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Speaker 1: member s I p C. Welcome to the Bloomberg Surveillance Podcast.
Speaker 1: I'm Tom Keene with David Gura. Daily we bring you
Speaker 1: insight from the best in economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and
Speaker 1: of course on the Bloomberg I'm show to day two
Speaker 1: former vice chairs at the Federal Reserve, Alice Rivlin and
Speaker 1: Alan Blinder, will join us and we'll get market insight
Speaker 1: from Brian Jacobson of Wells Fargo. But first we welcome
Speaker 1: James Sweeney, chief economist and co head of Global Economics
Speaker 1: and Credits, with here in the studio with us, New York.
Speaker 1: Great to see you. Thank you. Let's start with your
Speaker 1: your outlook and a phrase that stood out to me
Speaker 1: that is that we're looking at a new narrative here,
Speaker 1: not a new normal. Give us a sense of what
Speaker 1: you're looking forward to here in the new year. Well,
Speaker 1: it was really trying to think through what will the
Speaker 1: market be focusing on. And I think this era of
Speaker 1: of low interest rates, deflation, fear, central bank obsession, that's
Speaker 1: giving way to talk of protectionism, higher inflation, full employment,
Speaker 1: fiscal policy, tax reform. It's a long list of new things.
Speaker 1: So the narratives are in there, the specifics are not
Speaker 1: exactly filled in for the moment but um. But in
Speaker 1: our view, you know, growth is okay for the for
Speaker 1: the moment um. We are monitoring the political situation for
Speaker 1: for what comes next. We're not fearing high inflation um.
Speaker 1: But I think the market will have an inflation scare
Speaker 1: this year. I think it'll have a growth scared this year.
Speaker 1: I think we'll have a protection scare. This year, might
Speaker 1: have a geopolitical scare. You know, there there's a there's
Speaker 1: a house, there's a decent list. Our. Our outlook this
Speaker 1: year was it was a series of essays rather than
Speaker 1: the usual kind of data focused here, here's what's happening
Speaker 1: in the world. And I think that's by necessity. You
Speaker 1: mentioned protection is um and there was so much conversation
Speaker 1: during the campaign, during the transition about the prospect for tariffs.
Speaker 1: Now it seems the conversation has shifted to this border
Speaker 1: adjustment tax. Are they one and the same as one
Speaker 1: provoke more nervousness for apprehension than the other. Well, I
Speaker 1: think the border adjustment tax in the in the context
Speaker 1: of this destination based cash flow tax with border adjustment
Speaker 1: is really a totally different thing from from a tariff
Speaker 1: or or just a border tariff, a punitive border tariff
Speaker 1: on on firms or on companies. So it would be
Speaker 1: helpful if if people just started separating them altogether. Um.
Speaker 1: The um. I think the border adjusted tax in that
Speaker 1: corporate tax reform context is actually fake protectionism. It's not
Speaker 1: real protection him. Um. I think if you had that
Speaker 1: kind of policy, you know, it's going to give be
Speaker 1: a big move in the dollar, it's gonna give you
Speaker 1: a lot of chaos in the market. Um. But it's
Speaker 1: it's not necessarily protectionist. It may even give cover to
Speaker 1: not do some of the other things, because a more
Speaker 1: idiosyncratic protectionism through actual tariffs, I think is a much
Speaker 1: much bigger problem and more likely lead to tip for
Speaker 1: tat type you know conflicts. You're right, an optimistic sheet.
Speaker 1: What is GDP for the United States? What? What is
Speaker 1: what are you framing? If you will for Mr Trump
Speaker 1: as we move forward. Yeah, we see GDP running in
Speaker 1: the sort of two and a quarter to two and
Speaker 1: a half range right now, that's not three percent. How
Speaker 1: does he get at the three percent? I mean, I
Speaker 1: think you could get it to three percent for a minute,
Speaker 1: with with with with a surgeon investment at some point. Um,
Speaker 1: a pent up surgeon investment appears to be due. But
Speaker 1: dollar strength at the moment is getting in the way. Um.
Speaker 1: You know, some of the energy bust for a few
Speaker 1: years ago could could reverse. Um, getting persistent real GDP
Speaker 1: of three would be really difficult with the with the
Speaker 1: demographics of of the US. And that, David, is what
Speaker 1: is missing in a lot of the media frenzy is
Speaker 1: the time function of growth popping it for what a quarter? James, Yeah,
Speaker 1: but not for a year or two years to get
Speaker 1: to the mid term elections. Is the conversation over about
Speaker 1: whether or not we're going to get an infrastructure package
Speaker 1: or fiscal stimulus. Are we going to have a conversation
Speaker 1: about the economic grounding for for a plan like that? Well, Um,
Speaker 1: so much as there is economic grounding, I suppose, But
Speaker 1: I mean I I think there is some economic grounding
Speaker 1: for for both ideas. UM, well really all three ideas
Speaker 1: if you separate the personal income and corporate income tax
Speaker 1: because they're really very different things but probably need to
Speaker 1: be done together. UM. I think really, and now it's
Speaker 1: just the politics, it's just the horse trading in Washington.
