Trump Steering Economy To An Outdated Model: Joe Stiglitz

our next guest, Joseph Stiglitz. Professor Stiglitz was born in Gary, Indiana in nine Of course, he is a Nobel Laureate, awarded the Nobel Prize in Economics along with two colleagues in the year two thousand and one. He is the author of many books, including Globalization and Its Discontents, and

he joins us here in studio. Professor Stigletz, thank you very much for being here, and wonder if we could just start with a kind of anecdotal question having to do with Gary, Indiana, and we were just talking offline just a moment ago. Do you believe that growing up in Gary, Indiana influenced your perspective and your ultimate goal in learning about the way the world works oh very much so, uh, and I've actually written about that. UM. I became an economist because of what I saw growing

up in Gary, Indiana. I had thought I was going to be a physicist, uh, theoretical physicist. But as I continued in my studies, what I had seen growing up, this enormous inequality, discrimination, episodic unemployment, labor strife kept gnawing at me, and I finally decided, Uh, I wanted to understand that better. I wanted to come to an understanding of how we could do better about these problems. And

so that was really what drove me into economics. And I feel, you know, as I've studied economics, the perspectives that I bring are so different from those who grow up in a more privileged life in a rich suburb. UM. One of the standard views and economics is that markets work very well, everybody uh is well off, trickle down economics para to optimality. Concepts like that and UH sort of Pollyonish view of that uh of of the world.

And I could never share that Pollyanish view because I saw, UH it wasn't working for the people that surrounded me. When I was growing up in as far as you were able to take that experience and then use it in your understanding of economics, you helped to pioneer something that has been described as asymmetrical information. In other words, how do you take information that may produce dissidence or

a lack of conformity in its result? And I'm wondering if you could talk a little bit about how you sort of square the circle, so to speak, or or how do you reconcile a lot of those uh inconsistencies. The key issue that I faced as I began my research was too trying to understand, uh, the difference between the standard view of economics at that time Adam Smith, the market's invisible hand, uh, every pursued of self interested leagues, the world to be as if society's well being was

being maximized, um with what I saw growing up. And that led to ideas about situations where artics don't work well and uncovering that there had been an implicit assumption that economists hadn't really recognized for two hundering some years, which was uh the idea that information was perfect and that a world in which information is very imperfect, whereas some people know things that others don't. Is totally different from uh, a world which information is perfect. It's a

little bit like in physics. Uh. We we talked about a frictionless world and then a world with friction. And you would never construct an airplane based on a theory of a frictionless world. Uh. It just wouldn't make any sense. And yet we were trying to construct an economy based on a frictionless world and it wasn't working very well. Can you then take that perspective and speak to us about the current state of let's say, trade negotiations or

trade relationship between the United States and the world. I mean, we can talk China, you can mention Mexico, Canada, and so on. But I wonder if you could use that to describe what do you believe is the current feeling about these trade negotiations, that they really headed somewhere intelligent or is this just a political game? Well, I think the trade negotiations are not going well, uh for anybody.

And the reason that's true is that is really the blame is I I put in the United States that uh Trump does not have uh any conception about what it is that he's trying to do. What is the problem facing the United States now? He says the problem is that we import more than we export. We have a trade deficit, and he attributes that to unfair trade

UH that are taking advantage of us. But the basic inside of economics is that trade deficits are not UH based on trade um with any particular country, what we call multilateral UM. If we buy a little bit less clothes from China, will buy a little bit more from Malaysia or Indonesia, and UH it won't make much difference for anybody. UH. If we buy from somebody that's not the cheapest, our costs will be a little bit higher. UH. It will make a difference for Indonesia, but not for

the American UH producers. UH. What determines the overall trade deficit is we call macro economics. That is spirity between what we invest inside the United States and what we save inside the United States. And if we aren't saving enough to finance the investment, we have to borrow from abroad. And that borrowing from abroad results in our exchange rate going up, and that leads to correspond to that will

be a trade deficit. So the problem in the United States is that we've been borrowing a lot from abroad. And the tax bill in December two thousand seventeen and the increase in expenditures in January two eighteen, UH really blew a hole in our fiscal position. A lot of people talked about how we're going to have to borrow that much more from abroad and what does that mean? That means we will have an even larger trade deficit.

