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Speaker 1: This is Bloomberg Wall Street Week. We turn our attention

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Speaker 1: to the markets this week at U S CPI nevers

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Speaker 1: reinforcing concerns about inflation. The financial stories that cheap are

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Speaker 1: worth a really different reaction to Mark two. More indications

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Speaker 1: of just how hot the U. S. Economy really is

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Speaker 1: through the eyes of the most influential voices Larry Summers,

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Speaker 1: the former Treachery Secretary, Katherine Keening, CEO of v n

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Speaker 1: Y Moms, Sam's l Sharmon and founder of Equatic Group

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Speaker 1: Investment in Bloomberg Wall Street Week with David Weston from

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Speaker 1: Bloomberg Radio. Inflation easing odds or European recession dropping and

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Speaker 1: North America coming together? Maybe just a gleam of optimism

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Speaker 1: for the new year. This is Bloomberg Wall Street Week.

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Speaker 1: I'm David Weston. This week's special contributor Larry Summers on

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Speaker 1: whether we're seeing light at the end of the inflation

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Speaker 1: tunnel or a false dawn if you think about it.

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Speaker 1: The good news was inflation running in the sixes. That's

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Speaker 1: still inconceivably high. Former IBM CEO Sam paulmisano On CEO

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Speaker 1: is facing a very different world. Do it's necessary to

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Speaker 1: maintain strategic growth and dry productivity at the same time.

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Speaker 1: And economist Melissa Carney of the University of Maryland on

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Speaker 1: what declining births in the United States could mean for

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Speaker 1: economic growth. You have fewer people of working age. More worryingly,

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Speaker 1: it could mean lower GDP per capita. Maybe it was

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Speaker 1: just the promise of a new year, or maybe just

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Speaker 1: maybe things really are starting to look a little bit better.

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Speaker 1: As the leaders of the three nations of North America

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Speaker 1: gathered in Mexico City this week and sought cooperation on

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Speaker 1: a host of issues. Above all, we both committed to

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Speaker 1: pursuing a better future, one grounded on peace and prosperity

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Speaker 1: for all of our people. We're one of those inflection points,

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Speaker 1: or what we do in the next several years is

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Speaker 1: going to dechairmine what the world looks like the next two, three,

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Speaker 1: four decades. In Europe, odds of recession are dropping, at

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Speaker 1: least according to the Belgian Prime Minister. If you look

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Speaker 1: at the economic indicators UM in needs, the fearful recession

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Speaker 1: is diminishing UM and there are good reasons for that.

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Speaker 1: And in the United States, inflation signals reinforced what we

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Speaker 1: thought we saw at the end of last year, inflation

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Speaker 1: may just may be truly coming back down a month

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Speaker 1: over month CPI print negative. This number was bang on

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Speaker 1: the screws. When he finally got the job, Speaker Kevin

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Speaker 1: McCarthy got up to a surprisingly bipartisan start, with the

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Speaker 1: House almost unanimous in improving a new select committee to

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Speaker 1: look at the threats posed by China. We know that

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Speaker 1: China right now is what would be called our pacing threat.

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Speaker 1: This is something not just from the military perspective, but

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Speaker 1: also from an economic perspective that we've seen our vulnerability days,

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Speaker 1: particularly over the last couple of years. Both things weren't

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Speaker 1: quite as smooth for all the other lawmakers as the

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Speaker 1: new Republican member from Long Island, George Santos, faces a

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Speaker 1: range of investigations and growing calls for him to step aside,

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Speaker 1: including from Republicans on behalf of the Nissa County Republican Committee.

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Speaker 1: I am calling for his immediate resignation. We must call

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Speaker 1: for the resignation of Congressman George Santos. Calling for George

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Speaker 1: Santos to resign, Calling on George Santos to resign, demand

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Speaker 1: the George Santos steps down, calling him to step aside.