Speaker 1: Can you get to these um reforms? I mean, we
Speaker 1: know there's a fair amount of democratic support for infrastructure there,
Speaker 1: there's some Democrat support for corporate tax reform. UM. Corporate
Speaker 1: tax reform might not even be stimulative, it might not
Speaker 1: even reduce revenues tax revenues from the corporate sector. Personal
Speaker 1: income tax reform I think is a little more of
Speaker 1: a partisan issue UM with less Democrats support, And I
Speaker 1: think the economics of stimulus from that are are a
Speaker 1: little more of an open and there are a different question.
Speaker 1: But basically, you know, I think take off all three
Speaker 1: of these things separately and have the long discussion. I'm
Speaker 1: happy to have it, but but I think it's it's
Speaker 1: difficult to encapsulate the three together into into a short summary. Really,
Speaker 1: each of them is complicated. If you'll indulge me, I'll
Speaker 1: quote once more from your your outlook. Another great line here.
Speaker 1: Markets overreact to political rumors and underreact to political facts,
Speaker 1: which thinks a bit of enthusiasm here during during earning season.
Speaker 1: But do you think that the market is now beginning
Speaker 1: to reckon with some of the facts the political fact, Well,
Speaker 1: I mean what I meant by that is is um,
Speaker 1: you know, forget Donald Trump himself and exactly who's running
Speaker 1: the administration and all that. If you just told someone
Speaker 1: a few years ago that in late January two thousand seventeen,
Speaker 1: the focus would be on US disengagement from the world
Speaker 1: and a significant increase in protectionism pushed by the US UM,
Speaker 1: I think people would say, wow, markets, you know, equity
Speaker 1: markets will be much lower. Um. You know, they would
Speaker 1: think this would be a time of great risk aversion.
Speaker 1: And you look at the markets and it's it's not
Speaker 1: the UM. I think the fact of of US policy
Speaker 1: intentions has changed. UM. The markets haven't really reacted to it,
Speaker 1: UM in the expected way, or at least maybe the
Speaker 1: market is reacting to the expectations of lower regulations and
Speaker 1: stimulus and and so you know, we've had we've had
Speaker 1: that short term rush of of positive and and and
Speaker 1: we're sort of waiting to see maybe there's people are
Speaker 1: not really believing that genuine toothy protection is m is coming.
Speaker 1: When you look at the intersections of politics, economics in
Speaker 1: the markets, are are there historical analogs that jump out
Speaker 1: at you or or we had an unprecedented time here,
Speaker 1: or have we seen things like this before? I mean,
Speaker 1: I think there are periods in history that offer interesting
Speaker 1: UM parallels, and I don't see anything that's perfect. I
Speaker 1: think the mid eighties, the time of um of of
Speaker 1: of rising interest rates, of a strong dollar, of real
Speaker 1: angst in the US manufacturing sector is interesting. You know,
Speaker 1: there was a point in the Reagan administration where basically
Speaker 1: the Treasury Secretary and the chief of staff switched jobs,
Speaker 1: and you you ended up with UM. You ended up
Speaker 1: with a concerted effort to weaken the dollar and to
Speaker 1: UH and to really go after UH. Some Japanese protection
Speaker 1: is um um through some some tariffs of our own.
Speaker 1: That was a big shift. And the last time the
Speaker 1: US had kind of broad tower is actually in the
Speaker 1: early seventies when when we left the the gold standard UM.
Speaker 1: I read that the the equity market actually rallied on
Speaker 1: shore on on that initial policy change in foreign stocks
Speaker 1: sold off. So sometimes protectionism could be good for the
Speaker 1: local companies who are being protected. Um, and then others
Speaker 1: are going all the way back to Smooth Holly and
Speaker 1: talking about, you know, it is just going to cause
Speaker 1: the Great Depression Part two and which gets a little
Speaker 1: over the top. I mean, the evidence is not that
Speaker 1: clear that Smoot Holly was a major driver of the
Speaker 1: depression in the first place. But um, but history helps,
Speaker 1: but history doesn't offer a clear, clear precedent. Let's continue
Speaker 1: with James Sweeney loves to talk about maybe we can
Speaker 1: look at his arch theme of well, there's a deflation
Speaker 1: scare and it's going to be a inflation scared. Would
Speaker 1: you help us, James Sweeney with trade between the United
Speaker 1: Kingdom and the United States. Prime Minister May gave a
Speaker 1: speech in Davos polar opposite of what I'm hearing from
Speaker 1: President Trump. So they meet on Friday, what will you
Speaker 1: listen for? Well, I think, I mean, I think, in
Speaker 1: from a geopolitical perspective, the tone remember the shoulder to
Speaker 1: shoulder comment by Tony Blair year years ago. Um, can
Speaker 1: you maintain that that tone of of of a special
Speaker 1: relationship in the first place under the current conditions. That's
Speaker 1: I think interesting. But I think in terms of economics. Um,
Speaker 1: you know, if if brexit, if this is a hard brexit, Um,
Speaker 1: does the does the UK want a special bilateral trade
Speaker 1: deal with the US? And then if the US is
Speaker 1: willing to to expedite a process leading to such a
Speaker 1: trade deal? Um is that you know? Is that going
Speaker 1: to be done on generous terms or is that going
Speaker 1: to be done in a in a kind of confrontation
Speaker 1: to It can't be done until she straightens out all
Speaker 1: her EU activities. I mean, I mean your Trump can't
Speaker 1: say let's wrap up a trade deal by Christmas. Well
Speaker 1: with so many of these things. When we say it
Speaker 1: can't be done, what is the it? You know? What
Speaker 1: is the protectionism? What is the deal? A deal? And investigation? Um?