And that's true. No matter what the outcome of any trade negotiations are, those outcomes will determine which countries we buy from, but not our overall trade deficit. So no matter what his negotiators do, uh, it won't affect that basic economics. Now, where the negotiations do make a difference is uh particular countries exporting particular goods or importing particularly goods. Now, this is another area where Trump is really very misconceived

in his economics. Modern economics recognize that we are a service sector economy. Uh. We are are vibrant sectors are financial sector, actucation sector, or health sector. Um. These are among the areas where we're making you know, where we're really successful. There are other areas where uh, we've moved on. Uh, automobiles, UM,

natural resources. UH. You know, take the presidents talked about coal. Uh. In all of the extractor sectors together, including coal, UH, there are about half the number of workers as professional sports people. So if you say we want to have a cold policy, you ought to say we ought to have a sports policy. And you know, if you're talking about jobs, there twice as many in those areas. There are five times as many jobs in solar install panel installation than in the coal industry. So this was not

the case in nineteen fifty sixties. We didn't have a solar panel. He's keeping looking back at the world as it was seventy five years ago, next, not where we should be going. We should be going towards the century. So his focused on the old world, on the industrial world of the nineteen fifties, means that we're not reshaping

our economy towards the century. Is there a political obstacle to get these kinds of things done that you describe, whether it be the shift from coal and the jobs that were in the coal industry to let's say solar just as an example of solar industry, Is there a political obstacle? Because you've also written about the money that influences elections very much. So um. Uh the problem is the existing interests. UH don't want to give them up. And UH they looked to government for subsident ease, for

a monopoly power. Uh. We need There is an important role for government, but it's for facilitating a transition to the new economy. Uh. It's for helping people get the skills that they're going to need in the new economy. You know. That's the role of the government has traditionally played. Back after World War Two, we had to move from

agriculture to a manufacturing economy. And after World War Two, we had the g I Bill, which said that everybody who had fought in the war, which was virtually every young man and a lot of women, could get as much education as they were qualified for. That was essential, not only as a basic sense of opportunity, but it was actually essential for the transformation from the of the

United States from agriculture to manufacturing. Today, we need to do a similar transformation for manufacturing to a new service sector, innovative, non leach based economy, and government isn't there to help us. In fact, the trunk government is focusing on back on coal and all those other industries that we ought to

be moving away from. UH. So we need the help of the government not to protect the old industries, but to help us move into the more dynamics sectors where will be a lot more prosperous and a lot healthier. I want to give you the opportunity to speak about the essential environmental industries that could be created or are being created, because this is a topic that you've done a lot of work on. Yeah. Well, I, as I mentioned, solar panels have the opportunity potential creating so many more

jobs than the coal industry. And at the same time, we know what coal does to our health, the particular till it matter, the pollution, UH, not to speak of the global warming, and the impacts of global warming we are now realizing are much greater than when I began studying that matter twenty five years ago. I was on the Governmental Panel and Climate change UH and UH we looked at the climate change at that point we said

it's really serious. But we made a mistake. We did not anticipate how fast things were going to change and how bad they were going to be. The dimensions of this the extremes of weather. UM, you know, the United States lost about one to two percent of GDP just last year in the hurricanes. These are weather related events, and there's absolutely no doubt that climate change global warming is leading to more severe weather events, whether it's the

hurricanes or the drawings, the fires that have affected afflicted California. Uh, we're already paying an enormous price for that. So if we can make a little bit of investment in moving to these more dynamic, pro environmental green policies, I think it will stimulate our economy, but it will also help protect us against the ravages that we are already beginning to face. In about thirty seconds, what would you like young people to take away from your perspective about economics

and what they can achieve. I think they should take away that, Uh, we can have as prosperous a world in the future as we had in the past, but it will not be done by the market on its own. We are going to have to have an active government policies, progressive policy UM and the strategy of blaming others, whether it's immigrants or foreign trade or UH, that is not

going to bring America prosperity. What is going to bring American prosperity is investing in our future, not our past, but our future, and UH creating the kind of progressive environment that says, UH what we tried to achieve seventy years ago. UH. Secure retirement, housing for all, healthcare, education for our children, jobs for all. These are all things that are within our grasp. We are a much wealthier

country than we were seventy five years ago. The question is can we deploy that wealth in ways that will benefit all of us? Thank you very much, Thank you very much for being with us. UH. Professor Joseph Stiglets, Nobel Lauria, Professor of economics at Columbia University and the author of Globalization and Its Discontent. Thank you very much for your time. Thank you. The topic now is Sears. Sears Holdings, hundred and twenty five year old retailer filed

for bankruptcy protection. It has been settled with billions of dollars in debt, this as it struggled to adjust to shifts in online consumption. Noel Hibbert, our director of credit research for Bloomberg Intelligence, joins us now to tell us how did this happen and what's next? Alright, No, I have an idea how it happened. But I want you to explain how did it happen that Sears ended up saddled with all this debt, never mind the strategic issues

having to do with competition in the retail world. How did it end up financially in this position? Boy, I think those two items are definitely not mutually exclusive, right, So I think you know when not to go too far back into the way back time machine. But when Eddie had kind of brought Kmart out of bankrupt you're talking about Eddie Lampert, the fund manager who basically owns

