WEBVTT - Surveillance: Fed Won't Go Negative, Rajan Says 0:00:00.080 --> 0:00:12.960 Ye, Welcome to the Bloomberg Surveillance podcast and I'm Tom Keane. 0:00:13.480 --> 0:00:17.560 Daily we bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.640 --> 0:00:27.680 Bloomberg dot Com, and of course on the Bloomberg Driving 0:00:27.720 --> 0:00:30.840 for the conversation right now for us, as we spoke 0:00:30.880 --> 0:00:34.320 with Kenneth Rogoff this morning of Harvard University on an 0:00:34.320 --> 0:00:38.320 important Group of thirty study of digital currencies, we're gonna 0:00:38.400 --> 0:00:41.280 touch on that quickly here with Roger and Roger of 0:00:41.400 --> 0:00:45.360 Chicago Group of thirty working group co chair, former Indian 0:00:45.400 --> 0:00:48.960 governor RBI, governor of their central bank as well. Robert, 0:00:49.080 --> 0:00:51.120 wonderful to have you with us today. What is the 0:00:51.240 --> 0:00:55.240 distinction of your study? What does this drive forward about 0:00:55.240 --> 0:01:03.280 how technology is changing money? This is the digital currencies 0:01:03.320 --> 0:01:08.400 are revolution right for the first time in three years, 0:01:08.480 --> 0:01:14.280 we can replace cash with something digital. Now we've already 0:01:14.319 --> 0:01:17.920 replaced bank accounts. We we have digital bank accounts. But 0:01:18.040 --> 0:01:22.400 but think of everything going digital and what possibilities that 0:01:22.400 --> 0:01:26.520 that creates, but also what what challenges if for example, 0:01:26.560 --> 0:01:30.520 the government issues this digital currency, the amount of data 0:01:30.720 --> 0:01:34.440 it's going to collect, the amount of privacy it's going 0:01:34.480 --> 0:01:38.399 to violate, and what what concerns that that raises? Those 0:01:38.480 --> 0:01:44.040 are what what are made possible by these new technologies cryptocurrencies, government, 0:01:44.040 --> 0:01:47.800 digital currencies. Um, that's what that's what we were this 0:01:47.920 --> 0:01:51.280 report is about. When we talk about digital currencies, it's 0:01:51.320 --> 0:01:53.920 one aspect to talk about technology and just creating a 0:01:53.960 --> 0:01:56.400 digital form of what we already have. It's another to 0:01:56.440 --> 0:01:59.840 say we're debasing the existing currencies that's come up with 0:01:59.880 --> 0:02:03.200 the alternative that could preserve its value in tandem with gold. 0:02:03.600 --> 0:02:06.440 Which side are you on as the most plausible for 0:02:06.480 --> 0:02:10.400 the future of digital currencies. Well, it's the first. I 0:02:10.960 --> 0:02:15.640 think This idea of a private cryptocurrency which is forever 0:02:15.720 --> 0:02:19.080 going to maintain its value is is interesting, but you know, 0:02:19.240 --> 0:02:23.160 credible central banks have done that with fiat currencies. So 0:02:23.240 --> 0:02:27.600 really the the issue is once we convert that cash, 0:02:27.800 --> 0:02:31.480 the stuff that you have in your wallets into something digital, 0:02:31.919 --> 0:02:36.200 what new possibilities arise and what what new challenges? How 0:02:36.200 --> 0:02:39.320 do we contain all the concerns that emerge from that, 0:02:39.760 --> 0:02:43.080 And that's really what this is about. Dr Rogers, I 0:02:43.160 --> 0:02:45.880 must bring this up for the first time ever, folks 0:02:45.880 --> 0:02:48.800 in all my years, I have taken a book of 0:02:48.840 --> 0:02:51.640 the summer of a year ago and made it a 0:02:51.680 --> 0:02:54.040 book of the summer of the following summer. I've never 0:02:54.080 --> 0:02:56.639 done that before, and I do that with Rogin Rogins 0:02:56.680 --> 0:03:00.400 the third pillar, which is a primal scream for unity 0:03:00.480 --> 0:03:04.399 in America, community and other societies. I want to talk 0:03:04.440 --> 0:03:07.760 about how the third pillar matters Rago and I want 0:03:07.800 --> 0:03:11.400 to talk about what you've observed over the last three 0:03:11.440 --> 0:03:14.360 months or so and how we need to get away 0:03:14.400 --> 0:03:19.880 from our culture wars back to community absolutely. I mean, 0:03:20.440 --> 