Speaker 1: Brought you by Bank of America, Mary Lynch. Investing in
Speaker 1: local communities, economies and a sustainable future. That's the power
Speaker 1: of global connections, Mary Lynch, Pierce Fenner and Smith Incorporated
Speaker 1: Member s I p C. Welcome to the Bloomberg Surveillance Podcast.
Speaker 1: I'm Tom Keene with David Gura. Daily we bring you
Speaker 1: insight from the best of economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, Bloomberg dot Com,
Speaker 1: and of course, on the Bloomberg Jason Furman, he's Senior
Speaker 1: Fellow with the Peterson Institute for International Economics, the former
Speaker 1: chairman of the White House Council of Economic Advisors, and
Speaker 1: as of last week, he's professor with the Practice of
Speaker 1: Economic Policy at the Harvard Kennedy School. He's in our
Speaker 1: nine nine one studios with Tom in Washington, a DC.
Speaker 1: Great to have you with us, Jason, and congrats on
Speaker 1: making your home Eric return to to Harvard. Thanks so much.
Speaker 1: Let me let me start by asking you about what
Speaker 1: we heard from the Treasury Secretary yesterday. He was speaking
Speaker 1: in an i F event yesterday was asked quite a
Speaker 1: bit about the prospects for tax reform, where things stand,
Speaker 1: where things are are headed and uh, the speech, the
Speaker 1: comments were suffused with optimism. This is going to happen
Speaker 1: here in the not too distant future. What's your sense
Speaker 1: of of what's happening. What are the holdups towards getting uh,
Speaker 1: some indication of what tax from looks like to this
Speaker 1: Trump administration. The hold up is the administration hasn't told
Speaker 1: us what it's in favor of it. First I thought
Speaker 1: they were going to let Congress write the plan. That
Speaker 1: wouldn't be such a terrible thing. The House Republican blueprint
Speaker 1: from last year actually had a lot of good, thoughtful
Speaker 1: ideas and it had some problems too, but had a
Speaker 1: lot of thoughtful ideas and a lot of thought went
Speaker 1: into it. Um, the administration said they don't want to
Speaker 1: go that route. They want to put out their own plan,
Speaker 1: but we haven't heard what it is. What we heard
Speaker 1: yesterday though, was concerning which is that they want a
Speaker 1: net tax cut rather than a genuine revenue neutral tax reform.
Speaker 1: And I don't think, um, a tax cut is something
Speaker 1: that you could get bipartisan support for, and without bipartisan support,
Speaker 1: I don't think you can really do the types of
Speaker 1: reforms we need to do UM to make our tax
Speaker 1: code more efficient and more competitive. You've been in Washington while,
Speaker 1: so let me get some inside from you into into
Speaker 1: this process. A lot of people saying it's it's overly
Speaker 1: ambitious to think you could get tax reform done quickly.
Speaker 1: These type of things take a very long time. But
Speaker 1: when you're dealing with something like this, the longer rout
Speaker 1: plays out, does it become more complicated as you get
Speaker 1: more people to fighting over what goes in and what
Speaker 1: comes out? There's an interplay. At some point. You don't
Speaker 1: want the fish lying on the dock too long because
Speaker 1: it just starts to starts to smell um. But it
Speaker 1: takes a while to figure out how to get to
Speaker 1: that point, and then you strike and try to move
Speaker 1: as quickly as possible. The last time we did tax reform,
Speaker 1: the Treasury put out a two volume, really comprehensive study
Speaker 1: in nine teen eight four. Congress spent the next two years.
Speaker 1: They made it worse. They added all sorts of transition rules, giveaways,
Speaker 1: took out some of the good things UM. But what
Speaker 1: came out of it was still a lot better than UM.
Speaker 1: The law ex empty and that was a too year process.
Speaker 1: I mean, part of this is even just technically complicated.
Speaker 1: People talk about, you know, border adjustment or ending interest deductions.
Speaker 1: Those are really tricky things to figure out the details.
Speaker 1: You need proposals out there so people can discuss and
Speaker 1: work on that, and they're just not right now. You've
Speaker 1: been in the White House working on policy in concert
Speaker 1: with with the Congress. What's your sense of what that
Speaker 1: relationship is like today? In other words, do you get
Speaker 1: the sense here that when it comes to taxi form,
Speaker 1: Republicans in Congress are working in concert with the White House?
Speaker 1: Who are we seeing sort of a parallel track here?
Speaker 1: You're seeing, um, a bit of a parallel track. Um,
Speaker 1: in fact, three different tracks. Um. You have the House,
Speaker 1: which is in favor of border adjustment. You have the
Speaker 1: White House, which up until recently hadn't decided allough now
Speaker 1: maybe it seems like they're against it. And then you
Speaker 1: have the Senate, which is opposed to anything. Um, the
Speaker 1: houses in favor of and these three tracks I'm talking
Speaker 1: about right now, all three of them are Republican tracks. So, um,
Speaker 1: you know, really the hope we have would be to
Speaker 1: get on the same page, and that page should be
Speaker 1: revenue neutral. It should be distribution neutral. That still leaves
Speaker 1: a lot of room for a nine six style tax
Speaker 1: or form of lower tax rates that would help our economy.
Speaker 1: Jason Furman with us. He's a former chairman of the
Speaker 1: President's Council of Economic Advisors. I was bragging about you
Speaker 1: in TV about the public good for Republicans, Democrats, for
Speaker 1: the politically disaffected. On the state of the nation's labor force.
