WEBVTT - CFPB’s Regulation Rollback Creates Financial Inclusion: Zywicki 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm Pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:32.559 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. The 0:00:32.840 --> 0:00:36.599 c f p B has been under a lot of scrutiny. 0:00:36.640 --> 0:00:40.479 Recently Mcmlviney came in as the new head. The former 0:00:40.520 --> 0:00:43.440 head was pushed out, and this has become a sort 0:00:43.440 --> 0:00:47.159 of fertile ground. I suppose you should say, uh, for 0:00:47.320 --> 0:00:51.360 debate around Consumer of Financial Sumer Financial Protection Bureau, thank 0:00:51.400 --> 0:00:54.000 you here to come on and weigh it on. This 0:00:54.080 --> 0:00:56.440 is Todd Ziwicki, Professor of Law at the George Mason 0:00:56.640 --> 0:00:59.960 University School of Law. He joins us from Fairfax, virgin 0:01:00.000 --> 0:01:02.200 and thank you so much for being with us. It's 0:01:02.320 --> 0:01:04.920 great to be with you. So Todd, you wrote an 0:01:05.040 --> 0:01:07.600 up ed for the Wall Street Journal that caught my 0:01:07.640 --> 0:01:11.360 attention where you basically were saying, uh, that it is 0:01:11.880 --> 0:01:15.000 good for the CFPP to be loosening of on some 0:01:15.120 --> 0:01:18.319 of its restrictions and that will actually help the economy 0:01:18.360 --> 0:01:20.160 and consumers. Can you just sort of give us the 0:01:20.200 --> 0:01:24.399 broad brush of your argument. Sure, there's the big question 0:01:24.440 --> 0:01:28.040 for CFPB is it's had a very controversial structure. As 0:01:28.120 --> 0:01:31.920 you know, it's been under court litigation for a while here, 0:01:32.160 --> 0:01:33.800 and we're still waiting to see whether it's going to 0:01:33.880 --> 0:01:37.000 go to the Supreme Court or not. So setting that aside, 0:01:37.040 --> 0:01:39.480 I think that the interesting question going forward then is 0:01:40.000 --> 0:01:44.200 what does a Trump CFPB look like compared to what 0:01:44.240 --> 0:01:48.560 we've seen during the Obama administration when Richard Cordrey was 0:01:48.600 --> 0:01:52.080 the head of the CFPB, And Cordrey actually left in 0:01:52.280 --> 0:01:55.800 November and announced is running for the governorship of Ohio, 0:01:56.200 --> 0:01:58.560 And so that's what's kind of put everything into the air. 0:01:59.120 --> 0:02:01.160 And when you look back over the past few years, 0:02:01.200 --> 0:02:05.640 I think it's really a story of um unintended consequences, 0:02:05.680 --> 0:02:09.280 which is I actually agree with the idea of streamlining 0:02:09.360 --> 0:02:13.160 and sort of creating one place for consumer financial protection 0:02:13.520 --> 0:02:16.000 in the federal government. That's based on both studying and 0:02:16.040 --> 0:02:18.680 also my experience at the Federal Trade Commission. But I 0:02:18.680 --> 0:02:20.520 think that what we've seen over the past few years 0:02:20.600 --> 0:02:24.440 is wild. Consumer protection is very essential. While it can 0:02:24.480 --> 0:02:26.800 be good for not only consumers but also lenders, but 0:02:27.080 --> 0:02:30.880 also the economy by giving people confidence to be able 0:02:30.880 --> 0:02:32.840 to uh to to borrow, to be able to get 0:02:32.880 --> 0:02:35.480 access to the products they need. At the same time, 0:02:35.480 --> 0:02:37.400 over the past few years, I think maybe the pendulum 0:02:37.600 --> 0:02:39.760 swung a little too far in one direction, and not 0:02:40.240 --> 0:02:43.840 just so much too much regulation, but regulation that I 0:02:43.880 --> 0:02:48.200 think wasn't very economically informed um and ended up restricting 0:02:48.240 --> 0:02:52.120 access to mortgages, restricting access to credit cards uh, and 0:02:52.200 --> 0:02:56.239 in particular hurting low income consumers and middle class consumers. 