0:03:25.079 actually take the example of fighting the coronavirus right the 0:03:25.080 --> 0:03:29.600 the countries that have been very successful at it, South Korea, 0:03:30.120 --> 0:03:34.680 Germany typically have had a combination of a centralized approach 0:03:34.760 --> 0:03:39.280 setting broad parameters, you know, getting the funding, but also 0:03:39.320 --> 0:03:42.800 a decentralized approach where each region figures out what its 0:03:42.840 --> 0:03:46.480 issues are, how it deals with it specifically, and how 0:03:46.520 --> 0:03:49.720 it brings its resources to bear. And so my sense 0:03:49.880 --> 0:03:53.400 is this is there is a broader example here that, 0:03:54.160 --> 0:03:56.600 in fact, the way we're going to move ahead in 0:03:56.720 --> 0:04:00.880 our diverse countries without upsetting each fact and is to 0:04:01.000 --> 0:04:05.600 have a coherent, capable central government of course, but also 0:04:05.880 --> 0:04:09.160 decentralized processes. If we look at the fault lines of 0:04:09.160 --> 0:04:12.440 the market right now, Dr Roger, and I'm seeing yields, 0:04:12.440 --> 0:04:14.640 Command Fox. I'm not even gonna do the data chuck here, 0:04:14.680 --> 0:04:17.400 just to say time is the market telling the FED 0:04:17.839 --> 0:04:21.600 what to do? Can the market drive us two towards 0:04:21.960 --> 0:04:28.760 negative interest rates? I think the FED is resistant, and 0:04:29.240 --> 0:04:33.000 my sense is ultimately moving us negative. It will be 0:04:33.040 --> 0:04:34.960 the FED which will move us. I don't think it's 0:04:35.000 --> 0:04:40.000 the market, however, to some extent, I think it's the 0:04:40.040 --> 0:04:42.479 real activity on the ground which is moving the FED. 0:04:42.800 --> 0:04:45.400 And the real activity is driven by this huge unknown 0:04:45.480 --> 0:04:48.720 as as you well know, the coronavirus and how we 0:04:48.760 --> 0:04:51.520 deal with it. I mean, everybody is very sanguine about 0:04:51.560 --> 0:04:55.080 a vaccine coming soon. Of course that's going to take time, 0:04:55.120 --> 0:04:56.720 and it's going to take time to roll out, So 0:04:56.720 --> 0:05:00.240 so there are tremendous uncertainties. The FED is is going 0:05:00.279 --> 0:05:02.599 to be as supportive as possible. I don't think that 0:05:02.720 --> 0:05:07.040 support right now extends to going seriously negative. How concerning 0:05:07.160 --> 0:05:09.239 is it to you that the FEDS policies are propping 0:05:09.320 --> 0:05:12.880 up people who own stocks, typically the wealthier individuals, and 0:05:12.960 --> 0:05:16.279 not necessarily giving that much back to main street and 0:05:16.279 --> 0:05:18.600 this is just by function of the FEDS design. How 0:05:18.640 --> 0:05:20.599 concerning is that at a time we don't have a 0:05:20.600 --> 0:05:25.280 fiscal plan yet in Washington. Well, you do obviously need 0:05:25.320 --> 0:05:29.840 a fiscal plan, but I think the support, certainly for 0:05:30.000 --> 0:05:34.360 Main Street is is structured there. Whether whether firms can 0:05:34.440 --> 0:05:37.400 take it is an issue. There is an additional issue, 0:05:37.480 --> 0:05:40.400 which is at what point does the FED allow the 0:05:40.480 --> 0:05:44.800 market to start resolving firms? In other words, you know, 0:05:44.880 --> 0:05:47.640 if this continues for some time, there will be a 0:05:47.720 --> 0:05:50.800 number of unviable firms. At what point does the FEDS say, 0:05:51.040 --> 0:05:53.279 We're not going to support as much as we can, 0:05:53.360 --> 0:05:56.280 We're going to withdraw some of that support so that 0:05:56.480 --> 0:06:00.960 the unviable firms can be put out of of their misery, 0:06:01.040 --> 0:06:04.040 which will actually create space for the remaining firms and 0:06:04.080 --> 0:06:07.160 make them healthier. So that issue has to be tackled eventually. 