Speaker 1: It's international economics here and we're doing steel tariffs and
Speaker 1: the rest. What was the key surprise for you and
Speaker 1: your August team when you did look at labor participation
Speaker 1: in the this mystery of our unemploy What was the
Speaker 1: thing that jumped out at you? That the problem dates
Speaker 1: back a lot further than most people realize. It's not
Speaker 1: just this recession and recovery. Give me helpe me, Martin
Speaker 1: van Buren. Um goes back to and the problem has
Speaker 1: been the problem has been growing since the nineties. It's
Speaker 1: been growing steadling. When I met you, you were talking
Speaker 1: about Hans Solo, which is a lovely monograph from the fifties. Frankly,
Speaker 1: from our Growthiness and our Study of Growthiness of nineteen
Speaker 1: fifty seven and fifty eight. Can we use those same
Speaker 1: theories now or do you guys have to come up
Speaker 1: with a new regime of theory to get people employed
Speaker 1: in America. I think some of those classic growth models
Speaker 1: from the nineteen fifties help us understand and diagnose the problem.
Speaker 1: And one of the problems we have right now is
Speaker 1: very low productivity growth. Part of that is low total
Speaker 1: factor product activity, which is a measure of innovation in
Speaker 1: a way of thinking about it um and trying to
Speaker 1: understand what we can do better there um. If we don't,
Speaker 1: we don't have faster productivity growth, We're not going to
Speaker 1: be able to have faster wage growth. And that's why
Speaker 1: the business tax reform we're talking about, for example, is
Speaker 1: one of the important ingredients in getting our productivity growth up.
Speaker 1: Are we getting any better at measuring productivity? Tom knows.
Speaker 1: I was talking with Steve Balmer, former CEO of Microsoft
Speaker 1: earlier this week. He's very into data in his new
Speaker 1: Waking website looking out data, but but he's also been
Speaker 1: thinking about how we measure productivity with technology in specific,
Speaker 1: Are we getting any better at doing it? I don't
Speaker 1: think we're getting any better at doing it, but I'm
Speaker 1: not as convinced as a lot of people are that
Speaker 1: we're getting a whole lot worse at doing it. Either
Speaker 1: there's a lot we were missing ten years ago, twenty
Speaker 1: years ago, thirty years ago. UM. I think the productivity
Speaker 1: slow down is real, and I think it's because the
Speaker 1: innovation we're seeing is concentrated in a relatively narrow slice
Speaker 1: of our economy, and average, over the economy as a whole,
Speaker 1: which includes construction and um you know, education and all
Speaker 1: sorts of things, on average, you're not seeing the type
Speaker 1: of productivity growth we'd like to see. The person whos
Speaker 1: named your successor, Kevin has it's gonna head up the
Speaker 1: Council of Economic Advisors now in his administration. Give us
Speaker 1: a sense of of how the council works. Will he
Speaker 1: set an objective and agenda for the council? Does it
Speaker 1: tell us about the president's economic agenda? What what's the
Speaker 1: what's what's the role of that person in this administration
Speaker 1: going to be um At first of all, I want
Speaker 1: to say Kevin Hassett is a great pick, and I
Speaker 1: would love to see him UM confirmed by the Senate
Speaker 1: for that position because the role of c e A
Speaker 1: UM it has both an internal role, and there's a
Speaker 1: large truth to compower. Components of that UM C e
Speaker 1: A are PhD trained economists. They tend to be much
Speaker 1: less political. They're much less into defending the talking points
Speaker 1: UM and more into figuring out, you know what the
Speaker 1: truth is now. Kevin has a different perspective than me
Speaker 1: on some issues. I think, UM, he has two large
Speaker 1: a notion of what a corporate tax cut to do
Speaker 1: for the economy, for example, UM. But those are honest
Speaker 1: UM debates between economists, and I think I'll feel a
Speaker 1: whole lot better if I know there's an economist sitting
Speaker 1: there making those arguments. When when you look at the
Speaker 1: numbers that can come out, it all wraps up in
Speaker 1: fiscal policy. One of the themes of these I MF
Speaker 1: meetings has been a lot more discussion here of UH
Speaker 1: fiscal policy is a good solution for growth and society?
Speaker 1: What kind of republican policy do we need? And that
Speaker 1: you mentioned Eisenhower earlier, there's a history here of different
Speaker 1: kinds of republican policy. What is the best practice of
Speaker 1: republican fiscal economics? The best practice to deal with our
Speaker 1: medium and long run deficit problem would be something along
Speaker 1: lines of the type idea of both Simpson Hadden. They
Speaker 1: had two principles. One is you need to do both
Speaker 1: revenue and spending. Number two, you couldn't do it at
Speaker 1: the expense of low income program Why can't we? And
Speaker 1: you know because you haven't. You have an approach right
Speaker 1: now that violates both of those. It rather than raising revenue,
Speaker 1: it cuts revenue, and rather than dealing with entitlements, it
Speaker 1: just cuts low income programs. So it violates both of
Speaker 1: the Bull Simpson principles. And that's not a basis for
Speaker 1: bipartisan agreement. In fact, the history of Republicans reigning in
Speaker 1: the medium and long term deficit through entitlement savings on
Speaker 1: their own is nil. There is none of it. The
Speaker 1: only way to do it is bipartisan. The only way
Speaker 1: to these things. Bipartisan has put revenue and spending both
Speaker 1: on the table. Jason Firmer, thanks for time to I appreciate.