Speaker 1: You know, I I I think a lot of this
Speaker 1: stuff is very fuzzy. It seems to live in a
Speaker 1: publicity space rather than on a on a page with
Speaker 1: with with details. And this is not this is not
Speaker 1: especially clear what what kind of document will learne from this?
Speaker 1: Let me let me pick up off of that. Your
Speaker 1: forecast and the outlook is for the dollars that continue
Speaker 1: to be strong in two thousand and seventeen. The outlook
Speaker 1: written before Donald Trump tweeted about the strength of the dollar,
Speaker 1: his his his wish or his concern here that it's
Speaker 1: it's not weak enough. That's kind of unprecedented and of itself. Um,
Speaker 1: does that change your your sense of where the dollar
Speaker 1: will go? Are we seeing the end of the strong
Speaker 1: dollar policy? Do we have a better sense of what
Speaker 1: the dollar policy is going to be here this president?
Speaker 1: I could tell you somewhere in our lengthy outlook was
Speaker 1: was a comment about dollar twe it or policy. Um,
Speaker 1: So that was actually part of our expectation, was that
Speaker 1: we would get some comments. Um. You know, I I,
Speaker 1: as I said earlier, I think the dollar. I think
Speaker 1: the level of the dollar and its move over the
Speaker 1: last couple of years is an issue. Um. It is
Speaker 1: an issue for manufacturing investment. And we have sluggish exports,
Speaker 1: and we have sluggish investment, uh in manufacturing. And even
Speaker 1: I'm talking about the last two years, I'm not talking
Speaker 1: about the longer term terms. Even compared to the last fifteen,
Speaker 1: you can see that the dollar is having a little
Speaker 1: bit of an effect. Um. You know, there's a lot
Speaker 1: of narratives looking back favoring the dollar, growth differentials, interest
Speaker 1: rate differential, stimulus from the US, maybe there's a shortage
Speaker 1: of dollars overseas, there's a great demand for dollars rather
Speaker 1: than R and B in in Asia. Um. All these
Speaker 1: stories have have helped the dollar to rally. But now
Speaker 1: when you're talking protectionism, when you're talking change in the
Speaker 1: US role in the world, some people are talking about
Speaker 1: you could you see reserve managers you know, consider lowering um,
Speaker 1: their their dollar holdings older over time in response to
Speaker 1: some of this. You know, there's there's a lot of
Speaker 1: two way risk on the dollar. But to me, the
Speaker 1: bringing it home to kind of markets and and really
Speaker 1: relevant fact based stuff. Um. The the issue is basically,
Speaker 1: if the dollar continues to strengthen this year, UM, it's
Speaker 1: gonna get in the way of President Trump's objectives in
Speaker 1: uh in improving the short term outlook for manufacturing. And
Speaker 1: I wonder could that be part of the calculus in
Speaker 1: choosing the new James Sweet thank you so much with
Speaker 1: credit sweets, David gurn Tom Kane Worldwide, Coast to coast,
Speaker 1: This is Bloomberg. Brian Jacobson with us right now from
Speaker 1: Wells Fargo. It's almost a relief to talk to Brian
Speaker 1: Jacobsen because I'm not going to ask you any politics
Speaker 1: other than to say, Brian, do I change what I'm
Speaker 1: doing with a little bit of wealth I have because
Speaker 1: of all of this noise going on around us. Well,
Speaker 1: it's a good question. I appreciate not having to talk
Speaker 1: too much about politics. I think we've gotten a little
Speaker 1: weary about that. I did to our client event yesterday,
Speaker 1: which was a lot of fun, but as you can
Speaker 1: probably imagine, it was discussing the political environment, and I
Speaker 1: think it is on the tops of a lot of
Speaker 1: people's minds. My encouragement to everybody is to just not
Speaker 1: let politics affect your portfolio. Try to focus on your
Speaker 1: goals and make sure that your allocations are in line
Speaker 1: with those goals. It's too easy to get caught up
Speaker 1: in the latest tweets or the latest report and panic. Uh.
Speaker 1: And as many people have oftentimes said, many people smarter
Speaker 1: than I am, is that we are oftentimes our own
Speaker 1: worst enemies when it comes to investing, and that overreaction
Speaker 1: can be very detrimental when it comes to trying to
Speaker 1: achieve those goals. Bearing that in mind that there are
Speaker 1: the tweets, there is the short termism. I wonder though
Speaker 1: here I here. I tried into politics a little bit
Speaker 1: if if you if you are able to extrapolate, you know,
Speaker 1: I recall after the election, people were getting into utilities.
Speaker 1: They thought that there was going to be big infrastructure
Speaker 1: spending for this. There are macro themes here. Ignore those
Speaker 1: as well as you ignore the tweets. You know, I
Speaker 1: would look at the macro themes, and it's always it's
Speaker 1: difficult to sort of susce out the difference between what's
Speaker 1: an economic trend and what's sort of a political development
Speaker 1: that you should react to, because politics clearly do affect
Speaker 1: the economy. But the economy itself, even though it's not
Speaker 1: a machine, and I really hate using like physics analogies,
Speaker 1: but uh, the economy develops its own type of momentum.
Speaker 1: And right now I think that really what you saw
Speaker 1: back in July was the economic momentum beginning to shift
Speaker 1: a little bit towards a slightly higher pace of economic activity.