Sirius correct so vias e s L investment fund. He had brought Kmart out of bankruptcy and then leverage that series back in oh five, and back then he had a new way to run retail, which was basically to not invest in it, right, So, don't invest in capital expenditures, try and cut back on employees, and do all these things to basically maximize cash flow, which is a great

short term strategy, but it's not how retail works. Uh. And so through the accrual of that over years, they just you know, it worked for the first four or five years, and then they started lose money. And lose more money and lose more money, and the way that they funded that loss was to basically borrow money. What does Eddie Lampert want to do now with his holdings in sears given that they are in bankruptcy protection, because there's a discussion about buying a large portion of the

company's store base. Yea, and I think, you know, for if I'm in Eddie Shoes, I think that that makes

the most sense, right. I mean, to the degree that you've got four or five stores somewhere in this you know, nine plus store portfolio that are actually profitable and that you can build around, you start to think sort of the adjacent pockets of value that you're trying to maximize any credits trying to maximize here, right, which is stuff like Ken Moore or the services business, or the autoparts business, or speaking specifically to Eddie Lamport and his DSLF fund,

the Sritage real estate spinoff that they had a few years back, Like, those are all things that you need to try and preserve the value of. And if you just let this thing sort of wind its way down into a liquidation, you lose that. So in order to kind of keep the value attached to some of those assets. The thing you need to do is sort of find

a store base that you can build around. No, given the attempts in the past to revive Sears, is this an attempt to just get through this holiday shopping season rather than a big strategic rethink about what they do and how they do it. So, I think that's really

going to come down to how contentious the court proceedings get. Right. So, I think if if he can't get enough creditors to sort of play along, uh, then it will be very, very difficult to sort of rebuild anything out of this, and you end up sort of in a Toys Rus situation where you've just got too many conflicting interests in the courts. No longer it drags on the heart it is to resuscitate whatever is left of the retail business.

I think if he can leverage his position as the largest creditors, so of the five billion dollars in change of debt that the company has, he's half of that. If he can leverage that position somehow into buying or securing I guess, uh, you know, sort of relie from other creditors. And I think there's something he can do here, because again I think it's not just about SEARS itself, but it's about sort of how do you preserve uh,

you know, value. So ken Moore would be a great example, whereas you know, there's some value attached to ken Moore if you have a still solvent SEARS, but if you're in insolvency, you're only bidding for intellectual property that maybe

worth very very little to third parties without a SEARS. No, based on what you know from these kinds of negotiations between creditors and debtors in chapter eleven bankruptcy, can you tell us what the tone or indeed what kind of relationship, if any, do you believe would exist between those two

groups at this point. Well, that's going to be an interesting dynamic because I think the only real big third party creditor that we know about right now is fair Home, who is involved with Eddie and e S. In terms of both on the equity side and on the credit side.

They're going to be one of the largest creditors going in, and they obviously got hurt pretty substantially, not only on their equity exposure, which they've largely ex exited excuse me, um, but also in the eight percent notes, which is their biggest piece, which are trading you know, call it low teens. And that's obviously paper that they owned at par right, So they're pretty substantially impaired. So figuring out where they're going to be in this is going to be a

big part of it. If they choose to make it contentious, um, then this this will probably have a pretty challenged ND. Is this why they couldn't reach a resolution out of court? Well? I think, uh, I guess there's probably a different number of different ways to sort of play that one my you know, tea leaves or you want to phrase it, would be that it more came down to you need

assets to restructure around. So if you think back to E. S L's proposal from a few weeks back, which basically envisioned recapitalizing the entire balance sheet, um, but it also meant moving a lot of the assets that remain off the balance sheet. Uh. You know, the board is probably looking at that and saying, if we're going to restructure around anything, we can't do it without ken More, we

can't do it without the real estate, etcetera. Uh. And so you know they might have been having a half an eye towards their own liability if this thing went into a chapter eleven and what happened if they had just pretty much shipped all the valuable assets off the balance sheet and into E S l um so. So I think there's a couple of dynamics that play there. I want to thank you very much for sharing your information and experience with us. Noel Hebert is our director

of credit research for Bloomberg Intelligence. Speaking about Sears Holdings filing for bankruptcy, President Donald Trump said that he is sending U S. Secretary of State Mike Pompeo to meet with Saudi King Salmon to discuss the fate of a Saudi dissident journalist who disappeared after entering the Saudi consulate in Istanbul. Here to tell us more about the situation

is Ali al Ahmed. He is the founder and director of the Institute for Gulf Affairs based in Washington, d C. And joining me here in studio is Toby Harshaw, Bloomberg Opinion editor. Gentlemen, thank you very much for being here.