Speaker 1: That's Jason firm and Senior fellow at the Peterson Institute
Speaker 1: for International Economics, Professor the Practice of Economic Policy at
Speaker 1: the Harvard Kennedy School up in Cambridge. You start, when
Speaker 1: does that start this semester? I'll be moving up there.
Speaker 1: This summer terrific. Look forward to talk to you again.
Speaker 1: So Jason from anjoin us our Bloomberg ninety nine studios.
Speaker 1: We're talking international economics. Olivia Blanchard among others will join
Speaker 1: us at a moment, but right now we touch on that.
Speaker 1: But digress to this Washington. Her Washington. She is Alice Rivlin,
Speaker 1: who just flat out invented what we do on modern
Speaker 1: fiscal policy at the Congressional Budget Office UH provided public
Speaker 1: service as vice chairman of the Federal Reserve System as well.
Speaker 1: Dr Rivlin, wonderful to see you. You and I were
Speaker 1: reminiscing about the value of Ben's Chili Bowl on you
Speaker 1: Street from a few from a few years ago. You
Speaker 1: used to go up there, your kids went to school
Speaker 1: with Ben's kids, etcetera, etcetera. This Washington is so different
Speaker 1: from when Ben's Chili Bowl was becoming iconic. Does anybody
Speaker 1: of the elite down here, including the President United States?
Speaker 1: Did I understand that a society has to get along
Speaker 1: and find a common ground? Unfortunately, I think not at
Speaker 1: the moment. There are plenty of people who do understand that,
Speaker 1: but our political system is so polarized and our parties
Speaker 1: are so angry at each other that we're just not
Speaker 1: getting anything done. You and I talked of Tip O'Neill
Speaker 1: in in uh President Reagan earlier. Let's take it to
Speaker 1: the legislative branch in itself. Olympia, Snow or Hatch could
Speaker 1: provide conversation with the respected senator from Massachusetts, whether it
Speaker 1: was Ed Brooke or Ted Kennedy. How do we get
Speaker 1: back to them to what you knew? Well, I think
Speaker 1: it's gonna take both leadership and public pressure. If you
Speaker 1: read the polls, you know that the public is just
Speaker 1: put out with the Congress and their lack of getting
Speaker 1: anything done in the Congress rates very low it always has,
Speaker 1: but UH much lower now. And there is real public
Speaker 1: anger about the bridlock and about the polarization, but it's
Speaker 1: very hard to break through. Dr Rivelin a few months back,
Speaker 1: we were talking about a return to regular order on
Speaker 1: Capitol Here, we're gonna have a regular budget process once
Speaker 1: once again. Was our optimism misplaced? Yes? I think that
Speaker 1: the best we can hope for right now, UH is
Speaker 1: not closing down the government. That's a pretty low threshold,
Speaker 1: but it's important not to do that. I think the
Speaker 1: Congress will essentially for the moment, ignore the President's very
Speaker 1: drastic budget proposal that cuts deeply into domestic spending and
Speaker 1: adds to defense. Uh, they will pass a continuing resolution,
Speaker 1: or rather an omnibus appropriations bill that pretty much keeps
Speaker 1: things where they are and adds some to the defense
Speaker 1: budget in the Special Overseas Account. I hope I'm not
Speaker 1: telling tales out of school here. The last time I
Speaker 1: spoke with you down and Watchington during a break, you
Speaker 1: said to me, we spend too much time focusing on
Speaker 1: monetary policy and too little time talking about the Fed's
Speaker 1: role when it comes to regulation. Here. We are almost
Speaker 1: a hundred days into this administration, and I wonder what
Speaker 1: we know about how the FED is approaching regulation, how
Speaker 1: the how the White House would like to see the
Speaker 1: FED approach regulation, What shape the the f sock, the
Speaker 1: Financial Stability Oversight Council is going to take here under
Speaker 1: President Trump. Well, I don't think we know very much. Actually. Uh.
Speaker 1: There's been talk about repealing Dodd Frank and things like that,
Speaker 1: but I don't think that's going to happen. We haven't
Speaker 1: had many clues as to where the administration is going
Speaker 1: on financial regulation. I think what they ought to do
Speaker 1: is keep the reforms of Dodd Frank which have mainly
Speaker 1: strengthened the financial system and made us less vulnerable. Uh,
Speaker 1: they could ease up on the regulations on smaller financial
Speaker 1: institutions which are arguably over the top. Within our budget
Speaker 1: is our military. I believe this week we lost an
Speaker 1: aircraft carrier. We thought it was up in the Northern Pacific. Yeah,
Speaker 1: we didn't know which way it was going. You know
Speaker 1: which way it was. It was going very quickly here.
Speaker 1: Uh do we do we have a control of our
Speaker 1: Pentagon budget? Do we do we know where the marginal billion?
Speaker 1: In honor of Mr Dirkson? Do we know where the
Speaker 1: marginal billion or trillion is going? Oh? Yes? I think so.
Speaker 1: It's the processes, the processes in uh control. And I
Speaker 1: think we now have a strong leadership in the Defense
Speaker 1: Department in general. Madison. Okay, Alice Land, thank you so
Speaker 1: much for joining us today for starting thank you your day.