Speaker 1: You know, the labor market is continuing to improve, wages
Speaker 1: are picking up, purchasing manager and disease are looking pretty healthy,
Speaker 1: not just in the United States but even globally. Now
Speaker 1: policy can affect that, but oftentimes policy has very long
Speaker 1: and variable legs. So if they do some sort of
Speaker 1: like let's say infrastructure plan yesterday it was floated, then
Speaker 1: there might be a one trillion dollar infrastructure by the Democrats.
Speaker 1: Well that works out that's one billion dollars per year, right,
Speaker 1: so you have to take that and divided by ten
Speaker 1: because of the way that they do their math, and
Speaker 1: they don't believe in the time value of money, so
Speaker 1: they think that billion dollars event ten years from now
Speaker 1: is the same as a hundred billion dollars today. So
Speaker 1: you know that this stuff takes time to build. David
Speaker 1: be could you explain to Brian that we adore physics
Speaker 1: references just you don't care, you know. I'm sorry. We're
Speaker 1: all Newtonian. There you go, We're all Newtonians. Think that
Speaker 1: the surveillance bumpary sticker. You if you are weary of politics,
Speaker 1: as many are, Brian, you want to look overseas. Are
Speaker 1: there markets right now where it is less of a player,
Speaker 1: less casting, less of a shadow. Uh for those who
Speaker 1: don't want to have to weigh or or think about
Speaker 1: or try to figure out the latest political moctinations. Well,
Speaker 1: one of my favorite areas to look right now are
Speaker 1: some of those where I think from a longer term
Speaker 1: value perspective, there's some decent opportunity and I see that
Speaker 1: in a lot of emerging markets. But the problem is this,
Speaker 1: you know, politics is casting quite a dark shadow across
Speaker 1: a lot of the emerging markets, the uncertainty about what's
Speaker 1: going to happen as far as on the trade front,
Speaker 1: what's going to happen with commodity prices, what's going to
Speaker 1: happen with you know, China's growth slow down. So there
Speaker 1: are a lot of dark clouds. But that is actually
Speaker 1: where I think there's some good opportunities because, uh, you know, valuations,
Speaker 1: when I look back at some charts that you know,
Speaker 1: based on price two expected cash flows, emerging markets are
Speaker 1: trading at a rather significant discount relative to their developed
Speaker 1: market peers. So, you know, I think you can look
Speaker 1: at emerging markets for longer term value opportunities. Keeping in
Speaker 1: mind that emerging markets it's a plural not a singular noun,
Speaker 1: that there are you know, all sorts of differences between say,
Speaker 1: what's going on in Turkey versus what's going on in India,
Speaker 1: with both of which are emerging markets. And you know what,
Speaker 1: we love to have you on because you are truly
Speaker 1: in the trenches of standing in a room with ten
Speaker 1: or one hundred people or more frankly with their hands
Speaker 1: up in the air saying excuse me, sir. I mean,
Speaker 1: you know, some of the real concerns that are out there.
Speaker 1: If we make the statement this is the most unloved
Speaker 1: bull market, ever, how does this moment of January two
Speaker 1: thousand and seventeen change that idea? Do we go to
Speaker 1: effervescence or are we even less loved than we've been
Speaker 1: since early two thousand nine. I think some people are
Speaker 1: loving the wrong parts, you know. As as far as
Speaker 1: looking at expecting that we're going to see continually rising
Speaker 1: interest rates, I did anticipate that will probably see you know,
Speaker 1: the tenure Treasury and the year at around you know,
Speaker 1: two point nine to three something like that. But then
Speaker 1: how much higher are we going to go? Maybe three
Speaker 1: and a half percent. So a lot of people are
Speaker 1: hating on fixed income, a lot of people are hating
Speaker 1: on the emerging markets, and I think that's where to
Speaker 1: represents the best opportunities. So there are pockets where people
Speaker 1: love it. Look coming out of the election, you know,
Speaker 1: small cap stocks did well. I think justifiably, so they
Speaker 1: tend to be more it can deal with the regulations
Speaker 1: quite as well. They also tend to be higher taxed
Speaker 1: than what the large cap stocks are, so and some
Speaker 1: of that increase in price I think was justified. But
Speaker 1: some of the sector uh that people were focusing on,
Speaker 1: as far as what say, the infrastructure build out, I
Speaker 1: think that any infrastructure plan that we get is going
Speaker 1: to have to be paid for to get it through
Speaker 1: a Republican controlled House and Senate. They don't want to
Speaker 1: blow up the deficits. So um. You know, maybe some
Speaker 1: of the run up that we saw in some parts
Speaker 1: of the industrial material space was a little bit overdone.
Speaker 1: So you know, if people I think we're kind of
Speaker 1: you've you've got this mix of euphoria and a mix
Speaker 1: of pessimism, and it makes for a very interesting market
Speaker 1: to causes all sorts of sector rotation. And that's I
Speaker 1: think going to be one of the big themes for
Speaker 1: two thousand seventeen is you'll see periods of time where
Speaker 1: one sector is sort of you know, charging ahead for
Speaker 1: you know, a month at a time, but then suddenly
Speaker 1: it's stumbled. And that's why it's so important to just
Speaker 1: keep it diversified. Don't try to get over your skis
Speaker 1: with any particular one sector. Bet Bryan Jackson, take us
Speaker 1: into that small world. Uh, what's attractive in it to
Speaker 1: you right now? Well, I think that in the small
Speaker 1: cap stocks, you know, it's it's just like the emerging markets.