Ali al Ahmed. Maybe you could just describe what do we know at the moment, what we know the moment is that the Turkish government has the fault proof that Mr was killed inside the consulate, and we know the identity of the killers H. And it's absolute no doubt that the Saudi team, the fifteen member team, including two members of the conference bodyguards, were involved in the crime. UH. And the Turks are waiting to negotiate some kind of

a deal between them and the Saudis. And I think you meet the Americans because this is now becoming an international incident and the King's nephew and governor of Mecca is an Ancora beating with President Arregon to come to a solution or two an exit out of this UH, out of this crisis. MR is dead and he was killed in a very horrifle commander, I would say, is the style murder. So we'll see what happens. Hang on just a second because I want to bring in Toby Harshaw,

Bloomberg Opinion editor, to comment on this. Toby, why should Americans pay attention to the disappearance of a Saudi dissident journalist? Well, I think we should pay attention to the disappearance of

all journalists. UM. I think that given the tremendous support that the Trump administration, particularly the President and Jared Kushner, have given to the Saudis, which UH many people saw as them giving the green light, for example, to their attempts to isolate Cutter, Um to continue prosecuting this disaster of a war in Yemen. Um that you know and and support for for Mohammed bin Salman, the Prime Prince

really runs the country. UM that we need to look at that policy and think about whether we have to be more critical. Well Ali al Ahmed, the President said that he spoke earlier with the King of Saudi Arabia and described the conversation that the king denied any knowledge of whatever may have happened to us. He says, quote our Saudi Arabian citizen, Do you believe that that is the contact content of that conversation? But I'm not sure.

Obviously I was not listening in. But I would want to say that this is the greatest involved with him and of an American president ever in any issue relating to Saudi human rights violation. So you give Mr Trump his his due. He has been the most spokes UH. You might not like his position, but he has spoken about it more than any American president all the Americans in fact combined that that's the reality. I followed all the Americans. The President the States was on Saudiast, So

this is surprising and maybe refreshingly. So I of course King Salmon might not have been aware of it because he's he's not he's not that healthy, especially because he has a publement with his you know, amnesia son. But definitely it is done by people in the Royal Palace close to him. He doesn't know, he doesn't know, but

you cannot believe the politicians in general, especially the partic one. Uh. The reality is Mr Trump, I think also will use this to gain some some some favors with the Drawing family and and or maybe in terms of having mb as the conference deliver on his promises that he he failed to do in terms of investing in certain projects

or delivering certain policies in the region. So I really think this is going to continue because it's not about the killing of jamaatoc Alon, which is deserving obviously, but it has to do with other policies that the Mohammed Salman is carrying out. And I think Mohammed Salman is what I call is growing his own wings. He wants to be more independent. He's carrying his own vision. He

wants to do things without America's support or approval. And I think that you will see that coming uh in the next few weeks, with maybe changing into oil production and realigning his position in the region. There's ira is a bit of warnum in which the US supported from the Obama administration time. Mr al Ahmed, just quickly, do you have separate intelligence information other than what the Turkish government has released or said in concerning the fate of

Mr Kashogi. My my sources in Turkey, and he heard the video, he heard the audio of the killing, and so the collaborating videos that that puts the killers in in in that space of time, in the council that during the form Mr Kashov entered and after he was killed, So everything there. I I know the individual who who actually watched it. He is close to the government, but he's a friend of Jamal Kaso and somebody I know,

so he actually saw it. So I'm not I have no doubt my additional information separately, and I hope the US government will contacts us. We have information on the team that we have obtained through our own sources in the country through the Palace. We have more information that we we have we we owned right now, Toby Harshaw, just to come to you for thirty seconds, what would

this issue due to US Saudi relationships visa v arms sales? Well, as you know, the Congress has been tossing around the idea of boycotting or putting limits on arms sales to study Arabia based on the civilian casual Louis and Yemen. I think this could you know, obviously put to give more support to that and put a lot of pressure

on the White House to actually join in. Thanks very much for being with us, gentlemen, Toby Harshaw, Bloomberg Opinion editor and Ali Al Ahmed, founder and director of the Institute for Gulf Affairs in Washington, d C. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa Abramo

wits one. Before the podcast, you can always catch us worldwide on Bloomberg Radio.