speaker 1: been in the past, at least that seemed to be 416 00:24:42,960 --> 00:24:46,239 Speaker 1: the message sent by voters. No, Um true for me, 417 00:24:46,359 --> 00:24:48,760 Speaker 1: that was the biggest surprise of this vote. Um. I 418 00:24:48,800 --> 00:24:51,720 Speaker 1: think everyone was expecting that Five Star would be the 419 00:24:51,720 --> 00:24:55,160 Speaker 1: biggest single um, you know, most popular party, but I 420 00:24:55,200 --> 00:24:58,520 Speaker 1: am no one. I don't think had forecast that Berlsconi's 421 00:24:58,560 --> 00:25:02,119 Speaker 1: party would actually come in second place, and in his 422 00:25:03,000 --> 00:25:07,320 Speaker 1: alliance there um, you know, he just he invested so 423 00:25:07,400 --> 00:25:10,240 Speaker 1: much time in this, you know, obviously having the advantage 424 00:25:10,240 --> 00:25:13,600 Speaker 1: of owning some commercial television networks in Italy. You know, 425 00:25:13,680 --> 00:25:17,920 Speaker 1: he was campaigning um very strongly the age of eighty two. 426 00:25:18,240 --> 00:25:22,840 Speaker 1: He had heart issues last year. UM, and he was literally, 427 00:25:22,960 --> 00:25:25,320 Speaker 1: you know, all over the map, going from from north 428 00:25:25,359 --> 00:25:29,960 Speaker 1: to south, an experienced campaigner again. UM. A bit of 429 00:25:30,000 --> 00:25:33,359 Speaker 1: a surprise that he ended up only a sort of 430 00:25:33,359 --> 00:25:36,600 Speaker 1: a junior partner in this alliance that he's um that 431 00:25:36,680 --> 00:25:39,040 Speaker 1: he put together. Dan Liefgren, thank you so much for 432 00:25:39,119 --> 00:25:41,480 Speaker 1: joining us and I'm sure we'll hear from you again 433 00:25:41,560 --> 00:25:45,760 Speaker 1: as we follow the weeks or longer negotiations for Italy 434 00:25:45,840 --> 00:25:50,680 Speaker 1: to form a government. Thanks for listening to the Bloomberg 435 00:25:50,720 --> 00:25:53,359 Speaker 1: P and L podcast. You can subscribe and listen to 436 00:25:53,400 --> 00:25:57,920 Speaker 1: interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. 437 00:25:58,359 --> 00:26:01,920 Speaker 1: I'm pim Fox. I'm on Twitter at pim Fox. I'm 438 00:26:01,920 --> 00:26:05,240 Speaker 1: on Twitter at Lisa Abramo. It's one before the podcast. 439 00:26:05,280 --> 00:26:07,879 Speaker 1: You can always catch us worldwide on Bloomberg Radio.