0:06:07.440 --> 0:06:09.400 I don't think now is the time, but the FED 0:06:09.480 --> 0:06:11.719 will have to start thinking about that the longer the 0:06:11.760 --> 0:06:15.200 pandemic sort of lass Professor Rugan, thank you so much 0:06:15.200 --> 0:06:18.279 with the Booth Schools Chicago and of course UH Group 0:06:18.320 --> 0:06:21.359 of thirty working group co chairman of an important essay 0:06:21.400 --> 0:06:30.440 with Ken Rogolf on digital currencies, Rob and Roger. Michelle 0:06:30.440 --> 0:06:34.120 Meyers had a wonderful career Rather Bank of American Securities. 0:06:34.120 --> 0:06:36.960 How to the US economics now, Michelle, John and Lis 0:06:37.000 --> 0:06:40.000 have got some fancy pants question for you. I got 0:06:40.000 --> 0:06:42.600 a basic question that came off of David Gura of 0:06:42.760 --> 0:06:46.680 NBC News yesterday at the Paul Press Conference, which was 0:06:46.720 --> 0:06:51.760 a separation of America into two societies. There the halves, 0:06:52.080 --> 0:06:55.840 the new hals, which are going through this pandemic service sector. 0:06:56.240 --> 0:06:59.560 There at home, everything's fine, let's buy the beach house. 0:07:00.040 --> 0:07:02.640 There's a whole nother America flat on its back. And 0:07:02.680 --> 0:07:06.120 the Chairman took de bait. He answered the question, tell 0:07:06.200 --> 0:07:11.559 us about this separation right now in America? Yeah, Hey, Tom, 0:07:11.600 --> 0:07:13.600 and I think it was a great question that David asked, 0:07:13.640 --> 0:07:16.360 and I'm glad to see that FED Chairpowell did respond 0:07:16.400 --> 0:07:18.360 to it. And it's something that I think is really 0:07:18.360 --> 0:07:20.680 important to the FED or Reserve, the fact that we've 0:07:20.720 --> 0:07:23.640 seen this widening income inequality. It comes up in nearly 0:07:23.720 --> 0:07:27.239 every speech that Chair Powell has given um and even 0:07:27.320 --> 0:07:30.880 before COVID hit it was critical to their FED listens 0:07:30.920 --> 0:07:33.640 events this idea that we want to get a broader recovery. 0:07:33.680 --> 0:07:36.680 We want to have income creation widely spread. We want 0:07:36.680 --> 0:07:39.520 to control for the wealth inequality. And so why do 0:07:39.560 --> 0:07:41.720 we Why is that so important? From a macro perspective, 0:07:41.760 --> 0:07:45.280 it's important because when you have UM, you know, income 0:07:45.280 --> 0:07:48.040 inequality of wealth inequality, you're not getting as strong of 0:07:48.080 --> 0:07:50.400 an aggregate spend as you can have. Right. If so 0:07:50.480 --> 0:07:52.200 much of the money is concentrating a small share of 0:07:52.200 --> 0:07:55.680 the population, that population can possibly spend it all. Right, 0:07:55.760 --> 0:07:58.320 So when you have the lower income population, which tends 0:07:58.320 --> 0:08:01.080 to be more budget constrained INTEND it's spend what they earned. 0:08:01.400 --> 0:08:04.520 It filters into the economy more and multiplies and it's 0:08:04.520 --> 0:08:07.720 a lot more favorable UM. And this crisis has just 0:08:07.880 --> 0:08:11.600 proportionately hit the lower income population, particularly those that are 0:08:11.640 --> 0:08:15.600 working in leisure and hospitality UM. That sector lost almost 0:08:15.680 --> 0:08:18.800 half of their jobs were cut UM as a result 0:08:18.960 --> 0:08:21.480 of of COVID. Now it's been coming back. The bounce 0:08:21.520 --> 0:08:23.560 in the last two months has been favorable, but there's 0:08:23.600 --> 0:08:27.120 still a lot millions of workers in that population that 0:08:27.160 --> 0:08:29.040 are out of work and looking. Michelle, you done a 0:08:29.040 --> 0:08:30.760 tremendous job over the last couple of months with the 0:08:30.760 --> 0:08:33.480 team describing what this recovery will look like a fall 0:08:33.520 --> 0:08:35.800 off the cliff, a bounce off the trampoline, and a 0:08:35.840 --> 0:08:38.320 climb up the rope. The long time is started. Can 0:08:38.360 --> 0:08:40.480 you explain to our audience what you think that will 0:08:40.520 --> 0:08:45.400 look like. So that's exactly right now. The hard work comes, 0:08:45.440 --> 0:08:48.440 and I think it's going to be a lot more wobbly, 0:08:48.559 --> 0:08:51.640 maybe fits and starts. So you make some progress to 0:08:51.640 --> 0:08:54.040 climb up the rope, you hit a stumbling block, you 0:08:54.160 --> 0:08:56.720 pause for a bit, maybe part of the maybe they 0:08:56.760 --> 0:08:59.079 comely falls back slightly. I don't think we're going to 0:08:59.200 --> 0:09:02.319 fall off again. I don't think it's a W shaped trajectory. 