0:02:56.240 --> 0:03:00.720 The most professor z a wiki. Uh d you agree 0:03:00.800 --> 0:03:06.400 that the cf p B dropped investigations into payday lenders 0:03:06.440 --> 0:03:11.760 that we're charging up to on loans? Well, what did 0:03:11.760 --> 0:03:14.000 they do? I agree with it? Yeah, I mean you 0:03:14.040 --> 0:03:17.640 agree that that happened, of course, Yes, Okay, they obviously 0:03:17.840 --> 0:03:21.760 dropped those investigations. UH. And I don't know anything more 0:03:21.800 --> 0:03:24.320 about why they did or did not. Okay, all right, 0:03:24.360 --> 0:03:26.239 I just wanted just so we're playing with the same 0:03:26.280 --> 0:03:30.520 facts here now. The CFPP also decided, as part of 0:03:30.520 --> 0:03:33.280 this to drop an investigation into a company called World 0:03:33.320 --> 0:03:37.760 Acceptance Corps based in Greenville, South Carolina. You know about this. 0:03:38.320 --> 0:03:44.400 They happened to offer. They gave forty dollars to Mr 0:03:44.480 --> 0:03:48.760 mulvahney during his time as a lawmaker. Um, do you 0:03:48.800 --> 0:03:50.800 think that it makes sense to have someone who has 0:03:50.840 --> 0:03:55.760 accepted money running the organization from the federal government's point 0:03:55.760 --> 0:03:58.680 of view, that is supposed to be a fair and 0:03:58.680 --> 0:04:05.960 impartial overseer. Well, obviously Mr mulveney is no longer in Congress, Um, 0:04:05.960 --> 0:04:09.280 and it's but he's running the CFPOP. Yeah, I mean 0:04:10.000 --> 0:04:12.800 what we have, I mean what we you know, you 0:04:12.840 --> 0:04:16.800 know obviously, I mean it's it's up to the president 0:04:16.839 --> 0:04:19.719 to appoint, right, uh return, But I'm asking you, do 0:04:19.839 --> 0:04:23.000 you think it makes sense to have someone running the 0:04:23.080 --> 0:04:27.440 Consumer Financial Protection Bureau who, when he was a lawmaker 0:04:28.000 --> 0:04:30.440 accepted and that was just from the one company. But 0:04:30.520 --> 0:04:35.840 the estimate is that he accepted about sixty three dollars. Yeah, 0:04:35.839 --> 0:04:40.000 I think personally, I think that, uh that that I 0:04:40.040 --> 0:04:44.640 think that obviously mcmulveney is appropriately appointed. I think he's 0:04:44.640 --> 0:04:47.839 doing an excellent job. I think that to the extent 0:04:48.240 --> 0:04:51.280 that the decision is made by any president to appoint 0:04:51.279 --> 0:04:54.039 a politician, these sort of issues arise. So, for example, 0:04:54.120 --> 0:04:58.160 Richard Cordray was appointed after being Attorney General of Ohio. 0:04:58.560 --> 0:05:00.400 He accepted a lot of money during that time from 0:05:00.400 --> 0:05:02.680 trial lawyers when he ran for office, and now he's 0:05:02.760 --> 0:05:06.320 running for governor and he's accepting money from trial lawyers 0:05:06.320 --> 0:05:09.200 and other people who have interest before the CFPP, I 0:05:09.240 --> 0:05:12.080 think to the extent that the decision is made to 0:05:12.120 --> 0:05:16.080 appoint somebody who's been in politics, that's partly what's what's 0:05:16.080 --> 0:05:18.680 going to happen, right, Uh, And you know, and it's 0:05:18.680 --> 0:05:21.560 the same way with Elizabeth Warren or anybody else. And 0:05:21.560 --> 0:05:24.600 so I think, you know, that's what the democratic processes 0:05:24.920 --> 0:05:27.960 is for. And uh, and I'm not going to second 0:05:27.960 --> 0:05:31.240 guess that decision. And I have no inside knowledge as 0:05:31.240 --> 0:05:34.559 to why those investigations were opened in the first place 0:05:34.560 --> 0:05:36.760 are closed. In the second part from Todd, I want 0:05:36.760 --> 0:05:39.559 to get into the concept of paid a lending because 0:05:39.560 --> 0:05:43.080 I think that the CFPB under Rob Cordrey was uh, 0:05:43.320 --> 0:05:45.919 pretty much not against it, but but they took a 0:05:45.960 --> 0:05:50.839 pretty harsh stance with these lenders basically that agreed to 0:05:50.880 --> 0:05:54.279 accept someone's paycheck and charge them high interest rates. Um, 0:05:54.320 --> 0:05:57.640 you're arguing that they can be helpful for lower and 0:05:57.720 --> 0:06:02.080 middle income family is can you explain that, sure, yeah, 0:06:02.080 --> 0:06:04.960 and I and you know that what's going on with 0:06:05.000 --> 0:06:09.000 payday loans now