Speaker 1: It's a it's a it's a very diverse set of
Speaker 1: entities that exist in there. And one of the areas
Speaker 1: that I think people really honed in on after President
Speaker 1: Trump or at that point it was, uh, you know
Speaker 1: candidate Trump became president to lec Trump and now he's
Speaker 1: President Trump, was that a lot of small cap stocks.
Speaker 1: They tend to be more domestically focused as far as
Speaker 1: with their revenues. They also tend to have a higher
Speaker 1: media and effective tax right. But one of the problems
Speaker 1: with just looking at okay, well they're more heavily taxed
Speaker 1: and therefore they'll benefit more from corporate tax cuts is
Speaker 1: not all of those small cap stocks are profitable. As
Speaker 1: of the third quarter two thousand sixteen, for the smallest
Speaker 1: two thousand stocks, only about of them were actually had
Speaker 1: taxable profits. So actually kind of like more MidCap stocks
Speaker 1: in this environment. As far as who might benefit from
Speaker 1: corporate tax reform. Seventy eight percent of MidCap stocks were
Speaker 1: profitable and the at quarter two sixteen effective tax rates
Speaker 1: of around twenty nine, so they could be decent beneficiaries.
Speaker 1: So I would actually kind of shift I think more
Speaker 1: from small cap into mid camp, but even within as
Speaker 1: a looking at mid and small relative to too large.
Speaker 1: A lot of that people are expecting to, say a
Speaker 1: repatriation tax holiday or repatriation changed to the tax code
Speaker 1: in general, and if that money does indeed come back,
Speaker 1: where businesses invest in property equipment, that's probably small and
Speaker 1: mid cap stocks are likely going to be the ones
Speaker 1: who build out that type of property, plant, and equipment.
Speaker 1: We're going to continue this discussion. One quick question Brian Jacobson,
Speaker 1: if I could, do you buy international through US multinationals
Speaker 1: or do you now have to go abroad? Well, I
Speaker 1: think going abroad might be a better way to go.
Speaker 1: It's just a wider opportunity set. If you do it
Speaker 1: through the US, you tend to get a lot of
Speaker 1: geographic concentration. Uh. You know, our biggest trading partners Canada,
Speaker 1: Mexico and Europe. So you know, if you really want
Speaker 1: to have a globally diversified portfolio. I don't think using
Speaker 1: US multinationals as a proxy is really the best way
Speaker 1: to go. Brought you by Bank of America, Mary Lynch.
Speaker 1: Dedicated to bringing our clients insights and solutions to meet
Speaker 1: the challenges of a transforming world. That's the power of
Speaker 1: global connections. Mary Lynch, Pierce Federin Smith Incorporated, Member s
Speaker 1: I p C. Here is the interview of the day.
Speaker 1: I guess you could go back to well President Clinton,
Speaker 1: where she was a vice chair. I think back then
Speaker 1: she was vice chairman, but now she's vice chair. Or
Speaker 1: you could go back to when she was thirty director
Speaker 1: of O M. B Are. You could go back to
Speaker 1: I think it was Hamilton's, but it may have been
Speaker 1: Madison where she sat at the budget for Alexander Hamilton.
Speaker 1: Alice Rivlin, wonderful to have you with us today. I
Speaker 1: am sure was terrific. I am sure from the leafy
Speaker 1: uh leafy groves of Radcliffe a few years ago, you
Speaker 1: didn't expect we'd see what we're seeing right now. Speak
Speaker 1: to the people across this nation listening of how you
Speaker 1: are developing rivelin patients. Given the news flow, how are
Speaker 1: you staying cool? Calm, and Alice Rivlin connected, Well, I've
Speaker 1: seen a lot of upheaval in Washington. This one is
Speaker 1: quite unusual, and the news is coming fast and furious
Speaker 1: as you as you know. Fortunately, though of the economies
Speaker 1: in good shape. We're not in a crisis. And actually
Speaker 1: a lot of the news is about things that are
Speaker 1: important but not central to the economy, of the wall
Speaker 1: and so forth. But um, it's quite a kaleidoscope of
Speaker 1: crazy things happening. How's how difficult is it to filter
Speaker 1: out that noise? It sounds like you're you're regarding that
Speaker 1: as noise conversation about the wall and what may or
Speaker 1: may not happen with regard to UH, to infrastructure, when
Speaker 1: you when you look at the health of the economy,
Speaker 1: how easy is it to factor out the political noise
Speaker 1: right now? Well, I think you just have to concentrate
Speaker 1: on what's important. What I've been concentrating on recently is
Speaker 1: what in the world is going to do about the
Speaker 1: Affordable Care Act. That's pretty big, both economically and in
Speaker 1: people's lives. UH and the President campaigned on it was
Speaker 1: a terrible law and we have to repeal it. It
Speaker 1: promised to replace it with something great. Now they've got
Speaker 1: to do that, and they're finding out that it is very,
Speaker 1: very difficult, in part because a lot of people have
Speaker 1: insurance that they don't want to lose, and institutions like
Speaker 1: hospitals and and the doctors are dependent on getting their
Speaker 1: bills paid. So it's not so easy to change this law.