0:09:02.360 --> 0:09:05.040 It's not going to be a downturn again unless there's 0:09:05.040 --> 0:09:08.360 something much more significant that happens in terms of you know, 0:09:08.520 --> 0:09:11.000 the path of COVID. But but but from here on, 0:09:11.080 --> 0:09:13.640 I think it's absolutely critical to pay attention to how 0:09:13.679 --> 0:09:17.160 consumer behavior evolves in the face of COVID risks, and 0:09:17.240 --> 0:09:20.520 how the stimulus evolves, both monetary and fiscal. And right 0:09:20.520 --> 0:09:22.920 now we're in a critical point when thinking about fiscal 0:09:23.000 --> 0:09:26.760 policy and how targeted uh the stimulus may or may 0:09:26.760 --> 0:09:30.360 not be in terms of reaching that population that has 0:09:30.400 --> 0:09:32.720 a higher tendency to spend that money on the monitor 0:09:32.760 --> 0:09:35.160 policy side of things, that feeds going nowhere fast. Tom Kane, 0:09:35.200 --> 0:09:36.920 there is an elephant sitting on the front end of 0:09:36.920 --> 0:09:39.679 the yield curve and it's called the Federal Reserve and 0:09:39.800 --> 0:09:42.559 a two year yield breaking down it is and this 0:09:42.720 --> 0:09:44.600 is fascinating. I mean, I don't know what else to say, 0:09:44.640 --> 0:09:46.560 but you know, I go back to Hunt Brothers Silver. 0:09:46.920 --> 0:09:49.000 I mean, there's a point where the market starts telling 0:09:49.040 --> 0:09:52.240 institutions what to do. Michelle mauer Meyer. Is there enough 0:09:52.280 --> 0:09:55.240 power out there for markets to tell the Fed what 0:09:55.360 --> 0:10:00.040 to do? Well? You know, it's a it's a a 0:10:00.120 --> 0:10:03.720 key question because in a way, markets clearly do influence 0:10:04.040 --> 0:10:07.480 monetary policy, because monetary policy and the Federal Reserve will 0:10:07.520 --> 0:10:11.200 react to financial conditions because that's the transmission of policy. 0:10:11.480 --> 0:10:13.160 You know, think about everything that that is trying to 0:10:13.240 --> 0:10:15.319 do in terms of their policies, and you know, the 0:10:15.440 --> 0:10:19.200 commitment to low interest rates, um, their support for the 0:10:19.200 --> 0:10:22.040 flow of credit, the way they observe that, and see 0:10:22.040 --> 0:10:25.400 if their success is to determine how financial conditions evolve 0:10:25.480 --> 0:10:28.960 and how markets evolve, so markets can push beneficials to 0:10:29.000 --> 0:10:31.160 some extent, because it's kind of that that that that 0:10:31.440 --> 0:10:33.840 calibration in a way Tomkine looking at that front end 0:10:33.840 --> 0:10:36.800 breaking down zero point one two. I think Lisa mentioned 0:10:36.800 --> 0:10:39.320 this earlier on the program, the five year space on 0:10:39.360 --> 0:10:42.800 the treasury curve, the belly, Lisa, this is getting interesting 0:10:42.920 --> 0:10:46.000 low for longer is something we're told repeatedly. This market 0:10:46.080 --> 0:10:48.840 is listening, is taking the policy right and pushing it 0:10:48.880 --> 0:10:50.959 out along the curve into the belly. And how is 0:10:51.000 --> 0:10:52.599 that going to help employment? And I think this is 0:10:52.640 --> 0:10:54.600 one of the big questions right now, especially with the 0:10:54.600 --> 0:10:58.240 Federal Reserve doing everything they can and gridlock in Washington. 0:10:58.320 --> 0:11:07.360 John Shell, a bank for Ecto Security. I'm gonna read 0:11:07.400 --> 0:11:09.880 you some numbers, folks about what was as we bring 0:11:09.880 --> 0:11:13.880 in David Kelly of JP Morgan and David Kelly knows 0:11:13.880 --> 0:11:16.280 these numbers, and he knows why I'm going to them. 0:11:16.320 --> 0:11:20.839 The animal spirit line of nominal GDP long ago and 0:11:20.960 --> 0:11:26.120 far away four a better number four point one back 0:11:26.160 --> 0:11:30.160 to four percent, three point nine percent, then it was 0:11:30.280 --> 0:11:35.040 terrible negative three point four percent, and