is pretty well known and it's, you know, 0:06:09.040 --> 0:06:12.239 one of those difficult trade offs that's that's hard in life, 0:06:12.240 --> 0:06:15.400 which is people who use payday loans are people who 0:06:15.480 --> 0:06:19.320 don't have access to better credit products. Are people either 0:06:19.400 --> 0:06:21.800 don't have credit cards or maxed out on their credit cards, 0:06:21.800 --> 0:06:25.400 they've got poor credits um. And the evidence is pretty 0:06:25.400 --> 0:06:27.719 clear that people who use it use it to deal 0:06:27.800 --> 0:06:33.479 with pressing expenses in life mortgage, insurance, payments, utilities, that 0:06:33.560 --> 0:06:35.800 sort of thing. And so we have is a situation 0:06:35.839 --> 0:06:39.839 in which we've got people with limited choices trying to 0:06:39.880 --> 0:06:43.120 do the best the best they can. And I think 0:06:43.120 --> 0:06:44.960 there's two things that can draw from that, which is 0:06:45.000 --> 0:06:47.600 one is when we've got people already have limited choices, 0:06:48.000 --> 0:06:50.640 you should be very careful about denying them the choices 0:06:50.680 --> 0:06:53.039 that they already make. So, for example, we know is 0:06:53.080 --> 0:06:56.840 that we're payday lending is banned by and large, a 0:06:56.880 --> 0:06:59.360 lot of people end up using bank over draft protection, 0:06:59.440 --> 0:07:02.799 which is off than more expensive or pawn shops, which 0:07:02.800 --> 0:07:06.039 are you know, force them to part with personal goods 0:07:06.040 --> 0:07:08.320 that they that they may need I think the way 0:07:08.360 --> 0:07:10.960 to think about it is to look at why is 0:07:11.000 --> 0:07:14.080 it that what is shutting off access from people to 0:07:14.200 --> 0:07:17.720 better credit products, whether it's bank accounts, whether it's UM 0:07:18.200 --> 0:07:21.520 credit cards. And that's what I think is the the 0:07:21.520 --> 0:07:24.960 the unfortunate consequences that happened over the past few years, 0:07:25.000 --> 0:07:28.440 which is because of Dodd Frank, because of some other regulations, 0:07:28.800 --> 0:07:32.160 people in the lower income spectrum have found it more 0:07:32.200 --> 0:07:35.520 difficult to get credit cards, They've lost access to bank accounts, 0:07:35.560 --> 0:07:38.160 they found it more difficult to get mortgages. And I 0:07:38.200 --> 0:07:44.080 think that's where focusing on UH financial inclusion and respecting 0:07:44.120 --> 0:07:48.840 people's UH ability to choose for themselves, I think is 0:07:49.160 --> 0:07:51.400 something that's kind of been lost in the shuffle, and 0:07:51.440 --> 0:07:54.320 I think should be waged more in the balance going forward. 0:07:54.680 --> 0:07:57.400 We gotta leave it there. Todd Zwicki is a professor 0:07:57.440 --> 0:08:01.400 of law at George Mason University School of Law based 0:08:01.480 --> 0:08:18.400 in Fairfax of Virginia. Let's bring in brook Sutherland now, 0:08:18.440 --> 0:08:22.080 our mergers and acquisitions columnist for Bloomberg Gadfly. You can 0:08:22.160 --> 0:08:26.640 follow Brooke on Twitter at b L South s U 0:08:26.880 --> 0:08:31.840 t H. I imagine that's just short indeed, all right, 0:08:31.920 --> 0:08:34.680 so B l South. What is this about the U 0:08:34.840 --> 0:08:39.720 S Government issuing an interim order to block an investor meeting? 0:08:39.960 --> 0:08:42.880 And this has to do with the bid by Broadcom 0:08:43.200 --> 0:08:48.680 to buy Qualcom for more than ten billion dollars. Yes, 0:08:48.800 --> 0:08:52.280 and so Sipious, which is the U S. Regulatory body 0:08:52.320 --> 0:08:55.240 that's charged with reviewing deals for national security risk says 0:08:55.600 --> 0:08:58.559 they want to take a look at this before Qualcom's 0:08:58.600 --> 0:09:00.800 annual meeting. That meeting was the puposed to take place 0:09:00.800 --> 0:09:03.600 on Tuesday. It will now be delayed for up to 0:09:03.679 --> 0:09:07.280 thirty days while Siffius reviews this deal. And the reason 0:09:07.320 --> 0:09:10.160 why they're sort of intervening now, and personally, I think 0:09:10.160 --> 0:09:13.400 it makes sense is there was some concern about what 0:09:13.440 --> 0:09:15.920 type of message it might send or what sort of 0:09:15.920 --> 0:09:18.520 precedent it would send if sifias did not look at 0:09:18.520 --> 0:09:22.320 this deal. Because Broadcom is a Singapore based company and 0:09:22.360 --> 0:09:24.920 it's trying to move its location to the US, but 0:09:24.960 --> 0:09:28.400 it's waging this proxy fight as a means of hopefully 0:09:28.440 --> 0:09:31.280 getting board candidates on there that are more favorable to 0:09:31.360 --> 0:09:34.720 its takeover bid. So some US lawmakers have said, could 0:09:34.800 --> 0:09:37.240 there be copycats who would look at what it's done 0:09:37.640 --> 0:09:40.560 and maybe think about a proxy fight is a way 0:09:40.559 --> 0:09:42.679 to gain effective control of a you over a U 0:09:42.800 --> 0:09:45.439 S company without ever having to go through a SIFIAS review, 0:09:45.480 --> 0:09:50.679 because typically sifia's reviews only happen when there's an actual deal. Well, Brook, 0:09:50.840 --> 0:09:55.680 you know, it's interesting because I believe that Qualcom requested 0:09:55.760 --> 0:10:00.439 this review. Well, so there's been some back and fourth 0:10:00.480 --> 0:10:03.679 on that, So that is what Broadcom said. Qualcom is 0:10:03.679 --> 0:10:06.240 out with the statement, I think five minutes ago saying 0:10:06.280 --> 0:10:10.840 that Broadcom has you know, given to written, uh, you know, 0:10:10.920 --> 0:10:13.880 submissions to SIFFI as they've been engaged with the regulatory 0:10:13.920 --> 0:10:17.600 agency for several weeks. So the surprise element of this 0:10:17.720 --> 0:10:21.160 as it was conveyed by Broadcom may not entirely be accurate. Well, 0:10:21.200 --> 0:10:22.960 the reason why I ask is because I'm wondering how 0:10:23.040 --> 0:10:26.520 much this further sours relations between the two companies. If 0:10:26.559 --> 0:10:30.880 there was some kind of uh encouragement, shall I say, 0:10:30.960 --> 0:10:33.640 from Qualcom side to have SIFIAS come in and add 0:10:33.679 --> 0:10:39.160 some pressure. Sure, I'm skeptical how much encouragement Qualcom actually 0:10:39.200 --> 0:10:41.679 gave in this um. You know, there's been numerous reports 0:10:41.720 --> 0:10:44.360 from from US and from other news organizations that Ciffiest 0:10:44.400 --> 0:10:46.880 members were already concerned, So I don't know if this 0:10:47.080 --> 0:10:49.960 just nudged them along the path that they were already on. 0:10:50.040 --> 0:10:52.280 But I mean, look, there's no love lost between these 0:10:52.320 --> 0:10:56.560 two companies, and that's not unusual in a hostile takeover situation. 0:10:56.559 --> 0:10:59.120 I always laugh at these because you see these crazy 0:10:59.200 --> 0:11:01.760 press releases where they're calling each other liars and all 0:11:01.800 --> 0:11:03.480 this back and forth stuff, and then if a deal 0:11:03.520 --> 0:11:06.040 ever gets announced, it's like nothing's ever happened and they're 0:11:06.080 --> 0:11:09.000 best friends. But um, look, I you know, I think 0:11:09.040 --> 0:11:13.800 that Qualcomm has obviously been very resistant to this idea 0:11:13.840 --> 0:11:16.920 with Broadcom, and they've made some valid points about their concerns, 0:11:16.920 --> 0:11:21.079 and Broadcom has really sort of been unbending and unwilling 0:11:21.160 --> 0:11:23.720 to sort of meat Qualcom in the middle or give 0:11:23.760 --> 0:11:26.719 any real sort of details, especially along the lines of 0:11:26.760 --> 0:11:30.680 antitrust risks. Isn't Singapore and ally of the United States? 