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Speaker 1: You should design. My office will have no interaction with

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Speaker 1: George Santos or his staff until he resigns. In the end,

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Speaker 1: the markets this week saw the half full part of

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Speaker 1: the glass, with the SMP gaining two point seven percent

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Speaker 1: for the week and the NAZAC up four point eight percent,

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Speaker 1: while bonds strengthened as well, with the yield on the

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Speaker 1: ten year down six basis points, ending at just about

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Speaker 1: three point five percent. Take us through the week in

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Speaker 1: the numbers. Welcome to Sanny Bechela CEO of Rock Creek

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Speaker 1: and David Bianco, DWS Group ce IO for the America.

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Speaker 1: So welcome back both of you. It's good to have

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Speaker 1: you here. David, we start with you CPN Nembers encouraging inflation.

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Speaker 1: Is that what's driving the markets right now? It is

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Speaker 1: UM and we knew that going into the week that

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Speaker 1: investors would be focused on the inflation report. There were

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Speaker 1: whispers that the inflation report with surprise to the downside.

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Speaker 1: It didn't a King Bengan on target UM, but it

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Speaker 1: confirms that inflation is continuing to come down. However, the

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Speaker 1: battle is not over, and I think investors should and

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Speaker 1: certainly the Fed will likely stay focused on the labor market,

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Speaker 1: and we still see wages really running red hot, so

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Speaker 1: the inflation fights not over. We probably have a few

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Speaker 1: more hikes ahead of about basis points, So that's interesting.

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Speaker 1: I'm signing a few more hikes ahead. The question for

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Speaker 1: me is it may not be over, but how close

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Speaker 1: is it to being over? What do you think the

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Speaker 1: FED is going to think when they meet at the

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Speaker 1: beginning of February. I think the FED is still trying

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Speaker 1: to remain relatively hawkish and um and as David said,

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Speaker 1: pretty sure they will do that twenty five basis points

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Speaker 1: in their next meeting. They are looking, as he said,

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Speaker 1: um at the employment numbers really carefully and um and

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Speaker 1: also of course at earning the reports that are coming

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Speaker 1: out as we speak. So so I think those two

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Speaker 1: items will be important. Wage growth is starting to show

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Speaker 1: a little bit of maybe softening. We're seeing people starting

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Speaker 1: to talk about laying off in certain sectors like finance

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Speaker 1: and technology. So I think all of that will factor

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Speaker 1: into the next conversation about ray tips. So so, David,

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Speaker 1: We're all focused on the FED, and we will be

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Speaker 1: for some time to come, but I know you think

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Speaker 1: that we also should be look at other parts of Washington.

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Speaker 1: It may actually be affecting the investment quiteria right now.

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Speaker 1: And what should we be focusing on as we're going

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Speaker 1: to well, well, there's a lot of things going on

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Speaker 1: with inflation. I would argue that the near term focus

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Speaker 1: really should be on the labor market. We do have

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Speaker 1: disinflation on goods, and we've had some on commodities, but

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Speaker 1: the disinflation on goods is because we are entering a

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Speaker 1: goods consumption and goods production recession, and I think we'll

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Speaker 1: hear more about that during earning season. So in the

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Speaker 1: near term, stay focused on the labor market for where

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Speaker 1: inflation goes, what the FED needs to do about it.

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Speaker 1: But longer term, yes, I agree that the longer term

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Speaker 1: inflation outlook has a lot to do with policies both

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Speaker 1: at home and worldwide, but policies that relate to how

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Speaker 1: well we spend, what type of return on investment we

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Speaker 1: get on things like energy, energy transition, um, even defense

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Speaker 1: and so on and so forth. So I t when

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Speaker 1: we hear energy, we think of you. Necessarily, You've had

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Speaker 1: a lot of your career tied up with energy. You

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Speaker 1: studied it, as I recall at Oxford as well, tell

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Speaker 1: us about the federal policies right now in energy how

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Speaker 1: they may be affecting some investment decisions. The interesting thing is,

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Speaker 1: obviously when we talk about about policymakers, we think about

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Speaker 1: the Inflation Act. But just before we go there, I