the new statistic, 0:11:35.120 --> 0:11:40.559 David Kelly negative thirty four point three percent nominal GDP 0:11:41.200 --> 0:11:45.360 that is unsustainable. What gets us out of this besides 0:11:45.360 --> 0:11:48.480 the cure of the virus. David, is there a policy 0:11:48.559 --> 0:11:52.760 prescription that can lessen this pain? Well, yes, you can 0:11:52.840 --> 0:11:56.400 lessen to pain by by doing two things. One, you've 0:11:56.440 --> 0:11:58.400 got to make sure you don't have more layoffs the 0:11:58.400 --> 0:12:00.920 state and local governments. If you look at the aftermath 0:12:00.960 --> 0:12:04.000 of the Great Financial Crisis, we had five years of 0:12:04.200 --> 0:12:06.880 job losses at state and local governments because they couldn't 0:12:06.880 --> 0:12:09.400 balance the books without laying off workers given the state 0:12:09.400 --> 0:12:11.240 of the economy. So you need some if you're going 0:12:11.280 --> 0:12:13.760 to spend federal money, spend federal money by giving it 0:12:13.800 --> 0:12:15.199 to state and local government so they don't have to 0:12:15.240 --> 0:12:18.720 lay off workers who can work during a pandemic. The second, 0:12:18.760 --> 0:12:21.880 you've got to get this unemployment. The six hundred dollars right. 0:12:22.120 --> 0:12:24.920 Six hundred dollars is too much because for a lot 0:12:24.960 --> 0:12:28.040 of low wage workers it actually makes it uh. You know, 0:12:28.200 --> 0:12:31.600 they're losing money by working. But zero is the wrong number. Two, 0:12:31.640 --> 0:12:33.720 So I think a settlement on something like three hundred 0:12:33.760 --> 0:12:36.480 dollars which will give people just enough of incentive get 0:12:36.520 --> 0:12:39.760 to get back to work while still avoiding widespread poverty. 0:12:39.800 --> 0:12:41.960 Those are two things the government could do right now 0:12:42.000 --> 0:12:44.600 to try and alleviate the situation. But you're completely right. 0:12:44.600 --> 0:12:45.959 The number one thing you've got to do is you've 0:12:45.960 --> 0:12:49.080 got to control the virus. I remember many years ago 0:12:49.120 --> 0:12:52.120 Mickey Candres said it's the economy stupid. Well, now it's 0:12:52.160 --> 0:12:55.200 the virus stupid. You've got to control this virus if 0:12:55.200 --> 0:12:57.959 you want a full reopening. So we're going to get 0:12:57.960 --> 0:13:00.400 a bounce in GDP in the in the third quarter, 0:13:00.920 --> 0:13:03.079 but this is this is not a v shape recovery. 0:13:03.120 --> 0:13:05.400 This is a v interrupted and it's being interrupted by 0:13:05.400 --> 0:13:08.600 the growth this pandemic. We've got to get that under control. David, 0:13:08.640 --> 0:13:10.800 When are we going to actually see the true pain 0:13:11.240 --> 0:13:14.559 of the unemployment figures that we're getting right now in consumption, 0:13:15.000 --> 0:13:17.240 in sort of the bleed through to default, in some 0:13:17.320 --> 0:13:20.640 of the economic pain that's been forestalled by the enhanced 0:13:20.679 --> 0:13:23.760 unemployment benefits and some other fiscal measures. Well, of course 0:13:23.840 --> 0:13:26.000 we don't get another package, we'll see it pretty quickly. 0:13:26.040 --> 0:13:28.360 But I think we will continue to see over the 0:13:28.520 --> 0:13:30.880 second half of this year, we're going to see more 0:13:30.920 --> 0:13:35.760 traditional recessionary indications of you know, more bankruptcies. Companies are 0:13:36.000 --> 0:13:37.800 sort of held in there because the p p P 0:13:37.920 --> 0:13:40.560 are going to unfortunately go bankrupt um. So we're going 0:13:40.600 --> 0:13:43.280 to see a lot of that. Uh, you know, hopefully 0:13:43.280 --> 0:13:45.240 you can have a phase reopening the economy and some 0:13:45.320 --> 0:13:49.840 more federal money to try and and alleviate things. But unfortunately, 0:13:49.920 --> 0:13:54.079 you know, policy is not really designed to protect the 0:13:54.280 --> 0:13:56.319 the the equity of small business owners here, and I 0:13:56.360 --> 0:13:59.160 think that's to me, that's one of the biggest tragedies here. 0:13:59.200 --> 0:14:01.760 The people