0:11:31.280 --> 0:11:33.720 It is, but you know, it's still a foreign entity, 0:11:33.760 --> 0:11:35.719 So I don't know, I understand that, but I mean, 0:11:35.760 --> 0:11:38.160 but I mean Singapore's and ally of the United States, 0:11:38.160 --> 0:11:42.079 it is. Yes, broad Comm is headquartered in Singapore. They 0:11:42.120 --> 0:11:44.480 want to move to the United States and established the 0:11:44.559 --> 0:11:49.319 domicile here in the US. Why other than the price 0:11:49.360 --> 0:11:53.520 of the deal. Would this really be an issue? And why? Now? So, 0:11:54.320 --> 0:11:57.240 Broadcom m is sort of known for being a cost cutter, 0:11:57.440 --> 0:12:00.640 and it's known for financial engineer for lack of a 0:12:00.679 --> 0:12:03.040 better word, And so I think the concern among US 0:12:03.120 --> 0:12:06.800 lawmakers is that Broadcom would come in and significantly cut 0:12:06.840 --> 0:12:10.240 back R and D cost at Qualcom. They've sort of 0:12:10.280 --> 0:12:14.320 alluded to this idea of maybe winding down Qualcom's licensing business. 0:12:14.320 --> 0:12:18.440 If you remember, that's them selling it. But that and 0:12:18.480 --> 0:12:20.160 that's the one that's given them sort of all these 0:12:20.160 --> 0:12:23.079 issues with Apple. But that isn't that a strategic business decision? 0:12:23.120 --> 0:12:25.520 I mean, how does that end up being a sort 0:12:25.520 --> 0:12:29.040 of US political security decision. Yeah, So what I was 0:12:29.040 --> 0:12:31.160 getting to is, if you're cutting all of these costs, 0:12:31.160 --> 0:12:34.360 what the US is concerned about is that then hamstrings 0:12:34.440 --> 0:12:37.240 Qualcom in this race for five G technology. This is 0:12:37.280 --> 0:12:40.040 the next front. What the US does not want to 0:12:40.080 --> 0:12:43.040 happen is Whahwei is the other big leader in this technology. 0:12:43.120 --> 0:12:45.480 They do not want Whahwei to have a virtual lock 0:12:45.559 --> 0:12:48.360 on five G. Wawe is a Chinese company the US 0:12:48.520 --> 0:12:50.920 wants to be a player in this. Qualcom is really 0:12:50.920 --> 0:12:53.440 one of its better bets, so they're wary of sort 0:12:53.440 --> 0:12:56.880 of giving control over that technology over this company to 0:12:57.840 --> 0:13:00.120 you know, as of now a foreign buyer that that 0:13:00.160 --> 0:13:03.079 has sort of a reputation for for cutting costs. Well, 0:13:03.120 --> 0:13:05.560 I'm sure that the stag will end very quickly and neatly, 0:13:05.679 --> 0:13:07.880 so we'll never talk about it again. Brook Southerland, thank 0:13:07.880 --> 0:13:09.240 you so much for joining us. I'm sure we will 0:13:09.240 --> 0:13:12.240 be talking about it again. Hashtag sarcasm. Bloomberg m and 0:13:12.280 --> 0:13:16.040 A and industrial columnists with gad fly, and she's been 0:13:16.080 --> 0:13:20.160 incredibly busy. She weartes fabulous columns. Check them out online 0:13:20.280 --> 0:13:22.840 and you can see her on TV and she'll be back. 0:13:37.120 --> 0:13:41.080 Does government spending discourage work? Here to help us understand 0:13:41.080 --> 0:13:44.319 this topic is Edward Lizier. He is an economist and 0:13:44.520 --> 0:13:47.840 he is also a Senior Fellow at the Hoover Institution 0:13:47.920 --> 0:13:51.319 at Stanford University, formerly Chairman of the Council of Economic 0:13:51.360 --> 0:13:55.679 Advisors from two thousand six to two thousand nine and 0:13:56.400 --> 0:14:00.360 as Chairman Chief Economic Advisor to President George W. Bush. 0:14:00.440 --> 0:14:03.360 Ed Lozier, thank you very much for being with us. 0:14:03.920 --> 0:14:07.439 Maybe just speak a little bit about this notion that 0:14:07.559 --> 0:14:11.880 government spending discourages work and I offer that it's really 0:14:11.920 --> 0:14:15.160 in the context of a recent up ed piece that 0:14:15.240 --> 0:14:19.920 she was penned and published in the Wall Street Journal. Sure, well, 0:14:19.960 --> 0:14:24.680 the basic idea is this spending by itself doesn't discourage work. 0:14:24.800 --> 0:14:27.800 But the problem is that the more we spend, the 0:14:27.840 --> 0:14:30.240 more we have to tax. That's going to be true 0:14:30.280 --> 0:14:33.280 whether we tax now or whether we borrow in tax later, 0:14:34.000 --> 0:14:39.120 and taxes reduce capital formation and work. So the problem 0:14:39.280 --> 0:14:41.280 is that if we spend a lot, we're going to 0:14:41.400 --> 0:14:43.680 tax a lot, and if we tax a lot, we're 0:14:43.720 --> 0:14:48.800 going to put disincentive effects on both capital formation and work. 0:14:49.160 --> 0:14:51.120 The easiest way to see this is that if you 0:14:51.200 --> 0:14:54.440 look at the data across say the G seven countries. 