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Speaker 1: think what's interesting is the concentration of of the market

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Speaker 1: has been on what the Fed is doing. And what

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Speaker 1: is interesting is President Biden and UM and his team

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Speaker 1: have been equally focused on removing some of the supply

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Speaker 1: chain problems. We saw what they did with for example,

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Speaker 1: the trains unions, UM. We saw that, for example, the

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Speaker 1: energy reserves that were released and UH and and where

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Speaker 1: one of that was one of the reasons that gas

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Speaker 1: prices are where they are, among other reasons. Of course,

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Speaker 1: so government has been much more proactive when it comes

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Speaker 1: to different areas, but in terms of his policies, but

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Speaker 1: particularly when it comes to energy and UM and I

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Speaker 1: think it has quietly been quite effective in keeping energy

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Speaker 1: prices down. We've seen, by the way, similar things in

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Speaker 1: Germany and UM. Then coming back to the IRA, of

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Speaker 1: course that is huge because there's the direct impact of

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Speaker 1: the IRA, which is uh, you know, over three billion,

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Speaker 1: but there's also the leverage impact in the sense that

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Speaker 1: we're seeing already a lot of private sector deals happening,

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Speaker 1: whether you look at big private equity firms that are

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Speaker 1: doing very large projects, people investing in in clean energy,

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Speaker 1: but also in things like all energy terminals to for

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Speaker 1: the for the short term, and then last but not least,

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Speaker 1: venture firms are looking at hydrogen projects because they're seeing

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Speaker 1: again with the i RA that there is potential some

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Speaker 1: of these investments that are longer term investments some day

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Speaker 1: that when we talk about energy, we have two sides

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Speaker 1: of the house. One is the fossil fuel side. This

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Speaker 1: question of that released from the SPR the strategicroll certainly

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Speaker 1: effect that, but you also have investment decisions like ion

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Speaker 1: ear now is something like a seven million dollar loan

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Speaker 1: in the private energy tied to that investment Inflational Production Act.

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Speaker 1: So as an investor, what should we be looking at.

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Speaker 1: As an investor, what you want to do is look

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Speaker 1: at the prospects for return on capital, and we would

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Speaker 1: expect that there will be a lot of investment spending

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Speaker 1: through government programs like the Inflation Reduction Act, but the

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Speaker 1: CHIPS Act investments spending that's done by the energy sector

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Speaker 1: of the alternative energy sector, the electric vehicle sector, the

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Speaker 1: utility space, UH semiconductors. But the question that investors have

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Speaker 1: is what's the return on investment going to be? And

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Speaker 1: certain industries have a history of producing poor returns on investment. Energy, auto,

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Speaker 1: UH and I and others have done better or at

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Speaker 1: least are regulated like utilities. So we do expect a

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Speaker 1: lot of investment spending to come in this space. We

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Speaker 1: have yet to really figure out will this be good

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Speaker 1: for investors and what time of the type of return

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Speaker 1: on investment we would get. Ask you the most basic

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Speaker 1: question when it comes to the green energy area that

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Speaker 1: now is going to get some subside in the US government,

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Speaker 1: is that inflationary or deflationary depends on you know how

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Speaker 1: if if it brings down total energy prices, that would

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Speaker 1: be obviously um, not inflationary, right. Um. In the meantime,

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Speaker 1: if you say that it's creating by some accounts nine

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Speaker 1: million new jobs over time, of course, over a long

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Speaker 1: period of time, you could say that that could have

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Speaker 1: an impact on people having a larger ability to to

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Speaker 1: spend and consume. But I think that's much longer term.

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Speaker 1: I think in the short run, if it starts bringing

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Speaker 1: down the cost overall costs of energy. That is good

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Speaker 1: in terms of our words about inflation. David the Uncle

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Speaker 1: of DWS Group, Thank you so much, David for being

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Speaker 1: back with us. Coming up, fertility rates are declining in

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Speaker 1: the United States and don't appear likely to come back.