Speaker 1: Whether she's a former vice chair of the funder Reserve
Speaker 1: System and of interest in a calming influence on my
Speaker 1: worries about the budget. David Gurr in New York, I'm
Speaker 1: Tom Keene and Washington A studios in Washington on I Street,
Speaker 1: I think, David, I'm on I Street, New York, and
Speaker 1: it's confusing at my hotels on H Street and I'm
Speaker 1: on Ice Street and g H yeah, it's and I
Speaker 1: What's cool, folks, is from our office you can look
Speaker 1: down New York Avenue and see the Church of Abraham Lincoln.
Speaker 1: That is way Bloomberg surveillance this morning in New York.
Speaker 1: In Washington, joining us now, Um, David Gurr, why don't
Speaker 1: you bring in Governor Frankel. I think I've I've talked
Speaker 1: to him this morning. Why don't you bring in the
Speaker 1: esteem Jacob Frank. Yes, he's the chairman of JP Morgan
Speaker 1: Chase International, Chairman of the board of trustees the Group
Speaker 1: of thirty. Of course, former governor of the Bank of Israel.
Speaker 1: Jacob Frankel joining us on our phone lines. Great to
Speaker 1: speak with you, and let me start by by asking
Speaker 1: you about the agenda for the meetings in Washington today
Speaker 1: tomorrow through through the weekend. Here to what degree is
Speaker 1: is what's happening in the US overshadowing a larger conversation
Speaker 1: about global growth in the global economy. Imagine there's a
Speaker 1: lot of curiosity about what's going on, what's being discussed
Speaker 1: in the White Building just a few blocks away from
Speaker 1: my left headquarters. Good morning. Well, of course there is
Speaker 1: a great interest, but the United States is not just
Speaker 1: another country. It is the major country, and therefore needless
Speaker 1: who say there is a great focus on the US,
Speaker 1: but there is also a great focus on the inter
Speaker 1: relationships between the US and the rest of the world.
Speaker 1: And in this context the subject of protection isn't comes up,
Speaker 1: and a lot of people are concerned and are worried.
Speaker 1: There is a discussion, of course, what is happening now
Speaker 1: literally as we speak, both in Terris in terms of
Speaker 1: the election, what will happen very shortly in the United
Speaker 1: Kingdom with the elections. So there is a situation here
Speaker 1: that the pot see structure is still in a form
Speaker 1: formative stage. We cannot now analyze what is the effects
Speaker 1: of the policies because the policies themselves are still undefined.
Speaker 1: In the United States, a lot of curiosity is about
Speaker 1: the budget and about the deregulations, because the fact of
Speaker 1: the matter is that in order to carry out some
Speaker 1: of the agenda that the new administration set for itself,
Speaker 1: one needs to have the means to finance it. The
Speaker 1: fact that the health scales the Obamacare revision has not
Speaker 1: gone through yet from the fundamental issue of the budget
Speaker 1: means that there is less resources to finance or to
Speaker 1: cover the cost of the tax reform. And this has
Speaker 1: been a major major elements that created optimism in the market,
Speaker 1: both the tax reform deregulations and fiscal expenditures in areas
Speaker 1: that are growth producers like infrastructure. These are the areas
Speaker 1: everyone from the US still speaks about these areas, and
Speaker 1: everyone from the rest of the world is saying, and
Speaker 1: what about our links to the US, and hence the
Speaker 1: protectionism and open markets out there. I must say that
Speaker 1: in the corridors, whereas in the past the subjects were
Speaker 1: always about about the financial markets and about the economic
Speaker 1: uncertainty DOSMOS spilled, this time is very different. The i
Speaker 1: m F has produced the World Economic Outlook document in
Speaker 1: which the revisions of growth are upwards, not downworlds in
Speaker 1: which all major regions of the world are growing positively
Speaker 1: not negatively. So this means that the sources of answer
Speaker 1: open are now shifted to the geopolitics rather than the
Speaker 1: chief finance. And of course North Korea is an important
Speaker 1: subject everywhere that you walk. But what is the focus
Speaker 1: of these international meetings. In our modern guilded age, it's
Speaker 1: widely presumed that the gains of our growth, and the
Speaker 1: gains from our better growth are going to the technology
Speaker 1: the elites of society. How do we distribute those gains
Speaker 1: soon to a greater part of the public. You are
Speaker 1: absolutely right. Indeed, twenty five years ago, when I was
Speaker 1: in charge of the production of the World Economic Outlook,
Speaker 1: the discussion was about growth. Later on it shifted to
Speaker 1: sustainable growth, and subsequently it has shifted towards inclusive growth.
Speaker 1: People understand that growth, to say, is not good enough,
Speaker 1: and it's not good enough because it is not sustainable,
Speaker 1: and it is not sustainable if it is not inclusive. So, therefore,
Speaker 1: the recognition that it is important that the benefits from growth,
Speaker 1: and the benefits from trade and the benefits from good
Speaker 1: measures are spread throughout society is an integral part of
Speaker 1: the economic discussion and this requires, of course, when you
Speaker 1: make changes the trade adjustment a systems, it has to
Speaker 1: be budgeted and it has the fault to be part
Speaker 1: of the priorities. This means that the education system must
Speaker 1: be reflecting the fact that in the modern world what
Speaker 1: one needs to give our young students is not knowledge
Speaker 1: but the case because knowledge becomes obsolete, but the capability
Speaker 1: of learning, of learning in changes circumstances. There it's a
Speaker 1: very different setting where innovation becomes important, but where one
Speaker 1: needs to recommend that the greatest enemy. Sure, we don't
Speaker 1: want to have a situation in which technological progress becomes
Speaker 1: the villain, but it must become the hope. And the
Speaker 1: way in which it is sustainable hope is that we
Speaker 1: pay clear attention not only in lip service but in
Speaker 1: budgets to deal with those who need to go through adjustment.