who put a lifetime into building a small 0:14:01.800 --> 0:14:04.160 business and they're just gonna get wiped out by this thing, 0:14:04.240 --> 0:14:06.079 and that the government really isn't finding a way to 0:14:06.559 --> 0:14:08.600 help them. So there's a lot of pain to come. 0:14:09.160 --> 0:14:12.079 We will get we'll get a vaccine. I think we'll 0:14:12.080 --> 0:14:14.280 get multiple vaccine. So at some stage when we all 0:14:14.280 --> 0:14:16.800 pull together and decide is a nation that we're going 0:14:16.840 --> 0:14:18.600 to rid ourselves of this virus with the help of 0:14:18.600 --> 0:14:20.720 a vaccine, then we'll get back to normal. But we 0:14:20.720 --> 0:14:22.160 do have to wait for that day. But I think 0:14:22.160 --> 0:14:25.280 we all fully understand the reaction function of the Federal Reserve. 0:14:25.680 --> 0:14:27.680 What I don't quite understand right now is the reaction 0:14:27.720 --> 0:14:31.320 function of investors. How do you think investors respond next 0:14:31.320 --> 0:14:36.400 week if we get a negative payrolls print, Well, you 0:14:36.440 --> 0:14:38.480 may say you'll probably see some set off in the 0:14:38.480 --> 0:14:42.040 equity markets because that that won't necessarily encourage There's not 0:14:42.040 --> 0:14:44.920 not much more than that that, you know, I think 0:14:44.960 --> 0:14:47.280 Congress is gonna do. So if we got that print, 0:14:47.320 --> 0:14:49.840 that would be that'd be right. But but on that print, 0:14:50.200 --> 0:14:52.560 if you go back five weeks ago and look at 0:14:52.560 --> 0:14:56.200 the unemployment claims to the survey week UM in June, 0:14:56.240 --> 0:14:58.760 and then you're compared with with the survey week for July, 0:14:59.200 --> 0:15:02.200 we still got to about a two million million person 0:15:02.240 --> 0:15:05.440 reduction and continuing claim. So I still think we might, um, 0:15:05.480 --> 0:15:08.120 you know, get a small positive on pay rolls for 0:15:08.200 --> 0:15:10.720 the month of July and then a negative one for August. 0:15:10.720 --> 0:15:12.960 But the broad picture is I don't think that. I 0:15:12.960 --> 0:15:14.800 don't think the labor mark is going to get much worse, 0:15:15.360 --> 0:15:16.920 but it's not going to get much better. I think 0:15:16.920 --> 0:15:19.840 we'll still have over ten percent unemployment as we go 0:15:19.840 --> 0:15:22.600 into devid Kelly Gring to catch up with these, Sir, 0:15:22.720 --> 0:15:29.480 Jeff Morgan as in Management chief Global Strategist, Let's bring 0:15:29.480 --> 0:15:31.840 in Aaronson to arra Jan Shewy and y U Stern 0:15:31.920 --> 0:15:35.000 School of Business professor Aaron Gread to catch up with you, sir, 0:15:35.280 --> 0:15:38.040 didn't I think change in the last twenty four hours 0:15:38.040 --> 0:15:42.800 any change whatsoever? Was that all just a spectacle? Um? 0:15:42.840 --> 0:15:45.920 I think the tone of the hearing was very different 0:15:46.160 --> 0:15:49.120 from any of the past UM hearings that we've had 0:15:49.160 --> 0:15:53.280 about big tech. UM. Certainly a little more aggressive, a 0:15:53.280 --> 0:15:56.720 little more negative, but also from Congress's point of view, 0:15:56.800 --> 0:16:00.240 much more informed. This wasn't about, like you, how do 0:16:00.280 --> 0:16:04.640 you earn money from your advertising? Many of the members 0:16:04.640 --> 0:16:09.239 of Congress sort of probe deep into specific issues relating 0:16:09.360 --> 0:16:13.960 to market power, relating to predatory pricing. That made me 0:16:14.040 --> 0:16:18.120 feel that they were far better informed than in any 0:16:18.200 --> 0:16:22.720 hearing that has occurred in the past. UM. Now, you know, 0:16:22.760 --> 0:16:26.320 there were lots of misconceptions as well, but UM, you know, overall, 0:16:26.360 --> 0:16:29.000 I think it's a turning point for big tech regulation 0:16:29.280 --> 0:16:33.000 and we've entered a new phase. Professor, you came out 0:16:33.000 --> 0:16:36.120 of the Rochester Graduate School of Combine, so you've seen 0:16:36.280 --> 0:16:40.320 personally the collapse of a traditional economy up in Western 