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Speaker 1: We're talking to Melissa Karney at the University of maryll

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Speaker 1: about why this is and what could mean for investors.

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Speaker 1: And this is Wall Street Week on Bloomberg, your first

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Speaker 1: in depth look at global market and business new We

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Speaker 1: have one big item of corporate news to tell you

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Speaker 1: about this morning. Karen Moscow, you're up. Equities are falling hard.

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Speaker 1: Nathan Hagar, the Federal Reserve may have to unleash even

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Speaker 1: further tightening. Bloomberg Day Break one, the Wall Street Firm

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Speaker 1: sees more paint a head for investors. Wake up with

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Speaker 1: us weekday mornings at five Easter. Another roller coaster riding

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Speaker 1: Yesterday's session on Bloomberg Radio, the Bloomberg Business App and

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Speaker 1: Bloomberg Radio dot Com. Seeing through the eyes of experts

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Speaker 1: gives you a better view. Can we both give ourselves

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Speaker 1: boosters and make sure the rest of the world gets vaccinated?

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Speaker 1: And a Bloomberg Our market vision is twenty so let's

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Speaker 1: talk about the paint's right. I am shocked by the

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Speaker 1: moves that we're seeing in the rates market. The inslation

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Speaker 1: debate continues Bloomberg Radio, the Bloomberg Business App, and Bloomberg

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Speaker 1: Radio dot Com. When Paul Sweeney and Matt Miller bring

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Speaker 1: you the day's market news. How do you think investors

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Speaker 1: should view bitcoin? You can count on some travol, Matt.

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Speaker 1: Did you know that you and I are special? I

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Speaker 1: feel special? Bloomberg Markets extensive, essential, and endlessly entertaining. Well, No,

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Speaker 1: I hired the guy and then we started hanging out

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Speaker 1: for beers. We don't really work on training now we're

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Speaker 1: just buddies. Week Team warnings at ten Eastern on Bloomberg Radio,

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Speaker 1: the Bloomberg Business App, and Bloomberg Radio dot Com. This

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Speaker 1: is Bloomberg Wall Street Week with David Weston from Bloomberg Radio.

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Speaker 1: This is Wall Street Week. I'm David Weston. Every year,

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Speaker 1: the Aspen Economic Strategy Group comes out with a monograph

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Speaker 1: describing with the state of economy and most importantly, what

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Speaker 1: are the big issues that we face. They've just come

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Speaker 1: out with the most recent edition. We're welcome to the

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Speaker 1: Director of that group. She is Melissa Carney. She's professor

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Speaker 1: of economics at the University of Maryland. So Wellisa, thank

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Speaker 1: you so much for being back on Wall Street week.

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Speaker 1: This is a fascinating report from beginning to end, but

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Speaker 1: particularly images in part you authored, which has to do

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Speaker 1: with fertility rates in the United States and what that

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Speaker 1: could do for economic growth. First of all, give us

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Speaker 1: US an where we are on utility fertility rates in

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Speaker 1: the United States and whether this is a temporary thing

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Speaker 1: or it may take care of itself. Sure, So, the

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Speaker 1: US fertility rate has plummeted for the past fifteen years,

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Speaker 1: and so the problem here is that now we are

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Speaker 1: at a level of fertility in this country that is

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Speaker 1: below replacement level, meaning without immigration, the population will not

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Speaker 1: maintain our size. And so what's been happening is for

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Speaker 1: fifteen years, annual birth rates have gone down, and now

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Speaker 1: we're at a point where the average number of children

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Speaker 1: born to a woman in the US is substantially below

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Speaker 1: the sort of magic number of two point one that

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Speaker 1: would keep us at replacement population level. It's now one

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Speaker 1: point six seven. My look at the data suggests that

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Speaker 1: it's unlikely to turn around anytime soon. So what we've

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Speaker 1: really seen is that the decrease in births is very widespread.

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Speaker 1: It's coming from across demographic groups, it's coming across the country.