0:14:54.640 --> 0:14:56.880 Um I looked at it across all O E C 0:14:56.960 --> 0:14:59.400 D countries, which is a larger group than the G seven, 0:14:59.640 --> 0:15:01.360 but the seven or the big ones. And if you 0:15:01.400 --> 0:15:03.600 look at the big ones, what you see is those 0:15:03.640 --> 0:15:07.520 countries that have high tax rates also tend to have 0:15:08.360 --> 0:15:11.760 much lower work hours. And that takes two forms. One 0:15:11.880 --> 0:15:14.960 is individuals work less per week given that they're working. 0:15:15.320 --> 0:15:18.680 But the main effect is that individuals are less likely 0:15:18.800 --> 0:15:21.520 to participate in the labor market. So if you look 0:15:21.520 --> 0:15:25.120 at the United States versus say, France, the French work 0:15:25.120 --> 0:15:27.400 about thirty percent less than we do per person in 0:15:27.440 --> 0:15:30.920 the working age population. Professor Lazier, I think it's interesting 0:15:30.920 --> 0:15:33.680 the way that you phrase it, which is that spending, 0:15:34.160 --> 0:15:38.160 uh doesn't necessarily doesn't encourage people to work more. But 0:15:38.400 --> 0:15:40.840 isn't this really about the budget deficit? Isn't this really 0:15:40.880 --> 0:15:43.880 about sort of the need to plug some kind of 0:15:43.960 --> 0:15:48.640 gap in the financial situation of a nation. Yeah, so, 0:15:48.640 --> 0:15:51.120 so the way I think the easiest way to see it, 0:15:51.160 --> 0:15:53.200 because it is a little surprising that you know, in 0:15:53.240 --> 0:15:56.520 some sense deficits don't matter. Uh. It's not so much 0:15:56.560 --> 0:15:59.920 that deficits don't matter, it's that, once we take spending 0:16:00.000 --> 0:16:02.440 into account, whether you finance that now or whether you 0:16:02.480 --> 0:16:04.880 finance it later is kind of a second order effect. 0:16:05.240 --> 0:16:07.200 The easiest way to think about that is, you know, 0:16:07.280 --> 0:16:11.040 suppose someone goes out and buys a home entertainment system 0:16:11.080 --> 0:16:14.400 by spending their entire month's salary on it. Question is 0:16:14.440 --> 0:16:16.880 are they better off by paying for that now and 0:16:16.920 --> 0:16:20.760 depleting their entire earnings or are they better off borrowing 0:16:20.760 --> 0:16:23.000 and say, and paying it off over time. So not 0:16:23.080 --> 0:16:25.800 so obvious which one is better. What is obvious is 0:16:25.800 --> 0:16:28.000 they probably shouldn't have bought the thing in the first place. 0:16:29.200 --> 0:16:31.120 Ahead I'm sorry, I know, I'm sorry. I'm sorry to interrupt. 0:16:31.120 --> 0:16:34.120 The reason why I was making that distinction is because 0:16:34.320 --> 0:16:38.400 when uh, the congress members who are passing the tax 0:16:38.440 --> 0:16:41.120 plan more arguing for it, they said, look, we want 0:16:41.200 --> 0:16:44.120 a smaller deficit, we want less spending. Yes, we're going 0:16:44.160 --> 0:16:46.240 to do this tax plan that's going to increase the 0:16:46.280 --> 0:16:49.600 deficit substantially. We just now need to go cut spending. 0:16:49.640 --> 0:16:52.800 And it was sort of this artificial distinction between spending 0:16:53.000 --> 0:16:55.520 and not collecting as much money. But you think it's 0:16:55.560 --> 0:16:58.440 it's a it's a real distinction. Well, no, I say, 0:16:58.880 --> 0:17:01.480 let's put it this way. I think, uh, there are 0:17:02.200 --> 0:17:06.920 misstatements on both sides. So the Democrats who were saying, oh, gee, 0:17:06.920 --> 0:17:09.760 you know, this is terrible because we're increasing the deficit 0:17:10.320 --> 0:17:13.760 um probably didn't have that quite right, because it's not 0:17:13.840 --> 0:17:16.720 so much the fact that the deficit went up when 0:17:16.720 --> 0:17:20.040 we cut taxes. Again, that's not great, but that's kind 0:17:20.040 --> 0:17:23.440 of a minor consideration. But on the other side, the 0:17:23.520 --> 0:17:27.240 Republicans