Speaker 1: And Republicans themselves are not united on what to do.
Speaker 1: Former HHS Secretary Micha Levitt was with us earlier in
Speaker 1: the week and he said that it would be dangerous
Speaker 1: to do a repill without having anything to replace it
Speaker 1: there at the ready. Is there growing consensus about that
Speaker 1: in Washington? Yes, I think there's a growing consensus. Uh,
Speaker 1: and it probably includes President Trump. He has said, well,
Speaker 1: not probably, it definitely includes President Trump. He has said
Speaker 1: several times that replacement must come along with repeal. That's
Speaker 1: very sensible. He doesn't want a political catastrophe on his
Speaker 1: hands in his first month in office. The trouble is
Speaker 1: that replacement is hard, and different parts of his own
Speaker 1: party have different ideas about it. Yesterday we saw an
Speaker 1: entry from Senators Collins and Casting, which I think is
Speaker 1: the sort of a promising opening of a conversation, but
Speaker 1: it basically said, let's states choose. Uh, they can stay
Speaker 1: in Obamacare if they want to, or they can do
Speaker 1: something more republican. Uh. That's something more republican isn't very
Speaker 1: well defined, but would involve health save these accounts. Uh,
Speaker 1: confederal contributions to health saving these accounts. And that's a
Speaker 1: that's the way to talk about it. Help us here
Speaker 1: with our collective wisdom in this a historical America that
Speaker 1: we have. When people talk about high inflation, to a person,
Speaker 1: our guests suggests three, maybe a little bit higher inflation.
Speaker 1: Maybe you lived that what I call the Walter Heller
Speaker 1: inflation of the sixties. Robert Samuelson is wonderful on his
Speaker 1: folks at the Washington Post. Do you see any framework
Speaker 1: where President Trump could stumble into a larger inflation? No,
Speaker 1: Inflation is very low on my list of worries. Uh,
Speaker 1: it's been hard to get anywhere near. Uh. The federal
Speaker 1: reserves goal for two percent inflation. Inflation has been too low,
Speaker 1: not too high. I think it will not be a
Speaker 1: high on our list of worries. The economy is much
Speaker 1: more flexible, it's much more global. Uh, and Uh, people
Speaker 1: don't expect inflation. Uh, nobody under the age of fifty
Speaker 1: has ever experienced inflation, so they don't think about it,
Speaker 1: and I don't think it's a big worry. See how
Speaker 1: she did that, David girl, She put me right. Those
Speaker 1: those youngsters under help me, Alice, on your list of worries?
Speaker 1: Where is Where is the FED? When you're having lunch
Speaker 1: in the fabled Brookings Institution cafeteria, there maybe been bernanke
Speaker 1: Is grabbing a sandwich as well. Do you talk about
Speaker 1: the role of FED is going to play this discussion
Speaker 1: about a rules based FED? Are there concerns about what
Speaker 1: might happen if there is more political involvement with the
Speaker 1: FED reserve? What's your sense of its future? How worried
Speaker 1: about it? Are you? Well? There are All of those
Speaker 1: conversations have been going on, of course for quite a while, because,
Speaker 1: uh there the Republicans in the House particularly have been
Speaker 1: very anti FED for quite a long time. I'm not
Speaker 1: sure that that will carry over into the new administration.
Speaker 1: They were fussing at the FED for not raising interest
Speaker 1: rates faster. Now that they're in control, are they going
Speaker 1: to want interest rates to go up faster? I don't
Speaker 1: think so. Uh So, some of that may die down.
Speaker 1: I do think that threatening the independence of the FED
Speaker 1: would be a big mistake, and in the end, I
Speaker 1: don't think they'll do it. Tell me, with the migratory
Speaker 1: patterns of deficit hawks, I associate you with the OMB,
Speaker 1: with the FED Reserve, and also with a movement to
Speaker 1: while back to tackle the deficit. You and Mind McInnis
Speaker 1: at Committee for Responsible Federal butget worked on that with
Speaker 1: Senator Mark Warner and others. Amid these conversations about tax
Speaker 1: reform about the Affordable Care Act, do you think we're
Speaker 1: gonna see serious opposition here from people who are saying, look,
Speaker 1: we've got to consider the deficit. Well, I hope so,
Speaker 1: But I hope it's sensible opposition. It shouldn't be opposition
Speaker 1: to UH pro growth spending on the grounds that it
Speaker 1: increases the deficit, because you do need the economy growing faster,
Speaker 1: and what matters is the debt to GDP ratio, and
Speaker 1: raising the GDP is a good thing. But uh, I
Speaker 1: am an unreconstructed believer that we need to do two
Speaker 1: things at once. We need to grow the economy faster
Speaker 1: and we need to get our long run debt on
Speaker 1: a stable path. That means entitlement reform sensible entitled reform. Uh.
Speaker 1: And it means tax reform that increases rather than decreases
Speaker 1: revenues in the long run. I think we can do that.