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Speaker 1: It doesn't seem to be driven by any sort of

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Speaker 1: sharp policy or economic change in the past fifteen years. Rather,

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Speaker 1: it seems to reflect more recent cohorts of young adults

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Speaker 1: having fewer children or remaining childless more often than cohorts

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Speaker 1: in the previous past um And so this suggests that

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Speaker 1: there's been a general trend away from having children, from

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Speaker 1: having multiple children, And if we look to other high

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Speaker 1: income countries that have been dealing with this for decades,

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Speaker 1: it's it's probably going to be stubbornly low. That's my

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Speaker 1: best guess. So Professor here on Walter, we speak to

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Speaker 1: investors in particular, what are the possible consequences of that

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Speaker 1: in terms of economic growth, because it really we have

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Speaker 1: to depend upon future economic growth. What is that decline

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Speaker 1: particularly likely to do to us? The decline in birth

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Speaker 1: rates has meant a decline in population growth, and the

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Speaker 1: most immediate effect of this is likely to be a

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Speaker 1: shrinking size of the working age population. So the working

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Speaker 1: age population in the US has been stagnant for for

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Speaker 1: over a decade now, and given the decrease in birth

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Speaker 1: rates we've been experiencing for the past fifteen years, in

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Speaker 1: the not too distant future again, absent and increase in immigration,

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Speaker 1: we're simply going to have fewer people of working age.

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Speaker 1: Now that that's consequential of both in a fiscal sense,

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Speaker 1: meaning that it's going to put fiscal pressures on our

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Speaker 1: social social security system, funding for Medicare disability insurance. But

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Speaker 1: it also it also poses economic headwinds in the sense

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Speaker 1: that you have fewer people of working age, and that

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Speaker 1: doesn't necessarily just mean fewer people to produce stuff, lower

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Speaker 1: economic lower economic activity overall. More worryingly, it could mean

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Speaker 1: lower GDP per capita or reduction in in productivity per person,

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Speaker 1: reduction and living standards, which could have profound effect obviously

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Speaker 1: on investment in particularly United States. So what can we

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Speaker 1: do about it? Can we get that fertility rate back

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Speaker 1: up or do we have to find a work around? Yeah,

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Speaker 1: So here's where I think we can draw lessons from

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Speaker 1: other high income countries Japan, UK, Canada, other countries in Europe,

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Speaker 1: including Scandinavian countries um that have been dealing with below

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Speaker 1: replacement level fertility for many decades. You know, the first

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Speaker 1: thing I would note is that despite efforts to turn

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Speaker 1: things around, fertility has remained below replacement level in those

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Speaker 1: countries for many decades. A lot of those places have

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Speaker 1: implemented explicitly pro natalist policies, things like baby bonuses or

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Speaker 1: child tax credits, expanded parental leave, expanded subsidies for childcare,

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Speaker 1: all things that should make the cost of having children

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Speaker 1: lower um or the ability to combine work in kids easier.

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Speaker 1: And yet the evidence from those kinds of incremental policies

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Speaker 1: is that they might lead to some modest increase in

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Speaker 1: birth rates in the short run, in particular, perhaps not persistently,

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Speaker 1: but nothing of the size that we would need to

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Speaker 1: really lead to a dramatic reversal of the decline in

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Speaker 1: fertility or the stubbornly low fertility rates um anytime soon.

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Speaker 1: So you know, that suggests that it would be hard

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Speaker 1: to turn things around. And again, because it looks like

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Speaker 1: what we're seeing is really just a move away from

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Speaker 1: having children, are having multiple children, as opposed to any

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Speaker 1: sort of temporary response to some to some you know,

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Speaker 1: discrete change. So just that it's going to be really

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Speaker 1: hard to turn the fertility rate around. So where does

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Speaker 1: that leave us, Well, the obvious thing is to think

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Speaker 1: about increasing immigration now Easier said than done in this country.