Speaker 1: It's out of the society, Dr Frank, I want to
Speaker 1: return to the corridors of the I m F and
Speaker 1: the World Bank in Foggy Bottom if I could. And
Speaker 1: I wonder how much anxiety you're picking up on there
Speaker 1: about multilateralism in the future of multilateralism, of course. A
Speaker 1: Secretary of the Treasury, Stephen Manuchon, was on stage yesterday
Speaker 1: with Mark Weinberger, the chairman and CEO of e Y
Speaker 1: formerly Ernst and Young. This weekend, the Treasury sector will
Speaker 1: be on stage with Madame Legarde for a conversation I
Speaker 1: expect that the contours of that conversation will be different.
Speaker 1: Is her job there to make a case for anumber
Speaker 1: the issues that you were just discussing, make the case
Speaker 1: for the importance of that can see it importance of
Speaker 1: the I m F and the World Bank. Absolutely. Christina
Speaker 1: god is the best spoken spoke person for the vilsus
Speaker 1: of globalization, for the fact that if you have an
Speaker 1: interconnected world, you must create the institutions that facilitate this interconnectedness,
Speaker 1: that the globalization is an asset rather than a liability,
Speaker 1: and that in order to make globalization and a success
Speaker 1: easy that you make you must pay attention to it. Yes,
Speaker 1: so the international organizations out there, Remember how did it
Speaker 1: all start? It all started at the end of the
Speaker 1: Second World War. Well, countries were dispersed, they were antagonistic,
Speaker 1: they were separated from each other, and it was understood
Speaker 1: that in order to promote economic prosperity, you must allow
Speaker 1: the interaction between the countries, which, in addition to providing
Speaker 1: better economic basis, it will also provide the fundamental security
Speaker 1: against hostilities, because everyone will extend to lose if you
Speaker 1: break a very well functioning system. Hence, the world back
Speaker 1: and the i MS were created in the Breton Woods Organization.
Speaker 1: Then people realize that you order to be successful countries
Speaker 1: that are engaged in production, which to have the capability
Speaker 1: of selling those products in the world, and the benefits
Speaker 1: will be shared through trade. Hence the World Trade Organization
Speaker 1: was created and trade agreements were there. It is all
Speaker 1: not the products of people looking for organizations and bureaucracy,
Speaker 1: but whether people looking for mechanisms by which their astivations
Speaker 1: can be translated into reality. You can you can invent
Speaker 1: the best cut in the world. If you don't have
Speaker 1: good rows, the cut will not reflect the greatness. So
Speaker 1: this is all interconnected. Yes, christ Agout is the perfect
Speaker 1: in the champion today to bring it about well. Jacob Frankl,
Speaker 1: thank you so much, as always for your perspective on
Speaker 1: Bloomberg Television in Bloomberg Radio this morning. He is chairman
Speaker 1: of JP Morgan International, the former governor of the Bank
Speaker 1: of Israel, and of course his research decades ago at
Speaker 1: the University of Chicago still speaks today. Brought to you
Speaker 1: by Bank of America Mary Lynch, dedicated to bringing our
Speaker 1: clients insights and solutions to meet the challenges of a
Speaker 1: transforming world. That's the power of global connections. Mary Lynch, Pierce,
Speaker 1: Fenner and Smith Incorporated Member s I p C. There's
Speaker 1: something new from Bloomberg. It's called Lens. Starting right now,
Speaker 1: you can use the Bloomberg iOS app off your iPhone
Speaker 1: or iPad or our new Google Chrome extension to read
Speaker 1: any news story on any website, Scan it, and then
Speaker 1: instantly you see the news stories relevant market data from Bloomberg.
Speaker 1: In addition, see all the bios of the key people
Speaker 1: mentioned in the story. It's called Lens, and it is
Speaker 1: just that, a lens into the people and the data
Speaker 1: of any story you may be reading. Again, Lens brings
Speaker 1: you the power of Bloomberg's news and data. Download or
Speaker 1: io s app or search for the Bloomberg extension at
Speaker 1: the Chrome store to try Lens out. Learn more at
Speaker 1: bloomberg dot com slash lens. We were talking earlier in
Speaker 1: the program with a former vice chair of the federalsor
Speaker 1: that being one Alice Rivlin of the Brookings Institution, and uh,
Speaker 1: you know we we focused more on, uh the budget,
Speaker 1: what's going on and watched and of course she was
Speaker 1: the two time director of the Office Management and Budget,
Speaker 1: founding director of the Congressional Budget Office. Now we're gonna
Speaker 1: talk to another former vice chair of the Federals or
Speaker 1: if that's Alan Blinder, Gordon Renchler prefer Sir Memorial Professor
Speaker 1: Economics and Public Affairs at Princeton University. Professor Blind are
Speaker 1: great to speak with you, as always help us with
Speaker 1: this ongoing debate. Are Michael McKee was talking to the
Speaker 1: president of Kansas City FED, the president of the Dallas FED.