Speaker 1: We I was on the Simpson Bowls Commission. We had
Speaker 1: quite a good plan. Uh. And my old friend Pete
Speaker 1: Domnici and I cheered a bipartisan group that came up
Speaker 1: with another plan. Plans exist. They are good sensible things
Speaker 1: to do. Uh. And I hope we get back to
Speaker 1: that conversation. Vest Sherman, thank you so much. Elise Rivland,
Speaker 1: of course of cbo O, M B and the Fed
Speaker 1: with us this morning with terrific perspective. Look for her writings,
Speaker 1: particularly uh Brookenza in edition of his classic textbook. He
Speaker 1: does what Alan Blinder always does. He tries to make
Speaker 1: you think ideas for beyond the final Exam? And I
Speaker 1: love idea one. And this is like eight thousand page.
Speaker 1: It's like sort of like the Old Testament combined with
Speaker 1: a New Testament. How much does it really cost? Professor
Speaker 1: Blinder of Princeton, wonderful to have you with us this morning.
Speaker 1: Is President Trump able to get out beyond the final
Speaker 1: exam in our nation's economics. It's hard for me to
Speaker 1: imagine that he would pass a final exam, even if
Speaker 1: it was set by a highly conservative free market economists.
Speaker 1: Can Glenn Hubbard and Martin Feldstein support I guess their
Speaker 1: candidate after what you've observed the last four fight? Well,
Speaker 1: I don't think actually he was their candidate. Those two
Speaker 1: gentlemen are conservative compared to me. Uh, their lifelong Republicans,
Speaker 1: but they certainly did not support Donald Trump. How much
Speaker 1: energy do you put into trying to define what Trump
Speaker 1: and omics is in light of what we've seen? Uh,
Speaker 1: there's been a lot of whipsawing here. Are we any
Speaker 1: closer to having a definition of it? Is it worth
Speaker 1: even trying to pin down? I think it's worth trying
Speaker 1: to pin down. Once the economic program has taken greater
Speaker 1: shape than it is, we know the broad outlines. There's
Speaker 1: gonna be tax cuts for individuals, certainly for corporations. Probably,
Speaker 1: there's going to be something that passes for an infrastructure plan.
Speaker 1: They'll most likely be a defense build up. There will
Speaker 1: certainly be an evisceration of regulations but in everyone, and
Speaker 1: there will be something to replace Obamacare, we think, But
Speaker 1: in every one of those domains. We don't really have
Speaker 1: much of an idea concretely about what's going to happen,
Speaker 1: but that kind of idea should start taking shape within
Speaker 1: the coming weeks and months. Let's talk a little bit
Speaker 1: about the Federal Reserves and an institution that you know, well,
Speaker 1: there's the conversation growing on the hill about a more
Speaker 1: rules based approach here. There is a conversation that started
Speaker 1: during the campaign about the politicization of the Federal Reserve.
Speaker 1: To what degree is the fedting to stand up for
Speaker 1: itself more than it has? The expect that we'll hear
Speaker 1: more from the FED Chair here in this yere um.
Speaker 1: We will to the extent that some of the things
Speaker 1: that are bouncing around in Congress that threatened the independence
Speaker 1: of the FED to come up again and again, and
Speaker 1: the Chair needs to respond. But the truth is that,
Speaker 1: for better or for worse, and I think it's mostly
Speaker 1: for better, the Federal Reserve is not a very political institution.
Speaker 1: And the people that need to stand up for the
Speaker 1: FED are the politicians, Democrats and Republicans that see the
Speaker 1: importance of the Federal Reserve as a pretty technocratic, non
Speaker 1: political organization that, by the way, works, I mean One
Speaker 1: of the things that got Donald Trump elected was the
Speaker 1: Republican success in making the government look totally dysfunctional. The
Speaker 1: Federal Reserve has never looked dysfunctional. It's not dysfunctional today.
Speaker 1: Many people in Congress understand that, and they have to
Speaker 1: stand up and be counted. Help me here with another
Speaker 1: one of Blinder Boma's ideas, uh trade is a win
Speaker 1: win situation. Mr Trump doesn't agree and is frankly a
Speaker 1: lot of Americans. I don't know if you saw Brad
Speaker 1: Delong's essay Professor Blinder, but he just killed it on
Speaker 1: the mathematics of how NAPHTA W t on T t
Speaker 1: P don't play that great apart in the debate? Help
Speaker 1: us trade? Can it be win win? Trade is win
Speaker 1: win when you go to the level of the nation,
Speaker 1: which is what that point is about. Every country benefits
Speaker 1: from trade. The problem is that it's not true that
Speaker 1: every citizen in every country benefits from trade. When trade
Speaker 1: moves economic activity from one place where it lacks a
Speaker 1: comparative advantage. This is the term David Ricardo introduced two
Speaker 1: hundred years ago to another country that has a comparative advantage. So,
Speaker 1: for example, those two countries could be the US and China.
Speaker 1: People will lose their jobs, Capitalists will lose their capital
Speaker 1: in the industry that contract. The opposite will happen in
Speaker 1: the industries that expand. And it's demonstrable that in total,
Speaker 1: the winds exceed the losses. But that's very small constellation
Speaker 1: to the losers. And the truth is that we in
Speaker 1: America and also people in other countries have not done
Speaker 1: nearly enough to compensate the losers. Blinders, Chapter eighteen, page
Speaker 1: three seventy one. Can protectionism safe free trade? With a
Speaker 1: grizzled view of Williams Sapphire, That's what you get in
Speaker 1: Blinder's textbook. Wonder if a more lucid explanation could have
Speaker 1: saved a free twade? Looking back on the way that
Speaker 1: Ambassador Mike Froman tried to sell this to to the
Speaker 1: Congress and via them, the American public, I'm not blaming
Speaker 1: him in particular, but but do you do you think
Speaker 1: that more could have been done to explain the role
Speaker 1: of free trade, what benefits it does have, and who
Speaker 1: indeed it would benefit. I think a little, but I
Speaker 1: don't think that would have been enough of a force
Speaker 1: against the demagoguery. We could have done well. I have
Speaker 1: said innumerable times that this is a failure of economists.