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Speaker 1: Congress has been sort of derelict when it comes to

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Speaker 1: immigration reform for far too long now. But given these

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Speaker 1: demographic trends, the parative for immigration reform for allowing more

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Speaker 1: people to legally enter or stay in the country becomes

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Speaker 1: that much stronger. And and there's lots of sensible reforms

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Speaker 1: for reform proposals out their ways. We could do this.

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Speaker 1: We could certainly have more of an employment driven immigration

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Speaker 1: system where you know, like other countries do, including Canada,

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Speaker 1: where we allow more people in who are reasonably likely

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Speaker 1: to contribute right away to our economic productivity. Um. We

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Speaker 1: could also increase per country caps on the number of

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Speaker 1: family members who are allowed to immigrate to the country

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Speaker 1: or stay in the country. Beyond immigration, of course, um. Again,

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Speaker 1: these demographic headwinds emphasize the need for policies and conditions

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Speaker 1: that promote innovation and productivity growth. Easier said than done,

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Speaker 1: though recent spending bills in Congress aimed at investments in infrastructure,

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Speaker 1: increases in spending on scientific development, all of those are encouraging.

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Speaker 1: All of those are steps in the right direction. But

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Speaker 1: getting innovation policy right is very hard, UH, and it's

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Speaker 1: and it's about it will require a lot more than

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Speaker 1: just spending UM. It requires having the conditions in place

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Speaker 1: for competitive companies UM and innovators to flourish and thrive.

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Speaker 1: This is something that we take up in our in

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Speaker 1: our report that you mentioned UM. And of course it

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Speaker 1: will require a lot of investment in talent, not just

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Speaker 1: important global talent through more immigration, but also really building

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Speaker 1: the talent pool UM among our native born population here

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Speaker 1: in the US. That report is from the Aspen Economic

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Speaker 1: Strategy Group, and I really highly recommended. It's fascinating reading,

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Speaker 1: it's really terribly important. Thank you so much for sharing

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Speaker 1: it with us today. As Melissa carneyhis professor of economics

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Speaker 1: at the University of Maryland. And we're going to continue

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Speaker 1: this discussion about changes fundamental changes will effect of the

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Speaker 1: plight of ceo s. Particularly we're gonna talk to Sam Pomisan,

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Speaker 1: the former chairman and CEO of IVM, about how the

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Speaker 1: paradigm has shifted for the average American CEO. That's gonna

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Speaker 1: have next on Wall Street Week on Bloomberg. This is

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Speaker 1: Wall Street Week. I'm David Weston. We're joining once again

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Speaker 1: by our very special contribute Larry Summers of Harvard. So Larry,

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Speaker 1: great to have you back with us. And there's a

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Speaker 1: lot of good news this week. I must say, reopening

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Speaker 1: of China. We've got a warmer window than expected. In Europe,

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Speaker 1: maybe not a recession over there. In the United States,

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Speaker 1: inflation numbers are coming down. Are you rethinking someone what

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Speaker 1: you said in the past about the likelihood of recession.

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Speaker 1: I think it is uh good news and the evidence

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Speaker 1: that there's been some wage restraint as part of uh

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Speaker 1: the good part of the part of the good news.

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Speaker 1: But at the same time, I think one has to

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Speaker 1: be careful of uh false dawns. And if you think

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Speaker 1: about it, it it the good news was inflation running in

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Speaker 1: the sixes, and that's still inconceivably high by the standards

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Speaker 1: of two or three years ago. So I would stick

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Speaker 1: with my view that a recession this year is more

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Speaker 1: likely uh than not. But certainly, looking at some of

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Speaker 1: these trends, one has to think that, uh, the Fed's

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Speaker 1: job is much much closer to being done, feels much

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Speaker 1: much closer to being done. In terms of disinflation than

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Speaker 1: it did a few months ago. And I think the

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Speaker 1: more optimistic possibilities, while they still would not be my bet,

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Speaker 1: look more plausible today, uh than they did several months ago.