Speaker 1: The conversation here seems to center on what's going to
Speaker 1: happen to the FEDS balance sheet. We've introduced a new
Speaker 1: parlor game into our day to day conversation about how
Speaker 1: this is going to happen and when it's going to happen, indeed,
Speaker 1: how much notice we're gonna get about it happening. How
Speaker 1: do you see all of this playing out? Um? I
Speaker 1: think we can see the dim outlines, al though there's
Speaker 1: lots of details yet to be uh determined, even in
Speaker 1: the FED much less announced. Uh they've decided for whatever reasons,
Speaker 1: I think they're probably more good than bad that four
Speaker 1: and a half trillion is too much, and while they
Speaker 1: haven't given a number, they're probably gonna head for something
Speaker 1: in the ballpark of half that give her, you know,
Speaker 1: give her takes five billions, large numbers. Uh here, Uh,
Speaker 1: they're gonna reduce both the treasuries and the NBS, they say. Still,
Speaker 1: although I have never believed this, really, that they're gonna
Speaker 1: do all that without actually any sales, just with runoff.
Speaker 1: I don't think. My guess is that won't happen in
Speaker 1: the end, although it's certainly going to start with runoff,
Speaker 1: and they're probably going to begin this process. You know,
Speaker 1: I would say, if you're going to make a point estimate,
Speaker 1: you would say January pastor minus three months, something like that.
Speaker 1: And on your last the last question you pose is
Speaker 1: the one I'm sure of. Lots of notice. They don't
Speaker 1: want to surprise anybody about this, and now, folks, we
Speaker 1: go for clarity. Speaking of point estimates, David, it's twenty
Speaker 1: nine years young Blinder wrote a book that if you
Speaker 1: were cool on campus, you walked around with and it
Speaker 1: was a recursor to this idiocy over hard data and
Speaker 1: soft data, hard hardheads, soft hearts, tough minded economists and Ellen,
Speaker 1: you were a little bit ahead of the debate. Chapter four,
Speaker 1: Chapter four, Who will protect us from protectionism? I mean
Speaker 1: you were writing twenty nine years ago about the definitive
Speaker 1: question right now. I know you you know one of
Speaker 1: my pet teams about economics, Uh is that for in
Speaker 1: two hundred years? So you mentioned my book twenty nine
Speaker 1: years ago. David Ricardo wrote the principle of comparative advantage
Speaker 1: two hundred years ago. We've not persuaded that many people
Speaker 1: of the importance of comparative advantage, even though of course
Speaker 1: they lived their lives that way. Nobody lives as an
Speaker 1: island doing everything for the fells. But we don't have
Speaker 1: the politics that you were. We done and with your
Speaker 1: Democrat Party support for Senator carry among others. Can you
Speaker 1: do hard heads and soft hearts tough minded economics? Can
Speaker 1: you do that this Washington? I believe it's extremely difficult.
Speaker 1: I mean, in this Washington while we're getting is sort
Speaker 1: the opposite, hardhearted and soft headed mostly pronouncements. Actually, you know,
Speaker 1: one of the minor frustrations of the Trump administration for
Speaker 1: an economist is that in terms of economic policy, other
Speaker 1: than the abortive healthcare bill, there's been more or less nothing.
Speaker 1: There's been a lot of talk we're gonna get tax reform,
Speaker 1: We're going to get this or that. On trade, we're
Speaker 1: gonna redoon nafta, uh, and there's going to be a
Speaker 1: budget sometime, but we haven't seen any of this. I
Speaker 1: put a question to Gideon Rose yesterday, the editor of
Speaker 1: Foreign Affairs Peterson Share at the Council on Foreign Relations,
Speaker 1: I said, when you look at the foreign policy that's
Speaker 1: coming out of this white out, he said that they're
Speaker 1: still finding their way, learning their their their way just
Speaker 1: a few dozen days onto the to the job. Are
Speaker 1: we seeing the same thing when it comes to economics
Speaker 1: or do you do you think that there are people
Speaker 1: in the White House with a grand vision for what
Speaker 1: Trump and omics is is going to be or is
Speaker 1: this something they're still learning, still trying to figure out
Speaker 1: that's still in co it in the Trump white House.
Speaker 1: I doubt that there's any grand vision because, um, there's
Speaker 1: the President United States. So you know, Gary Cone could
Speaker 1: sit in his office and conjure up a grand vision,
Speaker 1: but um, he's not President United States. He can't make
Speaker 1: any of this happen. And his boss is you know,
Speaker 1: this guy's the opposite of grand visions. He's scattershot. It's,
Speaker 1: you know, whatever he sees on Fox News the night
Speaker 1: before or some idea comes into his head and he
Speaker 1: tweets it out this end. The same with the foreign policy.
Speaker 1: By the way, they just doesn't seem to be any
Speaker 1: there there. Let me try to find a silver lining
Speaker 1: on that cloud. Then, for someone like you, for someone
Speaker 1: like Madame Legard, who's presiding over the meetings that are
Speaker 1: taking place across town in foggy bottom, does that give
Speaker 1: her give you grounds for for optimism, that that he's
Speaker 1: somebody who can be swayed, that cooler minds can prevail here.