Speaker 1: For two hundred years we were all well, most of
Speaker 1: us weren't alive. Then those of just there two hundred
Speaker 1: years ago were instantly converted by David Ricardo. And the
Speaker 1: economics profession has never changed its mind on this, but
Speaker 1: it hasn't really carried the message very well to the public.
Speaker 1: Part of it is a failure, and that David is
Speaker 1: the part that could have been done better to explain
Speaker 1: to people how, for example, all those cheap things they
Speaker 1: buy and applying stores and at Walmart are products of
Speaker 1: free trade and they'd be harder to get a more
Speaker 1: expensive or not for freedom. Let's do this, Professor Blinder,
Speaker 1: Let's come back. Allen Blinder is going to continue with
Speaker 1: its very generous of his time. Uh, Professor Blinder, it
Speaker 1: is an historic day of doubt. Twenty thousand. I was
Speaker 1: trying to look back alan to where I sort of
Speaker 1: remember the Dow, and I used that one moment in
Speaker 1: history so for so many Americans, not Pearl Harbor, but
Speaker 1: for my generation, the assassination of the president, and it
Speaker 1: was a dow seven hundred eight hundred and we're now
Speaker 1: at twenty thousand. We had the Carter malaise um not
Speaker 1: directly associated with President Carter, and whether it's up six
Speaker 1: percent or up nine percent, equities are an awful good
Speaker 1: way to make money. What happened to our spirit of
Speaker 1: capitalism while we migrate ever hired to an unimaginable You know,
Speaker 1: I hear all things about that, but I don't see it.
Speaker 1: I mean, if I look around our society, the spirit
Speaker 1: of capitalism and of entrepreneurship in particular is flourishing. I
Speaker 1: mean it's not just in Silicon Valley, which is the
Speaker 1: most obvious, but you know, you have Silicon valleys in
Speaker 1: New York and lots of other many Silicon valleys in
Speaker 1: New York and and lots of other places. You still
Speaker 1: have Americans opening businesses against the odds. Most of these
Speaker 1: small businesses fail, as you know, but that's part of
Speaker 1: the American dream to start and run your own business. So,
Speaker 1: you know, when people talk about things American needs, I
Speaker 1: see some things like infrastructure, which is falling apart. But
Speaker 1: it seems to me casually anyway, that there's lots of entrepreneurship.
Speaker 1: There's there's lots of entrepreneurship, and I wonder here, a
Speaker 1: Professor Blinder, UH, if there's a way for the government
Speaker 1: to kick start more of that. In other words, is
Speaker 1: the focus misplaced? UM? I think there are ways to
Speaker 1: kick start some of that having to do with UM
Speaker 1: reducing red tape. A good example, by the way, is licensure.
Speaker 1: We require licenses for all kinds of things. Now, some
Speaker 1: of course you want to license. You want your doctor
Speaker 1: to be licensed and so on, but there's lots of
Speaker 1: other things where you know, barbers and hairdressers and things
Speaker 1: like that. Thence we we need the kind of licensing
Speaker 1: restrictions that we have. So that's one thing. People talk
Speaker 1: a lot about capital gains treatment from h startup businesses.
Speaker 1: I think there's something to that, but you've got to
Speaker 1: be careful about that. Imagine that we gave a tax
Speaker 1: free capital gain to Bill Gates when he started Microsoft.
Speaker 1: By the way, he didn't need such an inducement to
Speaker 1: start Microsoft despite the taxes that UH or were in effect. Then,
Speaker 1: so you need to be careful about things like that,
Speaker 1: Professor Blinder, one last question, if we could this morning
Speaker 1: you end your exceptionally well done textbook. No Nation no
Speaker 1: Nation is an island, page four ten, When you wrote
Speaker 1: no Nation is an island? Editions ago? Did you ever
Speaker 1: think we'd be here today? And what do you say
Speaker 1: to the nation is we look at our present political
Speaker 1: economics and might they might be here today? You mean
Speaker 1: with the president that thinks we should go back to uh, isolationism?
Speaker 1: Well I did not. I did not. If you mean
Speaker 1: by that then I think we were going to be
Speaker 1: in an increasingly globalized world. Sure I did. Now did
Speaker 1: I know the details of it then? Of course, not
Speaker 1: not even close. But the forces of history, including technology, uh,
Speaker 1: push only in one direction. You know, they's a history,
Speaker 1: these arcs towards globalization. And you can rail against the
Speaker 1: future the way the Luddites in England did against the
Speaker 1: technology at the early part of the in the beginnings
Speaker 1: of the Industrial Revolution. But it's not gonna do you
Speaker 1: any good. Uh, it's not going to stop the forces
Speaker 1: of history. Very good, Professor Blind, not a nei Luddite,
Speaker 1: Alan Blind, Alan Blinder, thank you so much a mess.
Speaker 1: You appreciate it. Thanks for listening to the Bloomberg Surveillance podcast.
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