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Speaker 1: And that's got to be encouraged. And we'll have to

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Speaker 1: be watching the data very very closely. And the most

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Speaker 1: important day of this month, by far from a macroeconomic

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Speaker 1: point of view, will be the last day of the month,

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Speaker 1: when the Employment cost Index H comes out. That's the

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Speaker 1: gold standard measure of labor costs and waves pressure, and

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Speaker 1: that's a number they'll be studying very very closely at

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Speaker 1: the FED, and I suspect on Wall Street and I'll

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Speaker 1: certainly be up early that morning to get that number.

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Speaker 1: So right after that, actually early in February, we're going

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Speaker 1: to have the meeting of the Federal Reserve. Given where

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Speaker 1: we are right now and it's always data dependent, should

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Speaker 1: they at least be talking about a pause, if not

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Speaker 1: in February coming after that, I think we're still not

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Speaker 1: quite at uh that point. Uh. I don't think a

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Speaker 1: pause in February would be well advised, and I don't

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Speaker 1: think we have to make a definite decision beyond beyond

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Speaker 1: February for right now again, I think the most important

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Speaker 1: thing is to make sure that the job of containing

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Speaker 1: inflation UH gets done and that they preserve UH their credibility.

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Speaker 1: So I think it's a little bit premature at this

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Speaker 1: point to be thinking about pausing, But we're getting much

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Speaker 1: closer to that day, Larry. Another big story this week

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Speaker 1: had to deal with air traffic in the United States,

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Speaker 1: as we had to ground all the airplanes because of

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Speaker 1: an apparent problem with the f A A system. This

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Speaker 1: is something you've referred to in the past. Actually, some

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Speaker 1: doubts about the system. This is raised larger questions about

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Speaker 1: the systems we have in the government at the f

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Speaker 1: A and perhaps other places as well, like the I

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Speaker 1: R S and the need for investment. Look, I think

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Speaker 1: it refers to two things, David. I think it refers

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Speaker 1: to the quantity of resources that we invest, and it

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Speaker 1: refers to the competence with which we invest. Something is

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Speaker 1: wrong when tens of millions of returns sit opened at

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Speaker 1: the I R S. Something is wrong when the I

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Speaker 1: R S opens the phone answers the phone less than

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Speaker 1: a fifth of the time. Something is wrong when these

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Speaker 1: kinds of fiasco's happen with our air traffic control system.

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Speaker 1: Some of this is we just don't invest the resources

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Speaker 1: that we need. Look, I'm not enough of an expert

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Speaker 1: to exactly be able to compare the information technology challenges

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Speaker 1: that an institution like the I r S, receiving billions

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Speaker 1: of forms each year has with the information technology faced

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Speaker 1: by a large bank like JP Morgan. But it feels

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Speaker 1: very wrong to me that the I R S is

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Speaker 1: I T budget is only three and a half percent

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Speaker 1: of that of JP Morgan. Larry, thank you so much

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Speaker 1: for being back with us. That is our very special

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Speaker 1: contributor here at Wall Street Week. He's Larry Summers of Harvard.

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Speaker 1: That does it for this episode of Wall Street Week.

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Speaker 1: I'm David Weston. This is Bloomberg. Say you next week.

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Speaker 1: This is Wall three Week. I'm David Weston. We're joining

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Speaker 1: once again by our very special contributor, Larry Summers of Harvard. So, Larry,

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Speaker 1: great to have you back with us. And there's a

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Speaker 1: lot of good news this week. I must say, reopening

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Speaker 1: of China. We've got a warmer winner than expected. In Europe,

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Speaker 1: maybe not a recession over there. In the United States,

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Speaker 1: inflation numbers are coming down are you rethinking someone what

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Speaker 1: you said in the past about the likelihood of recession.

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Speaker 1: I think it is uh good news and the evidence

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Speaker 1: that there's been some wage restraint as part of UH

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Speaker 1: the good part of the part of the good news.