Speaker 1: He's interested, he has he's he's changeable in his positions
Speaker 1: a little bit. Yeah. I mean a lot of these
Speaker 1: flip flops that have been discussed UH from Trump have
Speaker 1: been in a better direction, right, like less hostile towards trade.
Speaker 1: For example, UM, no longer is the Export Import Bank
Speaker 1: by the way, you could argue this either way, but anyway,
Speaker 1: no longer is it a benoir, big horrible thing that
Speaker 1: needs to be UH gotten rid of. UM the budget
Speaker 1: and taxes will have to see. One of my themes
Speaker 1: UH Vice Chairman Blinder for these meetings has been the
Speaker 1: continued great distortion of nominal and real rates. David mentioned
Speaker 1: central bank policy up top. Is there even any hope
Speaker 1: of clearing markets, of getting back to the incentives that
Speaker 1: drive investment until we get back out of this financial repression? Um? Yes,
Speaker 1: I think so. You know. Part of tom is is
Speaker 1: ah what economists sometimes call money illusion. If you live
Speaker 1: in a much less inflationary world, and we do, that's
Speaker 1: just the way things are everywhere compared to what was
Speaker 1: true when we were young. Um, interest rates are going
Speaker 1: to be lawer. So we need to focus on real
Speaker 1: interest rates. And I think there's every reason to believe
Speaker 1: that real interest rates will go back to something looking
Speaker 1: more normal. It looks like a bit less than we're
Speaker 1: accustomed to. Although the real rates we'll see about that,
Speaker 1: but but we're not going back to the kinds of
Speaker 1: nominal interest rates that we became accustomed to. Okay, let's
Speaker 1: let's uh do this. Ellen Blinders, thank you so much
Speaker 1: for instance university. Well, he is the chief economist at
Speaker 1: the International Monetary Fund and migrated over to Massachusetts, avenueto
Speaker 1: that beautiful modern building that houses the Peterson Institute for
Speaker 1: International Economics. Olivia Blanchard joins us now on our phone lines.
Speaker 1: Olivia Blanchard, senior fellow at the Peterson Institute. Great to
Speaker 1: have you with us here on Bloomberg Surveillance. Let me
Speaker 1: start just by asking you about your sense of the
Speaker 1: theme for this this weekend's meetings. Tom Keene, going into them, says,
Speaker 1: the theme is often scrapped early on that global events
Speaker 1: will supplant whatever was was predicted. What do you see
Speaker 1: shaping up as as the theme here at the IMF
Speaker 1: and World Bank Spring meetings? So I think actually Christine
Speaker 1: the God captured it well. She said spring is in
Speaker 1: the air, and I have a sense that that's the
Speaker 1: dominant theme, which is for you know, I waited, I
Speaker 1: was for hrs at the phone, and I always waited
Speaker 1: for the time when I could revise my forecast up.
Speaker 1: Unfortunately left before I could do that. By my successor
Speaker 1: has has the luck to be able to do it.
Speaker 1: So I think there's a sense that the recovery of
Speaker 1: advanced to columnies is for real, that it book continue, uh,
Speaker 1: and that emerging markets are doing okay and some of
Speaker 1: them are actually kind of covering from bad blues. So
Speaker 1: I suspect that that's going to be the theme. And
Speaker 1: then as a result, the set of issues which comes
Speaker 1: up is very different, which is you shift from how
Speaker 1: can we get the machine to go faster to how
Speaker 1: do we make sure that increases in interest rates or
Speaker 1: overheating in some places doesn't become the dominant worry. So
Speaker 1: it's a bit early, but I guess that's where it is.
Speaker 1: And then in the background the discussion about populism and
Speaker 1: what we can do to to make go caditatively different
Speaker 1: but in terms of a short one first theme, in
Speaker 1: terms of a medium run second theme that's in the
Speaker 1: background at these meetings. That was certainly in the background
Speaker 1: of Morisov's Felt's report as well. He talked about the
Speaker 1: risks of of protectionism. Let's draw that. Let's draw a
Speaker 1: line from that to current events, to the election that
Speaker 1: we had in the US just a few months back,
Speaker 1: to the election that's taking place this weekend in France.
Speaker 1: How how real risk, how large a risk is that
Speaker 1: to global growth going forward? I don't think it is
Speaker 1: a major risk in the in the short run the
Speaker 1: next two or three years, because of our populism is underwise.
Speaker 1: If I look at each country, none in no place,
Speaker 1: no relevant, big place, does a populists look like it's
Speaker 1: going to be in a position to actually really change
Speaker 1: macroeconomic policy dramatically or trade postsy dramatically. So I don't
Speaker 1: see it. We can come back to the French elections
Speaker 1: if you want, but even in France, I don't think
Speaker 1: that that the risk is very high. So I don't
Speaker 1: think that's going to play a major war in terms
Speaker 1: of affecting Wolf in the next few years. But to
Speaker 1: the extended, the underlying reasons for populism are going to
Speaker 1: be there or even become stronger than It is. Clearly
Speaker 1: an issue for the next five or ten. The issue
Speaker 1: will not go away, Professor Blanchard, Good morning from our
Speaker 1: studios in Washington. There is a paper that everyone has
Speaker 1: required David to read from. I believe it was Olivia
Speaker 1: Blanchard and Laurence Summers hystoriesis and the European unemployment problem. Professor,
Speaker 1: it has become a world problem. The panel I did
Speaker 1: yesterday was shocking in the immediacy urgency of nations to
Speaker 1: find investment. What is your formula to find investment to
Speaker 1: jump start jobs to eliminate this chronic unemployment? And your
Speaker 1: acclaimed word historiesis But I think they're two issues. I mean,
Speaker 1: the still in some countries like the US, you know
Speaker 1: we're more or less it potential. So the issue is
Speaker 1: how can we increase potential golf? How can we make
Speaker 1: the underlying grate rate of golf higher? In Europe they're
Speaker 1: not still there in some some other Germany is, but
Speaker 1: the others are not. Verre. You basically needs to still
Speaker 1: increase the men. The biotea must be to increase the men.