also didn't have it quite right, because cutting taxes 0:17:27.280 --> 0:17:31.240 by itself, right, now without also cutting spending means that 0:17:31.359 --> 0:17:33.760 in the long run, growth is not going to continue 0:17:33.800 --> 0:17:36.920 to be sustained. The reason that we get growth out 0:17:36.960 --> 0:17:39.400 of the current tax bill is because it is a 0:17:39.440 --> 0:17:42.640 plan that reduced the cut reduced the taxes on capitol, 0:17:43.080 --> 0:17:46.560 and almost all economists on again on both sides of 0:17:46.600 --> 0:17:50.840 the political spectrum, agree that taxes on capitol are the 0:17:51.080 --> 0:17:53.960 are the ones that are the most harmful to economic 0:17:54.000 --> 0:17:57.640 growth because capital can move. But neither side really had 0:17:57.680 --> 0:18:00.920 it quite right. So the problem is, unless we get 0:18:00.960 --> 0:18:04.720 spending under control, we're still going to have to tax 0:18:04.800 --> 0:18:07.120 to pay for that spending, either in the long run 0:18:07.240 --> 0:18:09.639 or the short run, and that will affect both work 0:18:09.800 --> 0:18:13.160 and uh AN investment incentives. Ed Lozier, can I turn 0:18:13.200 --> 0:18:18.320 your attention to tariff wars and particularly the president's effort 0:18:18.359 --> 0:18:24.680 to impose tariffs on imported steel and aluminum. What's your response. Well, 0:18:24.720 --> 0:18:28.520 I'm not an admirer of that policy. I have never 0:18:28.560 --> 0:18:32.200 thought that getting involved in tariffs is a good idea, 0:18:32.359 --> 0:18:35.119 even from the point of view of the country that 0:18:35.200 --> 0:18:39.040 imposes the tariffs itself without any repercussions from other countries. 0:18:39.560 --> 0:18:41.320 So I don't think that there's going to be much 0:18:41.359 --> 0:18:44.480 of an effect, much of a positive positive effect, even 0:18:44.520 --> 0:18:48.400 on the industry is directly affected, like steel, but certainly 0:18:48.440 --> 0:18:51.520 other industries that you steal as an input will be 0:18:51.560 --> 0:18:55.080 adversely affected. So on net, this is as far as 0:18:55.080 --> 0:18:57.879 I'm concerned, this is a loser. Uh. It's just not 0:18:57.960 --> 0:19:00.000 a good idea to do it, even if there were 0:19:00.080 --> 0:19:02.440 not a trade war to follow. And of course, uh, 0:19:02.440 --> 0:19:04.720 you know other countries are threatening that they are going 0:19:04.760 --> 0:19:08.840 to retaliate. If that is going to happen, what do 0:19:08.920 --> 0:19:12.399 you perceive the effect will be on economic growth in 0:19:12.440 --> 0:19:15.320 the United States? Well, I think it will be negative. 0:19:15.400 --> 0:19:19.600 I do think that the reaction and as I always 0:19:19.640 --> 0:19:22.439 hate to outguess the market, but obviously the market's reaction 0:19:22.520 --> 0:19:25.880 was pretty negative to this thing. Um, I don't think 0:19:25.880 --> 0:19:29.520 that the effect on economic growth will be as pronounced 0:19:29.560 --> 0:19:33.760 as as it appears right now from the dramatic movements 0:19:33.760 --> 0:19:35.800 in the market. There will be a negative effect, but 0:19:35.840 --> 0:19:38.040 I don't think it will be that large. Uh. We 0:19:38.160 --> 0:19:40.760 do have a precedent on this. The guy I served, 0:19:40.960 --> 0:19:44.720 President Bush, of course, impost steal tariffs early in his term, 0:19:45.320 --> 0:19:48.680 and that was followed by you know a few years 0:19:48.680 --> 0:19:51.280 of pretty good growth. Now Of course, he did remove 0:19:51.320 --> 0:19:54.639 those tariffs a bit later, so one can argue that 0:19:55.240 --> 0:19:59.040 President Trump will have the same opportunity, but it was 0:19:59.160 --> 0:20:02.840 not that detrimental even in the short run. Edward Lizzier, 0:20:02.920 --> 0:20:06.000 thank you so much for being with us, really interesting ideas. 0:20:06.320 --> 0:20:10.720 Edward Lazier, labor economist and professor at Stanford University's Graduate 0:20:10.960 --> 0:20:14.520 School of Business, coming to us from Palo Alto, California. 