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Speaker 1: But at the same time, I think one has to

429
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Speaker 1: be careful of uh false dawns. And if you think

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Speaker 1: about it, the good news was inflation running in the

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Speaker 1: sixes and that's still inconceivably high by the standards of

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Speaker 1: two or three years ago. So I would stick with

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Speaker 1: my view that a recession this year is more likely

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Speaker 1: UH than not. But certainly, looking at some of these trends,

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Speaker 1: one has to think that, uh, the Fed's job is

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Speaker 1: much much closer to being done, feels much much closer

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Speaker 1: to being done in terms of disinflation than it did

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Speaker 1: a few months ago. And I think the more optimistic possibilities,

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Speaker 1: while they still would not be my bet, look more

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Speaker 1: plausible today UH than they did several months ago. And

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Speaker 1: that's got to be encouraged. And we'll have to be

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Speaker 1: watching the data very very closely. And the most important

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Speaker 1: day of this month, by far from a macroeconomic point

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00:26:41,440 --> 00:26:43,960
Speaker 1: of view, will be the last day of the month.

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Speaker 1: When the Employment Cost Index UH comes out. That's the

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Speaker 1: gold standard measure of labor costs and wave pressure, and

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00:26:53,880 --> 00:26:56,760
Speaker 1: that's a number they'll be studying very very closely at

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Speaker 1: the FED, and I suspect on Wall Street, and I'll

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Speaker 1: certainly be up early that morning UH to get that number.

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Speaker 1: So right after that, actually early in February, we're going

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Speaker 1: to have the meeting of the Federal Reserve. Given where

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Speaker 1: we are right now and it's always data dependent, should

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Speaker 1: they at least be talking about a pause, if not

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Speaker 1: in February coming after that. I think we're still not

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Speaker 1: quite as UH that point. UH. I don't think a

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Speaker 1: pause in February would be well advised, and I don't

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Speaker 1: think we have to make a definite decision beyond that

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Speaker 1: beyond February. For right now, again, I think the most

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Speaker 1: important thing is to make sure that the job of

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Speaker 1: containing inflation UH gets done and that they preserve UH

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Speaker 1: their credibility. So I think it's a little bit premature

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Speaker 1: at this point to be thinking about pausing, but we'll

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Speaker 1: get much closer to that day, Larry. Another big story

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Speaker 1: this week had to deal with air traffic in the

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Speaker 1: United States, as we had to ground all the airplanes

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Speaker 1: because of an apparent problem with the f A A system.

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Speaker 1: This is something you've referred to in the past. Actually,

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Speaker 1: some doubts about the system. This is raised larger questions

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Speaker 1: about the systems we have in the government, at the

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Speaker 1: FA and perhaps other places as well, like the I

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Speaker 1: R S and the need for investment. Look, I think

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Speaker 1: it refers to two things, David. I think it refers

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Speaker 1: to the quantity of resources that we invest, and it

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Speaker 1: refers to the competence with which we invest. Something is

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Speaker 1: wrong when tens of millions of returns sit opened at

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Speaker 1: the I R S. Something is wrong when the I

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Speaker 1: r S opens the phone answers the phone less than

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Speaker 1: a fifth of the time. Something is wrong when these

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Speaker 1: kinds of fiasco's happen with our air traffic control system.

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Speaker 1: Some of this is we just don't invest the resources

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Speaker 1: that we need. Look, I'm not enough of an expert

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Speaker 1: to exactly be able to compare the information technology challenges

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Speaker 1: that an institution like the I R S, receiving billions

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Speaker 1: of forms each year has with the information technology faced

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Speaker 1: by a large bank like JP Morgan. But it feels

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Speaker 1: very wrong to me that the I R S is

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Speaker 1: I t budget is only three and a half percent

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Speaker 1: of that of JP Morgan. Larry, thank you so much

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Speaker 1: for being back with us. That is our very special

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Speaker 1: contributor here at Wall Street Week. He's Larry Summers of Harvard.

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Speaker 1: That does it for this episode of Wall Street Week.

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Speaker 1: I'm David Weston. This is Bloomberg. Say you next week.