Speaker 1: But eventually, when you get back to normal unemployment or
Speaker 1: the unemployment, you want fast golf. And the answer to
Speaker 1: how you do that, even in the USA, in Eupe
Speaker 1: we actually don't know. And what we know is public
Speaker 1: investment is too low and so more public investment in
Speaker 1: many places would be good. And after this we really
Speaker 1: don't understand why productivity golf has slowed down. We just
Speaker 1: have to hope that given to the high rate of innovation,
Speaker 1: firms are going to find ways of using it and
Speaker 1: increase productivity and golf. It has come in the past.
Speaker 1: For the moment it seems to be weak, it will
Speaker 1: probably come back. There are some structural a measures that
Speaker 1: one can take hoping they'll work, but one should not
Speaker 1: be too optimistic. Typically that they don't work if they
Speaker 1: take very long. I think we just have to accept
Speaker 1: that these cycles of productivity golf come and go, So
Speaker 1: potential goal of the moment is a bit mediocre, but
Speaker 1: maybe it will get better. The only I think policy
Speaker 1: advice is look at public investment. There are places where
Speaker 1: public investment actually has been too low, public capital is
Speaker 1: too low, and that setwork can work on folks. This
Speaker 1: is the single question of this meeting of international economics.
Speaker 1: Can we jump start investment given financial repression? The fact is,
Speaker 1: worldwide we have this odd interest rate environment. Some would
Speaker 1: say central bank and douce. Nobody's gonna blame Olivia Blanchard,
Speaker 1: but there's a lot of people lined up. Can we
Speaker 1: do does our new investment, does our new animal spirit?
Speaker 1: Does it wait for an end to this financial repression? Well,
Speaker 1: we may disagree because I don't see financial repression. I
Speaker 1: basically see in most countries. I see low interest rates
Speaker 1: at which many films can borrow uh, And I still
Speaker 1: don't see high investment, high private investment. So it doesn't
Speaker 1: seem to me that the poem with law investment private
Speaker 1: investment is financial repression. I'm quite sure it was in
Speaker 1: two thousands, ten eleven, twelve and so one. But today
Speaker 1: I just don't think it is. I think it's just
Speaker 1: that firms don't see anything very exciting on the horizon,
Speaker 1: and they don't see the fast sales goalf and they
Speaker 1: don't invest so much. If the man picks up, which
Speaker 1: I think we're seeing, I think we'll see more investment.
Speaker 1: But again, the big movements forward of investment tend to
Speaker 1: come from the ability to use innovations and they then
Speaker 1: work in your firm, And at this stage it doesn't
Speaker 1: seem to be happening on the same scale, So I
Speaker 1: would know I would disagree with financial repression is being
Speaker 1: as being one of the main reasons. Just lastly here
Speaker 1: and quickly, as we look ahead the election in France
Speaker 1: this weekend, how do you how do you grade the
Speaker 1: dialogue about economics in politics right now? Is there a
Speaker 1: thoughtful conversation about economics happening in France? Is that happening
Speaker 1: in the UKs we head to the to the next
Speaker 1: snap election there? No, I mean it is, you know,
Speaker 1: I think it's a gigantic issue of the lack of
Speaker 1: an informed economics debate. Bait on blanksit earlier, or bat
Speaker 1: on on immigration, on trade in the US, or being
Speaker 1: on on the euro What is clear is people look
Speaker 1: at the past, shiver past as having largely the politicians
Speaker 1: of the past as having largely failed, and they are
Speaker 1: willing to basically try change for change. And then you
Speaker 1: tell them when you know a change for change is
Speaker 1: incredibly Andrew's the experts say, look at what happened to
Speaker 1: Argentina earlier, what happens in Venezuela. And they said, no, no,
Speaker 1: not just these are the experts, let's forget them. I
Speaker 1: mean the degree in which expert opinion is not respected
Speaker 1: it is quite amazing. Now you know it must be
Speaker 1: it must be our fault. Leave it there, Professor Blanchard,
Speaker 1: thank you so much. Thanks for listening to the Bloomberg
Speaker 1: Surveillance podcast US. Subscribe and listen to interviews on Apple Podcasts, SoundCloud,
Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at
Speaker 1: Tom Keene. David Gura is at David Gura. Before the podcast,
Speaker 1: you can always catch us worldwide. I'm Bloomberg Radio, brought
Speaker 1: you by Bank of America Mary Lynch, dedicated to bringing
Speaker 1: our clients insights and solutions to meet the challenges of
Speaker 1: a transforming world. That's the power of global connections. Mary Lynch, Pierce,
Speaker 1: Feeder and Smith Incorporated Member s i p C,