0:20:14.760 --> 0:20:17.719 I'm Lisa Bramoy. It's along with my co host Pim Fox. 0:20:17.920 --> 0:20:35.879 This is Bloomberg. The voters in initially in Italy have 0:20:36.080 --> 0:20:39.920 had their say and it has actually produced a bit 0:20:39.960 --> 0:20:43.320 of a muddled result, although populist five Star and the 0:20:43.400 --> 0:20:46.000 League are vying for power right now here. To help 0:20:46.080 --> 0:20:49.680 us understand what's going on in Italy is Dan leaf Green. 0:20:49.800 --> 0:20:52.680 He is our Milan bureau chief for Bloomberg. Dan, thanks 0:20:52.720 --> 0:20:54.639 so much for being with us. Tell us what are 0:20:54.760 --> 0:20:57.880 what are the election results and what do they mean? Well, 0:20:58.080 --> 0:21:03.480 the election results basically that there's a hung parliament, which 0:21:03.600 --> 0:21:08.200 which was expected. The polls before a blackout fifteen day 0:21:08.200 --> 0:21:11.920 blackout period UM showed that that was likely. I'd say 0:21:11.960 --> 0:21:15.960 that there are two surprises. Um. One is the you 0:21:16.000 --> 0:21:21.040 know the strength the increase in popularity of the five 0:21:21.080 --> 0:21:26.119 Star UH anti establishment party, and I think the surprising 0:21:26.840 --> 0:21:32.040 UM showing by the Populist League UM, which is part 0:21:32.080 --> 0:21:37.960 of Silvio Berlusconi's alliance. UM, they actually outpolled Berlsconi's fort 0:21:37.960 --> 0:21:42.400 Staliate party and I don't think anyone had predicted that. DAN. 0:21:42.600 --> 0:21:45.560 As we head into it will inevitably be weeks, uh 0:21:45.760 --> 0:21:49.480 possibly longer of negotiations as Italy tries to create a government. 0:21:49.680 --> 0:21:52.200 Can you just explain to us how does this all work? 0:21:52.240 --> 0:21:55.000 How does their government work? Because there's six hundred or 0:21:55.040 --> 0:21:57.080 more members and they have to agree on some kind 0:21:57.080 --> 0:22:02.719 of coalition to make it work. Yeah, it's UM not surprising. 0:22:02.760 --> 0:22:07.480 It's a complicated process. But UM. On the upside, Italy 0:22:07.520 --> 0:22:10.760 has done this before. Only five years ago in the 0:22:10.760 --> 0:22:13.919 previous national election there was a similar result and it 0:22:14.000 --> 0:22:17.399 took about two months to put together a government. This 0:22:17.560 --> 0:22:23.159 time again, the Italian president UM really is the key figure. 0:22:23.440 --> 0:22:26.199 There are a number of bureaucratic things that have to 0:22:26.240 --> 0:22:30.000 occur over over the coming weeks. UM. That is, they 0:22:30.000 --> 0:22:32.520 actually have to swear in the new parliament, They have 0:22:32.640 --> 0:22:36.560 to elect the two speakers in the Chamber of Deputies, 0:22:36.640 --> 0:22:39.960 Lower House and and then the President of the Senate. 0:22:40.480 --> 0:22:45.080 Then the Italian President will actually start formal talks with 0:22:45.119 --> 0:22:48.480 those leaders about trying to find a solution. He basically 0:22:48.600 --> 0:22:52.840 gives a mandate. He picks uh someone to try and 0:22:52.880 --> 0:22:56.520 form a government. UM. So all of that probably that 0:22:56.520 --> 0:23:01.720 that preliminary bureaucratic um step. Those will probably take about 0:23:01.800 --> 0:23:05.439 three weeks to a month before the Italian president actually 0:23:05.480 --> 0:23:09.320 asked someone to form a government. Can you tell us 0:23:09.359 --> 0:23:12.840 about the Five Star movement? Who is John Roberto Casta 0:23:12.920 --> 0:23:20.040 Leggio and his son Yes, Um basically Um Cassa Lejo 0:23:20.240 --> 0:23:23.760 was who who passed away about a year ago, I believe, UM, 0:23:23.800 --> 0:23:27.440 and then his son sort of took took over. Um. 0:23:28.040 --> 0:23:32.000 Were the inspirations, if you will, of this movement that started, 0:23:32.400 --> 0:23:35.919 you know as a as a big internet um, you know, 0:23:36.040 --> 0:23:41.720 populist following UM without a particular ideology, UM picking up 0:23:41.960 --> 0:23:44.840 you know, disenchanted voters from both you know, the left, 0:23:44.960 --> 0:23:50.600