0:16:40.320 --> 0:16:43.040 New York. Whether it's Buffalo, Rochester, you could say that 0:16:43.080 --> 0:16:46.360 about anywhere else in the country. Your book cover is 0:16:46.440 --> 0:16:50.400 maybe the most courageous I've seen the end of employment 0:16:51.040 --> 0:16:55.280 in the rise of crowd based capitalism. How bad is 0:16:55.320 --> 0:16:58.840 the end of employment. That's what these politicians were really 0:16:58.840 --> 0:17:04.000 talking about, wasn't it. Well, the end of employment is 0:17:04.040 --> 0:17:07.560 different from the end of work. UM. I think part 0:17:07.560 --> 0:17:09.959 of the point that I'm making here is that a 0:17:09.960 --> 0:17:12.800 lot of work that occurs in the future will not 0:17:13.000 --> 0:17:16.400 come packaged as these full time jobs that we got 0:17:16.480 --> 0:17:19.959 used to in the twentieth century. UM, but we'll have 0:17:20.200 --> 0:17:23.960 a much greater fraction of entrepreneurship. And in many ways, 0:17:24.080 --> 0:17:28.520 the story that the platforms told yesterday UM was one 0:17:28.840 --> 0:17:31.440 of UM, like, you know, we are in an economy 0:17:31.480 --> 0:17:34.400 where you've got millions of sellers on Amazon, You've got 0:17:34.440 --> 0:17:38.919 tens of millions of small businesses being supported by advertising 0:17:39.040 --> 0:17:41.560 on Google. You know, if you move away from the 0:17:41.600 --> 0:17:44.159 big four, Um, there are millions of hosts on A, 0:17:44.280 --> 0:17:46.760 B and B. There are millions of restaurants delivering to 0:17:46.960 --> 0:17:51.359 uberis and door dash, and so this platform based economy 0:17:51.600 --> 0:17:54.679 is going to pervade UM, like you know, our future 0:17:54.760 --> 0:17:57.880 of work and UM. You know, one of the things 0:17:57.960 --> 0:18:00.399 that were striking to me about yesterday's test the money 0:18:00.560 --> 0:18:05.719 was this misconception that somehow platforms harms small business. And 0:18:05.760 --> 0:18:09.440 so while we've seen these sort of local geo geographic 0:18:09.520 --> 0:18:13.959 economies imployed. Um, it isn't immediately clear to me that 0:18:14.080 --> 0:18:17.679 small business has been disproportionately hurt by the platforms. In 0:18:17.720 --> 0:18:19.960 many ways, I think that they're actually shifting a lot 0:18:20.000 --> 0:18:22.800 of economic activity away from sort of larger to mid 0:18:22.880 --> 0:18:27.159 sized players and towards millions of small businesses. This is 0:18:27.200 --> 0:18:30.240 a very important point. Of course. One line of questioning 0:18:30.320 --> 0:18:33.760 yesterday was the idea that these platforms that do give 0:18:33.840 --> 0:18:36.919 voice to smaller businesses are rigged, that they're basically in 0:18:37.000 --> 0:18:40.080 favor of certain companies, namely the platforms themselves and their 0:18:40.119 --> 0:18:43.080 own proprietary band brands. And thinking about Amazon, what do 0:18:43.080 --> 0:18:46.840 you say to that? Well, Um, I think that was 0:18:46.880 --> 0:18:49.760 a central theme that came out of the hearing yesterday. 0:18:49.960 --> 0:18:53.160 And you know, more broadly, it has to do with them. 0:18:53.200 --> 0:18:54.760 You know, what are the limits that we need to 0:18:54.840 --> 0:18:58.960 place on channel or marketplace power. Um. I don't think 0:18:58.960 --> 0:19:02.480 a convincing case was made that the platforms are somehow 0:19:02.720 --> 0:19:09.600 overtly or explicitly favoring you know, their own products. Um. 0:19:09.640 --> 0:19:13.520 You know, Amazon is certainly Um, you know, Amazon is 0:19:13.560 --> 0:19:16.160 following in a sort of a long, a long tradition 0:19:16.160 --> 0:19:19.719 of other retailers and creating store brands. I think a 0:19:19.720 --> 0:19:22.200 lot of the what what what happens in the next 0:19:22.200 --> 0:19:27.280 few months of looking at are they somehow disadvantaging small 0:19:27.359 --> 0:19:31.119 businesses by looking at a product and then copying it. 0:19:31.760 --> 0:19:36.040 Um is the Apple iOS somehow slowing down the performance 0:19:36.080 --> 0:19:40.000 of competing apps while speeding up their own, you know, 0:19:40.000 --> 0:19:43.000 because I think broadly. You know, Tim Cook said that 0:19:43.200 --> 0:19:46.320 um it was really hard to sell software before the 0:19:46.359 --> 0:19:48.800 app store came along. You needed to sort of get 0:19:48.800 --> 0:19:51.479 it shrink wrapped and into a retailer. Now you have 0:19:51.640 --> 0:19:54.560 millions of tiny app developers who have access to the 0:19:54.800 --> 0:19:57.399 you know, the App Store, the Google Place Store, and 0:19:57.480 --> 0:20:00.040 so prima facia, it's hard to make a case that 0:20:00.200 --> 0:20:03.720 these things are bad for small business and bad for competition. 0:20:04.080 --> 0:20:06.000 And the devil is going to be in the details 0:20:06.119 --> 0:20:09.320 of have they sort of taken specific actions to like 0:20:09.400 --> 0:20:12.080 you know, to crush diaples dot com, to um like 0:20:12.200 --> 0:20:15.919 you know, um to suppress particular small businesses And to 0:20:16.000 --> 0:20:18.600 your point Jeff Bezos yesterday coming out and saying, unlike 0:20:18.600 --> 0:20:21.320 industries that are winner take all, there's room and retail 0:20:21.840 --> 0:20:24.159 for many winners. I'm wondering a Rooin we're gonna be 0:20:24.160 --> 0:20:27.439 getting earnings from Apple, Amazon, and alphabet after the bell today. 0:20:27.480 --> 0:20:30.440 Are you looking for some sort of self regulatory measures 0:20:30.440 --> 0:20:33.320 that will crimp their profitability to get ahead of any 0:20:33.320 --> 0:20:38.760 potential regulation from Washington? Absolutely? Um. I think a lot 0:20:38.800 --> 0:20:42.680 of the purpose of hearings like this is to create 0:20:42.720 --> 0:20:46.480 a credible text, a credible threat of regulation if the 0:20:46.520 --> 0:20:51.199 platforms don't do something themselves. Um. But because you know, 0:20:51.280 --> 0:20:53.639 if you think about what society has done, we have 0:20:53.800 --> 0:20:57.960 given these platforms a tremendous amount of power um government 0:20:58.040 --> 0:21:02.440 like power um with censorship, with the I D systems, 0:21:02.440 --> 0:21:06.640 with the copyright and intellectual property. Facebook is backing its 0:21:06.640 --> 0:21:10.280 own currency surveillance, and so we can't sort of suddenly 0:21:10.359 --> 0:21:12.520 say now, hey, I mean, like you know, we're unhappy 0:21:12.600 --> 0:21:15.520 with the status coode um, and we're going to come 0:21:15.520 --> 0:21:17.640 in with a big stick and make you change your behavior, 0:21:17.680 --> 0:21:19.920 because that's I mean, like you know, no nation state 0:21:19.920 --> 0:21:22.320 government actually has the power to do that, and the 0:21:22.359 --> 0:21:26.040 real solution is going to be self regulatory. But I 0:21:26.040 --> 0:21:28.920 think the platforms are being nudged in the right direction 0:21:29.160 --> 0:21:33.439 to make changes by the specter of like you know, 0:21:33.520 --> 0:21:37.600 big government regulation. And to me, the best solution for 0:21:37.760 --> 0:21:41.000 society is for the platforms to take matters into their 0:21:41.040 --> 0:21:43.880 own hands and say, well, here are the changes we're 0:21:43.880 --> 0:21:45.680 going to make it of the limits we're gonna place 0:21:46.400 --> 0:21:50.639 on the power that our marketplace creator has in developing 0:21:50.720 --> 0:21:53.000 in being a supplier. You know, the limits we're gonna 0:21:53.000 --> 0:21:55.440 place on predatory pricing. Here are the limits we're gonna 0:21:55.440 --> 0:21:58.840 place on privacy. And and so because they are better 0:21:58.920 --> 0:22:02.359 informed that in any government entity about like, you know, 0:22:02.400 --> 0:22:06.160 what's possible, um their closest to the action. And so 0:22:06.359 --> 0:22:08.199 I think that's the future. We're going to see them 0:22:08.280 --> 0:22:10.159 fold in the next two or three years. Around. Were 0:22:10.200 --> 0:22:12.240 lucky time you on the show today. We appreciate your time. 0:22:12.280 --> 0:22:14.560 Thank you, sir. I run send a round, John n 0:22:14.680 --> 0:22:17.280 y u st and School a Business. Thanks for listening 0:22:17.359 --> 0:22:21.920